G8 Summit 2006Issues and Instruments

St Petersburg, 15-17 July 2006

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Foreword

13 Vladimir Putin, President of the Russian Federation and Chair of the 2006 G8 Summit

The process

18 The road to St PetersburgJohn KirtonDirector, G8 Research Group

23 The Civil G8-2006Ella PamfilovaCo-ordinator of the National Working Group, Civil G8-2006 project

G8 Summit 2006

Key issues

International energy security26 Energy security: continuing what Gleneagles started

Claude MandilExecutive Director, International Energy Agency (IEA)

35 Europe’s changing energy landscapeJosé Manuel BarrosoPresident of the European Commission

Environment46 Climate change: measuring the threat

R.K. PachauriChairman, Intergovernmental Panel on Climate Change (IPCC) and Director-General, Tata Energy and Resources Institute (TERI)

52 Environmental securityAchim SteinerExecutive Director, United Nations Environment Programme (UNEP)

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Issues and Instruments

Human development: health58 Global health: building on success

Richard G.A. FeachemExecutive Director, The Global Fund to Fight AIDS, Tuberculosis and Malaria

67 Statement of G8 Health Ministers Moscow, 28 April 2006

Human development: education74 Building human capital: an inclusive charter for

economic growthFrannie LéautierWorld Bank Vice-President for the World Bank Institute

80 Securing the future through educationRuth KagiaEducation Director, World Bank

Human development: partnerships84 Partnerships: are we there yet?

Amir DossalExecutive Director, United Nations Fund for International Partnerships (UNFIP)

Africa90 The outlook for Africa

Andrea Goldstein, Céline Kauffmann, Nicolas Pinaud and Lucia WegnerDevelopment Centre, Organisation for Economic Co-operation and Development (OECD)

The international order97 The responsibility to protect: unfinished business

Gareth EvansPresident and CEO, International Crisis Group

Funding development 102 Development finance after Monterrey:

a new agenda emergesGeorge MavrotasProject Director, World Institute for Development Economics Research of the United Nations University (UNU-WIDER)

G8 Summit 2006 Contents

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Russia

110 Russia’s short-term economic outlookEconomist Intelligence Unit

117 The outlook for foreign direct investment into RussiaEconomist Intelligence Unit

Central Asia

124 Putting Central Asia back on the Silk RoadMike Pfister Division on Investment, Technology and Enterprise Development, United Nations Conference on Trade and Development (UNCTAD)

Signposts

131 Useful websites

133 Forward calendar

134 Advertiser index

G8 Arena

The G8 Arena of G8 Summit 2006: Issues and Instrumentswelcomes the participation of:

108 Alrosa

44 Caspian Pipeline Services

95 CDC

113 Coca Cola

32 DaimlerChrysler

10 Dresdner Kleinwort

42 E.ON

121 International Industrial Bank

66 Intervet

36 Lukoil

118 Prosperity Capital

24 Schlumberger

68 Solvay Pharmaceuticals

38 TNK-BP

G8 Summit 2006 Contents

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Editor Maurice FraserDeputy editor Diana Fortescue Editorial executive Suzy Robinson Editorial adviser John KirtonGroup editorial director Claire ManuelManaging editor Louise DrewDeputy managing editor Zac CaseySub-editor Nick Gordon

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G8 Summit 2006Contacts

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President Vladimir Putinon the 2006 G8 Summit

This is Russia’s first G8 Presidency.Its themes are international energysecurity, the fight against infectious diseases, and education. We chosethese themes as priority ones, inpart because they can improve thequality of life of millions of peopleand, as a whole, ensure thathumanity develops in a stable andpositive way.

International energy securityWe want to form a stable system oflegal, economic and political relationsthat ensures a reliable demand andstable offer of energy resources on theinternational market.

We consider one of the main tasksto be further investment in, as well asthe incorporation of new technologiesinto, the extraction process, transport

and use of traditional energy resources.Global energy security is impossible

without the development of nuclearenergy. In connection with this we areputting forward the idea of creating aninternational network of nuclearcentres. Their goal is to provide newconsumer countries with nuclearenergy for peaceful purposes andsimultaneously to ensure technical

G8 Summit 2006 Foreword

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We consider it important toobserve the obligations that the G8has already taken on concerningthe struggle against epidemics and,in particular, attaining the goals wedeclared at Gleneagles. I amreferring to providing thosesuffering from AIDS with access tonecessary treatments andincreasing the internationalcommunity’s readiness to fightagainst new diseases.

EducationRegarding education, we intend todraw attention to several aspects.These include increasing the qualityof education and making it easier toreceive recognition for degreesobtained from different educationsystems. In connection with this weare proposing to create aninternational centre that will evaluatedifferent education systems bycomparing the amount of knowledgethat students receive. Its main taskwill be to certify graduates’qualifications and, in practice,provide them with access to theinternational labour market.

We also greatly value developing co-operation between researchestablishments, businesses anduniversities. This will allow us toeliminate unnecessary barriers in the

innovation process and expand thepossibilities for launching jointprojects. Russia actively participates inthe programme Education For All andwill continue to develop principles thathelp evaluate the quality of primaryeducation. We intend to contribute asignificant amount of money to thisprogramme this year.

Other Summit issuesWe will discuss problems such as thenon-proliferation of weapons of massdestruction, the settlement of regionalconflicts and the struggle againstterrorism. We will also address theissue of helping the African continentto resolve serious social and economicproblems and develop health systemsand other factors that influence thepopulation’s quality of life. At theSummit, we are prepared to examineany aspects of topical issues andengage in a joint search for answers tothese problems.

We consider our G8 Presidency asa continuation of what has beendone by the G8 so far, includingwhat was done at Gleneagles. Wealso consider our Presidency as thestage that precedes that of ourGerman colleagues who will assumethe Presidency in 2007.

VLADIMIR PUTIN

G8 Summit 2006Foreword

safety and international monitoringover non-proliferation.

Russia supports the improvement ofthe quality of protection for the majorcomponents of the world’s energyinfrastructure. This implies protectingthem both from technical threats andthe threat of international terrorism.

Infectious diseasesWe consider that one of theinternational community’s strategictasks is the fight against infectiousdiseases.

Today’s pharmaceutical industryprovides us with an effective meansboth for preventing and for treatingdisease. An international systemdesigned to monitor large-scalediseases is developing actively. Alongwith this, developing countries’expenditure in the health sector isstill far below their real needs andthis means that millions of people donot have access to many vaccinesand medicines. Even the richeststates are not able to lower the levelsof some of the most infectiousdiseases such as AIDS ortuberculosis. Recently the world wasfaced with an outbreak of avian flu.And we must acknowledge that theinternational community is notalways able to react to epidemics ina prompt and effective way.

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The road to St PetersburgJohn Kirton, Director, G8 Research Group

The process of preparing the 2006 G8 Summit has been the most open and inclusive in summit history

Group portrait at the 2005 G8 Summit, Gleneagles, Scotland

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G8 Summit 2006 The process

The Russians have devised a creativepreparatory process, centred on democratising

the G8 by institutionalising civil society engagement

When the leaders of the world’s mostpowerful market democraciesassemble in St Petersburg on 15-17July for their 32nd annual summit,the world will be watching withunusually intense interest. This isthe first time a regular G8 summit isbeing hosted by Russia, whichjoined the group as a permanentmember only in 1998. Russia’schosen summit priorities –international energy security,infectious diseases and education –are rapidly rising to the top of theinternational agenda, as world oilprices surge to record levels, avianflu spreads across more continentsand perhaps directly amonghumans, and the knowledgeeconomy becomes vital forsustaining and spreading today’srobust global growth. The Russianshave devised a creative preparatoryprocess, centred on democratisingthe G8 by institutionalising civilsociety engagement. And the worldalso wants this summit to deependemocracy within the host country itself.

There is much scepticism that thesummit will meet these unusuallylarge challenges. But there are goodgrounds for expecting that it will be asubstantial success, for the Russianhosts are taking full advantage of thefinest traditions of the summit andtheir long experience in the G8system. Their strategy has beencarefully crafted and the preparatoryprocess has been well designed.This work holds out the prospect oftimely, well-tailored new directionsand concrete commitments onRussia’s well-chosen priorities. And their innovative process isalready democratising the G8 andRussia itself.

The growth of G8 governanceToday’s G8 summit was foundedamidst the dismal weather and worldof November 1975 when the leadersof France, the United States, Britain,Germany, Italy and Japan gatheredunder grey skies at the Château deRambouillet outside Paris to confrontthe acute energy, economic, securityand democratic crises of the time. Inresponse they created a newinternational institution of their own,composed only of democratic majorpowers, and devoted to promoting“open democracy, individual libertyand social advance” around the world.Canada first attended in 1976 and theEuropean Union in 1977,strengthening the G8’s centralcharacter as a small, select, powerful,democratically committed club.

Russia first arrived in 1989, in theform of a letter sent by then Sovietleader Mikhael Gorbachev, sayinghe wanted to bring the strugglingSoviet system into the West. The G7leaders met him at their 1991summit, and then Russia’s BorisYeltsin in 1992, and ever moreexpansively in subsequent years.Once Russia successfully held itsfirst democratic presidential electionin 1996, there followed the ‘DenverSummit of the Eight’ in 1997 and apermanent G8 from 1998 on. At the2002 summit in Kananaskis,Canada, the G8 decided thatPresident Putin’s Russia deservedto be a genuinely full member byhosting the summit in 2006. TheG8 has thus repeatedly rewarded,through ever greater inclusion,Russia’s historic decision to becomea democratic polity – a decisionwhich President Putin’s Russia has never renounced and hasrecently reaffirmed.

Russia’s inclusion has been goodfor Russia, for the G8, and for thedemocratic values they share. From1975 to 1988, the then G7 summithad occasionally performed very well.It generated growth in the globaleconomy and responded to terrorismat Bonn in 1978. It solved the secondoil shock and stopped the spread ofIran’s Islamic fundamentalistrevolution at Tokyo in 1979. But itoften performed very poorly, notablyat Versailles in 1982. Here the G7 fellinto a bitter public dispute betweenEuropean leaders who wanted aSoviet gas pipeline to reliably bringRussia’s safe, clean, surplus suppliesto their energy-short countries, andAmerica’s Ronald Reagan, whowarned that the pipeline would makeEuropeans vulnerable to a gas cut-offby their Soviet rival determined to winthe Cold War.

The Russian President’s arrival atthe summit in 1992 contributed to asustained improvement in summitperformance. Through theincreasing incorporation of Russia,the G7 summit played the centralrole in the ‘second Russianrevolution’ – the surprisinglypeaceful transformation of theSoviet Union into a democraticRussia and the consequent spreadof democracy and opennessthroughout much of the world. Thesummit helped produce the world’score environmental regimes, first onclimate change and biodiversity in1992; on high seas over-fishing in1995; and on the Kyoto Protocol in1997. The last’s ratification byRussia in 2004 ensured that theProtocol would come into legal forceas the foundation for the world’s21st century quest to controlclimate change.

G8 Research Group • g8@utoronto.ca • www.g8.utoronto.ca • www.g8online.org

The G8 Research Group is a global network of scholars, students and professionals in the academic, research, media, business, non-governmental and governmental communities. The Research Group follows the work of the G8 major market democracies and related in-stitutions, such as the G7 and G20. Its mission is to serve as the world’s leading independent source of information, analysis and research on the G8. Founded in 1987, the G8 Research Group is managed from the University of Toronto, with regional offices in London, Tokyo, Paris, Rome, Moscow, Montreal, Mexico City and Beijing, and has Professional Advisory Council members, Special Advisors and participating researchers spanning the world.

The G8 Information Centre (www.g8.utoronto.ca)

The world’s most comprehensive permanent collection of information and analysis on the G8 — available at no charge — including analytical studies on G8 performance and compliance, research, the G8 Governance Working Paper series, the results of confer-ences and symposia, stakeholder consulta-tions and fact sheets.

G8 Online (www.g8online.org)

Online courses and educational material on the G8 Summit and processes, aimed at university, college and high school users as well as the interested public. Video, audio, text and interactive materials include expert commentary on the G8, speeches, panel dis-cussions, interviews and coverage of related international events throughout the year.

Munk Centre for International Studies University of Toronto

Books on the G8 and Related Issues, from Ashgate

Shaping a New International Financial System, Karl Kaiser, John Kirton and Joseph Daniels, eds. (2000)

The G8’s Role in the New Millennium, Michael Hodges, John Kirton and Joseph Daniels, eds. (1999)

The G7/G8 System, Peter Hajnal (1999)

GLOBAL FINANCE SERIES

New Perspectives on Global Governance, Michele Fratianni, John Kirton, Alan Rugman and Paolo Savona, eds. (2005)

Governing Global Banking, Duncan Wood (2005)

Elements of the Euro Area, Jesper Berg, Mauro Grande and Francesco Paolo Mongelli (2005)

Global Financial Crime, Donato Masciandaro (2004)

Sustaining Global Growth and Development, Michele Fratianni, Paolo Savona and John Kirton, eds. (2003)

Governing Global Finance, Michele Fratianni, Paolo Savona and John Kirton, eds. (2002)

G8 AND GLOBAL GOVERNANCE SERIES

Staying Together, Nicholas Bayne (2005)

From Traditional to Group Hegemony, Alison Bailin (2005)

The New Economic Diplomacy, Nicholas Bayne and Stephen Woolcock (2003)

The G8, the United Nations and Conflict Prevention, John Kirton and Radoslava Stefanova, eds. (2003)

New Directions in Global Political Governance, John Kirton and Junichi Takase, eds. (2002)

Governing Global Trade, Theodore Cohn (2002)

Guiding Global Order, John Kirton, Joseph Daniels and Andreas Freytag, eds. (2001)

The New Transatlantic Agenda, Hall Gardner and Radoslava Stefanova, eds. (2001)

New Directions in Global Economic Governance, John Kirton and George von Furstenberg, eds. (2001)

Hanging In There, Nicholas Bayne (2000)

These books and more are available from Ashgate Publishing at www.ashgate.com

Research Group

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Russia acquiesced in the G8’s1999 decisions to go to war to stopgenocide in Kosovo and to preventconflict in Chechnya. By 2005 Russiaaccepted the growing globalconsensus, codified at the UnitedNations’ World Summit in September,that there was a general internationalresponsibility to protect the lives ofinnocent civilians when their owngovernments could or would not doso. Even as the G8’s most powerfulmember, the United States, oftenremained reluctant to move on thesedefining issues, Russia proved that itwas an authentic member of the G8club. And with Russia as a full andincreasingly well socialised,experienced member, the 21stcentury summits deliveredconsistently high performance, apartfrom the 2003 interlude whendivisions among the G7 foundersover the American-led war in Iraq ledto a short-lived dip.

The St Petersburg preparatory processIn preparing for St Petersburg, Russiastarted with a rich repertoire ofexperience in the G8 summit andsystem. The G8 system came togethernot only at the first summit of theoriginal six members in 1975, and atthe G4 and the G5 finance ministers‘Library Group’ gatherings in 1973,but also at the London NuclearSuppliers Group in 1975, with Russiaand Canada in from the start. Russiaabided by the guidelines of the MissileTechnology Control Regime (incubatedat the G7 summits in the 1980s) andformally joined in 1995. Its then Sovietleader first physically appeared at thesummit a decade and a half ago. Anewly democratic Russia successfullyhosted the subject-specific G8Nuclear Safety Summit in Moscow adecade ago, and a special G8 summitin St Petersburg as part of the EvianSummit of 2003.

Russia’s strategy for St Petersburgstarted when it first learned at the2002 summit that it would host theG8 in 2006. Russia immediatelyselected international energysecurity as the centrepiece subject,despite abundant world suppliesand low prices then. For this couldbring Russia’s superpower energysupplies to the aid of an Americaassaulted by terrorism on 11September 2001, and whosepresident had already asked the G8to provide the energy securityAmerica needed from itsinternational friends. Since then aRussia even more afflicted by deadlyterrorist attacks on, over and underits own soil has stood at one with itsG8 partners to confront globalterrorism, as deadly attacks havecome to the subways of Madrid andLondon, and as the other G8members have taken the fight to theunforgiving mountains ofAfghanistan that the Russiansremember all too well.

To combine continuity andinnovation productively in thesummit agenda, the Russians arereinforcing the 2005 Gleneaglessummit’s emphasis on climatechange control by focusing onenergy, including energy efficiency,renewable energy, and low carbon,climate-friendly nuclear power in themix. They are similarly building onGleneagles’ focus on Africandevelopment with their priorities ofinfectious disease, centred on theHIV/AIDS pandemic in sub-SaharanAfrica; and education, including the

Education for All commitment at theheart of the UN’s MillenniumDevelopment Goals. They arebreaking badly needed new groundby having their summit devise basicprinciples for comprehensive globalenergy governance, address fast-moving fully globalised diseasessuch as avian flu, and foster high,harmonised educational standardsfor a more open, internationallymobile, multicultural world.

Continuity and innovation are alsocombined in their summit process.Participating at St Petersburg will bethe executive heads of themultilateral organisations mostdirectly connected to its prioritythemes. This formula was inventedby the French a decade ago and hasbeen adopted at some 21st centurysummits, with the aim of generatinggreater global legitimacy for andimplementation of the G8’s work.The Russians have fulfilled thedesires of their partners to invite theleaders of China, India, Brazil,Mexico and South Africa, following aFrench initiative from 1989 that wasrepeated in 2003 and was followedto good effect by the British last year.This ‘plus Five’ group includes thegreat energy consumers and carbonproducers of the future, theepicentre of a coming but stillavoidable Eurasian HIV/AIDSpandemic, the capital-rich countriesneeded to control global financialimbalances, and the most significantrising powers critical to effectiveglobal governance in the 21st-century world.

The Russians are reinforcing the 2005Gleneagles summit’s emphasis on climate

change control by focusing on energy

Participating at St Petersburg will be theexecutive heads of the multilateral organisations

most directly connected to its priority themes

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St Petersburg’s ‘dualdemocratising’ successThe Russians have also mounted themost open, inclusive preparatoryprocess in summit history, with moreG8 ministerial meetings for finance,one for energy, the first since 2000for education, and the first ever forhealth. Their ‘sherpa’ (i.e. officialresponsible for preparing thesummit) and his colleagues haveconsulted more widely than ever.They have created an Experts Councilinvolving many inside and outsidegovernment to provide a soundanalytic foundation for the summit’swork. And through Civil G8-2006 (seepage 23) they have created the mostorganised, inclusive and government-connected civil society process in thesummit’s long life.

The democratising results arealready apparent inside the G8 andRussia itself. An initially reluctantRussia has joined with its G8colleagues to declare that market

mechanisms are vital for energysecurity and much else. The CivilG8-2006 process has empowered abroad range of Russian andinternational civil societyorganisations. It has injected a badlyneeded environmental voice into theenergy security priority close to theheart of President Putin: he has nowpromised to re-route a new pipelineto protect Lake Baikal as thepermanently pristine, largestfreshwater lake in the world. To besure, the world will have to wait untilthe summit communiqués are finallyreleased and until Russia respondsto their democratic directions andcollective decisions in the yearsahead, in order to assess the precise

policy and political influence globalcivil society has had. But Russia’sinnovative and inclusive preparatoryprocess is already deepeningdemocracy within the G8 andRussia, one contact andconversation at a time.

The G8 Research Group is a globalnetwork of scholars, students andprofessionals committed to serving asthe world’s leading independent sourceof information and analysis on the G8.John Kirton is a Professor of PoliticalScience at the Munk Centre at theUniversity of Toronto, a member of theInternational Advisory Council of CivilG8-2006, and is advising the RussianPresidency on the 2006 summit.

The Civil G8-2006 process hasempowered a broad range of Russian and

international civil society organisations

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The Civil G8-2006Ella Pamfilova, Co-ordinator of the National Working Group, Civil G8-2006 project

Consultations with NGOs have becomea tradition of the preparations for G8summits. The main aim of such consultations is to clarify civil society’sposition on the priority issuesdetermined by the presiding country.

The main aim of the non-governmental organisations (NGOs)which launched the Civil G8-2006project is to consolidate the mostpositive achievements of the previousyears in the sphere of interaction withthe G8 and to try to take thiscollaboration to a new level. Our hopeis that these efforts will make avaluable contribution to the civilsociety-government dialogue andensure efficient co-operation betweenvarious social sectors in Russia andelsewhere. The President of theRussian Federation, Vladimir Putin,has expressed his readiness todevelop the dialogue with Russian andinternational civil society during theRussian G8 Presidency.

The main tasks of the consultativeprocess organised by Civil G8-2006are to provide it with quality contentand to ensure that it is open andtransparent. The representatives of

prominent Russian and internationalNGOs have formed an AdvisoryCouncil, charged with streamlining theactivities and elaborating the ideas ofthe Civil G8 process.

Responsibility for technical supportand information activity rests with theNational Working Group of the AdvisoryCouncil. (See the Civil G8 websitewww.civilg8.ru)

The process of NGO consultations isdivided into three stages. During theprimary stage the main task was toprepare and deliver NGOrecommendations for the G8 StPetersburg Summit agenda. Duringthis stage the Civil G8 organised andconducted a series of conferences andseminars simultaneously with theofficial preparatory activity for the G8.The papers issuing from the civildiscussions were passed to the officialsto be used, as we hope, during theprocess of elaborating decisions.

The International NGO Forum heldin March 2006 marked theconclusion of this stage with all ninesherpas participating in its finalplenary. Another meeting of 25 civilsociety representatives with sherpas

took place in May. During the immediate pre-summit

period the main event is theInternational NGO Forum on the eve ofthe St Petersburg meeting, with up to500 NGO representatives from all overthe world. This event will set out theresults of the consultative process,articulate ideas for discussion andexplain the approaches adopted by civilsociety bodies in the first half of 2006.The final document of the Forum willbe presented to the G8 leaders.

During the final stage the main taskwill be to carry out a civil societymonitoring of the G8 summit decisionsand follow-up; to summarise the resultsof the consultative process; and to workup recommendations for the nextcountry – Germany – taking over theG8 Presidency in 2007. The final eventwill be the follow-up Forum in lateNovember with the possibleparticipation of the sherpas of Russiaand Germany and other officials.

Ella Pamfilova is Chair of the CivilSociety Institutions and Human RightsCouncil under the President of theRussian Federation

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Energy security: continuing what

Gleneagles startedClaude Mandil, Executive Director, International Energy Agency (IEA)

Investment in energy supply, improved efficiency and new technologiesshould be at the top of the G8 leaders’ agenda at St Petersburg

Recent events have heightened the urgencyof implementing the G8 Plan of Action

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International energy security Strategy

At the Gleneagles G8 Summit in 2005,President Putin asked me, asInternational Energy Agency (IEA)Executive Director, for the IEA’ssupport for Russia during its G8Presidency in 2006 and to contributeto its focus on Energy Security. Thisrequest was seen as a logicalextension of IEA work and long-standing co-operation with theRussian government over the last 12years on the development of rationalenergy policies. The IEA’s involvementalso provides a useful opportunity tostrengthen its relationship anddialogue with Russia.

The G8 Summit in St Petersburgwill address the challenges of climatechange and securing clean energyand sustainable development.Agreeing to act with resolve andurgency, the G8 leaders atGleneagles adopted a three-year Planof Action and asked the IEA toprovide advice on strategies for aclean, secure and sustainable energyfuture. A Dialogue has beenlaunched, open to other significantenergy consumers, but especiallyBrazil, China, India, Mexico andSouth Africa. The IEA is a partner inthis Dialogue and plays a major role

in delivering many of the objectivesput forward in the Plan of Action.The IEA Governing Board of 26nations has also charged the IEAwith helping to ‘bridge the gap’between what is happening and whatneeds to be done in the future.

Over the last year and a half, theIEA has made significant progressin meeting this evolving mandatethrough the activities of its officesand intensified internationalcollaboration. But there is more todo. Recent events have heightenedthe urgency of implementing thePlan of Action. It is the hope of theIEA that the G8 Leaders in StPetersburg will reinforce what wasstarted in Gleneagles, to enhanceglobal energy security throughinitiatives and focus ontransparency and dialogue toimprove understanding of thechallenges which lie ahead and ofhow to meet them together in themost efficient way.

We are under-investing in the energy supply chainIn 2004, the world suffered its firstdemand shock as it awoke to thewelcome signs of strong economicgrowth around the world. In Russia,enhanced production from existingfields slowed and reserves were notreplaced. The oil supply system wasnot ready and oil prices peaked atdouble their 2003 lows. They havesince moved even higher. But thisproblem was not unique to Russia.For nearly 20 years the world hascollectively under-invested inupstream oil production capacityand capacity additions are now onlyjust keeping pace with growingdemand. More recently, the refiningsector has also fallen behind, findingit difficult to cope with the veryimportant challenge of producingenvironmentally sensitive fuels whilethe quality of the marginal barrel ofoil produced declines.

Late last year, the world had oneof its first experiences of international

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markets adjusting to a shock in naturalgas supply. The loss of 8 billion cubicfeet per day of gas production in theUS Gulf of Mexico after hurricanesKatrina and Rita, coupled with supplyreductions and outages in a range ofother supplies, demonstrated that evengas markets that used to be regionalare converging as spot liquefiednatural gas cargoes now arbitragegas prices across the Atlantic andPacific markets.

Everyone needs to care about whatis happening in the gas marketsaround the world as disturbancesincreasingly affect customers acrossregions. Earlier this year, tensionheightened in gas markets in Europeas a result of a commercial disputebetween Russia and Ukraine. Inaddition, gas shortages haveemerged in Italy and the UnitedKingdom, highlighting realweaknesses in European energyinfrastructure, markets and gasdeliverability. During this period, theIEA has been disappointed by theRussian and Central Asian gassystem’s inability to respondeffectively. This shortcoming has

many explanations but is primarilythe result of insufficient investmentin upstream production, transportand storage capacity throughout thesystem, exacerbated by inadequatemarket reform.

Responding to the G8 task ofcollecting and publishing the bestpractices for efficiency worldwide,the IEA has conducted energy policyreviews of every country around theG8 table. Each country couldimprove its investment climate orconditions in some areas. Thisimprovement could be accomplishedby curbing the market power of oftendominant incumbents, achievingcost-reflective energy pricing,communicating appropriate andcomplete regulatory messages,lightening licensing impedimentsand answering public resistance.Because our hosts, the Russians,are the most recent to take on thesechallenges, they have the furthest togo. The IEA can only encourage amore rapid convergence of Russianenergy policies and practices withthose of its major trading partnersand customers.

We are missing too manyefficiency opportunitiesLooking forward more broadly, thecurrent path of global energy useand emissions growth is notsustainable: CO2 emissions are risingrapidly and energy security concernsloom large. Every country has its ownstrategy for moving towards a moresustainable path even if everyoneagrees on energy efficiency as onetool that can benefit all countries.Efficiency saves energy, it reducescosts and lowers carbon dioxideemissions. Energy efficiencyimprovements of up to 25 per centof energy use can often be made atvery low or no cost.

The world should look at energyefficiency the same way it looks atother energy reserves. But ratherthan being trapped underground,energy efficiency is trapped bymarket failures, barriers andinefficient government regulation.Governments can ‘mine’ this energyefficiency potential by developingguidelines, standards and moreprecisely specifying property rights.

Russia, for instance, is an energysuperpower in terms of its richnatural resource endowment but alsoin terms of its huge energy efficiencypotential. A recent IEA study ondistrict heating systems in Russiaand other countries of the formerSoviet bloc estimates natural gassavings in the order of 80 bcm/yearthrough modernisation of heat-onlyboiler systems to IEA membercountry cogeneration systems (seeComing in from the Cold, IEA/2004).

Another IEA study released beforethe G8 Summit in St Petersburgestimates that more than 30 bcm ofnatural gas could be saved annually inRussia’s gas transmission anddistribution systems as well as throughreductions in the volumes of flaredgas by Russian oil companies (seeOptimizing Russian Natural Gas:Reform and Climate Policy, IEA/2006).

Energy efficiency improvements ofup to 25 per cent of energy use canoften be made at very low or no cost

International energy security Strategy

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Official annual data shows Russiacurrently flares a minimum of 15billion cubic meters of gasassociated with oil production (partlyas oil companies lack access) toGazprom’s transmissioninfrastructure. Reform of third-partyaccess, and natural gas reform moregenerally, could add this additionalvolume to the country’s supply. Suchreforms would also enable large gassavings potential – and greenhousegas reductions – in the transmissionand distribution networks.

The IEA hopes that G8 leaders,when they next meet in StPetersburg, will support concretemeasures. The list of neededenergy efficiency measures is long,and time is short to move ourenergy systems to a moresustainable path.

We need to put more effortinto technologyIn the absence of changedgovernment policies, the world’senergy needs are set to riseinexorably, increasing by more thanhalf between now and 2030. CO2emissions will also increase by morethan 50 per cent. Policies alreadyunder consideration could make asignificant difference – but this willstill not be enough. Far more radicalpolicy action and technologybreakthroughs are needed to reversethese trends.

Public support, the private sector’sinitiative and innovation, andgovernment leadership – probably inthat order of importance – all havecontributions to make. But the roleof government in setting theframework is indispensable.

The substantial short-termpotential for efficiency in powergeneration, buildings, appliances,industry and vehicles could make abig difference in reducing energyconsumption. The technologyalready exists to make this possible.But it is just as urgent to pressahead with new technologiesneeded in the medium and longerterm to transform the energyinfrastructure of the future. Keytechnologies with strong potentialinclude carbon capture and storage,renewables, nuclear power,efficiency technologies, and, in thelonger term, hydrogen fuel cells.

International consensus buildingwill be vital because thesetechnologies will need to sell in aglobal marketplace. And this effortmust include co-operation betweendeveloped and developing nationsbecause it is developing countriesthat are now, by far, the mostdynamic in terms of the growth indemand for energy services.

At the UN Commission onSustainable Development meeting inNew York in May 2006, the IEAlaunched a major new initiative topromote global co-operation inenergy technology. In addition, theIEA will soon publish EnergyTechnology Perspectives, agroundbreaking study that willanalyse the status and costs of allthe key technologies, and identifythe barriers to realising their fullpotential. This book will identifystrategies for combining thesetechnologies to deliver the clean,clever and competitive energy futurethat policymakers demand.

With the strong support of its 26member governments, the IEA will dothe maximum to achieve theobjectives mapped out in the G8 Planof Action. But it is the heads of stateand government in St Petersburg whomust consider the policy options andthen put them to work. To meet theglobal need for energy investment,improved energy efficiency and newtechnologies, the IEA urges leaders toact decisively and soon.

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Europe’s changing energy landscapeJosé Manuel Barroso, President of the European Commission

Europe’s future energy needs and climate change goals can only be met through a commonEuropean energy policy. The European Commission is leading efforts to shape one

The scale of the challengeThe global energy landscape ischanging fast. What is true for theworld is especially true for Europe.Today, half of the European Union’senergy requirements are met byimports – a figure set to rise to 70per cent in a couple of decades.Mature hydrocarbon reserves inEurope and the United States arebeing exhausted. At the same time,global oil consumption has increased20 per cent in the last ten years.

Competition for resources is growing.The challenges don’t end there. In

Europe alone, E1 trillion is neededover the next 20 years to meetexpected energy demand and replaceageing infrastructure. Globally, thefigure is around US$16 trillion. Suchmassive spending requires a secureand transparent investment climate inthe world, and functioning marketsand infrastructure.

Finally, according to theIntergovernmental Panel on Climate

Change, climate change has alreadymade the world some 0.6°C hotter.In the worst case scenario,temperatures could rise by up to5.8°C by the end of the century. Tomake its contribution to stabilisingglobal climate change, the EUneeds to reduce its CO2 emissionsby at least 50 per cent over thecoming decades, and othercountries will have to play their part.At present, global emissions of CO2are actually accelerating.

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Towards an integrated energypolicy for EuropeThe Commission’s energy GreenPaper, endorsed by Europe’sleaders at their Spring Summit inMarch this year, faces up to thisnew reality.

For far too long, European energypolicy has been fragmented ratherthan focused. It need not, andshould not, be like this. With 450million consumers, the EuropeanUnion is the largest importer andsecond largest consumer of energyin the world. We are already world

leaders in technologies and thepolicies needed to get them out oflaboratories and into markets. Actingtogether, we have the weight todefend and assert our interests.

So what does the Green Paperpropose? It starts from theestablished consensus: that theEuropean Union needs anintegrated, European Energy Policythat maintains Europe’s competi-tiveness, safeguards ourenvironmental objectives andensures our security of supply. Itsets out a vision for a new energy

system, based on effectivecollaboration between producersand consumers, serious efforts toincrease energy efficiencyworldwide, and a quantum leap inthe production of renewable andlow-carbon energy.

By agreeing to endorse the GreenPaper’s clearly identified energygoals and priorities, and to pursuethem rigorously with a single voice,Europe’s leaders have taken the firststeps towards leading the new globalenergy agenda, rather than followingit. Their common position is apowerful contribution to the G8’sactive stance in this area.

Towards an integrated energy marketThe Green Paper identifies six priorityareas for action, which are mutuallyreinforcing. First is the need tocomplete a fully integrated internalenergy market for Europe. We needan open and competitive market withcompetition between companiesstriving to become Europe-widecompetitors, not dominant nationalplayers. To respond successfully tothe many challenges we face, andensure proper, sustainableinvestment for the future,consolidation of the energy sectormust be market-driven.

For far too long, European energy policyhas been fragmented rather than focused

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Securing supplyThe second priority area for actionconcerns security of supply withinthese internal markets, built onconcrete measures which reflectsolidarity between Europe’s memberstates. For example, theestablishment of a European EnergySupply Observatory in 2007 willhelp identify likely shortfalls ininfrastructure and supply at an earlystage and complement, on an EUlevel, the work of the InternationalEnergy Agency.

Network security will be improvedthrough increased collaboration andexchange of information betweentransmission system operators.Work has also begun on a newcrisis mechanism to enableassistance to a country facingdifficulties following damage to itsessential physical infrastructure. Amore co-ordinated Communityposition on emergency energystocks is in the pipeline, as it were.

The EU’s energy mix and theStrategic Energy ReviewThe third priority area goes to the heartof a European energy policy: the EU’senergy mix. It grapples with a keyconundrum: how can we reconcile thefact that the choice of a member state’senergy mix is and will remain a matterfor the member state, with the realitythat choices made by one memberstate inevitably have an impact on theenergy security of its neighbours andthe Community as a whole?

The Commission has begunsquaring this circle through acomprehensive Strategic EU Energy

Review – an analysis of all theadvantages and disadvantages ofdifferent energy sources, and theknock-on effect of investment in themfor the EU as a whole. This will alsoallow an open and informed debateon the future role of nuclear energy inthe EU. This should become a regularexercise, and I hope it leads toagreement on an overall ‘StrategicEuropean Energy Objective’, of thepercentage of secure, sustainableenergy which the EU uses. Thisobjective would provide a benchmarkfor the development of the EU’senergy policy.

We need competition between companiesstriving to become Europe-wide

competitors, not dominant national players

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Climate changeA fourth key area concerns how wetackle climate change, which ofcourse has strong links with ourenergy policy. The Green Paperaddresses how Europe can achieveits climate change goals in anintegrated manner; in other words, ina way that contributes positively to itscompetitiveness and security ofsupply. In order to do this, one pointof departure is that future targetsand objectives in this area have tobe made on the basis of a robustcost-benefit analysis.

Impact assessments will be carriedout in the coming months, andconclusions will be drawn in theStrategic EU Energy Reviewmentioned earlier. However, I canalready identify two areas whereconcrete action is being considered.

Firstly, the Commission will thisyear propose an Action Plan onEnergy Efficiency with measures toreduce by 20 per cent the EU’sprojected 2020 energy use. This isa top priority, not least because byreducing the energy intensity ofgrowth, we tackle the issues ofclimate, security of supply andcompetitiveness at the same time.

Secondly, the EU will have tomake greater use of renewableenergy. Not just because of climatechange, but because we must laythe foundations today for a timewhen the hydrocarbons supply canno longer cope with demand. Actionhere will help confirm Europe’sworld leadership in renewableenergy technologies, whichrepresent a rapidly growing globalmarket. As a part of the StrategicEU Energy Review, the Commissionwill bring forward a RenewableEnergy Road Map, for an effectivepolicy on renewables.

Research and innovationThe fifth priority area is research andinnovation, fundamental in ourtransition to the energy systems ofthe future. Through the EmissionsTrading System, Europe is already theonly market in the world whereimplementing environmentallyfriendly energy production isfinancially rewarded. This encouragesnot only research into low or neutralcarbon technologies, but also theirimplementation on the ground.

We need to consolidate thiscompetitive advantage in researchterms. After all, these technologieswill represent multi-billion euro globalmarkets in the future. TheCommission will therefore putforward a strategic energy technologyplan in the near future.

Speaking clearlyThe final priority area of the GreenPaper is, along with the energy mix,one of the most important. It concernsexternal energy policy. Quite simply,Europe must use more effectively itseconomic and political influence on theworld stage. It needs to define clearlyits goals and aspirations regarding itsenergy partners, and then speak withone voice to promote those interests.

Only joined-up policies will workAt last month’s European Council,Europe’s leaders adopted a jointCommission/Council paper whichtackles this challenge head-on. Itrecognises that achieving our goalsin today’s energy world requires acombination of internal and externalpolicies. Policies on energy, trade,development, enlargement,competition, research, environmentand the EC’s financial instrumentsall need to be harnessed to thisend. Two building blocks of anexternal energy policy arehighlighted in particular in thispaper: the creation of well-functioning world energy marketsand the diversification of energy, interms of types of energy,geographical origin and transit.

The joint paper highlights areaswhere action can already be takento ensure that the EU’s externalrelations, including the CommonForeign and Security Policy, make afull contribution to the developmentof a European energy policy.

The world is entering a new energyera. With a common, Europeanenergy policy, we will be able toembrace this era with confidence.

The Commission will this year proposean Action Plan on Energy Efficiency with

measures to reduce by 20 per cent theEU’s projected 2020 energy use

International energy securityEurope

Climate change:measuring the threat

R. K. Pachauri, Chairman, Intergovernmental Panel on Climate Change (IPCC)Director-General, Tata Energy and Resources Institute (TERI)

Climate change has the potential not only to disrupt the biophysical systems on which human life depends but also to bring devastation to some of the

world’s most vulnerable communities through extreme weather events

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Publication of report

IPCCapproves outline

Governments,organisations

nominate experts

Bureaux select authors

Authorsprepare

1st-orderDRAFT

Expert review

Authorsprepare

2nd-orderDRAFT Expert and

government review

AuthorsprepareFINALDRAFT

Final distribution and governmentreview of SPM

WG / IPCCaccepts / approves

report and SPM

Peer reviewed and internationally available scientific technical and socio-economic literature, manuscripts made available for

IPCC review and selected non-peer reviewed literature producedby other relevant institutions, including industry

One finding of the TAR was that the duration,location, frequency and intensity of extreme weather

and climate events would change and would result inmostly adverse impacts on biophysical systems

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Environment Climate change

The issue of climate change is notonly receiving greater interest fromthe scientific community, which has made enormous strides in creatingknowledge on all aspects of thesubject, but several world leaders ofhigh standing are now makingclimate change a top priority inpolicymaking. It is, therefore, logicalthat the G8 Summit involving theleaders of the largest economicpowers in the world has includedclimate change as a subject ofcontinuing importance.

While individual scientists andvarious institutions across the globehave been working on a study of theworld’s climate system, its nexus withhuman activities, and thesocioeconomic impacts that climatechange produces round the world, acomprehensive assessment of thesubject has largely come from thework of the Intergovernmental Panelon Climate Change (IPCC). The FirstAssessment Report of the IPCC,which was produced in 1990, had amajor effect on the outcome ofnegotiations resulting in the UNFramework Convention on ClimateChange (UNFCCC) in 1992. The nextassessment report, the second of theseries, which was completed fiveyears later, had a major impact onthe creation of an agreement to limitthe emissions of greenhouse gases(GHGs), which took the form of theKyoto Protocol in 1997. The ThirdAssessment Report (TAR) gave usfurther knowledge on all aspects ofclimate change, but in particular hada major influence in directing theattention of the global community –through the Conference of the Partiesheld in New Delhi in 2002 – on tothe issue of impacts on, andadaptation to, climate change.

Work in progress: the FourthAssessment ReportThe IPCC is currently working on itsFourth Assessment Report (AR4),which will be completed by the endof 2007. This report has severalsignificant features – includinggreater focus on cross-cuttingthemes – which have been identifiedfor special treatment, to include:

• Regional issues• Uncertainty and risk• Technology• Sustainable development • Integration of adaptation / mitigation• Article 2 of the UNFCCC / keyvulnerabilities• WaterThese cross-cutting themes have aspecial relevance from a policy

Figure 1 – Process of preparation of IPCC reports

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perspective. For instance, in thecase of water, while assessment ofhow precipitation changes mayoccur with climate change will beprovided in the report of WorkingGroup I, impacts related to theavailability of water in differentregions of the world will come fromthe report of Working Group II.However, the policy relevance ofthese specific components will comeessentially from an integratedassessment of water across theentire cycle, which is what thetreatment of this cross-cutting themewill attempt to do.

The current status of progress of theAR4 is that drafts have advanced to asignificant extent through the writingand review process. IPCC proceduresinvolve an elaborate system wherebydrafts are prepared and reviewed atvarious stages by expert reviewers aswell as governments.

The entire process of preparationand review of an IPCC report isexplained in Figure 1. Electroniccommunications, as used extensivelyin the AR4 process along with web-based methodologies, havesubstantially enhanced the reach ofthe drafts of the reports for thereview process. Thus there areliterally thousands of people takingpart in this procedure.

In addition to the three workinggroup reports dealing respectivelywith scientific aspects of theclimate system; impacts,

vulnerability and adaptation relatedto climate change; and mitigationoptions for stabilising theconcentration of GHGs in theatmosphere, the AR4 will alsoinclude a synthesis report. Thereport that will be produced as thissynthesis will be a brief 30 pages inlength, including diagrams andillustrations. The outline of thesynthesis report will include thefollowing subjects or sections:• Observed changes in climate andits effects• Causes of change• Climate change and its impacts inthe near and long-term underdifferent scenarios• Adaptation and mitigation options and responses, and the inter-relationship with sustainabledevelopment, at global and regional levels• The long-term perspective:scientific and socio-economicaspects relevant to adaptation andmitigation, consistent with theobjectives and provisions of theConvention, and in the context ofsustainable development• Robust findings, key uncertainties

It is expected that the AR4 willsucceed in bridging some of thegaps that existed in our knowledgeas covered in previous reports, andwill possibly also reduce some ofthe uncertainties associated withseveral components of ourknowledge in the field.

The findings to dateHowever, in this context it isimportant to review some of themajor findings of the TAR, which willbe explored further in theassessment contained in the AR4.The main reason for human inducedclimate change is the increasedconcentration of GHGs in the earth’satmosphere, dominated by anincrease in the concentration ofcarbon dioxide (CO2). Between theyears 1750-2000, a change in theconcentration of CO2 took place from280 parts per million (PPM) to 368.Recent data, which will be dealt within the AR4, indicate a substantialrate of increase in emissions in thefive years of this century as well. Theglobal mean surface temperatureduring the 20th century increased by0.6+/- 0.2°C in the NorthernHemisphere. This represented anincrease greater than that during anyother century in the last 1,000 years.The 1990s in this respect wereassessed as being the warmestdecade of the millennium. Overallthe TAR concluded:

“There is new and strongerevidence that most of the warmingobserved over the last 50 years isattributable to human activities, andemissions of CO2 due to fossil fuelburning are virtually certain to be thedominant influence on the trends inthe atmospheric CO2 concentrationduring the 21st century.”

The TAR also made projections ofclimate change up to the end of the21st century. These were assessed toindicate a projected increase in globalaverage surface temperature of 1.4 °Cto 5.8 °C, with a correspondingincrease in sea level of 9 cm to 88 cm.However, another significant findingwas that the duration, location,

Irrespective of the reduction in emissions,the world would have to continue with

adaptation measures to counter the impacts ofclimate change for a long period of time

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frequency and intensity of extremeweather and climate events wouldchange and would result in mostlyadverse impacts on biophysicalsystems. This finding could bequalified to lie in the range of ‘likely tovery likely’. It was also concluded thatgreenhouse gas forcing in the 21stcentury could set in motion “largescale, high impact, non-linear andabrupt changes in physical andbiological systems over the comingdecades to millennia with a wide rangeof associated likelihoods.” These couldbe in the form of a breakdown in thethermohaline circulation, or themelting of the Greenland ice sheet.

The impacts of climate change arediverse in their geographical spreadand consequences. Climate changehas impacts on human health, on thequality and availability of waterresources, on agriculture, coastal areas

and small island states, as well as onseveral species. It was also projectedthat non-polar bodies of ice would meltfaster, such as seen in the continuedprocess of widespread retreat ofglaciers that took place during the20th century. It was concluded as ‘verylikely’ that the extent of snow cover hasdecreased by about 10 per cent onaverage in the Northern Hemispheresince the late 1960s, and the annualduration of lake and river ice cover inthe mid and high latitudes of theNorthern Hemisphere has beenreduced by about two weeks over the20th century.

An important issue related to theimpacts of climate change arises fromthe inertia in the system, which wouldresult in the impacts of climatechange continuing for decades if notcenturies. This means that irrespectiveof the reduction in emissions that we

are able to bring about, the worldwould have no choice but to continuewith adaptation measures to counterthe impacts of climate change for along period of time. Unfortunately,there are several regions of the worldthat are particularly vulnerable tothese impacts, such as the SmallIsland Developing States (SIDS) andlow-lying coastal areas in differentparts of the world. This situation hasimportant equity implications becausethose societies – which have madethe smallest contribution to creatingthe problem of climate change –would perhaps be the mostvulnerable. For this reason, therichest nations of the world must alsofocus on the threat to be faced by theworld’s least developed societies, onwhom the adverse impacts of climatechange could cause major harm tohuman welfare.

The richest nations of the world mustfocus on the threat to be faced by the

world’s least developed societies

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Environmental securityAchim Steiner, Executive Director, United Nations Environment Programme (UNEP)

Cleaner technologies and renewable energy sources can marry economic development with environmental and social objectives

Energy security has become theburning issue of our time. For some itmeans guaranteeing safe, sufficientand long-term supplies of traditionalfossil fuels like oil, gas and coal. Forothers, it means freeing the planetfrom fossil fuels in favour ofalternative forms of energy like wind,solar, biomass and hydrogen. For meit means both and more.

It is a fact that while one’s heart mayplead for a carbon-free world, the headknows that fossil fuels will, to a greateror lesser extent, be part of the energymix for the foreseeable future.Disrupted supplies damage economiesacross the world and fuel anxiety thatdrives higher and higher prices.Industry faces rising costs, as doconsumers through higher electricitybills and at the petrol pumps.

In developing countries, strugglingto grow their economies and to liftpoor people out of poverty, it canspell life and death. Every time oilhits over US$50 a barrel (and as Iwrite it is far higher than that, at overUS$70) many importing nations oncontinents like Africa are forced tomeet the extra cost through spendingprecious overseas development aid.This is money intended for hospitalsand medicines, and for schools,agriculture and sustainabledevelopment programmes.

Tackling the demand sideOne way to meet the challenge is toensure that the pipelines keep flowing.But there is a second way that is alltoo often ignored or sidelined. This isdealing with the demand side. Itremains a fact that far too muchenergy is simply wasted in powerplants, in factories, in homes and onthe roads, the high seas and in the air.A revolution in energy efficiency andenergy savings makes sense onenergy security grounds but also onhard-nosed economic andenvironmental ones too.

So I am delighted that theJapanese government has put‘energy savings’ firmly on theagenda of the G8 in St Petersburgthis year. It was also a messageemphasised by environmentministers attending the SpecialSession of UNEP’s GoverningCouncil/Global MinisterialEnvironment Forum earlier in theyear. They concluded that energyefficiency codes and standardsshould be adopted world-wide forbuildings, electrical appliances, carsand agricultural machinery.Governments can set the exampleby focusing their purchasing poweron buying energy-efficient goods,equipment and services.

There is so much low hangingfruit. Conventional power stationswaste between 40 per cent and 65per cent of the energy generated.Electrical appliances like TVscollectively consume large amountsof electricity needlessly when onstandby. If all OECD countries’governments could agree on astandard to limit standby power useto no more than 1 watt per device,peak electricity load could bereduced by roughly 20 gigawatts, theequivalent of 20 large power plants.This so-called International EnergyAgency 1-Watt-Initiative was

approved by the G8 leaders at theirsummit in Gleneagles in July 2005and is now being put into practice.

Meanwhile, new vehicletechnologies such as hybrid carscan have a role. The first ones,introduced in Japan in the late1990s, increased fuel efficiency by11km per litre. New ones haveimproved efficiency by up to 22kmper litre. We can go further.

In many developing countries,energy security is simply aboutgetting access to energy in the firstplace. About 90 per cent of people

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in Kenya, where UNEP is proud tobe headquartered, have no accessto grid electricity. Globally, over oneand a half billion people in thedeveloping world are in the samepredicament. Most rely onbiomass, many rely on trees forcooking and, as in manydeveloping nations, a great deal isburned on indoor stoves.

Wanted: cleaner technologiesThe G8 also has infectious diseaseshigh on the agenda. The linkbetween energy inefficiency andhealth is also relevant and strong.Between 10 per cent and 20 percent of wood, dung or agriculturalwaste fuels is not fully burned,triggering a wide range of harmfulair-borne pollution. Particle levelscan range between a high 300 to amassive 3,000 microgrammes percubic metre. (The European Unionguideline, in contrast, is 40microgrammes per cubic metre).No small wonder that indoor airpollution may be responsible for upto 2.4 million premature deathsannually. Meanwhile, outdoor airpollution from industries andvehicles may trigger some 800,000premature deaths a year, with over60 per cent of these in Asia. Thisspells not just misery for millionsbut has potentially huge economiccosts. The World Bank estimatesthat, on current trends, China may,by 2020, be paying close toUS$400 billion a year to treatdiseases linked to coal burning.

Many countries, like the UnitedStates, are now pressing forwardwith research to develop cleaner –indeed zero emission – coal-firedpower stations. Advanced fuels likehydrogen and fuel cells may not befar from commercialisation.Meanwhile, greater access tocleaner burning fuels like keroseneand liquid petroleum gas could, inthe short term, reduce the healthburden in developing countryhomes while taking some of thepressure off important ecosystemslike forests.

Indoor air pollution may be responsible forup to 2.4 million premature deaths annually

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The role of renewablesHowever, some of the greatestpotential yet to be harvested lies inthe field of renewables. Rather likethe way mobile phones haveleapfrogged the installation oflandlines in many developing nationsand countries in transition, so windand solar power can be rapidlydeployed into rural areas without theneed for an expensive grid.

Renewables can be small, servinga house or a community, or they canbe big. Only some weeks ago, planswere outlined for Europe’s biggeston-shore wind farm, in Scotland. The322-megawatt, 140-turbine Whiteleeproject south of Glasgow will provideenough green energy to power200,000 homes.

Close to 200 actions andcommitments to promote renewablesare underway or pledged as a resultof the Renewable Energiesconference held in Bonn, Germany,two years ago, which may lead tointernational cuts in carbon dioxideof around 5 per cent. A report cardon progress was issued only someweeks ago in early June.

We can also ‘think big’. Someresearchers and industry expertsclaim there is enough sunlight hittingthe world’s deserts to generateenough electricity for the world manytimes over.

UNEP is also in a group, withfunding from the Global EnvironmentFacility, to try and exploit the vast ‘hotrock’ or geothermal potential of EastAfrica’s rift valley. This really is a livingexample of energy security. The supplyis renewable and, being indigenous,could massively reduce fossil fuelimports. Indeed, it is estimated thatAfrica has some 7,000mw of untappedgeothermal energy.

Climate securityThe benefits extend beyond fightingpoverty, reducing ill health and airpollution, to confronting one of thebiggest threats facing the planet,namely climate change. Only someoneliving on Mars could be unaware of theprofound changes now sweeping theplanet, from the melting of the Arcticice to the growing frequency andintensity of weather events. Accordingto Munich Re, one of the world’sbiggest re-insurers and a companywhose business is in the front line,weather-related natural disasters costmore than US$200 billion in 2005.

The costs of inaction will withoutdoubt continue to rise, damaging richand poor economies alike and makethe prospect of meeting the interna-tionally agreed MillenniumDevelopment Goals far less certain.

Fortunately, energy security and thewider issue of climate security can and

are starting to step out hand in hand.Indeed we have, maybe for the firsttime ever, extraordinary opportunitiesto bring together long-term economicand political imperatives withenvironmental and social ones.

Under the Kyoto Protocol, the legallybinding international treaty designed toreduce greenhouse gas emissions, theso-called ‘flexible mechanisms’ arebeginning to burst into life. Only someweeks ago it was announced thatenergy projects from the CleanDevelopment Mechanism (CDM) – afund that allows industrialised nationsto offset emissions via clean energyand some kinds of forestry schemes indeveloping countries – had reachedover US$2.5 billion in 2005. Theglobal carbon market, including theCDM and emissions trading, nowstands at US$11 billion.

The United States, which decidednot to ratify the Kyoto Protocol, is far

Some experts claim there is enough sunlighthitting the world’s deserts to generate enough

electricity for the world many times over

Environment Environmental security

CDM covers planting new trees butdoes not benefit countries protectingtheir standing forests. Bringingreductions in the deforestation ratesof standing forests into the equationcould not only reduce climate-relatedemissions, but also provide much-needed funds for conservation andlocal livelihoods. IPAM, a Brazilianresearch agency, estimates that Brazilcould earn US$500 million a yearfrom carbon credits, if standingforests were included. Reducingdeforestation would also trigger otherwide-ranging benefits, especially forthe poor and those committed tomeeting the Millennium DevelopmentGoals (MDGs).

Health security andenvironmental degradationInfectious diseases need to be tackledby making drugs and health care morewidely available but increasingly we areunderstanding that the environmenthas a vital role. Studies in the Amazonby researchers at Johns HopkinsUniversity in the United States haveconcluded that for every 1 per centincrease in deforestation, there is an 8per cent increase in the number ofmalaria-carrying mosquitoes.

Nipha virus is another case in point.It was, until recently, only normallyfound in Asian fruit bats. Itsemergence in the late 1990s as anoften-fatal disease in humans is beinglinked with a combination of forestfires in Sumatra and the clearance ofnatural forests in Malaysia for palmplantations. Bats, searching for fruit,were forced into closer contact withdomestic pigs, giving the virus itschance to spread to humans viapeople handling swine.

Close contact of wild birds andpoultry species is believed to be amajor cause behind the spread ofavian influenza. So restoring lostand degraded wetlands would seemlike a good insurance policy to keepthe two apart, as well asrehabilitating natural flood controlfeatures and water storage sites.Indeed, maybe the next G8 Summitcan focus on water security asanother stepping stone to tacklingthe overarching and fundamentalthreat to all life and livelihoods –environmental degradation.

All these issues – from energysecurity and climate security, to waterand health security – are ultimatelyjust part of a far wider issue not onlyfor this but for generations to come,namely environmental security.

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from idle. The Federal Government isencouraging technologies like solarpower and, as mentioned, clean coaland hydrogen. Numerous Americancities and individual states have or areplanning to adopt Kyoto-style emissionreduction targets.

We are up and running. Now weneed to sprint towards the evendeeper cuts needed to stabilise theatmosphere and avert catastrophicclimate change.

We must also consider newinitiatives like those proposed by ninerainforest countries led by Papua NewGuinea and Costa Rica. Deforestationin the tropics may account for a fifthof greenhouse gas emissions. The

Reducing deforestation would alsotrigger other wide-ranging benefits

Saving the rainforest: tree planting in Costa Rica

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Global health: building on success

Richard G.A. Feachem, Executive Director,The Global Fund to Fight AIDS, Tuberculosis and Malaria

Infectious diseases like AIDS, malaria and TB inflict a terrible human toll and economiccosts. With the threat of pandemics presenting another challenge to health care systems,

G8 leaders have a crucial role to play in mobilising effective action on a global scale

© Dieter Telemans / Panos Pictures

Malaria can now be drivenback with startling effectiveness

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Human development Health

At its summit in Okinawa in 2000,the leaders of the G8 agreed thathealth is a central prerequisite for economic development. Theyundertook to fight the maininfectious diseases that perpetuatepoverty, reduce productivity anddissuade investments in developingcountries, setting ambitious targetsfor this battle.

Progress is being madeSix years on, the G8 have proventhat they take these commitmentsseriously. Financing for AIDS alonehas grown from roughly US$1.8billion a year in 2001 to more thanUS$8 billion currently, through thepersonal commitment of politicalleaders like Prime Minister Blair,President Chirac and PresidentBush. Universal access toprevention and treatment for AIDShas turned from a distant dream in2000 to a reachable target, set for2010, which the G8 committed to atlast year’s summit at Gleneagles.Malaria, once considered apermanent menace in large parts ofthe tropical world, can now bedriven back with startlingeffectiveness thanks to new drugsand systematic preventive actions.And there is an agreed, globalstrategy on how to tackle and driveback tuberculosis.

As a concrete manifestation oftheir commitment, the G8 countrieslaunched (and have, together withother nations, consistently financed)the Global Fund to Fight AIDS,Tuberculosis and Malaria, which inless than five years has committedmore than US$5.4 billion toprogrammes in 130 countries.Through Global Fund-supportedprogrammes, more than half amillion people have been put ontreatment for AIDS, nearly 1.5million people have completedtreatment for tuberculosis, and morethan 11 million families have beengiven a bed net to protect theirchildren against malaria. Tens of

millions of people have beenreached with AIDS preventionservices, testing and other care.

The incident of the appearance ofthe virus known as SARS in 2003demonstrated to the world thepotentially catastrophic globaleconomic impact of infectiousdiseases. Greater recognition of thistruth has driven countries aroundthe world to take substantial pre-emptive action to protect theirpopulations and economies from apossible influenza pandemic.

Eastern Europe, Russia and Central AsiaHowever, while the possible economicdevastation of slower-movingepidemics is harder to assess, thetuberculosis crisis and growing AIDSproblem in parts of Eastern Europeand Central Asia have finally beenrecognised for the tremendous threat

they pose to the growing economiesof these countries. Russia, alreadyfacing a declining population from ill-health and high rates of accidents, isnow starting to scale up its battleagainst its fledgling – but rapidlygrowing – AIDS epidemic and itsserious crisis of highly lethaltuberculosis strains resistant to all buta few expensive drugs.

Global Fund grants worth morethan US$300 million to Russia, andanother US$400 million to the rest ofEastern Europe and Central Asia,have catalysed an effective responseto these threats. The government ofRussia is now investing substantialresources of its own to further scaleup these activities and may succeedin stemming both the AIDS and thetuberculosis epidemics before theytake on catastrophic proportions.Similar efforts are made by othergovernments in the region.

© Caroline Penn / Panos Pictures

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Committing resourcesThe high stakes of fighting thesepandemics have set the tone for theG8 Summit in St Petersburg thisyear. The current spectre of ahuman flu pandemic is highlightingthe fact that the battle against globalpandemics is a major globalconcern, which can only beeffectively addressed throughcollective action led by the G8.

However, the most difficultchallenge in the years to come willbe to ensure a growing, sustainableand predictable flow of resources tocontinue the fight and build on theresults already achieved. Collectively,

the world community has made alife-long commitment to hundreds ofthousands of people around theworld by helping provide AIDStreatment for them – treatmentwhich will have to continue for aslong as they live; hopefully we willmake similar commitments tomillions more in the years to come.But that commitment means thatfunding must continue to flow foranother ten, 20, and probably 30years. Halting that funding – andtherefore treatment – is unthinkable.

The predictability of that finance isequally critical. As the number ofpeople on treatment grows,

countries will be understandablyanxious about variable aid flows. Asudden shift in donor priorities couldleave a nation unable to continuetreatment for thousands of itscitizens. Forced to take account ofthis possibility, budget andprogramme planning may beaccordingly distorted.

Over the past five years, thegenerosity of donor governments hasenabled the Global Fund to growrapidly into the force it is today. Butthat funding has been committed onan annual, ad hoc basis, limitingany possible mid- or long-termfinancial planning.

The current spectre of a human flupandemic can only be effectively addressed

through collective action led by the G8

© Crispin Hughes / Panos Pictures

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This is a formidable challenge. Butthere have recently been somepromising signs. The Global Alliancefor Vaccines and Immunization isputting in place a system of long-termfinancial commitments, which providesrecipients with reassurances of fundingfor at least ten years. And the recentUK pledge for global education is alsoextended over ten years. But, ingeneral, much more must be done toextend the predictability of overseasdevelopment assistance (ODA).

The innovative finance mechanismsthat have recently been launched,such as the International FinancingFacility and the international airlinesolidarity levy, offer a promisingcomplement to traditional developmentassistance. Several private sectorinitiatives also carry the promise ofincreasing resources available to fightthese long-term global heath threats.

Willing the meansThe G8 must now recognise thateven the substantial amountsrequired over the coming years tohalt the pandemics are prudentinvestments in future globaleconomic growth, socialdevelopment and equity. Theirleadership both in committing and instimulating long-term commitmentsof resources at an increasinglyambitious scale is essential forsustaining and further expanding theremarkable progress in the effortthey began six years ago.

Funding has been committed on anannual, ad hoc basis, limiting any possible

mid- or long-term financial planning

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Statement of G8 Health Ministers

Moscow, 28 April 2006

The G8 has a central role to play in co-ordinating the internationaloffensive against communicable diseases, and in preparing for, and

preventing, pandemics of avian and human influenza

1. We, G8 Health Ministers met, forthe very first time, in Moscow, on 28April 2006, during Russia’sPresidency of the G8 in 2006, toaddress threats to public health andto discuss the highest priorities forco-operation in our mutual efforts to

combat communicable diseases andprotect human health. We arepleased that as usual at G8meetings, the European Union joinedus and that Health Ministers fromBrazil, China, India, Mexico andSouth Africa, and representatives of

the World Health Organization(WHO), the United Nations JointProgramme on HIV/AIDS (UNAIDS),the Global Fund to Fight AIDS,Tuberculosis and Malaria and theWorld Bank joined us for a part ofour discussion.

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2. We welcomed the decision toinclude the prevention and control ofcommunicable diseases on theagenda of the G8 Leaders’ Summitin St Petersburg.

3. We recognise that ongoingepidemics of communicable diseaseshave a heavy socio-economic impactin addition to the burden they placeon health systems.

4. Risks associated with pandemicsand newly emerging infections stillexist. It is extremely important tostrengthen communicable diseaseglobal surveillance, detection andidentification in terms of global publichealth. We recognise that improvingthe health of populations bystrengthening health systems,including improved human resourcemanagement, enhancing the qualityof health care, supporting research

and development, providing access topreventive interventions andtreatment, is one of the crucialrequirements for achieving theMillennium Development Goals.

5. In this regard we commend thework of the WHO in tackling globalhealth issues from all perspectives,including the issues surrounding healthworkers as published in the WorldHealth Report 2006.

6. We note with grave concern thatmillions of children die annually andhalf of these deaths are aconsequence of communicablediseases, which require prevention andspecific treatment.

7. We recognise that improving donorco-ordination will enhance internationalaid effectiveness to support the fightagainst communicable diseases.

8. We noted with concern theincreasing spread of highlypathogenic avian influenza. Wediscussed the possible developmentof a human influenza pandemic thatcould severely affect all countries ofthe world.

We believe that priority effortsshould focus on the early detectionand control of the H5N1 strain ofavian influenza at its source as wellas on the prevention of andpreparedness for a potential humaninfluenza pandemic.

We recognise the importance ofpandemic preparedness andprevention through the provision oftreatment means, communicationsstrategies, public awarenesscampaigns, close co-ordinationbetween veterinary and public healthauthorities, support for and co-operation in research activities anddevelopment of new technologies

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and new means of treatment. Wewelcome and support the globalearly warning system co-ordinatedjointly by the WHO, the UN Foodand Agricultural Organization (FAO)and the World Organization forAnimal Health (OIE).

In order to prevent or delayoccurrence of a human influenzapandemic, we should develop ourcapacities for early detection andcontainment of an outbreak of thehuman-to-human infection onnational, cross border, regional andinternational level as recommendedat the Conference held in Tokyo on12-13 January 2006.

We believe the revised InternationalHealth Regulations (IHRs), is an

important instrument for developmentof core capacities, the exchange ofepidemiologic information, quickmutual response and consultations toprevent the pandemic.

Because the universal applicationof the IHRs will be beneficial to theworld we support their earlyvoluntary implementation bycountries and we are lookingforward to seeing this documentintroduced into practice very soon.

In conformity with the IHRs weare committed to closely co-operatewith each other and with relevantinternational organisations inencouraging provision of promptand transparent exchange ofinformation about and, in

accordance with national andinternational procedures, samplesof novel influenza strains withpandemic potential.

We reaffirm our support andcommitment to use the WHO-administered Global Outbreak Alertand Response Network.

We will continue to develop ourpreparedness for a pandemic,including risk communicationstrategies, medical and publichealth services, research anddevelopment of new technologiesincluding vaccines and new meansof treatment. We will shareinformation on our pandemicpreparedness plans. We encouragethe development of research andtechnical co-operation withcountries that need strengthening oftheir public health systems,including strengthening laboratoryand health human resourcecapacity to combat influenza.

We welcome the commitmentgiven by the Russian Federationboth to increase the capacity ofpublic health systems in CentralAsia and to develop collaborationamong the public health authoritiesof this region.

We welcome the political andfinancial commitments made at theBeijing Pledging Conference of 17 and 18 January 2006 and arelooking forward to follow-up reportsby the World Bank and action to bediscussed and decided upon at theInternational Partnership on Avianand Pandemic Influenza (IPAPI)/European Union (EU) Vienna seniorofficials’ meeting on avian andhuman pandemic influenza on 6-7 June 2006 open to anyinterested countries and relevantinternational organisations.

We recognise the leading role ofthe WHO, FAO, OIE, the role of theUN System Influenza CoordinationOffice (UNSIC) and internationalfinancial institutions in addressingthese global threats and commitourselves to support this work.

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9. HIV/AIDS, tuberculosis and malariaremain a major threat to globalprogress, development and securitythroughout the world.

At last year’s Gleneagles Summitfocused on Africa, our leaders agreedto work with WHO, UNAIDS and otherbodies to develop and implement apackage for HIV prevention, treatmentand care, with the aim of as close aspossible to universal access totreatment for all those who need it by2010. We call on the UNAIDS and itsco-sponsors to provide reports andupdates on global progress towards thisgoal. We look forward to discussions bythe Africa Partnership Forum onmeans to advance objectives onHIV/AIDS, and stand ready to assist inimplementation, as appropriate.

We look forward to the UN GeneralAssembly Review and High LevelMeeting on HIV/AIDS, 31 May to 2June, in follow-up to the 2001 SpecialSession and the Declaration ofCommitment, which we expect will givean additional impetus to internationalefforts to fight HIV/AIDS.

We take note of cominginternational events to advance theefforts to fight HIV/AIDS, including theSummit of African Heads of State andGovernment on HIV/AIDS, TB andMalaria (Abuja, Nigeria, May), theConference on HIV/AIDS in EasternEurope and Central Asia (Moscow, theRussian Federation, May), and the16th International AIDS Conference(Toronto, Canada, August).

We support the STOP-TBpartnership’s Global Plan, 2006-2015,which is underpinned by the newSTOP-TB strategy of WHO, which alsoincludes measures against TB/HIV co-epidemic and the serious threat ofmultidrug-resistant TB.

Malaria remains a major problemin many areas of the world. We willcontinue to support effectiveinterventions and we consider theemergence of drug resistance to be aconcern. We welcome the Roll BackMalaria Partnership of the WHO,UNICEF, the World Bank and otherinternational organisations.

We support the efforts of WHO,

UNAIDS, the World Bank and theGlobal Fund to Fight AIDS,Tuberculosis and Malaria, incollaboration with civil society, theprivate sector and governments incombating these diseases.

We recognise the need to mobiliseresources, both financial andhuman, domestically and interna-tionally, to support the fight againstthese diseases, through a variety ofmeans, including traditionaldevelopment assistance, andinnovative financing mechanismsdesigned to raise revenue from non-traditional sources, which promoteinvestment in the development andproduction and better accessibility ofdrugs, vaccines and microbicidesagainst HIV/AIDS, TB, malaria andother diseases. We note progress inimplementing the Sea Islandcommitment to establish a GlobalHIV Vaccine Enterprise. Weemphasise the critical need forcontinued financing through theGlobal Fund to Fight AIDS,Tuberculosis and Malaria.

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12. We are convinced that researchand development, including those inthe field of prevention and treatment ofcommunicable diseases, is an integralpart of comprehensive measures tocontrol infections. In this connection,we intend to continue to collaborate onbilateral and multilateral levels with thepublic and private sectors and toinvolve developing countries in theirefforts to develop their science andtechnology capacity.

13. In the modern world, theproblems caused by communicablediseases cannot be solved only inindividual countries or regions. Weagree that bridging the gap in levelsof capacity, for example inresearch, human resources, anddevelopment of health systems inall countries is an importantelement in ensuring substantialprogress to the control ofcommunicable diseases worldwide.

Human developmentHealth

10. We reaffirm our determination tosupport the Global Polio EradicationInitiative. There are sound reasons tobelieve that as a result ofunprecedented measures taken bythe international community we arenow, as estimated by the WHO, at thethreshold of eradicating this disease.We will continue to work with bilateraland multilateral institutions and otherstakeholders towards reaching thegoal of declaring the planet polio-freein the near future.

With the achievement of eradicationwe encourage WHO to explore thefeasibility of extending the PolioSurveillance Network to enhancesurveillance for other communicablediseases of public health importance.

11. The frequency and severity ofnatural and man-made disasters is aglobal concern. These disasters havefar reaching and long lasting impactson the overall health of affectedpopulations, their health care andpublic health systems and economies.

These impacts can be mitigatedsignificantly through improving co-ordination of institutions andorganisations that work for the healthcomponents of the short-terminternational relief efforts.

We recognise the importance ofeffective co-ordination between thebodies established within the UNsystem such as the WHO, the UNHigh Commission on Refugees, theUN Office for Coordination ofHumanitarian Affairs to ensure thatefficient and effective systems can berapidly deployed and co-ordinated tomanage relief efforts, includingimproved health action in crisis.

Natural disasters have a long-term impact on public health

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Building human capital:an inclusive charter for

economic growthFrannie Léautier, World Bank Vice-President for the World Bank Institute

More than ever, the wealth of nations depends on effective education and training. That means much stronger partnerships between education systems, business and government

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Human development Education

The forces of globalisation andtechnological advance have spurred a revolution in the production,transmission, exchange, andapplication of knowledge. Gone arethe clear lines dividing school, factory,lab, boardroom and ministry; gone thedistinction between one’s time inschool and one’s time at work, andeven between one’s time at work andone’s time at home. In this century,the countries that derive the mostfrom globalisation will be those inwhich the systems of education,business and government can co-operate synergistically to educate,train, and put to work the humancapital – the people – whose talentsmake the wealth of nations. Countriesthat can do this while also providing ahigh quality of life for their citizens willbe even further ahead.

Nations that fall short of thenecessary co-ordination of thosethree formerly separate spheres willnot derive the full benefits from thetrading opportunities created byglobalisation and technologicalinnovation. They will not benefit fromthe spillovers, linkages andmultipliers that have always resultedfrom prescient investment ineducation. They will always remainon the receiving end of innovationgenerated elsewhere.

Trade, technology and knowledgeImprovements in transportation andcommunications have shrunk the timeit takes to learn, conceive, design,produce, sell and consume. Thatcontraction of product cycles andsupply chains defines globalisationand competition in the world today,where trade now represents some 60per cent of GDP, up from less than 40per cent just 15 years ago.

The dynamic process of innovatingin one place, manufacturing inanother and selling in a third hasbrought with it constant restructuringat the global, country and companylevels, creating tremendousopportunities for enhancing growthand competitiveness, but alsoaccentuating the risk that a participantwill fall behind if it cannot keep upwith the pace of rapid change.Countries’ competitiveness dependsmore than ever on their ability toaccess, adapt, use and createknowledge – just in time.

Knowledge embedded in societies,in culture and norms, in processesand technologies – even theknowledge of how to governpeacefully – has always played animportant role in the development ofcountries. Today it is more importantthan ever.

Why? Because highly skilled workers arethe currency of the newinternational system of wealthcreation, and educational systemsthe new mints. When combinedwith visionaries in public life(champions, leaders) and in privatelife (entrepreneurs), highly skilledworkers have the gift of King Midas:what they touch turns to gold.

Leaders and entrepreneurs maybe born; but most other highlyskilled workers – the people most indemand in the technology-intensivesectors that set the pace for worldgrowth – must be educated. Inschool first, then at university, intheir homeland or abroad, oftenwith the benefit of some form ofpublic subsidy. Their educationcontinues in the firms that hirethem. They are mobile, moving tofind the best education, the bestjob, the best outlet for their skills.

Low-skilled workers also migrate,seeking opportunities in wealthiercountries for a better life forthemselves and their families.

Eventually many who migratedream of going home or investing intheir home country, and manyrealise that dream if opportunitiesare open to them (see box below).

Strengthening education for the

What goes around comes around –‘brain circulation’Through ‘brain circulation’, a synthesis of the older notionsof brain drain and gain, emigrant diasporas arecontributing to the development of their home countries.Governments in the countries of origin and of naturalisationof these groups of successful transplants are well advisedto co-operate to promote ‘brain circulation networks’ thatenable expatriate talent to benefit the country of originwithout returning permanently to live there. Because theyknow their home countries, diaspora members have abuilt-in ability to mitigate risk. Personal trust amongmembers of cross-border investor networks furtherreduces transaction costs. Already clear from theexperience of China, India, Israel, Korea and Taiwan,the rewards of such programmes are now being

extended to highly skilled scientists, engineers andtechnicians born in other countries.

Middle-income economies such as Argentina, Chileand Mexico recently have begun attempts to establishtheir own brain circulation networks. Their skills baseabroad is not as massive as those of China, India or evenKorea. But establishing vibrant brain circulation networksis not a numbers game. What counts is the dedication ofa few influential and successful professionals abroad,coupled with the willingness of their home countries toteam up with such professionals on long-termdemonstration projects.

Source: Yevgeny Kuznetsov, Senior Economist, Knowledge for Development Program, World Bank Institute.ykuznetsov@worldbank.org

Highly skilled workers are the currency of thenew international system of wealth creation, and

educational systems the new mints

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knowledge economy implies buildinghigher-level skills to compete inglobal markets. But there is no‘cookie cutter’ approach that can beuniformly applied across countries.Successful education systems varywidely: their management may becentralised or decentralised, andprovision may be public or private.No single education model suitsevery country or region of a country.1

However they may beinstitutionalised, strategies for investingin education, training and know-howneed to be highly discerning if thedesired impact on growth is to beachieved. It is crucial to link efforts todevelop education with other sectors ofthe economy, because investments ineducation and the generation ofeconomically relevant knowledge, skillsand competencies give rise to a widerange of non-economic benefits – suchas improvements in public health,parenting and communityparticipation.

Learning: a lifelong commitmentHuman capital is created in diversecontexts, in the family and home, incommunities, in the workplace, andin schools. With rapid technologicalchange, it now must be nourishedthrough lifelong learning as well. Alifelong learning system is one thatencompasses learning from earlychildhood to retirement andincludes formal training (schools,training institutions and universities)and informal learning (on-the-jobtraining and skills learned fromfamily members or people in thecommunity).

To build an effective system oflifelong learning, countries will needto make significant changes in thepresent design, financing andgovernance of education andtraining. In the new matrix,governments are no longer likely tobe the main provider of education,particularly at the post-secondarystages, but they are likely to be the

architects and facilitators of acomplex system characterised bymultiple pathways to education,multiple providers and many non-traditional groups of consumers.

To fulfil its new role, thegovernment must set the rules of thegame, develop effective partnershipswith non-governmental players,create a space in which the diversityof ideas is brought to bear ondecision-making, and promotepolicies and regulatory frameworksthat favour lifelong learning by:• opening career pathways forworking adults and the unemployed;• catering to lifelong learners of allages, including apprentices;• building modularity into academicand vocational education andtraining, and ensuring that certifiedcredits can be transferable withinand across borders;• ensuring transparency in standardsfor assessment of competency andqualification;• working with the private sector andother players to provide transparent,timely and accurate information onthe changing market for humancapital; and• providing incentives for privatesector investment in education andtraining at all stages of the lifelonglearning path.

A lifelong learning system isone that encompasses learning

from early childhood to retirement

Knowledge management in company and nationIndividuals and societies must learnhow to learn so that they can beready for the next series ofchallenges. In response to thepressure of competition, corporations,governments and nonprofits seekways to amplify the value of their ownknowledge. Much of this focus on‘knowledge management’ (KM) hasbeen on the technical dimensions ofcodifying, capturing, and makingknowledge available to employeeswho need it, such as throughcommunities of practice (see box).

Communities of practice: a delicate balanceOne of the most promisingapproaches to building individualcapacity and leveraging the skills ofa group of individuals is the use ofcommunities of practice (COPs).COPs are informal groups ofprofessionals that get together(perhaps virtually) to learn fromeach other. They form naturally asemployees seek out others withsimilar experience who can helpthem to solve problems anddevelop new and better approachesto their common tasks.

Accountants talk to accountants,engineers talk to engineers, even ifthey do not work in the samedepartment: they find each other.The central challenge of COPs isthat they do not like to be overlymanaged. If the natural desire forpeer learning is obstructed by rigidrequirements, it will die.Therefore, management muststrike a delicate balance betweenencouraging their employees toform and make use of COPs, whilealso ensuring that the work ofCOPs is contributing toorganisational objectives.

Human development Education

Individuals and societies must learn how to learn so that they can beready for the next series of challenges

Bristol-Myers Squibb has been at thecutting edge of using KM practices toimprove efficiency, encourageinnovation and shape workenvironments from which new ideasare likely to emerge. By applyinginteractive tools, establishingnetworks for employees facing similarchallenges and rewarding the sharingof knowledge, the company haseliminated redundancy, improvedmorale and brought products tomarket faster – while realising majorreturns on investment. Once thoughtof as a fad that would die off,knowledge management has becomea core competency for firms in aglobalised world.

Digital capacity is another key area.Microsoft is promoting digital inclusionaround the world, working withgovernments, industry leaders, andcommunity organisations to offer skills

training, ranging from basic computerskills to the most advancedprofessional training and certifications.By 2010, through innovativetechnologies and partnerships,Microsoft plans to provide ICT trainingto a quarter of a billion peoplepreviously underserved by technology.

You cannot participate in theknowledge economy if you areilliterate. In India, illiteracy is beingtackled at low cost. The computer-based functional literacy programme(CBFL), initiated by the Tata Group,uses a mixture of methods –teaching software, multimediapresentations, and printed materials– to teach people to read in afraction of the time required byconventional means. CBFL teachesstudents a 300-500 word vocabularyin 30 to 45 hours, setting them onthe path to acquiring other literacy

skills, including writing andarithmetic ability.

From person-to-person networks tonetwork-to-network supra-networks:working with the US Agency forInternational Development, theUnited Nations DevelopmentProgramme, and the JapaneseInternational Cooperation Agency,Cisco Systems has extended its USprogramme of Networking Academiesto venues in Africa and Asia. Thepartnership now brings sophisticatedIT and network management skills to200 locations in 41 countries tocreate employment and fill worldwidedemand for an estimated 2 millionskilled computer network operationsand management professionals. Eachacademy builds an alliance with localpartners, expanding its potential tocreate jobs and promote businessdevelopment.2

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productive. For that reason, nationaleducation authorities should tear apage from the corporate book andbegin mainstreaming knowledgemanagement principles in nationaleducation systems. To become aknowledge economy, countriesshould consider forming inclusivepartnerships – uniting government,business, education and civil society– to make the best possible use ofthe skills and talent available tothem. They also must strive todevelop, attract and retain moretalent – by providing a peaceful,secure and inclusive society thatpromotes creativity; by fosteringcompetition to allow new skills toemerge; by rewarding teamwork inthe workplace; and by providingopportunities for lifelong learning.

1 See World Development Report 2004 –Making Services Work for Poor People,chapter 7, “Basic Education Services”(World Bank, 2004). 2 Source for Cisco Academies and CIPA:The Global Development Alliance:Public–Private Alliances forTransformational Development (USAID, 2006).3 See Cities in a Globalizing World:Governance, Performance, andSustainability, chapter 3, “Globalization andUrban Performance” (World Bank, 2006).

WBI’s Knowledge for Development ProgrammeThe World Bank Institute’s Knowledge for DevelopmentProgramme (K4D) helps countries to access and useknowledge to strengthen their competitiveness. TheProgramme works with World Bank clients to design anddevelop knowledge strategies in domains that includethe economic and institutional regime, education,innovation and ICTs.

Noteworthy recent activities include the launch of amajor knowledge economy report on India*, as well aswork on lifelong learning in China and policy studies onMexico, Slovakia and Tanzania.

K4D’s web-based benchmarking tool, the Knowledge

Assessment Methodology (KAM, www.worldbank.org/kam),helps countries contemplating the transition to theknowledge economy to compare themselves withneighbours and competitors. The KAM consists of a setof 80 structural and qualitative variables that serve asproxies for the elements critical to the development of aknowledge economy. The comparison has beenundertaken for 128 countries, among them most of thedeveloped OECD economies and more than 90developing countries.

* Carl Dahlman, Anuja Utz, India and the Knowledge Economy:Leveraging Strengths and Opportunities (World Bank, 2005).

Mobile degree programmes. One ofthe most important advances in theuse of technology for education isthe rapid expansion of access tohigh-quality university degrees andprofessional certification, regardlessof location. For example, theAssociation of Chartered CertifiedAccountants, based in London,offers ‘e-qualifications’ for anyoneinterested in developing theirprofessional skills in accountancy.

Exporting integrity. In Russia,Ukraine, Kyrgyzstan and Kazakhstan,an alliance of non-governmentalaccounting organisations and officialaid donors is helping to ensure thebusiness integrity needed forinternational investment, economicgrowth and government budgetmanagement. The CertifiedInternational Professional Accountant(CIPA) Alliance began byimplementing internationally certifiedaccounting programmes inKazakhstan, Kyrgyzstan and Ukraine –since expanded to Russia and easternand central Europe. When the former

Soviet Union began its transition to amarket system, concepts such astracking finances and budgets,depreciation and other internationalaccounting practices were virtuallyunknown. Continued use of Soviet-eraaccounting principles and a lack ofprofessionals skilled in internationalaccounting principles were cripplingthe growth of successful enterprisesand regional employment,discouraging foreign investment andslowing the region’s integration intothe global economic community. CIPAaims to change that.

Becoming a knowledge economyGood governance and quality of lifeare intricately linked3. A high level ofhuman capital contributes not onlyto economic growth in knowledge-based economies, but also topeople’s ability to participate in theirown development. Educating bettercitizens – citizens who know thevalue of being informed and how togather information – is at least asimportant as making workers more

Human development Education

To become a knowledge economy, countriesshould consider forming inclusive

partnerships to make the best possible use ofthe skills and talent available to them

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Securing the futurethrough education

Ruth Kagia, Education Director, World Bank

G8 leaders need to take action on a number of fronts if the world is to meet the targets set at Gleneagles, Kananaskis and Monterrey

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Galvanising international action to strengtheneducation, especially in low-income countries, is

not just morally right, it is also good business

As countries everywhere, rich andpoor, strive to improve the welfare oftheir citizens, they are turning to education as a cornerstone of theirstrategy. However, this is not new.Education is a bedrock of social andeconomic transformation: it is acritical complement to technologicaladvance and is closely associatedwith the rise in living standardssince 1960. What is new, however,is the seismic change being causedby the complex interplay betweeneducation, knowledge, technologyand skills.

The first change is a fundamentalshift in the core drivers of economicgrowth. Fifty years ago,competitiveness and prosperity weredriven by access to naturalresources and abundance of labour.Today, the prosperity of a nationdepends on how effectively it uses itshuman resources to raiseproductivity and nurture innovation(see article by Frannie Léautier, page74). Second, the explosion ofknowledge, coupled with the globalmovement of ideas, makes itimpossible fully to anticipate thenature of future innovations or wageron which countries will be thetechnological or economic leaders oftomorrow. And third, the surge inglobal interconnectivity makes itpossible for successful firms to tapinto the best human resourcesavailable anywhere in the world, butit also means that actions by onenation can affect the lives of others,thousands of miles away.

Education is key to creating,adapting and spreading knowledge.The spread of literacy progressivelybroadened people’s horizons,bringing in its wake religious, socialand political revolutions across

Europe and Asia which underpinmuch of the political and economicsystems of these regions to this day.Gone are the pre-printing press dayswhen monks and priests were theonly gatekeepers of information andknowledge; we have passed out ofthe age of the tenth century GrandVizier of Persia, Abdul KassemIsmael, who would carry his entirelibrary of 117,000 books on his 400alphabetised camels.

The sheer explosion of knowledgeand the speed at which it travels hasmade it impossible to control ideas, orto memorise them. To create andspread knowledge, countries need todevelop teaching and learningenvironments that nurture enquiry,adaptability, problem solving andcommunication skills. But mastery ofthese skills is quite low in manycountries. For example, 17 per centand 8 per cent of fourth-grade studentsin Argentina and Morocco, respectively,demonstrated the skills needed torecognise and state relationshipsbetween clearly related sentences andto understand the overall message ofthe story (Progress in InternationalReading Literacy Study – PIRLS, 2001).

Education is also the most widelyaccepted way of improving the assetbase of the poor: it has been proventhat those with better education earnmore throughout their lives. It isestimated that a high school drop-out in the United States of Americaearns nearly US$260,000 less over alifetime and pays US$60,000 less intaxes (present value in currentdollars) compared to those whograduate. Educated men and womenalso participate more fully in the civicand political lives of theircommunities, a fact which ThomasJefferson was keenly aware of when

he wrote: “Whenever the people arewell informed, they can be trustedwith their own government.”

Female education is the wisestinvestment of all: it is inversely relatedto teenage pregnancy, child mortalityand morbidity. Each year, more than13 million girls aged 15-19 give birth,and every 60 seconds, six youngpeople under the age of 25 areinfected with HIV. Educating youngpeople through to the end of highschool would not only dramaticallyreduce the rate of teenage pregnancy,it would also realise education’spromise as one of the best ‘vaccines’against HIV/AIDS. But how can thecycle of pregnancy, HIV/AIDS andpoverty be broken when a child whowas five years old in 2003 can expectto receive more than 19 years ofeducation in Australia, Finland or theUnited Kingdom, while a five-year-oldfrom Mozambique, Mali or Cambodiacan expect to receive no more thanfive years?

Good quality education means asecure future for young people, whoare tomorrow’s global resources – yetthere are 100 million children (57million of whom are girls) of primaryschool age who are not in schoolbecause schools are either notavailable or the opportunity cost ofattending is too high.

In St Petersburg, G8 members haveyet another opportunity to followthrough on their 2005 Gleneaglescommitment to provide additionalresources for education to countriesthat are well governed. Though someG8 members have taken significantaction, the total response falls far shortof the promise. Although progress hasbeen made, not all children will enrolin school by 2015 without anintensification of efforts by all players.

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Education – a tide that lifts all boatsAt a recent press conference, UKChancellor Gordon Brown explainedthe rationale for a big push oneducation: “We shall be the firstgeneration in history to haveprovided education for all thechildren born in the world” (April2006). For the G8 and other worldleaders, galvanising internationalaction to strengthen education, in allcountries, especially in low-incomecountries, is not just morally right, itis also good business: it widens thepool of skills and innovation; itbroadens opportunities foremployment and wealth, therebystemming the flow of economicrefugees; it helps create free andopen societies and helps cultivateglobal peace. The meeting in StPetersburg, therefore, could helpbolster international efforts to createeducated and productive societies inseveral ways:

1. Strengthen the foundations forgrowth and further educationThe universal benefits of an educatedglobal society, and the potentiallycatastrophic costs of an expandingeducation gap, make it essential thatall countries achieve the Educationfor All (EFA) goal of primary schoolcompletion for all children by 2015.However, if current trends aremaintained, some 44 countries willnot achieve EFA. Achieving EFA willrequire strong country commitmentand leadership, as well as predictableand sustainable external assistance.This was the promise of Kananaskisand Monterrey and the basis onwhich the EFA Fast Track Initiative(FTI) was established in 2002.

FTI was created to increase aideffectiveness and accelerate progresstoward EFA by filling existing gaps infinancing, policy, data and capacity.FTI helps donors provide financial andtechnical support in a predictablemanner to countries either through

regular channels or through the FTITrust Funds. At the same time,developing countries are responsiblefor crafting and implementing crediblenational education plans andmaintaining commitment to goodgovernance. But FTI, and EFA moregenerally, remain grosslyunderfunded, mainly because thecountries that are furthest behind onEFA lack adequate technical andfinancial resources. Worldwideestimates indicate that between US$5-10 billion per year of externalfinancing would be required for basiceducation through 2015 for all low-income countries to achieve universalprimary education. Overall donorassistance for basic education in low-income countries has increasedsignificantly in the past three years,reaching over US$3 billion annually,but too much of it is in the form oftied aid or is not targeted to countriesand issues that are most deserving of support.

Chart 1: Education dynamic economies

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2. Create learning societies – beyond EFASecondary schooling is essential tospur development in the 21stcentury. The basic tools provided byprimary education are no longersufficient for people entering thelabour market. About 80 per cent ofthe fastest growing jobs of the futurewill require some post-secondaryeducation. Competitiveness willincreasingly depend on the capacityto tap into global pools of knowledgeand leverage the best humanresources available in the world, asdata on migration is beginning todemonstrate. The GlobalCommission on Migration estimatesthat in 2005 there were nearly 200million international migrants,including 9.2 million refugees.Nearly one in ten tertiary-educatedadults born in the developing worldreside in North America, Australia orWestern Europe and between a thirdand a half of the developing world’sscience and technology personnellive in the developed world.

Countries wishing to participate inthe evolving knowledge economymust invest in dynamic, holisticeducation systems, which beginwith early childhood developmentand basic education, through tosecondary and tertiary educationand on to lifelong learningopportunities. Such educationneeds to be located within thenation’s broader macroeconomicand social context and linked to arobust research and innovationframework. The chart (see page 82)presents these relationshipsgraphically.

3. Bolster excellence in education andestablish internationally comparableindicators of education quality Education, like industry, requireswell-defined performance standardsand effective tools for measuringoutcomes. Internationallycomparable indicators of excellencein post-basic education remainelusive even though the labourmarket is increasingly putting apremium on problem-solving skills,inter-sectoral skills, communicationand language skills, andinformation technology skills.International assessments such asPIRLS, and TIMSS (Trends inMathematics and Sciences Study)have been helpful in evaluating theextent to which national andtransnational goals are beingachieved. They are, however,limited to only a few countries andare not well suited to low-incomecountries. The G8 could usefullysupport the expansion of thegeographical coverage of suchsystems and capacity building inassessments for low-incomecountries.

World Bank and educationIt is against this backdrop that theWorld Bank supports education indeveloping countries. EFA ispremised on a two-pillar strategy ofbuilding the climate for investment,jobs and sustainable growth; andempowering poor people toparticipate in development.Education programmes are broad-based and holistic, covering alllevels of education, situated incountry context and focused onresults. The World Bank has aportfolio of US$8.4 billion in 144education projects in 86 countries.It transfers about US$2 billion ayear to support development andimplementation of policies andreforms, strengthen institutions andservice delivery, and expand quality.But it cannot do it alone. Its successlies in its partnerships with nationaland international stakeholders whohelp develop and implementimportant agendas such as the G8’seducation initiative of Kananaskis,which was built upon in Gleneagles,and which, it is hoped, will bestrengthened in St Petersburg.

Human development Education

Education, like industry, requires well-defined performance standards and

effective tools for measuring outcomes

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Partnerships: are we there yet?

Amir Dossal, Executive Director, United Nations Fund for International Partnerships

Creative public-private partnerships with business, foundations and NGOs are essential not only for traditional developmental priorities but also to

meet new challenges such as pandemics and global energy needs

“Creating wealth, which is business’s expertise, and promoting human security in the broadest sense, the UN’s main

concern, are mutually reinforcing goals. Thriving markets and human security go hand in hand. A world of hunger,

poverty and injustices is one in which markets, peace and freedom will never take root.”

UN Secretary-General Kofi Annan

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Partnerships are importantbecause no one government or

institution can go the distance alone

Since meeting at Gleneagles,member states of the G8 havewitnessed the rise of new globalchallenges and the intensification ofold ones. The Russian Federation isto be applauded for focusing onglobal energy security, infectiousdiseases and education at this year’ssummit, and for taking thisopportunity to witness the progressmade in leveraging governmentefforts to address these problemsthrough public-private partnershipswith business, foundations andNGOs. The constant striving todevelop new and strongerpartnerships, which leverage theresources, the expertise, and thecreativity of governments and civilsociety is particularly important in aglobal world where traditionalboundaries between what is seen aspublic versus private responsibilitybecome increasingly blurred.

Partnerships are importantbecause, as recent events haveunderscored, no one government orinstitution can go the distance alone.Partnerships need to be developedbetween governments, UN agencies,international financial institutions,bilateral development agencies, theprivate sector and civil society. Therise of old and potentially newpandemics and the new impetus tothink together about the linkbetween global energy needs,security and the environment, makeit incumbent on all of us –government leaders, policy makers,business people, global citizens – tothink large, to work aggressively, topartner creatively.

In recent years the United Nationshas increased its efforts to fosterpartnerships, recognising that theyhave become the new way ofencouraging sustainabledevelopment. The last decade haswitnessed the creation of numerousglobal initiatives, a number of whichhave been based on the public-

private partnerships platform.Increasingly, there is recognition thateconomic empowerment is the keyto development. ‘Wealth creation’and ‘poverty alleviation’ are the twosides of the same coin. The privatesector, and indeed the rest of civilsociety, has lots to offer – we canbenefit from its leadership skills aswell as from its expertise inmanagement and logistics and itsinfrastructure systems. At the sametime, the public sector can providean enabling environment forbusiness to prosper while alsomeeting its social responsibilities oflooking after its citizens.

Ted Turner’s visionary support ofUnited Nations causes has been aclear demonstration of how public-private partnerships can have amajor impact on internationaldevelopment. His extra budgetarycontributions have createdopportunities for innovativeprogramming and new ways ofalliance-building. This has allowednew partners to come forward tocollaborate with the United Nationssystem in support of collective globalaction. Since its establishment in1998, UNFIP’s partnership with TedTurner’s UN Foundation haschannelled over US$810 million intodevelopment programmes andactivities, working with 30-plus UNentities in 120 countries. Throughthe grant-making process, the UNFoundation and UNFIP have made ita priority to encourage inter-agencyand multi-agency co-operation at thecountry level, making it possible forgovernment ministries and civilsociety organisations in programmecountries to collaborate in new waysand improve the outcome of manyprogrammes and projects.

The following is a review of someof the most exemplary and effectivepartnership efforts on global issuesaffecting energy, health andeducation.

Childrens’ healthThe Global Polio Eradication Initiative– launched in 1988 andspearheaded by the World HealthOrganization (WHO), RotaryInternational, the US Centers forDisease Control and Prevention(CDC) and UNICEF – has reducedthe incidence of polio by more than99 per cent. The work of the poliopartnership to eradicate polio hasbeen guided by a series of multi-yearstrategic plans. The Global PolioEradication Initiative Strategic Plan2004-2008 outlines the key activitiesrequired to eradicate polio once andfor all. The four key objectives andmilestones include:• Interrupting polio virustransmission (2004-2005)• Achieving certification of globalpolio eradication (2006-2008)• Developing products for the GlobalOral Polio Vaccine (OPV) CessationPhase (2006-2008)• Mainstreaming the Global PolioEradication Strategy (2009 andbeyond).

Part of this success has been dueto an innovative financing solutionwhere UNF/UNFIP were able topromote the use of ‘buy-downs’ oflow-interest loans to generate grantsfrom the International DevelopmentAgency (IDA) of the World Bank toexpand resources available for thepolio effort. A buy-down converts aWorld Bank loan to polio-endemiccountries into a grant to purchasepolio vaccine for immunisations,enabling poor countries to addressimmediate polio eradication needswithout adding to their debt burden.

Through 2005, investments fromRotary International and a number ofother NGOs and foundations securedclose to US$1 billion for this effort.By the end of 2005, Egyptannounced the eradication of polioin the country and India andPakistan recorded their lowest levelsever of polio transmission.

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Unprecedented financial supportfrom long-standing and new donorsensured ongoing intensification oferadication activities in Africa andAsia. The challenge is now tomaintain political will in light of a

fading disease and ensure sufficientmulti-year funding commitments tohelp interrupt the final chains ofendemic transmission, to respondrapidly to outbreaks and prepare forthe post-eradication phase.

The Measles Initiative is apartnership formed to reducesustainably and control measlesdeaths. Launched in 2001, theMeasles Initiative plays an importantrole in providing technical andfinancial support to measles prioritycountries and strengthening politicaland social commitment in the fightagainst measles. In March 2006,WHO and UNICEF announced thatglobal measles deaths had droppedby 48 per cent from 871,000 in 1999to an estimated 454,000 in 2004.The largest reduction occurred insub-Saharan Africa, where estimatedmeasles cases and deaths droppedby 60 per cent. A key factorcontributing to progress in reducingmeasles deaths has been vaccinationefforts in over 40 countries.

The Measles Initiative isspearheaded by the American RedCross, Centers for Disease Controland Prevention (CDC), the UnitedNations Foundation, United NationsChildren Fund (UNICEF) and theWorld Health Organization (WHO).Other key partners include theGlobal Alliance for Vaccines andImmunization (GAVI), the Bill andMelinda Gates Foundation, VodafoneGroup Foundation, CanadianInternational Development Agency,Japanese International Agency forCooperation, UK Department forInternational Development,Norwegian Agency for DevelopmentCooperation, and the InternationalFederation of Red Cross and RedCrescent Societies.

In a related partnership, theUNICEF/WHO Global Plan forReducing Measles Mortality 2006-2010 sets a new ambitiousgoal of 90 per cent reduction inglobal measles deaths by the endof 2010. This goal is achievable butrequires additional financialresources. Over 80 per cent of theremaining measles disease burdenoccurs in just six countries: Nigeria,DR Congo, Ethiopia, India, Pakistanand Bangladesh.

We can benefit from the private sector’sleadership skills, expertise in management

and logistics, and infrastructure systems

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Helping to make adolescentgirls a global priorityOne in five people in the world areadolescents – the largest youthgeneration in the history of theworld at more than 1 billion strong,with 85 per cent of them living indeveloping countries.

With the rapid spread of theHIV/AIDS epidemic in Africa, youngmarried girls have become thegroup most vulnerable to infectionby older, sexually active husbands,and young women in Africa aged15-24 are two and a half timesmore likely to be infected thanyoung men of the same age.Therefore, reversing this trend andproviding protection for adolescentgirls is of critical importance. Toaddress this challenge, UNF andUNFIP are collaborating with UNagencies, the Nike Foundation, the

Domini Global Giving Fund, thePopulation Council, NGOs andothers to highlight the dangers ofchild marriage through a country-focused advocacy and servicesinitiative. As part of this initiative, inearly 2006, UNF sponsored a USCongressional staff trip to Ethiopiato showcase the work of the UnitedNations and the Ethiopiangovernment on child marriage.

This has been nothing short ofgroundbreaking, not only byunderscoring the needs andaspirations of this criticaldemographic cluster, but also inpromoting sustained attention andinteragency co-operation onadolescent girls at the UN. Inaddition to on-the-ground impact,the funding has helped strengthenpolicy guidance and encourage co-operation across UN agencies.

Education: investing in our futureThe United Nations Girls’ EducationInitiative (UNGEI) is a ten-yearsustained campaign to improve thequality and availability of girls’education through a collaborativepartnership of different entities withinand outside the United Nationssystem. Launched in April 2000 at theWorld Education Forum in Dakar byUnited Nations Secretary-General KofiAnnan, its goal was to narrow thegender gap in primary and secondaryeducation by 2005 and to ensure that,by 2015, all children complete primaryschooling, with girls and boys havingequal access to all levels of education.

UNGEI is a partnership thatembraces the United Nations system,governments, donor countries, non-governmental organisations, civilsociety, the private sector and

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communities and families. UNGEIprovides stakeholders with a platformfor action and galvanises their efforts toget girls into school.

The Initiative is designed tocontribute to the elimination of genderdiscrimination and gender disparity ineducation systems through action atglobal, national, district andcommunity levels. It brings togetherexisting resources at the country leveland uses them more efficiently andeffectively. The Initiative starts withcountries committing themselves totake action. It then focuses on areas ofintervention that are known to produceresults, are supported by aconsolidated effort of all developmentpartners, and build on good practiceand experience. www.ungei.org

Environment / climate change:hastening a new energy futureThe work of the United NationsFoundation/UNFIP with the UNEnvironment Programme (UNEP)helped design and deploy the AfricanRural Energy Enterprise Development(AREED) project. This project combinedsmall amounts of start-up capital withextensive business training to helpentrepreneurs create viable energyservice enterprises. More than 40enterprises have been funded inAfrica, Brazil and China. As a result ofthese initial successes, the SustainableEnergy Finance Initiative wasestablished to encourage the financialcommunity to expand financingefficient models of clean energydevelopment. UNF/UNFIP madepossible the creation of a highlysuccessful Institutional InvestorsSummit on Climate Change. Summitsin 2003 and 2005 convened membersof the financial community at the UNto examine the investment risks andopportunities presented by globalwarming. At the 2005 Summit,institutional investors representingUS$3 trillion in assets issued a ten-point plan on disclosure of climaterisks, and pledged to invest US$1billion in clean energy technologies.

Peace, security and human rightsIn early 2005, 16 Arab nations joinedthe OECD and UNDP to launch theInitiative on Good Governance forDevelopment in the Arab Countries.Arab officials and OECDrepresentatives agreed on a three-year plan to improve governance insix areas: civil service and integrity;the role of the judiciary andenforcement; e-government and

administrative simplification; the roleof civil society and media in thereform of the public sector;governance of public finance; andpublic service delivery, public privatepartnership and regulatory reform.This marks the first time that Arabstates have agreed on a plan to workindividually, as a region and with theinternational community, on goodgovernance. The initiative is abreakthrough for all three.

Ecotourism is now a valuable growth sector for several developing economies

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Innovative partnerships for developmentAn outgrowth of the MonterreyFinancing for Developmentconference, the Global InformationClearinghouse Initiative is designed tofoster government-private sectorpartnerships by providing low-costaccess to relevant, timely and reliableinformation and analysis on emergingmarket trends and opportunities,political risk assessments, crisisprevention policies, financingmechanisms and access to expertiseand partnerships for policymakers,investors and civil society.

This model seeks to bridge costlygaps in information sharing and trustbetween private sector investors anddeveloping country governments inareas critical to the mobilisation ofprivate sector capital for development.By providing comprehensive andneutral coverage of economic risksand opportunities in developingcountries, it acts as a one-stopplatform for (i) these countries’investment promotion efforts; (ii) theirmajor creditors and investors’ duediligence and monitoring functions;and (iii), third parties’ access to thefull range of information and analysison macroeconomic, financial, andpolitical indicators. Early financialsupport for the Global InformationClearinghouse comes from the SwissGovernment and the Ford Foundation.www.globalclearinghouse.org

The Equator Initiative is a globalpartnership among the UN,governments, civil society,businesses and foundations to buildthe capacity and raise the profile ofcommunity enterprises in the tropicsthat link economic improvement andjob creation with protecting theenvironment.

The initiative shows howconserving biological diversity has

become part of the businessbottom-line for these thriving localenterprises, ranging fromsustainable forestry and fishing toorganic agriculture and ecotourism.

In addition to providing awards,the Equator Initiative plans todevelop local capacity throughcommunity-to-community learningexchanges and contribute to thecreating and sharing of knowledgeto make an impact on policy andpublic awareness.www.equatorinitiative.org

The Growing Sustainable BusinessInitiative facilitates business-ledenterprise solutions to poverty inadvancement of the MillenniumDevelopment Goals (MDGs). Theseenterprise solutions accelerate andsustain access to neededgoods/services and livelihoodsopportunities.

Conceptualised by the privatesector as a key response to the2004 report UnleashingEntrepreneurship by theCommission on the Private Sectorand Development, the GSB initiativeengages the private sector ininnovative partnerships grounded inmarket-based incentives, oftenaround new business models, toaccelerate progress towards theMDGs. It leverages UNDP’s uniquecapacity to create a neutral ‘space’at country level where informationcan be shared, issues raised, andappropriate local partners broughttogether to solve a specific problem.The GSB facilitates ‘enterprisesolutions’, where profit andincentives justify real investmentand where financial sustainability isembedded in the design. To date,the GSB is active in seven countries.

Business-led enterprise solutionsto poverty are challenging and areoften perceived as representing

unquantifiable risk and additionalcosts to business, causingpotentially interested investors toplace opportunities on the ‘toocomplicated’ pile. The valueproposition of the GSB to businessis to help address these challengesat relevant points in the investmentcycle and thus reduce the risks andcosts associated with theinvestment. www.undp.org/business/gsb

Moving from words to actionPolitical will in supporting andenabling partnerships that enhancethe contribution of non-governmental organisations, civilsociety, the private sector and otherstakeholders in global issues, iscritical. Moving beyond policy-setting and commitments to fundingthese initiatives, governments arebest placed to realign their ownefforts and the co-ordination of theirvarious agencies at both the globaland local levels to address keycross-cutting challenges facing usall. The international community,repository of lessons learned andbest practices, can build a platformto provide a one-stop service forpartnerships in the developingworld. A large number offoundations and multilateralorganisations are already doingvaluable work. Perhaps the solutionis to put all these threads together:as recent events have underscored,no one government or institutioncan go the distance alone. Only bycombining all of society’s resources– political, social, financial,technological, logistical – fromacross sectors in truly daring andinnovative partnerships, can we lookforward to a brighter, safer,healthier, more prosperous futurefor all the world’s citizens.

The international community can build aplatform to provide a one-stop service for

partnerships in the developing world

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An oil rig in Cape Town harbour. Higher oil prices and volumes are improving development prospects

for some African countries, but could jeopardise the outlook for the continent’s oil importers

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Africa Outlook

Africa’s economic progress seemsindeed now on a firmer footing aftera third straight year of satisfactory performance in 2005, with overallgrowth of 5 per cent, average percapita income up 3 per cent andinflation steady at under 10 percent. The African Economic Outlook2005/2006 also notes that if thegood weather conditions of 2005hold up this year, along with worldcommodity prices, the improvementcould continue through 2006 and2007. However, should the oil pricesstay high, they would constitute a

threat to the continent’s oil-importingcountries’ macroeconomic stability;and for most African countries, theprospects of attaining theMillennium Development Goals(MDGs) remain daunting.

A two-speed continent?The continent’s oil producers seem atfirst sight to have had the best year,largely due to the increase in oilproduction and prices. Some of them– new producers (such as Chad,Equatorial Guinea and Mauritania)and existing ones opening up new

oilfields (such as Angola, which hasmore than doubled its productionsince 1990 to 1.2 million barrels aday in 2005) – raised their outputand thus took advantage of thesoaring world demand. This wasmore than a passing phenomenon, tojudge by these countries’ budget andtrade balances since 2000. Thecombination of high prices andhigher volume oil exports is asubstantial windfall, and could evenbe the chance of a lifetime to setthese countries firmly on the road todevelopment.

The outlook for AfricaAndrea Goldstein, Céline Kauffmann, Nicolas Pinaud and Lucia Wegner

Development Centre, Organisation for Economic Co-operation and Development

As G8 leaders review progress since the 2005 report of the Commission for Africa andthe G8 summit at Gleneagles, the OECD finds reasons for cautious optimism about

Africa – even if the continent’s problems remain daunting

“This year’s African Economic Outlook … finds some grounds for optimism as many countries saw their economic

performance improve in 2005 as a result of favourable commodity prices, increased aid flows, debt forgiveness and on-going

reforms which have started to bear fruit. Macroeconomic stability was by and large maintained despite the increase in fuel

and food prices. Mobilisation for reforms has played a part in this rise in optimism; so has the growing support of the

international community, which has been given added impetus by the Commission for Africa and the Gleneagles G8 Summit.

While prospects for much of Africa are more favourable than they have been in the recent past, human security continues to

be severely affected by weak governance structures, conflicts and the vulnerability that accompanies extreme poverty. This is

deterring investment and impeding the effective entry of African countries into the global economy.”

Donald Kaberuka, President, African Development Bank

Louka T Katseli, Director, OECD Development Centre

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Growth in 2005 did not leave theoil-importing countries behind,however. Metal producers alsoprofited from higher world pricesand, to a lesser extent, higherexport volumes. Mozambique,South Africa and Zambia all madeup for the dearer oil with theiraluminum, iron, copper andplatinum exports. Agriculturalexporters did less well, with theirexport prices falling in recent years.

But 2005 was far from all bad forthem. Rubber, coffee and seafoodexporters enjoyed good prices thathelped trade balances. Someproducers in East Africa (Uganda,Ethiopia and Tanzania) and in WestAfrica (Burkina Faso, Mali andSenegal) also managed to boostexports substantially, thanks togood weather conditions.

The resilience of oil-importingcountries to the impact of high

world oil prices was illustrated bytheir control of inflation and overallimprovement in public finances.Southern African countries paid forthe more expensive oil by drawingon exchange reserves built up inrecent years. This ability to adaptwas in some cases also the resultof positive structural changes, withEthiopia, Kenya, Morocco, Ugandaand Tanzania diversifying theirexports healthily in recent years.

Chart 1: Real GDP growth performance of Africa, and of African oil exporting countries

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Moving towards political stability?A detailed monitoring of the dailyevents and decisions that make upthe reality of political life andgovernment attitudes in 30 Africancountries also shows real progresstowards more stable and openpolitical systems in Africa.

According to the AfricanEconomic Outlook’s indicators,political repression has lessenedover the last decade, as moregovernments have adhered to therule of law and respect for human

rights. The upholding of civil rightsand liberties has improved incountries very fragile at thebeginning of the decade, includingAlgeria, Nigeria and South Africa. Inparallel, political instability has beendeclining, though importantexceptions remain in Chad, DRCongo and Côte d’Ivoire, where theauthorities have countered risingpolitical instability by hardeningtheir political stance.

A number of presidential and / orlegislative elections took place in2005 and 2006, as did important

referendums. Tanzania and Beninjoined Mozambique in the stilllimited, but growing, number ofcountries enjoying a peacefulpassage of presidential powers.Egypt held its first-ever multi-partyelections, in which the oppositionmade substantial gains. In Uganda,92.5 per cent of voters approvedthe re-establishment of themultiparty system.

However, political troubles tend toincrease around election time. In2005, public demonstrations, riotsand clashes with the security forces

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China and India: what’s in it for Africa?Africa – still largely connected to the world economythrough raw material exports – is benefiting from adecade-long rise in real commodity prices, largely drivenby the urbanisation and industrialisation in China andIndia. These two countries have recently contributed tolower global interest rates, to higher raw material prices,and to improvement in Africa’s terms of trade. China’s andIndia’s growing demand for commodities has also broughtabout a significant redirection of African exports away fromOECD markets, helping to diversify the destinations ofAfrica’s exports. This process has encouraged new inflowsof foreign direct investment, mostly in the extraction of rawmaterials, both from Asian investors and elsewhere. At thesame time, direct competition between African and Asianbusinesses in local and third markets has remained limitedto some specific sectors and countries (such as clothing,mostly in Northern and Southern Africa). Urban Africanconsumers, meanwhile, have benefited from the higher

purchasing power of their incomes thanks to lower pricesfor labour-intensive manufacturing goods.

It remains to be seen whether Africa will be able tomake the most of the unexpected bonanza producedby record proceeds of raw material wealth, anddiversify away from natural resources extraction.China’s and India’s competitiveness in labour-intensiveindustries (eg, textiles and clothing) may actuallyreduce the opportunities for African economies todiversify away from traditional exports. Lastly, traderedirection towards China and India might not result inmuch product diversification. The new trade flowshave indeed been concentrated in commodities,broadly similar to historical patterns of African exportsto OECD countries.

Source: Goldstein, A., Pinaud N., Reisen, H. and Chen.X. (2006),

China and India: What’s in it for Africa? OECD Development Centre

Studies, Paris.

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Tremendous challenges remain in the longer runDespite the good economicperformance of African countries in2005, higher oil prices have beenvery painful for net oil importers. TheAfrican Economic Outlook puts theiraverage trade deficit at more than5.6 per cent of GDP. The likelycontinuing high oil prices constitute amajor medium-term risk for thecontinent’s oil importers, seriouslyquestioning the sustainability of theirtrade deficits. It also makes povertyreduction even harder by reducingthe government’s financial room formanoeuvre and threatening a spreadof poverty.

Today, Africa is lagging behindother continents in its progresstowards the Millennium DevelopmentGoals. In some countries, conflictsand civil wars have reversed earliergains. In others, inappropriateeconomic policies and governanceproblems have held back growth andhence incomes; it has also made itdifficult for governments to provide,let alone expand, the provision ofessential social services. The

HIV/AIDS pandemic has had anenormous adverse impact in terms ofdampening growth and in deprivingsocieties of some of their mostproductive members. And in almostall the low-income countries, thelimited resources available to financethe investments required in keysectors such as agriculture, health,education and infrastructure continueto be a major constraint.

Tackling Africa’s transport deficitThe weakness of today’s Africantransport infrastructure is strikingcompared to other developingregions. Sub-Saharan Africaaccounts for only 3 per cent of therail transport of developing countries,but has 17 per cent of thepopulation and 7 per cent of theGDP. Under a fifth of its roadnetwork is paved, compared withover a quarter in Latin America andover two fifths in South Asia. Evenpaved roads are severely affected bysystematic axle overloading of trucksand poor drainage, with dramaticconsequences for safety. Only 4.5per cent of global air traffic is inAfrica, yet its share of accidentsreached 25 per cent in 2004. Eventhe seaport facilities are reaching orhave reached capacity limits, andare under-equipped.

AfricaOutlook

were recorded in Egypt, Ethiopiaand Gabon. Political tensions havealso increased in Chad, as well as inKenya following the rejection of agovernment-backed newconstitution, which prompted thePresident to suspend Parliament. Ina way, the surge of tensions can beseen as a sign of growing maturity,where people dare to expressthemselves and become more vocal.One must however be carefulinterpreting this evidence: tensionsmay decrease as a result ofcontinuous hardening of repression– as in the case of Zimbabwe.

Of course, war remains by far thegreatest threat to economicdevelopment and human rights inAfrica. Continuous fighting in the eastof the Democratic Republic of Congois endangering the country’s transitionto peace. Tensions between Ethiopiaand Eritrea resurfaced in 2005 andconflicts in Northern Uganda andNorthern Kenya continue. Chad hasbeen severely affected by the ongoingDarfur crisis in Western Sudan andthe large number of refugees crossingthe border.

Today, Africa is lagging behind othercontinents in its progress towards the

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China and Arab countries, has beenobserved.

Short of money and burdened withinefficient state-owned monopolies,African countries are seeking private-sector participation. Various forms ofpublic-private partnerships have beentried in airports, seaports and railways,more rarely for roads. Investors’perception of high risk renders fullprivatisation impractical, so mostprivate participation in transportinfrastructure has taken the form ofleases or concessions. The resultshave been mixed says the AfricanEconomic Outlook 2005/2006.

The private sector is increasinglyimportant in transport serviceprovision. Cargo handling costs havefor instance fallen significantly wherecompetition among service providershas been introduced (charges arebetween US$60-75 per 20ftcontainer in Dakar, Abidjan andDouala compared to US$200 inLagos). This ‘operating’ part ispotentially the most profitable and assuch it can be ‘unbundled’ and easilydivested. However, fixedinfrastructure traditionally requireslarge-scale investment that privateinvestors often fail to deliver. The

upgrading and extension of networkshave therefore continued to belargely funded by multilateral andbilateral loans on concessional terms.

The states are also key to enforcingthe institutional environment andregulation required to derive themaximum benefits from private sectorparticipation. This should avoidexcessive prices and inadequateservice, while ensuring optimal access,maintenance, and investment. The keyfactors of success include stronggovernment commitment to ensure thecredibility of the reform process;proper sequencing; and the creation ofan independent and well-enforcedregulatory body prior to divestiture.

Finally, careful co-ordination withregional and continental authorities(such as the NEPAD) rationalises stateaction on cross-border projects, whileoffering the country benefits fromlarger markets.

The African Economic Outlook, partlyfinanced by the EuropeanCommission, is published annuallyby the African Development Bankand the OECD Development Centre.The writers of this article areprincipal authors of the AEO.

Geography, demography and lackof resources are all majorimpediments to transportdevelopment in Africa. Fifteen of thecontinent’s 53 countries arelandlocked and population densitiesin the interior are very low, makinginfrastructure investments andmaintenance very expensive. As aresult, landlocked countries have toface transport costs reaching over 20per cent of their export value.

The financial challenges aretremendous: the World Bank estimatesthat African countries will need tospend the equivalent of 4 per cent ofGDP every year for the comingdecade, just on roads, to reach theMDGs. Yet, throughout the 1990s,infrastructure was largely overlooked inthe allocation of official developmentassistance in favour of the socialsectors. It is only recently, with thecreation of the NEPAD, the September2005 UN Millennium plus Five Summitand the report of the Commission forAfrica, that infrastructure again becamea top priority on the internationaldevelopment agenda. Meanwhile,increasing involvement in the sector ofnon-Development AssistanceCommittee (DAC) donors, notably

AfricaOutlook

Road repairs in Palmeira, Mozambique

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The responsibility to protect:unfinished business

Gareth Evans, President and CEO, International Crisis Group

The international community is at last agreed that coercive humanitarian interventioncan be justified on the grounds of our common humanity. What is now needed is the

political will, the material capabilities, and guidelines for the use of military force

The security issues that preoccupythe major powers these days – andwill certainly be most in the minds ofthose attending the St Petersburg G8Summit – involve a heady mix ofinternational terrorism, nuclearproliferation, Islamist extremism,resurgent nationalism and, linkingmost of them, global energy security.

Which doesn’t leave much room foraddressing the great securityproblem that most worried usthroughout the 1990s: what to doabout genocide or other mass killing,or ethnic cleansing or other crimesagainst humanity, committed withinthe boundaries of a single state.

But this problem is now staring us

in the face all over again in Darfur,and we know all too well that it’s onlya matter of time before it comes atus once more from somewhere elsein the world. What should be theresponse of the internationalcommunity when faced withsituations of catastrophic humanrights violations within states, where

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the state in question claimsimmunity from intervention based onlongstanding principles of nationalsovereignty? When, if ever, is it rightfor states to take coercive action, ina particular military action, againstanother state for the purpose ofprotecting people at risk within it?Whether or not they are on this G8agenda, these questions simply haveto be addressed, and a workableinternational consensus reached asto how to answer them.

The conceptual breakthrough The good news is that theinternational community, after yearsof wrangling, has more or lessagreed on basic principles. We haveseen over the last five years theemergence of a new internationalnorm – the ‘responsibility to protect’– of really quite fundamental ethicalimportance and novelty in theinternational system, and which mayultimately become a new rule ofcustomary international law.

Language embodying this norm wasadopted by the world’s heads ofstate and government meeting at theUN’s 60th Anniversary Summit in2005 and, perhaps even moreimportantly, has since beenreaffirmed, in a resolution passed on28 April 2006, by the SecurityCouncil itself:

Each individual state has theresponsibility to protect its populationsfrom genocide, war crimes, ethniccleansing and crimes againsthumanity…The internationalcommunity, through the UnitedNations, also has the responsibility…In this context, we are prepared totake collective action, in a timely anddecisive manner, through the SecurityCouncil, in accordance with theCharter, including Chapter VII, on acase-by-case basis and in co-operationwith relevant regional organisations asappropriate, should peaceful meansbe inadequate and national authoritiesare manifestly failing to protect theirpopulations from genocide, warcrimes, ethnic cleansing and crimesagainst humanity.

This formal embrace by theinternational community of the newconcept of ‘the responsibility to protect’– moving away in the process from theincredibly divisive contest betweenthose for and against a ‘right ofhumanitarian intervention’ – has beena major breakthrough, and afascinating piece of intellectual historyin its own right.

What most inhibited actionthroughout the postwar years was theperceived constraint imposed by theUN Charter. The 1945 founders –while paying lip service to the need toprotect individual human rights – wereoverwhelmingly preoccupied with theproblem of states waging war againsteach other and protecting stateborders. They gave the new SecurityCouncil unprecedentedly sweepingpowers to deal with threats tointernational peace and security. Butthey did not explicitly acknowledge thepermissibility of external force being

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applied in response to an internalcatastrophe, and Article 2(7) pointed,if anything, in precisely the oppositedirection: nothing, it said, shallauthorise intervention “in matterswhich are essentially within thedomestic jurisdiction of any state”.

The beginning of the Cold Waralmost immediately after the UN’sfounding reinforced the inclination toread the Charter narrowly. So diddecolonisation: scores of new memberstates, newly proud of their identityand often conscious of their fragility,saw the non-intervention norm as oneof their few defences against threatsand pressures from more powerfulinternational actors. One significantagreed exception to the non-intervention principle was theGenocide Convention of 1948. But itwas almost as if, with its signing, thetask was seen as complete: practicallynothing was done to give it effect.

With the end of the Cold Warcame the defence of Kuwait againstIraq’s invasion, and a degree ofeuphoria about a genuinely rules-based international order began toemerge. But that didn’t last long.The quintessential problems of the1990s became civil war andmassive internal violence. With thebreak-up of various Cold War statestructures, most obviously inYugoslavia, and the removal of somesuperpower constraints, conscience-shocking situations repeatedly arose.But old habits of non-interventiondied very hard. Even when situationscried out for some kind of response,and the international community didreact through the UN, it was toooften erratically, incompletely orcounter-productively.

So we had the debacle of theintervention in Somalia in 1993, thepathetically inadequate response to thegenocide in Rwanda in 1994, thelamentable failure to preventmurderous ethnic cleansing occurringin the Balkans, in particular inSrebrenica, in 1995 – and also thesituation in Kosovo in 1999, when theinternational community did in factintervene as it should have, butwithout the authority of the SecurityCouncil in the face of Russia’sthreatened veto.

All this generated very fiercedebate, utterly unresolvedthroughout the 1990s. Secretary-General Kofi Annan put thechallenge graphically to the GeneralAssembly in 2000: “If humanitarianintervention is indeed anunacceptable assault on sovereignty,how should we respond to aRwanda, to a Srebrenica, to grossand systematic violations of humanrights?” He, and the internationalcommunity, were given an answerwhen the Canadian government-sponsored International Commissionon Intervention and StateSovereignty (ICISS) presented itsreport, The Responsibility to Protect,to the UN Secretary-General at theend of 2001. The Commission madeseveral contributions to theinternational policy debate, whichhave been resonating ever since.

The most important was to turnthe whole weary debate about the‘right to intervene’ on its head, andto re-characterise it not as anargument about any ‘right’ at all, butrather about a ‘responsibility’ – oneto protect people at grave risk: therelevant perspective was not that of

powerful interveners but of thoseneeding support. Sovereignty, in themodern age, involved not just‘control’ but ‘responsibility’. Thestate itself has the primaryresponsibility to protect theindividuals within it; but where itfails in that responsibility, througheither incapacity or ill-will, thatresponsibility to protect shifts to thewider international community.

The ‘responsibility to protect’, asarticulated by the Commission, wasnot just about military intervention. Itextended to a whole continuum ofobligations: the responsibility toprevent (to address both the rootcauses and direct causes of internalconflict and other man-madecrises); the responsibility to react (torespond to situations of compellinghuman need with appropriatemeasures, which may includecoercive measures like sanctionsand international prosecution, and,in extreme cases, militaryintervention); and the responsibilityto rebuild (to provide, particularlyafter a military intervention, fullassistance with recovery,reconstruction and reconciliation).

The Canadian Commission’sreport found an immediateconstituency among internationalcommentators and lawyers andNGOs, and more importantly, insub-Saharan Africa, where theconcern had long been more aboutmobilising support for the afflictedthan protecting absolute sovereignty.But the real momentum for itsformal embrace came when theSecretary-General’s High Level Panelon Threats, Challenges and Changeincluded the concept in itsDecember 2004 report, and theSecretary-General himself thenmade it a central plank in his ownrecommendations to the GeneralAssembly, meeting as the WorldSummit in September 2005.Although not without some bumpsalong the way, it was there adoptedunanimously.

The quintessential problems ofthe 1990s became civil war and

massive internal violence

Even when the international community didreact through the UN, it was too often

erratically, incompletely or counter-productively

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Where the state fails in its responsibility toprotect the individuals within it, that responsibility

shifts to the wider international community

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On any view, the evolution in justfive years of the ‘responsibility toprotect’ concept from a gleam in anobscure commission’s eye to whatnow might be described as abroadly accepted international norm– now familiar enough to have itsown acronym, ‘R2P’ – is anextremely encouraging story. But it’snot the whole story.

Unfinished business The not so good news is that we stillcannot be at all confident that theworld will respond quickly, effectivelyand appropriately to new humanrights catastrophes as they arise.There are at least three pieces ofunfinished business to attend to.

First, there is a need to persuadethe Security Council to embracespecific guidelines for the legitimateuse of military force, at least in thecontext of R2P, if not more generally.The Canadian Commission arguedstrongly that this was an integral partof the package: if we cannot getgeneral agreement about which arethe kinds of cases that clearlydemand coercive military action, andwhich are those where theresponsibility to protect should beexercised with less shattering effect,there is a risk that the R2P principlewill be misused, and that suchconsensus around it as there is atthe moment will evaporate. (In theminds of many, R2P was misused in

Iraq by those arguing, in theabsence of other plausible rationales,that Saddam’s tyranny against hisown people – particularly his large-scale violence against the Kurds andShiites many years earlier – fullyjustified his military overthrow.)

What is needed – and the HighLevel Panel and Secretary-Generalhave agreed – is the adoption of fivebasic ‘criteria of legitimacy’ to testthe validity of any case made for acoercive humanitarian intervention.These criteria are, in short, theseriousness of the harm beingthreatened (which would need toinvolve large-scale loss of life orethnic cleansing, happening hereand now and not in the distant past,

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to prima facie justify military action);the primary purpose of the proposedmilitary action (to halt or avert harm);whether there were reasonablyavailable peaceful alternatives; theproportionality of the response; andthe balance of consequences –whether, overall, more good thanharm would be done.

There will always be argument abouthow these criteria should be applied inparticular situations. Darfur is a trickycase in point: there is no doubt aboutthe scale of the catastrophe and theinternational community’s responsibilityto help resolve it, but coercive militaryforce applied without Khartoum’sagreement – in effect, an invasion –would almost certainly becounterproductive. It is reasonable toassume, however, that if agreed criteriahad to be systematically addressedevery time force was proposed, therewould be a much better chance ofconsensus being reached in thesecases, and less risk of the SecurityCouncil being bypassed.

Second, we have to solve theproblem of capacity, ensuring that ifwe are to exercise the responsibilityto protect – and in particular theresponsibility to react to clear andpresent dangers – the requiredcivilian and military resources arealways available in the rightamounts. In the case of militarycapacity, those countries withapparently massive resources are

often preoccupied with battles anddeployments elsewhere, or have thewrong kind of troop configurationsand equipment to do the fast andflexible jobs most often required.Throughout Europe in particular, incountry after country, the number oftroops operationally deployable atany given time is a tiny percentageof the men and women in uniform.Elsewhere in the world, there maybe no apparent shortage of bootsable to go on the ground – but therewill be issues of training, command,control and communicationscapability, transportability andgeneral logistic support. Unlessthese problems are tackled, R2P willoften be more theoretical than real.

Last but not least, there is theever-recurring problem of generatingthe political will to act. For mostcountries this is hardest to findwhen military force is involved, evenif the required capacity is there, butit is also needed to mobilise non-military coercive action likesanctions or bring atrocity crimesuspects before internationalcriminal courts. It is also arequirement even for utterly non-coercive preventive action, liketargeted development assistance,which may nonetheless involveexpensive resources and thecommitment to apply themeffectively. Finding the will to doanything hard, expensive or

politically sensitive is just a given inpublic affairs, domestically orinternationally. Its absence shouldbe the occasion not for lamentation,but mobilisation.

Part of the task here must be togenerate much more widespreadunderstanding and support for the‘responsibility to protect’ concept itself.It is becoming better known bypolicymakers and those in the mediaand elsewhere who influence them.But R2P is not yet a household termanywhere in the world – and it needsto become one everywhere. We haveto get to the point where, when thenext conscience-shocking masshuman rights violation comes along,the reflex response, both ofgovernments and publics around theworld, is to find reasons to act, notreasons to pretend it is none of ourbusiness. And that means somesustained campaigning by all those ofus who take seriously – as we must,despite all the backsliding case aftercase – the battle cry ‘never again!’ Ourcommon humanity demands that theresponsibility to protect be apermanent item on the global securityagenda – as a matter not just ofprinciple but of operational practice.

Gareth Evans was Co-Chair of theInternational Commission onIntervention and State Sovereignty, anda member of the High Level Panel onThreats, Challenges and Change.

We have to get to the point where the reflexresponse is to find reasons to act, not reasons

to pretend it is none of our business

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Development financeafter Monterrey:

a new agenda emergesGeorge Mavrotas, Project Director,

World Institute for Development Economics Researchof the United Nations University (UNU-WIDER)

Progress towards the Millennium Development Goals depends on the internationalcommunity delivering on its high-level commitments. Increased aid volumes and

new sources of development finance hold the key

© Philippe Lissac/ Panos Pictures

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Funding development New instruments

Lack of finance limits the ability of many countriesto invest in diversifying their trade, access new

technologies and achieve poverty reduction

Most developing countries have verylimited access to the financenecessary for development. Foreigndirect investment (FDI) is highlyconcentrated on a narrow range ofcountries; private portfolio flows intoequities and bonds are limited to asmall group of emerging markets; andofficial aid flows have been stagnantand declining in recent years. Thislack of finance limits the ability ofmany countries to invest in diversifyingtheir trade, access new technologiesand achieve poverty reduction.

Development finance-relatedissues have shot up the internationalagenda since the MonterreyFinancing for DevelopmentConference in 2002 and the settingof the Millennium DevelopmentGoals (MDGs) by 2015. The Reportof the Commission for Africa (2005)and the UN Millennium ProjectReport (2005) have maintained themomentum. There have been aseries of proposals recently toexpand private and official flows todeveloping countries, particularly thepoorer ones. These include the useof Global Funds, the US MillenniumChallenge Account, the Britishproposal for an International FinanceFacility, and proposals for globaltaxation, the expansion of SpecialDrawing Rights (SDRs), and ways toencourage the flow of private finance(both FDI and portfolio flows).Finally, the Declaration on AidHarmonization by aid donors inRome in February 2003 and theParis Declaration on AidEffectiveness in February 2005emphasised that donors shouldmove fast towards aid co-ordinationto accelerate progress in aideffectiveness and MDG attainment.

Improving aid effectivenessDoubling aid flows to achieve theMDGs (particularly in Africa) is notenough. It is now clear that:• Improving our overallunderstanding of aid effectiveness isvital, especially our understanding ofhow aid is transmitted through thefiscal system to services andinfrastructure of value to poor people.• Whilst aid overall has a positiveimpact on growth, there is nowidespread agreement on how aidcan be effective in promoting growthin poor policy environments, and onwhat constitutes an effective, pro-poor growth policy, beyond theachievement of basicmacroeconomic stability and theavoidance of gross price distortions.• As raising the additional aid flowsnecessary for the MDGs will present areal challenge, accelerating finance –not least through improvements to aideffectiveness – will be a top priority. • Using aid (ie, public money) toleverage additional private flows todeveloping countries is equallyimportant.

Meanwhile, debate continues onwhether increased volumes ofdevelopment aid will inevitably runinto absorptive capacity constraintsand deliver diminishing returns,particularly in sub-Saharan Africa.

Reducing aid volatility One factor determining theeffectiveness of aid expenditure is itspredictability. In a very recent study(Fielding & Mavrotas, 2006), aidvolatility is examined using data on66 aid recipients over the period1973-2002. The study improvesupon earlier work in the area bydisaggregating, inter alia, total aid

inflows into sector and programmeaid. It was found that the institutionalquality of the aid recipient affects thestability of sector aid but not that ofprogramme assistance. It was alsofound that macroeconomic stabilityaffects the stability of both kinds ofaid, as does the extent to which acountry relies on a small number ofindividual donors. The findings pointto the importance of disaggregatingaid when modelling the volatility ofaid inflows. This is particularly vitalfor aid recipient governments whoare attempting to manage aidvolatility by some combination ofadjustment to tax and spendingplans, adjustment of foreignexchange reserves, or domestic non-monetary financing. For thesecountries, improved forecasting ofboth short-term and medium-termaid is also vital, although in the lattercase informal indications from donorsare also likely to be important.

Aid heterogeneity mattersAlso important is how different typesof aid operate in the diversemacroeconomies of aid recipients.Recent empirical evidence seems tosuggest that understanding howdifferent types of aid work (such asproject aid, programme aid,technical assistance, food aid andemergency assistance, which isbecoming extremely important inrecent years), and in particular,which types of aid have the greatestimpact, is of paramount importancefor assessing aid effectiveness andfor designing and implementingpolicies capable of improving aideffectiveness (Mavrotas, 2002, 2005;Clemens et al., 2004; Mavrotas andOuattara, 2006a,b).

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Funding developmentNew instruments

FDI and other private capital flowsFDI is central to the prospects fordeveloping countries in the worldeconomy. Given the limited availabilityof official financial flows, manydeveloping countries have decidedthat they need to tap more effectivelyinto private capital flows, of which FDIis a key element. And while more aidis important, aid cannot deliver thekinds of benefits, particularly inknowledge transfer, that FDI promises.For the international community, theMDGs are now the over-archingframework for assisting the developingworld. A supporting UN initiative is the‘Global Compact’, which seeks topromote a more central andresponsible role for the internationalbusiness community in thedevelopment process, with FDI playinga central part in helping to achieve theMDGs by their target date of 2015.With only a decade to go, employmentgrowth will have to be very rapid

indeed to achieve the ambitious targetof halving global income poverty. Thisrequires a considerable acceleration ininvestment, by both domestic andforeign companies (see Addison,Guha-Khasnobis and Mavrotas, 2006,for a detailed discussion).

New sources of finance The MDGs can be achieved by eitherdoubling (or tripling, according toJeffrey Sachs’ report for the UN,2005) the existing amount of ODAand other private capital flows, and/ormobilising domestic developmentfinance. If the funds necessary tomeet the MDGs from existing sourcescannot be raised, alternative forms offinance need to be found. Recentyears have seen a number ofinnovative proposals on this front. Arecent UNU-WIDER studycollaboration with UN-DESA on‘Innovative Sources for DevelopmentFinance’ (Atkinson, 2004) exploredthe merits of the following proposals:1

• Global Environmental Taxation: atax on goods generatingenvironmental externalities, withspecific reference to a tax on theuse of hydrocarbon fuels accordingto their carbon content. It hassubstantial revenue-raisingpotential as tax on high-incomecountries alone could raise revenueof $50 billion.• Currency Transactions Tax (betterknown as the ‘Tobin Tax’): a tax onforeign currency transactions, coveringa range of transactions (spot, forward,future, swaps and other derivatives).The tax could generate a minimum ofUS$15-28 billion for global public use.• Development-focused SDRs: thecreation of SDRs for developmentpurposes, with donor countriesmaking their SDR allocation availableto fund development. Regardingrevenue raising potential, an allocationof US$25-US$30 billion could make asignificant contribution but dependson frequency.

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• Global Lottery and GlobalPremium Bond: the proposal, whichhas its origins in a proposal by theCrisis Management Initiative (aFinnish NGO led by former FinnishPresident Martti Ahtisaari), is for aglobal lottery operated throughnational state-operated and state-licensed lotteries, with proceedsshared between national participantsand an independent foundationestablished in conjunction with theUN. Its revenue potential is hard toestimate but could reach US$6billion a year. A Global PremiumBond – parallel to national bondswith lottery prizes in place of interest– would provide loan finance butvolume is hard to estimate.• The International Finance Facility(IFF): a British proposal aiming toaccelerate progress towards theMDGs by ‘frontloading’ aid. Long-

term, but conditional, funding wouldbe guaranteed to the poorestcountries by the donor countries;such pledges of a flow of annualpayments to the IFF would thenleverage additional money from theinternational capital markets. Thiscould produce a flow of US$50 billionfor 2010-2015, building up from2006 and falling to zero by 2020.• Remittances from migrants:reducing the cost of remittances(logistics), encouraging repatriation(financial institutions) andregularising the status of migrants(legal) could increase substantiallythe remittances for developmentfunding. Remittances are a large,growing, and relatively stable flow offunds and can usefully contribute tomicro-household projects. Areduction in transfer costs couldsignificantly increase remittances.

• The case of private donations forinternational development:charitable donations by privateindividuals and firms could beincreased by tax incentives, globalfunds, corporate giving and theinternet. Total charitable giving issizeable and there is potential fordevelopment to attract larger shares.

A factor to be weighed with someof these proposals is their potentialto ‘crowd-out’ existing sources offinance (the ‘additionality’ issue).Finally, it is important to stress thedistinction between proposals wherecommon action is required butwhere the agreement for asignificant subset of countries willsuffice (´flexible geometry´) andthose proposals where theinvolvement of all donor countries isabsolutely necessary (see Atkinson,2004 for a detailed discussion).

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Last but not least…mobilising domestic resources Domestic resource mobilisation canhelp significantly towards theachievement of the MDGs. It hasthe additional advantage ofengaging local communities directlyin the overall developmentfinancing process. Local financialsector development can enhancesavings mobilisation and domesticinvestment for pro-poor growth. Theissue is becoming of crucialimportance in view of the overalllow savings rates of manydeveloping economies in recentyears. A substantial number ofdeveloping countries haveundertaken a series of financialreforms recently to improveeconomic performance.

The road aheadMuch of the debate aboutdevelopment finance, includingdevelopment aid, is convergingaround:• Changing donors’ modus operandiso that the emerging conclusionsabout aid effectiveness are reflectedin development assistance practice.This might involve nothing less thanthe re-shaping of the current aidarchitecture, its organisations and instruments.• Improving aid co-ordination bymoving fast towards theimplementation of the recent RomeDeclaration on Aid Harmonizationand the Paris Declaration on Aid Effectiveness. • Introducing new schemes andsynergies in the area of developmentco-operation, eg, with donors as awhole or in groups acting togetheron aid projects, or devising newschemes which combine severalpriorities and then provide aid to agroup of countries which implementa common project, is also vital.Linking these efforts to recent

regional initiatives (eg, NEPAD)would also be desirable.• Putting stronger emphasis onAfrica, in view of the disappointingperformance in relation to MDGs inthe region, is a sine qua non ofaccelerating progress on thatcontinent since most of the ‘toppriority countries’ (countries whereurgent action is needed to achievethe MDGs) are in Africa. Assumingthat aid budgets remain tight, theproportion of people in sub-SaharanAfrica living on less than US$1 aday will not be cut by half until themiddle of the 22nd century.Notwithstanding the importantpledges agreed by donors at recentG8 meetings, further action is imperative.• Deepening our understanding ofthe delivery systems and impact ofaid in conflict-affected countries isvital for broad-based post-conflictrecovery.• Exploring other possible sourcesof development finance in additionto development aid and othercapital flows (FDI, portfolio flows) isvital for accelerating progresstowards the MDGs.

Complementary strategies – not alternativesFinally, notwithstanding theimportance of developing alternativeforms of development finance, it isessential to prioritise an increase inaid volumes since aid remains a keysource of development finance formany developing countries,particularly in sub-Saharan Africa.The additionality issue is relevantsince some of the ideas on the tablecould crowd out existing sources offinance such as ODA. Inconclusion, donors need to honourthe commitments made atMonterrey to make substantialincreases in aid flows up to 2015.In parallel, aid recipients need to

make a real effort to use theseadditional sources efficiently byaccelerating reform of their systemsof governance.

1See in particular the report on “Lesnouvelles contributions financières interna-tionales” prepared by the commissionchaired by Jean-Pierre Landau on behalfof President Chirac (2004).

References• Addison, T., Guha-Khasnobis, B. andMavrotas, G. (2006), “FDI to DevelopingCountries: The Unfinished Agenda”,World Economy 29: 1-8.• Atkinson, A.B. (ed.) (2004), NewSources of Development Finance, Oxford:Oxford University Press.• Fielding, D. and Mavrotas, G. (2006),“What Explains the Volatility ofDevelopment Aid?”, mimeo, UNU-WIDER, Helsinki, Finland.• Clemens M, Radelet, S. and Bhavnani,R. (2004), “Counting chickens when theyhatch: the short-term effect of aid ongrowth”, WP No. 44, Centre for GlobalDevelopment: Washington DC.• Mavrotas, G. (2002), “Foreign aid andfiscal response: does aid disaggregationmatter?”, Weltwirtschaftliches Archiv138(3): 534–559.• Mavrotas, G. (2005), “AidHeterogeneity: Looking at AidEffectiveness from a Different Angle”,Journal of International Development 17:1019-1036.• Mavrotas, G. Ouattara B. (2006a),“Public Fiscal Behaviour and AidHeterogeneity in Aid-recipientEconomies”, Journal of Developing Areas,39(2): 1-15.• Mavrotas G., Ouattara B. (2006b), “Aiddisaggregation, endogenous aid and thepublic sector in aid-recipient economies”,Review of Development Economics,10(3): 432-449.

The views are those of the authoralone and should not be attributed toUN-WIDER

A substantial number of developing countrieshave undertaken a series of financial reforms

recently to improve economic performance

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Russia Short-term outlook

Policy trendsAlthough relatively prudentmacroeconomic policies will bemaintained, few advances in structuralreform are likely in the run-up to the2007-08 elections. President VladimirPutin’s address in May to the FederalAssembly emphasised Russia’sdemographic problem, which thegovernment hopes can be alleviated inpart through direct and indirectmeasures to raise the birth rate. Thisis another reason why economicpolicy will focus on implementing the‘national priority projects’, designed toraise standards of living throughincreased public spending on health,education and housing. Thegovernment will also continue with itspolicy of establishing state control overthe so-called strategic heights of theeconomy – which largely, although notexclusively, means Russia’s energyand metals resources.

Joining the World Trade Organization(WTO) remains a leading policyobjective for Russia, and at one stageit seemed possible that Russia couldbecome a member in time for the JulyG8 summit. However, there has beenlittle progress in recent negotiations,and the chill in relations with the USdoes not suggest that a successfulconclusion to the negotiations isimminent. Russia has repeatedlyaccused the US of putting politically

motivated obstacles in the way ofRussia’s WTO membership, butRussia’s progress has also beenslowed by its tough negotiatingposition and its resistance to demandsfor less protection for agriculture, theaircraft industry and financial markets.Protection of intellectual propertyrights and energy pricing are alsoareas of disagreement.

Russia’s firm negotiating stancereflects the fact that the economicbenefits and drawbacks ofmembership for Russia’s economyappear to be more finely balancedthan for most other countries. The rawmaterials that form the bulk of Russia’sexports – oil, gas, minerals and timber– are not covered by the WTO regime.The same applies to arms exports.WTO-related increases in domesticenergy prices would threaten thecompetitiveness of a range of energy-intensive enterprises. Reducedprotection could set back hopes forRussia to diversify the economy – forexample, it is questionable whetherRussia’s aircraft industry could survivethe abolition of import duties onaircraft. Nevertheless, theseconsiderations are likely to be trumpedby Russia’s strong political interest injoining the WTO, and we expect thatcompromises over outstanding issueswill allow this to happen towards theend of 2006, or possibly in 2007.

Fiscal policyFederal budget expenditure for2006 has been revised upwards inthe expectation of higher oil pricesthan previously assumed. Revenueis now targeted at Rb5.6 trillion(US$200 billion) and expenditure atRb4.3 trillion, yielding a surplus ofaround Rb822 billion (US$29billion) after revenue has beentransferred to the StabilisationFund, compared with a previoustarget of Rb776 billion. The risk offurther upward spending revisionshas eased, however, as Mr Putin,worried about inflation, hasstressed the need for fiscalprudence, not just in 2006, butalso in 2007, ahead of the nextelectoral cycle. First-quarter 2006budget data appeared to confirm amore austere trend, withexpenditure coming in 75 per centbelow target, producing a surplusof Rb570 billion (US$20 billion), oraround 11 per cent of GDP,according to our estimates. Part ofthe shortfall in expenditure willhave been the result of paymentsarrears, but the out-turnnonetheless suggests that anotherstrong full-year performance islikely. We forecast that the budgetsurplus will reach 6 per cent ofGDP in 2006 and 4.5 per cent ofGDP in 2007.

Russia’s short-termeconomic outlook

Economist Intelligence Unit

The prospect of continued high levels of investment and private consumption, buoyed by strong oil prices, needs to be weighed against the risk of a collapsing dollar and an avian flu epidemic

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Monetary policyThe twin and contradictory objectivesof monetary policy – both to dampeninflation and maintain pricecompetitiveness – continue to bedifficult to achieve given strongforeign-exchange inflows, a dearth ofsterilisation instruments andreluctance to allow the rouble toappreciate. Although the RussianCentral Bank (RCB) has occasionallyprioritised inflation-reduction, this hasnot been sustained; concern aboutthe impact of steady real appreciationon the real economy has most oftentaken precedence.

The RCB has stated that it wants tolimit money supply (M2) growth to 25per cent in 2006. Technically this couldbe done by raising the mandatoryreserve requirements and the interestrate on central bank deposits. However,attempting to reduce the rate of M2growth significantly would reduceliquidity in the money market, possiblyde-stabilise the financial markets anddampen economic growth. The RCBhas traditionally underestimated therate of money supply growth, and aconcerted attempt to curb it seemsunlikely, especially if inflation starts to slow.

Global outlookInternational oil prices will continue tobe the main driver of Russianeconomic performance during theforecast period. The outlook for Russiain this respect is highly favourable,given that the average price of datedBrent Blend in 2006 is expected to beUS$60/barrel, before declining – albeitonly to 2005 levels – in 2007. Althoughour baseline forecast is for robustgrowth in the world economy in 2006-07, there are a number of threats thatcould drag down global economicperformance significantly. In particular,exchange-rate risk is high, as the largeUS external deficit weighs on the USdollar. Since Russian oil exports arepriced in US dollars, a collapse in theUS currency would have an effectsimilar to that of a sharp fall in oilprices, posing a threat to Russia’seconomic growth. The risks related toavian influenza (or bird flu) appearespecially acute for Russia, given itsalready daunting health problems.

GrowthReal GDP increased by 6.4 per cent in2005. Growth is nevertheless belowwhat could be expected at current oilprice levels and it is slowing, with theMinistry of Economy estimating first-quarter 2006 real GDP growth at 4.6per cent. The weak January-Marchperformance can in part be attributedto an exceptionally cold winter, but arebound in March was not as strong asmight have been expected. We forecastthat annual real GDP growth will fall to6 per cent in 2006 and to 5.5 per centin 2007 as a result of disappointingperformance in key industrial sectors –most notably in oil extraction, whereoutput rose by only 2.5 per cent in2005, compared with growth rates of9-11 per cent in 2002-04.

Export volume growth was sluggishin 2005, and with oil sector output stillconstrained by high marginal taxesand infrastructure bottlenecks, there islittle reason to expect an exportrebound in 2006-07. However,investment held up well in 2005 and islikely to remain high over the forecastperiod. Private consumption will alsocontinue to be an important engine of

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growth, even though real roubleappreciation is fuelling strong importdemand. The increased state controlover broad swathes of the economywill also act as a drag on growth, notleast because of the low efficiency ofstate-owned monopolies.

InflationMonthly inflation subsided steadilyin the first four months of 2006,falling to 0.4 per cent in April,compared with 2.4 per cent inJanuary. As a result, annual inflationin April fell below 10 per cent for thefirst time since the devaluation ofthe rouble in August 1998.Consumer prices have neverthelessincreased by 5.4 per cent since thestart of the year, which makes itunlikely that the government willmeet its inflation target for end-2006(initially set at a range of 7-8.5 percent, and informally raised to 9 percent). Even with some administrativecurbs, Russia’s strong foreigninflows and the authorities’reluctance to allow further nominalrouble appreciation mean thatinflation is unlikely to be below 10per cent at the end of the year.

The authorities want to keepinflation in check by applying anti-monopoly measures in the food andfuel sectors, reducing or evenscrapping import duties on selected

goods, and regulating utility tariffsand Russian oil product prices.Such moves are unlikely to curbinflationary pressure in a sustainedway. In addition to the unrelentingpressure emanating from strongforeign-exchange inflows, the maindriver of inflation is budgetspending, which is boosting nominalpersonal income and demand.

Exchange ratesThe extent of real appreciation inrecent years has by now eroded thecompetitiveness gains to Russianproducers from the 1998devaluation. The rouble appreciatedin real effective terms by 10.8 percent year-on-year in January-April.During the first quarter of 2006 theRCB allowed the rouble to appreciatein nominal terms to try to combatrising inflation, but by April theexchange rate was being kept stableand the central bank is likely to seekto prevent further significant nominalappreciation. Allowing nominalappreciation in early 2006 may evenhave been counterproductive forcombating inflation, as it hasencouraged inflows of capital andthus money supply growth. Realeffective appreciation will continuegiven the differential betweeninflation in Russia and its leadingtrade partners.

External sectorFigures for the current-account surplusin 2005 have been revised downwardsslightly, to US$84.2 billion from theinitial official estimate of US$86.6billion. Preliminary RCB estimatesshow that the current-account surplussurged to US$28 billion in the firstquarter of 2006, a 38 per centincrease compared with the sameperiod of 2005. The current-accountsurplus is forecast at about 10 percent of GDP in 2006 and nearly 8 percent in 2007. Large trade surpluseswill more than offset large deficits onthe income and services accounts.Rising interest payments, in particular,will reflect the rapid expansion incorporate foreign borrowing in recentyears, which is set to continue.

RCB data show that foreign directinvestment (FDI) into Russia reachedUS$14.6 billion in 2005 (a slightdownward revision of initial estimates).FDI at similar levels is expected in2006-07. Many investors will beattracted by strong marketopportunities and remain – at leastoutside the energy sector – unaffectedby Russia’s increased statism andimposition of restrictions on foreigninvolvement.

This is an extract from the EIU RussiaCountry Report Update, May 2006.©EIU 2006

Forecast summary(% unless otherwise indicated)

2004a 2005a 2006b 2007b

Real GDP growth 7.2 6.4 6.0 5.5Industrial production growth 7.3 4.0 4.8 4.4Gross fixed investment growth 11.3 10.5 10.0 10.4Unemployment rate (av) 8.2 7.6 6.8 6.7Consumer price inflation (av) 10.9 12.7 10.2 9.6Consumer price inflation (year-end) 11.4 10.9 10.1 8.8Central bank refinancing rate (year-end) 13.0 12.0 12.0 12.0Federal budget balance (% of GDP) 4.9 7.5 6.0 4.4Exports of goods fob (US$bn) 183.5 243.6 270.4 287.6Imports of goods fob (US$bn) 96.3 125.3 144.4 172.3Current-account balance (US$bn) 59.9 84.2 93.3 82.4Current-account balance (% of GDP) 10.2 11.0 10.1 7.7External debt (year-end; US$bn) 211.9c 216.7c 222.2 230.1Exchange rate Rb:US$ (av) 28.81 28.28 28.20 28.10Exchange rate Rb:US$ (year-end) 27.75 28.78 28.28 27.58Exchange rate Rb:E (av) 35.84 35.21 35.55 37.86Exchange rate Rb:E (year-end) 37.81 34.17 37.34 36.69a – Actual. b – Economist Intelligence Unit forecasts. c – Economist Intelligence Unit estimates.

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The outlook for foreigndirect investment into Russia

Economist Intelligence Unit

Several years of stability and robust growth, along with improvements in the businessenvironment, have boosted the confidence of international investors in Russia. But further reforms are needed if FDI inflows are to reach their full potential

The lingering fallout from the Yukosaffair and growing state pressure onthe private sector have hit the confidence of many Russiandomestic investors. Foreigninvestors, by contrast, appear to beundaunted. According to data fromthe Russian Central Bank (RCB),FDI inflows amounted to US$14.6billion in 2005 and US$15.4 billionin 2004, compared to US$8 billion

in 2003 and negligible annual totalsbefore that. The 2005 inflow wouldhave been over US$18 billion wereit not for Gazprom’s acquisition of a73 per cent stake in Sibneft (thiswas treated as an FDI transactionand resulted in a large negative FDIfigure in the fourth quarter of2005). FDI data from Rosstatshowed a rise of FDI in 2005 toUS$13 billion.

The upward trend has continuedinto 2006. According to Rosstat data,inflows of FDI in the first quarter of2006 nearly doubled, compared withthe same period in 2005, to US$3.8billion. Preliminary RCB figures forthe first quarter for the non-financialsector show even higher FDI inflows,at US$5.2 billion (unlike the Rosstatdata, the RCB figures also includereinvested earnings).

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The latest FDI data reflect thecontinuation of an upward trend thatbegan in 2003. FDI inflows hadaveraged a paltry US$3 billion peryear in 1998-2002 before theybegan to pick up markedly. Therehave been a number of large-scaleFDI deals in the oil and gas sector inrecent years, and not all of thesewere included in official FDI data(the 2003 BP-TNK deal, worth morethan US$8 billion, was conductedthrough offshore vehicles).

Other sectors that have provedattractive include banking, trade andretail and consumer goods. Theautomotive sector, in particular, hasbeen attracting interest. In 2005Toyota started a US$140 millioninvestment, Ford announced newexpansion plans and Renault openeda US$250 million plant in Moscow.Both Volkswagen and GeneralMotors recently announced newinvestments in Russia, worth E370million (US$470 million) and E100million, respectively. Russia’sbooming consumer sector is alsoattracting increasing inflows,especially through mergers andacquisitions (M&As). Among thebiggest M&A deals in Russia in 2005were acquisitions (worth US$500million each) by Coca-Cola HellenicBottling and Heineken.

Foreign investor confidenceIt may seem strange that increasedforeign investors’ interest hascoincided with some signs ofdeterioration in Russia’s investmentclimate. These include the campaignagainst the Yukos oil company; aslowdown in structural reform; atrend towards increased state controlof the economy; and tension inpolitical relations with the West.

In the past, Russia’s attractions ofmarket size and natural resourceshad been more than offset by seriousdeficiencies of the businessenvironment. Several factors appearto explain the narrowing of the gapbetween actual and potentialperformance. A track record ofseveral years of stability and robustgrowth has been built up. There hasalso been a delayed reaction to theimprovement in Russia’s businessenvironment in the early part of thisdecade. The award of an investorgrade rating by all three internationalrating agencies has also provided aboost. Some long-standing deterrentsto foreign investment have eased,

such as macroeconomic and politicalinstability and high andunpredictable taxes.

Many investors are attracted bystrong market opportunities andremain – at least outside the energysector – unaffected by Russia’sincreased statism and imposition ofrestrictions on foreign involvement. A2005 survey by the ForeignInvestment Advisory Council foundthat nine out of ten corporateinvestors in Russia had reportedsales increases of 10 per cent ormore over the previous year. Manyforeign companies are now able tonavigate Russia’s operatingenvironment. Surveys show thatdespite numerous complaints aboutthe business environment, themajority of those doing business inRussia are satisfied with theirsuccess and plan to expand theirinvestments in the country. Thesignificant increase in reinvestedearnings (see Table 1), and its veryhigh share in total FDI inflows in2003-05, is another strong sign ofgrowing foreign investors’ confidence.

Macroeconomic fundamentals will remainstrong and market opportunities will be

good, despite some slowdown in growth

Table 1: Foreign direct investment into Russia (US$ m)

2000 2001 2002 2003 2004 2005

Total 2,714 2,748 3,461 7,958 15,445 14,600Equity 1,580 1,606 2,492 -1,911 8,632 3,048Reinvested earnings 95 430 658 7,065 5,330 8,733Other capital 1,039 712 311 2,804 1,483 2,819

FDI/GDP, % 1.0 0.9 1.0 1.8 2.6 1.9FDI/Fixed investment, % 6.2 4.7 5.6 10.0 14.3 10.5

Reinvested earningsas % of total FDI inflow 3.5 15.6 19.0 88.8 34.5 59.8as % of GDP 0.0 0.1 0.2 1.6 0.9 1.1as % of Fixed investment 0.2 0.7 1.1 8.9 4.9 6.3

Source: Russian Central Bank, EIU

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Still below potentialDespite the pick-up in FDI inflows,FDI remains below potential, given thecountry’s obvious attractions, whichinclude one-third of the world’s gasreserves, around 8 per cent of provenoil reserves, a skilled and low-costworkforce and a large consumergoods market. The recovery in FDIhas been from a very low base andRussia’s annual inflows are dwarfedby the amounts that go into China.Even after the post-2003 upsurge,cumulative FDI inflows into Russia in1990-2005 amounted to some US$65billion, equal to only 8.5 per cent ofGDP. This was the second lowest ratio(marginally ahead of Belarus) amongall transition economies, and one-quarter of the average penetrationratio in east central Europe. Russia’sshare in the transition region’spopulation, GDP and exports is aboutone-third; its share in the region’sstock of FDI is below 16 per cent.

RussiaFDI outlook

Many foreign companies are now able tonavigate Russia’s operating environment

Table 2: Foreign direct investment stocks, end-2005

FDI stock FDI stock FDI stock per head (US$ bn) (% of GDP) (US$)

Czech Republic 55.1 45.0 5,382Hungary 48.9 44.8 4,882Poland 75.7 25.3 1,984Slovakia 13.8 29.1 2,539Bulgaria 12.3 46.0 1,601Croatia 12.5 32.3 2,735Romania 24.5 25.3 1,115Estonia 8.0 61.0 5,941Latvia 4.5 29.4 1,967Lithuania 5.6 21.7 1,624Russia 65.2 8.5 455Ukraine 16.2 19.6 347Azerbaijan 16.8 133.4 1,986Kazakhstan 20.8 37.1 1,367

Source: EIU; IMF; National statistics

A more open policy on asset sales toforeigners would lift average annual

inflows by almost 50 per cent

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Restrictions on FDIAn underdeveloped infrastructureand corruption remain keyimpediments to FDI, as does theunpredictability with whichregulations are often applied.Investors in the natural resourcessectors, in particular, are facingconsiderable uncertainty as Russiadefines which assets it considers“strategic” and thus off limits toforeign majority control. Thisclarification has been delayed and atthe moment the policy seemsconfused and uncertain.

Concerns that the government’sdefinition of “strategic” would extendbeyond natural resources werestoked in April 2005, when thegovernment blocked the acquisitionof 73 per cent of turbine makerPower Machines by Siemens. Thestate’s growing direct involvement inthe economy in 2005 also affectedthe carmaker Avtovaz that was takenover by a state agency, which

caused some problems for its jointventure partner, General Motors.However, the recent move byArcelor, the Luxembourg-based steelgroup, to buy Severstal, and theRussian government’s implicitbacking for the deal, shows that theauthorities’ opposition to foreignownership does not apparentlyextend to the steel sector.

There is little doubt, however, thatthe natural resource sector (inaddition to defence, nuclear energyand aviation technology) will besubject to significant limitations onforeign participation. Thegovernment insists that foreignerscannot have more than 49 per centof any venture engaged in

developing a “strategic” deposit.Currently any field with reserves ofmore than 150 million tonnes of oilor 1 trillion cubic metres of gas isdefined as strategic. The NaturalResources ministry is nowconsidering a proposal to lower thethresholds to 50 million-100 milliontonnes for oil and 500 billion cubicmetres for gas. A recent suggestionthat several PSAs should berenegotiated have further muddiedthe waters for foreign energyinvestors. Although the idea wasfirmly rejected by leading membersof the government, the meresuggestion of the possibility ofrevising existing agreements isworrying for foreign investors.

Foreign car-makers with existing or planned plants in Russia include Renault, GM, Toyota, Kia, Volkswagen and Nissan

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The outlookDespite the continuing problems ofthe business environment and theregulatory uncertainty affecting thenatural resources sector, the medium-term outlook for FDI into Russia isgood. Macroeconomic fundamentalswill remain strong, especially as oilprices are expected to remain at highlevels. Market opportunities will begood, despite some slowdown ingrowth. WTO accession shouldincrease Russia's attractiveness, aswill the impending liberalisation of thecapital account. Russia’s consumerand retail boom is likely to sustain awave of joint ventures with foreigninvestors. More automotiveinvestments are in the pipeline.

Survey evidence also suggeststhat Russia will be one of the world’sleading destinations for FDI over thenext few years. According to AT Kearney’s most recent annualsurvey of investors, Russia was, in2005, seen as the sixth mostattractive FDI destination in theworld (up from 11th place in 2004).A survey of MNCs undertaken byUNCTAD in 2005 placed Russia asthe fourth most attractive locationfor FDI (behind only China, Indiaand the US) for 2005-2008. Arecent Economist Intelligence Unitsurvey of 400 senior MNCexecutives found that Russia wasseen as the sixth most attractiveglobal destination for cross-borderM&As over the next three years.

The share of the energy sector inFDI into Russia may fall in thecoming years, given the restrictionson foreign involvement in thissector, uncertainty about thesanctity of previous agreementsand the heavier tax burden

imposed on oil producers in recentyears. However, the Western oilmajors will hardly shun Russiaaltogether. Russia is one of the fewplaces that offers large-scalereserves and its energy sector isone of the few in the world notclosed off to foreigners. Risks inother oil-producing regions haveincreased and Russia is notengaging in Latin American-typeexpropriation. Although the Russiangovernment will not allow one ofRussia’s major oil companies to fallinto foreign hands, it is likely towelcome minority participation offoreign companies, especially indifficult exploration projects.

Furthermore, international oilcompanies already operate in moredemanding political and businessenvironments than Russia, and are nostrangers to dealing with authoritarianregimes. Oil producers tend to havesignificantly higher political risk andlower quality of institutions than otheremerging markets, but Russiacompares favourably with most oilproducing countries.

We expect that these factors willlead to annual average FDI inflowsinto Russia of more than US$20billion during the next five years – asignificant amount, but still fairlymodest as a proportion of GDP (atbelow 2 per cent per year).Although this will represent anotable improvement on Russia’spast performance, it is still short ofthe country’s potential. Even by2010, Russia’s total stock of inwardFDI (projected at US$167 billion)will amount to only about 12 percent of GDP.

In our forecasting model, FDIinflows are dependent on a country’s

GDP; the Economist IntelligenceUnit’s index of the quality of thebusiness environment; US$ wages; ameasure of natural resourceendowments; a privatisation index(measuring the availability of assetsfor sale and the readiness to sell toforeigners); and the share of the FDIstock in GDP at the start of theperiod (a measure of potential follow-on investment). The model can alsobe used to estimate the extent towhich FDI inflows into Russia overthe next five years will still fall belowpotential, despite the expected pick-up. The two crucial variables are thequality of the business environmentand openness to asset sales toforeigners, with a similar impact onoverall FDI flows. A more openpolicy on sales (privatisation indexequal to the average for thetransition region as a whole) wouldlift average annual inflows by almost50 per cent to a projected US$32billion. Similarly, if Russia’s businessenvironment was of the averagequality of East Central Europe,annual FDI inflows into the countrywould be almost US$32 billion.

There are, furthermore, risks even tothe relatively benign baseline FDIoutlook. Although a sharp andsustained plunge in oil prices isunlikely, Russia remains highlyvulnerable to that risk. Much ofmanufacturing will be adverselyaffected by real rouble appreciation.Many negative features of the businessenvironment will persist, including aninefficient bureaucracy and judicialsystem. There are also some questionmarks about political stability in thepost-Putin era after 2008.

©EIU June 2006

Survey evidence suggests that Russia willbe one of the world’s leading destinations

for FDI over the next few years

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Putting Central Asia back on the Silk RoadMike Pfister, Division on Investment, Technology and Enterprise Development,

United Nations Conference on Trade and Development (UNCTAD)

Economic reform in the republics of Central Asia and China’s western provinces is opening up new investment opportunities

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Central Asia Silk Road Initiative

The Silk Road region has emerged as oneof the most dynamic regions in terms of

growth, with a strong potential for investment

The Silk Road was the historic termfor the transcontinental trade routebetween Europe and Asia that in 200 BC linked two great empires –the Roman Empire in the West andthe Court of China in the East. Themain route of the Silk Roadconnected Chang’an (modern dayXi’an) with Constantinople, andendured for several centuries.Today, the Silk Road Initiative aimsto stimulate trade and investmentin Central Asia under theleadership of the governments ofChina, Kazakhstan, Kyrgyzstan,Tajikistan and Uzbekistan, therebyhelping the region that was oncesidelined by the march of history toreclaim its prosperity1.

Since their independence fromthe Soviet Union in 1991, theCentral Asian countries havewitnessed a strong wave ofprivatisation and market-orientedreforms. The Silk Road region hasemerged as one of the mostdynamic regions in terms of growth,with a strong potential forinvestment. To reap the wide rangeof opportunities, a regionalapproach and commitment by therespective governments and theprivate sector through closepartnerships is now needed.

The economic backdrop improvesWith the exception of China, the SilkRoad comprises landlockedeconomies, with Uzbekistan beingone of the two countries in theworld being double land-locked,with none of its neighbours havingaccess to the sea either. Yet thesehave all shown impressive growthfigures. The region’s gross domesticproduct (GDP) rose an impressive10 per cent per annum in 2002-2004, from 6 per cent in 1997-2001. This becomes even moreremarkable when these figures arebenchmarked against the 5.2 percent growth of all transitioneconomies in 2002-20042.

Growth in the region goes hand inhand with the economic momentumin in Russia, China, South Asia, andthe positive signs in Afghanistan.The growth in the oil and gasexporting economies (Kazakhstan,Uzbekistan) has been fuelled byhigh oil prices, increased FDI,

investment projects in infrastructureand sound macroeconomicmanagement3. The non-oil exportershave benefited greatly from the highgold and cotton prices and textileexports. These have been coupledwith a flourishing manufacturingsector and a rise in manufacturedexports. Not only did the heavyindustry sectors boom, like inKazakhstan, but the labour-intensivecommodities in textiles andgarments also witnessed upsurges4.

Table 1 displays some stylisedfacts about the Silk Road. Theregion consisted of 71 millionpeople in 2003, generated a GDP ofaround US$65 billion in 2000, andgrew by an average 6.8 per cent perannum between 1999 and 2003.Thus, the Silk Road represents alarge and growing market that issimilar in population to that ofTurkey, with about 10 million morepeople than the UK and France,and around 10 million fewer peoplethan Germany.

Table 1: The aggregated five Silk Road countries, stylised facts, 1999-2003

1999 2000 2001 2002 2003

The Silk Road region (a)Population, million people 68 69 70 71 71--- Incl. whole China 1,304 1,313 1,323 1,332 1,340GDP, billion US$, constant prices 46 51 55 59 65--- Incl. whole China 1,034 1,116 1,201 1,300 1,420Real GDP growth, regional average 4.29 7.11 8.27 6.24 8.25--- Incl. whole China 4.29 7.07 8.15 6.28 7.95Real GDP per capita, regional average (b) 569 614 669 717 773

Source: UNCTAD calculations, based on World Bank, World Development Indicators Online, 2005; and China State Information Centre.

Note: (a) Including Kazahkstan, Kyrgyz Republic, Tajikistan, Uzbekistan and Xinjiang Province of China

(b) Including China as a whole

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FDI trends2004 saw a rebound in global FDIafter three years of declining flows.At US$648 billion, world FDI inflowswere 2 per cent higher in 2004 thanin 2003. More impressively, inflowsto developing countries surged by 40per cent. As a result, developingcountries’ share of world FDI inflowswas 36 per cent, the highest levelsince 1997. The United Statesretained its position as the numberone recipient of FDI, followed by theUK and China5.

Despite the surging FDI inflows inChina, inflows are rather limited in theSilk Road region as a whole. Forinstance, with around US$260 millionof FDI in Xinjiang in 2004, theprovince accounted for only a fractionof China’s US$50 billion FDI inflows.

Only Kazakhstan was able to attractlarge amounts of FDI, up to US$3.5billion in 2004. From 1999 to 2003FDI reached 9.3 per cent of GDP onaverage and contributed to just over40 per cent of total gross fixed capitalformation.

The major target sectors for FDIin the region are oil, energy, export-oriented manufacturing, agricultureand services, especially tourism. Itis important to note that China playsan increasing role for the other SilkRoad countries with their largemarket as an FDI origin. Also, theFDI potential indices for the SilkRoad countries show positiveimprovements for China,Kazakhstan and Kyrgyzstan, therebyadding to the Silk Road’s FDIattractiveness.

Prospects for growth andregional opportunitiesAccording to the Asian DevelopmentBank (ADB), economic growth inCentral Asia will remain in the rangeof 9 per cent per annum for thenext three years, backed by highprojections for oil, gas and non-oilexport commodities prices, globalenergy demand, and an expansionof the respective service sectors. Inaddition, China is expected tocontinue on a solid economic pathof 8 per cent growth over the nextdecade6.

If the Silk Road countries remaincommitted to implementing policyreforms, elaborating market- andbusiness-friendly strategies andespecially to taking advantage ofregional co-operation initiatives, suchas the Silk Road Initiative, thefollowing scenario looks realistic7.

Economic policy reforms initiatedto date will accelerate in the regionand a market economy will becomemore apparent. The trade regime,inter-regional as well as with the restof the world, will remain a liberal oneand there will be visible progress inlarge-scale privatisation, financialsector liberalisation and corporategovernance. Export promotionstrategies will be sharpened in thenon-oil economies, along with thecreation of relevant incentives andinstitutions. Furthermore, meaningfulsteps on interest rate liberalisation,reform of state-owned banks, andinstitutional development of capitalmarkets will be expected. Asprivatisation progresses andbusiness procedures are modernisedand streamlined, a vibrant privatesector will emerge.

Under this ‘best scenario’, anumber of regional initiatives, suchas the Silk Road Initiative and ADB’sCentral Asia Regional Economic Co-operation (CAREC) programme,will contribute to the coherentdevelopment of the Silk Road as aregion, including in such areas astransport, trade and energy. Concrete

Central Asia Silk Road Initiative

Economic growth in Central Asiawill remain in the range of 9 per cent

per annum for the next three years

Figure 1: FDI in the Silk Road region, 1993-2004

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projects could include an integratedrail and road network system,harmonised customs codes,rationalised border procedures andthe adoption of best practices ininformation and inspection systems.Institutional improvements will leadto a reduction of non-tariff barriersto regional trade and an efficientregional energy market will comeabout through tariff reforms andinvestments in regional energyinfrastructure.

Regional economic diversificationwill be fed through a clear industrialcompetitiveness strategy.Predominantly, such a strategywould entail investment promotionand targeting, linkages between SilkRoad enterprises with globaltransnational corporations, industrytailor-made investments in humancapital, and restructuring of R&Dand technology institutions.

This scenario will lead to SilkRoad oil exporters benefiting fromthe regional co-operation initiativesand a regulatory environment thattranslates into integratedtransportation networks andincreased efficiency from price andtariff reforms. The non-oil exportingcountries will benefit from industrialdevelopment as well as fromenhanced regional co-operation.Based on these assumptions, theADB predicts an average gain ofabout 20 per cent until 2015resulting from greater regional co-operation, a strengthened policyframework, and moves towards amore competitive private sectorenvironment. Currently, the SilkRoad Initiative is preparing aninvestors’ guide, which will providedeeper insights into regionalbusiness opportunities, as well asmore sector-specific perspectives.

Overcoming the hurdlesWith the exception of China, all theSilk Road countries are facing typicalchallenges of transition economiesand emerging markets. Trade has yetto be used as a driving force for theregion’s economic development and isstifled by the imposition of complextariff and non-tariff barriers, as alludedto earlier8.

Investment flows from abroad, withthe notable exceptions of China andoil-rich Kazakhstan, have been weakerthan expected. In addition, insufficientphysical infrastructure, inadequateinstitutional capacity, and poorimplementation of regionalagreements are all factors that hindereconomic integration.

The Silk Road countries are verydiverse in socio-economic and politicalterms. One of the main challengestherefore is to help create capacityand mechanisms for efficient co-operation and integration in this regionwith shared historical ties, including astrong branding and marketing drive.

Regional initiatives should aim atpresenting the Silk Road region as one investment destination, enablingconcrete branding. To reconcile theinterests of potential investors with theregion’s strong macroeconomicfundamentals, involved parties need toharmonise their legislation on foreigninvestment and their investmentpromotion efforts. To speed up the

As privatisation progresses and businessprocedures are modernised and streamlined,

a vibrant private sector will emerge

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current process, a medium-termtarget for the establishment ofcommon FDI legislation should beconsidered. There are concrete stepsin this direction, such as the free tradearea envisaged under the auspices ofthe Shanghai CooperationOrganization (SCO). As the processtowards a free trade zone requiressubstantial legal harmonisation, theissue of convergence of the FDIframework could be incorporated intosuch negotiations.

Transparency is essentialAlso needed are region-wide efforts totackle the problem of lack oftransparency in the investmentprocess. To spread the harmonisationof existing laws across the region,special emphasis has to be placed onthe harmonisation of practices toenforce those laws.

For instance, the publication ofregional best practices combinedwith best practices awards couldhelp to ensure success.Transparency issues should beincluded in the negotiationframework of any forum created forthe Silk Road.

Each of the countries should clearlydefine its target sectors for FDI andmake this information publiclyavailable. Based on these nationaltargets, the countries should formulatetheir regional targets, therebyfacilitating regional branding as oneinvestment destination. This commonregional strategy has to be carefully co-ordinated to minimise competition inthe attraction of FDI within the region.

Priority sectorsBased on the FDI trends presentedearlier, three areas of focus could beenvisaged: mining, oil and gas;petrochemicals; and power and energy– all interlinked sectors. This providesan excellent platform for a vision basedon the region’s competitive advantage.

Second, the transportation sector isdeemed to be a promising element ofthe regional FDI strategy if the SilkRoad is considered as one networkfrom East Asia to Western Europe.Once this network is revived on a largescale, the Silk Road has the prospectto prosper from increasing transittransportation, as the old oasis townsdid some 2,000 years ago.

Third, in the area of services, thetourism sector presents goldenopportunities. With an abundantcultural heritage and sites along theancient Silk Road, the prospect ofbranding the region as one single touristdestination is realistic. Within thecontext of the Silk Road Initiative, theWorld Tourism Organization (UNWTO)has jumpstarted a number of initiatives9.

A persistent infrastructure deficitwithin the region is a seriousimpediment to intra- and inter-regionaltrade. International organisations suchas the ADB, UNESCAP and WorldBank have sought to address thisproblem since the early 1990s withmulti-million dollar pump-priminginitiatives that have helped to createthe conditions for attracting FDI.However, recent studies show that theinfrastructure is still relatively poor,which poses a major impediment fortrade and economic growth.

Next stepsThere are three essential steps. First,a bundling of existing infrastructureprojects could help pinpoint areas ofimmediate concern from a masterplan perspective. In the long term,the master plan could moreeffectively channel funds to the mostpromising region-wide projects.Second, to offer a vision of promisingreturns for potential investors, theSilk Road should build on the legacyof the ancient Silk Road as atransport network connecting theprospering regions of Eastern Chinaand Europe. Third, to attract FDIdirectly into transport infrastructureprojects, innovative public-privatepartnership initiatives have to becreated, such as toll roads andairport developments.

Branding and marketing theSilk RoadThe branding strategy for the SilkRoad should be based on fivepillars: positioning, cohesiveness,momentum, opportunities andpartnership. The Silk RoadInvestment Forum held in Xi’an,China, on 7-9 June 2006encompassed these themes andwas the first of a series of annualforums, which will allow concretebenchmarking of the various privateand public sector commitments andpolicy efforts.

Mechanisms such as the SilkRoad Investment Forum create aplatform for joint strategydevelopment, political mobilisationand commitment by all

Central Asia Silk Road Initiative

The Silk Road Initiative (SRI): key factsThe SRI is a regional UN Development Programme(UNDP) initiative that aims to enhance co-operation anddevelopment among China*, Kazakhstan, Uzbekistan,Kyrgyzstan and Tajikistan. It focuses on facilitating publicprivate partnerships in three main areas: investment,trade and tourism.

The Initiative is launching sustainable capacity-buildingmechanisms, using the concept of ‘seed money’. Throughthe establishment of regional mayors’ and investmentforums, a Silk Road city award, and the organisation ofstudy tours for business communities, it supports the SilkRoad countries in their efforts to reap the rewards fromregional co-operation, and to further develop and prosper.

Goals:• Improve policy and legal conditions for trade• Initiate and attract investment• Promote and attract tourism

Major Partners• UN Conference on Trade and Development (UNCTAD)• World Tourism Organization (UNWTO)• Shanghai Cooperation Organization (SCO)• BOAO Forum for AsiaFor more information, please visit:www.silkroad.undp.org.cn

* The SRI focus in China is on its western provinces of Xinjiang, Gansu,

Ningxia and Shanxi

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participating authorities. Thisfeature of cohesiveness is a key tosuccess given the transnationalnature of the region.

So the Silk Road is a region onthe move – one that has to betapped. Investors are attracted tosuch areas, and the region shouldaim at reinventing itself in a newforward-looking context, whilstbuilding on tradition.

The brand strength of the SilkRoad is rooted in the diversity ratherthan similarity of opportunities. Theregion covers four countries andfour Chinese western provinces,thereby obviously presenting a widearray of investment opportunities.Close partnership between investors,host communities and the Silk Roadgovernments themselves will sealthe commitment to making the Silk Road an attractive investmentdestination10.

The Road aheadThe Silk Road is an investmentdestination strategically placed toservice the new, partly untappedmass consumer markets oftomorrow in China, Central andWestern Russia, India and theMiddle East. The Silk Road Initiativelays the foundation for capacitybuilding through a framework ofboth inter- and intra-regional co-operation among the five countriesthat will develop local markets,increase levels of FDI, stimulatecross-border trade and contribute tomore equitable and balancedeconomic growth.

The Initiative presented here has along-term expansion potential toinclude neighbouring nations such asAfghanistan, Pakistan, South Korea,Japan and Mongolia – which wouldeventually create a powerful tradingbloc with considerable clout.

Endnotes1 Passow, Samuel, op cit.2 ADB, Central Asia in 2015, p.23 Regional Cooperation Strategy andProgram for Central Asia Regional EconomicCooperation (CAREC) Member Countries(Azerbaijan, Kazakhstan, Kyrgyz Republic,Mongolia. People’s Republic of China,Tajikistan, Uzbekistan) 2005-2007, p. i4 Central Asia in 2015, p.25 World Investment Report 2005(UNCTAD), p.xix6 ADB, Central Asia in 2015, p.77 Note: This scenario is based on CentralAsia in 2015 (ADB) p.9-118 Hübner, Wojciech, UNDP Silk RoadInitiative, Annual Progress Report, p.29 UNWTO, Tourism Pearls of the Silk Road10 Vokes, Clive op cit.

References• Asian Development Bank, Central Asiain 2015, CAREC Policy Brief no. 1, 2005,www.adb.org/Carec/PolicyBriefs/CAREC-Policy-Brief-01-2005.pdf• Asian Development Bank, RegionalCooperation Strategy and Program forCentral Asia Regional EconomicCooperation (CAREC) Member Countries(Azerbaijan, Kazakhstan, KyrgyzRepublic, Mongolia. People’s Republic ofChina, Tajikistan, Uzbekistan), 2005-2007, July 2004, www.adb.org/Documents/CSPs/CAREC/2004/CSP-CAREC-2004.pdf• Hübner, Wojciech, Annual ProgressReport, UNDP Silk Road Initiative, UNDPChina, Beijing, China, 2005.• Passow, Samuel, University of Kent,informal interviews, February 2006, Geneva• United Nations Conference on Tradeand Development, World InvestmentReport 2005, Geneva, 2005,www.unctad.org/en/docs/wir2005_en.pdf• Vokes, Clive, informal interviews,Geneva,January 2006.• World Tourism Organization, TourismPearls of the Silk Road, Madrid, 2005.

The Silk Road should build on the legacyof the ancient Silk Road as a transport

network connecting the prospering regions ofEastern China and Europe

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Acumen Fundwww.acumenfund.org

Africa Confidentialwww.africa-confidential.com

African Development Bankwww.afdb.org

African Rural Energy EnterpriseDevelopment (AREED)www.areed.org

African Unionwww.africa-union.org

Amnesty International www.amnesty.org

Arab Bank for EconomicDevelopment in Africawww.badea.org

Asian Development Bank www.adb.org

Asia-Pacific EconomicCooperationwww.apec.org/apec.html

Association for Women in Development www.awid.org

Association of Southeast Asian Nations (ASEAN)www.aseansec.org

Business for SocialResponsibilitywww.bsr.org

Bankwatch Network www.bankwatch.org

Centre for Development andPopulation Activities www.cedpa.org

Centre for Science andEnvironment, Indiawww.cseindia.org/

Centre for the Study ofTransition and Development(CESTRAD) www.iss.nl/cestrad

Civil G8http://en.civilg8.ru

Climate Action Networkwww.climatenetwork.org

Climate Arkwww.climateark.org

Climate Institute www.climate.org

Coalition for EnvironmentallyResponsible Economies (CERES) www.ceres.org

Commission for Africawww.commissionforafrica.org

Conference Board www.conference-board.org

Corporate Social ResponsibilityEuropewww.csreurope.org

Council of Europewww.coe.int

Council of the European Unionhttp://ue.eu.int

Digital Divide Network www.digitaldividenetwork.org

Digital Opportunity Channel www.digitalopportunity.org

Earth Charter Initiative www.earthcharter.org

Earth Council www.ecouncil.ac.cr

Earth Institute, ColumbiaUniversitywww.earthinstitute.columbia.edu

Earth Policy Institute www.earth-policy.org

Economist Intelligence Unit (EIU)www.eiu.com

Eden Foundation www.eden-foundation.org

Energy Securitywww.iags.org/es.html

Equator Initiativewww.equatorinitiative.org

EU Commission DirectorateGeneral (Development)http://europa.eu.int/comm/dgs/development/index_en.htm

EU Commission DirectorateGeneral (Energy)http://ec.europa.eu/energy/index_en.html

EU Commission DirectorateGeneral (Environment)http://ec.europa.eu/comm/environment/index_en.htm

EU Commission DirectorateGeneral (Trade)http://ec.europa.eu/comm/trade

European Association ofDevelopment Research &Training Instituteswww.eadi.org

European Bank forReconstruction andDevelopment www.ebrd.com

European Commission www.europa.eu.int

European Environment Agencywww.eea.eu.int

European Investment Bank (EIB)www.eib.org

European Round Table of Industrialists www.ert.be

European Union (Europa)www.europa.eu.int

Food and AgricultureOrganizationwww.fao.org

Foundation for InternationalEnvironmental Law andDevelopment (FIELD) www.field.org.uk

Future Forestswww.futureforests.com

Global e-Schools andCommunities Initiativewww.gesci.org

G8 Information Centre,University of Torontowww.g8.utoronto.ca

G8 Onlinewww.g8online.org

G8 St Petersburg Russia 2006Official Websitehttp://en.g8russia.ru

Global Alliance for Vaccinesand Immunizationwww.gavialliance.org

Global Environment Facility www.gefweb.org

The Global Fund to Fight AIDS,Tuberculosis and Malariawww.theglobalfund.org/en

Global InformationClearinghouse Initiativewww.global-clearinghouse.org

Global Movement for Childrenwww.gmfc.org

Global Witness www.globalwitness.org

Hadley Centre for ClimatePredication and Researchwww.metoffice.com/research/hadleycentre/index.html

Human Rights Watch www.hrw.org

IDRC's International AfricanBandwidth Map www3.sn.apc.org/index.html

Information for DevelopmentProgrammewww.infodev.org

Institute of Development Studies www.ids.ac.uk/ids

Institute of EnvironmentalManagement & Assessment(IEMA) www.iema.net

Institute for GlobalEnvironmental Studies (IGES)www.iges.or.jp

Inter-American DevelopmentBankwww.iadb.org

Intergovernmental Panel onClimate Changewww.ipcc.ch

International AIDS Vaccine Initiativewww.iavi.org

International Chamber of Commerce www.iccwbo.org

International Crisis Groupwww.crisisgroup.org

International DevelopmentResearch Centre, Canada www.idrc.ca

International EmissionTrading Associationwww.ieta.org

International Energy Agency www.iea.org

International FinanceCorporation (IFC)www.ifc.org

International Fund forAgricultural Development (IFAD) www.ifad.org

International Institute forCommunication and Development www.iicd.org

International Institute forEnvironment and Development(IIED) www.iied.org

International Institute forStrategic Studieswww.iiss.org

International Institute forSustainable Development (IISD) www.iisd.org

International Monetary Fund www.imf.org

InternationalTelecommunications Union www.itu.org

International Water Associationwww.iwahq.org.uk

Signposts Useful websites

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SignpostsUseful websites

Islamic Development Bankwww.isdb.org

J8 2006 www.j8summit.com

Leadership for Environment and Development (LEAD) www.lead.org

Malaria Vaccine Initiativewww.malariavaccine.org

Marine Stewardship Council www.msc.org

Measles Initiative www.measlesinitiative.org

M.S. Swaminathan ResearchFoundation (MSSRF) www.mssrf.org

MTCT-Plus, Columbia Universitywww.mtctplus.org

National Strategies forSustainable Development (NSSD) www.nssd.net

Nelson Mandela Institutewww.nmiscience.org

New Partnership for Africa’sDevelopment (NEPAD) www.nepad.org

North Atlantic TreatyOrganisation (NATO)www.nato.int

Ocean Alliance www.oceanalliance.org

One World www.oneworld.net

Open Society Institute www.soros.org

Organisation for Economic Co-operation and Development(OECD) www.oecd.org

OECD Development Centre www.oecd.org/dev

Organization for Security and Co-operation in Europewww.osce.org

Our Planet (UNEP magazine)www.ourplanet.com/imgversn/planethme.html

Overseas DevelopmentInstitutewww.odi.org.uk

Potsdam Institute for ClimateImpact Research www.pik-potsdam.de

President of Russian FederationOfficial Websitewww.kremlin.ru/eng/index.shtml

Prime Minister of RussianFederation Official Website(Russian only)www.government.ru/government/minister/index.html?he_id=761

Pugwash Conferences onScience and World Affairswww.pugwash.org

Rainforest Action Network www.ran.org

Regional Environmental Centerfor Central and Eastern Europe www.rec.org

Russian Federation Ministry of Foreign Affairswww.mid.ru

Save the Children UKwww.savethechildren.org.uk

Society for InternationalDevelopmentwww.sidint.org

Solar and Wind EnergyResource Assessment http://swera.unep.net

South-North DevelopmentMonitor (SUNS)www.sunsonline.org

Stockholm Environment Institutewww.sei.se/welcome.html

Tata Energy Research Institutewww.teriin.org

TerraGreen www.teriin.org/terragreen

Third World Network www.twnside.org.sg

Transatlantic Policy Networkwww.tpnonline.org

Trilateral Commissionwww.trilateral.org

United Nationswww.un.org

UNAIDSwww.unaids.org/en

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United Nations Children’s Fund (UNICEF) www.unicef.org

United Nations Commission on Sustainable Development www.un.org/esa/sustdev

United Nations Conference on Trade and Development(UNCTAD) www.unctad.org

United Nations Department of Economic and Social Affairs Division for Sustainable Developmentwww.un.org/esa/sustdev/partnerships

United Nations DevelopmentFund for Women (UNIFEM) www.unifem.undp.org

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United Nations EnvironmentProgramme (UNEP) www.unep.org

United Nations Educational,Scientific and CulturalOrganization (UNESCO)www.unesco.org

United Nations Foundationwww.unfoundation.org

United Nations FrameworkConvention on Climate Change http://unfccc.int

United Nations Fund for International Partnerships (UNFIP) www.un.org/unfip

United Nations Girls’ Education Initiativewww.ungei.org

UN Global Compact www.unglobalcompact.com

UN Habitat www.unhabitat.org

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World Bank http://worldbank.org

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World Conservation Union(IUCN) www.iucn.org

World Economic Forum www.weforum.org

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World MeteorologicalOrganization www.meteo.org/wmo.htm

World Resources Institute www.wri.org/wri

World Trade Organization www.wto.org

Worldwatch Institute www.worldwatch.org

World Water Council www.worldwatercouncil.org

Wuppertal Institute for Climate,Environment, Energy www.wupperinst.org

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Signposts Forward calendar

July 2006Finland assumes Presidency of the EU, 1 July (to 31 December)www.eu2006.fi

August 2006 UNESCO World AIDS Conference, Toronto, Canada, 13-16 Augustwww.unesco.org

World Bank Institute Course: Achieving the MillenniumDevelopment Goals – Poverty Reduction, Reproductive Healthand Health Sector Reform, Bangkok, Thailand, 14-25 Augusthttp://siteresources.worldbank.org/HNPLP/Resources/461053-1142350259918/bangkok.pdf

World Renewable Energy Congress IX and Exhibition,Florence, Italy, 19-25 August www.wrenuk.co.uk/wrecix.html

World Water Week, Stockholm, Sweden, 20-26 Augustwww.worldwaterweek.org

UNESCO International Disaster Reduction Conference,Davos, Switzerland, 27 August-1 Septemberwww.unesco.org

September 2006 WEF China Business Summit, Beijing, China, 10-11 September www.weforum.org/site/homepublic.nsf/Content/China+Business+Summit+2006

Sixth Summit Meeting of the Asia-Europe CooperationForum (ASEM 6), Helsinki, Finland, 10-11 Septemberwww.asem6.fi

UN General Assembly 61st Session, New York, USA, 12 Septemberwww.un.org

Youth Employment Summit (YES 2006!), Nairobi, Kenya,13-16 September www.yesweb.org/2006

2006 Annual Meetings of the International Monetary Fundand the World Bank Group, Singapore, 19-20 Septemberhttp://app.singapore2006.org/index.asp

October 2006 World Forum on Energy Regulation III, Washington D.C.,USA, 8-11 October www.worldforum2006.org

World Food Day, 17 Octoberwww.fao.org

EU Informal Summit, Lahti, Finland, 20 Octoberwww.vn.fi/eu/suomi-ja-eu/2006/en.jsp

World Congress on Communication for Development, Rome,Italy, 25-27 October www.devcomm-congress.org/worldbank/macro/2.asp

Berne Union Annual General Meeting, Amsterdam, theNetherlands, 30 October-3 Novemberwww.berneunion.org.uk

November 2006 US Congress Midterm Elections, 7 November

APEC Economic Leaders’ Meeting Week, Hanoi, Vietnam,12-19 Novemberwww.apec2006.vn

UNESCO 6th Meeting of the High-Level Group on Educationfor All, Cairo, Egypt, 14-16 November

Civil G8-2006 Final NGO Conference, Moscow, Russia, 21-22 November

World Economic Forum, Istanbul, Turkey, 23-24 Novemberwww.weforum.org/site/homepublic.nsf/Content/World+Economic+Forum+in+Turkey

2006 NATO Summit, Riga, Latvia, 28-29 Novemberwww.nato.int

December 2006 12th ASEAN Summit and related meetings, Cebu,Philippines, December http://cebu-online.com/makeitcebu/12thaseansummit

World AIDS Day, 1 December

ITU Telecoms World, Hong Kong, 4-8 December www.itu.int/WORLD2006

European Council, Brussels, Belgium, 14-15 December http://ue.eu.int/cms3_fo/index.htm

January 2007Germany assumes Presidency of the EU, 1 January (to 30 June)

Germany assumes Presidency of the G8, 1 January (to 31 December)