Following a turnaround in Latin America’s economic fortunes, there’s a new momentum for sustainable development as governments align themselves with NGO efforts
It wasn’t always destined to happen this way. As recently as the late 1990s, most Latin American countries remained politically isolated, their economies hindered by a provincialism that halted regional integration and stunted global trade.
Little more than a decade later, much has changed.
Thanks, in part, to a new crop of leaders and a commodities “super cycle” that continues to generate large tax revenues, Latin America is booming like never before. Overall, the middle class has increased by 50%, while the percentage of Latin Americans living in poverty has fallen by almost a third.
Conditions would appear to be right for a fuller embrace of sustainable development models. In other words, economic growth based on the exploitation of natural resources can continue, but in a way that reduces environmental risks and promotes social inclusiveness.
Latin America has some of the world’s top solar, wind and geothermal resources, and yet the region still only garners 5% of global investment in clean energy. Opportunities should abound.
As for agriculture, according to the Inter-American Development Bank, since 1990 productivity in farming has risen faster than in eastern Asia or the US. Much of that gain, however, has translated into vast new fields of soy run by transnational companies. Agribusiness exports have soared, often at the expense of smallholder farmers and the rural poor.
What hasn’t yet transpired is a comprehensive, cross-cutting approach that integrates natural capital as an element in economic sustainability.
That may soon change, however, if a new nationwide compensation scheme in Colombia is adopted elsewhere in the region. For the first time, companies investing in large infrastructure projects must compensate for any loss of biodiversity caused by their operations. Passed in January 2013 after consultation with US environment NGO The Nature Conservancy, the offset law is a leading example of the way governments and civil society are working together to change private sector behaviour.
Governments and the non-profit world are also collaborating through national development banks, which are acting to catalyse green development in areas ranging from infrastructure and certified agriculture to jobs training, health services and renewable energy investment.
Sustainable public-private partnerships and lending to micro, small and medium-sized enterprises are two methods of engagement, though observers say there isn’t any one standout model. Rather, different approaches are being tried – with success stories now beginning to emerge from across the Americas.
IDB steps in
Founded in 1959 and with a present membership of 48 countries, the Inter-American Development Bank (IDB) is the oldest and largest multilateral development institution in the region. Only in around 2003, however, did it begin to confront an ideological rift that had seen large, top-down projects dominate a lending portfolio whose overriding principles were the privatisation and deregulation of virtually all economic activities.
The bank’s lending performance has since improved – with critics giving considerable credit to the multilateral investment fund (MIF), a unit of the IDB whose function is private sector-led development in support of micro, small and medium-sized enterprises.
“We would characterise ourselves as accidental environmentalists,” says Carrie McKellogg, chief of the MIF’s access to basic services and green growth unit.
Initially MIF focused on sharing information on efficient use of natural resources such as water and energy inputs. “That was purely because we saw that energy costs were a significant share of firms’ cost structure, and anything we could do to lower those costs would make them more competitive,” says McKellogg.
Over time, the unit shifted towards leveraging natural capital in areas of forestry, eco-tourism and agriculture certification. The idea, McKellogg says, was not just to provide expertise and funding, but also to “create those industries” while pushing the boundaries into areas like clean energy and climate adaptation.
Environmental NGOs and local business associations were the partners among a network of alliances that leaned heavily in the direction of the private sector. Over the past three years, that’s changed considerably as more governments have established favourable policies towards clean energy installations, says Gregory Watson, the MIF’s environment and clean energy team leader.
First among them is Brazil, which attracted 80% of all clean energy investments, according to ClimateScope 2012, an annual ranking of Latin American countries prepared by Watson and his team.
Surprisingly, Nicaragua ranked second, in large part because of unusually high levels of green microfinance penetration. It also has the region’s third-highest share of renewables, with 305 megawatts of its energy coming from clean power. In 2011 alone, it received $117m in investment for geothermal energy and $95m for wind. Coming in third was Panama, a fast-growing economy fuelled by a canal expansion, and Peru, which ranked first in a 2011 Global Microscope survey of countries with favourable microfinance policies.
Costa Rica, which is trying to become the first carbon-neutral country, scored only eighth on the list, largely because of its high electrification rates and the domination of a vertically integrated public utility that is the sole power purchaser in the country. Nevertheless, the country generates 90% of its energy from renewable resources, according to the environment ministry, and is home to the world’s first carbon-neutral coffee producer. It is implementing cleaner technologies in public transportation and in the process of establishing a national registry for the purchase and trading of carbon.
Watson credits Chile with creating quasi-governmental agencies devoted to spurring on investments in both renewables and energy efficiency. In February 2013 Chile launched a bid for a $6bn concentrated solar power plant, a first for the region. It has also installed solar and mini-wind facilities to power irrigation systems and worked with farmer cooperatives in the north and centre of the country interested in energy efficiency.
As for “anchor” companies – international operators with a major local presence – that’s where you start to see all these programmes come together, says Miguel Aldaz, of the IDB’s office of outreach and partnerships. “It’s not only in regulatory matters where the government has an impact, but also in implementation of services where we see the joining of public and private at its most effective,” Aldaz says.
Companies such as Microsoft, SABMiller, PepsiCo, Nestlé and Wal-Mart are now all working with the bank in pilot programmes that Aldaz refers to as “multistakeholder entrepreneurships”. They rely upon private sector innovation in matters of logistics, marketing and skills training (see box).
“The big issue we find is in building trust,” Aldaz says. “There is a lack of trust and familiarity among players. That is where we come in – as a neutral institution which is on the ground with local offices helping to identify opportunities and manage risk and ultimately bridge differences.”
Oxfam starts small
Though Oxfam has had a presence in Colombia for more than 25 years, only recently has it begun to work actively in the country to scale up its small enterprise development programmes. In the region as a whole, the most successful of these link producers to local markets, says Celeste Molina, regional sustainable food systems coordinator at Oxfam.
Oxfam’s Mercados Campesinos programme, which establishes urban farmers markets, was piloted in Bogotá and has now been replicated in Honduras and El Salvador. “It’s an emblematic model demonstrating that with appropriate public policies and fair and sustainable access to markets, the peasant economy is not only a means to reducing poverty and inequality but also a viable way to improve access to food at better prices for urban consumers,” Molina says.
Oxfam does not work in microfinance and has acted instead as a guarantor or co-investor in cooperative enterprises that financial institutions often deem too risky. Financing comes from the organisation’s enterprise development programme, which in the last five years has disbursed £3m to 17 projects in 15 countries. Those include an alliance of dairy farm cooperatives in western Colombia and a producer-owned collective in Honduras connecting fruits and vegetable farmers to local supermarkets.
“In some cases we do work with the private sector,” says Fabian Llinares, an enterprise coordinator for the enterprise development programme in Latin America and the Caribbean at Oxfam. “We only do this if it provides higher profile in markets for smallholder producers.”
Banking on development
The environment for sustainable public-private partnerships has never been better, according to Miguel Aldaz, a lead partnerships officer in the Inter-American Development Bank’soffice of outreach and partnerships. Aldaz says his unit, charged with being a facilitator among governments, civil society and the private sector, often acts as the “glue” that holds all the parties together.
One good example, says Aldaz, is a deal his office structured, negotiated and co-financed – together with PepsiCo Foundation, Japan Fund for Poverty Reduction, Give to Colombia (an NGO executing partner), and others – for a pilot project in access to water and sanitation that enlisted the government of Colombia as an active learning partner. The pilot aims to test and tune up the methodologies and procedures that the government will then apply in a much larger scale through a $60m sovereign guarantee IDB loan.
“In other words,” says Aldaz, “while civil society and philanthropic partners provide the resources to test pilot projects, IDB knowhow and linkages with governments aim to scale up the results.”
This is the approach IDB is also using in partnership with Microsoft, Caterpillar, Wal-Mart, Cemex and Arcos Dorados. The bank’s private and public sector operations are working together in expanding effective job training and placement models, reaching one million young people in Latin America and the Caribbean over the next decade.
As for large infrastructure projects, an emerging cluster of countries have improved their capacity and readiness for PPP investments. The top reformer group is led by Colombia, Uruguay, Guatemala, Costa Rica and El Salvador, all of which have accelerated regulatory change and capacity building, according to Carrie McKellogg, chief of the IDB’s multilateral investment fund’s access to basic services and green growth unit.
Ultimately, says Aldaz, the bank wants to create inclusive, standalone industries so that Latin American countries can begin to diversify beyond commodities. Inclusive recycling, which integrates informal waste collectors into the recycling market, is one such project. It has the potential to reach an estimated four million people and is supported by the Bill & Melinda Gates Foundation, Avina and Coca-Cola. A total of six pilot efforts are envisaged in Colombia, Peru, Bolivia, Argentina and Brazil, where technical assistance will support regulatory reform and outreach to both municipal representatives and waste-picker cooperatives.Eric Marx Latin America NGO South America sustainable business sustainable development