Making It #15 - Our industrial future

8/13/2019 Making It #15 - Our industrial future

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MakingItIndustry for Development

China in LatinAmerica

Beyond CSR

Peru

Industrial sym

Green financ

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Ourindustrialfuture


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NUMBER1We must let nature inspir Gunter Pauli presents analternative business model is environmentally friendly asustainableHot topic: Is ipossible to have prosperitywithout growth? Is greengrowth really possible?

NUMBER 2The International EnergyAgencys Nobuo Tanaka looks atenergy transitions for industryEnergy for all KandehYumkella and Leena Srivastavaon what needs to be done toimprove energy access

NUMBER 3Chinas stunning economicrise: interview with minister ofcommerce, Chen DemingTowards a more productivedebate Ha-Joon Chang callsfor an acceptance thatindustrial policy can work

NUMBER 4Strengthening productivecapacity Cheick Sidi Diarraargues that the LDCs should and can produce more, andbetter quality, goodsPatriciaFrancis on climate change andtradeHot topic: The relevanceof entrepreneurship

NUMBER 5A window of opportunity forworld trade? Peter Sutherlandassesses the prospects for theconclusion of a multilateraltrade agreementA path tomutual prosperity Xiao Ye ontrade between sub-SaharanAfrica and China

NUMBER 6Feeding a crowded worldIFADs Kanayo Nwanze arguthat smallholder farmers mhave opportunities to beentrepreneursNestl CEPaul Bulcke on Creating ShValueHot topic: Does enefficiency lead to increasedenergy consumption?

NUMBER 7The globalization paradox Dani RodrikUnfair share Thomas Pogge on affluentcountries responsibility forincreasing global povertyHot topic: Is nuclear powernecessary for a carbon-freefuture?

NUMBER 8Closing the gender gaps Michelle Bachelet onovercoming the barriers thatprevent women from seizingeconomic opportunities

Engineering eco-friendlysolutions Carolina Guerra onhazardous waste in ColombiaHot topic: Growth: the end ofthe world as we know it?

NUMBER 9Jeremy Rifkin on the ThirdIndustrial RevolutionMorgan Bazilian and KandehYumkella on the new economy:inclusive and sustainable

Hot topic: Climate change,climate action

NUMBER 10Klaus M. Leisinger, chair ofthe Novartis Foundation forSustainable Development, onthe intersection betweenindustry and healthD-Revs

Krista Donaldson on designinghealth care equipment for thedeveloping worldHot topic:Gas flaring

NUMBER 11Mei Yi, president of AIESon the keys to effective youengagementPerspectivethe Arab SpringSustainiathe world of tomorrowHot topic: The Girl Effec

NUMBER 11Mei Yi, president of AIESon the keys to effective youengagementPerspectivethe Arab SpringSustainiathe world of tomorrowHot topic: The Girl Effec

NUMBER 12Fernando Pimentel on doingbusiness in BrazilProfile ofChinas trail-blazing BroadGroupDevaki Jain on thefeminists of the SouthHot topic: Fracking

NUMBER 13Resource scarcity as acatalyst for green development NovozymesEthiopiassoleRebelsArnoldSchwarzenegger onimplementing a sustainablefutureHot topic: ICT anddevelopment

NUMBER 14Denmarks Minister of theEnvironmentDani Rodrik The right green industrialpoliciesRecycling in Russia Intra-BRICS cooperationHot topic: Is businessdoing enough?

A quarterlymagazine.Stimulating,critical andconstructive.A forum fordiscussion andexchange aboutthe intersectionof industry anddevelopment.


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EditorialIndustrial development fell out of fashion in the so-called North in the 1due to the hike in the services sector and the prevailing gospel of WashingConsensus policies. Ironically, at the very same time, industrialization was

slashing poverty rates in East and South Asia. In fact, it is largely throughindustry that the Millennium Development Goal (MDG) Goal 1 to halveextreme poverty and hunger will be met at the global level.

Since the turn of the millennium, things have changed immensely.Industry is back! Manufacturing and entrepreneurship are now recognizeas the key drivers to create the growth rates, jobs and economic structuresneeded to eradicate poverty and provide sustainable livelihoods for all.

Industrial policy government policies directed at affecting the economstructure of the economy is firmly back on the agenda in countries arouthe world and at all stages of development. The standard argument was thmarkets were efficient, and there was no need for government to interven

But the global crisis of 2008-2009 showed that markets were not necessariefficient. Furthermore, without strong government intervention, the mareconomies of the United States and Europe may have collapsed. Today, threlevance and pertinence of industrial policies are acknowledged bymainstream economists and political leaders from all sides of theideological spectrum.

In this issue, our contributors look at the future of industrial developmfrom a variety of perspectives but each with a common pursuit: the goal ofinclusive and sustainable industrial development for all countries.

sustainableinclusive

industrialsocial inclusion

gender equality

poverty eradication

resource efficiency

value

resilient

growth

social environment

industrialization

t 2 0 1 5

t

echnology

scienc

e

developmentUNIDO

job creation

ad

dition

innovation productive capacity-building


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GLOBAL FORUM6 Letters8 China in Latin America Chinas risehas created an unprecedenteddemand for Latin American andCaribbean exports Kevin Gallagherconsiders how Latin America canpreserve its prospects10Hot topic Beyond corporatesocial responsibility Richard Brubakerand Mike J. Thompson consider whatdoing good business actually meansin practice

16 Business matters news and trends

FEATURES18The new industrial revolution Peter Marsh looks at the imminentmanufacturing transformation22Busting the myths Carlos Lopes on the importanceof industrialization forAfricas development

KEYNOTE FEATURE

24 Interview with new UNIDODirector General LIYongTo achieve inclusive andsustainable industrialdevelopment, all ofUNIDOs toolswill be used

MakingItIndustryforDevelopment

The designations employed and thepresentation of the material in this magazinedo not imply the expression of any opinionwhatsoever on the part of the Secretariat ofthe United Nations Industrial DevelopmentOrganization (UNIDO) concerning the legalstatus of any country, territory, city or area orof its authorities, or concerning thedelimitation of its frontiers or boundaries, orits economic system or degree ofdevelopment. Designations such asdeveloped, industrialized anddeveloping are intended for statisticalconvenience and do not necessarily express a

judgment about the stage reached by aparticular country or area in the developmentprocess. Mention of firm names orcommercial products does not constitute anendorsement by UNIDO.The opinions, statistical data and estimatescontained in signed articles are theresponsibility of the author(s), includingthose who are UNIDO members of staff, andshould not be considered as reflecting the

views or bearing the endorsement of UNIDO.This document has been produced withoutformal United Nations editing.

Contents

Editor: Charles [email protected] committee:Thouraya Benmokrane, Jean Haas-Makumbi, Sarwar Hobohm (chair),Kazuki Kitaoka, Jo Roetzer-Sweetland,and Ravindra WickremasingheCover illustration: Matt HerringDesign: Smith+Bell, UK www.smithplusbell.comThanks for assistance toZHONG XingfeiPrinted by ImprimerieCentrale, Luxembourg,on PEFC-certified paper http://www.ic.luTo view this publicationonline and to participate indiscussions about industryfor development, please visitwww.makingitmagazine.netTo subscribe and receive future issuesof Making It, please send an emailwith your name and address [email protected] It: Industry for Developmentis published by the United NationsIndustrial Development Organization(UNIDO),Vienna International Centre,P.O. Box 300, 1400 Vienna, AustriaTelephone: (+43-1) 26026-0,Fax: (+43-1) 26926-69E-mail: [email protected] 15, 4th quarter 2013Copyright The United NationsIndustrial Development OrganizationNo part of this publication can beused or reproduced without priorpermission from the editorISSN 2076-8508

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LETTERS

MakingIt6

I like the interview with WalterStahel on your website (Thecircular economy). He said,Reusing, repairing, re-manufacturing and re-marketing goods andcomponents in an industrialcontext is where you get the

biggest financial benefit.Check it out.Nina Reed, website comment

MegacitiesInterested to read yourBusiness Matters piece(Making Itissue 13) on Medellnbeing awarded most innovativecity in the world by the UrbanLand Institute and the WallStreet Journal with its improved

transportation and social equitypromotion, Colombias secondcity sounds like it has someinspiring municipal leaders.

And how the worlds citiesneed them! I came across anastonishing article on the webrecently which said that 200,000people are added to thepopulation of the worlds citiesand towns every single day!This is about five million amonth or 60 million a year.

It also talked aboutmegacities, those with apopulation of ten million plus.In 1950, there was only one New York City (curiously one ofthe runners-up to Medelln inthat award I mentioned!). In2000, I think it said there were15 of these huge conurbationsand in 2015, there will be 20,

mostly in the developingworld. Half of these megacities,such as Tokyo, Dhaka, Mumbai,So Paulo, Delhi and MexicoCity, will have more than20 million residents.

This astonishing growthI understand to be becausealthough for many the quality

of urban life may be poor, thecountryside is poorer still.Despite appalling conditionsfor many in our megacities(such as poor housing, highunemployment and minimalhealthcare) the urban poor arebetter off than their ruralcousins and move to thesecities.

In these circumstances,we need all the innovationwe can get.Wilhelmina Young, New YorkCity, USA, by email

A contradictionwe have to solveGreat to read ArnoldSchwarzenegger in yourmagazine (Making Itissue 13)

Left: Medelln (Colombiassecond city), recentlyawarded most innovativecity in the world by theUrban Land Institute andthe Wall Street Journal.

on financing sustainable low-carbon projects at sub-nationallevels in order to reducegreenhouse gas emissions andfight global warming.

These projects are urgentlyneeded if industry is torespond to this problem butcan we scale up in order to

meet the UN sustainableenergy for all targets, asArnie says?

Economic growth is still themantra of world leadersseeking to alleviate theproblems of the worldeconomy. But in order tosustain economic growth wemust expend vast amounts ofenergy. Yet our main source ofenergy, fossil fuels, is also themain contributor to climate

change. And climate change,if unchecked, will halt growth.Its a contradiction we have tosolve. As Arnie put it, humanityis facing inextricable challengesdue to climate change.

Please can we have moreanalysis and discussion inMaking Itabout this?Martina Peter, by email

No frackingVery interesting debate inMaking Itissue 12 (Frackin

yes or no?) on hydraulicfracturing to extract naturafrom the earth better knowas fracking. But I thoughtguy in favour of fracking (NGrealy) was irresponsiblydismissive of some of thearguments against.

For example, he suggestsextra water usage in the prois minimal. Yet frackinguses huge amounts of wateA single well may use over

five million gallons over itslifetime. Some of the bigfracking areas, like north There in the US, are in semi-plains where the subterranaquifer is the only water souThough not the only cause,fracking contributes to theon-going drought that hasplagued the American Midwin recent years.

He also suggests all the wused can be recycled. But th

fluids used in fracking are acombination of water, sandchemicals. Energy corporatdo not publicly report whatchemicals they use (as Grealseems to acknowledge, yet dnot address properly). Thermany instances where toxicwastewater has migrated bainto the local aquifer, poiso

The Global Forum section of Making Itis a space for interaction anddiscussion, and we welcome reactions and responses from readers aboutany of the issues raised in the magazine. Letters for publication in Making Itshould be marked For publication, and sent either by email to:[email protected] or by post to: The Editor,Making It,Room D2142, UNIDO, PO Box 300, 1400 Wien, Austria.(Letters/emails may be edited for reasons of space).

GLOBAL FORUM

Photo:DeutscheWelleGlobalIdeas


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well water for entirecommunities.

What wasnt mentioned wasthat every fracking injectioncreates a mini-earthquake. Theyoften trigger local fault lines tocause more serious earthquakes.In north Texas there have been24 since 2006, compared to justone in the previous 100 years.These quakes allow gas and toxic

wastewater to escape from theirshale strata, into aquifers or evenescaping to the surface.

Health problems can resultfrom fracking pollution. Forexample, the biologist SandraSteingraber says, There arereasons to suggest that airpollution and other stressorsfrom drilling and frackingoperations in the Barnett Shale

area of Texas may be playing arole in the story of breast cancer.Ray Evans, by email

The real currencyof lifeMaking Itissue number 6(Agribusiness: from farm tofork) had a fascinating

interview with the eco-activistVandana Shiva in which,amongst other things, shetalked about how to feed thecities. In The Guardiannewspaper, at the beginning ofNovember 2013, she wroteabout anti-life economics andhow limitless growth is thefantasy of economists,businesses and politicians. She

especially questioned how weuse the gross domestic product(GDP) to measure the wealth ofnations. As she puts it,...natures amazing cycles ofrenewal of water and nutrientsare defined as non-production.A living forest does notcontribute to growth, but whentrees are cut and sold as timber,we have growth. She argues

growth is based on creatingpoverty both for nature andlocal communities, and goeson to look at water extractedbeyond natural capacity tocreate soft drinks; modifiedseeds which lead to debt forpoor farmers; and theprivatization of public systemsleading to costlier services forpeople who find it difficult to

heat their homes any longer.For those of us working to

develop industry to benefit theplanets ever-growingpopulation, we need to listen topeople like Vandana. As she says,Nobel prize-winningeconomists like Joseph Stiglitzand Amartya Sen have admittedthat GDP does not capture thehuman condition and have

urged the creation of differenttools to gauge the well-being ofnations. We need to createmeasures beyond GDP, andeconomics beyond the globalsupermarket, to rejuvenate realwealth. We need to rememberthat the real currency of life islife itself.Lesley Allen, London, UK,by email

For further discussion of theissues raised in Making It, pleasevisit the magazine website atwww.makingitmagazine.net andthe social networking Facebooksite. Readers are encouraged tosurf on over to these sites to joinin the online discussion anddebate about industry fordevelopment.

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Latin America was hardly on Chinas radarscreen until the turn of the century, whenthe Asian giants entry into the WorldTrade Organization allowed it to integratemore fully into the world economy.Chinas subsequent rise has created anunprecedented demand for LatinAmerican and Caribbean (LAC) goods,particularly commodities, which has

helped boost the regions growth for overa decade.

Boom times in China have been goodfor Latin America, whose exports to theAsian powerhouse increased nine timesbetween 2000 and 2009 in real terms, faroutpacing the regions overall exportgrowth, which didnt even double over thesame period. However, this windfall wasnot widely shared: a handful of productsaccount for just over 80% of all regionalexports to China, chiefly iron, soy, crudeoil and copper.

China is increasingly investing in manyof these same Latin American sectors.Hard statistics are difficult to come by,but Chinese firms have invested at leastUS$25bn in Latin America between 2005and 2009.

Over the longer-run future, it is hard topredict whether China will be a sustainedsource of demand for Latin Americancommodities. Even if Chinas appetite for

LAC resources remains undiminishedthe consequences may still be mixed.Demand from China could accentuateLatin Americas over-reliance oncommodities exports and jeopardize thregions ability to diversify its exportbasket toward manufactures and modeservices. It could also drive long-lastingsocial and environmental change with

unknown effects.Economists also express concern tha

Chinas tug on the LAC export basket winfect the region with Dutch disease,common affliction among primarycommodity-dependent countries. Ovedependence on commodities has beenshown to lead to deindustrializationbecause the discovery of valuable naturresources and their subsequent exportraise the value of a nations currency, thmaking its manufactured andagricultural goods, as well as its serviceless competitive. This in turn eventuallleads to increasing imports anddecreasing exports, creating balance-opayment problems and leading to pooeconomic performance.

In terms of competitiveness, it is faircertain that China is outcompeting LatAmerica in world manufactures andservices exports. In 1980, China was noeven ranked in terms of global

KEVIN P. GALLAGHERis Associate

Professor of International Relations at

Boston University, USA, and is co-founder of the Triple Crisis blog

www.triplecrisis.com. He is the author,

together with Roberto Porzecanski, ofThe Dragon in the Room: China and

the Future of Latin American

Industrialization.

Chinas rise has created an unprecedented demand for Latin American and Caribbeangoods, particularly commodities, which has helped boost the regions growth. Ultimatelyhowever, such export growth may prove unsustainable. Perhaps even worse, Chinesemanufactured goods are more competitive than those from Latin America in both homeand world markets. Kevin Gallagherconsiders how Latin America can preserve its prospec

China in Latin America


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competitiveness, but by 2009, Chinasmanufactures had become the most

competitive in the world. Argentina, Braziland Mexico are the only Latin Americannations with significant world exportshare, and all three have struggled tomaintain competitiveness.

These analyses should not be taken asthe latest reason to blame China foranother countrys ills. China is not toblame. These trends are largely the resultof policies put in place by Latin American

countries. Many had adopted shocktherapy or the Washington Consensus.

Governments rapidly liberalized trade andinvestment regimes and reduced the roleof the state in economic affairs, oftenthrough privatizations that, in a number ofcases, went painfully awry. China has takena more gradual approach to integratingwith world markets.

Rather than blaming China, LatinAmerica can build on some of its ownrecent successes and learn from its

Asian competitor in order to maximizethe gains from its new economic

relationship with China.First, the additional revenue generated

by exports to China and elsewhere canprovide new sources of funds forstabilization and growth programmes.Chile and a handful of other LatinAmerican nations have createdstabilization funds that save some of theproceeds from commodities exports forperiods when prices are low or

A worker walkspast by containersfrom ChinaShipping companyat Brazils mainocean port of

Santos city,September, 2012.


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the nation needs macroeconomicstimulus. Chiles fund, which comes fromcopper exports, enabled that nation to puttogether an effective stimulus package inresponse to the financial crisis.

There is no reason why such funds needonly be earmarked towardmacroeconomic stabilization. Revenuefrom commodities exports could also beused to invest in environmentalprogrammes to mitigate the negative

effects of commodity-driven growth and,perhaps most importantly, in programmesto boost industrial competitiveness.

It is in terms of industrialcompetitiveness that Latin America canlearn the most from China. That countryspath to integration with world markets hasbeen gradual and strategic, whereas mostLatin American nations rapidlyrelinquished the role of the state ineconomic affairs. While China may not bean ideal model for development given itsautocratic state, it certainly should be a

motivator for nations with manufacturingcapabilities to think hard aboutcompetitiveness and upgrading.

Even though Latin America and Chinabegan their reforms at roughly the sametime, their motivations for reform werequite different. Whereas Latin Americanreform began around 1982 as a reaction tothe collapse in oil prices, Chinese economicreforms began in 1978, two years after thedeath of MAO Zedong and the end of theCultural Revolution, as the country beganto cautiously reopen to the world. In that

year, China embarked on a programme ofeconomic reform aimed at strategicintegration into the world economy byfollowing a dual track policy. The policyconsisted of liberalizing FDI and inflow ofimported inputs to selected industries,while at the same time buttressing thosesectors to the point of maturity andnurturing other sectors until they wereready to face competition with imports.

Chinas industrial strategy has beenthree-pronged. First, government polihas focused on creating endogenousproductive capacity by targeting specifindustries through state-ownedenterprises (SOEs) or government supppaying increasing attention to science technology policy and linking the SOEwith the private sector and researchinstitutes. Secondly, and very importanChinese support for domestic industry

always had an eye on foreign markets:China has gradually and strategicallyintegrated into world markets in ordergain access to technology and finance.Thirdly, in undertaking economic refoChinas new leaders have taken anexperimental approach, using the marand trade as a means to development.Hence, in the eyes of Chinese policymakers, the market and governmentpolicies should complement one anothwhile the weight of each should be alloto change as the economy develops.

Such an approach stands in starkcontrast to Latin America. The regionexperimented with industrial policyduring its Import-SubstitutingIndustrialization period (roughly 1940 1980). The approach was a modest succat best. The policy did help industrializnations like Brazil, Mexico, Argentina aothers in the region. Yet, with a fewexceptions, the firms within thoseindustries were extremely inefficient byglobal standards because there was toomuch focus on domestic markets. Inaddition, Latin American industrial powas financed largely by debt, as opposedexport revenue and savings in the Chincase. By the time LAC countries began teconomic reforms in the early 1980s,dissatisfaction with the importsubstitution model had led to skepticisabout any government intervention in economy. There was an abrupt transitioto free trade and market-based econom

Even though Latin Americaand China began theirreforms at roughly the sametime, their motivations forreform were quite different.Whereas Latin Americanreform began around 1982 asa reaction to the collapse in oil

prices, Chinese economicreforms began in 1978, twoyears after the death of MAOZedong and the end of theCultural Revolution, as thecountry began to cautiouslyreopen to the world.


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which were seen largely as ends inthemselves: it was taken for granted that

free markets would lead inevitably toenhanced learning through trade, thedeepening of industrialization andgrowth.

Both import substitution andunfettered free markets have proved lessthan ideal paths for Latin American andCaribbean development. Chineseinvestment in Latin America could be anopportunity for LAC countries to

undertake new development strategies.Increased export revenue could be used to

invigorate and expand stabilization fundsand provide the capital for an innovativeapproach to industrialization. There aresome signs that this is taking place. Aspreviously mentioned, Chiles stabilizationfund allowed it to weather the globaleconomic downturn. Brazil has also begunto take industrialization and modernservices seriously again, particularlythrough its national development bank.

A business-as-usual approach, onthe other hand, could be dangerous.

Over-reliance on primary commoditiescould cause macroeconomic,employment and environmentalproblems in the longer term. Whatsmore, China is already swiftly out-competing Latin America in worldmanufacturing markets. As China hasshown, nations can conduct economicreforms to great benefit. Latin Americashould follow suit.

Mexico's PresidentEnrique Pena Nietoshakes hands with ChinasPresident XI Jinpingduring a news conferenceat Los Pinos Presidential

Palace in Mexico City,June 2013.


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Big companies like Unilever, Wal-Mart, andStandard Chartered have ambitious plansto alter their conduct, recalibrating towarda business model that is good. The sloganat Standard Chartered, for example, blendslongevity with beneficence: Here for

Good. These plans will put them on adifferent trajectory than their peers. Theysee that business as usual, with its growingsocial, environmental and economicimbalances, has no future.

Yet, for all the corporate socialresponsibility (CSR) announcements,there have been few success stories thatillustrate going beyond business as usual,or even going beyond traditional CSRpractices.

Ben & Jerrys, The Body Shop, Patagonia,Whole Foods Markets and Interface areoften cited, but these firms were foundedby leaders who had a different purpose inmind from day one. They have beencharacterized by their care for people

and the environment, finding a balancebetween economic efficiency and thecommon good. But their molds wereset before they grew into multibilliondollar firms.

Established multinational companiesstart from a different place and manyCEOs argue that moving beyond businessas usual is not realistic given investorconstraints and prevailing managementnorms. Modest shifts beyond CSRcompliance are all that is possible, they say.But corporations, like Unilever, Puma,

IBM, GE and Danone, have challenged thatparadigm by fusing innovation withsustainable and social enterprise, creatingnew sources of value across their business.

Recalibrating a firm towards sustainablepractices is both challenging and risky fortraditional forms of businessmanagement. Compliance becomes thedefault position with strategic tweaks forreputational benefits. But an increasing

Beyond corporatesocial responsibility

number of business leaders are beginnto understand that compliance is a shoterm strategy with long-termconsequences. For example, Tim Cook

Apple eventually had to engage with thFair Labor Association (FLA) to addressenvironmental and labour concernsthroughout Apples supply chains in A

In the wake of incidents in Bangladeincluding the appalling loss of more th1,000 lives in the Rana Plaza factorycollapse, textile brands have had torecalibrate rapidly. H&M was among50 prominent international companie

Richard Brubakerand Mike J. Thompson consider whatdoing good business actually means in practice.

RICHARD BRUBAKERis founder of CollectiveResponsibility, aShanghai-basedknowledge base,catalyst and facilitator,and Adjunct Professorof Sustainability, ChinaEurope InternationalBusiness School.

MIKE J. THOMPSONis co-founder of GLO Good Leaders Online,a global leadershipselection, assessmentand developmentplatform, and isvisiting Professor ofManagement Practice,China EuropeInternational BusinessSchool.


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sign the Accord of Fire and Building Safetyin Bangladesh in 2013. The accord coverswide-ranging employee safety conditionsand includes a provision for legal

enforcement, a new breakthrough fromprevious ineffective and voluntary codes ofthe past.

With brands thus tied to risk, buyerswill be required to select vendors on thebasis of multi-partner, legally-backedagreements such as the BangladeshiAccord. We may even see the emergenceof brand-based manufacturing plants inthe future.

Vocal stakeholders demandmore than complianceMany of the more vocal stakeholders areno longer satisfied with compliance

processes, and executives are seeking tointegrate good into their strategies so as tomeet these expectations. Increasingly, it isthe institutional investors that arerequired to report on environmental,social and governance criteria in theirinvestment portfolios. For some,integrating sustainability into strategy hasled in innovative directions. They arediscovering a competitive edge that late

adopters cannot easily replicate. Lateadopters are more likely to fail to engagefresh customers and generate excitementin the marketplace.

CSR is a process whereby a firmbecomes aware of these risks, engagesthem as an organization (leadership first),builds capacity for change (reduction ofrisk or positioning for opportunity), andthen proceeds through various stages ofstrategic execution. It is not simply

volunteering, nor is it philanthropy.It is developing a wide scope ofunderstanding around the companysvalue.

This means that a proper CSRassessment must include: the risks and opportunities that existwithin the workplace (such asenvironment, health and safety, employeewellness and diversity); the transparency and oversight ofdecisions, processes and individualactions (governance issues);

environmental footprints (emissions,water usage, energy reduction); communities impacted by operations;and the attitudes and expectations ofcustomers, as well as citizens.

There are three key areas of corporateresponsibility that have consistentlyshown to be of critical importance to theviability of companies: environment,governance, and workplace.

1. EnvironmentWhile global discussion on theenvironment tends to focus on planetarywarming and what to do about it,environmental issues for the averagefirm are still mostly local or internal.Water shortages, air pollution and othernegative impacts are now significantbusiness concerns. There are three maincauses. First, the impacts of social,financial and environmental regulations

Photo:WFM

Cashier on the tills

at Whole FoodsMarket in the US.


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and citizen campaigns. Second, theincreased costs of doing business due tonatural resource supply constraints. Third,economic pressures have forced attentiontoward resource usage, biodiversityimpacts and environmental externalities.As environmental failures continue togrow in size and frequency, the firms that

understand how these failures align withtheir value chain will ultimately mitigatethe risks and maximize the opportunities.

2. Governance

One of the factors that is bringing greatertransparency to company boards is greaterscrutiny by institutional investors andfund managers of environmental, socialand governance issues.

While the US Securities and ExchangeCommission, the New York StockExchange, and state laws in the United

States have complex and contradictoryregulations which have led to charges ofconfusion and ineffectiveness, investmenthubs in Asia, notably Singapore, HongKong and India, are stepping up theirregulatory environments along differentlines. All three have updated theirgovernance codes within the past18 months to ensure greater transparencyin meeting the code. If companies do notmeet the standards, then listed companiesare required to explain why not. This so-called comply or explain principle was

first established in the United Kingdomcode. It places firms under pressure fromthe market and the media to explain whygovernance standards are not being met,rather than clogging up courts with legalteams arguing about differinginterpretations of legal rules.

The international growth in legal andregulatory requirements for opengovernance requires a new breed of

managers. This affects recruitment andtalent management. Financial servicescompanies are already embracing full-blown ethical background checks onemployee candidates. In time, such checkswill become best practice for firmswishing to attract quality investors.

3. Workplace

In South-east Asia, one of the greatesteconomic and social changes is the rise of

employment standards. Illicit andexploitative conditions for workers aredeclining across the region as wages andconditions improve. Progress is also beingmade in environmental health and safety,and independent monitoring andreporting is being enforced by companiesand governments. To maintaincompetitiveness in the labour market,many firms are now moving from ad hoclabour arrangements to firmeremployment contracts which offer acareer path and consideration for

personal development and for work-lifebalance.

Laggard firms, on the other hand,are finding it difficult to attract workersand are under pressure by localgovernments and communities toclean up or close down.

Six steps to a higher purposeThe starting point is a genuine belief thatbusiness can do good in the world, andprofitably. This requires what JohnMackey, founder of Whole Foods Market,

calls conscious leadership. Consciousleaders are motivated primarily by serviceto the firms higher purpose and creatingvalue for all stakeholders. They reject azero-sum, trade-off oriented view ofbusiness and look for creative, synergisticwin approaches that deliver multiplekinds of value simultaneously.

A vision for a higher purpose needs tobe rooted in the particularities and

culture of the company. Such a purposgoes beyond CSR awards or positivemedia coverage. So what does doinggood business actually mean in practiWe suggest the following six actions:

1. Rethink

Explore and analyze your value chain tidentify areas of risk, opportunity, andaction. For many firms, this is a criticalfirst step that provides the data needed

identify and understand where the firmmisaligned with best practice options fsustainability, and aligned with marketopportunities and internal capacity.Rather than accept a boilerplatedefinition, determine what sustainabilmeans for your own company, in yourown terms, as a guideline for all you do

2. Re-vision

Be committed to a crystal clear vision apurpose. In the cases of Interface,Unilever, Whole Foods Markets and m

others, this vision came from the CEO founder who personally drove it forwarFor Ray Anderson, founder of Interfacethe process was ongoing for 20 years.Before his passing, Anderson had builtthe capacity within Interfaces ranks tomaintain their path toward achievingtheir 2020 goals of zero waste and zerovirgin material usage.

3. Restructure

Create a blueprint for applying the newvision. In the case of Interface, this

required a review of their processes to where efficiencies could be found.This led to redesigning products so thaprocesses could be eliminated andmaterial usage and waste could bereduced. In turn, this led to arestructuring of equipmentspecifications, buying practices, andpositively engaging employees, supplieand customers in the journey.

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GLOBAL FORUM

4. Realign

Strategy needs to be aligned withstakeholder needs, interests, andcapacities. Review your investments with

an eye toward long-term engagement.Short-term CSR exercises should bereviewed and energies should be devoteda program that is aligned with the firmsvision and purpose. Internal energyshould be committed to engagingemployees and capturing their interestso that everyone owns the agenda behindthe vision.

5. Recalibrate

Conduct a series of pilot projects that aremeant to test, tweak and prepare for a

systemic recalibration over time. Interfaceis 20 years into their process. Wal-Mart andUnilever are both five years into theirs.Failures will occur, but firms that operatewith sustainable principles, that makeinvestments in energy, water and carbonreduction, tend to see positive paybacksover time. Interface, for example, hasreportedly reaped more than US$450m insavings in the last ten years from executing

on Andersons Mount Sustainabilityvision.

Eccles, Ioannou and Serafei, experts inintegrated reporting at Harvard Business

School, have provided evidence that HighSustainability companies significantlyoutperform their counterparts over thelong term. They say that firms performbetter on return on equity (ROE) andreturn on assets (ROA) and that thisoutperformance is more pronounced forfirms that sell products to individuals(i.e., business to customer [B2C]companies), compete on the basis ofbrand and reputation, and makesubstantial use of natural resources.

6. Remain committed

For firms in the manufacturing space,and who spend capital on equipment,the commitment is embedded themoment the asset is brought online andthe process is changed. Any activity thatinvolves the ongoing engagement,training, and measurement of peoplerequires more intensive and challengingprocesses that can be supported by the

culture of a firm as it aligns to theredefined mission. This is especiallydifficult for CEOs of publicly listed firmswho are required to be more sensitive tothe short-term demands and expectationsof investors. One way of dealing with thispressure is to follow Paul Polmans examplein announcing that Unilever only wants toattract longer-term investors and not shorttermers such as hedge funds. For others thestrategy can be to indicate short-term wins

along the way such as reduced energy andwater costs.

What you want are trustomersBuilding a good business demands thewholehearted adoption of ethical andsustainable business behaviours.Who wants to deal with a dishonest orinconsistent firm? Going beyond a basicCSR agenda to a higher purpose for yourbusiness builds trust.

Envero, a European brand consultancy,has examined the relationship between

corporate behaviour, customer trust, andcustomer advocacy with more than 30,000adults, across 17 European countries and14 industry sectors. They found in theirstudies one consistent customer truthacross all industries: People recommendcompanies and brands that they trust to behonest with them and that care about theirwell-being as customers. Customers decidewhich companies and brands aretrustworthy based on what they see of theircorporate behaviour.

Doing good business is a challenging

path. But the investment will have positivereturns through better products, moreproductive employees, a better alignmentof brand and consumer needs and a legacyof trust.

Originally published by Policy Innovations

http://www.policyinnovations.org

This article is licensed under a

Creative Commons License.

Paul Polman,

Unilevers chiefexecutive officer.


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Nearly a third of the world'seconomic output will come fromcountries facing high toextreme risks from the impacts

of climate change within 12 years,according to the Climate ChangeVulnerability Index, an annualreport produced by UK-based

US$44trn by 2025 meaningnearly a third of the globaleconomy would be comingunder increasing threat fromextreme climate-related even

Countries in South and Soeast Asia, which accounted foone-third of all extreme risnations, were likely to face anincreased risk of severe flood

due to projected changes inseasonal rainfall. These woulalso increase the likelihood osummer droughts and, in tur

Photo:LibertyandJu

stice

trends

BUSINESS MATTERS

risk analysis firm, Maplecroft.The index ranks thevulnerability of the world'scountries to the impacts of

climate change by evaluatingtheir risk of exposure to extremeclimate events, the sensitivity oftheir populations to that

exposure and the adaptivecapacity of governments torespond to the challenge.

According to the report, the

combined GDP of the 67countries classed as facing highor extreme risks is projected tonearly triple from US$15trn to

Liberty and Justice is Africas

first fair-trade-certified apparelmanufacturer, making tops andbottoms for brands like Prana,FEED Projects, Haggar andother large buyers in the UnitedStates. The company not onlyemploys hundreds of women,but focuses on an age group thatusually gets ignored in thegarment industry women whoare over 30.

The workers at Liberty andJustices factories in Liberia and

Ghana are 90% female, and onaverage are paid 20% higherwages than their peers. Wereally try to be worker-focused,CEO, Chid Liberty, told FastCompany, and we actually thinkthats what gave us a cuttingedge at the end of the day:

Committed to business with integrity

having really devoted workers.

People dont really believe inthese types of factories inAfrica, because they believethat African workers arentmotivated. I think thatshogwash.

Soon after the first factoryopened in 2009, the company

Women workers at a Liberty

and Justice factory.

hired a consultant whoinformed Chid Liberty that hhad done pretty mucheverything wrong, including

hiring an initial workforce ofwomen in their 30s, 40s, and50s. For the typical garmentfactory, Liberty says, theaverage age is probably 23.I just assumed any able-bodiperson could sew.

Rather than replacing thewomen, Liberty decided to bithe bullet and really invest inthe workforce he had in placrisk that has led to competitiproductivity levels, as well as

inspiring workplace vibe.These older women really

set the culture of the LiberianWomens Sewing Project, ourfirst factory, Liberty recalls.They come to work an hourearly we never asked them tdo that they pray and sing


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declining crop yields. The mostsusceptible populations in theseareas were in areas with highlevels of poverty, and where largepopulations had clustered onmarginal land such as floodplains or coastal regions incyclone-prone areas.

Renewable energy now

provides one-fifth of the worldselectricity and has added abouthalf of the worlds new generatingcapacity each year since 2008.

Excluding big hydro dams,renewables got US$250bn inprivate investment in 2011 alone,adding 84GW, according toBloomberg New Energy Financeand ren21.net. The results weresimilar in 2012.

Asias energy revolution isgathering speed. China is theworlds #1 energy user and carbon

emitter, accounting for 55% ofworld energy-consumptiongrowth during 20002011. YetChina now also leads the world in

five renewable technologies(wind, photovoltaics, small hydro,solar water heaters and biogas)and aims to lead in all. Its solarand wind power industries havegrown explosively: wind powerdoubled in each of five successiveyears. In 2012, China installedmore than a third of the worldsnew wind capacity and should

beat 2015s official 100GW windpower target by more than a year.

Indias power generation is stillmainly coal-fired, but Indias coal

is only abundant, not cheain China, vibrant private-entrepreneurship in reneshould be capable of faroutpacing the state-owneindustries that dominate and nuclear power. India,worlds #3 wind power mahas already installed nearltimes more wind than nu

capacity. Solar power too a1GW in 2012 and is takingbriskly. (Rocky MountainInstitute)

together before they get onthe machines, theyre veryserious about the details ofhow your uniform should

look, and you just wouldnthave got that out of a bunchof 19-year-old girls the firsttime. So, thats a mistake thatturned out pretty well.

In 2012, Liberty and Justiceexpanded into Ghana,launching the GhanaianWomens Sewing Project bytaking over an existinggarment factory there.Ghana in 2011 was the fastestgrowing economy in the

world, he says. Greatbusiness environment.Amazing infrastructure forWest Africa. Very favourablebusiness conditions. If yourenot investing in Ghana, yourekind of a weirdo.

Liberty and Justice is nowadding 45 employees permonth to its Ghanaianfactory, with the goal ofreaching 700 employees by2014. The goal in Liberia,

where theyve recently movedto a bigger building, is 500.Source: Fast Company,fastcoexist.com

The noise about the next big thing can make itdifficult to identify which technologies truly matter.

The McKinsey Global Institute has attempted tosort through the many claims in order to identifythe technologies that have the greatest potential todrive substantial economic impact and disruptionby 2025. The technologies identified below havepotential to affect billions of consumers, hundredsof millions of workers and trillions of dollars ofeconomic activity across industries.

Source: Disruptive technologies: Advances that wtransform life, business, and the global economy McKinsey Global Institute

Twelve potentially economically disruptive technologie

Mobile InternetIncreasinglyinexpensive and capable mobilecomputing devices and Internetconnectivity

Automation of knowledge work

Intelligent software systems thatcan perform knowledge worktasks involving unstructuredcommands and subtle judgments

The Internet of Things Networksof low-cost sensors and actuatorsfor data collection, monitoring,decision-making and processoptimization

Cloud technologyUse ofcomputer hardware and softwareresources delivered over a networkor the Internet, often as a service

Advanced robotics Increasinglycapable robots with enhancedsenses, dexterity and intelligenceused to automate tasks oraugment humans

Autonomous and near-

autonomous vehicles Vehi

can navigate and operate wreduced or no human inte

Next-generation genomics

low-cost gene sequencing,advanced big data analyticssynthetic biology (writing

Energy storage Devices or that store energy for later uincluding batteries

3D printing Additive

manufacturing techniquescreate objects by printing lmaterial based on digital m

Advanced materials Materidesigned to have superiorcharacteristics (e.g., strengtweight, conductivity) orfunctionality

Advanced oil and gas explo

and recovery Exploration arecovery techniques that m

extraction of unconventionand gas economical

Renewable energy Generatioelectricity from renewable sowith reduced harmful clima


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Peter Marsh is the former manufacturingeditor of the Financial Times and author ofThe New Industrial Revolution: Consumers,

Globalization and the End of Mass Production.

Here he takes a look at the imminentmanufacturing transformation.


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REVOLUTION

THE

NEWINDUSTRIAL


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The world stands on the brink of a newindustrial age, which will create many oppor-tunities in manufacturing for those with thetalent and imagination to capitalize on them.The changes will have a deep impact aroundthe world.

The effects will be apparent in the rich,established industrial countries centred onWestern Europe, North America and Japan.However, the impact of the new industrial rev-

olution will go much beyond the developedworld. For those developing economies thatin recent years have been starting to catch upwith the lifestyles and standards of living seenin the well-off, Western nations, the period ofchange could well accelerate the advances.There will be opportunities to capitalize on aspectrum of ideas and new developments thatpromise to build on the platform for economicexpansion that in many less developednations is already in place. In such so-calledemerging economies led by nations such asBrazil, China and India manufacturing has

played a key role in the past 15-20 years in deliv-ering a sizeable economic boost. The newindustrial revolution will give such nations a

new platform for further economic develop-ment. In some cases, the latest period of changecould enable certain regions of the world suchas much of Africa and parts of South America,the Middle East and East Asia to develop a newform of manufacturing that could trigger aperiod of valuable economic growth.

In examining the latest period of change,some historical context is required. The newindustrial revolution is the fifth key epoch

where manufacturing capabilities have experi-enced a sizeable shift. The first such changewas the first industrial revolution that usheredin the new era of manufacturing from the late18th century onwards, with the start of thisprocess taking place in Britain.

The first industrial revolution with itsimpact speeding up during the 19th century was why Britain took over as the biggest coun-try in terms of factory production just before1850. Britains position as number one in man-ufacturing lasted only for about 50 years. Byaround 1895, the United States had usurped

Britain as the leading country by this measure.It held this position until 2011, when Chinatook over.

The second revolution was the transportcommunications revolution. It occurred fabout 1850. It took shape around improvemin ship construction; the emergence of rail(driven originally by steam power); andinvention of electrical telegraphy.

The third revolution was a broad sechanges based around new scientific thinkKey disciplines were mathematics, chemand physics. The shift had its impact from

onwards when, for the first time, electricitymade available on a made to order basis. new form of power was capable of drivirange of disparate industrial processes. Linto this were changes in production techngies, leading to (among others) cheap and ptiful steel and a broad spectrum of new chicals, among them drugs, dyestuffs industrial commodities such as sulphuric

The fourth industrial revolution haimpact well into the 20th century. Taking shfrom around 1950, and with its effects gating momentum for 30-40 years after this

fourth revolution was about computerselectronics. It made possible the personal cputer, high-speed data routers and the inte

The impact of the first four revolutwas largely confined to the rich count

as they are currently defined. Itwhy these countries which w

the first to gain from the fruimodern industrial developmstarting from around 1800 only leapt ahead in the e

years of this era but stayed ahThe period in which these co

tries remained in the lead launtil around 1990.

It was only after this thatchanges ushered in by all the four p

ods of industrial shift built up sufficmomentum for their impact to be felt by cotries outside the main developed bloc. Thhow over the past 15-20 years the leaemerging nations, led by China, startebecome important industrial players forfirst time in about 150 years.

This first industrial revolution was wout doubt the most important of the five

of the four to have occurred since the latest the fifth will be the one that will havmost impact. There is no single theme behthe new industrial revolution. It is being drby nine main factors.

The nine elements powering the lchange are: an explosion in the development of technologies in fields from electronics tomaterials, many of which can now be app

newechnologies

clusters

niche

productcustomization

industries

globalnetworking


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in combination much more effectively thanbefore; a greater facility in product customizationand personalization; a rise in the importance of manufacturingsectors covering narrow area of products andservices the so-called niche industries; greater use of global networking the com-ing together of supply chains for goods andinformation pathways for ideas;

the enhanced importance of clusters, orconcentrations of businesses, located in spe-cific localities, which can interact togethereffectively, while often also being linked to col-laborators around the world via global net-working; the greater participation in the worldsmanufacturing operations of emergingeconomies, such as China and India; the bigger influence of environ-mental factors in determining theoperations of manufacturers, whetherthese concern the types of products

they make, or the processes they use tocreate them; the larger use of services to help sup-port manufacturers core activity in makingproducts; and, finally, a bigger role for maverick manufacturers people with unorthodox ideas who are notafraid to go against the norm but who oftenneed at least some support from others toachieve their aims.

Most of these themes are, in themselves, notnew. But the degree of success by manufactur-ers in applying them often in combination

will separate out the winners from the losers asthe new industrial revolution gathers pace. Bymaking use of some, if not all, of these nine fac-tors, a range of industrial companies based inhigh-cost nations will find they emerge, overthe next 10-20 years, in a stronger condition.

Businesses in a good position to exploitthese ideas include big and small groups, well-known names as well as companies barelyknown outside their own industrial sectors.They include: Luxottica, a Milan-based group that is theworlds biggest maker of spectacle frames and

produces its items in a highly diverse and high-tech set of processes carried out in productionbases in Italy, China and the US;Trumpf, a German business that is the worldsbiggest maker of laser-cutting machines formetals, and whose competitive advantages arecombining technological advances with theability to connect up with thousands of cus-tomers globally;ABB, a Swiss-Swedish engineering giant that

makes new forms of automation plus electric-ity distribution hardware; and Whitford, a US maker of fluoro-polymercoatings for an immense array of applications,from oil platforms to the food industry.

Companies from the so-called developingworld which look as if they will likewise do wellfrom the new period of change includeBOE Techonology Group, a fast-expandingChinese company that is a world leader in flat-screen electronic displays;Natura, a Brazilian pioneer in cosmetics andhealth products;Medical Diagnostech, a South African pro-ducer of medical diagnostic kits; andTata Motors, the Indian multinational auto-motive manufacturing company.

What will be important for business peopleand policymakers will be first to understandthe nature of the new industrial revolution,and to spot the themes behind it. The secondkey step will be to put in place policies andideas that will help entrepreneurs to make themost of the changes. Among the most impor-tant policies will be those that: encourage efforts to inculcate an interest incombining new technologies in a sophisticatedway;

develop new ideas about making thof existing and emerging business candhelp enterprises to fit in with globalchains and information networks so th

nesses in one corner of the world can effectively with those elsewhere.

The companies and countries thathese things most effectively will have achance than the others to emerge frchanges of the next 20 years as potentiawinners whatever other challenges tcentury brings.

services

environmental

factors

supply

chains

unortho

idea

The New RevolutioConsumeGlobalizathe End ofProductioPeter Mapublishe2012 by YUniversit


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Africas need to aggressively pursue the in-dustrialization path has become more com-pelling in light of the need to sustain currentgrowth standards. With carefully developedbackward and forward linkages, industrializa-tion has the potential to diversify economiesand reduce exposure to external shocks. Atthe United Nations Economic Commissionfor Africa (ECA), we are working the case forindustrialization and we do not apologize for

that. We are convinced that, if properly done,it opens doors to address most of Africasmany challenges. It has the potential toreduce poverty, deal with the inequality pro-voked by the rent-seeking practices persist-ing in many countries, and it can allowleapfrogging into a green economy model.Several myths are bandied around about whyAfricas industrialization has been stunted. Letme address a few fallacies that continue toplague Africas industrialization drive.

MYTH 1: industrialization is a

fashionable development wordthat will soon be forgottenThere continue to be strategic and policychanges in the posture taken by African statesregarding development strategies. We remem-ber buzzwords like structural adjustment,trickle-down effect and poverty reductionstrategies that influenced national policy di-rection. Although industrialization has alwaysbeen in development literature, this is the firsttime it is likely to take centre stage. The call forindustrialization is now linked to a structuraltransformation of the state. The Plan of Action

for the Accelerated Industrial Development ofAfrica (AIDA), supported by the African Union,ECA, the African Development Bank and theNew Partnership for Africa's Development(NEPAD), demonstrates how the link betweenindustrialization and structural transforma-tion is being taken seriously.

AIDA is based on four pillars usingAfricas own natural resource endowment as abasis for industrial transformation; develop-ing an infrastructural system including energyand transportation; increasing research anddevelopment and the adaptation of technol-

ogy and promoting private sector develop-ment especially the role of small and mediumscale enterprises. It is hoped that these en-ablers will lead to the structural transforma-tion of the continents economies. In the 1970s,the Republic of Korea had neither the skill, norraw material for developing a world-class ship-building industry but decided to follow thispath based on a well-developed policy. Today,the Republic of Korea is one of the three

largest shipbuilding nations. We need to thinkabout examples like this. Although we needAfrican solutions and priorities, we can learnfrom such successes.

MYTH 2: industrialization isall we need to developAfrican countries must begin to see industri-alization as a tool for the social and economictransformation of their societies, with struc-

tural transformation as the end result. DengXiaopings transformation of Chinas econ-omy is an example of the need to address in-dustrialization as part of a wider integratedand intergenerational process of develop-ment. In this regard, I define structural trans-formation as a significant change in thesectoral composition of GDP with the shareof the primary sector in employment andoutput shifting to industry and modern serv-ices. Structural transformation can be realizedby giving attention to key developmental ele-ments, one of which is industrialization. We

have to still deal with a demographic clenge and transform it into a dividend, nmention the social cohesion that shoresult from reducing inequality, embradiversity and increasing human securityinclusive governance.

MYTH 3: African countries have triedindustrialization before and it failed,so why now?

In the 1960s, newly independent Africa elated other regions of the world in undertaimport-substituting industrialization. Thito some remarkable progress but was umately stymied by the limits of the modelglobal political economy. This is why, toAfrica should be mindful of a very diffeglobal context. Africa needs alternate mothat play to its strengths and satisfy the nfor transformation. Brazils Bolsa Familia gramme, which took 30 million Brazilianof poverty, was designed to achieve econogrowth with social equality. With up to 90

Africans still heavily reliant on the agricultsector, commodity-based industrializaspeaks to our strength. Commodity-baseddustrialization also offers immediate scopvalue addition and plenty of opportunitexploiting consequential linkages. Botswadecision to add value to rough diamobefore exp orting them ensured an eUS$6bn in diamond sales are now gothrough the countrys financial centres. Tcreated new jobs for its youth, whilst boosthe infrastructure and tourism sectors.

MYTH 4: It is too late for Africato industrialize without pollutingthe environmentThe world has changed since the time oIndustrial Revolution. Coming late to the gives Africa the opportunity to industridifferently. It is not about privileging exporiented or import-substitution models.new industrialization model must be clto the commodities production centres, at the leapfrogging technological potenand have the African growth market in mIt should ensure strong forward and b

ward linkages and of course, understandsophisticated global value chains.

MYTH 5: Africas current economicgrowth will lead to job creationBased on demographic growth projectiAfrica will need to create up to 10 milformal jobs annually as more young peenter the job sector. Current economic gromodels do not create enough modern j

Carlos Lopes on theimportance ofindustrialization forAfricas development

CARLOS LOPESwas appointed by Secretary-GeneralBan Ki-moon as Executive Secretary of the UnitedNations Economic Commission for Africa, inSeptember 2012. He previously served as ExecutiveDirector of the United Nations Institute forTraining and Research, and as the United NationsDevelopment Programme Resident Representative inBrazil. He joined the UNDP in 1988, following servicein the public sector of his native Guinea-Bissau.

Bustingthe

myths


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In fact, the fastest growing African economiesalso have the highest levels of youth unem-ployment. Although growth is robust in manycountries, it is propelled by internal con-sumption that does not benefit all. To reverse

this trend, proper planning should focus onmodernizing the economies through moremanufacturing production taken from otherparts of the world where unit values are in-creasing fast and start by positioning Africa inrelation to its natural resources and potentialrenewable energy assets. These, combinedwith a younger, more educated, urbanized andconnected workforce, make Africa quiteunique.

MYTH 6: investors are notattracted to risky AfricaIntra-African investment has, since 2007,been growing at a 32.5% compound rate, withSouth Africa leading with US$18bn invested

across several sectors, followed closely byMorocco and Nigeria. In 2011, the rate ofreturn on inward foreign direct investment(FDI) in Africa (9.3%) was the highest com-pared to other regions of the world (8.8% inAsia and 4.8% in the developed economies).This is important because it means Africansare not just asserting themselves in a politi-cal narrative. They are also investing more intheir own continent. Fortunately, others are

following. FDI will reach US$50bn than all-time high. More people now Africa is not as risky an investment deas it may appear. In fact, it has the beston investment. Africa needs to better

and market itself.In conclusion, if the news on gro

good, Africa wants and needs more to bto deal with the challenge of having to trialize and grow when its populatiocities are growing quicker than any prhistorical experience. It is high time wthe story of the no hope to rising coninto meaningful change and prove the swrong.


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To achieve inclusive andsustainable industrialdevelopment, all of UNIDOstools will be used

Interview with LI Yong, new Director General of the UnitedNations Industrial Development Organization (UNIDO)

KEYNOTE

Since taking office in June this year, you have travelledto all the regions of the world to meet withrepresentatives of member states and leaders ofindustry. One of the things that you have stressed inthese meetings is your vision of inclusive and

sustainable industrial development. Could youexplain what that is?When I went to the United Nations General Assemblydebate in September 2013, I listened carefully to theleaders statements about the three dimensions ofsustainable development economic, social andenvironmental and the call for a comprehensive listof Sustainable Development Goals. I was impressedthat there is a global agreement that our societies and

economies must find a path of sustainabledevelopment if we want to tackle the challenges of ourtimes. How else can we meet the growing challenges of

job creation particularly amongst our youth; advancegender equality and womens empowerment; address

social issues, like education and health; andfindsolutions to all the looming environmental issues onour planet?

How can we possibly achieve all these developmentgoals? For UNIDO, poverty eradication is all-important. This is the crucial and urgent task, and allmember states have agreed that it can only be achievedthrough strong, inclusive, and sustainable economicgrowth, and the effective integration of the economic,


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social and environmental dimensions ofsustainable development. UNIDO wants to put theemphasis on industrialization because industry is theeffective driver of economic and social development,and thus the basis for achieving all the other goals.We believe that industry is a primary creator of jobs

and the motor for growth and prosperity worldwide.The international community is working very hard

to achieve a new set of strategic development goals forthe coming decades, and UNIDOs work, our goal, ourmandate, should be in line with international efforts.UNIDO will focus on supporting inclusive andsustainable industrial development.

I take inclusive to mean that all countries, allpeoples, the private sector, civil society organizations,

multinational development institutions, and all partsof the UN system, are all partners with UNIDO inpromoting industrial development to achieve theeradication of poverty. There should be equalopportunity for all peoples to create industries, tocreate manufacturing activities. All countries should

have this kind of opportunity, and the benefitsproduced or generated by this process of industrialdevelopment should create shared prosperity. The UNslogan which I support very much is Leave no one

behind, and that is relevant to us, to UNIDO, when wepromote industrial development. By participation andsharing, no one will be left behind.

As for the meaning of sustainable in this context,we are clear that industry generates the wealth needed

The benefits produced or generated by this process of


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to address critical social and humanitarian needs.At the same time, however, it is also clear that thisgrowth must urgently be decoupled from increasedraw material use and negative environmental impacts.As a key driver of this growth, industry must play itspart by becoming significantly cleaner and vastly moreenergy- and resource-efficient, to guarantee the health,

prosperity and security of our peoples. In short, whenwe promote industrial development andmanufacturing activities, we should try to incorporatethe environmentally sound productionmethodologies available to us, such as energyefficiency, clean production technologies, reducedemissions and more effective use of resources.Can you explain the relevance of partnerships as a wayto create the enabling environment for this inclusiveand sustainable industrial development?To achieve inclusive and sustainable industrialdevelopment for our member states, all of UNIDOs

tools in its own tool-box will be used. In addition, weneed to develop stronger partnerships to make ourdevelopment impact even bigger. This means furtherexpanding the strategic partnerships that we have nowwith our member states, with the UN family members,and also with private sector companies, with whom weare developing the Green Industry Platform and manyother important programmes.

These kinds of partnership should be expanded,because industrialization is not about building one ortwo factories, or just one or two assembly-lines.Industrialization is a holistic movement that helpscountries to rise from a lower level of development to

a higher level. This is a set of processes that is beyondthe capacity of any single institution to support fully,and requires strong partnerships with all relatedstakeholders, including bilateral and multilateraldevelopment agencies, international financialinstitutions, the private sector, academia and civilsociety.You have stressed the importance, the centrality ofindustrial development. Is this a message that

resonates with the stakeholders that you have bemeeting?I have recently travelled to Africa, to the African Uheadquarters in Ethiopia and to South Africa. Leof the African Union told me that industrializatihigh on the agenda for Africa in the next 50yearsThat is important news. They told me two things

One is that they do not want to depend indefinitofficial development assistance. Second, they wause their natural resources more effectively. Onlthrough diversifying their economies andtransforming towards manufacturing, adding vatheir natural resources, can they create jobs, creawealth and raise the living standards of their peoFor more than ten years, some of the countries inAfrica have achieved relatively high growth ratesFor example, last year Ethiopias growth rate wasalmost the fastest growth rate in the world. That of countries is moving up.

At the moment, two-thirds of the Least DevelopCountries are located in Africa, mainly dependenagriculture. They can go one step further and we chelp them to develop, to create higher value addedmore output, and then on to manufacturing, foodprocessing, food-packaging, leather-processing, wprocessing, furniture making, all these kinds ofmanufacturing and industrial development. Thescountries will develop. This is their leaders visionone only promoted by UNIDO. I was so glad to hethat and very happy that UNIDO has been invitedparticipate in this process.

The financial crisis taught us many lessons. On

them is that we should re-focus on the developmethe real sector. This is not a developing countrieconcept, nor a middle-income countries conceptThis is accepted by many countries. I am very hapsee that many advanced countries are re-focusingindustrialization. They are promoting some newpolicies, supporting manufacturing, employmentsmall and medium-sized enterprises and exportsWhen I went to the European Union, I was please

industrial developmentshould create sharedprosper


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when they told me that industrialization is also apriority for them, just as the African leaders have toldme before.

Why do countries now all accept that industry iscrucial? Look at history. In the two or three hundredyears since the start of the industrial revolution, a largenumber of countries have transformed themselves

from agriculture-based economies to industrializedones. And then, in the 20th century, countries likeJapan and the Republic of Korea moved very fast afterthe Second World War, and have now becomemembers of the Organization for EconomicCooperation and Development. One of the mostuseful policy tools in this context was manufacturing.What created the miracle of the South-East Asiancountries? Manufacturing, industrial development.Those tigers and dragons moved quickly up to themiddle- and high-income country level. China learntfrom them in the 1980s, and we opened up a very, very

poor country with a big population to the world.You cant imagine that in 1978 GDP per capita atcurrent prices was US$228, and now, after more than30 years of opening-up reforms, last year GDP percapita was over US$6,000. What was the driving force?Agriculture? No. We transformed from an agricultural-based to a more industrialized country in 30 years.Regarding the concept of inclusive and sustainableindustrial development, some might say that this is acontradiction, that industrial development requiresresources, which are becoming scarcer, and produceswaste, which is becoming a bigger threat to the futureof the planet. How would you respond to this?

This is a very good question and an importantchallenge. UNIDO is promoting inclusive andsustainable industrial development to try andovercome the negative impacts of industrialization.When we are manufacturing products to use and totrade, and for growth, we need to consume rawmaterials. We need to use energy, water, electricity, oiletc, and we create some pollution damaging forestsand arable land. The international community is

working very hard to avoid such negative effects, toreduce them and to eliminate them. But it is, and willremain, a learning process.

Look at the Western countries; for instance, Londonin the United Kingdom. When I was young, I learntthat it was the smoky city, the city of smog, but nowits so clean. They could do it. It proves we can do it.

They learnt a lesson, and now you dont see thesekinds of things happening, yet industry is still there,flourishing. Many countries are developing theirindustry on a very big scale but now they can still keepa clean environment.Do you think that improvements in resourceefficiency and energy efficiency, and the scaled up useof clean energy can offset the impact of the growth inthe worlds population?Industrial development is an inevitable process.For any country to move up from low levels ofdevelopment and high levels of poverty to an

advanced level of development, they need industrialdevelopment. Many countries that have alreadyadvanced still have clean air. What makes thispossible? The answer is technology. We dont only haveone choice, industry or pollution. We can move aheadwith an effort to reach truly sustainable growth.For achieving this, South-South cooperation will bean important complement to the huge scaling up ofinvestments required for infrastructure and industrialgrowth. We therefore must create the necessaryenabling policies and institutional environment toallow for more South-South knowledge exchange sothat we can all learn from each others experiences and

create more opportunities for investment, jointventures and trade.

The challenge is to move towards sustainableproduction and consumption patterns, while stillenjoying the benefits of economic growth and withoutexacerbating social tensions. Policies and technicalprogrammes are needed to realize the idea andconcept of sustainability across all its dimensions.To achieve these goals, UNIDO focuses on

The common goal remains: achieving inclusive and


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implementing programmes and providing policyadvice to support the building of industrial capacitiesand qualitatively improving industrial capacities.The thematic focus may vary from creatingopportunities in agribusiness, to building quality andstandards infrastructure, to supporting the creation of

industries delivering environmental goods,depending upon the specific requirements of thecountries concerned. But the common goal remainsthe same: achieving inclusive and sustainableindustrial development.

To sum up, all countries have realized thatindustrial development is a necessity for achievingdurable and resilient economic growth, but if industryis to be sustainable in the long run, it must undergo a

rapid transition. In short, it must quickly adopt business model that enables it to produce moregoods and services needed by an expanding worpopulation, while using ever fewer resources anproducing ever less waste and pollution. Nobodshould be left behind in this process. We must m

sure that this industrial growth is inclusive andprosperity is shared. UNIDO wants to lead in fopartnerships, where governments, the private seand other actors work together to create the enaenvironment needed for this transformative chtowards this goal of inclusive and sustainableindustrial development. If we all work together this, I believe that we will be able to eradicate porelatively quickly.

LI YONG has had an extensivas a senior economic and finapolicymaker. As Vice-MinisteFinance of the Peoples RepuChina and member of the MoPolicy Committee of the CenBank for a decade, LI was invosetting and harmonizing fiscmonetary and industrial policin supporting sound economgrowth in China. He accordedimportance to fiscal and finanmeasures in favour of agriculdevelopment and small andmedium-sized enterprises, thcornerstones for creating ecoopportunities, reducing povepromoting gender equality.sustainable industrial development


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Latin America is undergoing something ofan industrial policy revolution of late. Havingditched its destructive neoliberal policiesfrom 2000 onwards, and then having seen thesupposed efficient-market foundations of theentire neoliberal model effectively blownapart by the global financial crash of 2008, itwas inevitable that a major policy change wasin order. Yet, today, the speed with which anew industrial policy movement is taking

place has surprised many observers. Thesenew policies are being informed both by im-portant prior experience in Latin America,principally the import substitution industri-alization (ISI) policy period (1950-1980), aswell as by significant best practices fromelsewhere, notably from China, Italy, the Re-public of Korea, Scandinavia and especiallyfrom Latin Americas own star performer,Brazil.

Perhaps the most interesting aspect of therebirth of industrial policy in Latin America,however, is that there is a very definite focus

on the specifically localaspects of industrialpolicy formulation and implementation.This specific focus arises for two reasons.First, many governments in Latin Americahave deliberately chosen to decentralizemany of their activities and operations. Localservices provision is not only more cost-ef-fective. It also serves to promote greater ac-countability and transparency ingovernance. Decentralization has also beenseen as a way of more directly involving

ethnic and social groups long marginalizedunder authoritarian rule.

Second, there is also the growing accept-ance that the continents de facto local eco-nomic policy model for many years microfinance has been a disaster. The vastmicrofinance industry has absorbed scarce fi-nancial flows which were then overwhelminglyrecycled into millions of the very simplestforms of informal no-growth retail and street

trade, handicrafts and petty services. At thesame time, growth-oriented small andmedium-sized enterprises (SMEs) were in-creasingly crowded out of the market for fi-nancial support, while also struggling tocompete against rafts of informal microenter-prises that pay no tax, offer bare survival wagesand have no interest in ensuring decent healthand safety conditions at work. The overarch-ing result has been the de-industrialization, in-formalization and primitivization of Latin

Americas local economies. Even the neoeral-oriented Inter-American DevelopmBank now laments the fact that Latin Amerfinancial system channelled so much ofcontinents scarce financial resources intoformal microenterprises and self-employmventures, a market-driven process it now cedes achieved nothing more than the verisation of economic activity into millof tiny enterprises with low productivity.

Ecuador is perhaps the most obviousample of the new counter-trend towards active local industrial policy. Its cengovernment under President Correamade a determined effort to devolve poand resources down to local governmeand so much closer to poor and marginalpeople. Local governments are nowcentre of much pro-active industrial deopment activity. One policy commomany parts of Ecuador is to establish farmowned cooperatives linked to new statethe-art food processing units. Th

programmes not only help to ensure quaffordable outputs for local consumers,use of appropriate environmentally senspackaging and phytosanitary certificatioenable export, but also ensure that the bof the value added generated goes back dto the basic producers, not up to rich inmediaries or out to shareholders of multtional corporations.

In Brazil, we are all aware of the impsive track record of the state developm

Milford Bateman suggeststhat new forms of industrialpolicy are (re)emerging,including at the local level,and are beginning totransform the continentsindustrial structure in apositive direction

Bottom-up development in

Photo:EcoImages/GettyImages


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bank, BNDES. But it needs to be remem-bered that BNDES also has a very importantrole to play in local industrial development,through its local branches and pro-grammes. In fact, BNDES has long pro-moted many new innovative SMEs throughits loan programmes. It also increasinglypromotes SME suppliers through the localcontent agreements that it attaches to itsloans to larger companies. A new generation

of community development banks are alsohelping to support sustainable new busi-nesses in many communities. Fundingcomes from higher levels of government inorder to support the poorest regions and lo-calities that otherwise might not be ablemobilize as much as they need locally inorder to do a good job.

It must also be remembered that Chileslong-held status as the role model for ne-oliberal policies is based on a myth. TheChilean government actually established avery impressive range of interventionist

local/regional state-led infrastructures and,moreover, generously financed these insti-tutions through the very heterodox policy ofretaining state ownership of the worldsmost profitable copper facility, Codelco.Thus, both Fundacin Chile and CORFO(Corporacin de Fomento de la Produccinde Chile) were able to patiently develop andfinance important new industrial enter-prises and enterprise clusters, and evenentire agro-industrial sectors from scratch,

the most famous examples being farmedsalmon and soft fruits. Most recently, theChilean government has established an in-novation fund to support SMEs that is man-aged locally and is directly financed by itsrevenues from Codelco.

Leftist governments in Bolivia andVenezuela have also developed innovativelocal industrial development policies, notablyinvolving the establishment of cooperatives.

The aim here has been to use oil and gas in-dustry revenues to establish local productionfor local consumption measures that directlyserve poor communities for the very firsttime. Thanks to traditionally weak bureau-cratic capacities and resistance from the en-trenched private sector, many problemsremain. But these new forms of local indus-trial development policy, allied to industrialdemocracy-building measures, have never-theless demonstrated much potential to re-

spond to genuine need, while also ping greater equality and social justice

Finally, even in traditionally centand neoliberal-oriented Colombia, locernments and provinces were allowedperiment with novel forms of indpolicy. The city of Medelln, for examppioneered many new forms of engagwith and support for local industry acommunity, helping to create many n

dustries and service sectors as its tradtextile industry declined. Crucially, thnicipality of Medelln was willing toleaf out of Chiles book and retain ownof Empresas Pblicas de Medelln (EPmain utilities provider in the provincetioquia, resulting in 30% of EPMsbeing channel led into the Municipbudget. This largesse was creatively ufinance a wide variety of programmupgraded the regions industrial and base, as well as to (re)establish Medeone of Latin Americas most exciting

destinations.Latin America has embarked on

voyage of discovery. New forms of indpolicy are (re)emerging, including at thlevel, which are beginning to transfoindustrial structure in a very positivetion. There are many optimistic portsuggest that we might be seeing the stnew, much more positive, bottom-upopment episode in Latin Americas ecohistory.

MILFORD BATEMAN is afreelance consultant on localeconomic development and,since 2005, Visiting Professorof Economics at Juraj DobrilaPula University in Croatia. Heis the author Why DoesntMicrofinance Work? TheDestructive Rise of LocalNeoliberalism, published in2010 by Zed Books.

Pictures (left toright): Worker at asmall enterprise inMasaya, Nicaragua;Family companymanufacturingponchos, La Paz,Bolivia; Processingmanioc at a ruralcooperative innorth-east Brazil.

post-neoliberalLatin Americ


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Industrial symbiosis is recognized acrossworld as a driver of green growth, acknedged for its contribution to eco-innovajob creation, securing critical materials ansource efficiency. However, although ma

ing in many developed economies, incluthe United Kingdom (UK), Finland, Denmand Belgium, the developing world has ylearn about the benefits of such an appro

Industrial symbiosis has the potentiyield significant economic, e

Making It #15 - Our industrial future

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