Development cooperation – business not just foreign policy

15. August, 2005


Ilze Sedliņa

Foto: B. Koļesņikovs

Latvian transition from centralized to free market economy has taken place very recently and Latvian experience is a kind of service that could be sold to other countries. What is the role of the private sector in development cooperation, what are the aces in our hands and are we able to make a good game on those – this is the focus of the discussion among cooperation policy makers and representatives from the private sector taking part in building the policy.

Among discussion participants there are the following persons: Andris Sekacis, director of the Department of Development Cooperation, Valdis Birkavs, representative of the Latvian consortium of construction professionals, Aivars Tauriņš, chairman of the Assocation of Logistics and Customs Brokers, Sanda Putniņa, World Bank consultant, Guntis Kārkliņš, Ivo Rollis un Inese Bērs, individual consultants, Reinis Āboltiņš, UNDP project manager.

Development cooperation in Latvia – is it viewed as a narrow, foreign policy related issue or as knowledge of elements/variables in economics, hence taking our experience in reform making as a competitive resource that could be put to use to generate profit?

Andris Sekacis, MoFA, director of the Department of Development Cooperation: A classical definition of development cooperation stipulates that it is any project that is facilitating economical or social development in the recipient country. This issue definitely is related to the national foreign policy interests. Within the development cooperation framework there may a very wide project spectrum. Traditionally these project tend to stick to one principle – there must be common interests both for the state and for the private business. There may not be only commercially orientated projects.

World practice shows that private sector can work in various stages. There may be project implementer – to introduce a specific project and to receive state funding. This could an independent appraiser within the country. Besides there is an opportunity to partake in initial process when there is research work going on in the specific countries – to see what is needed what assistance the country of Latvia could provide. Naturally, from the point of view of business interests, the private sector can well see that it is useful to develop a specific business area, however, a project will not be allocated state funding if the project will be purely profit-driven.

This seems to be the right time to ask about the private sector interest as the businessmen are interested in profits instead of thinking about the noble cause.

A.Sekacis: It is partnership. For instance, a Canadian company is doing an investment project in Egypt – they are building a manufacturing plant. Simultaneously with investments they need an impact to the environment assessment, local labour force training programs. These are those things that are related to this project but they do not bring a direct commercial benefit. The related project are funded by the Canadian government as it helps to support the economical and social development in Egypt but it does not have direct business profit.

Valdis Birkavs, representative of the Latvian consortium of construction professionals: I would actually rephrase the question. Is development cooperation charity work? And the answer, of course, is, no, it is not charity work. Behind the development cooperation in all cases there is a larger or smaller interest to make profit. I think that development cooperation is an additional instrument. It is possible that it is not generating direct profit but it does create business environment and additional information. Development cooperation is business.

Guntis Kārkliņš, consultant: I think that development cooperation is a foreign policy instrument. From the point of view of a private consultant – it is business. No doubt, you will find organizations from the NGO sector whose interest will coincide with national interests and they well provide advice free of charge. A private entrepreneur has other interests. Naturally, from a very personal point of view, we may have ideas in line with those of the state administration, but this is what we call moral support.

We should refer to development cooperation as to a long-term project. One thing is to send an expert to another country, but the question is – where later there will be the connecting point – our private sector that slightly later will go to this same country. If the connecting point is missing, there development cooperation does not have much sense then. Then we have bought a good expert for the country and have paid the expert good salary. The key is this – the consultant is followed by the private sector and business people. All countries are in the state of development when the system is being harmonized aiming at harmonizing economy, society and so that the investments would start coming to the country, This is what happened in Latvia and this is nothing new.

V.Birkavs: I would define the essence in a simple way – a state is buying an expert to help another country so that the private business could buy an expert and enter that country.

Latvian experience – what we can offer – is that of interest for the recipient countries? What are the areas where Latvian private sector has had successful experience in?

Aivars Tauriņš, chairman of the Assocation of Logistics and Customs Brokers: Speaking of our competitiveness, I think, that our experience is scarce. Nevertheless, I think we can provide advice on mechanism to reach the point when a system could become functional, to understand what is the environment where some system must be introduced and what could be respective counteraction. We have been though many things and have learned a lot that may not even be included in theory books. Yes, we have accumulated practice and in this sense we are stronger than the experts who, for instance, go to Moldova from Sweden, and they will be completely out of ideas on what to do.

Latvian consultants may be strong in Russian-speaking areas as we can communicate in this language, we understand a lot about that world. This is our advantage that we have underemployed until now. Another advantage is the fact that our experts are relatively multi-sectoral experts.

G.Kārkliņš: Latvian consultants and experts have been appreciated. In realistic terms neither Germans nor the Brits could make a better offer than we could. Reform products require ability to adjust to the specific situation. The systems that are tuned to the West-European countries may not be necessarily needed for the countries undergoing reforms. They need understanding on how to implement the reform in the specific system. This is our added value that we can provide and we are quite well sold. Naturally, it is also the matter of price. A consultant from a West European country will definitely charge more than we will.

A.Tauriņš: Quite often development cooperation projects fall in the category under the label “six of one and half a dozen of other”. Business solutions are borrowed slightly adjust for the needs of the specific country. A donor country puts the flag high up on the pole and promotes that assistance provided. In truth the project was implemented only once and later – it was sold or given to a number of other countries. And it looks very good. From the point of view of the contents, Latvia definitely could offer much better projects.

Latvia has countries that we all have done and we have specialists who have studies things up to the tiniest detail, they understand not only how to present a project nicely, but how to bring it to life. Then, if we find a good market niche, where we are strong in, then what is the problem for the Latvian state to support the specific product that well later be sold en masse¸ so to say.

Sanda Putniņa, World Bank consultant: Direct gain from development assistance to the Latvian private sector will never been “strongly tangible”. It could be something like building similar environment in these countries, raising Latvian name both at the level of national administration and private sector. It is more important to discuss on how to provide the assistance as it is clear that Latvia in this area will not be a major player. There are several institutions working in the area with much better resources than there ever will be available for the development cooperation in Latvia.

I doubt whether Latvia will ever be able to implement such large scale project as, for instance, customs modernization or public sector reforms in Moldova. In the best case we could try offering our experts and reform products. We should think about what the country of Latvia could do to create a reform product package that could be used either by the Latvian consultants or other institutions for the provision of development cooperation. This could be the thing that in my view is worth investing in.

On the whole – consultancy market is quite densely populated world-wide. To make space in that market one must offer state level product when Latvia is being sold as a successful reform-implementing state instead of offering individual consultants who are able to produce reform descriptions.

I think that the Latvian name is not known at such at level that would allow as assuming that whenever there is an issue related to customs reform, land registration reform – Latvia will be the first state to refer to. And while the level of recognition will remain at the current level, we will not be able to sell our product. In the best case we will be contractual agents to contractual agents.

What is the experience of consultants? How difficult – or easy? – is it is be commissioned, to partake in and win tender deals and to be a candidate in line for money that is devoted to development cooperation by other states?

Inese Bērs, consultant: We must use the opportunity for Latvian entrepreneurs to be in circulation. For instance, only the western countries at the moment win tenders for service contracts as we have not accumulated the required experience – we have not been within the EU. At the moment there are several Latvian companies that are quite focused in partaking in service tenders building consortia. As we have only the minimum of experience, we liaise with foreign consultants – we work as the small partners within consortia so that we could compete on equal terms in two years. At the moment this seems to be the only opportunity while it is also possible to go out on the ring at full speed – it is a matter of few years. At the moment the large western companies are telling us that they can deal on their own. In two years time, however, when we shall have the required experience and there will be tenders with regard the Balcan countries, Moldova, Ukraine, they will need experts and they will speak different language.

Ivo Rollis, consultant: Latvian strength is that we can offer hands-on experience. The supporting points are very different. It is very difficult to enter market. Well, it must be done gradually – step by step.

I.Bērs: In a recent discussion a Swedish consultancy company admitted that they have smaller and smaller interest in development cooperation project tenders as their expert costs are too high. Too much has to be invested and it did not pay off for them. Hence, they admit that they look forward to cooperation with the Baltic states.

G.Kārkliņš: Currently we simply are cheaper and this is our competitive advantage. However, two things are to be kept in mind. Firstly, money is always assigned to the “our party” and this is quite understandable. Secondly, the capacity that the company can offer matters. In case a company is willing to partake in tenders, usually these are small-scale. It is impossible to offer adequate experience in managing and implementing large scale projects. In case in Latvia somebody has a one million worth project – it is a lot. Normally it is an annual or multi-annual turnover, not just one project amount. Therefore one could say that at the moment the only opportunity is to build consortia or to be a contractual agent. We are building our portfolio, accumulating experience and then we will be able to meet the normative requirements to enter this market.

S.Putniņa: It is clear that in Latvia there is some budget for development cooperation. There are several ways to spend this money. One – we buy Latvian experts for individual activities so that they could go to Moldova, Georgia. I think that the most efficient investment would be to develop a product that Latvia could offer – to understand where we are the best. Looking at the global processes, it is clear that the private sector development issues will be of topical importance within the next few years. Private sector development from the state needs adequate conditions – this what Latvia has been trying to do in the course of the last 15 years.

If we see that there is something missing, it is clear that we lack any kind of description what Latvian state considers as its best practice – something that we could demonstrate as a successful reform and who are those people who in the national institutions or in the private sector have worked with these issues. The kind of reform description is that something that has made other countries recognizable, it is the how they’ve made their path into the market. If the reform description is persuasive, experts are sought. This is how I see development cooperation.

V.Birkavs: I think this is a very reasonable proposal. Our experts have to be very focused at accumulating experience in certain directions, have to be focused on preparing a project and must regularly monitor in what competitions our experts would be prepared to compete in. At the moment everything is happening on individual basis. Before the development cooperation we need our own cooperation development.

Reinis Āboltiņš, Reinis Āboltiņš, UNDP development project manager: Simplifying, there are to ways how be in circulation. One – private entrepreneurs at their own initiative build muscles and fight through the jungle. I guess we excel in the number of such cases. Second – state ability to aid the private sector must be strengthened. I think this is important as in this course of transition the state would get closer to the private entrepreneur pro-actively instead of just being happy at the success of individual entrepreneurs.

It is worth working hard on this as not only private business but also the national foreign policy will facilitate in increasing the national recognition. It is worth investing resources to aid private entrepreneurs. From the point of view of the country, it means lobbying for the name of the country that will definitely pay off at the later stage. For instance, in Moldova, I am continuously being asked where were the Baltic states until now. We have the Swedes and the Brits coming here, but we are not interested in them, we are interested in your unique experience.

Do we here, in Latvia understand what is our success story to we could bring out into the world?

A.Sekacis: I will briefly comment on the above said. I completely agree that some experts are unique. Gradually we are accumulating information on various experts – former civil services officers, working outside the civil services and who are working in differently funded project in various states of the world. And this is the problem that experts as such can contribute very little for the capacity. Here we are speaking about legal units – companies and non-governmental organizations – that are competitive in working on these projects and that eventually will be able to compete for larger projects. One of the underlying objectives Latvian development cooperation is to facilitate experience accumulation so that in two, three years we could compete for tenders – and this is no secret. This is how it is in the new member states. Experts everywhere support their companies as in the contrary cases all funding will go to the old Member States. How to provide support – this is a technical question.

Speaking of success stories, it is wrong to hope that he Ministry of Foreign Affairs will announce, Latvia has done a good job in an area so and so, while area so and so is badly worked on.” We tried out this kind of approach some two years ago and faced the fact that in some specific area Latvian has a success story but lacks expertise.

S.Putniņa: Looking at this from the point of demand, the issue on democratization and related issues are those where Americans are very big at, and it would be very hard for Latvia to get there in. There is an interest on very practical issues – how was the specific institution reformed, how a specific register was established, how specific laws were enforced. This is the kind of knowledge that is available here, in Latvia and notably – among those employed in the public sector. In the World Bank rating Latvia is listed as a good example in terms of enterprise register. The subsequent issue here – describe the reform process. But this is absent. It is clear that it will not be funded by any private company or institutions from other countries. Only Latvia could pay for that.

From the point of view of demand, such issues are topical as market monitoring systems, standardizations, certification recognition systems, various kinds of inspection. There is about the specific experience of the Baltics as we are the former Soviet Republics who have successfully reformed economy and fully transferred to liberal market economy. Besides, there is interest on various kinds of registers, national administration system reform and welfare of business organizations.

Another important thing that must be solved is the motivation of those employed in national administration to consult. Initially everything could be done on the basis of individual contacts and on the basis of human interest to go to the specific country, but the practical motivation is missing. I talked to some experts working in national administration as under these circumstances international institutions cannot remunerate them. Latvian government does not have any mechanism to provide support in this.

V.Birkavs: Then it is even more important that the officials employed by the state and being paid for their work would hand on their experience to experts who are prepared to go to these countries and consult there. I think this is not impossible. We can’t look forward to officials only who could either be willing or unwilling to consult. It is important that there are the private persons who could make it their business.

A.Sekacis: I don’t know whether it is possible to hand of experience just like that – simply talking to a consultant. At the same time we continuously see this sort of moral problem – I don’t think that our national administration is packed with resources so that we could afford freely sending the civil services officer around.

G.Kārkliņš: I think that everybody knows that Latvia at the moment is not in the position to make large investments in development cooperation. Development cooperation from Latvian point of view will definitely be focused on very specific areas. Let’s be realistic! We know what Latvian budget for this amounts to. In the nearest two to three years it will be hard to talk about development cooperation as a business.

What is the experience of other East European countries, organizing development cooperation and involving private business in that?

A.Sekacis: Even though we’ve been speaking about development cooperation in Latvia for the last two years, this is the area that almost any country in the world is involved in. Until now it has been more in the form of Latvian contribution to international organizations, not in the form of self-planned assistance.

The situation and models in each member state are different as the so-called basis differs – the situation from where we started. For instance, the Poles, the Czechs and the Hungarians have historical experience. They are not talking about it loudly but they have provide the assistance even in the seventies and the eighties of the previous century. We in the Baltic States are starting from a scratch. Therefore we can’t really compare.

At the end, your vision on what in the coming few years could be done in Latvia in development cooperation and what is your vision on development cooperation in the year 2010?

S.Putniņa: I would recommend describing the actual reform experience. Then – translate that into English and Russian. To try to attract international professorship who could aid in transferring this further. I really see demand for that. In terms of future vision, Latvia could provide management consultations linked with IT products. This definitely will be very topical.

A.Sekacis: I will use the opportunity to say that this fall the so-called national strategy papers will be written with regard to Moldova and Georgia. This will be done as publicly as possible. Hence it will be possible to suggest, to comment on additional changes to the forecasted activities in these countries. Yes, we are trying at the moment to define specific development cooperation target regions. There are several reasons why we have selected Moldove and Georgia. On future – I think this will depend on the recipient country interests. Many things will depend on consultants, let’s see how Latvian expertise will develop.

V.Birkavs: I am interested in defining what consultants will work in what areas. I would like to say that at the moment the time is ours, our experience is needed. We should think what we shall do in some five or six years.

G.Kārkliņš: I hope that disregarding the global processes indicating that the large players gain even more importance, there will be room for small companies who will flourish and develop. I think that funding allocated for development cooperation in the Latvian budget will increase. In the nearest future the Ministry of Foreign Affairs could try coming to terms what exactly they would like to see – how the development cooperation model will work, what areas and players there will be.

R.Āboltiņš: From the point of view of the UNDP we are interested in swift development of the on-going preparatory work – that is – legislation harmonization, strengthening and developing expert awareness systems. If this could happened in a course of the year, it would be good. In the course of five to ten years we hope that we shall be able to introduce good standards on how to set priorities and gw to work with partners.

I.Rollis: I think that the private sector in the course of the five years will be able to set the market rules and will have larger muscles to rely on. It would be nice if in the nearest future there would be a definition on where partnerships between the state and the private sector are possible.

I.Bērs: Until the year 2010 Latvia will have a stable place in consultancy business. In the private business there will be equality between the already working and new players and Latvia will be competitive in service provision tenders. At the moment the market is open to us but we don’t have the opportunity to enter it.

A.Tauriņš: I hope that the product will be defined, that there will be an image and that this will be an instrument in the hands of politicians.

This publication is made in the framework of the UNDP Latvia and Latvia Ministry of Foreign Affairs joint project “Strengthening Institutional Capacity for Development Cooperation Framework of the Government of Latvia”.

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