Heavy industries to south-south cooperation

Kandeh K. Yumkella
The Hindu, 12 February

To the grand scheme of globalisation, what can a multilateral aid agency effectively contribute? UNIDO must target its efforts to issues of proven societal benefit but not enough economic appeal to attract private agents.

FORTY YEARS ago in New York, the General Assembly of the United Nations created the United Nations Industrial Development Organisation (UNIDO). For many developing countries these were the early years of independence, when national authorities regained legitimate control over domestic resources and chartered a new course of economic progress. North-South economic relations subsided against a growing reliance on local assets; manufacturing was seen as a key vehicle of economic development. The transformation of minerals and agricultural crops created value, generated employment and foreign exchange, and supplied local markets with consumer goods. UNIDO's coming of age was timely, and it quickly grew to its current size of 171 members. In 1986 it became a specialised agency of the U.N. system, with its own budget and governance structure.

The launch of UNIDO was also set against a backdrop of global political uncertainty, with the world increasingly divided by the Cold War. For many, a dedicated U.N. Agency represented a unique window of neutral access to foreign technology and know-how, with unrivalled technical competence and global experience.

UNIDO has been active in India from the very outset of its existence; in four decades of operation it has delivered $120 million worth of technical services to a broad range of local partners. In hindsight, the evolving nature of this cooperation mirrors a timeline of parallel mutations in the Indian economy while UNIDO itself was adjusting to the changing demands of the day. The early years of India-UNIDO cooperation saw a strong concentration on heavy industries: steel and alloys, petrochemicals, pesticides, and fertilizers marked India's rapid industrial expansion and supported the Green Revolution.

In the 1970s, the programme gradually moved to light industries and focussed on the creation of employment in agro-based activities such as leather and footwear, or textile and garments.

Alongside interventions in mechanical and automotive industries, UNIDO started working with Indian partners on a range of industry-related services such as metrology, testing and quality control, research and development, marketing and export promotion, and indeed promoted computer applications in industry as early as in 1972. Meanwhile, new initiatives were launched to address the specific needs of small-scale enterprises.

By the middle of the decade, environment considerations entered the arena: first in the form of waste treatment, then waste management, pollution containment, cleaner production, and now, clean technologies. Today, the environmental dimension constitutes a major component of UNIDO's technical cooperation programme in India.

Cooperation in engineering and machine tools, bio-chemicals, polymers and composite materials, semi-conductors and micro-processors, solar cells, fibre optics, and computer-assisted design and manufacturing marked the increased sophistication of Indian industry in the 1980s. Energy-saving technologies and non-renewable energy sources entered UNIDO portfolio in India in the mid-1980s, and took on a growing importance in the organisation's strategic engagement in a fast-growing, energy-hungry economy.

In the wake of India's economic liberalisation, UNIDO introduced in the early 1990s new services to help local authorities promote inflows of foreign direct investment, or to encourage private investment in infrastructure projects through the build-operate-transfer scheme and its variants. As one of the executing agents of multilateral environment agreements such as the Montreal Protocol on the elimination of ozone-depleting substances, UNIDO launched in 1993 a spate of initiatives to assist Indian enterprises in the refrigeration and foam industry reduce their dependence on chlorofluorocarbons (CFCs) in manufacturing processes, an area of cooperation that was later to translate into a number of large-scale projects.

Industrial organisation and market structure were new domains of intervention that in 1997 set another milestone in the growing cooperation between UNIDO and India. Small- and medium-scale enterprises when operating alone typically lack resources to train their labour force, upgrade technology and quality standards, invest in research and development, prospect new markets or cement strategic alliances with partner companies. However, when joining forces through the creation of industrial clusters, they are able to pool resources and reap the economies of scale necessary to realise more effectively their assets, seize new opportunities, and strengthen their competitiveness. This particular phenomenon of economic concentration has strong roots particularly in South Asia. For over a decade, UNIDO has assisted the growth of small enterprise clusters in a number of locations across the country, in partnership with world-class local institutions; cluster-based approaches are today mainstreamed in most small-scale industries promotion programmes countrywide.

At the turn of the new millennium, UNIDO and the Government of India launched in December 2001 a medium-term cooperation strategy focussed on investment promotion, cleaner technology and environment, the competitiveness of small and medium enterprises, and accelerated manufacturing progress in disadvantaged parts of the country. The five-year programme is now completed, and the two parties are engaged in the formulation of a cooperation framework against the backdrop of India's 11th Five Year Plan 2007-2012, and the U.N. Development Assistance Framework 2008-2012.

Adding value

Much has changed, though, since the first programme of UNIDO in India. Forty years on, the emergence of India as a global player with world-class manufacturing capabilities in a spectrum of industries calls for a strategic positioning and clear targeting of UNIDO's programmes, and a redefinition of its relationship with Indian partners, public and private alike. If we are to add value to the wealth of domestic expertise and technological knowledge, we must offer innovative services in sharply focussed areas and bring to bear the essence of lessons learnt through our worldwide operations. If UNIDO as a partner is to remain relevant — and legitimate — in an industry driven by private entrepreneurship, we must target domains of intervention eschewed by market forces due to externalities, barriers to entry, or significant discrepancies between social benefits and market valuation.

While "India Inc." is growing fast and some economists are even anticipating double-digit rates of economic growth, hundreds of millions in rural areas and backward regions are left untouched by economic progress and struggle to make ends meet. Their demands are pressing, their needs are many. Within our domain of competence, UNIDO will work with Indian partners to stimulate entrepreneurship, build up local economic systems and promote investments in disadvantaged regions, building on best practices among the forerunners of industrial progress. "Best practices" will be systematically documented in the fields of technology know-how (including eco-friendly technologies, energy efficiency, and renewable energy sources), skills upgrading, and the industrial organisation of clusters of small and medium-sized enterprises.

At par with the country's increasingly assertive role on the international scene — marked by highly noted interventions in global platforms such as the World Trade Organisation or the World Economic Forum as a leading advocate of the developing south — UNIDO and the Government of India will also launch, on February 15, the Centre for South-South Industrial Cooperation, the first in a global network of such facilities, which are in the process of being established by UNIDO in China, India, Egypt, South Africa, and Brazil.

The concept of South-South cooperation is by no means a new paradigm; indeed, the Indian Economic and Technical Cooperation, a division of the Ministry of External Affairs, is as old as UNIDO itself. What is new, however, is the context in which it is set today: a context of rapid strides in international exchanges and massive flows of cross-border trade and investment — in ways that increasingly challenge historical patterns, as illustrated by the recent consolidation of the global steel industry. To the grand scheme of globalisation, what can a multilateral aid agency effectively contribute?

There also, UNIDO must strategically position its services vis-à-vis the massive flows of private resources — through trade, investment and other exchanges — and target its efforts to issues of proven societal benefit, but insufficient economic appeal to attract private agents. We must also offer differentiated services that will complement the bilateral efforts by the Indian Government: the value addition by UNIDO will stem from a strong anchorage of South-South initiatives in our technical cooperation operations on the ground in more than 100 countries and from the integration of the South-South Centre in India into our global networks of South-South cooperation facilities, field representative offices, cleaner production centres, as well as dedicated investment and technology promotion offices.

The instruments of South-South cooperation we intend to deploy include capacity-building initiatives such as training programmes, replication of best practices, transfer of technology, policy advice, investment promotion services, trade capacity building, and the promotion of small and medium-scale industrial clusters through, inter alia, twinning arrangements. This is no doubt an ambitious programme, and a real challenge for the new South-South centre — to which, I am convinced, it will rise.

In general, to avoid being spread too thin, we will further delineate our scope of intervention and concentrate resources on a selection of industrial sectors where UNIDO and Indian partners have already developed a vibrant cooperation in recent years, such as renewable energy, low-cost housing, food processing, pharmaceuticals, automobile components, and IT applications in industry.

Put in modern terms, our vision is to create in India a "business process outsourcing" of multilateral technical cooperation, an offshore facility that will attract development capital — from UNIDO, the Government of India, and other investors including private ones — combine it with India's vast pool of expertise, and generate a stream of income in the form of technical cooperation extended to other developing countries. It is, in effect, a logical continuation of UNIDO's 40-year investment in India.

The writer is UNIDO Director-General.