Bringing investment to Iraq

Donata Garrasi, ECAS Consulting, and Klaus Hachmeier, Iraq Co-ordinator for the OECD Global Relations Secretariat Middle East and Africa Division (Any views and opinions expressed in this publication are those of the authors and do not necessarily reflect the official view of the OECD or its member governments.)

Massive, popular protests for better public service in Baghdad and across Iraq this summer have prompted the government to announce and execute reforms, which, among other things, reduce the salaries and privileges of government officials and parliamentarians and take steps to fight corruption. Iraqis are sending a clear message: they have had enough, not only of the so called Islamic State and the on-going war against it, but also from years of perceived public mismanagement, corruption, and lacking basic service – for example, the electricity network is not robust enough to provide more than 6 to 8 hours of electricity to the average household. All of this when low oil prices are expected to tear a double-digit deficit into the national budget, forcing Iraq to tap international bond markets for the first time in many years.

But next to these momentous challenges, the Iraqi government continues its agenda for economic reforms. And it is right in doing so as Iraq needs new and greater investment to get on the right track. Economic revitalization, promoting Foreign Direct Investment (FDI), and regional cooperation and trade are key components of any strategy to reduce conflict and build peace, even more so in today’s turbulent Middle East. Creating jobs, raising revenues to pay for quality services, and re-establishing regional economic cooperation are as important as reaching a political settlement and re-establishing security. They all contribute to the same goal, which is to create the conditions for stability and peace.

Governments have no choice but to prioritise action in this area. According to the World Bank, FDI in 25 countries that were classified as conflict affected or fragile grew at a compound annual rate of 12% compared to 4.5% growth in the rest of the world’s FDI in the period of 2005-2012. The figures show that in such high-risk countries untapped resources, reconstruction needs and unmet consumer demand present opportunities for domestic and foreign investors.

Iraq proves the case: the country has witnessed FDI inflows of an impressive $4.8 billion in 2014, according to the 2015 UNCTAD world investment report, an amount similar to countries such as Egypt and Nigeria. While most investments were in the oil and gas sector, the numbers show that a country such as Iraq can attract higher amounts of foreign capital. And while investment volumes will certainly remain somewhat muted and “below potential” until the overall political situation is clearer and security improves, Iraq should use the time to improve investment conditions to better attract private investment and capital now and in the future.

But how is it possible to build investors’ confidence in a country whose territorial integrity and scope for action is under stress from violent extremist groups, separatist movements, factional strife, and foreign interference?

It may indeed sound like an impossible task. But the reality on the ground is also that some businesses are doing well, that the country will continue to receive large inflows of oil revenues, and that the population is young and relatively well-educated. More trust and opportunities can be built as sound reforms are undertaken. The “General Framework of the Government Programme 2014-2018” details the Iraq government’s economic reform agenda. It includes expanding the role of private sector, improving the investment climate, restructuring State Owned Enterprises (SOE), and providing industrial and trade infrastructure through free trade and industrial zones. In line with these commitments, the Government of Iraq has already launched its Private Sector Development Strategy, set up a committee tasked with reforming Iraq’s state-owned enterprises, and seeks to reform its investment law.

So, whilst most of international attention is on the shortcomings of the country and on the related global threats, notably terrorism, organisations like the OECD, working with the Swedish Development Cooperation Agency (SIDA), continue to support programmes aimed at improving the business and investment climate in Iraq. Easy to say, hard to do. What concretely can be done in such challenging contexts as in Iraq today?

The expected outcome of this collaboration is pretty straightforward, albeit ambitious: “ to improve the Government of Iraq’s ability to attract private investment – outside of hydrocarbons – that generate jobs.” How is this going to be done?

First, the Iraqi investment policy framework needs to be strengthened. Here, the OECD is helping to analyse the laws and regulations relevant to investment in Iraq and will formulate recommendations on how to improve the legal framework. This will hopefully contribute to a new investment law, expected to be approved before the end of 2015. The programme, which involves a range of actors, including from the private sector, has a flexible approach, which is key to be able to adjust to the shifting priorities of the Iraqi government.

Second, the government must improve its ability to attract and retain private investment through investment marketing and outreach to investors. Iraq’s National Investment Commission (NIC), the country’s investment promotion agency is the key player here. It needs to be strengthened and to become the central advocator for investment within the Iraqi government. The ambition is two-fold: building an investment proposition with economic indicators, and; better identify and address constraints to investment.

Another key objective to help attract investment is to define and formulate investment opportunities in state-owned enterprises, which investors traditionally find attractive. The development of special economic zones will also help. Iraq has different Economic Zones models, including free zones, which are already active, and has plans to develop industrial zones, investment zones, and economic cities. Such economic zones can be powerful tools to attract investment and create jobs, as they can offer the infrastructure and administrative services investors seek. The OECD and SIDA supported programme is contributing through policy advice on how to design, implement and manage new and existing economic zones – including on a new law on investment zones.

Last, and this absolutely crucial for Iraq and for the region, regional economic integration and trade must be at the forefront of the international response to instability in the region. As the Nobel laureate economist Douglass North has argued, long-term conflict resolution usually requires enduring economic relations, which are best cultivated through specialization and trade, and an open trade system which allows for integration into regional and global value chains. The dynamic is clear: By increasing the cost of violent conflict, dense economic networks and multiple exchange relationships provide powerful incentives for actors to prefer peaceful solutions.

This may sound overly ambitious, but economic cooperation in the Middle East has become a necessity, a key pillar for peace and stability. The well-recognized relationship between economic cooperation and political stability will be crucial for charting a way out of the current quagmire, as experts like Adeel Malik, from Oxford University, and the former finance minister of Jordan, Bassem Awadallah, eloquently explained in a recent commentary on how to escape the Middle East violence trap.

Sufficient attention and funding should be provided to innovative programmes that try to promote key reforms amidst conflict. And in this case, to the Iraq private sector strategy and to initiatives that aim to support such efforts.

Useful links

OECD work on investment and infrastructure financing in Iraq

Swedish Development Cooperation Agency’s work in Iraq

Guyana and Norway are showing how climate action can deliver results

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Download the highlights in English, French or Spanish

Today’s post,  by Bharrat Jagdeo, former President of Guyana, is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the “Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action”

Cruelly, the most vulnerable communities and poorest countries in the world are the ones that suffer the most from climate change, despite the fact that they have done almost nothing to cause the problem. Yet if our climate is to be stabilised, today’s developing countries need to lead the world to a solution – and as has been emphasised elsewhere in this chapter, there is no solution to climate change without halting deforestation.

In 2008, people in Guyana recognised this. Climate change had already caused suffering in the country. In 2005, floods inflicted damage equivalent to 60% of that year’s gross domestic product (GDP). Yet, as a country with 85% of its land mass under forest, an area larger than Great Britain, our people didn’t want to just complain about climate change – we were prepared to act.

So we set out to find partners who shared our vision.

Speaking on behalf of Guyana’s people, I addressed the Commonwealth Finance Ministers in 2008 outlining an offer to the world. We were prepared to deploy almost our entire forest in the global fight against climate change, providing: we could access the right economic incentives to value our standing forests; and our people’s sovereignty over their forests would not be diminished. Soon after, a nation-wide consultation enabled us to develop a strategy that aimed even higher: we would seek not just to protect our forests, but to shift our entire economy onto a low-carbon trajectory with economic growth coming from new sectors, and with our country’s economy powered almost entirely by renewable energy.

The result was Guyana’s Low Carbon Development Strategy. This plan had a simple proposition at its core: those who benefit from our standing forests must contribute to their maintenance. We realised that most efforts to maintain our forests would continue to come from the people of Guyana, including our Amerindian (indigenous) communities. Yet we felt that international citizens must also pay their share, given the immense benefits our forests contribute to stabilising the global climate, securing carbon sequestration, and maintaining water and other ecosystem services.

In time, we hope that the international REDD+ mechanism will create the necessary incentives. In 2008, however – even before the REDD+ mechanism had been agreed – we wanted to show that progress was possible.

Guyana was fortunate to find a progressive partner who shared our views. Norway was one of the first developed countries to recognise that protecting tropical forests was both an essential and highly cost-effective way to combat climate change. In November 2009, the then Norwegian Minister of the Environment and Development, Erik Solheim, and I travelled to Fairview Village, deep in the forests of Guyana; there we signed the document that started the Guyana-Norway partnership on forests. Under this partnership, Norway – as a proxy for the broader world – pays Guyana for some of the global carbon value provided by our forests. In turn, Guyana invests this money in our Low Carbon Development Strategy. By April 2015, Norway had paid Guyana about USD 150 million in carbon payments.

The carbon payments are funding numerous investments. For example, they are enabling our Amerindian communities – about 10% of the people in our country – to own their own land through a titling programme and to put in place ambitious community development plans. In partnership with local banks, small and medium enterprises are advancing ambitious low-carbon business ideas. The government is building emergency and long-term flood defences and water management infrastructure. Climate action is being introduced in our school curricula. Guyana is about to build a world-class centre for biodiversity. We are improving practices in mining and other extractive industries. And while all of this is happening, Guyana is maintaining strong economic growth despite the global financial crisis.

The carbon payments are also catalysing other, much larger private investments, for example in renewable energy. As a result, Guyana is on track to not only maintain the world’s lowest level of deforestation, but also to reduce energy-related greenhouse gas emissions by over 92% – more than any developed country.

Together, Guyana and Norway have learned many lessons that are relevant to far bigger countries and to the global community – lessons in areas such as financing low-carbon development, sustaining national support, and making progress in the absence of an international agreement on climate.

While there is still much to be done in the years ahead, I believe that Guyana and Norway, working together as equal partners, are showing how climate action can deliver real results to combat poverty, increase prosperity, sustain vital ecosystem services and advance the fight against climate change for the good of the entire world.

Useful links

Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action

A dash of data: Spotlight on French households

Jennifer Ribarsky, OECD Statistics Directorate

Tableau de bord de données : le point sur les ménages français (article in French)

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s see how households in France are doing by looking at a few indicators.

GDP and Household Income

Chart 1 shows how much seasonally adjusted GDP and household income have grown since the first quarter of 2007, before the start of the economic crisis, with this period representing the baseline value 100. For the most recent quarter, Q1 2015, GDP per capita, which adjusts GDP for the size of the population, increased 0.6% from the previous quarter. The index increased from 99.5 in Q4 2014 (just below the 2007 baseline) to 100.1 in Q1 2015, so only returning to the pre-crisis level of real GDP after more than 6 years below that level. Real household disposable income per capita increased strongly in Q1 2015, by 1.2%. The index increased from 101.1 in Q4 2014 to 102.3 in Q1 2015, and has remained close to or above the baseline since the beginning of the crisis).

The increase in households’ purchasing power in Q1 2015 was mainly driven by increases in compensation of employees and a fall in taxes paid by households. The drop in taxes and the slight drop in social contributions paid in particular by the self-employed as a result of the Responsibility and Solidarity Pact were accompanied by a slight increase in social benefits; as a consequence, net cash transfers to households (chart 2) played a role by increasing disposable income at a faster rate than primary income.

Also, chart 2 clearly shows that households’ material conditions in France were sustained during the economic crisis through the redistribution process. The net cash transfers to households ratio started increasing during the depths of the economic crisis (the ratio peaked in Q3 2009 at 92.0) and the real household disposable income began to diverge from the pattern exhibited by economic growth, as shown in chart 1.

Confidence, Consumption, and Savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being it is interesting to look also at households’ consumption behaviour. Chart 3 shows that consumer confidence ticked-up in Q1 2015 (the index increased from 99.3 in Q4 2014 to 99.7 in Q1 2015) suggesting that consumers are now more confident about their economic situation. This confidence helped boost real household consumption expenditure per capita by 0.9% in Q1 2015 (chart 4), with the relevant index increasing from 101.6 in Q4 2014 to 102.5 in Q1 2015, the strongest quarterly growth rate of the time period shown.

The households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, increased 0.4 percentage points in Q1 2015, as compared to the prior quarter. Households chose to use some of their increase in income to increase the amount of their savings. The households’ savings rate in Q1 2015 was 15.0%, 1.3 percentage points lower than the peak reached in Q3 2009 (during the depths of the economic crisis). The crisis led to a substantial increase in the savings rate of households, reflecting households’ greater uncertainty on the development of their future income.

Debt and net worth

The households’ indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, is a measure of (changes in) financial vulnerabilities of the household sector and can be helpful in assessing debt sustainability. In Q1 2015, household indebtedness in France (chart 6) was 102.2% of disposable income, an increase of 2.3 percentage points from the prior quarter.

A growing debt ratio is often interpreted as a sign of financial vulnerability. However, when assessing vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.

In Q1 2015, financial net worth of households (chart 7) in France was 246.8% of disposable income, 10.5 percentage points more than Q4 2014. The increase in the first quarter was predominantly due to holding gains on assets (in particular in equity and investment fund shares), but also financial investments, in particular a sharp rise in savings deposits and increases in life insurance contracts, accounting for a significant share of the increase in net worth.

Unemployment

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. In Q1 2015, the unemployment rate was 10.3%, down from 10.5% in Q4 2014. The labour underutilisation rate was 17.8% in Q1 2015, well above the standard unemployment rate but down slightly from the fourth quarter.

As shown above, in order to properly measure people’s material well-being, looking beyond economic growth is essential. In the first quarter of 2015, households in France appear to be better off than GDP figures alone would suggest. To fully grasp people’s overall well-being, one should even go beyond household material conditions, and look at a range of other characteristics that shape what people do and how they feel.

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our household’s economic well-being dashboard.

Today visionary, tomorrow down to business: Health and the Sustainable Development Goals

Eduardo Pisani, Director General of IFPMA – the International Federation of Pharmaceutical Manufacturers and Associations.

As our heads of state prepare to meet later this month in New York at the United Nations General Assembly (UNGA) to adopt the Sustainable Development Goals (SDGs), including the vision of Universal Health Coverage, I will allow myself a moment to appreciate the magnitude of the promise we are making to future generations.

The adoption of the SDGs gives governments and those of us involved in the health community a chance to embrace a vision as fundamental as the Declaration of Human Rights when it was adopted by the UNGA in 1948. It is one of the few occasions where we are not over-dramatizing the point – the next generation will judge us on whether we measured up to the challenge.

I am sure many of us will feel the magnitude of this moment. However, I am also in no doubt that after the meeting we will have to roll up our sleeves and get down to work. From the innovative pharmaceutical industry’s perspective, we are in a good shape to lead the way in some areas; in others we will need to get stuck-in and work through the difficult questions in partnership with others.

Valuable lessons from the legacy of the MDGs

Since the launch of the Millennium Development Goals (MDGs) in 2000, those of us working in global health have learned a lot.

We have learned it is possible for the world to come together in the pursuit of shared goals for a common good. Our sector has a considerable track record in this area but though we can measure up with the best of them (Ref UN Global Compact), we won’t be able to rest on our laurels.

We have learned that just in fifteen years we can halve the global deaths attributed to some of the world’s biggest killers such as TB or malaria. However, with chronic diseases increasingly threatening low- and middle-income countries, these advances may be short-lived. We need new strategies in face of the influx of these chronic, and to a large extent preventable, diseases. And so, in addition to discovering and researching new treatments, innovative pharmaceutical companies are looking to creative ways of leveraging the knowledge and expertise of local governments, industry and civil society, using new technologies to reach the greatest amount of people possible.

A great example is Be [email protected], Be Mobile, a multi-sectoral partnership we’re contributing to that uses mobile phones to tackle chronic diseases, spearheaded by the International Telecommunications Union and WHO, and supported by NGOs, the private sector and the African and Asian development banks.

Lastly, with the Ebola outbreak, we have very recently learned what it means to be unprepared, to come up short in the face of a crisis and see health systems collapse under pressure, and how quickly the repercussions can be felt around the world. While our pipelines are yielding new treatments and vaccines to contain this disease, we are reminded once again of the importance of resilient health systems in face of future epidemics. This is where the powerful concept of Universal Health Coverage comes in.

Universal Health Coverage at the heart of sustainable development

Universal Health Coverage (UHC) is at the core of the SDG for health, promising all the right to basic health care without financial hardship. UHC means a parent living in a rural India can reliably provide insulin for their child living with diabetes, it means a woman in Colombia will be screened for breast cancer so she can begin treatment before it is too late, it means a health center in Guinea that receives a patient infected with Ebola virus has the capacity to prevent further transmission in the community and to its health care workers. It means more than access to medicines alone.

With 400 million people lacking access to basic health care and many millions more lacking regular access to essential medicines, no one would say guaranteeing health as a right for all is an easy feat. To promote a mission as grand as UHC, we will likely find ourselves in partnerships that move beyond the vision of the SDG for health and the global health community, also tackling challenges around water and sanitation, urban living, education and climate change through convening fora such as the United Nations Global Compact.

As such, it is no accident that the 17th goal of the SDGs is one dedicated entirely to the promotion of partnerships. Whereas partnerships in the health sector are by no means a new phenomenon, partnerships looking forward will be characterized not only by their ability to sustainably serve the needs of populations, but also by an increased linking up of diverse sectors. As stated by the OECD in its 2015 Development Co-operation Report, “with the growing diversity of partners involved in development co-operation, it is more important than ever to avoid duplication of effort and fragmentation.”

Excellent examples of multi-sectoral partnerships already underway include GAVI, a global vaccine alliance between public, private and civil society sectors which has delivered 500million vaccines to children over 15 years; 4 Healthy Habits, an initiative between the pharmaceutical industry and the International Federation of Red Cross and Red Crescent Societies (IFRC) to promote healthy behaviours at community-level and fight chronic diseases; and the Global Health Innovative Technology (GHIT) Fund, a partnership between the government of Japan, the Bill and Melinda Gates Foundation and the Japanese pharmaceutical industry to research and develop new medicines to combat infectious tropical diseases. As the common thread throughout, the pharmaceutical industry supports efforts towards UHC. In 2014, we identified a set of guiding principles in the areas we believe our industry can contribute, and with the adoption of the SDGs we are galvanized. The SDGs will require pooling resources, expertise and working together across sectors as well as with governments and civil society like never before; luckily, we are not starting from scratch.

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There is increasing recognition that providing quality health coverage is a key contributor to the wealth and economic productivity of countries. As I look ahead to this next generation of targets, I am confident that though challenges remain, we are well placed to rise to the occasion. Achieving these new goals and closing the gaps in health coverage will take commitment and creative thinking, as well as cross-sectoral partnerships, and this is enthusiastically welcomed by myself and my colleagues in this industry.

Useful links

OECD work on health

Promoting inclusive business through responsible business. Part 2 – Shared value and community-based development

Sleek_Garments_Industry_in_GhanaRoel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). Part 1 is here.

Aside from promoting engagement with suppliers and communities that often include vulnerable populations the OECD Guidelines for Multinational Enterprises also encourage local capacity building through close co-operation with the local community and human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.[1] While such recommendations do not specifically target base of the pyramid populations, they do promote economic advancement, particularly in the context of industries relying on unskilled labour.

Technology transfer is another important way of creating value and encouraging economic growth. The OECD Guidelines recommend that companies adopt, where practicable, practices that permit the transfer and rapid diffusion of technologies and know-how[2] and that when granting licenses for the use of intellectual property rights enterprises should do so on reasonable terms and conditions and in a manner that contributes to the long term sustainable development of the host country.[3] With regard to technologies that could provide substantial benefits to poor populations (for example medical or agricultural technologies) the expectations of responsible business conduct can have important implications for inclusive growth.

The OECD Guidelines likewise promote community engagement with relevant stakeholders in relation to planning and decision making for projects or other activities that may significantly impact local communities. In the context of large scale agricultural investments and the extractive sector, industries which notoriously posed risks to poor communities in developing countries, the OECD has developed guidance on how to best engage with stakeholders to avoid adverse impacts from operations and to ensure that such activity produces shared value at the level of local communities. [4]

The extractive sector is often pointed to as a sector with limited positive linkages as it is an enclave industry and generally generates minimal direct employment opportunities. However a focus on shared value can ensure that indirect benefits are maximized and that extractive operations are as inclusive as possible. For example an extractive operation could support local enterprises to become competitive, efficient suppliers to the extractive project resulting in a win-win local procurement strategy. Likewise investment in infrastructure that is dual purpose and benefits both the enterprise and local communities can be an important resource for economic growth beyond the lifetime of an extractive operation. Furthermore, as extractive operations usually involve long life-cycles and fixed locations fostering economic opportunities locally can be an important factor in reducing risks and lowering the costs of production.

In the agricultural sector, large agri-food enterprises can benefit from establishing long-term relationships with small-scale farmers thereby supporting their integration into global supply chains. Globally there are around 500 million smallholder farms and agriculture provides income to approximately 70% of the worlds rural poor populations. Stable relationships can improve transparency and traceability and help large enterprises secure access to a reliable supply of agricultural commodities. Such sourcing relationship can also work to enhance capacities of small-scale agricultural producers, share technology and resources, and promote responsible business practices at the base of the supply chain. This is quite important in the case of cocoa whose production is done by numerous smallholders that lack access to finance and technology and for which land productivity should be enhanced to respond to international demand.

No matter what the sector, the link between responsible business practices and inclusive growth is clear. Responsible business conduct encourages continued engagement to improve conditions in high-risk industries which often are the primary employers of populations at the bottom of the pyramid. It encourages capacity development and training which can build skills and encourage advancement of low-skilled workers, technology transfer, and meaningful stakeholder engagement with local communities which may otherwise be disenfranchised. Such approaches not only result in positive impacts for poor communities and workers but also often result in valuable commercial gains. In this regard as inclusive business or inclusive growth continues to be labelled as a policy priority by global leaders, the role of responsible business practices will merit special attention.

Useful links

Global Forum on Responsible Business Conduct

[1] OECD Guidelines for Multinational Enterprises (2011), Chapter II, A.3-4

[2]OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 2

[3] OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 4

[4] See Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector, p. 48 (forthcoming, autumn 2015).

Promoting inclusive business through responsible business. Part 1 – Outsource production not responsibility

Sleek_Garments_Industry_in_GhanaRoel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). Part 2 is here.

Inclusive business and inclusive growth have of late become powerful buzz words in the realm of international policy. Inclusive business is a private sector approach to providing goods, services, and livelihoods on a commercially viable basis to people at the base of the pyramid by making them part of the value chain of companies’ core business as suppliers, distributors, retailers, or customers.[1] Several years ago the G20 launched a challenge to find the best examples of inclusive business in developing countries which resulted in the identification of various innovative and effective business schemes. While some business models are purposefully ‘inclusive’, i.e. they specifically target poorer populations, the nature of global commerce today has also resulted in inclusivity without necessarily intending to do so. For example in Bangladesh the apparel sector has been credited in lowering the official poverty rate from 70% to less than 40%. Today the sector employs tens of millions of workers globally, predominantly women, which has contributed to empowering women from poor communities.

It is undeniable that the private sector has an important role to play in economic development and that the globalization of supply chains has provided important growth opportunities for developing countries. However in order to be beneficial to local populations, particularly those at the base of the pyramid, business must act responsibly. For example, workers employed by apparel factories in developing countries are notoriously paid below a living wage, forcing them to work excessive hours and limiting their agency in refusing to work in unsafe conditions. Indeed the link between wages and working conditions was put in stark relief in the wake of Rana Plaza. However payment of living wages contributes to raising populations out of poverty, can result in increased retention of staff and productivity and can lead to improved workplace health and safety by increasing worker agency.

The OECD Guidelines on Multinational Enterprises represent the most comprehensive set of recommendations by governments to companies on responsible business conduct. Under the OECD Guidelines business are expected to make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development. They are also expected to avoid and address adverse impacts through their own activities and prevent or mitigate adverse impacts directly linked to their operations, products or services by a business relationship. In other words businesses are not only responsible for the impacts and conditions of their direct operations but throughout their supply chains. Under the framework of the Guidelines companies can outsource their production but not their responsibility. The OECD Guidelines are accompanied by a unique grievance mechanism – the National Contact Points – that contributes to their effectiveness and implementation. This system exists in 46 countries and recently received prominent support from G7 Heads of State.

Staying Engaged and Continuous Improvement

This two fold obligation of doing good in addition to doing no harm has important implications with regards to promoting inclusive growth. Most importantly, this expectation means that business are encouraged not to simply disengage at the first sign of potential environmental or social risks within their supply chain but are rather urged to engage in risk mitigation efforts and to take into account the potential social and economic adverse impacts related to a decision to disengage from a certain business relationship.[2] This is important because industries which feature the most severe risks are often also those which the poorest and most vulnerable segments of the population rely on for their livelihoods. One area where the benefits of continued engagement have clearly been demonstrated is in the context of responsible mineral sourcing.

Since 2011, the OECD has helped lead a global movement to prevent the production and trade of minerals used in everyday products from benefiting armed groups and perpetrators of serious human rights abuses. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas was developed in response to the ongoing humanitarian crisis in the great lakes region of central Africa where illegal mineral exploitation has been linked to support of armed groups engaging in human rights abuses in the region. The Guidance however is more broad-based than that, applying to any minerals being sourced from any high-risk or conflict affected areas globally.

Related legislative efforts, most famously the US Dodd-Frank Act, Section 1502 have also been developed to address this problem but have faced criticism suggesting that such initiatives result in de facto trade embargos, further harming local populations that rely on the mining sector for their livelihoods. The OECD Guidance for Responsible Mineral Sourcing however rejects the suggestion of disengagement except in extreme circumstances and provides strategies to create economic and development opportunities in high-risk contexts.

For example, in the context of artisanal and small scale mining (ASM), initiatives to promote formalization and legalisation efforts of ASM activity are encouraged, in the DRC this has resulted in special legal zones for ASM activity. The implementation programme also encourages finding solutions for workable cohabitation of ASM and large scale mining activities. Such efforts have resulted in impressive results. In the three years since the implementation program for the OECD Guidance for Responsible Mineral Sourcing was launched, market access has been achieved for approximately 70,000 artisanal miners in the DRC and Rwanda, which in turn support approximately 350,000 dependants, with better prices, better conditions, and secure long-term opportunities.

The apparel sector also provides a good example of the strong relationship between inclusive business and responsible business. As noted, the apparel sector has served as an important economic driver for Bangladesh as well as other developing countries. However, in the wake tragedies such as Rana Plaza and the Tazreen factory fires many global brands were put under fire for not adequately managing risks at the manufacturer level of their supply chains. Many of the risks of the textile sector are systemic— they are imbedded in the nature of the industry and exacerbated by the development challenges and weak rule of law in the countries where production is often based. Thus these risks cannot be addressed overnight and an approach of continuous improvement in which buyers encourage improved standards within supplier factories over time is preferable to those which recommended cutting off business relationships or boycotts. Under an approach of continuous improvement sourcing from countries with weak regulatory frameworks, where often populations are most in need of employment opportunities, is not discouraged but rather strengthened.

[1] See Concept Note of the Turkey hosted G20-B20 Workshop on “Inclusive Business” https://g20.org/turkey-hosted-g20-b20-workshop-on-inclusive-business/

[2] OECD Guidelines for Multinational Enterprises, Chapter II: Commentary, para. 22

The rarest and most powerful natural resource

Download the highlights in English, French or Spanish
Download the highlights in English, French or Spanish

Today’s post, by Erik Solheim, Chair of the OECD Development Assistance Committee, is also the editorial of  the “Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action”, published today.

The global development progress over the past decades has been unprecedented in human history. Extreme poverty has been halved and in the People’s Republic of China alone, more than 600 million people have been brought out of poverty. Child mortality has also been cut in half, with 17 000 fewer children dying every day. Almost all children now go to school. Children born today can expect to live for 70 years on average, 20 years longer than those born 50 years ago. They are also growing up in a world that, contrary to what many people think, is much more peaceful than ever before.

The remaining challenges are undeniably huge. More than 1 billion people still live in extreme poverty, on less than $1.25 per day. We need to produce more food and more energy for more people than ever before while protecting the planet. The world is now embarking on the historic mission to end extreme poverty by 2030 and to implement the new Sustainable Development Goals.

We know that today, for the first time ever, humanity has the capacity, knowledge and resources we need to end poverty and green our economies. What we need is to go ahead and do it. We cannot wait for a master plan or for everyone to agree before we take action. The planet and its people who are living in poverty cannot wait for the slowest, the undecided and those least willing to act. Nations, organisations, companies and individuals who are willing to address specific development challenges need to get started – now! For this, we need to mobilise political will behind coalitions for action.

All the great success stories have happened because someone had a goal and pulled people together to get it done. Ethiopia’s Prime Minister Meles Zenawi chose sound policies and mobilised the necessary assistance and investments to set his country on a path to implementing the Millennium Development Goals and becoming a middle-income country without increasing greenhouse emissions. Bill and Melinda Gates made the initial investments to energise the Gavi Vaccine Alliance, a successful partnership that has vaccinated 500 million children and saved millions of lives. Brazil, Indonesia, other rainforest nations and a few providers of development assistance inspired the UN-REDD rainforest coalition to reduce deforestation. So far Brazil has reduced deforestation by 80% and Wilmar, Asia’s largest palm oil producer, has promised not to contribute to any further deforestation. African governments and over 200 companies are working together through Grow Africa to expand and green African agricultural systems. The United Nations Sustainable Energy for All initiative is mobilising the financial resources and political will to provide green energy for 1.3 billion people who lack access to electricity and billions more with insufficient access.

These are just a few of the many success stories that are teaching us through their example. And there are plenty of other coalitions for action just waiting for leadership. Here are some suggestions for ways we can make change that really matters.

We need a coalition against fossil fuel subsidies, which cost developing countries around $500 billion annually. Some poor countries spend more on subsidising cheap petroleum than on health and education combined. Fossil fuel subsidies are expensive, mainly benefit the upper middle class and increase pollution. A financial front-loading mechanism would allow governments to provide benefits – such as cash disbursement schemes and better public services for the poor – before removing the inefficient, but sometimes popular, fuel subsidies.

We need a global coalition to protect our beautiful oceans, currently under threat from climate change, pollution and overfishing. Developing countries are losing billions of dollars from illegal and unreported fishing while sustainable fishing could increase the value of global fisheries by more than $60 billion. The world’s coral reefs – which are home to many unique species and help protect coastal communities from extreme weather – are threatened by climate change and pollution. Protecting the oceans is a win-win for humanity and the environment.

We need coalitions to better manage the magnificent rivers of the world, crucial to providing clean hydropower, irrigating agriculture to feed a future 9.6 billion people by 2050 and managing increasing floods resulting from climate change. International expertise and front-loaded financing could help balance immediate costs with the longer-term benefits of river management.

These are just some of the many potential coalitions for action that would be highly beneficial for people and the planet.

This report shows how partnerships and coalitions for action can contribute to ending poverty and implementing the Sustainable Development Goals. It offers a theoretical framework for making partnerships coalitions for action and gives many inspiring examples of successful partnerships. The key insights are that effective partnerships must:

  • Have strong leadership
  • Be country-led and context-specific
  • Apply the right type of action for the challenge
  • Maintain a clear focus on results.

Most important is leadership. Leadership is the rarest and most powerful natural resource on the planet. Unless someone leads, nothing will happen. But when someone leads, everything is possible!

Useful links

Development Co-operation Report 2015: Making Partnerships Effective Coalitions for Action