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Commonwealth and Francophonie Meeting on the G20 Development Working Group

Summary Tuesday, 28th June 2011

Cape Town, South Africa

G20 Development Working Group

Tuesday, 28th June 2011

Welcome and Opening Session

Dr Cyrus Rustomjee

Director, Economic Affairs Division, Commonwealth Secretariat Welcome and attendance Dr Rustomjee welcomed all delegates to the meeting, and conveyed the good wishes of Kamalesh Sharma, Secretary-General of the Commonwealth. Working Group (DWG). Dr Rustomjee expressed his thanks to colleagues who had travelled from far to be at this meeting, and hoped their stay would be comfortable. He particularly welcomed development partners, which included the World Bank and France, as a member of the Francophonie but also Chair of the G20 for 2011. The present co-chairs of the G20 DWG were France, South Africa, and Korea. Dr Rustomjee was very pleased that other members of the G20 DWG were able to attend, and looked forward to their contributions. Outline This meeting, two days before the next meeting of the DWG in Cape Town, brought together some of the poorest, smallest, and most vulnerable member countries of the Commonwealth and Francophonie with the six G20 members of the two associations to discuss the most pressing development challenges. Jointly, the Commonwealth, with its membership of 54 countries, and the Francophonie, with a membership of 57 and 14 associate countries, represented over 100 of the world's poorest, smallest, and most vulnerable developing countries. The two associations accounted for 34 of the world's 48 least developed countries (LDCs), 32 of 36 sub-Saharan African (SSA) countries, and 30 of the 50 small, vulnerable economies (SVEs). Many of them remained acutely vulnerable to changes in global economic prospects because of their size, remoteness from financial markets, and limited domestic diversification opportunities. Their route to sustainable growth and development hinged on sustained meaningful access to global trade, an ability to withstand shocks as they grew, and the widening and deepening of their financial systems. experience. The six members of the G20 present offered the two associations particularly valuable opportunities to share experiences and to identify solutions to global development challenges. The G20 DWG was established last year to allow an opportunity for the world's poorest, smallest, and most vulnerable developing countries to highlight their development challenges and to propose solutions to them. Purpose of the meeting This meeting offered all participants an opportunity to share experiences of development, highlight best practices, identify challenges, explore some solutions, and make some practical, actionable proposals for the consideration of the G20 DWG. These countries were at the forefront of adversity in their development challenges, but they possessed an extraordinary range of development Members of the media were present to hear the opening comments of the South African co-chair of the G20 Development

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It was part of an ongoing process of dialogue between the two associations and the G20. The Commonwealth and Francophonie had been contributing suggestions to the G20 regularly over the past two years. In 2010, their two Secretary-Generals consulted with Prime Minister Stephen Harper ahead of the G20 Toronto summit in order to provide insights pertaining to the development interests of the world's poorest economies. Further inputs were made before the G20 Seoul summit about trade and financing for development. It was anticipated that a similar process would be pursued ahead of the G20 summit in Cannes later this year. Today's meeting utilised the opportunity of those present to focus on three of the nine pillars of the DWG's agenda. They were: trade, growth with resilience, and financial inclusion.

Hervé Cronel

Special Advisor to the Secretary-General, Francophonie Background Mr Cronel added his welcome, and saluted the members of the G20 who were taking part, especially those that were neither members of the Francophonie nor the Commonwealth. He recalled the World Bank Conference on Development, ABCDE, which took place in June 2008. Three months afterwards, the financial crisis began; an understanding of the consequences of this on the developing world was still developing. The Commonwealth and Francophonie were mainly forums for sharing discussion, intended not to make decisions but to seek national, regional, and international consensus, and to provide ideas to help groups such as the G8 and the G20. They were also places of research and expertise, but today their main contribution came from three levels: · To improve knowledge and enhance the sharing of evidence about development issues around the world; · To improve transparency between partners, whether funding agencies or aid beneficiaries, and to find areas of agreement; · To improve donor coordination.

Context Mr Cronel placed this meeting as part of a process that had begun with the creation of the G20 summit, which had been followed up during the G8/G20 summits in Toronto and Seoul. South Korea was a member neither of the Commonwealth nor the Francophonie, but it had nevertheless involved these two organisations as it adopted the Action Plan on Development. Both these associations were aiming to present questions to the G20 that highlighted the most sensitive, urgent, and critical issues to reaching the Millennium objectives, namely growth and development in the face of challenges like climate change, problems of international trade, and the stalling of some negotiations. Today, members had united to deal with three of the nine pillars identified in the Action Plan. Their task was to see how to develop these countries to ensure the best conditions for the poorest and most vulnerable among them. Around September/October, the two Secretary-Generals would be jointly welcomed by the President of France and the G20 to present him with a document on the funding of these 3

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pillars. They would encourage the international community to make resourcing decisions for the benefit of development. Today was looking at the question of `how to better develop', but that was just one stage in this journey that would visit all issues of development.

Alan Hirsch

G20 Sherpa for South Africa and Development Working Group Co-chair G20 Development Working Group South Africa welcomed the initiative taken by the Francophonie and Commonwealth to engage with the DWG's agenda. Mr Hirsch did not believe the G20 in any way claimed to maintain a monopoly over discussions on issues of importance to developing countries. part of the process. In fact, participation in the discussion around the pillars was an incredibly important and enriching Mr Hirsch thought more participation in some of the issues from developing countries or those outside the G20 would be an important achievement, so he welcomed the initiative that the Commonwealth and Francophonie had taken and hoped they could continue to interact on these issues. G20's approach to development Toronto The decision was taken last year in Toronto to establish a working group for development in order to achieve strong, sustainable, and balanced growth and a more robust and resilient global economy. It was also agreed that there should be a development agenda and a multi-year Action Plan. Mr Hirsch stated that development was not altruistic. It was about rebuilding a troubled world economy, and that trouble had come from the failure of developed countries' economic policies to anticipate the problems that had emerged, and the low level of development and slow economic growth of many developing countries. This trouble would only be solved by the new dynamism that would come when effective development became an integral part of the world economy. Seoul A few weeks after the Toronto decision, work on the agenda began in Seoul. South Africa was honoured to have been invited by Korea to join them as co-chairs in that process. Between June and November, the DWG agreed on its nine pillars and an approach towards them. The first results of the multi-year Action Plan might be expected this year, but the programme should continue under Mexico's presidency next year and into the future, perhaps for at least two or three years, to address most of the current issues. That programme was approved by the leaders of the summit at Seoul. Principles of the approach Growth Mr Hirsch thought the first principle unsurprising. Resilient and sustainable growth would reduce poverty. It was not about ameliorating the problems or counteracting the symptoms of poverty, but trying to build the capacity of all developing economies to grow and provide for their people's needs.

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There was no single formula for success. Developing countries must, therefore, be engaged as partners. They must be allowed to use their own institutions, philosophies, and approaches to build the foundations for long-term growth. Without engagement on this basis, their capacity to grow could be undermined. Systemic issues The third principle was to prioritise systemic issues that could be resolved through collective action. Some questions to discuss included the difficulty of mounting effective regional programmes and of cooperation between development institutions on infrastructure

cross-border projects. This principle sought to solve the system before individual projects. Private sector Growth entailed support for and partnership with the private sector to create jobs. were policy issues around that, which required attention and engagement. Support Mr Hirsch had found achieving support increasingly complicated. without doing their work for them. `additionality'. Real change The final focus was on tangible outcomes and measuring success in terms of real changes. Nine pillars Infrastructure and food security Infrastructure and food security were the two pillars proposed by the French presidency and agreed by the rest of the G20 as priorities for this year. Trade This pillar focused on trade facilitation issues and how to improve low-income countries' (LICs) capacity to export. Private investment and job creation More private investment would create more jobs. Human resource development Human resource development was an area not often addressed by international efforts elsewhere. The focus here was on industrial skills, and creating a system that would assist developing countries to impart the skills that people would need when they had completed their education. Growth with resilience This pillar was about ensuring that countries would be able to endure economic cycles without slowing down too rapidly. Alan Winters, chief economist of the Department for International Development (DFID), had submitted a paper at Seoul that argued that countries that do not He asked how to avoid duplicating the efforts of others, and how to support the UN and other aid organisations It was the ambition of the DWG to complement the numerous major development initiatives already taking place, and to provide some There

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have serious recessions grow most effectively. Economic accidents could become disasters in developing countries, and they needed to be prevented. Domestic resource mobilisation Mr Hirsch reasoned that the relative decline of overseas development assistance was inevitable given current circumstances, but the capacity of developing countries to mobilise resources from taxation was growing and needed to grow further. Opportunities for collecting taxation were not currently being used, but could be the basis for more effective development. Financial inclusion This pillar was about providing access to finance for poor people and small businesses and, hence, opportunities for employment and the end of difficult economic cycles. Knowledge-sharing A lot had been learned from different experiences of development. These experiences needed to be shared more effectively, perhaps by looking at knowledge-sharing institutions and seeing how they could be improved. Progress Mr Hirsch reviewed that work on the nine pillars had begun this year under France's leadership. There was a meeting in Paris and several engagements through teleconferences or exchanges of papers and reports. The co-chairs would be presenting their recommendations based on the work done so far, and international organisations would have an opportunity to add their comments. The co-chairs would then compile those outcomes They would then into a report to the Sherpas, who were the president's representatives.

consider them in preparation for including the leaders' statements in the discussion. Proposals would be finalised before the DWG meeting in September, and could perhaps be taken to the summit in Cannes at the end of the year. The more significant outcomes were likely to be included in the leaders' statement. Those that were not as far advanced would comprise a comprehensive progress report based on the nine pillars. The G20, working with institutions like the Francophonie and Commonwealth, would take the most relevant issues further.

Discussion

Mr Cronel echoed Mr Hirsch's sentiment that 2011 would not mark the end of this process. He acknowledged that none of the problems being addressed had quick solutions, and went on to highlight a concern that had been felt in recent development meetings: the return to growth currently happening in the world was not being accompanied by job creation. The figures showed that growth was increasing and, with it, population, but employment numbers were not rising to meet them. The ambition to build strong and sustainable growth had met another challenge, for what was the meaning of economic growth if half of a population was without a job? Dr Rustomjee thanked Mr Hirsch for his presentation explaining the DWG's process and priorities. He indicated some areas of importance to the future direction of the Francophonie

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and Commonwealth: firstly, the indication that the G20 does not claim a monopoly on discussion; secondly, the aspiration to continue interacting with the Commonwealth and Francophonie through a multi-year programme; and, thirdly, the dynamism that came from the developing world in identifying solutions that could inform best practice and ways forward with truly complex global development challenges. Finally, Dr Rustomjee supported the message that building capacity in the poorest, smallest developing countries was a particularly acute challenge, but it seemed the door was open to new ideas and innovations to pursue that. Dr Rustomjee also thanked the media for its interest and presence in this session of the meeting. He valued their input in depicting the many complex development messages and challenges of developing countries, which would help the world to understand them better. Mr Janaab Mohamadally Mownah, a Senior Analyst of the Ministry of Finance and Economic Development of the Government of Mauritius, enquired about the particular focus on pillars concerned with food security and growth, above financial inclusion and trade. Mr Hirsch related how President Sarkozy had identified food security and food price volatility as urgent issues. The risk was of repeated cycles, as unexpectedly high prices could have The view generally taken in the G20 was that the DWG Trade might be severe effects in some countries.

could have a significant impact on countries' infrastructure development.

more important, but a lot of work was already being done in this area. There could be higher returns in the area of infrastructure. It was possible, however, that the leaders' statement at the end of the year might highlight some issues concerning trade, financial inclusion, or domestic resource mobilisation that were more striking than others. Timothy Antoine, the Permanent Secretary of Grenada's Ministry of Finance, Planning, Economy, Energy and Cooperatives, welcomed this enhanced understanding of the G20 process and having an opportunity to put across his country's views. DWG would end. He asked when the The Millennium Development Goals (MDGs) had produced key targets

against which progress could be measured. It was not clear whether the same had been done for these pillars or if some articulation of that was still to come. It was important for the G20 to deliver on these powerful statements; to do so they had to be more than statements of intent. They must become something measurable so that all could see the advances that had been made. Mr Hirsch answered that within the nine pillars there were twenty-seven actions. Once processes had been identified and recommendations proposed to institutions on how they should change, and once G20 countries agreed to change their behaviour in such a way, the process would be complete, but that would not mean that the infrastructure deficit in Africa had been eliminated or that skills development capacity in South Asia had been enhanced or resolved. Mr Hirsch conceded that numerical targets had largely not been set, but he They might be increases in infrastructure expected nations' leaders to want to do that. As Cannes approached, more thought about the goals of these processes would be required. investment, for example. There were possibilities for numerical measurement, but the

process was not yet at the point of identifying them. Francis Chipimo, an Adviser in Economic Management from the Ministry of Finance and National Planning of Zambia, welcomed this emphasis on food price volatility and infrastructure. Infrastructure and agriculture had been the key constraints faced by his 7

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country in overcoming poverty and ensuring sustainable growth with lower volatility. However, he cautioned that trade was inseparable from infrastructure. Zambia was trying to tap its regional markets, and infrastructure was one of the key impediments preventing them. Mr Chipimo placed this problem in a wider context that affected social outcomes, health, and education. The Head of the UK Delegation to the DWG and Director of International Relations at DFID, Anthony Smith, gave a response to Mr Antoine's question. The MDGs were often cited as a reference point. While it was true that development actions needed to be precise to deliver outcomes, there had been a general recognition that the G20 should make a contribution to development. The one global framework that existed for that was the MDGs. The G20 was not trying to create a new development framework, but was instead concentrating on an area where it could bring added value ­ growth ­ as part of its work on the agreed international framework on development, the MDGs. Mr Smith also explained how the nine pillars were all related. Although the French presidency had encouraged a focus on certain aspects, work on infrastructure, for example, would benefit trade, regional integration, food security, and human development. Progress on one was progress on the nine together, but some focus was required to manage the Group's work. In ending this first session, Dr Rustomjee related how it was not the intention of the meeting to ascribe ideas to a particular country or person. It was aiming to reach consensus on areas revealed as particular challenges or opportunities. Three papers had been prepared for each of the substantive sessions on trade, growth with resilience, and financial inclusion. Each session would be chaired by a country and would include a presentation by the paper's author, some country presentations, and a plenary. The three papers would then be modified to reflect the outcomes of the discussion. They would be supplied to the G20 DWG as contributions to the ongoing discourse from the two associations. A brief outcome statement had also been prepared, which would double as a press summary to be published at the end of the meeting. agenda. The conference adopted this

Session 1: Trade

Dr Mohammad Razzaque

Economic Adviser, Economic Affairs Division, Commonwealth Secretariat Background Talking about trade and the problem of LDCs, SVEs, and SSA was a daunting task, but Dr Razzaque hoped to be able to outline some of the key recommendations and supply a short background that would help his audience appreciate the real challenges that these countries faced. Integration with the world economy through enhanced participation in global trade was a major challenge for the world's poorest, smallest, and most vulnerable economies. These countries relied on the G20 because 70% of their merchandise trade went to G20 countries, and they were dependent on the preference they received for technical and financial

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assistance. Dr Razzaque was heartened to see the G20 recognise this central role of trade and the point of growth and poverty alleviation. Dr Razzaque grouped the SVEs, LDCs, and SSA into the G100, not as a formal category but to draw attention to the shared needs of so many. Features of developing countries' economies Growth performance The G100 had seen the weakest growth performance in the global economy. Between 1970 and 2009, for example, the LDCs registered an annual compound per capita income growth rate of 1.26%, against 4.40% in developing countries. Dr Razzaque pointed out that the LDC group had outperformed SVEs and SSA. The last decade was considered quite a good decade for most developing countries, but their annual compound growth was only 0.89%. Marginalisation These countries had been marginalised in global trade. At one point, LDCs and SSA's share of global trade was close to 4% and 3%, but they were now down to about 1%. There had been some recent signs of reversal, but this was not true for SVEs. A similar picture was arising for services rates. Primary sector reliance Another important feature of the G100 was their overdependence on primary sector exports. Dr Razzaque put this into context; the total merchandise exports of SSA in 2008 were $272 billion, $200 billion of which had come from fuel, and $54 billion from raw materials and primary commodities. These countries' critical dependence on primary commodities prevented them from diversifying their economies. Commonwealth and Francophonie membership The Commonwealth and Francophonie had 34 LDC, 32 SSA, and 40 SVE members. G20 DWG Action Plan Focus and recommendations The Action Plan concentrated on two factors: market access and trade capacity. Dr Razzaque agreed with this focus, but believed there remained substantial room to strengthen the Plan, so he made a few recommendations grouped into the following categories: market access; trade-related adjustments; aid for trade; and international support mechanisms. Market access recommendations The G20 trade Action Plan stated that the G20 group would work towards achieving what had been committed in the Hong Kong Ministerial Declaration of the WTO. This contained the commitment to provide duty-free and quota-free (DFQF) market access for 97% of tariff lines in developed countries. Numerous studies had shown that at 97% nothing additional would accrue in LDCs. For this reason, Dr Razzaque suggested that the G20 consider expanding DFQF access to 100% of tariff lines and coverage to all G100 countries. He highlighted the concerns of some SSA countries, which feared competition from Asian LDCs. Rather than excluding Asian LDCs altogether, the proposal was to identify certain tariff lines where SSA countries could have export interest and impose export restrictions on Asian countries in those lines in order to minimise any conflict of interest. Dr Razzaque mentioned 9

G20 Development Working Group that other think tanks also supported this recommendation. coverage and enforcement mechanism.

Tuesday, 28th June 2011 A subsidiary recommendation

was to set up a tax force in order to establish a more comprehensive G20-wide DFQF DFQF market access commitments involved issues relating to rules of origin. Many countries had been unable to take advantage of market access changes because the rules of origin were very stringent. Until 2005 or 2006, even for LDCs, the preference rate was only about 50%. There had been some estimates that, if the rules of origin were more relaxed, the gains to African countries could be five times greater than what they could achieve now. Stringent rules of origin also created unnecessary burdens for developing countries, particularly the poorest, diminishing the tariff advantages that these changes would make available. For these reasons, Dr Razzaque's recommendation was for a development-friendly rules of origin regime with global accumulation and a pragmatic local value-added content requirement. Some G20 countries already offered this, so the DWG was also examining their practices to learn what could be replicated and applied across all members. The next issue was services. semi-skilled professional Dr Razzaque admitted this could be controversial, but stated yet their market access was extremely limited. that the G100 group clearly demonstrated comparative advantages in unskilled and workers, Contrastingly, the impact of remittances in these countries was enormous; from 1990 to 2010, remittances flows to G100 countries had increased from $4.5 billion to $42 billion. Alan Winters' study had found that liberalisation of the OECD labour market by around 3% could result in global welfare gains of $150 billion, a significant proportion of which would go to G100 countries. The Hong Kong Ministerial Declaration clearly made a commitment to develop appropriate mechanisms to grant special priority to services sectors from LDCs. Dr Razzaque hoped this could be implemented. There was some room for the G20 to engage further. The DWG could also consider examining implementation mechanisms for services modalities and assess the scope of the `managed temporary movement of natural persons'. Routes by which nurses and teachers could be trained elsewhere and brought into OECD countries could be extremely helpful. Dr Razzaque stressed that this mood for liberalisation related only to temporary relocations; this had nothing to do with permanent migration, so it could avoid the `brain drain' to originating countries, as well as other consequences. Another serious problem for many G100 countries was complying with standards. For example, between 1995 and 2009, more than 8,000 sanitary and phytosanitary (SPS) standards and 10,000 barriers to trade-related notifications were submitted to the WTO. Apart from the general problem, private standards also proliferated and compliance could be extremely challenging. Recently, Saint Vincent and the Grenadines had told the WTO that they needed to invest $3 million, or 10% worth of their total merchandise exports for the year, to comply with all standards-related issues. The Commonwealth Secretariat hence recommended that the DWG should provide technical assistance to address these challenges, and produce guidelines on the maximum restraints that G20 countries could exercise when using trade-restrictive measures against imports from the SVEs, SSA, and LDCs.

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Recent regional integration and multilateral liberalisation meant that preference erosion had now become a genuine concern for many of the G100 countries. The Commonwealth Secretariat had reviewed the literature and found that, if the multilateral trade liberalisation under Doha went ahead, the loss of absolute merchandise exports from some countries could be very high ­ for example, about 58% in the case of Saint Kitts and Nevis, and 45% for Saint Lucia. The recommendation was for the G20 to review the evidence with utmost urgency and allow aid to deal with trade-related adjustment shocks. Dr Razzaque highlighted issues of climate change and export competitiveness for the G100 countries. There was a serious concern that climate issues would undermine the export competitiveness of SVEs and SSA countries, particularly the major surge in carbon taxes and charges related to transportation and product levelling. The recommendation was for the G20 to commit to ensuring that trade-restrictive climatic measures would not affect the supply response of G100 countries. Aid for trade recommendations Aid for trade, particularly trade facilitation, was working well. The response study had found that $1 million additional investment in aid for trade facilitation would generate a 5% decline in the cost of handling a 20-foot container in different ports. That had a significant beneficial effect in improving competitiveness for many SVEs and SSA countries. However, aid for trade's contribution to productive capacity development, particularly diversification, was not yet clear. Possible options were to give these countries more policy space about how they used aid for trade, and to make adjustments for those suffering preference erosion. International support mechanism recommendations Commitments in favour of SVEs, LDCs, and SSA included MDG 8. The Global Partnership of Development was a rule-based multilateral trading system also expected to enhance the participation of LDCs, island states, and SVEs. Similar commitments had been made in the Doha Round, and for LDCs there was the Istanbul Programme of Action. The problem was the lack of an effective mechanism that made these different commitments work coherently. That was why Dr Razzaque recommended that the DWG set up a A recommendation alongside this was to consider adopting a mechanism to coordinate the implementation of trade-related commitments that had been made in different forums. comprehensive trade-support package that was sensitive to the spatial needs of Southern countries within the G100, for whom certain types of interventions were more effective. Role of the Commonwealth and Francophonie The Commonwealth and Francophonie could offer important insights through policy research and experiences. They had many consultations and dialogues ongoing with member states, which could facilitate the role of the G20 in developing the trading interest of the G100. They were well-connected with civil society stakeholders who could bring fresh perspectives to the issues being discussed. They could build international consensus and show global advocacy in a number of issues of interest.

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Albert Ndille

Inspector General, Ministry of Finance, Cameroon The country Mr Ndille expressed his gratitude at being given the opportunity to address this important meeting. He related some information about his country, which he considered diverse in Its population was 20 million terms of resources, culture, vegetation, climate, and people. the economic capital was Douala. legislature. Francophonie and Commonwealth.

and its surface area was 475,650 square kilometres. The political capital was Yaoundé while The political regime was presidential with a bicameral Cameroon was a member of the Export products included timber, coffee, cocoa, rubber, Official languages were French and English.

cotton, tobacco, palm oil, bananas, oil, aluminium, and gold. Food crops were exported to neighbouring countries, with 60% of Cameroon's population involved in agriculture. Cameroon possessed great potential. and an enormous energy potential. Trade Internal trade The country was now focused on external trade, but was challenged by its poor communications network. Bad roads isolated parts of Cameroon and meant they lacked regular supplies. Perishable produce from farms failed to get to market. Consumer goods that reached these areas sold at very high prices. The resultant effect was price hikes and inflation. Cameroon shared a very porous 1,000-kilometre border with Nigeria. clandestine trade, a situation the government was seeking to alleviate. bottlenecks, but a series of measures was being taken to address this. A common practice in Cameroon was for speculators to hold goods and create an artificial scarcity that led to high demand and high prices. affordable prices. External trade Cameroon's first challenge to external trade was regional integration, which was being addressed through a policy of devolvement and diversification of the commercial exchange to seek outlets in European, American, and Asian markets. Cameroon belonged to the Central African Economic Community (CEAC) and Monetary and Economic Community of Central Africa (CEMAC), and could take advantage of its memberships to conquer the large central African markets. Cameroon was also endowed with a natural coastline and, consequently, most of its landlocked neighbours ran many of their shipping activities through Cameroon. The country could not fail to take advantage of this situation. The resolution of the Bakassi crisis was opening up Nigeria's market with its population of 150 million people, especially for food The government was using proactive measures to combat this, like optioning goods and using trade caravans to distribute them at This facilitated The country's Its political stability, manpower, and abundant and diversified natural resources constituted an inexhaustible source of raw material for industries

investment climate was characterised by issues of bad governance and administrative

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products. Cameroon was also exploring possibilities in western, northern, and eastern African countries. Eight countries of central Africa, including Cameroon, had signed an economic partnership agreement with the EU. This had obvious advantages, but the liberalisation of frontiers could affect the cost of revenue, which might ultimately cause Cameroon a deficit. creation. Cameroon was very sceptical about the impact of this agreement. The possibility of exploiting new markets in emerging countries was also being considered. Cameroon had diplomatic relations with India, China, and Korea, but was held back by its lack of productive capacity. Trade distortion Cotton was the main agricultural product of the northern part of Cameroon. This competitive advantage was mitigated by subsidies in developed countries keeping world prices artificially low. This had consequences on the economy of the entire region. For similar reasons, it could be cheaper to buy products imported from developed countries than those produced in Cameroon. Additional tariffs also affected the relative competitiveness of exports. Climate Change Developing economies such as Cameroon were highly dependent on climate-sensitive sectors, particularly fishing, agriculture, forestry, and tourism. In some areas of the country, prolonged drought had had untold consequences on the production of cotton, wheat, and corn. Unprecedented rainfall in other areas had hampered lumbering activities. Most products were exported in a raw or unfinished state and, consequently, had a very low export index. Added value might only be created by donor countries building industries in Cameroon, leading to job

Isaac Anthony

Permanent Secretary, Minister of Finance, Saint Lucia Context Saint Lucia's population was also very small. The country was very vulnerable to natural disasters, as was illustrated last year when Hurricane Thomas wiped out approximately 40% of its GDP. The impact of Hurricane Ivan in Grenada actually accounted for 200% of its GDP. Saint Lucia's regional and domestic markets were limited; hence, production costs were high. The country largely relied on exports of its primary commodity ­ bananas to the UK through its preferential access regime. However, it was now orientating more towards tourism, The repositioning the economy so as not to rely wholly on one sector. Mr Anthony wanted more equitable participation in the multilateral trading system. Uruguay Round had severely limited access to a broader range of subsidies. He supported many of the issues that had been raised by Dr Razzaque, particularly regarding the necessity of market access and trade preferences, given their significance to the development of new export sectors and structural transformation. Saint Lucia was encouraged by the pronouncements of Doha and looked forward to a new international trading architecture. However, common ground had yet to be found on agriculture, preferential market access,

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rules of origin, preference erosion, trading services, special and differential treatment, and aid for trade. The need for common ground Preferential market access Special safeguards (SSGs) and the special safeguard mechanism (SSM) were indispensable to the survival of the agricultural sector of Caribbean economies. Preferential market access theoretically allowed developing countries to enjoy some element of tariff protection and on a non-reciprocal basis, but legal challenges regarding bananas, sugar, and rum had triggered the demise of such facilities and accelerated the destruction of these industries in the Caribbean. Rules of origin Rules of origin should be duly observed. However, the complexity of these rules in some jurisdictions and the mechanisms required for compliance made them burdensome and costly. Mr Anthony backed Dr Razzaque's recommendation to look for best practices in this area, perhaps by emulating Canada's approach. Preference erosion In addition to the challenges already present, preference erosion could cause loss of employment, loss of agricultural income, and abandonment of farms. the more affluent, but they had now become some of the poorest. Services Emphasis continued to be placed on the modes of supply, but of even greater importance were the modes of domestic regulation. requirements, and technical standards. Non-agricultural market access Non-agricultural market access (NAMA) contained potentially injurious outcomes for SVEs. The current proposal would limit domestic policy considerations and negatively affect growth and development. Conclusion Saint Lucia supported the G20 in addressing NAMA issues, and backed the recommendation about the possible role of the Commonwealth and Francophonie in helping to address some of the trade challenges of SVEs. There was a need to pursue non-prescriptive disciplines to elaborate on both offensive and defensive interests in qualification and licensing In Saint Lucia, for example, a number of the key communities involved in banana production used to be among

Discussion

Mr Smith distinguished between these two diverse responses. demonstrated a more complex set of trading vulnerabilities. Mr Cronel agreed that the question of trade was infinitely complex and was country-specific. Nevertheless, he highlighted two symptoms and causes. Not all G100 countries had adequate Cameroon appeared as an important regional market with strong prospects for regional integration, whereas Saint Lucia

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access to markets. Their main clients were G20 countries, yet DFQF's application to 97% of products blocked market access for the remaining and essential 3%. The second symptom was that G100 countries depended on unprocessed raw materials, which had little market readiness. This in turn meant employment problems. The number of employees required to extract one tonne of petroleum had been halved over the last ten years. The first cause was that most G100 countries massively lacked any commercial infrastructure, like a deepwater port, railway, or suitable roads. The second cause was the administrative rules known as trade facilitation, which created duplication of work and wasted resources. This was an area which, with adequate technical assistance, could be rationalised. The local trade management system could be redesigned and investors could be better assisted. Trade facilitation rules were a stranglehold that was too often ignored, placing a heavy constraint on investment. Nthoateng Lebona, from the Ministry of Finance and Development Planning of Lesotho, greatly stressed the importance of building productive capacity and improving diversification, but they required investment. She gave an example of preference erosion in Lesotho. Their textiles industry had been exporting to the US, but had found itself unable to source from other countries like China. That whole industry was disappearing. Ms Lebona also counselled on the necessity of agreements to govern trade in services to avoid the `brain drain' caused when important skills went to other countries. Mr Smith wondered if the example about Lesotho's textiles industry was related more to rules of origin. Canada had quite a generous and beneficial regime here, and the EU may be similarly revising its rules of origin.

Summary

Dr Rustomjee felt that the Cameroon presentation had demonstrated some practical challenges to addressing trade issues in that country, and was a useful reminder that not only policy content but numerous other issues also affected trade. Sub-regional integration was clearly an important strand. Other countries echoed Cameroon's quest to rely less on primary commodities and move to other services or semi-finished products, and also the effect of having large neighbours. In Cameroon's case this was Nigeria, but Pacific Island economies had Australia, New Zealand, and Asia, and southern Africa could use South Africa. Quick benefits could come from regional partnership agreements, but fast liberalisation brought its own acute challenges. All presentations had stressed that, when things went wrong, the magnitude of changes could be enhanced, whether that was in the loss of Lesotho's textile industry or a crash in revenue in Cameroon. balance. South/South cooperation was raised and Dr Rustomjee believed this to be a valuable, forward-looking prospect. Lack of productive capacity and climate change were also spoken of as very important issues. disasters. Saint Lucia's presentation addressed the cost of natural Limited domestic and regional markets were mentioned, with their lack of However, the These countries were very vulnerable to small changes in their economic

economies of scale and the challenge of remittances. It was difficult to conduct simultaneous negotiations on trade within an array of multilateral and regional contexts. feeling was that something quite valuable could be forged by the DWG to build trade capacity 15

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more effectively. Two speakers mentioned the excellent practices being followed in Canada, which other countries could emulate. The speakers also considered the paper to have been an accurate depiction of the challenges in their countries. Dr Razzaque had identified areas that presented deep challenges. Two of these Dr Rustomjee felt might easily yield some benefits. The first was in aid for trade and allowing the most vulnerable developing countries to access global trade markets more meaningfully. Secondly, there seemed to be a consensus that Doha might not happen, which prompted a question about what should happen next. There was a great opportunity to discern trade solutions for the poorer, smaller, and more vulnerable countries. Dr Rustomjee thought the DWG could package something out of the post-Doha framework that would make early gains for the acutely vulnerable. recommendations made in the paper. Mr Smith concluded this summary with the acknowledgement that members of the DWG were not trade negotiators; they were interested in identifying the real benefits for development of the trade agenda and providing that analysis for others to use. This did not detract from the many important

Session 2: Growth with Resilience

Robin Davies

First Assistant Director General, International Programs and Partnerships Division, Australian Agency for International Development (AusAID) Mr Davies framed his opening remarks with the concept of resilience. The Commonwealth When the Secretariat was doing a lot of important work to identify some of the policy measures that developing countries could take to build their resilience with external support. DWG was being created, the prominence of the role of resilience was still being argued. There was a lot of discussion about whether it fit the more socially focused UN agenda. The question was whether the G20 should aim only to complement the MDGs or take a more sophisticated view of growth in which resilience was absolutely essential. The contribution of organisations like the Commonwealth Secretariat and Francophonie had helped to make the case for robust and inclusive growth. Australia was hosting this year's Commonwealth Heads of Government Meeting (CHOGM), the theme of which was building global and national resilience. Ahead of the G20 meeting, the Government of Australia wanted to use this meeting as a vehicle to give a voice to SVEs. This would in part be done through a special meeting of foreign ministers of SVEs. Francophonie discussion. Mr Davies hoped that wide coverage of their issues would be given in the Commonwealth and

Professor Lino Briguglio

Director, Islands and Small States Institute and Gozo Centre, University of Malta Introduction The paper was structured in four sections: introduction, conceptual framework, policy framework, and recommendations for the G20. The various complex issues and their 16

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solutions required human, institutional, and financial resources as well as the political will for development. Professor Briguglio was emphasising the last of these. Vulnerability versus resilience Governance The DWG's pillar of growth with resilience had two sub-divisions: social protection and international remittances. Professor Briguglio welcomed this distinction, and seconded the When making this argument during the above remarks on the importance of resilience.

Mauritius discussions in 2005, he had commented that resilience showed that good governance would bring success. However big a country, if its governance was bad, it would not succeed. Volatility There was now ample proof that volatility was harmful. Studies had clearly shown that economic upswings and downswings were not symmetrical; a downswing was much more harmful than an upswing, and an upswing did not cancel the difficulties of a downswing. Professor Briguglio referred to a study completed for the Commonwealth Secretariat and another for the Growth Commission. Both identified traits conducive to growth and suggested that a good policy was one that left room for manoeuvre and encouraged flexibility. If unemployment or inflation were at high levels, a country hit by a shock would not have room for manoeuvre. Markets need to respond to price signals, for which flexibility in the economy was needed. A simple methodological framework was produced. Some countries ­ Saint Lucia, Mauritius, and Singapore ­ would always remain economically vulnerable because they were exposed to events elsewhere in the world. However, this vulnerability could be mitigated by resilience. Macro-economic stability related to inflation, unemployment, fiscal balance, and debt. These allowed room to manoeuvre and market efficiency. Of course, good political governance was also very important, which Professor Briguglio defined as a trade-off between too much interference and support as well as social development. A government focused on controlling social unrest and social costs would not have the time to properly address economic issues. The Five Traits The Growth Commission had identified five common traits of success: · · · · · Economic openness; Economic stability; Higher rates of savings and investment; Reliance on the market system; Good governance.

The paper detailed each of these in turn. They were shown to be conducive to the efficient use of resources and necessary for growth with resilience. Professor Briguglio summarised the suggested policy with four quadrants. The horizontal axis moved from volatility to stability, and the vertical axis measured growth. The worst case

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would be quadrant four, combining low growth and volatility. The policy framework that he suggested was intended to encourage the best-case quadrant with high growth and stability. Development To assist this aim, the governments and the people of the specific country must have the will not only to receive aid, but also to develop. Many small countries such as Singapore, Mauritius, Barbados, and others had developed because they had built institutions and their governments had this will. This was an assumption of the policy framework. Trade stimulation was a key factor in both the studies, as supported by the Cameroon presentation. Human development, especially entrepreneurship, was also important, alongside improvements in market efficiency. Markets must work and when they fail ­ and they tend to fail frequently ­ governments should intervene to improve them. In very small states, for example, anti-competition regulations could help small countries to face the problems of monopolies. Recommendations The first recommendation was to expand country-focused vulnerability and resilience profiling. A successful exercise was run with the Commonwealth Secretariat in Saint Lucia, Seychelles, and Vanuatu, where these countries appointed groups to examine their resilience gaps. This allowed them to address their vulnerabilities through a policy framework that was conducive to resilience-building. This exercise could be replicated across developing countries in general. Professor Briguglio also insisted on establishing a trust fund aimed at building resilience by improving economic governance. It would not provide humanitarian aid or food support, but would show countries how to improve their governance. Another suggestion was the development of a practical framework for growth with resilience. Professor Briguglio believed that the G20 could benefit from strengthening its outreach through the support and experience of associations like the Commonwealth Secretariat and Francophonie.

Ms Nthoateng Lebona

Minister, Ministry of Finance and Development Planning of Lesotho Background Lesotho was a very small country in the middle of South Africa. It was about 30,000 square kilometres, only 9% of which was arable and most was mountainous. Its economy was very small with a GDP of about $1.5 billion and a population of 1.9 million, 58% of whom lived in poverty. Ms Lebona's country had been heavily affected by HIV/AIDS; it was the third-most prevalent country in the world. (SACU) for 50% of its revenue. Lesotho depended on the Southern African Customs Union

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Demand for Lesotho's exports declined with the economic crisis. With job sharing and without a social security system, people were left unemployed. Exporting more to South Africa was not a possibility. The mining sector was affected to the extent that prospective mines had to be stopped from opening, and jobs in manufacturing declined from 46,000 before the crisis to around 30,000. In the fiscal sector, revenue came in advance with economists predicting likely receipts in instalments. For the first time, there were negative adjustments and Lesotho was told it had been given too much money because of changes to import tariffs from third countries. The country received a smaller amount and even had to make loans to the pool for this negative adjustment. This had had a large impact. Response Threatened by limited funds and riots, the government responded by buying seats on the boards of the largest manufacturers to learn about what was happening. They developed import/export facilities. Ms Lebona aimed to highlight the magnitude of this crisis, and she reinforced Professor Briguglio's point about the importance of macro-economic stability. Lesotho knew that their revenue would at some point decline as a result of trade liberalisation and because they had been running surpluses. As the country had built some reserves, the effect of the crisis was not as damaging as it might have been. importance of saving money. Lesotho had to apply for an IMF programme. The country's fiscal sustainability had been compromised, but it was making progress. They were lodging large deficits, but recognised that financial stability and sustainability included some consideration of expenditure and efficiency. most mattered and achieve better cost effectiveness. Positive and negative shocks Heavy rain in recent times had negatively affected Lesotho's infrastructure. This went beyond agriculture; bridges collapsed and water pipes burst. The country needed money to respond to these events. However, Ms Lebona believed their most important lesson was to integrate issues of climate change with infrastructure and investment. A national development plan was currently being written, as well as inter-sector plans and policies, which required a lot of investment from government and communities. These new standards had to last. Lesotho could report some positive events. They were hosting the Dam Lesotho Highlands Water Project, which was attracting some huge investments, but this was a finite project. The manufacturing, mining, and textile industries would plateau without anything to support them. It had been very difficult for them to sustain growth acceleration, while the arrival of other shocks could cause the country to lose its focus. Lessons Besides telling the G20 what they needed and preparing this national development plan, Lesotho also needed to implement investment climate reforms. They needed assistance to The country needed to spend where it Ms Lebona stressed the However, the magnitude of the shock meant that eventually

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discern what was most important and ensure they had the administrative capacity to manage their agenda. As Professor Briguglio had indicated, SVEs would always have issues with failing markets. However, the presence of some robust institutions would help identify those failures and suggest policy reforms to correct them. Ms Lebona supported ideas to build institutions for policy analysis as well as having effective monitoring. from other countries that could be followed. Lesotho's financial sector was not helping small and medium enterprises stay liquid, but there were perhaps some best practices The government had just developed a credit guarantee scheme precisely to stimulate lending to small and medium enterprises. The country also needed a flexible labour force with the skills required most by its economy. People were going to university, but were without jobs when they graduated. political instability, which needed to be addressed. teaching institutions to better suit the skills that were required. Ms Lebona concluded on the subject of HIV/AIDS. Medical advances could prolong life, and thus retain productive human capital, but to do so required money to buy drugs. This led to Lesotho needed to invest to transform

Discussion

Mr Davies reasoned that many of the challenges facing Lesotho ­ a landlocked, mountainous country ­ were comparable to those of small island states. Plus there was the major impact of HIV/AIDS. Linking the two presentations, he showed that Lesotho had clearly given itself room to manoeuvre, but this could only take it so far. There was ultimately a need for external intervention. Professor Briguglio's paper expanded on the issue of climate change, and Mr Davies pointed out that resilience had both economic and environmental connotations. The impacts of climate change, particularly on SVEs, could not be overstated and needed to be very carefully considered. Mr Antoine continued the discussion by expressing the gratitude of small countries to Professor Briguglio for his work on resilience. When reading the paper, he was reassured to find that somebody else understood these issues. Mr Antoine felt that the work done on the resilience index should feature more prominently as a key metric of economic performance. He stressed how severely hit many of the small countries of the Caribbean had been by the financial crisis. They were yet to see a resurgence of growth, although there might be a slight turnaround this year. This was masked by the figures for the Latin American and Caribbean (LAC) region, which showed 3-4% growth. Latin America had been able to recover more easily, because of their reliance on commodity prices. The Caribbean, however, comprised 16 of the 30 most indebted countries in the world, which were dragging down growth recovery. Some were asking how those countries had achieved such high levels of debt. Although their governments were running high deficits, another fact was that concessionary financing dramatically declined after the end of the Cold War. Many were also seriously damaged by natural disasters; Saint Kitts had suffered four hurricanes in five years. The costs of these events could be greater than the national GDP. Another factor was preferential access. The meeting had already explored this effect on sugar and banana exports. Such debt-creating shocks had directly contributed to the situation in the Caribbean, inhibiting countries' ability to exit the crisis quickly. For this reason, Mr Antoine strongly backed the paper's 20

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recommendation to address debt when dealing with growth: so doing reduced vulnerability and improved resilience. He endorsed suggestions for forgiveness and additional concessional financing. Another recommendation Professor Briguglio had made was for the growth with resilience trust fund. Warren Buffett had once said that the difference between a conversation and a commitment was a cheque. Mr Antoine endorsed that because money had to play a role in achieving this recommendation. He suggested not only looking at grants and concessionary financing, but the provision of guarantees that would support a private sector facing a significant reduction in foreign direct investment since the crisis. Some Caribbean countries were finding very uneven access to financing, which was inhibiting their ability to grow again and reduce employment and poverty to the levels necessary. In many cases the private sector was ready, but was lacking financial support and a guarantee to allow the investment to proceed. Mr Antoine argued that the trust fund could be used as an additional instrument to promote growth with resilience in these countries. Dr Dirk Willem te Velde, Head of Programme for the International Economic Development Group at the ODI, endorsed Professor Briguglio's presentation on growth with resilience and stated that the DWG now had a choice: it could take note and do nothing; it could expand the pillar's current approach to growth with resilience to include social protection, economic, governance, and other components; or it could reform all of their pillars so everything was thought about through the concept of growth with resilience. Mr Davies responded that the DWG had discussed adopting the third way Dr Velde had described, and it could still be an option. Some narrow practical actions could be taken regarding social protection and remittances, for example, while still thinking of growth with resilience as a cross-cutting theme across all pillars. Mr Mwaanga, from Zambia, liked Professor Briguglio's point that for a nation to develop it first had to want to develop. Political will was necessary to grow an economy, but danger also came in terms of tenets ­ freedom of expression, absence of corruption, and so on. `democracy' among G20 member countries. support from the entire group of nations. Mr Chipimo reflected on Zambia's recent experience of growth. Yearly levels had been around 6% over the last five years. Many of the issues raised about governance, including the development of the private sector, Zambia was pursuing in the context of conversations with the World Bank, IMF, and others. Mr Chipimo interpreted Professor Briguglio's framework as a way of improving coordination within the country. He asked how this work could be taken forward when Zambia was already doing a lot of these things. Some of the more fundamental problems the country faced included employment and low productivity. These two issues were the endpoints in considerations of economic resilience, and related to health, education, and other issues. Perhaps countries like Zambia wanted something more than the important enumeration of what was needed to be resilient. Dr Ralf Retter, from Germany's Federal Ministry for Economic Cooperation and Development, warned of the importance of managing expectations for the G20. The focus of the DWG was to improve framework conditions and influence the overall context of development. While Mr Mwaanga had some reservations about differing definitions of `political governance' and These were structural points that required

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useful, operational recommendations, such as the creation of a growth with resilience trust fund, did not meet this goal. Mr Cronel emphasised the significance of resilience being chosen before any other possible theme. At the same time, it was just one of the nine pillars, and therefore a distinction had to be made between a broad approach and the conceptual framework given by Professor Briguglio. Resilience must not exhaust other important themes, specifically social protection and the transfer of migrants. Considering what had earlier been argued, Mr Cronel proposed that resilience could offer a structural basis for future presentations ­ in effect, a repackaging of the G20 Action Plan in which resilience was a more important theme determining not only the protection and transfer of migrants but other pillars in the Plan. The concrete examples of what resilience meant for development, as well as its theoretical base, could help give greater transparency to the development work being done by the G20 and add value to it as a forum for economic governance.

Summary

Recommendations Approach The scientific approach, which had been taken to profiling resilience, was highlighted. Professor Briguglio's paper was commended in particular for its attempts to identify gaps in resilience, to move beyond the vulnerability challenges to a more positive orientation that would fill these gaps with policy actions. Resilience profiling The recommendation to expand the exercise into profiling resilience was a multi-year activity, even within a single country. It could be very cost effective, but it required a dedicated effort. The recommendation to expand this exercise further and involve more countries was a valuable one. The DWG's development partners had recognised the value of this work and the UN system had adopted these methods as useful ways to understand the challenges of resilience. The suggestion to expand was specific and worth considering. Country study The co-chairs also considered there to be a lot of value in the country study, which resonated with many issues ­ being landlocked, social sectors, HIV/AIDS, the revenue dependence challenge, the scale of economic failures, and remittance dependence. On this last point, the GDPs of Lesotho and several Caribbean countries were particularly dependent on remittances. Their decline could be catastrophic. Recourses for disaster Excellent efforts had been made to try to crowd in the resources for disaster management, but there was still a message, which perhaps needed to be taken forward in the Commonwealth and Francophonie, that something more concerted was needed for quickly dispersing unconditional resources to cater for disasters of great magnitudes. There had been a powerful call for assistance with investment climate reforms, but to build investment and reform the climate required assistance.

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The development of human resources and skills would help anticipate market failures. The issue of indebtedness in the Caribbean could be understood not as a call for a new round of debt forgiveness caused by a failure of domestic policy, but to highlight the challenge of continuous exogenous shocks, which damaged countries' ability to restart the growth process. This was heard across the Commonwealth, but was certainly a very significant problem in the Caribbean. Finding ways to address that would not be easy. Political will Members of the Commonwealth and Francophonie often said that domestic policy action was as crucial as external support. This case study and the comments it inspired had certainly given them a rich menu of future ideas. Ideas for DWG Since the G20 DWG was looking for instruments that might help, Mr Cronel stressed the great importance of work carried out in the Francophonie on the vulnerability of the contribution that constituted the resilience approach. Measurements of vulnerability and progress ought to be based on more than per capita income. A suggestion Mr Cronel made to the G20 was to set up research groups that could support certain countries to measure vulnerability. This might also help alleviate the concerns expressed by the Commonwealth about having two pillars and a vision as broad as possible, and the Francophonie about repackaging the resilience package. Closing Remarks Mr Davies returned to the notion that growth with resilience could essentially encompass everything to do with sustainable development. He thought it correct but unhelpful, as the aim of this meeting was to identify some high-impact practical measures that could be implemented within a reasonable period of time. Not all of these needed to be taken forward in a G20 context; some could be advanced in other areas. Mr Davies urged everyone to think carefully about specific practical outcomes they sought from the G20 work programme, both within the growth with resilience pillar and the other eight. Alongside that, he questioned how these processes could be tabled at CHOGM and the associated small states meetings.

Session 3: Financial Inclusion

Timothy Antoine

Permanent Secretary, Ministry of Finance, Planning, Economy, Energy and Cooperatives, Grenada Mr Antoine thought all would agree that financial inclusion or access to finance was a binding constraint on growth with resilience, whether at the level of individuals unable to access any formal financial system, the many small and medium enterprises, which could comprise 40% to 50% of employment in developing communities, or the uneven access across those countries. agenda. 23 For these reasons, financial inclusion had a prominent place on this meeting's

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In order to help the discussion, Dr Velde had prepared a paper that highlighted some challenges, while recognising the contribution of the G20 DWG and proposing some recommendations going forward.

Dr Dirk Willem te Velde

Head of Programme, International Economic Development Group, ODI Opening Remarks The ODI had been working with the Commonwealth and Francophonie before the creation of the G20's development charter, and would continue to support this task for as long as necessary. Many of the issues discussed earlier also resonated with the Institute, particularly how the impact of each of the pillars could be measured. Was it necessary to think about scorecards for each of the pillars? Should impact be measured in the short, medium, or long term? Four Issues Isabella Massa and Christian Kingombe had worked with Dr Velde on the preparation of this paper. The first issue he wanted to highlight was that the two associations included many of the world's smallest, poorest, and most vulnerable countries and, therefore, those suffering the greatest degree of financial exclusion, while at the same time possessing many of the solutions to these challenges. Dr Velde also noted that a lot of work and many papers had already been produced on this pillar. The DWG group had taken leadership and was addressing these issues in a systematic manner. The G20 could help the two associations implement their agenda and recognise the importance of issues relating to SVEs in particular. Financial Challenges Dr Velde divided the challenges of financial inclusion into three categories. about households' access to finance. adults were financially excluded or unbanked. The first was Estimates showed that between 2.1 and 2.7 billion Many papers evidenced that if they were The Commonwealth and Francophonie could be important mutual partners in a number of areas related to financial inclusion.

included and supported, there would be more growth. The second issue was about financial inclusion in firms, access to financing by small, medium, and micro firms. These smaller enterprises tended to contribute to growth in equal terms, but contributed more to the poorer segments of society. The major difference that separated medium from large firms was constraints to their growth potential. This issue was recognised by the DWG, but Dr Velde explained its ramifications. A small island country from the Caribbean or Pacific might comprise entirely small firms. Therefore, it was not just that firms were excluded from finance, but the country as a whole was excluded from the financial system. Groups of countries might be excluded altogether. Review of charts Dr Velde reviewed some of the data from the paper and G20 stock-taking report. The percentage of the adult population without access to finance was extremely high in SSA, at 80%. It was much lower in other regions. Another measure of inclusion was how many ATMs 24

G20 Development Working Group per 100,000 of the population. Considering solutions

Tuesday, 28th June 2011 There were many differences between countries here.

Another characteristic was that smaller countries were often more excluded financially.

A solution posited to improve access to finance among households was a financial literacy programme. There had been several arranged by the Commonwealth already, for instance in the Caribbean and the Pacific. Another issue often highlighted was to provide better access to financial services through mobile phones. M-PESA only started in 2007, and it now had tenmillion users transferring money with their mobile phones. Some attention needed to be given to how to regulate this, but there were very successful cases already. Dr Velde recommended the G20 carry out some analysis of why promising SMEs were constrained in their buying. Regional initiatives in the Pacific or Caribbean might help several countries to access finance together. Development finance institutions (DFIs) were already leading to some of the larger countries, but did not necessarily have operations running for smaller economies. Issues on the agenda The DWG journal of finance inclusion had established the DFIs and announced the financial guarantee. What was needed now was to examine how much this was benefiting the smallest and poorest countries. A question existed about whether this was fully sensitive to the needs of the smallest, poorest, and most vulnerable countries, and if they were benefiting. principles supporting the offer were fully explained in the paper. The Dr Velde argued that

Commonwealth countries could help implement these issues and translate such grand-scale principles into domestic action. There was a need for leadership from the top to show why financial inclusion was important for growth with resilience. Recommendations for the G20 The G20 could ensure its existing agenda was sensitive to the challenges faced by small and poor states. If data collection was an important issue, the smallest countries would have to be included to the fullest extent possible, even though it could be challenging to find data related to them. There was also an issue about the difficulty for them to implement regulations, for instance with mobile phone services. There were some new institutional issues for the G20 to consider: some LDCs might be included in lending policies, and some middle-income SVEs might also need access to finance, as they could be particularly vulnerable. Sharing learning was important in developing new proposals. Dr Velde had mentioned the popularity of mobile phone banking in Kenya. This model might be transplanted with appropriate implementation in other countries, but such a plan would need facilitation and support. The G20 Action Plan only needed some slight alterations to ensure the needs of the smallest and poorest were considered. The G20 could help provide analysis and research. Professor Briguglio had suggested creating a resilience profiling group; similar could be done for financial inclusion. The Commonwealth could help here. Dr Velde reminded participants about some of the issues discussed at CHOGM and the climate change meeting in Copenhagen, advising that they maintain some continuity of discussion.

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Knowledge-sharing was the ninth pillar of growth, which cut across each of the others. This exciting agenda allowed international organisations to exchange information about financial inclusion and how other countries' successes could be replicated. This was an important area in which Commonwealth and Francophonie countries could help the DWG achieve its goals.

Arthur Williams

Minister of State, Ministry of Finance and the Public Service, Jamaica Remittance industry Mr Williams shared Jamaica's success in building financial inclusion in its remittance industry, an industry that affected hundreds of thousands of Jamaican households. Jamaicans began migrating to the USA, UK, and Canada from the 1950s in search of better economic opportunities. Many had limited options for transferring money, such as the government postal services or friends visiting from abroad. Over time, the rapid expansion of the diaspora caused significant remittance in-flows thereby increasing demand for services. In response, a number of companies began to enter the local remittance market and today there were 511 agents throughout the country. The government's regulatory approach also contributed to the greater participation of remittance agents as it created a supportive unobtrusive regulatory environment that still met all international obligations to combat money laundering and the financing of terrorism. The increase of remittance agents transformed the lives of many Jamaicans. This access to safe financial services was bolstering the income of households, providing an essential source of financing for necessities like food, utilities, and education. Economic significance These in-flows represented a substantial amount of foreign exchange for the country and provided finance for the balance of payments support. Remittance in-flows peaked to US$2.02 billion in 2008, but had since declined sharply as the global economic recession worsened. Jamaica was also placed among the top-ten remittance recipient countries in LAC. This highlighted the remarkable effect that building financial inclusion had had on the economic and social development of Jamaica. Elements of progress Government-led initiatives A number of government-led initiatives had had similar effects on the welfare of Jamaicans, such as that to increase access to credit facilities for several micro and small businesses at affordable rates of interest with flexible terms and collateral requirements. As the global financial crisis worsened in 2009, Jamaica set up a loan agreement with the Inter-American Development Bank (IDB). The purpose of this was to provide liquidity to maintain credit flows to the real economy and compensate for the shortfall due to the crisis. The government continued to offer these loans through approved financial institutions to entrepreneurs engaged in productive sectors such as agriculture, manufacturing, and tourism. A similar initiative was also undertaken to provide wholesale funding to microfinance institutions. Credit facilitation to micro and small businesses was also supported by a flexible

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regulatory environment. Consequently, privately owned micro credit institutions had become very popular in Jamaica. These loans required little or no collateral and could be dispersed quickly. Credit Reporting Act 2010 An important element in facilitating a sustainable lending industry was to ensure that institutions were able to assess credit risks. The recently enacted Credit Reporting Act alleviated information deficiencies in the industry by governing the sharing of information between specified bodies, and the licensing and supervision of credit bureaus. Secured transaction legislative regime The next step was to introduce a modern legislative regime intended to reform the secured transaction framework and increase access to finance, especially for SMEs, by allowing creditors to accept movable property as security for loans. A number of organisations had also begun to explore the possibility of promoting micro insurance services through microfinance institutions. Mobile banking Mobile banking was new to Jamaica, but the country's high concentration of mobile phones would provide a suitable platform for greater access and delivery of banking services to people presently underserved by the formal service providers. Jamaica was exploring the possibility of facilitating the use of such services through its social welfare programmes. Another related area of interest was using mobile banking services to deliver social benefits where the IDB was working in partnership with Jamaica. National payments system The country had embarked on a comprehensive plan to modernise its payment and settlement infrastructure in order to strengthen its legal framework, reduce inefficiencies, and remove any systemic risks. A new Act was passed to achieve a level of certainty and finality with transactions undertaken through the payment system. A modern electronic payments and settlement infrastructure would allow banks, dealers, and other institutions to transfer funds among themselves, safely and in real time. Initiatives like this would enhance access to and usage of quality financial services among the poor, micro, and small businesses. Ensuring consumer protection Jamaica was also focused on identifying innovative means to ensure the protection of its consumers and the integrity of the financial system. Services and regulatory requirements were altered in an effort to facilitate greater access by underserved groups, which created risks around money laundering, financing terrorism, and fraud. Hence, regulations to prevent them, such as `know your customer' compliance, had become increasingly important. The country's approach to tackling some of these challenges was still at the research and conceptualisation stages for some of the areas that Mr Williams had discussed. The two main strategies that he was seeking to employ were effective regulation and increased consumer education. Conclusion Jamaica was committed to social and economic development at all levels of society and would continue to search for innovative solutions to the many economic and social challenges it 27

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faced. Mr Williams thanked their partners for their efforts in expanding research and building greater dialogue on financial inclusion.

Janaab Mohamadally Mownah

Senior Analyst, Ministry of Finance and Economic Development, Mauritius Background Mauritius had been successful in expanding its economy and overcoming issues of financial exclusion, so Mr Mownah intended to emphasise the measures that had facilitated this process. Small economies and the developing world continued to face enormous difficulties in moving to higher and sustainable growth. These constraints stemmed from several sources. Firstly, countries gaining independence would inherit structures, laws, and institutions that did not often seek to encourage inclusion. globalisation today. Many of the challenges faced by small economies could not be addressed separately or independently with other factors ignored. poor development. Reforms Independence caused Mauritius to take bold steps to overcome some of its inherent problems, starting with a series of reforms in the productive and social sectors. The ground was set for economic diversification and expansion in exports, and a people-centred approach was adopted that gave more thrust to financial inclusion. Liberalising markets Mr Mownah related how Mauritius' reforms started in the early 1980s with the liberalisation of markets. This was accompanied by free education, health, and assistance to elderly and Such measures helped to create wider opportunities for everyone and vulnerable groups. Resource and financial constraints, coupled with high income, inequality, and poverty rates were all ingredients for instability, low growth, and After independence in the 1970s and 80s, Mauritius revamped its financial system completely, yet was still finding constraints caused by

overcome financial exclusion. Developments in the productive and social arenas paved the way for necessary changes to the overall financial system. With the unlocking of resources came competition, and the government helped by adopting a series of laws to modernise the legal system. More liberal economic practices and open markets promoted economic diversification, accompanied by a range of social services, boosting the Mauritian economy. Key institutions To support this reform programme and extend facilities, several key institutions were set up. The government created financial institutions that paralleled private bodies to broaden the possibilities for competition, including a bank, development bank, housing corporation, state insurance company, national pension fund, and export development authority. These institutions also enabled most of the population to open accounts and familiarise themselves with financial services. Most of these institutions were now operating as private companies, 28

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independent from government. The overall impact of these measures was that many more people could access finance and other related services that were formerly not accessible to them. Benefits Business schemes and opportunities were made available to small entrepreneurs, planters, skilled and semi-skilled workers, and even the self-employed. Several of those small businesses mushroomed in the 1980s, boosting manufacturing into a major sector. Housing facilitates and development finance were made available to a wider section of the population, which contributed to a higher living standard over the years. Most importantly, the financial services sector rapidly emerged as a major pillar of the economy, now standing at 10% of GDP. Combating the remaining challenges Mauritius was still vulnerable, despite all of these developments. Around 10% to 15% of its population still lived in relative poverty and were unable to maximise the facilities put in place. They were mostly unskilled and had missed the benefit of the free education system. To combat poverty, since 2007 the National Empowerment Foundation had created a number of programmes aimed specifically at empowering the poor to become economically active. Many stakeholders were involved in addressing the exclusion issue, which provided a national solace aimed at collectively eradicating poverty in line with the MDGs. These programmes were creating employment opportunities, especially for vulnerable women and single parents; setting up re-skilling and lifelong training programmes; and generating support to micro entrepreneurship. They were being done with the support of NGOs, as it was important to include civil society in such measures. These programmes now covered about 10,000 poor households. Booster Loan scheme A new innovative measure called the Booster Loan scheme gave a small amount of financing to unemployed women or single parents without the need for collateral. develop small business so that they could stand on their own. Corporate social responsibility Another innovative measure that was being introduced in Mauritius was the requirement of profitable firms to engage in corporate social responsibility. This concept already existed in many developed countries. In Mauritius, profitable firms were legally required to devote 2% of their profits to implement programmes either themselves or through NGOs. partnership was mobilising substantial resources for poverty programmes in the country. Conclusion However, major hurdles included capacity constraints and having the required technical knowledge to design, implement, and monitor proper programmes, which were the prerequisites for financial inclusion. about the long-term impacts. Mauritian households were also becoming highly indebted, perhaps because they were making use of the facilities available without knowing Mr Mownah therefore urged the G20 to support Mauritius' requests for technical assistance to build in-house capacity and to put up appropriate monitoring mechanisms to ensure financial inclusion was effective. 29 This They used it to

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Tuesday, 28th June 2011

Discussion

Raadhika Sihin, Senior Policy Specialist at the Alliance for Financial Inclusion, introduced her organisation as a network of developing country policymakers and a knowledge-sharing platform. She believed in sharing the best ideas and practices from developing countries. The Alliance had several working groups that dealt with many of the issues that had arisen, including consumer protection, financial integrity, data, mobile services, and the challenges in the Asia-Pacific region. Hence, she saw there being many synergies with the DWG. The Alliance was also involved in the Global Partnership for Financial Inclusion. At the moment, they were looking at around ten country case studies to demonstrate the principles of financial inclusion in a more concrete manner. The results and recommendations from that work should be available before October. Another issue that Ms Sihin highlighted was the discussions the Alliance was having with international standard setting bodies on how financial inclusion could be incorporated into their core mandates. Here it was important for countries to come forward and explain their unique challenges in implementation. Ms Sihin encouraged more of the Francophone countries present to articulate their challenges in the discussions. The Alliance's data working group was looking at a framework for data collection measurement and targets. Again, there was a need here for countries to incorporate their own challenges and discussions into the framework. The SME finance group was also exploring a global framework. Ms Lebona cited the issue of universal access to ICT infrastructure, which she thought was a necessary precursor to building a financial services infrastructure. Another issue for Lesotho was support for and development of entrepreneurship to ensure such facilities were actually used. Referring to global financial inclusion, the mining sector in Lesotho would also benefit if different firms could issue guarantees that finance would be raised. accessing them, even if bundling different projects to access funds. this be submitted as an issue. Mr Anthony outlined some of the activities taking place in the eastern Caribbean. For example, a formal banking system had been set up; mobile banking was increasing; and numerous SMEs had been established. However, in many cases financial inclusion was not pursued as an explicit development strategy. Mr Anthony supported Mr Velde's point about integrating growth in the development plans of the countries themselves, so that financial inclusion would be more recognised and deliberate. Different developing Ms Lebona asked that countries used different facilities to help their private sector, but SMEs often had difficulties

Summary

Mr Antoine saw that the mobile opportunity provided a lever for new joiners to take advantage of the best practices being shared at the meeting. It was the responsibility of everybody to ensure such practices were made available and accessible. Mr Antoine asked if the Secretariat could help provide those present with the presentation documents. He also agreed with Lesotho about the importance of promoting entrepreneurship as core to development, and becoming a national more than a regional focus for countries.

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Conclusion

Process Mr Davies explained that the outcome statement would be circulated among G20 members. He asked if participants could summarise their most relevant research material and contributions to discussions, particularly about SVEs, which were not emphasised enough in the G20. Mr Davies intended to convey both this background material and some of the recommendations to other members of the G20. Presentations and discussions Mr Cronel and Dr Rustomjee both thanked Mr Davies for allowing their associations to participate in this discussion. outcome document. Dr Rustomjee considered this to have been a very valuable discussion for the G20 DWG, having heard a lot about the challenges of developing countries. some excellent presentations founded on solid analytical work. constraints. The panellists also made These inspired broad They made some closing remarks before addressing the

development dialogue about how these challenges might evolve, including some of their It was gratifying to Dr Rustomjee to be party to that understanding and to Dr Rustomjee hoped appreciate the perspective of developing countries. This exercise had helped build a certain degree of respect and trust. that this and the collaboration between the Francophonie and Commonwealth would endure for a long time to come. He recognised that, beyond their research and analytical capacities, the two associations possessed a convening power to unite on relevant thematic issues. The discussions had shown both that the challenges were very complex, but also that they could be attacked through collaboration by identifying best practices and key areas where progress could be made. There were many unanswered questions on growth with resilience, what it meant for the membership and how this issue would develop. Dr Rustomjee raised the possibility of holding a development dialogue focused on this issue early next year to build understanding of how the solutions could best be developed. Acknowledgements He thanked the Chairs who had volunteered to guide the sessions, the presenters and authors of the papers, and the G20 coaches who had observed and encouraged the dialogue process. The Commonwealth and Francophonie were very grateful to its other DWG partners for supporting and contributing to the process initiated by this conference. countries had also taken full advantage of this opportunity. Dr Rustomjee also expressed his thanks to colleagues in the Francophonie and Commonwealth Secretariat. This had been a time-consuming but collaborative effort. The member

Particularly involved were Constance Vigilance on the analytical side and Elaine Ogilvie who offered administrative and other facilitative work. Dr Razzaque answered the questions put to him and Julius Mucunguzi ensured everyone's voices were being amplified globally and the key messages would be made known and valued internationally, so that the quest for solutions could get underway. Dr Rustomjee thanked Dr Cronel, with whom he had worked very intensively over a long period of time to ensure this first dialogue was successful. He 31

G20 Development Working Group

Tuesday, 28th June 2011 Lastly, he showed

hoped it had been, but moreover that the collaboration will continue. Next Steps Mr Cronel continued by echoing these sentiments.

appreciation towards the host country South Africa for supporting this process.

He stated that the Commonwealth and

Francophonie were building trust and credibility between themselves and their members, but also respect among the G20 and other institutions. Eight months ago, he and Dr Rustomjee had carried a message to the Korean G20 meeting. Today's conference was a product of that, and an outcome of today would be to take a message to the President of the G20 to respond to the concerns that countries had conveyed. The Outcome Document Over lunch, the Chairs, analysts, and coaches of the G20 had checked the two-page outcome document that had been prepared. Dr Rustomjee considered this as a simple statement, not containing any commitments by any side. amendments. summarised the nine paragraphs. Paragraph one said that the meeting had taken place and participants had welcomed the presentation of the co-chair. Paragraph two recognised the many challenges of small, vulnerable, and poor economies. Paragraph three welcomed the work of the DWG, and its current focus on three out of nine pillars. Paragraph four addressed trade as two challenges: inadequate market access and limited capacity. It argued that domestic policies and multilateral support must be consistent with each other. This paragraph also gave a schedule of several of the recommendations the DWG was considering, none of which were mandatory. It set out the discussion of issues around agriculture, preferential market access, rules of origin, trading services, and preference erosion. Paragraph five continued with some practical suggestions around trade: the task force, simplifying rules of origin, early implementation of WTO services, South-South trade, emerging market access, and so on. Paragraph six addressed growth with resilience, looking at the challenges for small states like narrow export markets and a dependence on imports. It welcomed a framework for economic resilience and the profiling exercise on vulnerability, which had been discussed during the session. Paragraph seven spoke about financial inclusion, supporting the G20 initiatives currently underway. It stressed the importance of domestic policies and noted the need for measures such as a smaller SME financial framework for developing countries and indicators of financial inclusion. The penultimate paragraph welcomed the fact that the conference was held, and the work of the Francophonie and Commonwealth. It asked that the two associations collaborate with the DWG to facilitate more dialogue such as this, and stated that the outreach programme was No comments were returned, except for minor However, not every member had seen this, so Dr Rustomjee briefly The more credible this group became, the greater the chances that those proposals would become a reality.

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essential to the success of the multi-year Plan. It urged the DWG to draw on the analytical capacity, research, consensus-building, and advocacy roles of the two associations. Finally, the outcome document expressed its appreciation to the government of South Africa for hosting, and mentioned the intention to reconvene soon to discuss another theme judged to be of interest to the G20 Presidency going forward ­ the challenging issue of innovative finance. Dr Rustomjee concluded his summary of the document and asked if anyone wished to make any amendments or additions. Mr Davies thought it was an accurate reflection of the meeting. soon. Another participant noticed that the word `included' was missing after `these' in paragraph seven. Additionally, in paragraphs six and eight, the present instead of past tense had accidentally been used. Mr Cronel also suggested rewriting the third line of paragraph four to avoid any confusion. Dr Rustomjee accepted these amendments, thanked all participants for being present, and closed the meeting. He had enjoyed all contributions and hoped that members of the two associations present could meet again

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