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Pascale Bonzom, UNDP, BRCThessaloniki, September 12 2008

Fostering Inclusive Markets in South Eastern Europe and the

Western CIS

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Population earning less than US$2 a day per region (World Bank)

2.6 billion excluded – not only a “Development Challenge” but a long-term Business Opportunity

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A vibrant Private Sector is a key component in meeting development goals…..

Economic Growth is a pre-requisite for human development

A vibrant Private Sector drives economic growth and empowers the most vulnerable people through:

- Provision of quality products and services

- Jobs

- Entrepreneurship

- Tax revenues and redistribution options

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Developmentbenefits

Business benefits

Additional ways in which business and development intersect

Philanthropy

CSR / Social investment

• Contribution of financial or in-kind resources to development projects

• Social investment that is strategic to the core business and that contributes to reduce exclusion

Traditional CSR

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… evidence is emerging that core business assets need to be deployed in order to achieve core business objectives while including the poor

Pro-poor business models / inclusive

markets

Developmentbenefits

Business benefits

Policy dialogue / advocacy

Philanthropy

CSR / Social investment

• Dialogue which contributes to more effective governance institutions, rules, policies and processes• Contribution of

financial or in-kind resources to development projects

• Social investment that is strategic to the core business and that contributes to achievement of the MDGs

• Enterprise solutions that accelerate and sustain access by the poor to needed goods and services and to livelihoods opportunities

Traditional CSR

New Generation CSR

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Why engage in pro-poor business models and inclusive markets?

To access to new opportunities/markets To develop/test new business models/innovate To take enjoy the first mover’s advantage To create value chain efficiencies (e.g. sourcing

from small holders) To secure the license to operate from local

communities To implement a CSR vision/strategy/commitment To leverage voluntary labels such as Fairtrade

To do good business

while doing good at the same time

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Core Business & Development: A Mutual Value

Businesses benefit from including the poor in a number of ways that increases their revenues, profits and long-term value generation:

on the supply side: finding new customers, creating long-term customer loyalty, developing transferable innovations

on the demand side: improving production capacity, getting access to high-quality inputs, expanding customer reach

The poor benefit from participation in markets in a number of ways that increase their opportunities:

getting access to goods and servicesgetting access to income opportunities as suppliers, employees, distributors and entrepreneurs

increased choice and power Inclusive business has 4 characteristics: profitability,

participation of the poor, sustainability, and human development impact

Many examples show that providing basic goods and services as well as income opportuni-ties to the poor can be a sustainable and profitable busi-ness strategy and contribute to human development.

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But barriers to Private Sector Development remain significant in most transition economies…

The foundations for private sector activity are not in place:- Unfavorable business environment including weak policies (e.g. competition

policies) and legal and regulatory institutions, - Limited private sector participation in policy dialogue,- Lack of access to finance- Lack of skills and knowledge to respond to market opportunities- Business value chains and market linkages too weak and unbalanced- Lack of adherence to principles for responsible investment and business

Leading to…. - High degree of companies operate in the informal sector- The majority of enterprises are subsistence micro-enterprises, most of which

are concentrated in low value added sectors - Lack of competition - large incumbent enterprises frequently stifle

entrepreneurial energy- Local demand and ability to pay is weak

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How can UNDP help Business engage?

Local knowledge (markets, constraints, service providers, etc)

Convening power (local business partners, governments, civil society and donors)

Regional network (of partners and expertise) Project alliance facilitation Feasibility studies/Market research co-funding Technical assistance for strengthening local value

chain partners Continuous problem solving and facilitation Monitoring and evaluation of development impacts

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Business Brokers: our main delivery mechanism

Dedicated and pro-active Public and private sector background On the ground, with local knowledge and contacts Support of the UN: access to government, donors,

civil society and regional players

Facilitate business linkages Provide country and sectoral information Identify investment opportunities in priority sectors Assistance with addressing knowledge and skill

gaps among local partners

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Challenge

Lead company: My Cycle (Slovenian Company)

Innovation: Brokering partnerships for new employment opportunities in Bosnia

Investment: US$ 6.2 million (EUR 4 mm) over 2 years

• “My Cycle” from Slovenia is seeking new location for its factory

•The company’s core business is manufacturing of wheel chairs, and over 90% of the products will be sold via export

•Srebrenica, known for the 1995 genocide during Bosnian war, is an economically depressed region

•Broker introduces My Cycle to potential sites and facilitated contacts with local authorities

•My Cycle purchases non producing factory in Srebrenica for EUR1 mm (US$ 1.5mm) and renovates it according to their needs

•The company will initially employ 60 people from the Srebrenica area, and later an additional 120 employees will be added to the workforce

Solution Business result

•The project demonstrates the relevance of the GSB service offer and the advantages of the “on the ground” presence

•Factory operations to begin in 2009

Development result

•An opportunity for women to participate in direct formal employment in the factory•Reduced unemployment in the region

Local Manufacturing in Bosnia An inclusive market case study

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Challenge

Lead company: Svorov, Pucari (Moldovan SME) and Domain Menada (Polish SME)

Innovation: Brokering new relationships to diversify wine export sales

Investment: Modification of manufacturing practices for EU standards ($TBD)

• Wine accounts for 1/3 of Moldovan GDP and is a major export product for Moldova

• Russia was a key importer, but in 2006 a ban was enacted on Moldovan wine

• The industry and the livelihoods of hundreds of small farmers are now at risk

• Broker facilitated market linkages between Moldovan wine producers (Suvorov Vin and Purcari) with Domain Menada, a Polish importer and wine distributor

• The Moldovan exporters have also changed manufacturing practices - such as bottle size - in order to comply with EU standards, therefore opening up further future opportunities as a result of this project

Solution Business result

• As of 2007, 1.4 million bottles exported to Poland

• Suvorov Vin has contracts with 15 large firms (approximately 1,500 farmers)

Development result

• New markets for smallholder farmers creating greater income security and growth potential for the future

Wine sourcing from Moldova An inclusive market case study

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Company: Dari Prirodi and Toplu Yapa – wool collectors Filatura Ungheni – yarn and carpet producer

Innovation: Development of a pro-poor supply chain

Challenge

• Broker approached Filatura, wool collectors as well as USAID (already working with Filatura) and brokered the idea of developing a local supply chain

• UNDP facilitated and co-funded 2 feasibility studies – one on wool sector in Moldova overall and the other on improving the quality of local wool

• UNDP facilitated access to working capital loan for wool collectors

• UNDP and Filatura initiated quality improvement of the wool produced by local farmers

Solution

Business result

Local Wool Sourcing in Moldova An inclusive market case study

Development result

• In 2006 Filatura Ungheni purchased 97% of its wool from abroad and only 3% from local sources

• Out of 10,000 sheep farmers in under-developed rural areas, around 2,000 in the supply chain

• Local wool did not meet quality criteria by Filatura Ungheni

• Number of farmers involved in supply chain doubled

• Quality of wool led to a price increase from 10 Lei to 14 Lei/kg

• Filatura Ungheni purchases up to 20% of its wool from local sources, cost savings app. 1 mil USD

• Wool collectors gained access to working capital loan

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Where do we work?

Currently have brokers in the following countries:

South East Europe Western CIS

Albania Belarus

Bosnia I Herzegovina Moldova

Turkey Russia

Ukraine

Armenia

Georgia In the process of securing funds for expanding to the

following countries: Kosovo, Kazakhstan and Uzbekistan.

Possibility to expand into new countries should there be converging private sector and country demand.

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CONCLUSION: A new model of inclusiveness with a double bottom-line

Execution

Local expertise

On-the-groundexperience

Neutrality & conveningpower

Sustainable business

ProfitsGrowth

Sustainabledevelopment

MDGsLocal enterprise development

Resources

Innovation

Business

The Poor /UNDP

Contact information:

pascale.bonzom@undp.org

UNDP Bratislava Regional Center for Europe and the CIS