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In recent decades, population has been aging fast in Brazil while old age pensions and healthrelated spending have increased. As the population ages, the spending trend threaten to reach unsustainable levels absent reforms. Increasing the retirement age is key, but by itself will not provide sufficient savings to close the pension system financing gap, and reforms reducing replacement rates are necessary. In the area of health, there is scope for improving expenditure efficiency by strengthening outpatient care and regional networks, and developing clinical guidelines for cost-effective treatments and drugs. Reforms are urgent, so that they can be gradual.
South Africa’s Industrial Policy Action Plan (IPAP) identifies local content as a strategic industrial policy instrument to leverage the power of public procurement; reduce the country’s trade deficit; address market failures; foster infant industries; and increase the
government’s tax base (the dti, 2016). Although local content is a commonly used industrial policy lever, there is no formally agreed definition of what local or content means, and this makes implementing the policy difficult.
The main problem with local content policies in South Africa is they are not leading to the desired level of procurement from local manufacturers. This problem persists for several reasons. Local producers often fail to compete against foreign suppliers on both quality and price, unless they are given more time to increase, improve and modify their capacity and capabilities to suit specifications. However, procurement regulations allow no space for negotiations between procurers and suppliers, leading to non-compliance by many local suppliers or total exclusion from the process. Moreover, transaction costs of locally manufactured goods are usually higher than foreign-sourced goods. The relevant systems required to measure and monitor imports and compliance on local content and procurement are inadequate, compounding the difficulty of monitoring and evaluating the policy.
Key findings from the research suggest no overarching cost and quality data on local content exists. Therefore, programmes should be established to provide suppliers with timely information on specifications, price, and quality, so that local producers can comply, and have sufficient forewarning and upgrading support. Systems to monitor imports and compliance need to be put in place, including providing a clear regulatory and legislative framework that provides a simple and concise definition of local content.
This policy brief assesses the key challenges and lessons that determine the success and failure of local content policies in South Africa. In particular, it analyses the economic rationale for using local content policies. Furthermore, the brief highlights the reasons
local content policies are not effecting the desired level of local procurement and why the problem persists, and suggests possible solutions.
Environmental, social and governance (ESG) concerns are an increasingly important factor worldwide for banks when they invest in large projects. In the Southern African region with its rich mineral deposits, this trend has added importance. Mining companies extract minerals from the ground, and their activities routinely give rise to public concerns about the pollution of water sources, adequate land for agriculture, and fair community participation in mining projects. South African law accepts that the directors of corporations such as banks have fiduciary obligations to act in the best interests of shareholders.
Given the importance of mining activity to economies in Southern Africa an important question aligned to this fiduciary duty is this: Are banks when conducting business obliged to act in the best interests of stakeholders affected by the activities of the mining companies they fund? The trite response is that banks have recognised their obligations to communities through their commitment to SRI (socially responsible investment) practices and internal ESG processes that ensure that their funding decisions result in no harm to communities.
This paper sets out to critically consider the effectiveness of ESG principles implemented by South Africa’s banks when they fund mining projects in the SADC region. There are internal differences in ESG principles between banks, and a variety of funding methods to which the principles are applied. The study evaluates the ESG frameworks used by each bank and, given the significant market share, aggregates this information to present a picture of the effectiveness of these frameworks. The approach taken is a critical one, meaning that what is presented in bank annual reports and sustainability reports is not merely accepted, but (to the extent possible) internal ESG risk frameworks are interrogated for adequacy of application by banks when funding mining projects. The effectiveness of the implementation of internal ESG procedures by banks is then measured against available evidence. This evidence includes the effects of mine project funding decisions of banks on ESG categories as ascertained from public information.
After consideration of the evidence, observations and conclusions are provided on the analysis. In the closing section, recommendations are provided on areas for possible focus to improve the effectiveness of ESG principles used by banks in the SADC region.
Technical regulations refer to product and process specifications, whether voluntary (standards) or legally required (compulsory specifications).
This policy brief provides context for technical regulation in the Southern African Development Community (SADC) region. It then offers some cross-cutting solutions for developing monitoring mechanisms that can allow policymakers to identify problem areas, and some specific interventions for the Standards, Accreditation and Metrology functions that can build capacity at low cost. It provides some recommendations for a practical agenda on reducing Technical Barriers to Trade (TBTs) in the SADC – ones that can be executed with minimal cost, and that improve the institutional capacity of regional organisations to grapple with the complexity inherent to the field. Above all, these regulations will need to be carefully attuned to assure that they provide the maximum protection for the region from dangerous substandard imports, while still allowing for a dynamic, mutually beneficial trading relationship.
Technical regulation cannot create jobs, but it is a vital underpinning for the type of policies that drive regional integration and create industrial jobs. As it stands, Southern Africa’s technical regulation is developing too fast, with too few controls to ensure that it is directed towards developmental purposes. Capacity expansion that simply results in ever more standards being churned out increases complexity,
but not quality. Practical interventions that create supporting mechanisms – such as monitoring systems, or assistance for firms seeking accreditation – are essential to creating a development-focused regional technical infrastructure.
How does growing older affect a person’s income security in Asia? This question is becoming increasingly urgent in the context of rapid population ageing in the region, yet relatively limited comparative analysis has tried to answer it. This report aims to fill the gap by providing a comparative investigation of the income security of older people in five Asian countries that have diverse contexts; namely, Bangladesh, Nepal, the Philippines, Thailand and Vietnam.
The report paints a picture of the multiple sources of income that contribute to income security in old age and how they interact. This has been done by mining existing survey data in each country to explore three key sources of income for older people: work, transfers from family and social protection. This marks a departure from most previous analysis of old age income security which has focused on age-disaggregated poverty data – which can only provide a relatively superficial picture of the issue. As well as providing new insights, this study highlights many weaknesses of existing data on ageing and points out opportunities for improvements in data collection and analysis.
The recent emphasis on the provision of modern energy services as an important ingredient for development has improved finance availability for the goal of Sustainable Energy for All (SE4ALL).
However, existing financial flows are still insufficient to meet the target of universal access of sustainable energy by 2030 and often ignore poor people, who cannot afford the service, or those renewable energy technologies that cannot offer high rates of return.
Drawing on a large dataset of official development assistance and private investment for electrification between 1990 and 2012, our research has looked at the factors that explain donor and private finance in the electricity sector of developing countries. What lessons can be taken and shared with policymakers to avoid past mistakes and target countries and technologies that have been neglected in previous efforts?
The African Growth and Opportunity Act (AGOA) has been recognised as the cornerstone of America’s engagement with Sub-Saharan Africa for the past 14 years. It is therefore central to an understanding of the South Africa-US trade relationship. The recent extension of AGOA by a further 10 years presents many opportunities for improving that trade relationship and expanding economic ties. There are, however, areas for caution, as was seen in the debates around the extension of AGOA and the terms of the inclusion of South Africa as a beneficiary of AGOA.
This policy brief considers the three main options available to South Africa in a post-AGOA trade and investment relationship with the United States: to stay in AGOA, negotiate a Free Trade Agreement, or fall back on Most Favoured Nation terms and the Generalized System of Preferences.
Multilateral development banks increasingly struggle to respond effectively to the needs of middle-income countries, influencing not only their potential development impact but also their own financial stability. This challenge has been driven by a changing external environment, including additional competition from other financiers, the changing needs of middle income countries and institutional constraints. Business processes that deter greater borrowing by countries, especially in the presence of other financiers with less strenuous requirements, also contribute to this situation. These include lengthy loan approval processes, limited use of in-country management systems and sensitivities around environmental and social safeguards. There is also a need for greater responsiveness and an emphasis on the importance of knowledge services. This paper highlights some of these challenges and offers some alternative solutions. The New Development Bank, as a new entrant to the development finance milieu, will do well to draw on the experiences of existing multilateral development banks to improve its offerings to countries.
Illicit financial flows (IFFs) are garnered through the proceeds of illicit trade, trade mispricing, transfer pricing and other forms of organised profit-motivated crime. This paper focuses on the commercial tax evasion component of illicit financial flows (IFFs), clarifying concepts often used interchangeably, namely transfer pricing, abusive transfer pricing, trade mispricing (or trade mis-invoicing), trade-based money laundering (TBML), tax evasion and tax avoidance. It also shows how they link to IFFs. It estimates the extent of trade mispricing by enhancing the model currently used by Global Financial Integrity, and by developing a TBML model as a means of quantifying IFFs between two developing countries. There are data challenges with this methodology, as it is an estimation of illegal or hidden activities, using the International Monetary Funds Direction of Trade methodology.
The research points to declining trade mispricing in South Africa and Zambia for the period 2013-2015, and Nigeria for the period 2013-2014. Morocco and Egypt exhibit increasing trade mispricing from 2013 to 2014. The TBML model, which addresses the criticism regarding flows between two developing countries, points to increasing financial outflows for all five countries. These flows mean less revenue is available to the fiscus to invest in socio-economic infrastructure and pro-poor growth strategies, which would benefit women and the poor. Policy recommendations address commercial tax evasion as well as proposals to remedy the data anomalies.
Low-income countries (LICs) in sub-Saharan Africa face a substantial infrastructure-financing gap. multi-lateral development banks (MLDBs) have traditionally played an important role in mobilising finance for infrastructure in LIcs, but their funding alone cannot match demand. the african development Bank’s (AfDB) concessional window, the african development fund (ADF), is a key infrastructure financier for african LICs, and comprises 37 regional member countries (RMCs), including emerging markets and fragile states. however, in recent years the ADF has faced funding and technical constraints.
This policy brief, based on a discussion paper, outlines the ADF’s role in providing infrastructure financing to LIcs and the challenges that countries face in accessing these funds. It also examines the changing context confronting LIcs as they weigh their infrastructure demands against the requirement to maintain sustainable debt levels. Lastly, the brief explores the challenges and opportunities of mobilising additional finance for LICs.
It is heartening, the author of this paper argues, to observe that developing countries, led by China and other BRICS members have been successful to organise alternative sources of credit flows . aiming for financial stability, growth and development. Setting a goal to avoid the IMF type of loan conditionalities and the dominance of US dollar in global finance, these new institutions provide a much needed turn in the global financial architecture, especially in the background of the on-going demands for austerity as are currently imposed on Greece by the troika of IMF, the ECB and the EU. It is rather ironic that the Western financial institutions as well as the EU are not in a mood to provide any option to Greece short of complying with the disciplinary measures as a pre-condition for Greece to continue with the Eurozone and its common currency, the Euro.
Limitations of the on-going global financial architecture at command of the IMF and its member nations in the OECD brings to the fore the need for new institutions which can provide alternative solutions. The launch of the financial institutions by the BRICS seem to chart out an alternative route which may turn out as superior in achieving a superior global financial order.
The BRICS financial institutions, along with the proposed clearing account will herald a new set of financial architecture which has the potential to be beneficial, not just for the BRICS but for global financial system at large. Since those settlements will not rely on dollar or other major currencies as unit of account, exchange rate fluctuations across such currencies will not impact the cross rates between the individual BRICS currencies as long as kept frozen with forward contracts renewed over time.
Arrangements to use the trade surpluses of individual BRICS members, by those in deficit would add to demand within the BRICS by creating new channels for intra-BRICS trade. The transfer of surpluses to meet deficits can even be treated as a loan , to be adjusted to similar other transactions of the NDB.
Moreover, trade surpluses earned by individual members (say China) will remain within the Brics as investment and will not be used as assets in US dollar , avoiding sources of vulnerability. Finally the Brics may devise ways and means to channelize the capital flows in a manner which strengthens the Brics institutions and generate real demand, say with infrastructures, rather than spurious activities of a speculative nature.
India, one of the world’s two population superpowers, is undergoing unprecedented demographic changes. Increasing longevity and falling fertility have resulted in a dramatic increase in the population of adults aged 60 and up, in both absolute and relative terms. This change presents wide-ranging and complex health, social, and economic challenges, both current and future, to which this diverse and heterogeneous country must rapidly adapt.
This paper first lays out the context, scope, and magnitude of India’s demographic changes. It then details the major challenges these shifts pose in the interconnected areas of health, especially the massive challenges of a growing burden of noncommunicable diseases; gender, particularly the needs and vulnerabilities of an increasingly female older adult population; and income security.
The paper also presents an overview of India’s recent and ongoing initiatives to adapt to population aging and provide support to older adults and their families. It concludes with policy recommendations that may serve as a productive next step forward, keeping in mind the need for urgent and timely action on the part of government, private companies, researchers, and general population.
Multilateral development banks (MDBs) increasingly struggle to respond effectively to the needs of middle-income countries (MICs). This has influenced not only their potential development impact but also their own financial stability. Part of the challenge has been internal business processes that deter greater borrowing by countries, especially in the presence of other financiers with less strenuous requirements. These processes include lengthy loan approval processes, limited use of in-country management systems and sensitivities around environmental and social safeguards. There is also a need for greater responsiveness and an emphasis on the importance of knowledge services.
This policy briefing (drawing on a more in-depth discussion paper) highlights some of these challenges and offers some alternative solutions. The New Development Bank (NDB), as a new entrant to the development finance milieu, will do well to draw on the experiences of existing MDBs to improve its offerings to countries.
The Global Action Plan for the Prevention and Control of Noncommunicable Diseases 2013–2020, endorsed by the World Health Organization, provides a roadmap and a menu of policy options for Member States and other stakeholders to take coordinated and coherent action to reduce mortality from noncommunicable diseases (NCDs) and exposure to risk factors.
To address the increasing number of requests from Member States for guidance on how to design fiscal policies on diet, WHO convened a technical meeting of global experts in fiscal policies on 5–6 May 2015 in Geneva. The main objectives of the meeting were to review evidence and existing guidance, discuss country case studies and provide considerations with regards to the scope, design and implementation of effective fiscal policies on diet. The meeting consisted of presentations and discussions during plenary and in working groups on the evidence, country experiences and technical aspects of policy design and implementation.
It was concluded that there is reasonable and increasing evidence that appropriately designed taxes on sugar-sweetened beverages would result in proportional reductions in consumption, especially if aimed at raising the retail price by 20% or more. There is similar strong evidence that subsidies for fresh fruits and vegetables that reduce prices by 10–30% are effective in increasing fruit and vegetable consumption. Greater effects on the net energy intake and weight may be accomplished by combining subsidies on fruit and vegetables and taxation of target foods and beverages. Vulnerable populations, including low-income consumers, are most price-responsive and, in terms of health, benefit most from changes in the relative prices of foods and beverages.
Consistent with the evidence on tobacco taxes, specific excise taxes – as opposed to sales or other taxes – based on a percentage of retail price, are likely to be most effective. In countries with strong tax administration, taxes that are calculated based on nutrient content can have greater impact. A proper situation analysis, good political advocacy, appropriate objective setting and evaluation, should be part of the multidisciplinary development and implementation of such policies.
There are evidence gaps that could be addressed, with more countries developing and implementing such fiscal policies. Lack of standards or criteria for determining exactly what to tax is a challenge experienced by countries and the development of a nutrient profile model for designing and implementing fiscal policies was recommended. In addition, there was a call for a manual on developing and implementing fiscal policies for diet.
It is recommended that:
With current and anticipated increases in magnitude of extreme weather events and a declining consistency in weather patterns, particularly challenging for agriculture, there has been a growing interest in weather index-based insurance (IBI) schemes in Bangladesh. A number of weather index-based insurance products have already been tested and applied across Asia and Africa, with varying degrees of success, as a mechanism to improve livelihood security by enabling vulnerable populations to transfer risk associated with climate change, extreme weather events and other hazards. In the process, these efforts have generated important new knowledge on how these schemes can be designed and implemented for optimal results.
However, the practice of index-based insurance is still limited in Bangladesh, and the experience and knowledge generated by the different stakeholders involved needs to be better communicated.
Many governments in developing countries are setting up non-contributory programs to assist older people, most of whom are not covered by formal pension schemes. Malawi is no stranger to the international advancement of social security and social protection. That said, further analysis on the implementation and the role of social pensions in tackling old-age poverty was needed to inform government policy and practice.
The aim of the study was to address the knowledge gap of social pension reforms in Malawi. The study examined what has been learned from the programs operating in different African countries, and highlights the key policy and budgetary issues that arise. The study has concluded that social pensions represent an important component of an institutional foundation for old-age social protection.
There are affordable options for Malawi to begin expanding a universal pension in the coming years. Various scenarios exist for universal pensions costing a fraction of GDP, which could be financed through wider efforts to increase revenue for social protection spending. Malawi could then seek to
increase the coverage and adequacy of a universal pension as more revenue can be secured, and as the economy grows.
The path chosen will depend on the political will of the government, but a potential option would be:
In Nigeria however, life after retirement is dreaded by most workers. The fears of facing the future after retirement create an ambiance of disturbance among employees. Retirement is seen by workers as a transition that could lead to psychological, physiological and economic problems.
This study provided evidence on the effect of the operation of the funded pension scheme since its inception in 2004 on economic growth in Nigeria using error correction mechanism (ECM) and Ordinary Least Square (OLS) methodologies.
Findings revealed that the pension fund contributions from both private and public sectors in Nigeria increased greatly and constituted a huge investment fund in the capital and money markets. This increased liquidity in the economy and created employment opportunities as well as improvement in the investment climate.
South Africa faces a series of macroeconomic challenges in the coming months that will strain its ability to address its most pressing need – more jobs. The macroeconomic policy approach taken in the recent time period largely adheres to mainstream tenets, emphasising low inflation and fiscal restraint. Since the Great Recession of 2008, however, those tenets have come under scrutiny, even by organisations such as the IMF.
High global levels of unemployment persist seven years after the onset of the crisis, underscoring the relevance of an alternative macroeconomic framework for both developed and developing countries in which the jobs deficit is the utmost priority. Among policymakers and scholars, the urgent need to stimulate employment coupled with multiple additional macro-level challenges has resuscitated attention to the importance of identifying a wider array of macroeconomic tools beyond the standard ones used in the past 25 years.
This policy brief discusses the recent macroeconomic approaches employed by the South African government with an emphasis on examination of the monetary policies adopted by the South African Reserve Bank. Their impact on the goals of employment creation and growth will be discussed. This will be followed by a review of alternative strategies potentially available to the South African government to address these challenges.
From the earthquake and tsunami in Japan to fourteen disasters causing over a billion dollars each in damage in the United States, 2011 was particularly damaging for developed countries. Reviewing 2011’s natural disasters, this report analyses the range of disasters and lessons to be learned from those that occurred in developed countries.
Development cooperation is an integral part of India’s foreign policy and India has been extending cooperation to its fellow developing countries even before its independence in 1947. In present times, India’s development cooperation is manifested through its 'development compact' comprising five components, namely, capacity building and skill transfer, technology and related partnerships, development finance (which includes concessional loans and lines of credit), grants, and trade and investment. Off late, Indian extension of Lines of Credit (LoCs) through EXIM Bank of India have also become a prominent modality of Development Cooperation. However, in many a cases it has been seen that the projects faced a number of challenges for effective delivery.
This discussion paper explores these challenges and other issues related to quality and timely delivery of the projects. It also explains evolution of the scheme IDEAS and discusses new guidelines by EXIM Bank.
In 2003, Zimbabwe formally announced the Look East Policy (LEP) in the face of economic sanctions by the West. This, coupled with the Forum on China Africa Cooperation (FOCAC) of 2000, has strengthened trade and bilateral investments between Zimbabwe and China. China is increasingly involved in Zimbabwe's agriculture, mining, construction and tourism industries. There is also an influx of Chinese entrepreneurs in Zimbabwe's retail industry. The repercussions of the LEP have been mixed. In this policy brief, the authors critically engage with three sectors: agriculture, mining and the informal sector; in order to provide an overview of the effects that LEP has had on Zimbabwe focusing on the period 2010-2016. They also propound some recommendations for more positive outcomes in the future.
It is likely that Zimbabwe will continue its strong relationship with China. This is notwithstanding, the fact that it is China that stands to benefit more from interaction with Zimbabwe in terms of natural resource wealth extraction and trade, as compared to the little financial aid being poured into Zimbabwe by Beijing. The evolvement of Sino-Zimbabwe relations will however, remain a matter of strategic interests at play. In this regard, it is noteworthy to highlight that the Chinese government has of late been reluctant to commit to financial investment given the political climate in the country. The recent introduction of the Indigenisation policy in Zimbabwe has also negatively affected Chinese companies particularly in the mining industry.
Whether social protection benefits should be assigned to all (universal) or kept only for those who meet certain criteria (targeting) remains one of the most contentious questions in social policy research. The purpose of this brief is to revisit two social policy assumptions around basic concerns of efficiency, affordability and sustainability of universal social pensions. Contrary to what many international organisations and scholars have argued, this brief forwards that universal social pensions are economically viable and efficient strategies to produce welfare and alleviate older-age income deprivations. The world clearly has the resources to implement basic social pensions on a global scale; the question is if there is also the political will to do it.
The December 2015 Paris Agreement lays the foundation for meaningful progress on addressing climate changeânow the focus must turn to the practical policy implementation issues. Against this background, this paper takes stock of the wide-ranging implications for fiscal, financial, and macroeconomic policies of coming to grips with climate change.
Most immediate, and key, is the need to recognize and exploit the potential role of fiscal policies in implementing the mitigation pledges submitted by 186 countries in the context of the Paris Agreement. At the heart of the climate change problem is an externality: firms and households are not charged for the environmenta l consequences of their greenhouse gases from fossil fuels and other sources. This means that esta blishing a proper charge on emissions - that is, removing the implicit subsidy from the failure to charge for environmental costs - has a central role.
Also critical are establishing a clear pathw ay to meeting complementary commitments on climate finance, effective adaptation, and ensuring financial markets play a full and constructive role. Fiscal policies are key to efficiently mobilizing both public and private sources of finance, while the need to adapt economies to clim ate change raises issues that have implications for the design of national tax and spending systems (for example, strengthening fiscal buffers and upgrading infrastructure in response to natural disaster risks). There is also a growing need to enhance the contribution of the financial sector to addressing climate challenges, by facilitating clean investments and pooling climate-related risks.
For reducing carbon emissions ('mitigation'), carbon pricing (through taxes or trading systems designed to behave like taxes) should be front and centre. These are potentially the most effective mitigation instruments, are straight forward to administer (for example, building off fuel excises already commonplace in most countries), raise (especially timely) revenues for lowering debt or other taxes, and establish the price signals that are central for redirecting technological change towards low-emission investments. The challenges lie in gauging appropriate price paths and dealing with the adverse effects on vulnerable households and firms, and the consequent political sensitivities.
Moving ahead unilaterally with carbon pricing is likely to be in many countries' own interests, because of the domestic (non-climate) benefits of doing so, most notably fewer deaths from exposure to local air pollution. As national pricing schemes emerge, a natural way to enhance these efforts and address concerns regarding lost competitiveness would be through international carbon price floor arrangements, analogous to those developed to counter some cases of international competition over mobile tax bases.
For climate finance, carbon pricing in developing countries would establish price signals needed to attract private flows for mitigation. Substantial amounts could also be raised from charges on international aviation and maritime fuels. These fuels are a growing source of emissions, are underpriced, and charges would exploit a tax base not naturally belonging to national governments.
For adaptation, specific measures to strengthen resilience to climate change will depend on a country's specific circumstances and vulnerabilities. Policies should be worthwhile across a range of scenarios for (uncertain) local climate effects and are particularly important for low-income countries and small states prone to climate-related natural disasters.
In financial markets, increased disclosure of firmss' carbon footprints, prudential requirements for the insurance sector, and appropriate stress testing for climate risks will help ensure financial stability during the transition to a low-carbon economy. Analyses of how firmsâ asset values could be impacted by de-carbonization are needed to efficiently allocate investments across carbon-intensive and other sectors. Strengthening countries's regulatory oversight is also needed to ensure sound and resilient institutions and well-functioning financial markets for providing instruments to manage climate risks. Besides promoting green financial instruments, catastrophe bonds and similar hedging instruments can transfer climate-damage risks to those who are better able to bear them.
Implementing the Paris climate agreement and the transition to a low carbon economy require adequate finance. Public finance plays a key role - whereas private finance is essential in developing and implementing new and innovative solutions. The Nordic countries are committed to further develop financial instruments and structures that can scale up such investments.
This report discusses the role of the public-private partnerships (PPPs) in scaling-up climate finance and how such partnerships should be designed to best fulfil this task. PPPs provide frameworks to ensure public leadership and accountability in tackling climate change, while enabling the ownership of certain components of climate finance to be transferred to private hands. The report proposes eight recommendations for climate negotiations and effective climate finance, and looks at some good case studies of PPPs worldwide.
A consortium of Multilateral Development Banks (MDBs) has jointly reported their investments in climate change adaptation and mitigation projects (climate finance) on an annual basis since 2011, with the latest report published on June 2015. The objectives of this work are as follows:
The approach outlined in this briefing document seeks to expand the MDB climate finance tracking to also estimate financial resources invested alongside MDBs by exte rnal parties. A Technical Working Group (TWG) compo sed of MDB representatives, supported by an external consultant (International Financial Consulting Ltd), launched work towards a common practice in early 2015.
The purpose of this briefing document is to define a common tracking and reporting practice for MDBs that:
Increasing the participation of developing countries in global value chains (GVCs) is now an accepted G20 priority. However, there is disagreement over how multinational corporations (MNCs), which drive GVCs, can be persuaded to incorporate small and medium enterprises (SMEs) from developing countries into the GVCs they co-ordinate. The choices range from conscious industrial strategies oriented towards coercive measures designed to force MNCs to integrate SMEs into their value chains, to facilitative approaches designed to attract MNCs to invest and, over time, incorporate domestic suppliers into their value chains.
Nonetheless, there is consensus on the key constraints that inhibit the growth of SMEs in general, and their inclusion into GVCs in particular: transaction costs; access to network infrastructure; and the capacity of firms and supporting institutional arrangements. Accordingly, this brief offer a high-level framework of recommendations for G20 states’ consideration.
Increasing the participation of developing countries in global value chains (GVCs) is now an accepted G20 priority that features prominently on the Chinese government’s agenda for the 2016 summit. However, there is disagreement over a simple question: how can multinational corporations (MNCs), which drive GVCs, be persuaded to incorporate small and medium enterprises (SMEs) from developing countries into the GVCs they co-ordinate?
The debate over this question is first explored in broad outline. It comes down to a decision by each country on whether it wishes to utilise GVCs in its growth strategy and, if so, what measures it wishes to adopt to promote the incorporation of its firms into MNCs’ GVCs. The choice ranges from conscious industrial strategies oriented towards coercive measures designed to force MNCs to integrate SMEs into their value chains, to facilitative approaches designed to attract MNCs to invest and, over time, incorporate domestic suppliers into their value chains where it makes business sense to do so.
Next the paper turns to the analyses and prescriptions being proffered by key international institutions in relation to the evolving G20 agenda on including SMEs in GVCs. What clearly emerges is consensus on a number of key constraints that inhibit the growth of SMEs in general and their inclusion into GVCs in particular. These can be summarised in three broad areas: