Private Sector Development in South Sudan Enhancing the role of the Diaspora Presentation to UNITAR Diasporas and development in conflict-affected countries Magdi M. Amin Sr. Private Sector Development Specialist, World Bank 6 November 2007 Slide 1
The Comprehensive Peace Agreement needs to be grounded in economic opportunity To sustain peace substantial new investment needed To reduce poverty by 50%, Sudan would require annual investment rate of 34.2% of its GDP, with Northern Sudan investing 24.6% of its GDP and Southern Sudan investing 227.1% of its GDP over a ten-year period. (A. Ali, L. Deng) Significant opportunity: To ensure sustainable recovery without excessive reliance on donors or public sector employment To create a Southern Sudanese entrepreneurial class To create an environment that encourages investment, but minimizes corruption and informality Significant Challenges: New Institutions take time which does not exist Necessary skills in short supply Risk Environment is highest when investment needed most Differentiation between legitimate businesses and profiteers Slide 2
Objectives of Engagement Sustainable peace through increased growth, investment and employment To catalyze the articulation of private sector development strategy To increase likelihood of broad-based private sector development in all sectors, and including microenterprises To diversify sources of public revenue Overarching objective. Slide 3
Building capacity Policy & institutional capacity Financial sector capacity Specific investments, skill transfer to support growth of specific industries from construction to manufacturing Creating an entrepreneurial class where one historically has not existed Slide 4
Background and context PROJECT ADDRESSES NEW ENTREPRENEURS FOUR KEY REQUIREMENTS Enabling Environment Access to to Finance Southern Sudanese Southern Entrepreneurs Sudanese Entrepreneurs Capacity Factor Market markets Devel. Land Inputs Slide 5
Potential sources of private sector-led growth Short-Term Medium-term Long-term Microenterprise Agro-Industry Light Industry (assembly) Construction Light industry Petrochem / energy intensive? Trade Urban services (food, Infrastructure) Hydroelectric power? Slide 6
Public interventions and capacity gaps Short-Term Medium-term Long-term Microenterprise Agro-Industry Light Industry (assembly) Construction Light industry Petrochem / energy intensive? Trade Urban services (food, Infrastructure) Hydroelectric power? Raising awareness levels- Creating new entrepreneurs Provide access to finance Basic vocational skills/trades Role models Industrial skills More Complex organizations More complex policy demand Pub-Private Partnerships Strong property rights Sophisticated transactions Slide 7
Ministry of Commerce: Establishing conducive investment climate Policy development Policy Advisor and flexible Technical Assistance Facility Foreign Investment Advisory Service (FIAS) and other donors supporting legal development working closely with Ministry of Legal Affairs Public-Private Dialogue Forum Policy advocacy and formulation Entrepreneurship awareness building and business plan competition Monitoring and Evaluation framework Decisionmaking information for policymakers Investment and performance information for investors Slide 8
Empowerment: Focus on Southern Sudanese Entrepreneurs To build Southern Sudanese entrepreneurial class without deterring investment A range of options for supporting empowerment Joint ownership Creating linkages between domestic and foreign investors Training Use of locally-produced products and contractors Enterprise development Incentivizing diaspora to transfer skills Possible equity development programs Equity funds, mortgage financing Business plan competition Slide 9
Access to Microfinance Counterpart: BOSS Policy and regulatory support to BOSS Microfinance to be delivered on a commercial basis Differentiating between grant programs - targeted at those without prospect of generating returns and microfinance Technical assistance to commercial banks entering microfinance TA and financing package for new microfinance institutions Slide 10
CBOS Board of Apex Institution Seven members, Public-private, representing key agencies and microfinance institutions CEO of Microenterprise Facility International experience BOSS Operations Mgr Financial Mgr North Sudan Branch Operations Mgr Financial Mgr South Sudan Branch Financing of New MFIs Technical Assistance to MFIs Outreach and Social Mobilization Slide 11
Status of financial sector Policy shift to conventional banking, meaning that much of Sudanese capacity, trained in Islamic lending, is no longer relevant to Southern Sudan Significant role for Diaspora in policy, capacity building, staffing of commercial banking sector. But reality is that the gap is being filled by: Kenya Commercial Bank Nile Commercial Bank (SPLM-linked) Ivory Bank (linked to former bank registered in Khartoum, privatized) Only recently, Diaspora have established new bank Buffalo Commercial Bank, not yet operational Slide 12
Industries we can expect to emerge short- to mediumterm Now Trade Microenterprise Medium-term Agroindustry and processing Light industry, assembly Mining Urban services Long-term Hydroelectric Petrochemicals These industries will need strategies, policies and skills, where Diaspora must play a crucial role. However, industrial skills to date have been filled largely by Kenyan and Ugandan small firms, to a lesser extent Chinese, Indian, Egyptian and Sudanese. Slide 13
Capacity building component Policy capacity, Ministry of Industry Strategy development for identifying sectors of comparative advantage Will require supporting policies, regulatory structure, capacity building Private sector institutions Chambers of Commerce, Associations Business Development services Accounting, marketing, financial numeracy, etc. UNIDO as implementing partner Slide 14
Public Private Partnerships Private management needed, but due to risk environment, private sector will only finance large infrastructure investments with very high fees or monopoly profits Need to ensure maximum value for money through competition and transparency. Private sector management engaged on an open, competitive processes with well-defined service levels and performance monitoring by users. Strengthening regulatory and administrative capacity How to define partnerships, evaluate un-solicited proposals, ensure competition Slide 15
Potential Public-Private Partnerships: South Sudan Wholesale Market South Sudan Industrial Zone (pilot in Central Equatoria) Wholesale market Physical market public-owned but built and operated by private sector Cold storage, market stalls, to make trade efficient and reduce capital costs for new entrepreneurs Market rules set by operating committee or traders cooperative Assembly markets Linkage to financial service providers Slide 16
Role of Diaspora: Glass half full? Many of the change agents are Diaspora Head of Southern Sudan Chamber of Commerce a successful businessman in Kenya and Khartoum Minister of Foreign Trade, GNU, professor in East Africa Minister of Commerce, GOSS studied in UK, lived in Uganda and Egypt Director of Private Sector Development lives partially in Uganda Acting Undersecretary from Australia Architect/designer for market diaspora from Egypt Some successes in attracting highly skilled diaspora in projects Most recently, Professor of Law in Michigan Environmental economist from Lesotho But capacity gap remains serious Currently being filled in a somewhat unsustainable manner by a combination of foreign-funded support and entrepreneurs from neighboring countries Slide 17
GOSS is attempting to reach out to Diaspora SPLM Chapters Conference was held in July sponsored by Ministry of Labor, where Minister made impassioned plea for Diaspora to return and support rebuilding Ministries of Regional Cooperation, Ministry of Labor creating Diaspora directory MoH is seeking diaspora in each of the 10 state MoHs, which USAD will probably try to fund, even though the core program is over. Key areas: private sector, engagement with civil society, women Southern Sudanese Peace Corp to get Diaspora to spend 1-2 years as volunteer teachers, while training of the teaching cadre is taking place. Slide 18
Diaspora perceptions A combination of insecurity, emotional attachment. Strong interest in participating in recovery, but fear that their talent will not be appreciated in the Sudan. Many Diaspora Southern Sudanese focus on aspects of political and institutional environment - perception of corruption, nepotism, lack of capacity. Legitimate concerns that return to Sudan will compromise their ability to earn a living and provide education for their families. The remedy to the issues cited by the Diaspora injection of meritocracy and skills of a modern, entrepreneurial economy are precisely those in which the Diaspora have gained through their experience abroad. Without deep connections or networks, the immigrant s experience is an immersion in meritocracy Self-perpetuating cycle fed by limited information networks, perceptions of risk amplified through weblogs. Without breaking the cycle, risk perceptions will continue to outweigh emotional attachment. Catalytic interventions needed to ground perception of diaspora in reality, to create positive experiences. Slide 19
USAID Initiative: Diaspora Skill Transfer Program 2005, started with a tour of the US to get the diaspora interested, proposing 6 weeks to 3 months' voluntary assistance, in groups of 15-20, to be paid a honorarium of $350/month and per diem. A visitation team to do advocacy to the diaspora was launched, to get people interested. The first group (18 total, of which 10 health and 8 education) was given an orientation training in Yei since they had been out of Sudan for a while. Training to deal with tension of the local population which feels that they have been here through the war and now jobs should not go to those who come from outside. But the assimilation was not as much of an issue as they had anticipated (other than a few cases). While they had originally targetted US, this expanded to Australia, Zimbabwe, Britain and Canada. By end of the program they were recruiting from East Africa, and also Khartoum. Focused on two sectors -- education and health -- chosen for their criticality for supporting returnees. Expertise was both technical (doctors, nurses) and policy/administration. Program participants extended their stays in most cases. Over 50% either did not return overseas, or went back and returned to Sudan. Gave and opportunity for both govt. and diaspora to vet each other, and gave the diaspora an entry point. Most felt that there was an opportunity to make a valuable contribution to Sudan. Key lessons intensive focus on placement to best leverage talent Slide 20
Other donor activity IOM Return of Qualified Sudanese USAID sponsored Volunteers for Economic Growth Alliance providing stipends and transport to enable diaspora volunteers USAID is putting in place one staff member who will help them put together an options paper, to look at the broader implications for diaspora return. DfID is financing Skills For Southern Sudan program with Ministries of Labor and Public Service, Regional Cooperation, UN and IOM. Slide 21
World Bank Africa Region Initiative Broad recognition among AU, WB, ECA, ADB and Governments that African Diaspora must become full partners in continent s development. The official estimate of the sub-saharan African Diaspora in Europe and North America is about 6 million people. The Bank is finding ways of utilizing its existing partnerships, instruments, and portfolio of 400 projects (US$22.0 billion) in support of the Diaspora. Partnership with AU, EC Diaspora to build on ongoing efforts through a blended strategy of Virtual participation; short, medium and long-term placements; return and retention; and institutional partnerships and networks. Governments to create enabling environments including operational policies for Diaspora to provide services and products; and deploying professionals through national focal points. donor partners including the African Development Bank (AfDB) to support a Diaspora Investment Fund based on global initiatives that exploit the benefits of Diaspora remittances; Slide 22
Ideas under discussion Partnerships with private sector organizations in the USA and Europe, especially multi-national corporations with strong business interests in Africa. Africa Diaspora Engagement and Facilitation Fund: Discussions are being pursued with donors supporting ongoing Diaspora programs, to contribute to an Africa Diaspora Engagement and Facilitation Fund (ADEFF) for funding program activities. Remittances-based Africa Diaspora Investment Funds: Mechanisms could be developed as in Latin America e.g. Brazil, Mexico, where these flows are leveraged to finance Diaspora-led development activities for enhanced development impact. Ethiopia: Diaspora Trade and Investment Center. Slide 23
Summary Private sector development in conflict-affected regions fundamentally an issue of capacity. Southern Sudan particularly dependent on new injections of capacity due to historical absence of Southern Sudanese entrepreneurial class. Limited experiences positive, GOSS clearly interested in attracting a contribution, but jury is still out. Risk perceptions sufficiently high to require catalytic interventions A number of new initiatives being tried by bilateral donors, multilaterals now scaling up with some promising ideas. Technical assistance investment a key opportunity. Continuous evaluation needed, with particular focus on monitoring of risk perceptions of key Diaspora communities. Slide 24