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Italian Presidency Document (Beyond Debt Relief)

B. Promote private investment in the poorest countries

 

 

1. The role of FDI in development

Foreign Direct Investment (FDI) represents the largest component of long-term capital flows to developing countries (table B.1). FDI is much less volatile than portfolio flows and less likely to decline in the face of financial shocks. In addition to providing financing, FDI tends to ‘crowd in' other investment and is associated with an overall increase of total investment.(24)

Technology diffusion as well as capital accumulation lies at the heart of long-term improvements in living standards.(25) Developing countries can improve their technological capability and reduce the gap with more advanced economies through innovation or by importing technology from abroad. Incentives to innovation may be lower in developing countries characterised by limited market size and insufficient supporting institutions. There are three main channels for adopting technologies from abroad: technology may be imported as embodied in capital and consumer goods; it may be licensed from patent holders for domestic production; and it may be imported via FDI.

FDI helps promoting growth in developing economies by enhancing productivity through three main channels: i) increased access to technology, which can be passed on to the whole economy through emulation of foreign affiliates by domestic firms and diffusion of improved labor skills as employees move to domestically owned firms; ii) greater competition, as the entry of foreign firms may increase local market contestability encouraging emulation by domestic competitors; iii) expanded exports, as multinational enterprises can exploit their competitive advantages linked to superior technology, marketing skills and general know how and can facilitate the export of local production through their distribution network.(26) Host countries can maximize the benefits from FDI by promoting a competitive environment through appropriate legal and regulatory frameworks and open trade and non distorting investment policies. Empirical evidence confirms that FDI can make an important contribution to growth when domestic policies are sound.(27)

 

2. Determinants of FDI decisions

From the perspective of a firm, FDI can overcome transaction costs and achieve enhanced production and distribution efficiency. The main determinants affecting the location of investment decisions include: i) the dimension of the economy and its openness to trade; ii) the political, institutional and macroeconomic environment and the presence of business facilitation services; iii) economic advantages, such as market access and availability and cost of inputs. Empirical evidence shows that all the above factors are significant in explaining the level of FDI inflows in a country.(28)

 

3. Trends in FDI flows

Globalization and liberalization have resulted in a remarkable upsurge in FDI flows into developing countries in the past decade. At end-1990s, these flows increased more than tenfold from their average in the previous decade (table B.2), accounting for almost a fourth of global FDI flows. Cross-border mergers and acquisitions (M&A), including privatisations, have become an increasingly important vehicle for FDI to developing countries.(29)

FDI flows remain highly concentrated. In the 1990s, the 10 major recipients of FDI flows have accounted for shares always close to 70 percent of the total flows into developing countries. The majority of low-income countries have been largely bypassed by private financing from abroad and the LDCs as a group received only 0.5 percent of world FDI inflows in 1999. Still, FDI is the only source of private long term financing for LDCs, which remain strongly dependent on official development assistance (table B.3).(30)

Data seem to indicate that LDCs have not pursued the required policies to facilitate private capital flows at the speed and to the extent necessary.(31) However, in the past decade, several LDCs have taken considerable steps with a view to restore and maintain macroeconomic stability, liberalize trade, improve telecommunication and transport infrastructure, strengthen the rule-of-law and regulatory frameworks, enhance market competitiveness, boost private sector initiative, and attract FDI investment (inter alias permitting profit repatriation and providing tax and other incentives). Notwithstanding these improvements, the potential for FDI, as measured by inflows in percent of selected macro-indicators (table B.4), remains under-exploited in the poorest countries. These countries continue to suffer from supply-side constraints (insufficient market size, poor infrastructure, lack of skills), weak institutional frameworks and inconsistent approaches to reforms, all leading to the perception of LDCs as high-risk/low-return locations for investment.

 

4. Attracting and expanding the benefits of FDI in the poorest countries

The challenge is how to encourage larger and better FDI flows to LDCs where these flows can play a key role in promoting development and knowledge diffusion, enhancing access to scarce managerial skills and marketing channels and providing a much needed stable source of external financing. Recipient countries have a primary responsibility in enduring in their efforts to adopt policies for attracting long term private capital inflows and enabling knowledge diffusion. The international community should adequately support these efforts by contributing to improve the overall framework disciplining investment, promoting adequate market incentives and providing developmental aid for capacity building, advisory services and information sharing.

 

Key proposals

C. Focused aid

Theoretical analyses and empirical studies show that long-term growth depends on the level of investment in human capital. A healthy, able and well-educated population is the most valuable resource of modern economies and the key to accelerated social and economic development.

The challenge faced by the poorest countries in addressing core poverty issues through institution building, education and skills development, improvement of health conditions including the fight against diseases is superior to national capacities and requires enhanced support from the international community. Debt relief provided HIPC-eligible countries with an opportunity to redirect scarce resources into greater investment in human capital. However, this step is not sufficient. Further concerted effort is needed to raise support for and render more effective core social investment in the key fields of health and education.

 

1. Health

Good health is an essential element for the accumulation of human capital. Good health is also conducive to a productive workforce and society. Evidence shows that the countries with substantially lower life expectancy rates have generally experienced slow or negative per capita growth.(36)While health indicators improved over time in most developing countries, they remain relatively poor in many lower income countries, representing an enormous loss in potential human capital.

 

1.1 The situation in the poorest countries

LDCs account for 32 of the 35 countries in the lowest category of the UNDP's Human Development Index. On average, 9 percent of all children born in these countries do not survive to their first birthday, a rate which exceeds by half the average for all developing countries, and is 15 times greater than the figure for developed countries (fig.1.c). The average life expectancy for LDCs is no more than 52 years, compared to 65 years for the developing countries and 78 in OECD countries (37) (fig.2.c).

The poorest countries that are most in need of devoting more resources to improving health care are also those where amounts spent in this field are comparatively lower and insufficient to address the needs of the population. In 1999, per capita health expenditure in Sub-Saharan Africa amounted to $ 86, only 5 percent of the figure for industrial countries and one fifth of the world average.

As a result of the serious resource constraints faced by LDCs, the gap between these countries and the other developing countries in a number of health indicators is increasing. In some cases, hard gained improvements in life expectancy have recently been reversed due to the rampage of the AIDS pandemic,(38) as well as by the spreading of malaria and other infectious diseases,(39) which still represent the main burden for health care in the poorest countries.

In 1996, the OECD published the International Development Goals (IDGs) providing overall accepted benchmarks in development efforts. Several IDGs are directly related to improvements in health outcomes:

Progress towards these objectives has been slow and uneven and if the current trends are not substantially altered most of them will be missed. The governments of the poor countries are increasingly recognizing health as a priority in national agendas and in their strategies aimed at poverty reduction. To significantly improve performance in the provision of health care in these countries, increasing per-capita health public expenditure in absolute terms should go hand in hand with making best use of available resources. A first priority is placed on pro-poor redirecting of health expenditures. Governments are also making efforts to harness the energies of the private and voluntary sectors in achieving better levels of health systems performance. An important challenge is to prevent corruption, bribery, and other illegal practices associated with malfunctioning health systems.(40)

An important issue these countries need to address is related to access. Health systems should protect people against the financial costs of illness. Yet, many low income countries have in place cost-recovery schemes that imply a regressive burden of user fee payments for health. The social safety nets complementing these schemes are often ineffective or inadequate .(41) The empirical evidence in the past decade shows that user fees can discourage in the poorest countries the recourse to formal health services, thereby negatively affecting health performances. Governments need to introduce better incentives, rather than deterrents, to facilitate people's access to health services.

Efficient and equitable provision of health care, which represents a classic public good, is primarily the responsibility of national governments. However, while achievements are possible when sound and consistent national efforts are coupled with adequate resources, the challenge for the poorest countries is at present superior to national capacities. There is scope for global concerted action.

Financing global collective action requires a commitment from the international community and innovative drive in the design and implementation of funding policies. Grants can be an useful instrument to leverage partenerships and fund activities whose returns may be greatly deferred in time or highly uncertain. Recreation of dedicated trust funds can be a useful tool to prioritize donor resauces and mobilize contributions by fundations and the private sector.

 

1.2 From Okinawa to Genova

In Okinawa, G8 leaders recognised that "health is key to prosperity" and that "only through sustained action and coherent international co-operation to fully mobilise new and existing medical, technical and financial resources, can we strengthen health delivery systems and reach beyond traditional approaches to break the vicious cycle of disease and poverty". G8 leaders also committed themselves to delivering three critical UN targets. They will work in strengthened partnership with other relevant international actors to reduce the burden from HIV/AIDS, Malaria and TB. The following aspects were considered essential to achieve the agenda:

1. Mobilising additional resources by industrial countries and calling on the MDBs to expand their own assistance to the maximum extent possible.

2. Giving priority to the development of equitable and effective health systems, expanded immunisation, nutrition and the prevention and treatment of infectious diseases.

3. Promoting political leadership through enhanced high-level dialogue designed to raise public awareness on health issues.

4. Committing to support innovative partnerships, including with the NGOs, the private sector and multilateral organisations.

5. Working to make existing cost-effective interventions, including key drugs, vaccines, treatments and preventive measures, more universally available and affordable in developing countries.

6. Addressing the issue of access to medicines and assess obstacles faced by developing countries in that regard.

7. Strengthening co-operation in the area of basic research and development on new drugs, vaccines and other international public health goods.

A further step forward came from the Okinawa follow-up International Conference. Some additional issues were identified:

1. improving co-ordination, building support on existing country level development policies, poverty reduction strategies and sector programmes;

2. building capacity nationally and locally as part of the strengthening of national health systems in the delivery of appropriate interventions.

3. reviewing the impact of the global and national dimensions of the partnership and progress toward targets, without duplicating monitoring activities undertaken by UN;

4. bringing current international initiatives (Stop TB, RBM, GAVI, etc.) in the framework of the partnership, recognising the need for further work to be done - prior to Genova - to deepen the understanding of partnership mechanisms.

5. encouraging and assisting South-South cooperation.

 

1.3 Specific objectives and proposals on health

The challenge in moving forward is to make this agenda operational through concerted global action within a framework of common guiding principles. The experience matured in the past twenty years demonstrates that aid provided by the international community has contributed to a significant improvement in the health conditions of millions of people. However, at the beginning of the third millennium, "Health for All" targets agreed upon in 1978 have yet to be reached; today, 880 million people are excluded from the most basic access to care and public services. In Okinawa G8 leaders reaffirmed the key role health plays in economic prosperity and human progress.

Poor health is recognised as a frequent consequence of socio-economic policies that fail to take into account possible effects upon the population's health. Health is clearly a multi-dimensional issue; therefore, investing in health requires a comprehensive approach. Policy makers should understand their common political responsibility regardless of sector or field of competence. Health should always be a priority in the Development Agenda.

Experience and evidence show that ‘selective action' against diseases in the absence of equitable and effective health systems may not succeed in eradicating diseases or improving the general state of health. Within the broader context of a comprehensive development approach that prioritises the improvement of people's life conditions, effective health systems should focus on prevention. Access to proper health services, in any case, appears to be a core issue.

Achieving these objective requires first and foremost that financial and technical support be provided to build capacity whitin national and local governments, communities and the private sector to design and implement effective programs, according to some selectivity principles, including:

 

Key proposals

1. Co-ordinating efforts to intensify international action. High-level commitment is needed for a strengthened partnership among all those involved in the development process at global, national and local levels.

A higher degree of co-ordination among institutional partners is needed. New formal structures or organisations, on the other hand, are not. A common framework must be pursued, whereby the specific mandate and stewardship of existing specialised organisations such as WHO and others in the UN system is reaffirmed and supported. At the same time, it is important to promote co-operation with NGOs and other relevant actors in civil society as well as with academic institutions and industry.

In order to reach established international goals, strong political will and increased public awareness are essential. In Okinawa, G8 leaders committed themselves to promote this through enhanced high-level dialogue. Political leadership can only be strengthened by public participation and consensus. This could be facilitated through the establishment of open global fora where issues relevant to health may be periodically and openly discussed. Conclusions should be formally included in the agenda of recognised international organisations and in particular the world Health Assembly.

2. Global action for local access to key medicines and supplies. Linkages of action at the country level with international efforts for better access to essential medicines and commodities, should be encouraged. The global partnership should aim to ensure that no country will fail to achieve its health objectives because of a lack of key affordable drugs and supplies.

As agreed in the Okinawa follow-up International Conference, the understanding of global public-private partnership mechanisms could be improved by analysing existing and forthcoming initiatives.

Incentives for research and development in areas such as that of international public goods (e.g. of key drugs and vaccines) foster opportunities for innovation and creative partnerships which can overcome market failures. New relationships between public and corporate sectors should bring greater health benefits to those who need them most while ensuring that at country level the responsibility and stewardship of Public Health Authorities remains a condition of those partnerships. Countries should be enabled to obtain access to information on the availability of essential medicines, and all the potential options for increasing availability and affordability of drugs should be put in place. This should include tiered pricing and support of the development of local productive capacity, with a particular emphasis on antiretroviral treatment (ARV) to address the spreading of HIV/AIDS in poor countries. There, major pharmaceutical companies should waiver, on a local basis, patent rights on drugs that are effective in combating major diseases.

To this effect, it may be necessary to explore together with other donors, multilateral and bilateral partners, new international procedures for effective financial transfer and reduced transaction costs. The creation of a Multilateral Health Facility may be proposed to bring current international initiatives (Stop TB, RBM, GAVI, etc.) into a partnership framework, to catalyse public and private contributions, and to make vaccines and drugs available to the poorest countries. The Multilateral Health Facility should be administered by the World Health Organisation to grant indispensable transparency and accountability.

3. Support for co-ordinated action under the aegis of national bodies At country level it is necessary to promote the identification of clearly defined national strategies. Coordination between governments, the U.N, MDBs, and others donors and the civil society should be reinforced to ensure that internaional support for health integrates country-driven policies and strategies. New formal structures or organizations are not needed but a common framework should be pursued to avoid the fragmentation of intervention in the health sector. PRSPs should represent the main tool for coordination through which all stakeholders and donors can give the adhesion to a comprehensive country approach, avoid duplication and establish stronger synergies.

4. Monitoring HIPCs For the highly indebted poor countries eligible for debt relief, resources freed up by debt cancellation are being redirected towards supporting core social investments in health and education that are the premise for poverty reduction and economic development. Further assistance is needed to ensure that the funds are effectively deployed into investment with high social returns so that HIPC countries will not face again an excessive debt burden diverting resources from vital use.

5. Measuring Progress – role of health indicators. The use of health indicators to measure progress towards more general development objectives was first suggested in the G7 summit in Lyon in 1996 and should be reaffirmed. Indicators are also essential to keep the focus on results, in relation to the major health conditions affecting poor people and vulnerable groups. Last year in Okinawa, the G8 leaders committed to reducing the impact of the three major communicable diseases (HIV/AIDS, Malaria and TB). Maternal mortality and morbidity, major childhood illnesses and other relevant poverty-related conditions as well as mental health conditions, chronic illness and physical disability should be added to this list.

6. Focusing Action where most needed. "Health for All" can only be pursued within a well-integrated sector-wide framework. It must be linked to poverty reduction and a long-term development strategy, including effective, financially equitable and responsive health systems that deliver positive health outcomes for the population as a whole. In the absence of the conditions for a sector-wide approach, it will nonetheless be useful to promote a sustainable and common framework around which partners can organise their assistance and investments; to seek commonalities and synergies between assistance programmes; and to use funds strategically and in ways that advance goals rather than divert national systems and plans with those of external agendas. The same approach should apply to supporting those communities struck by natural disasters and other calamities, and thus suffering from societal instability or complex emergencies. Here, too, promoting action for better health should remain the key focus.

7. G8 Statement on imports of medicines from DCs. The G8 should commit itself to prevent imports of medicines not produced in DCs, in order to avoid that countries re-export products imported at a lower price marked by pharmaceutical companies. The G8 countries should ask all OECD countries to adhere to the initiative.

8. Role of MDBs. MDBs should provide assistance to help the poor countries to design national health plans aimed at reducing barriers to access to health care and enhancing participation of the vulnerable. In low-income countries where the poor represent the majority of the population, an appropriate approach for achieving these objectives is to elominate user fees and cost-recovery systems which tend to drastically bar access anr represent an  unnecessary regressive tax, inconsistent with the focus on poverty reduction.(42) Such action should be balanced by careful and country-centred consideration of alternative prepayment schemes, which spread financial risk and provide insurance against rising cost of health care.

9. New Trust Fund for Health. A dedicated Trust Fund should be established, to be managed by the World Bank in strict cooperation with the WHO,(43) to catalyse public and private contributions to improve health in the poorest countries. An objective of the Fund is to operate a dedicated Multilateral Health Facility with the aim of making vaccines more affordable to low income countries and introducing widespread preventive and curative treatments.(44) The G7 should commit the initial start up of the Fund with a donation of $ 500 million, to match expected private contributions of an equal amount. The 1000 largest companies in the world would be invited to donate $ 500,000 each to this fund.

 

2. EDUCATION

There is a wide consensus that education is a key element for a strategy of poverty reduction, particularly if the education system acts explicitly to remove gender bias.

Investment in education enhances competitiveness and growth by improving labour market performance. It enhances the ability of the labour force to adapt to new market needs. It increases activity rates and potential output of the economy. It leads to higher productivity and to higher wages. A well trained workforce also allows the transfer of technology which is a key engine of growth.

Important synergies have also been established between health and education. Healthy children reap more benefits from schooling. Well-educated mothers will seek for better health care for their children. Better education also leads to reduced fertility and birth rates at large.

Empirical evidence confirms that long run economic growth is strongly related to investments in all levels of education, during schooling age and afterwards. The fastest growing developing countries are also those with the highest literacy rates. Differences in indicators of education such as enrolment rates are major explanatory factors of the growth differentials between countries.

2.1 The situation in the poorest countries

Last year, more than 113 million children could not have access to primary education, while 880 million adults were illiterate. Gender discrimination permeates education systems. Youth and adults are denied access to the skills and knowledge necessary for gainful employment and full participation in their societies.

Basic education is weakest in the poorest countries, both in terms of enrolment and literacy rates. Gross enrolment ratios for primary school lie between 70 an 80 per cent for almost all LDCs but are much lower for secondary school education (figure C.3). This leads to lower average years of schooling for the population of these countries which are not sufficient to reach an adequate level of literacy (table C.2). The problem is particular evident for women who receive less education and have less opportunity to receive training because few of them participate actively in the formal labour market.

Slow improvements in education in these countries is largely a result of the scarcity of resources devoted to this sector. Public expenditures per pupil in 19 least developed countries amounted to less than $ 40 in 1997 against an average $ 200 for a wider sample of developing countries excluding, among others, economies in transition, and $ 5,300 in more advanced economies (table C.3). As a consequence, the poorest countries also exhibit the lowest ratio of teachers per pupil  (45) and a number of schools insufficient for the needs of their population.(46)

The lack of progress in the education system of many developing countries also reflects the reduction of official aid flows directed to education by developed countries. In real terms, the ODA resources devoted to education in 1997 were less than half of those disposable in 1990 (table C.4).

Weakness in basic education reflect not only institutional endowments but also individual choices. Families invest in pupils' basic education if future benefits are higher than current costs. Three main reasons explain why in developing countries families tend to invest less in education in comparison to the rest of the world.

1. Low life expectancy reduces the gains that derive from investing in education.

2. Opportunity costs are higher since families have to give up additional income sources in order to allow pupils to study.

3. The cost of investment in education is relatively more onerous for poor families facing high interest rates when borrowing.

A strategy to increase the enrolment in basic education needs to have an impact on the variables that determine the family choices.

2.2 An agenda for action on education

Without accelerated progress towards more diffused and affordable education the objective of poverty reduction will not be achieved and inequalities across countries and within societies will widen. Among the International Development Goals published in 1996 by the OECD, there are two related to education:

The international community is called to support the poorest countries' efforts to enhance investment in education which produces high social returns. During the World Forum on Education held in Dakar, April 2000, international institutions and more than 150 countries developed a Framework for Action for making basic education available for all. They also agreed that the goal of education for all should be pursued by setting up national sector plans linked to a poverty reduction and development strategy. In Okinawa, G-8 leaders committed themselves to follow up on the conclusions of the Dakar Conference by ensuring that "additional resources are made available for basic education".

2.3 Specific objectives and proposals on education

Education programmes must be tailored to each county's need. There should be a well integrated sector framework (National Action Plan) linking it to a poverty reduction and development strategy covering issues such as health, social welfare, labour and the environmental aspects.

Primary and Basic Education

1. Education for all (efa) The G8 should confirm its strong commitment to the goals of universal primary education by 2015 and gender equality in schooling by 2005. We support the six major EFA goals established by the Dakar Framework for Action, with its additional focus on the improvement of adult literacy . We are aware, however, that objective difficulties remain.

2. Reducing barriers to access. All stakeholders, including MDBs, should focus on providing support to poor countries that plan to achieve free and compulsory primary education school, eliminating school fees and reducing other user costs (such as school uniforms or textbooks).(47)  These drastically bar access and are inconsistent with the focus on poverty reduction. MDBs should assist countries in building up alternative financing schemes for basic education and improving targeting through scholarships and other means.

3. Supporting institutions. International assistance should be aimed at strengthening institutions which have a crucial role to play in a) financing basic education, vocational training and continuous training; b) investing in infrastructures (schools, equipments); c) training the trainers; d) defining the education contents.

4. Involvement of civil society. The engagement of civil society in the formulation, implementation and monitoring of National Action Plans is essential. National governments should receive support in order to involve all local stakeholders in the creation of an environment that is welcoming and encourages learning. While the existence of a well-thought out National Action Plan is essential, it is only one side of the equation. Its success depends equally on the people that it is there to serve. Therefore, it is necessary to consider what other actions need to be taken to make the educative process more convincing. Failure to do this will ensure continuing problems with low enrolment rates and high drop out rates. Not only do the people need to be convinced of the benefit of education programmes, but the education offered needs to be relevant to the local situation. If costs are seen as being too high, the situation will not improve.

5. Enforcement of measures against child labour. Several ILO conventions regard child labour. Convention n. 182 , in particular, focuses on the worst forms of child labour. To reduce the number of children that do not attend school, countries should implement strict legislation and monitoring systems. The ILO international programme on the elimination of Child Labour (Ipec) can be considered good and effective. Beneficiary countries sign a Memorandum of Understanding with the Ipec-ILO Programme and take clear and verifiable commitments to reduce child labour exploitation in a fixed term. A mechanism to monitor the child labour situation and the implementation of child labour policies and programs represents the main instrument for such an effective methodology. The programme should especially aim to bring drop-outs back to school to reach an adequate level of basic education.

6. Teacher  training and information communications technologies (ICT). Teacher training and materials availability must move in tandem with proposals to expand education programmes. Educational institutions must be supported in order to secure well-motivated and professionally competent teachers. Educational content must not only provide skills and knowledge needed to secure better jobs, but also lead to a better quality of life, both on the individual and the community level. In this context, once a certain level of basic education exists, developing and strengthening instruction on ICTs can be extremely useful in making leaps forward. Combined with more conventional educational methods (books, radio), it has great potential for knowledge dissemination and could be used extensively in teacher training. International organisations can play an important role in helping poor countries exploit the potential of distance learning for more diffused education and more efficient teacher training by overcoming two main entry barriers: the technological endowments and high initial fixed costs. Modern technologies, particularly internet via satellite, can reach people everywhere and provide training at very low infrastructure costs.

7. Environmental protection and healt care. Education has a crucial role to play in supporting national policies for the protection of the environment and for the prevention of serious diseases (e.g. AIDS) which endanger the youngest sections of the population. Qualified teachers are necessary to bring not only targeted information to the young and their families to avoid risks, but also to create the capacity to ask for effective preventive measures.

8. Monitoring .The development of an agreed system of indicators to achieve EFA goals is highly advisable. Monitoring country progress towards education goals through a comprehensive and effective system of indicators allows to identify committed countries to which international resource allocation and investment will be attracted. UNESCO could identify – in a concerted way as part of the ‘Partnership in statistics' launched by the OECD,the UN and the World Bank – a set of specific indicators to be reviewed each year in the context of the national education plans.

Adult Education, higher and continuing Education

Competitiveness depends on several factors including human capital endowments; but the adults remain often at the periphery of education systems. This is a serious drawback for developing countries that aim to reap the benefits of globalisation. The scaling up of participatory learning methodologies developed by NGOS, which link literacy with empowerment and local development can result in well-targeted literacy programmes.

9. Post-school education. Basic education is not sufficient. Poor countries should be assisted in establishing a system of demand-driven vocational training to improve employability in formal sectors and to reduce adult illiteracy, particularly for women. To increase the enrolment ratio, secondary schools should have a link with the labour market so that they will be perceived as an instrument to get a better job in the future. Public/private partnerships can play a relevant role in sustaining continuing education and vocational training. Firms should also provide internships in order to create a strong link between students and firms. This strategy can increase opportunities during active life, with relevant income redistribution effects.

10. Contribute to tertiary education. Developed countries should contribute to improve the quality of tertiary education in priority areas through programs of international co-operation among universities. G8 countries should support bilateral agreements between universities in order to favour exchanges of teaching methods and technological equipment.

11. Establish a Trust Fund for mobilising additional resources. A dedicated Trust Fund on education, catalysing public and private contributions, should be established at the World Bank in close collaboration with UNESCO. The Trust Fund will build up a resource base to finance education projects in the poorest countries by matching one by one the amount of resources spent by each of them in this area which respond to clear criteria for impact and effectiveness as listed below.

 


24 See Borensztein, de Gregorio and Lee (1998).

25 Saggi (2000), Sachs (2000).

26 See The World Bank, Global Development Finance 1999.

27 See The World Bank, ibidem.

28 Singh and Jun (1995). They find that export orientation is the strongest variable for explaining why a country attracts FDI, in line with the secular trend towards increasing complementarity between trade and FDI.

29 The share of majority-owned M&A sales to net FDI flows to developing countries reached 28 percent in 1998, of which 13 percent represented privatizations.

30 In 1998 ODA flows accounted for 84 percent of total resources inflows in LDCs.

31 UNCTAD, The Least-Developed Countries 2000 Report, United Nations, 2000.

32 After a three-year effort, negotiations for the Multilateral Agreement on Investment (MAI) carried out within the OECD foundered in December 1998 due to the difficulties encountered in achieving a comprehensive agreement on issues affecting a variety of groups and requiring trade-offs among social, political, growth and environmental objectives. It has been proposed that the issue be taken up at the WTO, although no conclusion was reached in Seattle last November on possible initiation of investment rules negotiations in the new round.

33 Tax incentives are typically not important determinants of multinational firms' geographical choice for FDI. Tax competition to attract FDI is particularly harmful in countries like the LDCs, which encounter difficulties to widen their tax bases and reduce tax rates for the formal sector. Granting tax incentives to incoming multinationals has primarily been associated with corruption and the protection/creation of special interests. Corruption and bribery impair investor confidence, reduces policy predictability, and burdens business costs in LDCs. The OECD Bribery Convention has been promulgated which requires signatories to adopt anti-corruption legislation. One further step might be to develop and promote adoption of guidelines for best practices in tax incentives and investment regulations that may create scope for FDI-related bribery.

34 In a few areas, such as for instance corporate governance, international bodies have already started to develop principles, standards and best practices.

35 Capacity building technical assistance should primarily take the form of grants instead of loans; donors should untie technical assistance; an increasingly competent pool of developing-country advisers have demonstrated to be more effective means for bringing, adapting and diffusing advanced techniques into local environments.

36 See Bosworth and Collins (1996); IMF, WEO May 2000.

37 See UNCTAD, ‘The LDCs 2000 Report'.

38 Today over 40 million HIV-positive people, 95 per cent live in less developed countries, mostly in Sub-Saharian Africa. HIV/AIDS kills over 2 million people in Africa alone each year, more than 10 times the number of those perishing in wars and armed conflicts. Women are particularly vulnerable to HIV infection due to both social and biological factors.

39 Malaria kills at least 1 million people each year and infects 500 million people. 90% of cases occur in Africa, while 40% of the world's population is at risk. The major impact is on women and children. 700.000 children will die from malaria this year – one death every 30 seconds. Women are four times as likely to suffer malaria attacks during pregnancy. Complex emergencies and natural disaster increase malaria risk.

40 See WHO (2000).

41 In many of these systems the percentage of the poor people exempted from fees is too high and the errors associated to the targeting mechanisms become tendentially infinite.

42 Such an approach is for istance endorsed in recent legislation by the Italian and US Parliaments.

43 The management structure of the Trust Fund could be based on the model of the GEF (Global Environment Facility). Decisions at GEF are taken through a double majority: the majority of shareholders (by donor shares) and the majority of countries (similarly to the UN system)

44 As recent initiatives for public-private partenership by countries, pharmaceutical companies, and international foundation highlighted, there is growing momentum to make AIDS care and treatment more accessible through a comprehensive drug package. New developments include the possibility of integrating the prophylaxis treatment for mother-to-child transmission with a full antiretroviral maternal post-partum treatment to solve problems regardig transmission of HIV through breastfeeding and to ensure the survival of the mother.

45 The problem is particularly relevant in Africa where 21 countries out of 36 where data are available have a pupil-teacher ratio for primary schools equal or over 40, with evident effects on the quality of teaching and the capacity for pupils to learn (UNESCO).

46 Whereas for example in Italy or in France the number of pupils per primary school is around 100, in many African countries this number is higher than 400; considering that the greatest part of the population live in rural areas, it means that often schools are very far from the household.

47 This approach is consistent with recent legislation of the US and Italian Parliaments.

 


Source: Italy, Ministero degli Affari Esteri (all accessible at http://www.esteri.it/g8/docum.htm)

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