Continuing volatility and a lack of trust were just some of the issues hindering private sector investment in developing countries, speakers said today, as the Economic and Social Council held three round-table discussions as part of its annual forum on financing for development.
Quality was more important than quantity when it came to private sector investment, said Yaroslav Lissovolik, the Eurasian Development Bank’s Managing Director of Research, as participants explored domestic and international private business and finance in a round-table discussion.
Stressing that short-term thinking and the lack of long-term horizons posed other investment challenges, he said that the biggest obstacle remained the lack of bankable projects and the absence of capacity to present projects that were possible to finance. Other key issues that needed attention included the need for appropriate legal climates, private-public partnerships and technical capacity-building.
The Eurasian Development Bank was seeking solutions that empowered recipients of assistance to deal with the challenges they faced on their own, he underlined, adding that, in places like Africa, technology could provide an opportunity for countries to leapfrog, which constituted an opportunity that should not be missed.
Paul Currie, Chief Investment Officer for the Development Bank of Southern Africa, said his financial institution had sought to create a bridge that allowed for investment bankers to be heard. He underlined some of the key principles that would be needed for fostering private sector involvement, including transparency, a platform with visibility, and certainty for investors, as well as an environment where the risks were clearly defined and not terminable.
In that context, the Bank was seeking engagements with local asset managers, he said, emphasizing the importance of reliable and balanced investment models. Pointing out that collaboration and trust were other key issues, he said that business models and innovation risks in new spaces were other hurdles that often needed to be overcome.
Short-term perspectives would not change without fundamental changes in the way that the private financial sector operated, said Peter Bakvis, Director of the International Trade Union Confederation/Global Unions, Washington Office.
Trade unions and the broader civil society community were concerned about the emphasis placed on the incentives given to the private sector through regulatory and policy changes, often promoted by international institutions, he said. Such messages could be interpreted to mean that international bodies were suggesting broad de-regulatory agendas and revamping tax systems.
In a round table on domestic public resources, Doris Akol, Commissioner General with Uganda’s Revenue Authority, said that her country had a history of tax reform, and the collection of revenue over the years had improved, yet it had not been easy and a great deal of reform had been required. Tax education for future taxpayers was given priority, as well as enhanced training for existing ones who needed support. Uganda had embraced technology in the collection of revenue for tax and customs, while the training of staff helped on technical issues.
Uganda’s focus on human resources and training was key, said Natalia Aristizabal Mora, Vice Chair, Committee of Experts on International Cooperation in Tax Matters. International organizations had focused on the analysis and assessment of tax policy measures and tried to improve capacity, although building institutions had been overlooked.
In the afternoon, the Council held a third round table discussion on trade, science, technology, innovation and capacity-building.
The Economic and Social Council will resume its forum on financing for development at 10 a.m. on Thursday, 26 April.
Round Table A: Domestic Public Resources
Chaired by Inga Rhonda King (Saint Vincent and the Grenadines), Vice President, Economic and Social Council, and moderated by Leonce Ndikumana, Chair and Professor, Department of Economics, Director of the African Development Policy Program, University of Massachusetts at Amherst, the panellists in the first round table included: Armand Roland Pierre Beouinde, Mayor of Ouagadougou, President of the Burkina Faso Association of Municipalities; Doris Akol, Commissioner General, Uganda Revenue Authority; Natalia Aristizabal Mora, Vice Chair, Committee of Experts on International Cooperation in Tax Matters; Vitor Gaspar, Director, Fiscal Affairs Department, International Monetary Fund (IMF). Tove Maria Ryding, Policy and Advocacy Manager, Tax Justice, Eurodad, and Global Alliance for Tax Justice was a discussant.
Beginning the discussion, Mr. NDIKUMANA said that the mobilization of resources was essential for the realization of the Sustainable Development Goals.
Mr. BEOUINDE pointed out that the financial budget of Ouagadougou, Burkina Faso, was coming from contributions from different sources, including at the state and city levels. It was a satisfactory budget and the most significant budget compared to other cities in his country.
Mr. GASPAR said that IMF worked with countries on their strategies of spending and needs. The Fund had launched a number of country studies on selected items of the 2030 Agenda for Sustainable Development. The resources needed were considerable and the dynamics of the tax systems had to change in a profound way for the long term.
Ms. AKOL said that Uganda had a history of tax reform and the collection of revenue over the years had improved, but it had not been easy and had required much reform. Tax education for future taxpayers was highlighted, as well as for existing ones who needed support. Segmentation of taxpayers was under way. Uganda had embraced technology in the collection of revenue for tax and customs. The training of staff helped on technical issues and specialized tax sectors as well as improved ethical conduct.
Ms. ARISTIZABAL MORA said that the example of tax administration in Uganda was interesting. International organizations had focused on the analysis and assessment of tax policy measures and tried to build capacity, however building institutions had been overlooked. Uganda’s focus on human resources and training was key, and the procedural side of tax administration was also important.
Mr. GASPAR stated that a holistic approach was required to reform the system. It should include the legal framework and wide political support and engagement. The Government had to be engaged, as well as the whole of society. Those medium-term revenue strategies were pushed forward by international organizations and Uganda was a pioneer in implementing it.
Ms. AKOL said that Uganda realized that sustainable revenue in the long term was needed to support the country’s development. The medium-term revenue strategy was a road map followed for Uganda’s reforms, including on the legal and administrative side so that the tax administration was fit for purpose. The concept of mobilizing the revenue was promoted to all parts of the administration and the public to convey the message that everyone had a role to play.
Mr. BEOUINDE stated that the example of Uganda had reassured him that Burkina Faso was on the right path. The mobilization of external resources was challenged by the legislation. The State collected the funds and they were then passed on locally. Ouagadougou had funds 15 years ago for the construction of a central market and it proved efficient.
Ms. ARISTIZABAL MORA highlighted the successful example of the United Nations Tax Committee of Experts bringing specialists from different parts of the world to share guidance taking into account the specific needs of developing countries. The positions shared were those of the experts, and it balanced the needs of international standards and the levels of development of different countries.
Ms. AKOL stated that to address illicit financial flow, Uganda had identified the meta source as the erosion of the tax base. Most multinationals doing business in Uganda took advantage of tax heavens and negotiations were under way. A strong governance system had to be in place to ensure strong revenue collection reform. In some cases, the tax administration had become more advanced than the Government institutions and some reforms were impossible to implement. Therefore, all institutions had to be scaled up for the reforms to succeed.
Mr. GASPAR said that progress on the exchange of information had been faster and better than anyone had anticipated. The distinction between country representatives and experts was important. A strong global response in the area of taxes was needed because the system available on the global scale was 100 years old. The digitalization allowed companies to sell goods without a physical presence and the global challenges of the digital economy didn’t require rethinking the approach but the response should be multilateral and cooperative.
Ms. RYDING said that the Organisation for Economic Cooperation and Development (OECD) and the G-20 had adopted global tax standards for more than 100 developing countries which were not an integral part of the forums. The situation had escalated when the European Union threatened to blacklist or sanction the countries that were not compliant with the systems decided upon. The standards adopted were not fit for purpose, not only for the digital giants, but for other industries, as well. Developing countries were asked to accomplish an impossible mission. All countries must sit down and negotiate a solution on an equal footing in the context of the United Nations.
In the ensuing discussion, delegates from Cuba, Belgium and Iran, as well as three civil society representatives, asked the panel about different aspects of tax collection including: lack of technical assistance for developing countries; tension between raising revenue and creating incentives to create foreign investments; access to basic commodities for women and girls and their consequences on gender equality; and secrecy of tax heavens.
In response, Mr. GASPAR pointed out that most countries did not redistribute much. Those which did redistributed only one third on the revenue side. On the larger scale, a State that had the means to act had the means to have a policy on gender equality. A multilateral approach based on rules was also fundamental. Tension did exist between raising revenue and creating incentives to create foreign investments. A cooperative approach was the answer to solve that tension. On the issue of secrecy, more progress had been made in the last five years than was imaginable.
Ms. AKOL said that, if given incentives, return on investments should be examined and looked at in comparison with other factors such as livelihood. The race to the bottom had to be avoided. Capacity-building had to be demand driven, not supply driven. On gender equality, collecting more revenue would benefit society as a whole. She underscored the importance of social contracts. Asking citizens to pay taxes required accountability on the side of the Government. Through the use of information campaigns Uganda was providing information on how taxes were used.
Ms. ARISTIZABAL MORA said that technical assistance needed to be provided on a demand basis, not supply basis. Tax avoidance was a global matter. Each international organization played an important role in addressing the issue with its own character and background. The exchange of information was now automatic, which created a positive outcome, although ways to use the information was key and had to be looked at in the future.
Round Table B: Domestic and International Private Business and Finance
Moderated by Durreen Shahnaz, Founder and CEO, Impact Investment Exchange, Singapore, the panellists in the second round table of the day included the following panellists: Karin Stenmar, Head of Sustainability, Folksam Group, Sweden; Paul Currie, Chief Investment Officer, Development Bank of Southern Africa; Yaroslav Lissovolik, Managing Director of Research, Chief Economist, Eurasian Development Bank; and Makoto Goda, Nippon Biodiesel Fuel Co. Ltd., Japan. The discussant was Peter Bakvis, Director, International Trade Union Confederation/Global Unions, Washington Office.
In opening the discussion, Ms. SHAHNAZ said she was the founder of a financial organization that aimed to bring impact and investment together.
Ms. STENMAR said that, through a partnership with the World Bank, her organization had invested in sustainable development and green bonds. In her experience, green bonds allowed for a more natural dialogue been the environmental and financial interests. In total, the Folksam Group had invested $1.1 million in less than two years. Beyond working with the World Bank, her group was also teaming up with municipalities in Sweden. From Folksam’s point of view, it was critical to identify secure and long-term investments. Among its goals was to set a good example and be frontrunner when it came to impact investments.
Mr. CURRIE said that his bank sought to create a bridge that allowed for investment bankers to be heard. He underlined some of the key principles that would be needed for getting the private sector involved, including identifying a platform with visibility, transparency and certainty for investors, as well as an environment where the risks associated were clearly defined and not terminable. The bank was seeking engagements with local asset managers.
Ms. STENMAR said that the Swedish International Development Cooperation Agency had a critical role to play in guaranteeing investments and helping to identify new products and solutions.
Mr. LISSOVOLIK highlighted that many of his bank’s clients were landlocked countries that were seeking long-term financing for the development of infrastructure. The bank took a comprehensive approach to those issues. Some of the other key issues that had to be addressed were the need for an appropriate legal climate, private-public partnerships and technical capacity-building. The biggest challenge was the lack of bankable projects and the lack of capacity to present projects that were possible to finance.
Mr. GODA said his company was working in Mozambique in three primary areas: energy, food security and information. Its primary goal was to transition unknown people into known people. Promoting the use of the mobile phone was the first step in that process. The company was working with the Food and Agriculture Organization (FAO) to move their food distribution processes towards digital systems, rather than continuing to use paper vouchers. At the outset, there was little investment interest from the private sector, but over time, that dynamic shifted.
Mr. CURRIE said that technology would provide Africa the chance to leapfrog, which was an opportunity that should not be missed. The utilization of solar energy would be critical for that process. The challenge was how to get that energy to the right place.
Mr. LISSOVOLIK said that his bank was seeking solutions that empowered the recipients of assistance to deal with the challenges they faced on their own. He detailed a technical assistance programme the bank had launched with the United Nations Development Programme (UNDP) that aimed at supporting small and medium sized businesses.
Mr. GODA noted that his company was now moving its efforts into India and Sri Lanka, which should encourage more investment from Japan’s private sector.
Ms. STENMAR detailed some of the factors that took priority when looking into new investments and stressed that gender equality was one of the most important aspects.
Responding to a question from the moderator about what made markets most attractive to investors, Ms. STENMAR said that relations with the host country was extremely important, as was dialogue and active national ownership. Mr. LISSOVOLIK said that short-term thinking and the lack of long-term horizons posed a big challenge with regard to investment. The lack of trust and volatility were other critical issues. Mr. CURRIE emphasized the importance of reliable and balanced investment models. Collaboration and trust were other key issues, he said, adding that business models and innovation risks in new spaces were other hurdles that often needed to be overcome. Trust was also about transparency.
Mr. GODA said that private sector investors were reluctant to invest in his company’s project in Mozambique as the country’s small population meant that the market was limited.
Mr. BAKVIS believed that short-term perspectives would not change without a fundamental shift in the way that the private financial sector operated. Trade unions and the broader civil society community were concerned about the emphasis placed on the incentives given to the private sector through regulatory and policy changes on the national level, which were often promoted by international institutions. That kind of message could be interpreted to mean that international bodies were suggesting broad deregulatory agendas and revamping tax systems. There was no clear set of rules for environmental, social and governance disclosures.
In the ensuing discussion, the representative of Bangladesh said that the shortfall in development investment was a global issue, due in part to the lack of bankable projects. In response to a question from the representative of Japan, the moderator said that, as an entrepreneur, the main issue was having the latitude and regulatory environment to do what their businesses did best.
In their closing comments, Mr. LISSOVOLIK said that quality was more important than quantity when it came to private sector investment, while Mr. CURRIE emphasized the importance of partnerships and balance. Mr. GODA said that his company’s information platform was open for everyone and Ms. STENMAR stressed the importance of addressing climate change.
Round Table C: Trade, Science, Technology, Innovation and Capacity-Building
Chaired by Ms. King and moderated by Veerle Vandeweerd, Policy Director, Global Science Technology and Innovation Conference Series, the third round table of the day included the following panellists: Mark Henderson, Directorate General for Trade, European Commission; Mohamed H. A. Hassan, Chair of the Governing Council of the Technology Bank for Least Developed Countries; Aik Hoe Lim, Director, Trade and Environment Division, World Trade Organization (WTO); Shamika Sirimanne, Director, Division on Technology and Logistics, United Nations Conference on Trade and Development (UNCTAD); Sukti Dasgupta, Chief, Employment and Labour Markets Branch, International Labour Organization (ILO); and Ranja Sengupta, Senior Researcher, Third World Network.
Mr. HENDERSON said that the trade growth lead model was proven at the European Union. The bloc believed that trade policy could directly contribute to sustainable development, but it could not guarantee an equitable distribution of trade gains, so multilateralism was needed. Preferential access to the European market was encouraged by different tools and agreements. The European trade deals contained ambitious provisions on trade and sustainable development such as in recent deals made with Japan and Mexico.
Mr. LIM said that the founding agreement of WTO stated that trade was not an end by itself and should improve livelihood. WTO was conceived after the Second World War to safeguard peace. Trade tensions would always be present, but they could be dealt with, including with anti-protectionist measures and other tools provided by the system. Many examples proved that there could be win win win situations where trade, development and the environment benefitted from the system.
Ms. SENGUPTA said that the multilateral and bilateral trading system would only be relevant if the gains could be shared and distributed, including with the most vulnerable populations. Sustainable Development Goal 2 on zero hunger was a major area of interest across the world, but free trade agreements were not always compliant with that goal. Domestic subsidies were important. The network had called for comprehensive impact assessment of trade agreements.
Ms. DASGUPTA stated that trade could be useful to contribute to growth and employment. Labour provisions were a good way to prevent deficits and inequalities. The suspicion existed around labour provisions that they could harm or divert trade, but studies showed that, on the contrary, they helped trade while making a difference. Employment was not only an outcome, but also a means for development.
Mr. LIM said that WTO had produced many studies on the link between trade and jobs, or on the ways technology impacted jobs. Trade and labour issues needed to be looked at on a larger scale.
Ms. SENGUPTA said that an integrative approach of trade agreements and their consequences on labour was needed. For least developed countries, trade policies had to be embedded in the Sustainable Development Goals.
Mr. HENDERSON stated that trade and gender were a concern of interest for the European Union.
Ms. SIRIMANNE said that the digital economy was moving fast in the backdrop of a lethargic economy. A technological revolution was approaching with a huge opportunity to generate jobs and income, but with risks, as well. The digital economy was a platform economy, which was, by nature, monopolistic. Cybercrime and protection of data were issues that were highlighted in the digital economy. Other technologies would also become digitalized.
Ms. DASGUPTA said that, based on past revolutions, jobs were lost, but created, too. Labour market disruptions would happen with the digital economy. Young people were more adept to new technologies, but they also wanted security and stability in their working life. We could prepare for the consequences of the digital economy and have policies in place on the labour market. Life-long learning would also need to be implemented and financed. Social protections were also needed and their financing was an issue.
Mr. HASSAN stated that the Technology Bank for the Least Developed Countries was now a reality. Education was key and needed to be reformed in developing countries to develop problem solving skills of students who were hardly exposed to social problems. Integrated courses in social sciences had started to be implemented, but courses should be taught to all students about the Sustainable Development Goals. Least developed countries had a problem of talent as those students who were trained would often leave their country to work elsewhere. Commercialization of technology was an issue. Technological innovations existed, but were not brought up to scale.
Mr. LIM said that, on the environmental side, new technologies were also creating a lot of potential and business opportunities. Trade policy had a clear role to allow scaling up of goods and services. Commercialization today would require trade to go beyond national borders, although there were barriers to think about.
Ms. SIRIMANNE said that, in least developed countries, the digital divide was an issue. The lack of postal addresses was an issue in parts of the world for the digital economy. Many developing countries had a long way to go to benefit from that new economy. UNCTAD had launched an eTrade for All platform to bring everyone together and match supply and demand.
Mr. HASSAN said that the establishment of the Technology Bank was a great achievement for the Sustainable Development Goals. Each least developed country should have a plan to address the implementation of the Sustainable Development Goals, but it required progress in science and technology.
Responding to a question asked by the delegate from Belgium about the activities the Bank would undertake, Mr. HASSAN said it would conduct a technology need assessment for five least developed countries and help least developed nations to build up their digitalization capacity.
Source: United Nations