| United Nations | A/50/501 |
General Assembly
Distr. GENERAL
4 October 1995
ORIGINAL:
ENGLISH
Fiftieth session
Agenda item 95 (j)
SUSTAINABLE DEVELOPMENT AND INTERNATIONAL ECONOMIC COOPERATION:
UNITED NATIONS INITIATIVE ON OPPORTUNITY AND PARTICIPATION
Note by the Secretary-General
The Secretary-General has the honour to transmit to the General Assembly
the report of the United Nations Panel on Opportunity and Participation,
prepared in accordance with Assembly resolution 48/60 of 14 December 1993.
95-29882 (E) 271095/...
*9529882*
ANNEX
Report of the United Nations Panel on Opportunity and Participation
SUMMARY
In an effort to increase the opportunities and participation of
developing countries in the world economy and those of individuals and
communities within them for accelerated and sustainable development, the
General Assembly, in its resolution 48/60 of 14 December 1993, decided to
establish the United Nations Panel on Opportunity and Participation to
conduct a comprehensive study on the issue. The Panel, appointed by the
SecretaryGeneral as requested by the Assembly, met during the week of 15-19
May 1995. The present report summarizes the findings and conclusions of the
Panel and puts forward its recommendations.
The report is organized as follows. Following an introduction, section I
briefly discusses the concepts of opportunity and participation. Noting
that these concepts encompass a wide range of economic, social and
political issues, the Panel concentrated on issues related to economic
opportunity within the framework of sustainable development. In section
II, factors shaping the policy environment, at both the international and
the national levels, are discussed. It also highlights the complementary
roles of the overall economic environment and the importance of appropriate
economy-wide policies at the national level. As a way to increase
opportunity and participation in developing countries, with special
reference to poverty eradication and the situation of disadvantaged groups,
section III discusses the relevance of, and scope for, the promotion of
micro-enterprises and small and medium-sized enterprises (SMEs), including
the need for targeted approaches. It also discusses the positive impact of
environmentally sustainable agriculture on rural development and the
relevance of the participatory approach in its promotion.
The Panel concluded that the continuous creation and exploitation of
opportunity and the widening of participation are required for sustainable
development. The participatory approach was found to be highly effective,
especially in programmes aimed at poverty alleviation and in promoting
sustainable agriculture and fisheries. The promotion of micro-enterprises
and SMEs was found to be an important means of enhancing opportunity and
broadening participation primarily through the creation of employment. In
the Panel's view, this requires sound macroeconomic policies and other
economywide policies at the national level supported by a favourable
international environment. Further, the Panel concluded that targeted
policies for the promotion of SMEs were also necessary owing to the
vulnerability of the sector. Finally, the Panel considered that the United
Nations could play an important role in disseminating the concepts of
opportunity and participation and development strategies embodying them.
CONTENTS
Paragraphs Page
INTRODUCTION ...............................................1 -35
I. THE CONCEPTS OF OPPORTUNITY AND PARTICIPATION ........4 - 115
A. Opportunity ...................................... 4 - 55
B. Participation .................................... 6 - 96
C. Opportunity, participation and development ....... 10 - 116
II. THE POLICY ENVIRONMENT ...............................12 -287
A. International economic environment ............... 14 - 218
1. Globalization of trade .......................15 - 188
2. Globalization of financial flows .............19 - 219
B. Domestic economic environment .................... 22 - 2810
1. Macroeconomic policy framework ...............22 - 2410
2. Mesoeconomic policies ........................25 - 2711
3. The mix of domestic policies ................. 2811
III. INCREASING OPPORTUNITIES AND BROADENING PARTICIPATION
THROUGH THE PROMOTION OF SMALL ENTERPRISES AND
SUSTAINABLE AGRICULTURE ..............................29 - 7012
A. Small enterprises and expanding opportunity ...... 29 - 3112
B. Targeted policies for promotion of small
enterprises ...................................... 32 - 6213
1. Increasing access to financial resources .....33 - 4413
2. Entrepreneurship promotion ...................45 - 4719
3. Access to land ...............................48 - 4921
4. The regulatory environment and other policies 50 - 5422
5. Promotion of small enterprises with specific
orientation ..................................55 - 6223
CONTENTS (continued)
Paragraphs Page
C. Cases of sustainable agriculture and fishery ..... 63 - 7025
1. Seed provision ...............................64 - 6625
2. Small-scale tree crop cultivation ............67 - 6825
3. Small-scale sustainable fisheries development 69 - 7026
IV. INSIGHTS AND RECOMMENDATIONS .........................71 -8326
Boxes
1. Trickle-up programme .............................................14
2. Typology of successful credit programmes .........................16
3. Mobilizing capital among the Tolai people of Papua New Guinea:
incorporating customary practices in the modern economy ..........18
4. The EMPRETEC programme ...........................................20
INTRODUCTION
1. Recognizing the need to intensify efforts to increase the opportunities
and participation of developing countries in the world economy, as well as
those of individuals and communities in the developing countries for
accelerated and sustainable development, the General Assembly, in its
resolution 48/60, decided to establish the United Nations Panel on
Opportunity and Participation. The Panel met during the week of 15-19 May
1995. The present report summarizes the findings and conclusions of the
Panel and puts forward its recommendations.
2. The Panel noted that the concepts of opportunity and participation
encompass a wide range of economic, social and political issues. In its
deliberations, the Panel concentrated on issues related to economic
opportunity within the framework of sustainable development. It discussed
various meanings of participation and examined the role of participatory
processes in the elaboration of development strategies as well as in
project formulation and implementation. The Panel further explored the
scope for increasing opportunity and participation in economic and social
activities, especially by disadvantaged groups in developing countries,
through the promotion of small enterprises. 1/, 2/
3. The Panel observed that an appropriate global economic environment was
complementary to economy-wide policies at the national level and that both
were necessary for the expansion of economic and social opportunity for all
groups and individuals. It noted that careful due account needs to be
taken of the differing effects of structural adjustment programmes on
different sectors of the economy, as well as on enterprises of different
sizes, and appropriate remedial measures incorporated in policy. In
particular, it observed that targeted support measures were necessary for
the promotion of small enterprises owing to their relative vulnerability.
The Panel further found that certain policies, while fostering
environmentally sustainable agriculture, tended to have a positive impact
on rural development and on broadening the participation of disadvantaged
groups, particularly in the rural areas.
I. THE CONCEPTS OF OPPORTUNITY AND PARTICIPATION
A. Opportunity
4. Opportunity refers to the scope for expanding or diversifying existing
economic activities or creating new ones, as well as for enjoying the
material, social and other benefits arising therefrom. It may exist, and
therefore needs to be fostered, at various levels, namely, the global,
regional, national, subnational (including communities and groups), family
and individual levels.
5. Whether a particular situation is recognized as presenting an
opportunity is related to a nexus of needs and means, shaped by cultural,
locational and specific historical factors. Thus, what constitutes an
opportunity for one person, a group or a country may not appear such to
others, if they have differing perceptions of their needs and/or
differential access to the means available for exploiting what could
otherwise constitute an opportunity. Sometimes, opportunity may already
exist, needing only to be identified and exploited. At other times, it
has to be created. Finally, it must be recognized that what provides
opportunity for some may shut it out for others. Thus, increasing
opportunity does not ipso facto produce equity or equality.
B. Participation
6. While the term "participation" has become popular among development
agencies in the formulation of development projects, it takes on different
meanings according to the context in which it is used. 3/ The Panel viewed
participation in development as meaningful involvement in social, political
and economic activities, including burden-sharing, and equitable access to
the benefits of economic and social progress. This is in line with the
Programme of Action of the World Summit for Social Development, which
affirms the promotion of participation as essential for the achievement of
social development. 4/
7. In the present report, the discussion on participation concentrates on
activities or processes relevant to the exploitation of economic
opportunity. This covers the involvement of people and groups in the
production and exchange of goods and the provision of services. Such
involvement may take the form of employment, entrepreneurial activity, the
management of enterprises and ownership of assets. As also noted in the
Programme of Action, increasing economic opportunity and broadening
participation raise important issues of governance. 5/
8. Of particular salience here is the question of participatory processes
in the formulation of policy and the allocation of resources. The direct
involvement of actors in development initiatives and decision-making is
especially effective when the target is a particular disadvantaged group
and the goal is poverty alleviation. 6/ While this inclusive approach may
incur high costs in such aspects as supervision and training, especially at
the initial stages of a project, the long-term cost-effectiveness of such
an approach may be high. 7/
9. Participatory processes are, thus, valued for their contribution
towards social integration and long-run cost-effectiveness of projects.
But they are important for other reasons as well. They may, for example,
increase welfare by mobilizing underutilized resources. Participation can
also facilitate good governance, confer legitimacy on public activities and
reduce alienation, thereby contributing to the maintenance of public order
and the integrity of the State.
C. Opportunity, participation and development
10. Current development strategies place overwhelming emphasis on market
mechanisms, on the theory that, under appropriate conditions, market
signals lead to a more efficient allocation of resources. It is generally
appreciated that expansion and liberalization of markets create
opportunities. But the extent of participation in the opportunities
created through market mechanisms is conditioned by factors such as
culture, management and entrepreneurial skills, as well as access to
productive assets, information, technology, research and financial
resources. Moreover, the behaviour of enterprises in unregulated markets
may impose substantial social and environmental costs on other social
actors and constrict their scope for participating in social and economic
life. There is, therefore, a major role for state policy and action in
preserving opportunity and facilitating broad-based participation in order
to promote sustainable development.
11. Determining the appropriate scope and modalities for effective state
action is, however, a complex and controversial matter. First, the target
group must be carefully identified and delimited. Secondly, consideration
must be given to the appropriate level - international, regional, national
and subnational - at which to intervene. Thirdly, consideration must be
given to the sphere of intervention, whether it be political, economic,
social or some combination of these. Finally, how to intervene most
effectively has to be judged -through economic policy instruments, legal
reform, law enforcement, intergovernmental cooperation, political,
administrative or judicial discretion, education policies, research and
development policies, technology development and dissemination, or
empowerment of particular geographical or disadvantaged social groups, such
as indigenous people, minorities and women.
II. THE POLICY ENVIRONMENT
12. The Panel observed that the ability of the peoples in the developing
countries to participate meaningfully in social and economic activities was
significantly influenced by both national policies and the international
economic environment. It was noted that the effect of sound and efficient
policies at the micro-economic level as well as the impact on individual
and small group initiatives can be blunted by inconsistent or unbalanced
macroeconomic policies. On the other hand, properly designed and
implemented macroeconomic policies greatly enlarge economic opportunity and
magnify the impact of micro-economic policy measures. This facilitates
broader participation in economic growth and improvements in the quality of
life. At the international level, globalization of the world economy, both
in trade and in finance, offers considerable opportunity for externally
oriented growth strategies. In particular, the rapid technological
innovations of recent years, reinforced by the liberalization of
international trade and finance, have created economic opportunity
domestically and internationally. The extent to which these opportunities
will be exploited and their benefits widely shared is greatly affected by
conditions in the international as well as the domestic, social and
economic environment. Thus, the mere presence of opportunities in the
global economy guarantees neither their equitable and effective
exploitation nor economic or social progress in any particular country.
13. Therefore, selected international economic developments and the
domestic policy environment are briefly examined in the following
paragraphs, since these create opportunities and largely determine the
extent of participation in their exploitation and enjoyment.
A. International economic environment
14. The past 15 years or so have been marked by increasing globalization
of economic activity, especially in relation to trade, finance and
communications. The new international trading regime set up by the recently
concluded Uruguay Round of multilateral trade negotiations is expected to
accelerate this process. Globalization, however, has proceeded unevenly,
with the result that large numbers of people have become marginalized. To
help redress this trend and create conditions that enable poor countries,
and the people within them, to benefit from the opportunities created by a
more integrated world economy calls for concerted policy responses at both
the international and national levels.
1. Globalization of trade
15. Over the past decade, international trade has consistently expanded at
a more rapid rate than world gross domestic product (GDP). During the
period 1985-1994, the volume of world exports grew at the rate of 5.6 per
cent per annum, while world GDP grew at 2.2 per cent. The growth of trade,
however, was not even across regions. Exports of developing countries as a
whole increased more than twofold (141.4 per cent) in real terms, broken
down as follows: South and East Asia, including China, 233 per cent; Latin
America, 56 per cent; and Africa, 52 per cent. However, these gains in
export volumes were partially nullified by movements in the terms of trade,
which worsened during the period 1980-1994 for all developing regions,
except the Mediterranean. The decline was 30 per cent for Latin America,
50 per cent for Africa, 57 per cent for West Asia and 18 per cent for South
and East Asia. The world economy also exhibited considerable instability
in the growth of trade opportunities. For instance, the quantum of world
exports rose by 9.4 per cent in 1994, but only by 5.3 per cent in 1993. 8/
Such instability makes resource allocation and innovation more difficult.
While this affects all economies, its effects are particularly serious for
developing countries, especially the exporters of primary commodities,
which are more vulnerable to external shocks owing to their highly
inflexible economic structures.
16. Although the increased transparency and expanding trading
opportunities resulting from the completion of the Uruguay Round will give
a boost to world trade, many developing countries may not be able to reap
the full benefits of these improvements. One major factor is that the new
regime restricts the use of export incentives and industrial policies that
were so successfully deployed in the development process of the newly
industrializing countries (NICs). To compensate for this, improvements in
other aspects of the international institutional framework are urgently
needed.
17. Three broad goals should be pursued. First, international
institutions need to increase their effectiveness in containing the
occurrence and severity of instability in the world economy, and enhance
the ability of countries to cope with it. They should also take measures
to make it easier for developing countries to take advantage of the
opportunities offered by the new trading system. Secondly, in formulating
economic policy, proper account should be taken of the differentiated
effects of specific measures on diverse social and economic actors through
their effects on, for example, productivity, employment and investment.
Thirdly, efforts should be made to arrive at a more balanced view of how
markets work in different societies and economies and how they interact
with government policy interventions.
18. Regional trading arrangements among developing countries could make a
significant contribution to their efforts to expand and diversify exports
as well as to upgrade their quality. Their small and medium-sized
enterprises, in particular, can benefit greatly from the enhanced trading
opportunities offered by regionally integrated markets. Developed
countries, international institutions and regional organizations should,
therefore, encourage and facilitate economic cooperation among developing
countries.
2. Globalization of financial flows
19. The growing volume of private international financial flows to many
developing countries in recent years has provided them with a major
opportunity to finance needed investment. It has, however, included a
large component of short-term capital flows, which are subject to great
volatility, as recent events in Mexico and several other countries have
demonstrated. Except in Asia, the more stable components, such as foreign
direct investment and long- and medium-term financing, have represented a
smaller part of the flows. Combined with the recent decline in official
development assistance, which is not likely to be reversed soon, this
constitutes a serious problem for poor countries, especially the least
developed.
20. The undoubted dynamism in the international financial markets can
increase the participation of increasing numbers of countries in expanding
investment opportunities only if financial instability is seriously curbed
and the flow of information on financial markets greatly improved. The
volume and variety of compensatory financing provided by international
financing institutions and regional institutions also need to be expanded.
A new allocation of special drawing rights (SDRs), in sound amounts for the
world economy, could provide the needed financing for much of this.
21. In the face of volatile capital flows, however, the role of domestic
policy becomes critical. Successful countries have been those that have
been capable of attracting a high level of external capital inflows while,
through active macroeconomic policies, avoiding the over-heating of
domestic demand, excessive exchange rate appreciation and volatile interest
rates. An instructive illustration is provided by a comparison of the
cases of Mexico and Chile in the past few years. Both countries had budget
surpluses, an open import regime and privatized ventures and were
implementing structural reforms. However, Mexico remained wide open to
short-run capital flows and left the exchange rate to appreciate pari
passu, while Chile discouraged such inflows through taxes on non-interest-
bearing deposits and increased reserve requirements. As a consequence,
Mexico has suffered a severe adjustment crisis since December 1994, while
Chile has exhibited dynamic and financially sustainable growth. In
general, successful countries were those that also enhanced, rather than
weakened, domestic investment efforts.
B. Domestic economic environment
1. Macroeconomic policy framework
22. Domestic macroeconomic policies intermediate between external and
domestic markets, and should be capable of softening the adverse effects of
external shocks. They must also be designed to avoid or cushion
domestically generated shocks. Quite often, however, macroeconomic policy
in many developing countries has generated stop-and-go outcomes and created
environments that discourage capital formation and technological
innovation. In general, too little consideration has been given to how the
process of adjustment affects capital formation and the use of existing
capacity. Many structural adjustment and stabilization programmes thus
reflect serious shortcomings in two aspects relevant for the present
report. They have been associated with rather weak investment performance
and with negative trends in the equitable distribution of the gains from
development.
23. In the past decade, several indications of weakening economic and
social participation have been observed in various parts of the world.
There are various measures of inequalities, such as the percentage of
household income accruing to lower-income groups, the ratio of the income
share of the richest 20 per cent to the lowest 20 per cent, urban income
versus rural income and real per capita GDP. One rather crude indicator of
changes in inequality over time among regions is the differences in their
growth rates of GDP per capita. Thus, for example, per capita GDP in
Africa and West Asia has declined over the past decade (-1.0 per cent and -
2.8 per cent per annum, respectively, for 1985-1994). For the former, the
growth rate was barely positive in the preceding decade, at 0.3 per cent
per annum, while the latter experienced a negative average annual growth of
2.3 per cent. In Latin America, the average annual growth rate was
marginally positive over the past two decades (0.7 per cent for 1975-1984
and 0.5 per cent for 1985-1994). Only in South and East Asia, especially
in China, did per capita GDP grow strongly throughout the two decades.
South and East Asia experienced an average annual growth rate of 3.8 per
cent over the two decades, while China increased its average annual growth
rate from 6.2 per cent to 8.3 per cent from one decade to the next. 9/
24. To the extent that programmes of structural adjustment and
stabilization have been carried out under the guidance of international
financial institutions, some of their shortcomings may be attributable to a
rather naive interpretation by these agencies of how the markets of
specific countries operated and how they would react to different policies.
In this connection, the importance of adapting policies to take account of
economic heterogeneity must be emphasized. A larger role for the United
Nations in economic matters could, perhaps, contribute to the dissemination
of a more balanced view of market behaviour. In particular, the United
Nations regional commissions and the regional development banks, which are
closer to the problems and understand better their country specificities,
could contribute significantly to shaping opinion and designing more
efficient policies.
2. Mesoeconomic policies
25. In order to take advantage of the general trends towards globalization
and rapid technological progress in the world economy, economic development
needs to generate markets for technology, labour training and long-term
financing. In all these areas, however, markets are weak, incomplete or
non-existent in most developing countries. Therefore, economy-wide
policies directed at strengthening these markets are needed. Such
policies, termed mesoeconomic policies, play a crucial role in linking
macroeconomic policy to the behaviour of social and economic agents at the
micro level.
26. The externalities involved in the adoption of new technologies and
labour training can be very significant, particularly in developing
countries, where they greatly enhance the flexibility of national
economies. Effective policies in this area require the cooperation of the
central government, local administration, business associations and labour
unions in various combinations, depending on the nature of the training and
technology involved in each case, and on the type of market. In some
cases, all that is needed is encouragement by the Government, for example,
by providing appropriate tax incentives. In other cases, it may be
necessary to establish a training facility or a mechanism for channelling
information on new technologies to putative users.
27. Long-term segments of capital markets do not emerge spontaneously in
response to naive financial reforms. Careful effort by Governments is
required to design and implement suitable reforms, whose success is closely
related to the nature of capital inflows. For, as previously indicated,
policies that give priority to long-term flows and discourage volatile
flows can play a significant positive role in ensuring macroeconomic
stability.
3. The mix of domestic policies
28. While it is true that a high rate of investment is not by itself
sufficient to bring about sustained development, no developing country has
achieved sustainable, vigorous economic development with low rates of
investment. In order to achieve high rates of investment, macroeconomic
and mesoeconomic policies must pay a great deal of attention to the broader
factors shaping the environment for investment. Such factors include the
investment process itself, the possible effects of adjustment policies, the
complementary relationship between public and private investment, and the
effects of capital flows on exchange rates, domestic savings and local
capital markets. The record of recent years has been poor. To improve
this state of affairs, it is necessary to reduce instability of both
external and domestic origin. Public investment in education,
infrastructure and training, and provision of incentives to innovation
should not be sacrificed in adjustment processes. Capital flows should be
directed to enhance investment and to crowd in domestic savings. In sum,
more pragmatic and comprehensive macroeconomic policies, combined with more
intense mesoeconomic policies, are crucial.
III. INCREASING OPPORTUNITIES AND BROADENING PARTICIPATION
THROUGH THE PROMOTION OF SMALL ENTERPRISES AND
SUSTAINABLE AGRICULTURE
A. Small enterprises and expanding opportunity
29. Small business undertakings, embracing micro-enterprises and SMEs,
operate in a wide range of economic activities in virtually all countries.
They are found in both the urban and the rural non-farm sectors, and may be
in formal or informal sectors. In most countries they provide the bulk of
employment. Micro-enterprises offer an effective means for creating
employment and generating income, albeit frequently at the subsistence
level, for the poorer and more disadvantaged social groups. Among these,
women, who constitute about 70 per cent of the world's poor, feature
prominently as owners and workers. As is well-established, women engage in
such activities principally as a means of sustaining their families. Thus,
the promotion of micro-enterprises should form an important part of
programmes for poverty alleviation.
30. The promotion of small and medium-sized enterprises, on the other
hand, can be more effectively incorporated into more general
industrialization strategies. SMEs can play an active part in highly
competitive areas, such as the exportoriented and technology-intensive
sectors. Employment thereby generated has a powerful multiplier effect.
By providing income and increasing production, these enterprises can induce
further demand for goods and services, which, in turn, creates more
opportunities and employment. This chain of SME development also brings
about indirect effects, such as broadening the national tax base and
increasing tax revenues, which can be redistributed through appropriate
policies to ensure wider participation in the benefits of economic
development. Therefore, the Panel concluded that the expansion of micro-
enterprises and small and medium-sized enterprises, and policies for their
promotion, were an important means of extending opportunity and widening
participation, especially in developing countries.
31. With a view to promoting small enterprises, special attention must be
paid to the differential effects that macroeconomic and mesoeconomic
policies have on firms of different sizes. In particular, certain
macroeconomic policies may be harmful to the small-enterprise sector,
despite their favourable effects on larger enterprises. For instance,
trade liberalization, if it is introduced without allowing enough time for
adjustment, could put some small enterprises in jeopardy by exposing them
to tougher competition too soon. Even in such cases, however, direct
intervention has been observed to be harmful. In general, the best
environment for small enterprises is likely to be one where the markets in
which they operate function well without direct public sector intervention.
One policy approach is intervention with a "light touch". Such
intervention is normally decentralized and aimed at supporting, rather than
supplanting, the private market. 10/
B. Targeted policies for promotion of small enterprises
32. As discussed in section II, the provision of an enabling policy
environment at the macroeconomic and mesoeconomic levels is essential for
the development of the national economy, including, in particular, the
small-enterprise sector. By itself, however, this is not enough for the
latter. It has to be complemented by policies targeted specifically at the
promotion of micro-enterprises and SMEs. These would include measures,
inter alia, for improving access to financial resources, promoting
entrepreneurship, increasing access to land and providing a better
regulatory environment.
1. Increasing access to financial resources
33. One of the major constraints on the productive occupation of the poor
and other disadvantaged groups, as well as small enterprises generally, is
lack of access to finance. Macroeconomic and financial sector reforms have
not generally succeeded in filling this gap and providing for the credit
needs of the bottom 50 to 70 per cent of the economically active
population. Non-traditional specialized financial intermediaries, including
non-governmental organizations, for their part, reach no more than perhaps
2 per cent of the more than 500 million people who run micro- and small
enterprises throughout the world. 11/ According to the Human Development
Report, 1993:
"If government and official aid programmes usually fail to reach the
poorest 20% of income groups, most NGO interventions probably miss the
poorest 5-10%." 12/
Thus, not even the specialized non-governmental organizations reach the
very poorest. The situation of the more advanced SMEs is slightly
different. For them, the major handicap is the limited availability of
venture capital.
34. Overall, the volume of funding made available for assisting micro- and
small enterprises in most developing countries has proved inadequate to the
task. But even with limited funding, a number of approaches are available
to policy makers. At the bottom of the scale, grants offer the most direct
way to reach the very poorest. For the portion of the population with
productive skills, however, credit programmes seem to offer more
sustainable solutions. Here, different types of credit programmes have been
designed for different target groups and different objectives. Successful
programmes tend to be more comprehensive, emphasizing productive skills and
sometimes providing for training and information support.
(a)Grant programmes for micro-enterprises
35. Successful grant programmes for micro-enterprise development tend to
be those that provide small amounts of capital in cost-effective and
culturally appropriate ways. The smallness of the amount facilitates self-
selection by highly motivated but poor beneficiaries. But, instead of
merely giving out aid, these programmes tend to combine grants with
technical assistance. Grants of this sort have been found particularly
effective in relation to such disadvantaged groups as refugees and
displaced persons, victims of natural disasters, ethnic minorities and
people affected by acquired immunodeficiency syndrome (AIDS) (see box 1).
36. The dynamic feature of such grant programmes is that by providing the
very poorest with the opportunity for entrepreneurial experience,
improvement of business skills and confidence-building, they can facilitate
future access to credit by enabling small-scale entrepreneurs to establish
themselves and qualify for loans from other sources. Many successful
grantees subsequently seek and receive additional capital for business
expansion from credit programmes. In conjunction with community-
development programmes, grants can also promote the formation of locally
based revolving loan funds.
Box 1. Trickle-up programme
The trickle-up programme was established in 1979 with a view to fostering
self-help among the world's poor by providing small grants and basic
business training. The approach of the programme is to provide a
conditional grant of $100 in two $50 instalments to be used as start-up
capital for a business activity. The established process requires 1,000
work-hours in the first three months, reinvestment of 20 per cent of the
profits and completion of a business plan and report. As of mid-April
1995, more than 45,000 businesses had been established under the programme
in 110 countries.
Wherever it is feasible, the trickle-up programme tries to form an
enterprise zone - a cluster of 30 to 100 micro-enterprises whose
entrepreneurial progress and impact on the surrounding community are
tracked for up to three years. The following examples illustrate how these
enterprise zones increase opportunities and participation for micro-
entrepreneurs in production, consumption, access to capital, self-
employment, community development and institution-building.
In Malawi, 13 enterprise zones, comprising 175 small farms, have been in
operation for five years in Dowa. They have generated income and
employment through the cultivation of hybrid maize. The benefits are
clear. Average family income has more than doubled, and profits from
maize, coupled with the 20 per cent trickle-up savings requirement, have
attracted a mobile rural savings bank to the villages. The local credit
union, established by enterprise zone participants, makes loans for farm
improvement. The production and storage of maize has provided a measure of
food security, and child malnutrition has decreased. More families have
been able to send their children to school, and health has improved as a
result of the availability of clean water from a community-built well. In
addition, the enterprise zones have served as a catalyst for community
self-help efforts, through which a market-place, a drinking well and an
elementary school have been built. Three institutions were established:
an agricultural cooperative, a credit union and a non-governmental
organization, the Dowa Enterprise Zone Association, which was formed to
continue and expand the enterprise zones.
In Guatemala, a partnership between the Government, grass-roots
organizations and the trickle-up programme is helping indigenous people.
Three enterprise zones, involving 230 businesses, were started in the rural
areas of Chimaltenango, Totonicapan and Sacapatepequez in 1993/94. The
entrepreneurs, mostly women, have started micro-businesses involving
foodprocessing, vending and traditional crafts, such as clothes, rugs and
tablecloths.
Within a year, the entrepreneurs had gained experience as successful
entrepreneurs on two levels. First, as successful business people they
were able to take risks and secure and utilize loans. Secondly, their
community organizations had demonstrated their capacity to manage a more
complex programme. After receiving their grants from the trickle-up
programme, three community organizations applied for, and obtained, $9,000
from the Government of Spain for "solidarity funds". The organizations
were trained to manage these funds and are now making loans to members for
business expansion.
(b) Improving access to credit
37. Except for those operating among the absolute poor, credit programmes
would seem to offer a more financially sustainable approach than grants for
micro- and small enterprise support. Those enterprises that have access to
credit have demonstrated their ability to repay their loans. Those that
are compelled to resort to moneylenders pay even higher rates of interest
than is charged by commercial banks. The United Nations Expert Group on
Women and Finance, convened by Women's World Banking, concluded that what
is most desired by such enterprises is an improvement in access to credit,
not subsidies. 13/ Lack of collateral and the small size of their loan
requests constitute major obstacles to these enterprises in obtaining
credit from traditional financial institutions, which perceive such small
loans as unduly costly.
38. A number of credit schemes and specialized financial institutions have
been designed to reach small enterprises, and the record shows such schemes
to be viable. They range from specialized banks to village-based revolving
funds. These programmes take different forms depending on their goals and
target groups (see box 2). However, even these special programmes reach
probably only 10 million micro-enterprises and SMEs worldwide, about 2 per
cent of the overall number. Thus, greater efforts are called for.
39. Several lessons about targeting large numbers of these entrepreneurs
can be learned from the experiences of successful financial institutions.
First, the programmes have to be designed specifically to reach their
target groups. Thus, when the target group is low-income women, factors
such as smallness of loans, alternative collateral requirements and simple
application procedures become important. Secondly, these institutions
should aim for financial selfsufficiency so that they can become permanent
institutions serving their target group without being vulnerable to sudden
policy changes by Governments or donors. It is not always possible to
achieve full financial self-sufficiency in all types of schemes. 14/ Even
where a measure of subsidy is required, however, the positive externalities
may be sufficiently large to justify such schemes. Thirdly, the financial
institutions should aim at empowering their clients. Provision of credit
itself contributes directly to the economic empowerment of the recipients.
But, in addition, the more successful programmes provide training schemes
for their clients.
Box 2. Typology of successful credit programmes
Different types of credit programmes have been designed and used for
different objectives and target groups. Four broad categories of these are
considered here: development banks, including special credit schemes
within commercial banks; poverty-oriented banks; affiliate networks; and
other non-governmental organizations.
(a) Development banks
These are generally government-owned, with a mandate to serve small-
scale borrowers. Included are commercial banks with special credit schemes
targeted at such borrowers. Examples of such development banks are
NAFIN/PROMYP of Mexico and CFN/FOPINAR of Ecuador, both of which operate
through second-tier lending. An example of a commercial bank programme is
BRI/KUPEDES of Indonesia. This bank operates through chabangs (branches)
and unit desas (village units). It was originally set up for an
agricultural credit programme, but the numerous unit desas, which were the
only formal banking system for 75 per cent of the country, were converted
to full banking units by mid-1994 to serve the rural population.
(b) Poverty-oriented banks
These are officially registered as banks, but have the clear objective
of serving the poor. Two of the best-known examples in this category are
the Grameen Bank in Bangladesh and the SEWA (Self-Employed Women's
Association) Bank in India. The Grameen Bank serves landless people in the
rural areas. Its innovative feature is to arrange for collective collateral
by organizing people into groups of five. Although the Grameen Bank is now
looking into non-subsidized loans, it has, to date, relied on concessionary
loans and grants for its funds. The SEWA Bank operates as a cooperative
bank, pooling members' funds and collecting savings, which form the basis
for its loans. The members are poor women entrepreneurs. Both the Grameen
and the SEWA Banks enjoy high repayment rates.
(c) Affiliate networks
By forming networks, a number of institutions are able to exploit a
wide array of funds, services and information. In addition to their main
function of financial intermediation, these networks provide other
services, such as training and counselling. One of the best known examples
in this category is Women's World Banking (WWB). Each WWB affiliate is an
independent non-profit institution with autonomy over decision-making and
finances. The network's centre in New York offers a range of services to
affiliates and coordinates programmes, including organizing global forums
and local workshops.
(d) Other non-governmental organizations
These institutions are usually not formal financial institutions.
Their linkages with commercial and development banks enable them to
mobilize funds to meet the needs of their client groups. One example is
the Asociacion Dominicana para el Desarrollo de la Mujer (ADOPEM), an
affiliate of WWB, in the Dominican Republic. A loan-guarantee agreement
with WWB has enabled ADOPEM to arrange a leveraged credit line from a
commercial bank, which ADOPEM on-lends to entrepreneurs. ADOPEM is more
than fully financially selfsufficient. Also included in this category are
more than 17,000 credit unions operating in 67 developing countries whose
national associations are affiliated with the World Council of Credit
Unions. They are member-owned and operated, providing savings and credit
services.
40. Although special programmes and specialized financial institutions are
important, their limited coverage means that a sustained impact on the
problem of underfunding of micro-enterprises and SMEs calls for more active
involvement of commercial banks, which tend to exclude this portion of the
population because of the conviction that it is too costly to service. The
experience of successful specialized institutions should encourage them to
look more closely into the market opportunities offered by lending to this
sector. By altering ways of operating and of products offered, costs and
risks can be reduced. Finally, the possibilities of establishing
collaborative relations among commercial banks, non-governmental
organizations and specialized institutions to serve this sector should also
be examined.
41. Government agencies and national development banks are generally
better able to serve as catalysts than as direct lenders to small
enterprises. National development banks should, therefore, concentrate on
wholesale lending to private financial institutions that meet set
performance standards, including competence in lending to low-income
enterprises, which can then on-lend to this sector. 15/
(c) Availability of funds
42. In relation to needs, funds made available for programmes that serve
micro-enterprises and SMEs are woefully inadequate. Grant as well as
credit programmes generally need to be subsidized. Even when credit
schemes and specialized financial institutions aim for financial self-
sufficiency, they may still require subsidies in their early phases while
they build institutional capacity and achieve a break-even volume of
lending. The experience of these programmes indicates that it takes an
efficient lender from three to five years to cover operating costs,
including loan loss provisions, and from five to seven years to build the
volumes needed to cover full commercial financing and operating costs.
Governments and other funders can provide resources in ways tailored to the
stage of development of particular institutions. When they achieve
sufficient size and capacity, however, these financial institutions may be
expected to access domestic and international commercial funds directly
through the financial markets.
(d) Other aspects of policy
43. Legislation affecting specialized financial institutions is often so
restrictive as to allow little room for scaling up to reach the stage of
financial self-sufficiency. This needs to be altered. Again, performance
evaluations of financial institutions can be modified to give greater
weight to their lending to micro- and small enterprises. This would help
improve the access to funds, refinance and deposit insurance by these
institutions. In addition, NGO financial institutions, especially in
Africa and Latin America, often face restrictions on savings mobilization
that reduce their ability to lend and cause them to depend more on outside
resources.
44. Again, many community-based development agencies lack the capacity to
implement grant and credit programmes, which require a certain minimum
level of financial, administrative and technical resources. Governments
can support development finance institutions in providing capacity-building
services to community organizations. Networks of specialized financial
institutions, including non-governmental organizations, can also be
effective in providing such services. In some communities, where they are
not fully integrated into modern, monetized economies, ways can be found to
incorporate traditional business practices into modern systems so as to
increase the economic participation of local people (see box 3).
Box 3. Mobilizing capital among the Tolai people of
Papua New Guinea: incorporating customary
practices in the modern economy a/
Coconuts and traditional shell-money have been used to raise capital by a
community-based business engaged in development on behalf of the Tolai
people, who live on the Gazelle Peninsula of Papua New Guinea's East New
Britain Province. The experience of the New Guinea Development Corporation
shows how traditional values, institutions and ideas may be used to
mobilize capital in order to create and take advantage of opportunities for
economic participation in developing countries.
The Corporation was set up in the early 1970s, when traditional
agricultural subsistence was either giving way to wage-employment
(primarily for men), mainly in semi-skilled and unskilled occupations - or
was being supplemented by small-scale production of copra and cocoa for
export, trade stores or trucking. Government-sponsored cooperatives, which
were the largest locally owned concerns, were competing with (mainly
foreign) entrepreneurs. Widespread opposition to local government reforms,
which would have had the effect of increasing foreign influence in a Tolai-
owned and operated cocoa-processing project, led to the formation of the
Mataungan Association - and to its economic offshoot, the New Guinea
Development Corporation. According to the founder of the Corporation, John
Kaputin, the political circumstances that developed in the area "meant a
rejection of the foreign system" by a substantial proportion of the Tolai
people, who then numbered well over 60,000 and created important
preconditions for establishing the Corporation.
The New Guinea Development Corporation was launched in May 1970, was
registered in August 1972 and began operations in November 1972. It
developed from a long series of informal discussions, held in villages
throughout the Gazelle Peninsula, at which the current situation in the
area - and alternatives -were raised; followed by formal meetings,
deliberately confined to small numbers in order to facilitate communication
and timed to fit in with particular villages' employment and subsistence
commitments; and, finally, by actual capital raising.
Contrary to the requirements of introduced law, the Corporation did not
begin with a board of directors but with a group of village leaders.
Concepts were deliberately explained in familiar, cultural terms, with
"corporation", for example, being equated with the traditional, Tolai
landowning group (or clan), the wunatarai. Consistent with the commitment
of the founders of the Mataungan Association and the New Guinea Development
Corporation to self-reliance, customary practices and explaining abstract
ideas in familiar terms, contributions were initially not sought in cash
but in the form of coconuts (three per adult and one per child) and
traditional Tolai shell-money, tabu. The coconuts were sold, thereby
demonstrating "the creation of capital from ... available natural
resources". The Corporation became "the only modern institution in Papua
New Guinea to be involved in two currencies - the Kina (the official
money currency) and tabu".
The K100,000-plus raised from communal effort and selling of shares
eventually involved some 10,000 people. Following Tolai custom, in which
contributions to communal enterprises were stored until further
transactions occurred and tangible assets were acquired, none of the income
was used (and no one was paid) until the Corporation had acquired its first
properties.
The Corporation's early investments included a store, a cocoa
fermentary, a copra drier, and plantations. Other properties have since
been acquired for investment purposes in other parts of the country.
a/ Based on John Kaputin, "The New Guinea Development Corporation",
in F. S. Stevens and Edward P. Wolfers, eds., Racism: The Australian
Experience. A Study of Race Prejudice in Australia, 2nd ed., vol. 3;
Colonialism and After (Sydney, Australia and New Zealand Book Co., 1977),
pp. 398-413.
2. Entrepreneurship promotion
45. The promotion of entrepreneurship is not necessarily the same as the
promotion of enterprises, though the two obviously reinforce one another.
Entrepreneurs are those able to identify opportunities and convert them
into profitable business activity. The successful operation of
entrepreneurs enhances participation by others through increased
opportunities for employment and other economic activities. Thus, some
programmes for promoting small and medium-sized enterprises may be designed
to target specific entrepreneurs or individuals with potential for creating
and expanding productive activities. While such targeting may seem unduly
selective, the overall effect usually extends beyond the entrepreneurs
themselves. 16/ (For an example of such programmes, see box 4.)
46. Constituting more than half of the population living in absolute
poverty, women would thus represent the majority of the beneficiaries
targeted by any properly designed micro-entrepreneur and SME development
programmes - except where their participation in production and economic
activity is constrained by social factors or by special limitations on
their access to capital. As entrepreneurs, women have a record of good
performance, and the indirect benefits of their success are significant.
The latter include, for example, improved nutrition, health and housing for
their families, greater interest in family planning and provision of
education for their children.
Box 4. The EMPRETEC programme a/
The EMPRETEC programme, jointly implemented by the United Nations
Conference on Trade and Development and the Department for Development
Support and Management Services of the United Nations Secretariat, focuses
on entrepreneurship development and building linkages with foreign
companies. The basic feature of EMPRETEC is to identify potential
entrepreneurs, provide them with training and technical assistance, help
them in arranging mutually beneficial connections with larger national and
foreign companies and establish long-term support systems for the
development of their ventures. The programme also emphasizes the building
of effective and active coalitions of public institutions, private business
associations, national and foreign companies, and multilateral
organizations. By charging cost-recovery fees, the programme is expected
to become self-financing within three to four years, by which time an
EMPRETEC foundation or equivalent organization will have been established
to carry out the programme locally.
By the end of 1994, six years after its inception, the EMPRETEC programme
had become fully operational in Argentina, Brazil, Chile, Ghana, Nigeria,
Uruguay, Venezuela and Zimbabwe. It operates through 18 local and
provincial business support centres and has benefited more than 2,500
entrepreneurs in these countries. In addition, preparatory assistance or
project documents have been formulated for 18 other countries. In the
first three years, the average annual cost of the programme was US$
700,000, of which one third was for training subcontracts and fellowships.
But as the programme matured, this component was reduced. The programme
also recovers operational costs by charging fees for its services.
The results so far indicate that EMPRETEC projects can have a significant
positive impact on SME development, albeit influenced by the local
political and economic environment. A favourable economic climate has
assisted the growth of the SME sector in general in Chile and Ghana, and
EMPRETEC entrepreneurs have recorded high rates of success there. In
contrast, continuous political unrest and the dormant performance of the
national economy gave EMPRETEC entrepreneurs in Nigeria a difficult time
during 1993. These factors, combined with administrative problems, have
meant that the Nigeria project has yet to see substantial results after
four years of operation. EMPRETEC projects have demonstrated the
effectiveness of an approach that focuses on identifying entrepreneurs with
superior potential. The programme has been successful in the development
of new businesses and the expansion of existing ones. The bottom-up
approach, which is built upon the needs of participating entrepreneurs, is
considered to be one of its strengths. Establishing national support
structures within the organization of the programme is also an innovative
feature.
The programme is not, however, without its shortcomings. First, in spite
of its emphasis on training, the programme has not provided training on an
ongoing basis. Secondly, with the exception of the Ghana project, there
has been no systematic effort to facilitate linkages with foreign
companies. Thirdly, the effort to facilitate the access of SMEs to
financial resources has been ad hoc. Fourthly, the database on the
participants and their progress has not yet been developed to a point that
would permit monitoring and evaluation of projects in a satisfactory
manner.
a/ EMPRETEC is a Spanish acronym for "emprendedores" (entrepreneurs)
and "tecnologia" (technology).
47. The legal and social obstacles often faced by women entrepreneurs call
for special attention. For a start, they need encouragement to expand
their businesses beyond self-employment. Literacy programmes and general
education can provide them with a powerful means for increasing their
economic and social involvement. Additionally, basic business education
and specific training in entrepreneurial skills and attitudes can provide a
crucial boost to
their confidence and competence in the economic sphere. Networks and
support groups among women can provide additional information and advice to
support the development of women entrepreneurs.
3. Access to land
48. In the rural areas of many countries, lack of access to land can be a
major constraint on micro-enterprise and SME development. In some
countries, successful agrarian reform has been a precursor to agricultural
productivity increases and SME development. As a general rule,
agricultural land that is surveyed and registered, giving the cultivator
clear title, records much greater productivity than other land. This is a
powerful argument in favour of land tenure reform. In this connection, it
should be observed that problems related to tenure are not necessarily
attributable to tenure being based on custom or statutory law, but the
appropriateness of particular systems to country-specific situations.
49. Private land use must also be reconciled with the public interest.
This issue is of increasing importance, as the need to provide public
facilities, such as roads, airports and schools, rises. As regards the use
of land, next to exercising the right of eminent domain, perhaps the most
effective policy instrument is the power to tax. By effective use of
taxation, Governments can encourage more efficient land use and higher
productivity. Land registration is, of course, a prerequisite for
effective taxation. The public interest in environmental protection has
become increasingly important, especially in relation to activities
involving natural resources such as forestry and minerals.
4. The regulatory environment and other policies
50. While government regulation of enterprise activity has a vital role to
play, especially in maintaining health and environmental standards and
protecting the safety of workers, excessive bureaucracy and red tape can
hamper the functioning of enterprises. It has been observed in many
countries that some government regulations prove damaging to small
enterprises, where the cost of compliance is largely relative to the level
of sales and where they may be subjected to exploitation by corrupt public
officials.
51. Additionally, regulations affecting labour markets, such as those
setting out minimum wages and social security contributions, may work
against small enterprises. While intended for the protection of workers,
such regulations tend to be designed with the conditions of larger
enterprises in the modern sector in mind. Minimum wages, for example, if
set too high, may place SMEs at a competitive disadvantage relative to
larger firms. So may high social security contributions. While
regulations such as standards on health, safety and quality do not always
impose undue burdens on SMEs, some others, such as siting and floor area
requirements, may do so.
52. The effects of reducing regulatory standards are, however, ambiguous.
As it is, small enterprises tend to evade many of these regulations, in any
event. In addition, even though some exploitation by public officials may
exist, it is hardly likely that this will cause enterprises to fail. Thus,
the issue is not one of necessarily exempting SMEs from such regulations,
but applying the latter in ways as to reduce the cost of compliance for
SMEs as much as possible.
53. As encouragement to small entrepreneurs and for promoting the
interests of disadvantaged groups, such as women, there are other aspects
of legislation that need to be revisited. These will include the
simplification of registration procedures, taxation and credit access, with
a view to facilitating the operations of micro- and small enterprises and
the financial institutions that serve them. In many countries, women's
economic participation is further discouraged by laws regarding inheritance
and property rights which restrict their right to acquire legal title to
real property or financial assets. These, finally, need to be dealt with
decisively if the benefits of entrepreneurial activity by women, especially
its positive effects on family welfare, are ever to be fully realized.
54. Large-scale industrial projects can also effectively promote the
involvement of SMEs in various ways, including subcontracting. In Papua
New Guinea, for example, firms applying for large mining projects must
include plans to stimulate local business activity.
5. Promotion of small enterprises with specific orientation
(a) Export-oriented small enterprises
55. Even though the importance of SMEs in economic development in general
has received some recognition, the role of SMEs in export promotion has
attracted less attention, probably because their potential for
international competitiveness is usually underrated. But, as their
contribution to the recent successes of the NICs, and Japan before that,
has demonstrated, SMEs can play an important role in export growth. When
their indirect contribution in supplying parts and components to the larger
export-oriented enterprises is taken into account, the overall contribution
of SMEs is quite significant.
56. SMEs can be important even in the initial stages of an export-led
growth strategy. For example, the flexibility of SMEs in production
enables them to adjust easily to changes in overseas demand. SMEs also
have an advantage in the production of low-cost, labour-intensive goods,
which are typical export items at the early stages of export-led growth.
Even where SMEs do not export directly, they may be subcontracting to large
enterprises. It must be recognized, too, that SMEs have been successful in
relatively technologyintensive production, such as in metal fabrication and
light engineering. At a later stage of development, more SMEs are able to
export directly, leading to changes in the structure and composition of the
SME sector itself.
57. In spite of their acknowledged success in certain countries in Asia,
however, SMEs in other countries, particularly in Africa and Latin America,
have been responsible for only a small share of exports. Lack of
information regarding overseas markets, an adverse macroeconomic
environment and discriminatory trade policies in potential export markets
are some of the reasons for this. It is thus essential that Governments
provide an enabling environment for the development of SMEs. In addition,
Governments can provide an integrated package of assistance, which could
include tariff/tax reductions, export credit guarantees, technical
assistance, improvement of marketing and export facilities, and improvement
of market information flows. Further, as happened in the Republic of
Korea, Governments can provide assistance in facilitating linkages between
SMEs and larger firms where these linkages may otherwise be difficult to
establish. Experience shows that foreign partners, be they trading
companies or companies making direct investments, can also assist in the
strengthening of export-oriented SMEs. Even tourists can be of help as a
source of information on trends abroad so that SMEs can produce goods
suitable for export - as happened in the garment industry in Bali,
Indonesia. Innovative concepts such as franchising, industrial incubator
schemes and venture capital financing may also be useful for promoting
export-oriented small enterprises.
(b) Technology-intensive small enterprises
58. In the technology-intensive industries, large size was once considered
essential to carry out research and ensure an efficient scale of
production. In the past two decades, however, it has become evident that
small enterprises play a significant role in the growth of high-technology
industries in the developed countries. In an age of rapid technological
change, small firms have a comparative advantage in many sectors in
identifying and serving new markets before large firms move in. The growth
and competitiveness of firms in the Silicon Valley in the United States
have demonstrated the strength of small enterprises in some highly
technology-intensive industries. The availability of a pool of highly
educated and skilled labour is, of course, a prerequisite for the success
of this subsector - a condition not often met in the poorer countries.
59. Some developing areas, Taiwan Province of China, for example, and,
more recently, India, have shown that it is possible to encourage the
development of technology-oriented SMEs in developing areas, too.
Government policy can promote the development of such industries by
ensuring access to finance, especially venture capital; by protecting
intellectual property rights; and by providing tax incentives. The
critical mass in research and development, manufacturing and marketing
provided by large companies can be complemented by the flexibility of small
firms. A high-technology industrial park, which consists of large and
small enterprises, built in conjunction with a local university and with
government assistance, could be a useful approach for some developing
countries. The rapid growth of globalized telecommunication networks
presents a unique opportunity for SMEs to overcome the disadvantages of
size, not only with respect to access to information but also for obtaining
business services.
(c) Cooperative enterprises
60. Because they are owned and controlled by their members, cooperative
enterprises offer a unique way of increasing both opportunity and
participation. Most often, members of a cooperative reside in one or
several neighbouring communities. By sharing the same environment and
social circumstances, these cooperators are likely to pursue goals that are
beneficial to the community as a whole.
61. Cooperatives take many forms and have a variety of objectives. They
can take the form of production cooperatives or labour cooperatives, where
members themselves constitute the workforce. They can be formed by
independent enterprises and by micro-enterprises. Examples include
purchasing, supply and marketing cooperatives, savings and credit
cooperatives, cooperative banks and cooperative insurance enterprises.
But, as mutual self-help organizations, cooperative enterprises can
contribute directly and indirectly to poverty alleviation through
employment creation. An example of a cooperative bank is the SEWA Bank,
described in box 2 above.
62. It has to be acknowledged that the record of cooperative enterprises
in creating sustained opportunities has varied. For joint-marketing, bulk-
buying and large-scale services, the rate of success has been good.
Housing and credit cooperatives have also had some success. But, when it
comes to production, the record has been more mixed. Thus, in agriculture,
land-holding cooperatives, where production is carried out by family
farmers owning subdivisions within the holding, have a good record. On the
other hand, land-working cooperatives, where members do not necessarily own
the land, have rarely thrived.
C. Cases of sustainable agriculture and fishery
63. In the rural areas of many developing countries, it is possible to
design and implement programmes of sustainable development that have a
positive impact on disadvantaged groups. While many examples can be given,
only three are taken up: seed provision, small-scale cash-crop cultivation
and small-scale fisheries.
1. Seed provision
64. An important aspect of most agricultural extension programmes is seed
provision. The "Green Revolution" has produced a number of better quality
seeds for important commercial crops. For the most part, however, attempts
by both public and private institutions to provide better seeds to
smallholders have not been very successful. While the public sector has
been hampered by such factors as lack of resources, poorly motivated staff
and poor management, the private sector has often been deterred by high
transaction costs.
65. To fill the gap, non-governmental organizations with a highly
participatory orientation have been brought into the picture. Such non-
governmental organizations have the advantage of being closer to the
farmers, especially if they are already involved in other programmes in the
same location. Being independent of public officials or profit-seeking
managers, non-governmental organizations are in a position to allow more
scope for popular participation in decision-making and operations. Their
major drawback is perhaps their small size, even in the case of non-
governmental organizations with adequate technical knowledge and research
capability. 17/ This results in high production costs, jeopardizing the
long-term sustainability of such programmes.
66. One promising way to make these seed provision programmes more
successful is to support local farmer enterprises in seed production.
Another way is to involve local and international non-governmental
organizations, as well as research institutions, in the design and
implementation of the programmes. An interesting example is furnished by
the On-Farm Seed Project, which operated from 1987 to 1992 in Senegal and
the Gambia, and involved cooperation among aid agencies, universities and
international and local non-governmental organizations. 18/ By emphasizing
a participatory approach in research and extension, this programme sought
to improve the capacity of the farmers involved.
2. Small-scale tree crop cultivation
67. Even with the increased funding provided by major donors since the
1970s for tree cultivation projects, estimates made in the mid-1980s of
atmospheric carbon dioxide suggest the need for more intensive planting in
order to offset high rates of deforestation. This has led to a search for
less costly, more management-intensive and internally motivated approaches
involving the encouragement of smallholder tree cultivation instead of
large-scale government schemes in developing countries, many of which are
hampered by severe financial and institutional constraints.
68. Success here depends on the mix of at least four factors:
appropriate agroclimatic conditions, the availability of off-farm trees,
market demand for tree-based resources and access to markets. In general,
the last two factors, namely, the price of tree products and access to
markets, are the most important conditions. Particular attention needs to
be paid to changes in market conditions as such schemes mature, in order to
avoid the collapse of markets as a result of oversupply. Credit and
subsidies may facilitate, but do not determine, the decision of
smallholders to undertake tree planting. After these factors are
considered, the next most important determinant of the smallholders'
decisions to cultivate trees seems to be tree and land tenure, though the
disincentives created by insecure tenure can be offset by the expectation
of a high rate of return. There is also a need for assistance in the
diffusion of locally adapted and new cultivation. One of the most
important roles of government is again to ensure macroeconomic and sectoral
stability. High interest rates and inflation will discourage smallholders
in planting trees, as in other areas of production, by reducing the present
value of their investment. Properly conceived and executed, though,
commercial tree cultivation could prove to be a useful means of alleviating
rural poverty while increasing tree cover.
3. Small-scale sustainable fisheries development
69. In many countries, the adoption of fisheries technologies requiring
large-scale operations not only marginalize small-scale fishing communities
but also create a "crisis" in in-shore fishing by depleting fish stocks.
By the mid-1970s, the importance and appropriateness of small-scale
fisheries, especially for in-shore fishing in the context of rural
development, began to be appreciated. Initially, this recognition was
based on conventional socio-economic considerations such as job-creation
and the size of the fish harvests, compared to medium- and large-scale
fishing, which remained more economic for deep-sea fishing. By the mid-
1980s, additional benefits began to be recognized. The promotion of small-
scale fisheries, it was observed, could lead to small-scale processing
activities and greater self-reliance at the community level. This more
labour-intensive cycle can result in lower fish prices and more local
employment, thus making fish more accessible to the rural population.
70. A new approach is, therefore, necessary to guide the sector towards
environmentally, socially and economically sustainable development. This
would include such measures as recapturing artisanal knowledge and blending
traditional technologies with modern ones, capacity-building in resource
management, community development and the organization of fishworkers,
development of a programme of conservation and the establishment of
protected areas for local communities with restrictions on the catch of
endangered species, and attention to the role of women in this sector.
IV. INSIGHTS AND RECOMMENDATIONS
71. In this concluding section, the Panel endeavoured to pull together
threads of the material presented in the earlier sections, draw on their
insights and suggest approaches and measures that it believed will enable
policy makers to move towards expanding the opportunities of people,
especially in the developing countries, and enhancing their participation
in social and economic life.
72. Sustainable development requires the continuous creation and
exploitation of opportunity and the widening of participation. The
participatory approach was considered highly effective, especially in
programmes aimed at poverty alleviation, when multiplier effects and cost-
effectiveness are taken into account. This approach is best promoted by
involving stakeholders throughout the project cycle, beginning with the
initial planning stage, so that the selection of strategies and specific
measures will be suited to their needs.
73. The operations of micro- and small enterprises are an important means
of enhancing opportunity and broadening participation primarily through the
creation of employment. In the first instance, policies and measures for
broad-based economic development at both the international and national
levels are important for the successful operation of micro-entrepreneurs
and SMEs. These would include:
(a) At the international level, measures for the containment of
instability in international trade and financial flows to developing
countries, recognition of the special vulnerabilities of the latter, an
increase in the volume and variety of compensatory financing, and
facilitation of regional cooperation among developing countries;
(b) At the national level:
(i)Macroeconomic and mesoeconomic policies that ensure a stable
environment for rational economic activity, taking due account of the
differential effects of such policies on the various economic sectors,
enterprises of different sizes and social groups;
(ii)Infrastructure development, both physical and social, with priority
accorded to the development of:
a.Transport and communications to facilitate marketing and
distribution of goods;
b.Education, as an investment in human productivity;
c.General health conditions, as an investment in human resources
development;
(iii)Institution-building, to redress the general situation of low
institutional capacity, which has tended to constrain both opportunity and
participation; such institutions must be economically solvent, politically
accepted and designed to ensure feasibility and credibility.
74. Within the scope of mesoeconomic policies, technology, information and
training are of particular importance. Lack of access to technology and
information as well as limited capacity to adopt and adapt appropriate
technologies constitute a major limitation on the development of micro-
enterprises and SMEs. Producers' associations and cooperatives can play a
role in transferring technology, as can contacts with foreign companies,
especially in the case of export- and technology-oriented enterprises.
Appropriate and flexible training must also be available to small
entrepreneurs.
75. Owing to the particular vulnerability of micro-enterprises and SMEs to
external and internal shocks, however, specific targeted public
interventions are necessary. Such interventions should be decentralized to
ensure effective targeting and designed to support markets rather than to
supplant them.
76. Lack of financial resources constitutes a major constraint on the
development and operation of micro- and small enterprises. To begin with,
public funds for the development of micro- and small enterprises are
generally inadequate. More importantly, lacking access to regular sources
of commercial credit, the majority of the micro- and small enterprises are
driven to resort to moneylenders who charge well above commercial rates of
interest. Thus, measures to improve their access to finance are critical
to the development and successful operation of micro-enterprises and SMEs.
Such measures would include the following:
(a) The encouragement of development banks and the provision of
incentives to commercial banks to serve micro-enterprises and SMEs;
(b) Increased availability of banking services to rural people and other
target groups not usually reached by such services;
(c) The encouragement of partnerships between commercial banks and
international financial institutions, on the one hand, and between non-
governmental organizations and community-based development organizations,
on the other hand, in cases where the latter have the demonstrated capacity
to work with micro- and small entrepreneurs and to help them start
sustainable businesses;
(d) The encouragement of the private sector to increase its involvement
in both technical assistance and technology transfer to micro- and small
entrepreneurs;
(e) Increased support from donors and international agencies for the
development of institutions within developing countries that can provide
capital and training to micro- and small entrepreneurs and manage
enterprise development programmes.
77. Entrepreneur development is another approach to the promotion of
micro- and small enterprises. This approach involves the identification of
successful entrepreneurs and individuals with the potential for expanding
economic activities, and provision to them of appropriate support,
including training, where necessary.
78. Measures by Governments and the business community to expand
opportunities for women in public life and in economic activity and to
facilitate their participation in other spheres of social life are of
particular importance. Such emphasis on women is warranted since women, who
compose more than half of the world's poor, often face special legal and
social obstructions in carrying out business and economic activities,
despite their record of being responsible entrepreneurs and the principal
contributors to the welfare of the family. In order to increase the
participation of women in economic activity through entrepreneurial
development, the following measures are proposed:
(a) Women should be encouraged to expand their businesses beyond self-
employment;
(b) Special emphasis should be placed on basic literacy programmes and
general education for women;
(c) Focused basic business education and, in particular, training in
entrepreneurial skills and attitudes should be provided to women;
(d) Networks to provide information and advice should be promoted to
support the development of women entrepreneurs;
(e) The access of women to credit should be eased - this may involve
recourse to alternative financial institutions, designed specifically to
serve women entrepreneurs.
79. Contrary to the general perception that SMEs are not competitive
internationally, they are important in the export sectors of a number of
countries. However, this requires that government policy should provide an
enabling environment and allow price mechanisms to work. Foreign partners,
such as trading companies, firms making direct investment, or even the
demonstration effect of tourists, can help the development of these export-
oriented SMEs in various ways. Governments should also consider offering
an integrated package of assistance, including tariff/tax reductions,
export credit guarantees, support for linkages between SMEs and larger
firms through subcontracting, technical assistance and marketing, export
facilitation and improved information on overseas markets. Innovative
concepts that may be considered include franchising, industrial incubator
schemes and venture capital financing. Regional cooperation among
developing countries may also complement national efforts of SME
development, providing expanded trading and investment opportunities.
80. Attention should also be paid to the promotion of technology-oriented
small enterprises. Owing to their flexibility, small firms are
increasingly becoming a major source of innovation, thereby gaining a
comparative advantage over larger firms. Their development can further
facilitate the widespread acquisition of skills in both technical know-how
and business practices. Governments can promote such enterprises in a
number of ways. In addition to the measures discussed above, Governments
can encourage the use of global telecommunication networks to improve the
access of small firms to information and business services. Secondly,
Governments should ensure the protection of intellectual property rights.
Thirdly, they should encourage the development of venture capital markets
and the establishment of technology parks.
81. While cooperatives have in many cases broadened participation by their
very nature, their record in creating sustained economic opportunity has
varied across sectors. Service-providing cooperatives seem to be
relatively successful in exploiting economies of scale, while production
cooperatives have a more mixed record.
82. The participatory approach seems particularly suitable for promoting
sustainable agriculture. For example, non-governmental organizations can
be very effective in implementing seed provision programmes. Cooperation
with international non-governmental organizations and aid agencies can help
overcome the frequently low capacity level of local non-governmental
organizations. Involving local farmer enterprises in seed production can
also be an effective means of broadening participation. The small-scale
cultivation of tree crops can contribute to sustainable agriculture and
poverty alleviation. As for sustainable fisheries, especially in-shore,
coastal fisheries, the appropriateness of artisanal knowledge and
traditional technology has been recognized and deserves to be encouraged.
Moreover, conservation programmes and restrictions on access to protected
fisheries reserved for local communities may be necessary to reconcile
equity considerations with sustainable exploitation of the fishery
resources. As in other areas, there is a need for capacity-building and
enhancement of the role of women.
83. The United Nations has an important role to play in bringing forward
the generally felt concern for the expansion of opportunity and the
broadening of participation, especially in the developing countries. In
addition to stimulating the widest possible discussion of the issues
touched on in the present report, the United Nations and its agencies can
make an important contribution by:
(a) Endorsing initiatives aimed at expanding opportunities and
broadening participation, particularly for the less-advantaged sectors of
the populations of all countries;
(b) Encouraging the employment of the concepts of opportunity and
participation in development initiatives and project formulation,
particularly for projects targeted at disadvantaged groups;
(c) Disseminating to developing countries, development models that have
worked in various places, such as the EMPRETEC, trickle-up and Women's
World Banking programmes mentioned in the report;
(d) Providing direct technical and financial assistance within various
country programmes to micro- and small enterprises;
(e) Promoting a more balanced view of market behaviour, taking into
account the broader factors that affect markets, in the formulation of
structural adjustment and other development programmes;
(f) Involving those individuals and institutions that have been involved
in successful programmes with disadvantaged groups in the formulation of
projects related to micro-enterprises and SME development at the regional,
subregional and international levels.
Notes
1/ The expression "small enterprises" covers micro-enterprises as well
as small and medium-sized enterprises, terms often used together in the
present report. Definitions of these terms abound. N. Chowdhury, in a
paper prepared for the United Nations Panel on Opportunity and
Participation, entitled "Opportunity and participation in economic
development: recent experience and policy options", cites J. Curran who
found 75 countries defining small firms in 50 different ways. In an OECD
study (C. Morrisson and others, Micro-enterprises and the Institutional
Framework: In Developing Countries (Paris, OECD, 1994)) micro-enterprises
are defined as those with fewer than 20 workers. Its definition of workers
includes all the people working in the enterprise, including owners, and
wage- as well as non-wage-workers. "Micro-enterprises", defined as ones
with 1 to 10 workers, are considered as differing from small and medium-
sized enterprises in their frequent engagement of non-wage workers.
"Medium-sized enterprises" are defined as ones with more than 20 workers,
implying that "small enterprises" are those with between 11 and 20 workers.
2/ In fact, economic, social and political aspects of opportunity
interact. The Programme of Action of the World Summit for Social
Development (Report of the World Summit for Social Development, Copenhagen,
6-12 March 1995 (A/CONF.166/9), chap. I, resolution 1, annex II) also
refers to the promotion of SMEs as a means to achieve social development
(see, for example, paras. 12 (h), 44, 51 and 91 (c)).
3/ Marja Liisa Swantz, "Participation in economic development"
(Helsinki, United Nations University/World Institute for Development
Economics Research, 1994), p. 1.
4/ See Report of the World Summit for Social Development ..., paras. 2
and 4; see, also, World Bank, The World Bank and Participation (Washington,
D.C., 1994), in which the Bank's Learning Group on Participatory
Development defines participation in the development context as a process
through which stakeholders influence and share control over development
initiatives, decisions and resources which affect them.
5/ See Report of the World Summit for Social Development ..., para. 7.
6/ Ibid., paras. 72 (a) to (c); see, also, Bhatnagar and Williams, op.
cit., pp. 22-23.
7/ See Bhatnagar and Williams, op. cit., pp. 21-24.
8/ The statistics are based on the data maintained by the Department for
Economic and Social Information and Policy Analysis of the United Nations
Secretariat.
9/ See World Economic and Social Survey 1995 (United Nations
publication, Sales No. E.95.II.C.1), table A.1.
10/ See A. Berry, in a paper prepared for the United Nations Panel on
Opportunity and Participation, entitled "Creating an enabling policy
environment: traditional and innovative approaches", in which he cites
Brian Levy and others, Technical and Marketing Support Systems for
Successful Small and Medium-Sized Enterprises in Four Countries, Policy
Research Working Paper No. 1400 (Washington, D.C., World Bank, 1994).
11/ See Women's World Banking, "The missing links: finance and
enterprise systems that work for the majority", draft position paper of the
Women's World Banking Policy Forum, April 1995, pp. 1-2.
12/ See United Nations Development Programme, Human Development Report,
1993 (New York, Oxford University Press, 1993), p. 96.
13/ See Women's World Banking, Report of the United Nations Expert Group
on Women and Finance (1994), p. 21.
14/ The definition of financial self-sufficiency varies among
institutions. For example, some define it to cover only costs directly
linked to lending, while others define it to cover all costs incurred,
including lending and training expenses.
15/ The World Bank has recently announced a new programme, which would
provide funds to local banks that specialize in micro-loans. The programme
has so far obtained a pledge of $200 million, which is estimated to be able
to provide finance credit for a million prospective entrepreneurs a year,
with loans being as small as $100 each. When implemented, this would be a
considerable step forward for the World Bank in its attempt to reach the
poor.
16/ EMPRETEC GHANA, one of the EMPRETEC programmes, an entrepreneur
promotion project run by the United Nations Conference on Trade and
Development (UNCTAD) and the Department for Development Support and
Management Services of the United Nations Secretariat (DDSMS), is openly
selective. It bases selection not only on potential but also on successful
track records among existing entrepreneurs. But the benefits that spread
from the resulting higher success rates seem to justify this approach; for
a discussion of the EMPRETEC programme, see box 4 and UNCTAD/DDSMS,
EMPRETEC: A Unique Approach to Entrepreneurship Development (Geneva/New
York, 1994).
17/ Steve Wiggins and Elizabeth Cromwell, "NGOs and seed provision to
smallholders in developing countries", World Development, vol. 23, No. 3
(1995), p. 413.
18/ Tom Osborn, Participatory Agricultural Extension: Experiences from
West Africa, Gatekeeper Series No. 48 (London, International Institute for
Environment and Development, 1995).
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