United Nations

A/51/340


General Assembly

Distr. GENERAL  

19 September 1996

ORIGINAL:
ENGLISH


                                                        A/51/340
                                                              

General Assembly
Fifty-first session
Item 97 (a) of the provisional agenda*

*    A/51/150.


        SECTORAL POLICY QUESTIONS:  INDUSTRIAL DEVELOPMENT COOPERATION

                        Report of the Secretary-General


                                   CONTENTS

                                                              Paragraphs Page

INTRODUCTION ................................................    1 - 3     4

Part one.  Industrial development:  trends, significance
           and challenges ...................................    4 - 31    5

 I.   INDUSTRIAL PERFORMANCE OF THE DEVELOPING COUNTRIES ....    4 - 16    5

      A. General trends ....................................     4 - 7     5

      B. Regional trends ...................................     8 - 16    7

II.   CONTINUED IMPORTANCE OF INDUSTRY IN ECONOMIC AND SOCIAL
      DEVELOPMENT ...........................................   17 - 24    9

III.  AGENDA FOR INTERNATIONAL INDUSTRIAL DEVELOPMENT
      COOPERATION ...........................................   25 - 31   11

      A. Employment creation and eradication of poverty ....    26 - 27   11

      B. Environmental sustainability ......................      28      12

      C. Private-sector development ........................      29      12

      D. Industrial competitiveness to redress international
         development disparities ...........................    30 - 31   12

Part two.  Role of UNIDO in international industrial
           development cooperation ..........................   32 - 80   13

IV.   PROGRAMMATIC AND MANAGERIAL REFORMS AT UNIDO ..........   32 - 40   13

      A. Focusing of UNIDO services ........................    34 - 35   14

      B. Mechanisms for the delivery of UNIDO services .....    36 - 37   14

      C. Management reform .................................    38 - 40   15

 V.   UNIDO SERVICES ........................................   41 - 48   16

      A. Strategies, policies and institution-building for
         global economic integration .......................      42      16

      B. Environment and energy ............................      43      16

      C. Small and medium enterprises ......................      44      17

      D. Innovation, productivity and quality for
         international competitiveness .....................      45      17

      E. Industrial information, investment and technology
         promotion .........................................      46      17

      F. Rural industrial development ......................      47      18

      G. Africa and the least developed countries:  linking
         industry with agriculture .........................      48      18

VI.   CONTRIBUTION TO MAJOR UNITED NATIONS CONFERENCES ......   49 - 67   18

      A. United Nations Conference on Environment
         and Development ...................................    49 - 56   18

      B. World Summit for Social Development ...............    57 - 59   20

      C. Fourth World Conference on Women ..................    60 - 62   21

      D. Second United Nations Conference on Human
         Settlements .......................................    63 - 65   21

      E. Follow-up to global United Nations conferences:
         UNIDO programmes ..................................    66 - 67   22

VII.  COORDINATING ROLE OF UNIDO IN THE UNITED NATIONS
      SYSTEM ................................................   68 - 80   25

Table.  Link between UNIDO programmes and follow-up to global United
        Nations conferences ............................................  24

                                    Figures

 I.   Manufacturing value added in developing countries:  geographical
      distribution, 1994 ...............................................   6

II.   Foreign direct investment in developing countries, 1993 ..........   6

III.  UNIDO administrative and operational support costs, 1994-1997 ....  15


                                 INTRODUCTION


1.   The General Assembly, in its resolution 49/108 on industrial
development cooperation, inter alia, stressed the importance of
industrialization to the economic and social development of developing
countries; emphasized the importance of industrial development
cooperation; reaffirmed the central coordinating role played by the
United Nations Industrial Development Organization (UNIDO) in the
United Nations system in the field of industrial development in the
developing countries; and welcomed the process of reform and
restructuring of UNIDO.  In addition, the Assembly invited the
organizations and bodies of the United Nations system, in particular
UNIDO, to contribute through their programmes and activities to the
achievement of the goals and programmes adopted by the United Nations
Conference on Environment and Development (UNCED) and by the
International Conference on Population and Development, and also
invited them to contribute to the preparation of the World Summit for
Social Development, the Fourth World Conference on Women and the
Second United Nations Conference on Human Settlements (Habitat II). 
The Assembly also requested the Secretary-General to report to it at
its fifty-first session on the implementation of the resolution; the
present report has been prepared in response to that request.

2.   The report is divided into two parts.  Part one, entitled
"Industrial development:  trends, significance and challenges",
summarizes major trends in industrial development in the developing
countries (sect. I); reviews why industry continues to be a key
instrument in economic and social development, and why industrial
development cooperation is needed to support industrial development in
the developing countries (sect. II); and assesses the major issues
that today constitute the agenda for industrial development
cooperation (sect. III).  Part two, entitled "Role of UNIDO in
international industrial development cooperation", provides a synopsis
of programmatic and managerial reforms undertaken by UNIDO (sect. IV);
reviews UNIDO's seven thematic priorities and the activities
undertaken for each priority (sect. V); reports on the UNIDO
contribution to major United Nations conferences (sect. VI); and
describes the coordinating role of UNIDO in the United Nations system
(sect. VII).

3.   A central theme of the present report is that international
industrial cooperation remains an essential dimension of the overall
development process.  Industrial development is a means for achieving
overall economic and social development, not an end in its own right. 
With the achievements in industrialization in past decades and the
growth of trade and international investment flows, some parts of the
developing world have made significant progress.  However, major
challenges remain for the greater number of developing countries. 
Those challenges are increasingly urgent, as competitive pressures and
the requirements of technological change threaten to widen the gap
between advantaged and disadvantaged nations.  Although the process of
industrialization is increasingly market driven and markets require
strengthening in many instances, Governments continue to have a
decisive role in furthering sustainable industrial development. 
Efforts are required to overcome market deficiencies; create and
upgrade institutions; augment the supply of skilled labour; and
support policy-making to promote internationally competitive
industries, technological development and necessary infrastructure.

           Part one.  Industrial development:  trends, significance
                      and challenges                               

            I.  INDUSTRIAL PERFORMANCE OF THE DEVELOPING COUNTRIES

                              A.  General trends

4.   Industry remains a vital instrument for economic and social
progress, facilitating employment generation, contributing
fundamentally to productivity growth and technological change,
enabling the creation of dynamic linkages with the agricultural and
service sectors, and contributing to foreign-exchange earnings. 
Despite many setbacks, the developing countries as a group have
increased their share in global industrial production and trade.  The
developing-country share of world manufacturing value added (MVA) rose
from under 12 per cent in 1960 to 17 per cent in 1980 and 19.7 per
cent in 1995, and is projected to rise to 29 per cent in the year
2005.  Similarly, the developing-country share of world manufacturing
exports rose from 13 per cent in 1960 to 22.6 per cent in 1995 and is
projected to reach 26.5 per cent by 1999.

5.   Such data emphasizes the significant progress made by the
developing countries towards industrialization.  However, the
aggregate figures hide enormous disparities.  For example, excluding
South Africa, Africa's share of global MVA stood at a mere 0.65 per
cent in 1960.  Twenty years later, in 1980, that share had only risen
to 0.85 per cent, an increase of one fifth of one percentage point. 
The latest data, from 1995, indicate that Africa's share of global MVA
has actually fallen to 0.74 per cent.  Almost half of the MVA created
in the developing world is attributable to South and East Asia.  In
stark contrast, Africa accounts for a mere 6 per cent of
developing-country MVA.  The geographical distribution of
developing-country MVA, shown in figure I, is illustrative of those
disparities.

6.   MVA growth in Africa has also failed to keep pace with population
expansion since the 1960s.  Much of sub-Saharan Africa suffers from
severe shortages of technical, managerial and entrepreneurial skills,
acute infrastructure bottlenecks, weak institutional capabilities,
severe limitations in the capacity to import, and continued dependence
on exports of a few primary commodities.  A similar picture can be
drawn for parts of Asia and some parts of Latin America, particularly
Central America, while countries with economies in transition face
different but nevertheless acute problems.  By contrast, in much of
East and South-East Asia, skilled manpower is available and necessary
institutions have been developed.  Basic infrastructure is also in
place, the macroeconomic environment is supportive, manufactures
constitute a large fraction of total exports and import capacity is
not a serious problem.

7.   The widening divergence in industrial performance between
different developing regions is also reflected in the high degree of
concentration of foreign direct investment (FDI).  In 1993, a mere 10
countries received almost 80 per cent of FDI in the developing world
(see figure II).


         Figure I.  Manufacturing value added in developing countries:
                    geographical distribution, 1994

                              (Percentage share)


                        (Not available on the Internet)


     Source:  UNIDO database.


      Figure II.  Foreign direct investment in developing countries, 1993

                              (Percentage share)



                         (Not available on the Internet)


     Source:  UNCTAD World Investment Report.


                              B.  Regional trends

                                  1.  Africa

8.   In sub-Saharan Africa, the growth of MVA in 1995 rose to 1.6 per
cent, compared with 0.4 per cent in 1994.  However, in recent years
only a few countries have been able to sustain growth at relatively
robust rates and attract FDI.  Those same countries have made headway
in fostering macroeconomic stability through broad economic reform. 
MVA growth in the larger economies has tended to remain weak and in
some cases negative.  Indeed, the region has failed to make
significant progress even in many labour-intensive industries.  For
example, very little clothing and footwear is exported from Africa. 
And Africa is the one region that, according to most assessments of
the Uruguay Round of multilateral trade negotiations, will benefit
little from global trade liberalization.  In 1993, less than 0.1 per
cent of Organisation for Economic Cooperation and Development (OECD)
imports of manufactures came from Africa.  Important infrastructural
deficiencies in transport, power and communications persist throughout
much of the region.  Progress in penetrating OECD markets and in
attracting FDI has been evident in a number of North African economies
undertaking economic reforms.


                      2.  Latin America and the Caribbean

9.   In Latin America and the Caribbean, MVA shrunk in 1995 by 0.8 per
cent, compared with a modest growth of 6.0 per cent in 1994.  Compared
with other developing regions, Latin America and the Caribbean enjoyed
favourable initial conditions for participation in the international
economy.  Average per capita income in 1980 was the highest in the
developing world, and manufacturing accounted for nearly one quarter
of gross domestic product (GDP).  The region had been a preferred host
for FDI:  its 1980 share in total FDI flows to developing countries
was close to 70 per cent.  However, its share in developing-country
MVA fell from 37 to 24 per cent between 1985 and 1995, although its
export performance was less discouraging, with only a marginal
decrease in the share of manufactured exports to industrialized
countries registered during 1985-1995.  And market shares in apparel,
transport equipment, electrical machinery and professional and
scientific goods have all improved, largely due to offshore processing
for the United States market.  Perhaps the outstanding regional
development today is the move towards economic integration, the
incentives for which have increased after the 1992 North American Free
Trade Agreement.

                           3.  Asia and the Pacific

10.  In Western Asia, MVA recovered from 1994, growing rapidly in 1995
despite weaker oil prices.  In South Asia, MVA growth remained strong,
with an average rate in excess of 7.5 per cent in 1995, propelled by
India and Pakistan, which together account for more than 90 per cent
of the subregion's MVA.  A challenge for the subregion is to combat
rising inflationary pressures, infrastructure bottlenecks and current
account deficits, while addressing the issues associated with
privatization.  As competition increases from other low-income
countries, South Asia must be prepared to move to less labour-
intensive forms of manufacturing.  In recent years, the subregion has
increased its share of manufactured exports to industrialized
countries, largely in the apparel sector.  South Asia has also
enhanced its attractiveness for FDI.  The successful continuation and
management of economic reforms is of great importance.  In many
countries of the region, much industry, particularly the small and
medium-sized subsector, operates with low levels of technical skills.

11.  A driving force of world MVA growth in 1995 continued to come from
East and South-East Asia, including China, which accounts for slightly
more than half the MVA of developing countries; the subregion
registered double-digit MVA growth in 1995, as well as drawing major
inflows of FDI.  Inflationary pressure and current account deficits -
symptoms of rapid growth - were high on the policy agendas in a number
of countries, with China, for example, seeking to curb domestic
demand.

12.  The Asian newly industrializing countries (NICs) contribute about
60 per cent of the total manufactured exports of developing countries
to industrialized countries.  However, the performance of some Asian
NICs was mixed in 1995 compared with 1994.  MVA growth remained robust
in the Republic of Korea and Taiwan.  The so-called near-NICs, such as
Indonesia, Malaysia and Thailand, have also been facing overheating
problems and persistent current account deficits.  The market position
of Asian NICs has begun to be challenged in some areas by lower income
competitors, forcing the Asian NICs to shift to more sophisticated
manufacturing activities and relocate labour-intensive industries to
Association of South-East Asian Nations (ASEAN) countries and recently
also to China and Viet Nam.  Japanese investment in such countries as
Indonesia and Malaysia, and more recently China and India, has also
been growing.

13.  Even by Asian standards, the pace of economic change in China has
been outstanding.  The country has reported average GDP growth of
about 9 per cent per annum since economic reforms started in the late
1970s and early 1980s.  China accounts for a rapidly rising share in
world manufacturing and is experiencing massive FDI inflows. 
Impressive export performance has been supported by industrial
restructuring and diversification.  Nevertheless, problems still
exist, such as the disparities between the inner provinces and booming
coastal regions.


                          4.  Economies in transition

14.  The recent economic performance of the economies in transition has
depended significantly on the progress of their reform programmes. 
Early reformers, such as the Czech Republic, Poland and Hungary, have
recorded impressive MVA growth.  Successful macroeconomic
stabilization and structural adjustment in those countries has also
restored confidence among foreign investors, facilitating inflows of
foreign capital, and proximity to the European Community has assisted
their exports.  However, the performance of countries that are still
facing structural adjustment problems remained discouraging.  Overall,
the economies in transition managed to reduce negative MVA growth from
-8.8 per cent in 1994 to -4.1 per cent in 1995.  A stable framework
for investment in internationally competitive industries is essential,
which requires action on various fronts from macroeconomic management
to institution-building.

15.  Some Central and Eastern European countries have succeeded in
redirecting exports to OECD countries.  In 1987, OECD absorbed less
than one quarter of total exports of former Czechoslovakia and about
two fifths of Polish and Hungarian exports.  Five years later, OECD
accounted for more than 80 per cent of Czech and Polish exports, and
slightly less than 70 per cent of Hungarian exports.  The progress
made was helped by better market access offered by OECD Governments,
witness the trade concessions granted by the European Community in the
so-called Europe agreements with Bulgaria, the Czech Republic,
Hungary, Poland, Romania and Slovakia.

16.  FDI flows to all transition economies for which the relevant
information is available increased from $600 million in 1991 to $4 to
5 billion per annum in 1992-1994.  However, those flows have been
heavily skewed towards a rather small subset of recipients.


                    II.  CONTINUED IMPORTANCE OF INDUSTRY IN
                         ECONOMIC AND SOCIAL DEVELOPMENT

17.  The overall picture from recent trends in the different developing
regions reveals significant economic disparities, with some regions
growing rapidly and experiencing important positive structural
changes, while others, most notably sub-Saharan Africa, experience
general stagnation and marked structural deficiencies.  The structural
transformation occurring in the most rapidly growing countries
reflects increased industrial sophistication and competitiveness. 
Indications of such structural changes include a growing share of
manufactures in total exports; growing shares of manufactures
embodying higher levels of value added; growth in service-sector
activities that serve manufacturing; and increased demand for skilled
employees in manufacturing.  An example of such a transformation in
Asia is Malaysia.  Long known mainly as a producer of primary
products, Malaysia has achieved significant levels of industrial
development in little more than two decades.  In 1994, the
manufacturing share in its GDP was more than twice that of
agriculture, and manufactures - of increasing sophistication -
currently constitute the major part of its export earnings.  Indeed,
Malaysian authorities now encourage some low-productivity industries
to relocate outside the country.

18.  Virtually all developing countries aspire to higher levels of
industrialization as a means of economic development.  The main
reasons why industry remains vital to economic and social development
are highlighted below.

19.  Productivity and technological change:  the object of
industrialization is to raise the productivity of human labour, which
sets the foundation for the achievement of long-term and sustainable
increases in standards of living and thus for advances in the fight
against poverty.

20.  Manufacturing:  this is the most dynamic sector of the economy,
characterized by rapid technological advances, potential for scale
economies, and scope for factor substitution and productivity gains. 
Demand for manufactures is almost infinite, rising directly with
increases in incomes and also with increased demand for services since
manufactures are integral components of many services.  Moreover,
manufacturing tends to foster technological change across the economy
as a whole.  By comparison, many service activities are constrained by
rigid factor proportions (that is, they cannot be mechanized), limited
scale economies and relatively inefficient production processes.  To a
large degree, economic development initially entails the shifting of
resources from lower-productivity uses in agriculture to higher-
productivity uses in manufacturing.

21.  Sectoral linkages:  the multiple direct and indirect linkages
between industry and other sectors of the economy are central to
economic progress.  For example:

     (a) Linkages with agriculture:  industrial inputs to agriculture
facilitate the productivity growth needed to increase marketable
surpluses of food and cash crops for the domestic market and for
export.  Above a subsistence level of output, the acquisition of
manufactured consumer goods provides the basic incentive for
agricultural production.  Industry affords a key source of demand for
agricultural raw materials and food products, the main wage good of
industrial workers;

     (b) Linkages with services:  productivity growth in services
stems from two principal sources:  the reorganization of scale and the
application of new technologies produced by manufacturing, such as
microelectronics.  The rise in incomes from industrial development
also supports a broad array of consumer and social services.  At
higher levels of income, many services exist to support the
advancement of manufacturing, such as engineering, marketing,
specialized financial services and accounting, a fact that is not
captured in data on the sectoral composition of national income.
     
22.  Employment:  the contribution of manufacturing to employment
generation stems not only from its direct employment effects but more
importantly from its indirect effects through its extensive linkages
with the remaining sectors of the economy, including the service
sector, and through income-induced demand for services as per capita
income rises.  As the industrial base broadens and becomes more
integrated both vertically and horizontally, the employment impact of
industrial activities increases substantially.  The creation of
employment is a principal means of combating poverty and social
distress.  As empirical analysis undertaken by UNIDO has shown, at a
relatively advanced stage of industrialization rising incomes create
demand for a whole range of consumer and social services, such as
recreation, health care, and other specialized and personal services.

23.  External balance and structural change:  the so-called
deindustrialization thesis may underlie some of the mistaken
scepticism regarding the future importance of industry in development. 
Clearly, at higher levels of income the share of services in GDP tends
to rise, for various reasons.  However, relatively few services can be
traded, while the same growth in incomes will continue to increase
imports.  Therefore, manufacturing productivity has to rise to
compensate for the inability of services to provide the export
earnings with which to finance increased imports.  In other words,
without increases in the productivity of manufacturing, growth will be
held back by external payments constraints, an observation that
applies primarily to more advanced economies.  However, even at lower
levels of income - when the transition from agriculture to industry is
the predominant structural change - if the share of industry in
national income is to rise, industry must sooner or later be capable
of generating hard currency earnings or savings.  Industry must attain
international standards of productivity.

24.  At the same time, it must to be emphasized that the growing
reliance of developing countries on market mechanisms does not imply
that international support is no longer required.  It is generally
acknowledged that in a number of areas, market failures remain. 
Specific areas of market failure include training; technology
generation and use; and the environment.  In those areas,
institutional capacities need to be created, such as for environmental
enforcement measures in the case of environment, industrial extension
services in the case of technology and industry-wide training in the
case of human resources development.  External assistance is much
needed, therefore, above all in those developing countries with
incipient private sectors lacking an effective institutional
framework.


       III.  AGENDA FOR INTERNATIONAL INDUSTRIAL DEVELOPMENT COOPERATION

25.  The present section outlines the current agenda for industrial
development cooperation by seeking to answer the following two
questions:  (a) what are the most acute challenges facing the
developing countries at the end of the 1990s? and (b) how can
industrial development cooperation assist in meeting those challenges?


              A.  Employment creation and eradication of poverty

26.  While a process of private-sector-led development, deregulation of
many economies and liberalization of trade and investment flows has
been set in motion and has brought about significant increases in
global production, we are also witnessing increasing international
development disparities, growing unemployment and widespread poverty. 
A large number of developing countries have not so far been able to
reap the benefits of integration into the global economy, in
particular in Africa.  For such countries, industrial development is
still far from being a self-sustained and sustainable process. 
International support continues to be critically required if the two
essential ingredients of sustainable development are to be realized,
namely social sustainability - through employment creation and poverty
alleviation - and environmental sustainability.

27.  The only viable long-term solution to the twin issues of
unemployment and poverty lies in the building up of competitive
productive capacities that can generate production and incomes among
the population at large, a process in which industry is not the sole
contributor.  However, all historical evidence suggest that industry
plays a pivotal role in advancing technology, increasing productivity,
nurturing entrepreneurship and generating a broad range of critical
skills, all of which converge to increase a country's standard of
living.  In their aspirations to raise standards of living, the
developing countries are following the example of the already
industrialized countries, and by seeking to build up efficient
industrial capacities have chosen the only viable route to achieve
lasting economic growth and escape the vicious circle of poverty.


                       B.  Environmental sustainability

28.  At a time when the actual and potential environmental damage of
many industrial technologies has become painfully obvious, developing
countries need to reconcile the imperatives of competitiveness on the
one hand and environmental sustainability on the other.  Existing
pollution needs to be abated, future pollution prevented and a number
of global environmental threats, such as global warming and the
destruction of the ozone layer, need to be addressed in a
cost-effective manner.  In particular, small and medium industries
often lack the information, expertise and above all resources to
implement badly needed technological and managerial improvements.


                        C.  Private-sector development

29.  It is patently clear - and accepted throughout the developing
world - that functioning markets and private initiative are among the
most efficient and powerful mechanisms to generate wealth and thus
permit increased standards of living.  Unlike in the past, industrial
development cooperation today generally involves working with private-
sector counterparts, such as federations of industry and chambers of
commerce and industry, to serve the needs of private industries in
facing the challenge of competitiveness.  Support is particularly
crucial for those countries that have launched a process of
transformation to market economies.  Strategic policy advice, such as
on industrial aspects of privatization, is required in a great number
of countries in transition, not only in Central and Eastern Europe but
also in other developing regions.  Entrepreneurship development for
longer-term, industrial and technological development is a key factor
in private-sector-led market-oriented economies.


            D.  Industrial competitiveness to redress international
                development disparities

30.  It is an essential function of international support to address
the major imbalances created in the context of globalized production,
trade and investment.  Support is required in particular by the less
advanced among the developing countries in promoting industrial
growth, building up competitive industrial supply capacities,
strengthening investment promotion agencies and establishing
partnerships with overseas investors and technology suppliers. 
Support is also required in fostering technological development and
innovation, and facilitating industrial restructuring.  Increased
investment is a further imperative, in human capital, research and
development, and industrial plants.  It is important to note, however,
that developing countries at different levels of industrial
development have differing support requirements.  Middle-income
developing nations, for example, frequently need assistance in policy
formulation and institution-building (e.g., in the area of quality
certification and standardization), especially given the demands
placed on their industrial sectors by the process of globalized
industrial production and the exigencies of expanded and liberalized
trade.  Developing countries can increase their competitive standing
provided the right sociopolitical, economic and technological
conditions and infrastructure exist; it is a key objective of
international support to facilitate the development of such conditions
and infrastructure.  In a related manner, international support is
also required, through skills development and institution-building, to
facilitate the absorption of development finance in the industrial
sector of least developed countries.

31.  Indeed, in many ways, globalization and liberalization reinforce
the relevance of international support.  For instance, improved
industrial supply capacities are often needed in order that policies
may have their proper effect.  For example:

     (a) In trade, despite adopting liberalized policies, some
countries are just too poor and too lacking in the necessary supply
capacities to reap potential benefits;

     (b) In investment, without at least a nucleus of competitive
industrial firms to supply inputs and form partnerships, foreign
direct investment, if it is attracted, will exist as an enclave;

     (c) In agriculture in very low income countries, liberalization
of agricultural price policy may have little effect on agricultural
output when the rural area is characterized by shortages of
manufactured consumer and producer goods.


             Part two.  Role of UNIDO in international industrial
                        development cooperation                  

               IV.  PROGRAMMATIC AND MANAGERIAL REFORMS AT UNIDO

32.  Since the adoption by the General Assembly of its resolution
49/108, UNIDO has advanced a major process of programmatic and
managerial reform, responding to changed industrial realities and
support requirements both by a substantive reformulation of its
priorities and focus and by internal reforms in management and
organizational structure with a view to increasing effectiveness,
efficiency and impact.  UNIDO reform has followed a logical sequence
from the redefinition of key objectives and programmes, through the
redesign of mechanisms to deliver quality services, to savings in
staff and non-staff resources.  In the process, UNIDO has been at the
forefront of reform efforts in the United Nations system.

33.  The strategic reform of UNIDO, endorsed by member States at the
General Conference of UNIDO in December 1995, has emphasized UNIDO's
dual role as a worldwide forum for supporting and promoting industrial
development, and a provider of specialized integrated technical
cooperation services.


                        A.  Focusing of UNIDO services

34.  A central feature of the UNIDO reform process has been the
prioritization of services based on analyses of current and future
priority areas of demand from developing countries and countries with
economies in transition.  Accordingly, the UNIDO work programme is now
focused on three dimensions:

     (a) Geographical:  low-income developing countries, in particular
in Africa;

     (b) Sectoral:  32 of a total of 77 industrial subsectors have
been accorded high priority, with emphasis on subsectors related to
agriculture and basic industrial needs;

     (c) Thematic:  seven cross-organizational thematic priorities,
which are described in detail in section V below.

35.  UNIDO aims to devote a major part of its services to the
development and implementation of large integrated programmes in
support of its seven thematic priorities, which would enhance the
impact, relevance and sustainability of UNIDO services.  Stand-alone
activities not related to larger integrated programmes, such as
certain training programmes and studies and expert group meetings,
have largely been discontinued, and activities in a number of
industrial subsectors have been de-emphasized.  The private sector,
which in 1992 represented 25 per cent of UNIDO's counterparts in
technical cooperation, today represents more than 50 per cent; at the
same time, 80 per cent of the project beneficiaries are in the private
sector.


               B.  Mechanisms for the delivery of UNIDO services

36.  UNIDO has undertaken a comprehensive review of approaches to
developing its services.  Making use of the tools and expertise of the
whole organization and the best known practices of other institutions,
UNIDO has selected an approach that consists of proactive programming
based on its seven thematic priorities, leading to programmes at the
country level that are more focused.  While fewer in number, those
programmes are expected to be larger, of higher quality and of higher
impact, as well as to yield a decrease in the unit costs of design and
implementation, which will allow UNIDO to concentrate resources and
experience in priority areas, in spite of resource constraints.  Ad
hoc requests for UNIDO services are today carefully screened to make
sure that they fall within its core mandate and priorities, that the
necessary staff expertise is available and that there are good
prospects for funding.

37.  A re-engineering of project implementation that concentrates
implementation responsibility on multidisciplinary teams, simplifies
processes, delegates authority to the field, where appropriate, and
improves computer systems support, is also expected to result in lower
costs as well as more responsive, faster and better delivery.  The
objective is to reduce administrative support costs from approximately
30 per cent of project volume - a figure comparable to that of other
organizations - to 10 to 15 per cent in 1998.  UNIDO has also actively
developed innovative sources of funds for financing its services,
becoming involved to an increasing extent in the implementation of
projects under the Montreal Protocol, the Global Environment Facility,
and the Common Fund for Commodities, as well as work financed, for
example, by the World Bank and the United Nations Environment
Programme (UNEP).


                             C.  Management reform

38.  The reform process has also brought about important internal
improvements in the UNIDO structure, inter alia, by reducing the
number of divisions from 8 to 6, and in its cost efficiency.  Cost
reductions have in particular been achieved in the areas of
administration and operational support; as figure III indicates, those
costs, which include general operating costs, supplies and material,
acquisition of equipment, electronic data-processing and some joint
service costs with other United Nations agencies, have decreased
significantly over the reform period.


                Figure III.  UNIDO administrative and operational
                             support costs, 1994-1997

                      (Millions of United States dollars)


                 (Not available on the Internet)


39.  The number of UNIDO staff fell from 1,174 in January 1994 to 812
in June 1996.  The ratio of General Service to Professional staff has
decreased from 1.4 in 1992-1993 to 1.2 today.  Administrative
processes have been greatly streamlined.  New management principles
and procedures have been introduced to accelerate decision-making and
increase empowerment, accountability, transparency and effectiveness. 
Changes of a much broader cultural type have also been introduced in
the areas of staff performance evaluation, staff development and
training.

40.  Such reforms have enabled UNIDO to maintain its key services
despite the announced withdrawal of the United States of America from
the organization and non-payment of its assessed contributions for the
last two years.  In spite of an overall 25 per cent budgetary
shortfall, there has been no reduction in the delivery capacity of key
substantive services.  Indeed, despite those stringent circumstances,
UNIDO has been able to maintain and even increase its delivery of
technical cooperation by 7 per cent to reach US$ 108 million in 1995.


                              V.  UNIDO SERVICES

41.  Through a process of translating key development objectives into
priority programmes and activities, UNIDO has defined seven thematic
priorities.  As described below, the implementation of programmes
under each priority requires multidisciplinary inputs from across the
organization, combining subsectoral with functional expertise. 
Activities to promote human resource development, the integration of
women in industrial development and economic cooperation among
developing countries are common to all seven thematic priorities.


             A.  Strategies, policies and institution-building for
                 global economic integration

42.  For over a decade, the world economy has undergone a process of
globalization.  The liberalization of national and international
trading environments, the growth in FDI, simultaneous and rapid
technological change and the emergence of new forms of inter-firm
cooperation have all contributed to an increasingly integrated
international system of production.  That process of globalization has
created enormous challenges for much of the developing world.  It is
already clear that the impact of globalization varies greatly between
regions and countries.  It is perhaps fair to say that the
international distribution of poverty reflects to a large degree the
ability to actively participate in the globalization process.  In the
aftermath of the Uruguay Round agreements and in the context of
various subregional economic integration schemes, developing countries
increasingly require the policy advisory and capacity-building
services of UNIDO in support of their endeavours to create an enabling
environment for sustainable industrial growth and international
competitiveness.


                          B.  Environment and energy

43.  UNIDO places priority on addressing environmental issues stemming
from industrial development, with particular emphasis on preventive
rather than corrective action.  The main UNIDO services in that field
encompass capacity-building in support of national strategies for
environmentally sustainable industrial development; implementation of
international agreements, conventions and protocols for the protection
of the environment, especially with regard to the Montreal Protocol;
the establishment, jointly with UNEP, of national cleaner production
centres; the promotion and transfer of clean technologies in various
industrial subsectors; and enhancing the efficiency of energy use in
industrial processes.

                       C.  Small and medium enterprises

44.  Recognizing the vital role of small and medium enterprises (SME)
as agents of industrial development, UNIDO concentrates on the
promotion of SMEs, which constitute the majority of industrial firms
in most developing countries, as the main target group for its
services.  That entails the provision of policy advice and
institutional support for promoting SMEs in an overall framework of
private-sector development and increased market orientation, and also
implies a strong emphasis on SMEs in the UNIDO investment promotion
programme.  Networking of SMEs, both with larger enterprises and among
themselves, is stimulated through national and regional subcontracting
schemes, as well as through supporting the self-organization of SMEs
in sectoral clusters.


                  D.  Innovation, productivity and quality for
                      international competitiveness

45.  The globalization of industrial production and trade places new
competitive demands on developing country firms and institutions. 
Increasingly, the determinants of competitiveness include the ability
to source, distribute and network internationally; the flexibility and
speed of the entire design, production and commercialization
processes; and the ability to attain high levels of product quality
and to produce with an efficient use of inputs.  Systems of support to
industrial competitiveness adopted in most, if not all, developed
countries also need to be implemented by developing countries.  Such
support covers services by institutions specialized in technology
management, including technology transfer and research and
development; human resource development; information and data systems;
venture capital financing; metrology, standardization and testing; and
management and engineering consulting.  UNIDO is increasingly called
upon to provide specialized services to industrial institutions
working with the private sector on industry-specific research and
development, continuous quality improvements, and the attainment of
certification requirements for international standards (such as ISO
9000).  Support at the institutional level is complemented by
assistance to groups of enterprises, mostly channelled through
industrial associations, in rehabilitating and restructuring their
operations.


        E.  Industrial information, investment and technology promotion

46.  Developing country industries require access to up-to-date
information in a variety of fields, including technologies, such as
pollution abatement equipment, investment opportunities and market
trends.  In particular, firms are often in need of support when
entering into technology transfer and joint venture arrangements.  In
its related investment and technology promotion programmes, UNIDO
focuses on those developing countries - and disadvantaged regions
within developing countries - that have not yet been the main
beneficiaries of global investment and technology flows.  To assist
developing countries in that area, UNIDO offers support at the levels
of policy, institutions and enterprises.  UNIDO has at its disposal a
number of highly specialized industrial information and statistics
data banks with global coverage.  The organization's investment
promotion activities are based on a network of investment promotion
service offices, traditionally in developed but increasingly also in
developing countries, that work directly with private industry.  In
addition, UNIDO provides specialized training and capacity-building in
the preparation of bankable investment projects and feasibility
studies.


                       F.  Rural industrial development

47.  For most developing countries, sustainable rural industrial
development is a key to overall socio-economic development, because
the majority of the population still lives in rural areas and is
heavily dependent economically on agro-based productive activities. 
Developing rural industry can facilitate poverty alleviation and
equitable development.  UNIDO supports the realization of the
industrial development potential of disadvantaged regions within
developing countries and of rural areas, above all in terms of
industrial processing of agricultural resources, such as food,
leather, wood and natural fibres.  Such support is complemented by
support to buildings materials industries, in particular those
relevant for low-cost housing in rural areas.


                  G.  Africa and the least developed countries:
                      linking industry with agriculture

48.  Although UNIDO gives emphasis to the special development needs of
Africa and the least developed countries under each of the six
priorities described above, its seventh thematic priority adds a
particular emphasis on African and least developed countries.  Given
the dominance of agriculture in the economies of those countries and
the multiple linkages between agriculture and industry, this priority
is intended to support the build-up of sustainable productive
capacities for African industrial recovery.  UNIDO here addresses two
key roles of industry:  (a) in processing agricultural produce and (b)
in providing inputs, ranging from agricultural equipment and
implements to fertilizers and pesticides, to increase agricultural
productivity.


             VI.  CONTRIBUTION TO MAJOR UNITED NATIONS CONFERENCES

         A.  United Nations Conference on Environment and Development

49.  With the convening in 1992 of UNCED and the adoption of Agenda
21 1/ and related conventions, the world community adopted a
comprehensive international policy statement on the need to attain
sustainable patterns of development.  Agenda 21 makes clear that
industrialization is an essential precondition for attaining
sustainable development.  Agenda 21 has profound implications for
industrialization and industrial policy in developing countries.

50.  During the 1994-1995 biennium, UNIDO was engaged in the review
process for the implementation of Agenda 21 and participated in the
preparations for and deliberations of the second and third sessions of
the Commission on Sustainable Development, as well as in United
Nations system-wide coordinative mechanisms supporting the Commission. 
Participation in the review process for Agenda 21 enabled UNIDO to
define its role in relation to specific aspects of the implementation
of Agenda 21, and to establish a basis for joint action with other
agencies in initiatives in which industry-related issues played a
major role in realizing the objectives of Agenda 21.

51.  During 1995, UNIDO concentrated on two issues.  The first was
chapter 16 of Agenda 21, "Environmentally sound management of
biotechnology".  On that subject, UNIDO was designated the system-wide
task manager, and prepared the report by the United Nations
Secretary-General to the Commission at its third session (11-28 April
1995).  The second area was chapter 34 of Agenda 21, "Transfer of
environmentally sound technology, cooperation and capacity-building". 
For that chapter, in cooperation with the Department for Policy
Coordination and Sustainable Development of the United Nations
Secretariat and the United Nations Environment Programme (UNEP), UNIDO
convened a round table on technology transfer, cooperation and
capacity-building for sustainable development in Vienna from 6 to 8
February 1995.  The proceedings of that round table provided a major
input to the report by the Secretary-General on chapter 34 of Agenda
21, and to the formulation of a work programme adopted by the
Commission at its third session.  Also in 1995, UNIDO organized a
non-governmental organizations forum on cleaner industrial production.

52.  During 1996, the organization has been working in three areas:

     (a) Following up on the conclusions of the third session of the
Commission on chapter 16 of Agenda 21 by convening a round table on
the safe management of biotechnology.  That round table involves
international organizations, industry and non-governmental
organizations in assessing the initiatives already taken, additional
policy initiatives needed, gaps, capacity-building, and information
support required to enable developing countries to manage applications
of biotechnology in an environmentally sound manner;

     (b) Following up on chapter 34 of Agenda 21 by developing
inter-agency initiatives on capacity-building for the transfer of
environmentally sound technologies.  Such initiatives would utilize
the UNIDO network of national cleaner production centres as the
foundation for developing the capacities, in client countries, to
absorb and disseminate information on environment and energy-related
technologies, and to diversify into such areas as chemical safety and
worker health;

     (c) Preparing for the fourth session of the Commission through
major contributions to its review of the issues arising from chapter
34, "Transfer of environmentally sound technologies, cooperation and
capacity-building"; chapter 9, "Protection of the atmosphere"; the
issue of trade environment and sustainable development under chapter
2, "International cooperation to accelerate sustainable development in
developing countries and related domestic policies"; and chapter 3,
"Combating poverty".  UNIDO will also be involved in the work of the
Intergovernmental Panel on Forests, established by the Commission at
its third session.

53.  At the national level, UNIDO supports the implementation of
national sustainable development strategies in several ways.  First,
it helps countries to define operational initiatives to realize the
industry-related components of already-formulated national Agenda 21s. 
The most advanced case is China, where UNIDO worked with the
Government in formulating 16 projects in support of the implementation
of the national Agenda 21.  The projects developed are in the areas of
capacity-building for sustainable development, cleaner production and
environmental protection, clean energy and transportation, and
pollution control.

54.  A second approach to the implementation of Agenda 21s is the
support UNIDO provides to the formulation and implementation of
strategies for environmentally sustainable industrial development
(ESID).  UNIDO has been engaged in that effort in Madagascar, Morocco,
Mozambique and Nepal.  ESID strategies are designed to build
capacities in recipient countries that would enable Governments,
industry and sections of civil society to establish environmental
goals and action plans, develop policy instruments to support the
goals of those plans, and devise appropriate monitoring and
enforcement measures to realize such goals.  Through such approaches,
UNIDO aims to support developing countries in integrating
environmental considerations into industrial activity and policies.

55.  UNIDO support to ESID strategies is not, however, limited to
overall national plans.  An innovative approach, called the Area-Wide
Environmental Quality Management (AEQM) Plan, attempts to build
capacities and define ESID strategies at the levels of regions,
municipalities or districts.  The objectives of the AEQM Plan are to
analyse the specific impact of productive activity on all
environmental systems in a given geographical space; to assess the
assimilative capacity of those systems; and based on these two
technical assessments, to establish a set of environmental priorities
and action plans to improve environmental quality and reduce the
adverse environmental impact on air, water and land resources.  The
resulting action plans specify the roles of municipal governments,
industry and members of civil society in realizing the environment
goals established.  At present, UNIDO supports AEQM planning in
Dhanbad, India and in the Bilecik region of Turkey.  Depending on the
results achieved in implementing the AEQM Plan, it could form a
valuable operational component of national sustainable development
strategies.

56.  In all national-level actions, UNIDO follows two principles. 
First, there is a high degree of involvement of Governments, industry
and non-governmental organizations to ensure national ownership of
ESID strategies.  Second, building of national capacities is a major
component of such programmes.


                    B.  World Summit for Social Development

57.  UNIDO presented a position paper to the Summit entitled "Social
progress through industrial development", arguing that lasting
achievements in respect of poverty alleviation and eradication must
build on long-term industrial development in most countries. 
Industrial development raises incomes, creates employment and provides
the resources required for investment in social development.  Since
the industrial revolution, industrialization has set in train
fundamental and continuing changes in the structure and nature of
society, which offer many opportunities, particularly in employment
creation and income generation, but also create difficult challenges.

58.  UNIDO programmes with a direct bearing on the social dimension of
development include support to small, medium and microenterprises;
integration of women in industrial development; protection of human
needs and well-being through the health-care industry and through
reduction/mitigation of damage to the environment; regionally balanced
industrial development; post-emergency industrial programmes; and
agro-based and agro-related industries (see also table 1).

59.  Following the Summit, UNIDO has actively participated in the
meetings of the Inter-Agency Task Force on Employment and Sustainable
Livelihoods.  In the context of the work of the Task Force and in
collaboration with the other agencies represented thereon, UNIDO will
act as lead agency in a detailed assessment of the linkages between
industry and social development in selected countries.


                     C.  Fourth World Conference on Women

60.  At the Fourth World Conference on Women, UNIDO focused on the
linkages between industrial and social development as well as on the
UNIDO role in increasing awareness of how women's participation in
industry is affected by the globalization of production and trade and
how the current situation can be improved.  Empirical studies of
women's participation in manufacturing were presented.

61.  UNIDO also organized a panel at the Conference on Women and
Industry, at which the theme of "Global industrial change, women and
socio-economic progress" was debated.  UNIDO was encouraged by various
Governments and non-governmental organizations to pursue its work for
the integration of women in industry by providing a necessary gender
perspective on all relevant areas of industrial development, such as
skills acquisition, the promotion of small and medium-scale firms,
employment strategies and access to finance.

62.  Based on the Platform for Action adopted by the Conference, 2/ and
the recommendations specifically addressed to UNIDO during various of
the panel meetings, UNIDO identified a three-point agenda for its
follow-up:  (a) promotion of gender-sensitive policies and strategies;
(b) female entrepreneurship development and human resource development
for industry; and (c) strengthening of investment and information
centres so as to improve the services provided to female
entrepreneurs.  With financial support from Germany, preparatory work
is already under way on a high-impact programme for entrepreneurship
development among women, under which 10 national programmes will be
elaborated, each aimed at releasing the principal technical,
managerial, financial, institutional and policy constraints affecting
the development of women's entrepreneurship.


           D.  Second United Nations Conference on Human Settlements

63.  Throughout 1995, UNIDO undertook activities preparatory to the
Conference, including the organization of an international colloquium
on industrialization and urban development in Vienna in October 1995,
and a meeting in Lisbon on urban industrial development for African
cities, hosted jointly by UNIDO and the Municipality of Lisbon.  UNIDO
also contributed industry-related inputs to the Berlin Declaration,
which was formulated at a joint OECD/Government of Germany conference
on sustainable urban development in March 1996.  Following its Tokyo
meeting in April 1996, the World Association of the Major Metropolises
recommended that its members make use of international expertise, such
as that of UNIDO, so as to support the needs of urban industry.

64.  The Conference noted that cities are where most industrial
facilities are sited, and where they have access to airports and
seaports, telecommunications, large labour markets, business and
professional services and other inputs.  It was recognized that the
globalization of world industry will take place, to a large degree, in
cities.  At the same time, urban areas constitute a growing focus of
world poverty, environmental deterioration and social distress.  Those
problems are set to become more acute:  it is estimated that after the
year 2015, all net population growth worldwide will occur in cities. 
The critical need for industrial development to take forms appropriate
to those challenges was asserted during the Conference in a
Declaration by a mayors' round table.

65.  At the Conference, UNIDO emphasized its role in supporting
initiatives on industrial investment and employment creation;
pollution prevention; product recycling; water treatment; improved
energy efficiency; the supply of suitable building materials and low-
cost housing; institution-building; training; support to small and
medium-scale firms; and the provision of policy advice.  UNIDO is
active in a number of those areas, and plans to further develop its
programmes in others, in line with specific issues raised in the
Habitat Agenda. 3/ Innovative approaches are being developed to that
end, such as a recent UNIDO initiative to create a regional
development agency in Belarus, now being implemented with EC funding. 
In so doing, UNIDO will work with policy makers, city administrators
and planners, industrialists, researchers and community groups to
enhance the productivity of cities, increase the sustainability of
urban development and improve the quality of urban life.


                     E.  Follow-up to global United Nations
                         conferences:  UNIDO programmes

66.  In response to the recommendations and action plans of major
United Nations conferences, UNIDO has developed a number of integrated
high-impact programmes that seek to harness the multidisciplinary
expertise of UNIDO in addressing key industrial development issues. 
Such programmes are illustrative of the type of services that UNIDO
will implement in 1996-1997:  they integrate analysis and policy
advice, technical cooperation and investment promotion, and thus put
into effect, in the field of industrial development, the special
expertise of UNIDO within the United Nations system.  The high-impact
programme entitled "Global network for the promotion of competitive
and innovative small and medium industrial enterprises", will assist
small and medium-scale firms, thereby directly supporting the
employment-generation objectives of the World Summit for Social
Development.  Further work in line with the goals of the World Summit
for Social Development will be performed under a high-impact programme
entitled "The UNIDO quality programme:  an application to the food
processing sector of seven sub-Saharan African countries".  And a
high-impact programme entitled "A UNIDO programme for women
entrepreneurs" will contribute to the achievement of important
objectives stipulated in Beijing during the Fourth World Conference on
Women.  One aspect of pollution abatement, a major theme of UNCED,
will be addressed under a high-impact programme entitled "Introducing
new technologies for abatement of global mercury pollution".  Those
high-impact programmes have met with considerable interest and
tangible funding commitments from the international donor community.

67.  Apart from such special initiatives, throughout its support
programmes UNIDO has ensured that the recommendations and calls for
action emanating from recent global United Nations conferences are
actively followed up in an effective manner.  Table 1 provides a
summary account of how different UNIDO programmes address the action
agendas of the various conferences.


         Table 1.  Link between UNIDO programmes and follow-up to global
United Nations conferences

-----------------------------------------------------------------------------
Agenda for                       World       UN Conf.     Fourth
international                    Summit      on Envi-     World
industrial dev.                  for Social  ronment &    Conf. on            

    Social
cooperation    UNIDO programmes  Develop.    development  Women    Habitat II
-----------------------------------------------------------------------------
Employment     Promotion of small
creation and   and medium
eradication    industries             X                       X          X
of poverty  
               Rural industrial
               development            X                       X

               Human resources
               development            X           X           X          X

               Integration of
               women in
               industrial
               development            X                       X

               Support to agro-
               processing
               industries             X                       X

               Building materials
               and low-cost
               housing                X                                  X

Environmental  Environmentally
sustainability sustainable
               industrial
               development
               strategies                         X

               National cleaner
               production centres                 X

               Implementation of
               international
               protocols,
               agreements and
               conventions                        X

               Conformance with
               industry-related
               environmental
               norms and
               standards                          X

               Subsectoral support
               in clean
               technologies                       X                      X

Private-sector Industrial 
development    strategy and
               policy advice          X

               Networking of
               small and
               medium industries,
               and promotion of
               industrial
               subcontracting
               and partnerships       X

               Strengthening
               support institutions
               and organizations,
               including industrial
               organizations          X

               Advice on
               privatization
               strategies and
               support for their
               implementation         X

Industrial     Quality,
competitive-   standardization
ness to        and metrology
redress        programme              X
international
development    Capacity-building
disparities    in technology  
               transfer and
               management             X           X                      X

               Industrial
               restructuring and
               modernization of
               major subsectors
               of industry            X           X                      X

               Investment promotion
               forums and follow-up
               services               X                                  X

               Global system of
               investment promotion
               service offices        X                                  X

               Promotion of
               international
               industrial
               subcontracting and
               partnerships           X                                  X

               Techmarts:
               enterprise-to-
               enterprise
               technology
               partnerships           X           X                      X
------------------------------------------------------------------------------


         VII.  COORDINATING ROLE OF UNIDO IN THE UNITED NATIONS SYSTEM

68.  As the central coordinating agency in the United Nations system for
industrial development, UNIDO has sought to carefully delineate a clear
division of labour between organizations within the United Nations system in
matters relating to industrial development.  Defining and reinforcing
complementarities between agencies is necessary to ensure that the finite
resources available for development cooperation are well employed.

69.  Significant efforts in that direction have been made by UNIDO and the
United Nations Conference on Trade and Development (UNCTAD).  The Secretary-
General of UNCTAD and the Director-General of UNIDO signed a joint communique'
in April 1996 outlining specific areas and measures of reinforced cooperation
with a view to avoiding overlap and promoting synergies.  A concrete example
of UNCTAD-UNIDO cooperation is the establishment of the World Association of
Investment Promotion Agencies in April 1995.  Through UNCTAD, the Association
will access a wealth of research experience and policy guidance, while UNIDO
will contribute operational skills in investment project promotion and in
strengthening investment institutions.  The first annual meeting between the
executive heads of UNIDO and UNCTAD took place in July 1996 at UNIDO
headquarters in Vienna.  The meeting agreed on a phased cooperation approach,
with emphasis on pilot projects on investment promotion in selected African
countries.

70.  In October 1994, the Directors-General of UNIDO and the United Nations
Educational, Scientific and Cultural Organization (UNESCO) signed a memorandum
on areas of cooperation between the two agencies, as an example of which UNIDO
has been collaborating with UNESCO on a university-industry partnership
programme aimed at drawing academia and industry closer together.  In July
1996, UNIDO co-organized with UNESCO the World Congress of Engineering
Educators and Industry Leaders.  Similarly, UNIDO and the Food and Agriculture
Organization of the United Nations (FAO) initiated the formulation of a number
of agro-industry projects related to food security in Africa, to be the
subject of joint funds mobilization and implementation.  UNIDO also signed an
agreement with the United Nations International Drug Control Programme to
expand their ongoing cooperation on crop diversification through agro-industry
projects.

71.  A memorandum of understanding between UNIDO and the Inter-American
Development Bank was signed in February 1996, establishing a model agreement
for services to be provided by UNIDO in respect of technical cooperation
projects financed by Bank loans.  The model agreement is the first of its kind
between UNIDO and an international development financing institution, and
similar agreements are expected to be concluded with other such institutions.

72.  Cooperation between UNIDO and the World Bank has also gained
considerable headway in a number of areas.  In early 1996, UNIDO and the World
Bank agreed to focus their cooperation in four specific areas:

     (a) Privatization and industrial enterprise restructuring, including
assessing the possibility of establishing a joint UNIDO/World Bank African
network for privatization;

     (b) Quality and standards in industry;

     (c) Competitiveness and productivity of small and medium enterprises;

     (d) Designing and implementation of build-operate-transfer schemes in
developing countries.

73.  At the operational level, UNIDO has been implementing technical
cooperation components of projects funded by World Bank loans and credits. 
The projects cover a varied range of issues, including environmentally
sustainable industrial development strategies (in Madagascar), human resource
development (in the Philippines), privatization (in Sudan), industrial
rehabilitation and maintenance (in Madagascar) and institutional
capacity-building (in India).

74.  In the areas of human resource development and capacity-building, the
Economic Development Institute (EDI) of the World Bank and UNIDO have been
collaborating in providing training to potential managers mainly from
countries with economies in transition.  The joint EDI/UNIDO programme has
been very well received by participants and is expected to lead to an
increasing number of joint activities.

75.  UNIDO has also cooperated with the World Bank in preparing the Bank's
industrial pollution prevention and abatement handbook, based on
sector-specific technical background documents prepared by UNIDO.

76.  UNIDO is involving other specialized agencies, as well as the regional
commissions, in implementing regional support programmes emanating from
declarations adopted at recent ministerial meetings, specifically the Regional
Meeting of Ministers of Industry of Asia and the Pacific (held in October 1995
in New Delhi, India) and the Regional Meeting of Ministers of Industry from
Central America and the Caribbean (held in October 1995 in Montevideo,
Uruguay).

77.  UNIDO has proposed and elaborated an alliance for Africa's
industrialization, as an industry-specific complement to the United Nations
System-wide Special Initiative on Africa.  The alliance will be officially
launched, following intense consultations with, inter alia, the Organization
of African Unity, the Economic Commission for Africa and the Conference of
African Ministers of Industry, in October 1996.  Its central theme is linking
industry and agriculture, and close cooperation is envisaged with a number of
other United Nations agencies, most notably FAO.

78.  UNIDO is also developing new concepts for supporting least developed
countries and for strengthening South-South cooperation, both of which are
pursued in the context of initiatives taken by the Group of 77 and the Group
of 15 to strengthen investment and trade links in industry between developing
countries at different levels of development.

79.  At the project level, cooperation between UNIDO and other United Nations
organizations has taken place, inter alia, in the following cases:

     (a) Together with the United Nations Children's Fund (UNICEF), UNIDO
developed a programme to assist the cereal-processing industry in Bosnia and
Herzegovina, with special emphasis on issues related to food quality;

     (b) Action-oriented research is carried out jointly with UNCTAD to
assess the implications for developing countries of the Uruguay Round
agreements;

     (c) Together with FAO, and with the envisaged future involvement of the
International Trade Centre (UNCTAD/WTO), UNIDO has initiated the development
of integrated programmes for sustainable wood product manufacturing in
Ecuador, Ghana and Nicaragua.  The technical cooperation projects resulting
from that initiative will involve FAO in forest management and UNIDO in
wood-processing activities;

     (d) In Sierra Leone, UNIDO is involved as subcontractor in a larger
International Trade Centre project on investment and export development, with
UNIDO implementing the investment promotion component;

     (e) UNIDO has become a member of the United Nations Children's Vaccine
Initiative of the World Health Organization (WHO).  The World Bank, UNDP,
UNICEF and the Rockefeller Foundation are founding members.  In close
cooperation with WHO and financed by UNDP, UNIDO will hold a series of
workshops in 1996 on industry-related health issues focusing on vaccine
production management and quality assurance and control;

     (f) UNIDO, together with FAO and OECD, has now joined as a member the
Inter-organizational Programme for the Sound Management of Chemicals, which
has been called upon by the Intergovernmental Forum on Chemical Safety to
prepare an inventory on activities related to chemical safety.  UNIDO is
actively participating in that work, with a portfolio of 20 ongoing projects
in that field;

     (g) In the context of providing industrial inputs into health
programmes, UNIDO cooperates with WHO, the World Bank and UNICEF in assisting
China in its programme to control and eliminate iodine deficiency disorders;

     (h) Within a larger technical cooperation project of the International
Atomic Energy Agency on the development of an advanced flue gas clean-up
process in Poland, UNIDO is responsible for undertaking project management for
engineering design.

80.  Finally, as part of the further focusing of its work, UNIDO has
discontinued some of its activities for which other agencies are considered to
have a comparative advantage, such as large-scale environmental monitoring
systems and environmental legislation (being closer to the work of the World
Meteorological Organization and UNEP, respectively) and investment codes and
legislation (given the strong involvement in that area of the World Bank and
UNCTAD).


                                     Notes

     1/  Report of the United Nations Conference on Environment and
Development, Rio de Janeiro, 3-14 June 1992, vol. I, Resolutions Adopted by
the Conference (United Nations publication, Sales No. E.93.I.8 and
corrigendum), chap. I, resolution 1, annex II.

     2/  Report of the Fourth World Conference on Women, Beijing,
4-15 September 1995 (A/CONF.177/20), chap. I, resolution 1, annex II.

     3/  Report of the Second United Nations Conference on Human Settlements
(Habitat II), Istanbul, 3-14 June 1996 (A/CONF.165/14), chap. I, resolution 1,
annex II.


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