Making It: Industry for Development (#13)

MakingItIndustry for Development

Innovation

n ArnoldSchwarzenegger

n Montenegron Jugaad: think

frugaln Ethiopia’s

soleRebels

Number 13

makingit_13_cover_print 11/06/2013 10:02 Page 1

NUMBER 1lWe must let nature inspire us– Gunter Pauli presents analternative business model thatis environmentally friendly andsustainable lHot topic: Is itpossible to have prosperitywithout growth? Is ‘greengrowth’ really possible?

NUMBER 2lThe International EnergyAgency’s Nobuo Tanaka looks atenergy transitions for industry l Energy for all – KandehYumkella and Leena Srivastavaon what needs to be done toimprove energy access

NUMBER 3l China’s stunning economicrise: interview with minister ofcommerce, Chen Deming l Towards a more productivedebate – Ha-Joon Chang callsfor an acceptance thatindustrial policy can work

NUMBER 4l Strengthening productivecapacity – Cheick Sidi Diarraargues that the LDCs should –and can – produce more, andbetter quality, goods l PatriciaFrancis on climate change andtrade l Hot topic: The relevanceof entrepreneurship

NUMBER 5lA window of opportunity forworld trade? – Peter Sutherlandassesses the prospects for theconclusion of a multilateraltrade agreement l A path tomutual prosperity –Xiao Ye ontrade between sub-SaharanAfrica and China

NUMBER 6l Feeding a crowded world –IFAD’s Kanayo Nwanze arguesthat smallholder farmers musthave opportunities to beentrepreneurs l Nestlé CEOPaul Bulcke on ‘Creating SharedValue’ l Hot topic: Does energyefficiency lead to increasedenergy consumption?

NUMBER 7lThe globalization paradox –Dani Rodrik l Unfair share –Thomas Pogge on affluentcountries’ responsibility forincreasing global poverty l Hot topic: Is nuclear powernecessary for a carbon-freefuture?

NUMBER 8l Closing the gender gaps –Michelle Bachelet onovercoming the barriers thatprevent women from seizingeconomic opportunitiesl Engineering eco-friendlysolutions – Carolina Guerra onhazardous waste in Colombial Hot topic: Growth: the end ofthe world as we know it?

NUMBER 9l Jeremy Rifkin on the ThirdIndustrial Revolutionl Morgan Bazilian and KandehYumkella on the new economy:inclusive and sustainablel Hot topic: Climate change,climate action

NUMBER 10l Klaus M. Leisinger, chair ofthe Novartis Foundation forSustainable Development, onthe intersection betweenindustry and health l D-Rev’sKrista Donaldson on designinghealth care equipment for thedeveloping world l Hot topic:Gas flaring

NUMBER 11l Mei Yi, president of AIESEC,on the keys to effective youthengagement l Perspectives onthe Arab Spring l Sustainia –the world of tomorrow l Hot topic: The ‘Girl Effect’

NUMBER 12l Fernando Pimentel on doingbusiness in Brazil l Profile ofChina’s trail-blazing BroadGroup l Devaki Jain on thefeminists of the South l Hot topic: Fracking

A quarterly magazine.Stimulating, critical and constructive. A forum for discussionand exchange about theintersection of industryand development.

makingit_13_pp2-3_intro_print 11/06/2013 10:04 Page 2

MakingIt 3

EditorialAccording to a leader published in The Economist in February 1999,“innovation has become the industrial religion of the late 20th century.”The leader continued, “Business sees it as the key to increasing profitsand market share. Governments automatically reach for it when tryingto fix the economy.”

Since then, the relevance and importance of innovation has grownstill further. Over the past two decades, it has become clear that it has apivotal role in development. The build-up of innovation capacities hasplayed, and continues to play, a central role in the growth dynamics ofsuccessful developing countries.

There are other compelling reasons why the issue of technologicalinnovation demands attention. The world is in the midst of a seriouseconomic crisis, and technology can be a means of re-launching orrecreating economic activities worldwide. Major environmentalchallenges, in particular, climate change and resource scarcity, requirewide-ranging changes in patterns of production and consumption. The global system is undergoing a profound transformation based oninformation technology and other fields such as biotechnology andnanotechnology.

All over the world, people are realizing that we should be morefrightened of sticking with old ideas than embracing new ones.

Illus

trat

ion:

ww

w.C

arto

onSt

ock.

com

“This really is an innovative approach,but I’m afraid we can’t consider it.

It’s never been done before.”

makingit_13_pp2-3_intro_print 11/06/2013 10:04 Page 3

MakingIt4

GLOBAL FORUM6 Letters8Arnold Schwarzenegger on the coalition of forces which believesthat climate change and greeneconomic development can betackled at the sub-national level10 Hot topic – At the intersection of technology and development Two perspectives on the potentialof information communicationtechnologies to develop changeand change development

16 Business matters –news and trends

FEATURES18 The what, why and how ofinnovation policy– UNIDO’s Frank L. Bartels considers the basics of innovation policy fordeveloping countries 20Taking a leap – Wim Naudé and Adam Szirmai on innovationand entrepreneurship indeveloping countries

KEYNOTE FEATURE24 More with less: resource scarcityas a catalyst for green industrialdevelopment – Peder Holk Nielsen,President and CEO of Novozymes,one of the world’s leadingindustrial biotechnologycompanies

MakingItIndustryforDevelopment

The designations employed and thepresentation of the material in this magazinedo not imply the expression of any opinionwhatsoever on the part of the Secretariat ofthe United Nations Industrial DevelopmentOrganization (UNIDO) concerning the legalstatus of any country, territory, city or area orof its authorities, or concerning thedelimitation of its frontiers or boundaries, orits economic system or degree ofdevelopment. Designations such as“developed”, “industrialized” and“developing” are intended for statisticalconvenience and do not necessarily express ajudgment about the stage reached by aparticular country or area in the developmentprocess. Mention of firm names orcommercial products does not constitute anendorsement by UNIDO.The opinions, statistical data and estimatescontained in signed articles are theresponsibility of the author(s), includingthose who are UNIDO members of staff, andshould not be considered as reflecting theviews or bearing the endorsement of UNIDO.This document has been produced withoutformal United Nations editing.

Contents

Editor: Charles [email protected] committee:Jean Haas-Makumbi, SarwarHobohm (chair), Kazuki Kitaoka,Matilda Muweme, Cormac O’Reillyand Jo Roetzer-SweetlandCover illustration: Matt HerringDesign: Smith+Bell, UK –www.smithplusbell.comThanks for assistance toMira KapfingerPrinted by ImprimerieCentrale, Luxembourg, on PEFC-certified paper –http://www.ic.lu To view this publication online and toparticipate in discussions aboutindustry for development, please visitwww.makingitmagazine.netTo subscribe and receive future issuesof Making It, please send an emailwith your name and address [email protected] It: Industry for Developmentis published by the United NationsIndustrial Development Organization(UNIDO),Vienna International Centre, P.O. Box 300, 1400 Vienna, AustriaTelephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69E-mail: [email protected] 13, 1st quarter 2013Copyright © The United NationsIndustrial Development Organization No part of this publication can beused or reproduced without priorpermission from the editorISSN 2076-8508

40

makingit_13_pp4-5_contents_print 12/06/2013 09:05 Page 4

MakingIt 5

30 Use jugaad to innovate faster,cheaper and better – Navi Radjou,Jaideep Prabhu and Simone Ahujasay think frugal, be flexible andgenerate breakthroughs34 Meeting global challengesthrough innovation – WIPODirector General, Francis Gurry,outlines the role that a balancedintellectual property system playsin incentivizing investment in new technologies 36 Country feature: Montenego –A look at South-east Europe’seconomic standout, including an interview with PresidentFilipVujanović40 Good business – soleRebels, theinnovative footwear manufacturer,sells its range of artisan shoesmade from recycled materials in 55 countries and is now one ofEthiopia’s thriving businesses

POLICY BRIEF 42 Green economies forsustainable resource use44 Could shifting the location ofproduction bring GHG benefits?

46 Endpiece – Edward Barbierhighlights the spatial povertytraps found in rural areas in thedeveloping world

20

16

30

makingit_13_pp4-5_contents_print 12/06/2013 09:06 Page 5

LETTERS

MakingIt6

DisseminatingideasI find Making It magazine a veryuseful source of information ondevelopment issues. For manyyears, industrial policies havebeen a taboo in mainstreamdevelopment blogs andnewspapers. While there aremany scientific researchdocuments on industrialization,it is hard to find them in a“friendlier” format – and I thinkthis magazine addresses thisniche.

Also, it approaches gender andenvironmental issues within thecontext of industrialization.Many development advocatesoften think the former two areasare not linked to (or are evenopposed to) industrialization!

In other words, I think thismagazine is a great way todisseminate ideas that canimprove today’s developmentnarrative. l Beatriz Calzada, MAInternational and DevelopmentEconomics, Hochschule fürTechnik und Wirtschaft Berlin,by email

Thanks @makingitmag forsharing your magazine with us!Great topics!l @HUBOttawa, a co-workingcommunity uniquely optimizedfor innovators, artists,professionals and entrepreneursto collectively create positiveimpact, by Twitter

North-SouthSome important issues wereraised in the keynote article onSouth-South cooperation(Making It issue 12). I agree withJayati Ghosh when she says thatmany recent South-South tradeand investment agreements(and the resulting processes)have been similar inunfortunate ways to North-South ones due to “corporate”interests. But how useful is it todivide the global economy intothe “North” and “South” at all?If we look at foreign directinvestment, whole swathes ofthe world receive very little. A recent United Nations report,World Investment Report(UNCTAD 2012), shows thatdeveloping countries received45% of foreign investmentflows in 2011, but this wasdistributed highly unevenly.Thirty per cent of it went to oneof the emerging countries,China, yet the whole of theAfrican continent received only6.2% – a mere 2.8% of the worldtotal. In economic terms, itseems absurd to include both

China and Africa in the “South”,particularly as the largestcorporations in the world arediving into every sector of theChinese economy. Usingmeasures for individual nationstates also masks the widelydiffering regional dynamics ofchange in production acrossthe whole world. The mostpowerful country in the “North”by a mile, the United States, hasa new phenomenon: “ruralsourcing”. Companies havefound they can get away withpaying 25 to 50% less in wagesin small rural towns than in bigcities – a “corporate interest”that should be abhorred, Northor South. l James Robertson, Edinburgh,UK, by email

YoungentrepreneursI like your series about youngentrepreneurs (“I think thereare many more youths whocould realize their potential”,Making It issue 11). Please can

you provide updates letting usknow how they have got on sinceyou first wrote about them? I think it would be great to knowif their businesses have thrivedor, if not, what challenges theyhave faced. I am particularlyinterested in the Tunisian windturbine company. When is theirproduct going to make a marketimpact? l Kelly Manson, websitecomment

A differentprosperityThank you for the article byChandran Nair (“No escapingthe numbers”, Making It issue10), where he wrote, “Asianpolitical leaders must reject theWestern consumption-drivenmodel of economic growth. Inits place, they must createeconomies where resource-useis constrained via a true pricingof environmental externalities.”This is very much aconversation that the West’s eliteneeds also to have. For the most

The Global Forum section of Making It is a space for interaction anddiscussion, and we welcome reactions and responses from readers aboutany of the issues raised in the magazine. Letters for publication in Making Itshould be marked ‘For publication’, and sent either by email to:[email protected] or by post to: The Editor, Making It, Room D2142, UNIDO, PO Box 300, 1400 Wien, Austria. (Letters/emails may be edited for reasons of space).

GLOBAL FORUM

makingit_13_pp6-15_globalforum_print 11/06/2013 14:16 Page 6

MakingIt 7

part, the majority of those inthe West (both recent andgenerational) have been largelyat the mercy of “growthism”via immigration-to-ruinpolicies, which use the lure ofprosperity to drive inequalityboth domestically andglobally.

It is good to see Japan’spopulation declining and as itdoes, their quality of lifeimproving – they have lowerunemployment than the USand Europe, and their ratio ofGDP to GPD per capitasuggests a reasonable spreadof income in stark contrast toEurope and the USA. Theycertainly have hurdles, forinstance the contention ofresources with China, but

Japan is certainly turningconventional Westerneconomics on its head. Andfurthermore, the US is turningconventional Westerneconomics on its head with thegrowing realization thatpopulation growth anddevelopment are costs and thateconomies only really recoverwhen population growth slows,stabilizes or even declines – notthat there is much scope forrecovery now. As ChandranNair suggests, a differenteconomic model with adifferent view of prosperity isneeded – e.g. food/water andbasic energy security,environmental health, etc. l Matt Moran, websitecomment

Good news forBangladeshThe information in the articleon Viyellatex (“Good business”,Making It issue 10) is very goodnews for us and for Bangladesh.I think Echotex Ltd, ChandraPolli Bidyut, Kaliakoir, Gazipur,is another example of a factorythat is trying to be fully eco-friendly and trying to conformto government andenvironmental rules andregulations. Already this factoryhas received some nationalawards in recognition of itscontribution in saving theenvironment through ethicalbusiness practice. This factory istrying to disperse zero discharge

waste from its effluent treatmentplant (ETP) using a biologicaltreatment and it is re-using hugeamounts of water and heat to saveenergy and the environment. l Abu Bakar Siddique, websitecomment

SubscriptionAlthough I read your magazineonline, I much prefer to readprinted copies. Is it possible tobuy a subscription? l Keith Burkinshaw, New York, by email

Editor’s reply: A subscription tothe print version of Making It isfree of charge. Just send yourname and mailing address [email protected]

For further discussion of theissues raised in Making It, pleasevisit the magazine website atwww.makingitmagazine.net andthe social networking Facebooksite. Readers are encouraged tosurf on over to these sites to joinin the online discussion anddebate about industry fordevelopment.

ADVERTISEMENT


MakingIt8

GLOBAL FORUM

Humanity is facing inextricable challengesdue to climate change, and action needs tobe taken at all levels to drastically reducegreenhouse gas (GHG) emissions. Thegreen economy concept can be thought ofas an alternative vision for sustainablegrowth and development, consistent withthe need to reduce GHG emissionsglobally.

The ideal pipeline of clean energy projectsis not currently happening, even thoughintergovernmental bodies, nationalgovernments, sub-national governments,non-governmental organizations,academics, technology providers, and publicand private financial partners share the samevision and want concrete action. This is dueto a number of factors:

l National and sub-national politicianslack awareness of the long-term political,technical and financial solutions for asustainable, safe and clean economy;l Project developers do not know how toidentify, design and communicate the rightinformation to project investors;l Investors are not sure how low-carboninvestments fit into their existinginvestment instruments and portfolios.

The R20 is a non-profit organization that,together with the United Nations, I foundedin 2010. Its goal is to address these factors atsub-national level to help build an effectivegreen deal flow. This is made possible byconnecting regions, technology and financeto build sustainable low-carbon projects.The R20 plays the role of a global facilitatorbetween public and private stakeholdersinvolved in sustainable development.

The R20 mission is to provide guidanceand accompany sub-national governmentsduring the long and complex transition tothe green economy. The R20 is an impartialand independent organization, playing anintermediary role on behalf of private andpublic entities interested in taking concretesteps to developing green economicactivities and projects.

Global facilitatorThe R20 network today forms a worldwidecoalition of partners and members willingto share their expertise and to mobilizethemselves in order to push in the samedirection. This coalition intervenes ondemand from sub-national authorities, tohelp states, provinces or regions around theworld to develop, implement, andcommunicate low-carbon and climateresilient projects, policies, and bestpractices.

Bottom-up approachIn order to shift to a greener economy, thecommitment of everyone is needed. Inparticular, sub-national authorities have an

Implementing thesustainable energy future

Phot

o: M

ikha

il Ev

staf

yev

Arnold Schwarzenegger on the coalition of forces whichbelieves that climate change and green economicdevelopment can be tackled at the sub-national level.


MakingIt 9

GLOBAL FORUM

important role to play, as there are manyopportunities in their hands. The vastmajority of sub-national governmentsaround the world have proven their will toimprove the quality of life of their citizensand contribute to a sustainable globaleconomy. They know well the needs andopportunities available within their ownterritories. However, despite their politicalweight, sub-nationals may lack experience inbuilding projects and having them financed,which can greatly restrain their capacity tobring about the change they seek.

The R20 bottom-up approach enableslocal governments to implement amultitude of projects that can only bemanaged at sub-national level. Sub-national priority areas include: cleanpublic transport, energy efficiencybuilding permits, LED street lighting,wind farming, micro-hydro, solar PVand waste-to-energy projects. Suchprojects are in the hands of mayorsand/or presidents of districts, regions andprovinces. Moreover, recent researchpublished by the UNDP shows that 75% of thepotential solutions to a low-carbon economylie with the sub-national governments.

Focus on projectsThe R20 is focused on concrete and practicalsolutions; the main goal is to implement real,sustainable projects helping mitigation andadaptation to global warming. In order tofulfill its mission, the R20 is building apipeline of sustainable, bankable projectsaround the world. The R20 strongly believesthat it is time to scale-up from a

philanthropic, social, corporate responsibilitymarket to a more mature and regular market.

Following its business model, the R20 hasidentified and contacted numerouspotential investors, both public and private,and through discussions and questionnaires,the R20 has identified the specific needs andexpectations of these investors.

This process forms the basis of the R20Green Finance Network, which allows theR20 to accurately select, for a given project, a

potential matching investor. The R20 iscontinuously updating this network.

During 2012, in less than 12 months, theR20 applied this unique business modeland managed to identify and presentaround one billion dollars’ worth ofsustainable and bankable sub-nationalprojects to potential investors, with a firstcommitment of US$150m private equityfrom a private investor. R20 thusdemonstrated that building a suitablepublic environment for investment withpublic pre-investment funding can leveragemuch larger private investment. Theambition of the R20, with larger partnerssuch as UNIDO, is now to replicate andscale up in order to meet the UNsustainable energy for all targets.l For more info on R20 Regions of ClimateAction, check www.regions20.org

As Governor of California from 2003 to 2010, environmental action man ARNOLD SCHWARZENEGGER made the state a world leader in renewable energyand combating climate change. He implemented a number of ground-breakingsustainability policies, including the landmark Global Warming Solutions Act of2006, the Hydrogen Highway Network and the Million Solar Roofs initiative. In 2010, together with other sub-national leaders, he created the R20 Regions ofClimate Action organization.

• National governments• Sub-national government

– Policymakers– Capacity builders

• Engineers• “Best practice”technology holders• Service providers• Academics

Public Investors• National• Sub-national• Sovereign funds• Bilateral funds• Multilateral funds

Private Investors• Banks• Pension funds• Private equities• Hedge funds

Finance

Regions Technology

• Carbon reduction certificates• Energy savingscertificates• Ecological audits• Social audits

Sustainable Finance

R20


HOT TOPIC

MakingIt10

GLOBAL FORUM

Two perspectives on the potential of information communicationtechnologies to develop change and change development

Mobile technologies are opening newchannels of communication betweenpeople and governments, potentiallyoffering greater access to publicinformation and basic services to all. Noother technology has been in the hands ofso many people in so many countries insuch a short period of time. In fact, globally,more people now have access to a mobiledevice than to justice or legal services.Recent estimates indicate that informationcommunication technologies (ICTs) couldbe accessible to everyone by 2015 and bringinternationally agreed development targetsever closer to achievement. Indeed, we arewitnessing a new wave of democratization

of access to innovative ICT channels,propelled by state-of-the-art technologiesand diminishing barriers to entry.

In a global population of nearly sevenbillion people, the total number of mobilephone subscriptions globally is anastonishing 5.4 billion – and counting.Given that individual subscribers may havemultiple and/or inactive SIM cards, theactual number of individual mobilesubscribers worldwide is estimated ataround 3.9 billion. Latest figures indicatethat mobile phone penetration rates standat almost 45% in low-income countries and76% in lower-middle-income countries.Given that entire villages in poor and/or

rural communities will often share one ortwo cell phones, it is also estimated that 80to 90% of people in some poor countrieshave at least minimal access to a cell phone.Furthermore, close to 80 million mobilesubscribers, most of them in developingcountries, have no access to the electricalgrid – and yet use a mobile phone.

That is in part because mobiletechnologies offer portable, real-time,communication and information access forpeople who previously had little to noaccess to affordable communicationchannels. Mobiles have relatively lowphysical infrastructure requirements andcan reach remote areas in a more cost-effective fashion than other ICTs such asthe Internet or fixed phone lines. In someplaces, mobile devices are simply the onlyoption available. And mobile phonesrequire only basic literacy, making thebarriers to entry much lower than withother modern ICTs.

Yet, mobile services for people at thebottom of the pyramid remain high: theprice basket for mobile services can amountto 15.75% of monthly average per capitaincome in countries with low humandevelopment (compared with 4.86% in

Mobile technologiesand empowerment

At the intersection oftechnology and development

Raúl Zambrano and Ruhiya Kristine Seward look at thepotential of mobile technologies to improve developmentoutputs and outcomes at the country level.


MakingIt 11

GLOBAL FORUM

“In fact, globally, more peoplenow have access to a mobiledevice than to justice or legalservices.”

Sahal Gure Mohamed, 62, texts on his mobilephone while waiting in line at dawn to register atIfo refugee camp in Dadaab, Kenya, in August2011. Mohamed fled to Dadaab from Beledhawo,Somalia. Just over 10% of new arrivals and nearly20% of long-term residents surveyed said theyaccess information through cell phones.

medium human development contexts).And coverage in remote or marginalizedareas is often nonexistent. There areindications that at least ten percent of theglobal population and 40% of people inleast developed countries are not coveredby a mobile network, entrenchingdivisions between populations in urbancentres and poorer populations in theperiphery.

However, mobile phone subscriptions inthe developing world are rapidlyoutpacing those in the developed worldand costs are coming down. Moreover,public investment and public-privatepartnerships are becoming essential tools

for extending connectivity, services andinformation.

As a result, mobile technologies arestarting to have an indelible impact onhuman development, enhancingdemocratic governance and otherdevelopment areas such as health,education, agriculture, employment, crisisprevention and the environment. Forinstance, studies have suggested that

increased mobile ownership is linked tohigher economic growth. It is also likely tohave twice as large an impact on economicgrowth in developing countries as indeveloped ones because the starting pointof infrastructure in poorer countries is somuch lower in terms of landlines andbroadband access.

Leapfrogging of traditional infrastructurerequirements such as landlines is possiblein low-income countries as mobiletechnologies have lower investment costs.Other benefits include increased telecom-based tax revenues, greater employmentopportunities, and overall increasedproductivity, not to mention a thriving

Phot

o: In

tern

ewsE

urop

e

‰


HOT TOPIC

GLOBAL FORUM

telecom industry that attracts foreigndirect investment.

Within governance, mobile technologiescan offer new means for empoweringcitizens and stakeholders by opening andenhancing democratic processes andmechanisms. M-governance initiativesthat expand access to information andcommunications channels are creatingnew venues for people’s participation andgiving new voice to those who havehistorically been marginalized. What wasonce in the domain of official or largeprivate, corporate media channels is nowin the hands of anyone with a mobile or anInternet connection – flatteninginformation and broadening thedistribution of that information. This inturn can support wider stakeholdermobilization within a much shorterperiod of time, as witnessed during the so-called Arab spring of 2011 and otherpolitical mobilizations happening around the world today.

The simplicity of new mobile platformsrequiring only a basic mobile phone withSMS capacity has allowed their adoption allover the world – from South Africa, to India,to Mexico – to monitor elections, trackviolence and crime, provide logisticalsupport in natural disasters, and overseeinventories. The portability and ubiquity ofmobile phones have helped them becomean important tool for civil society, enablinglocal mobilization and networking amonggeographically dispersed people.

Mobile technologies are alsostrengthening the demand side ofgovernance by providing people withcritical tools to engage with publicinstitutions and demand more and betterservices. This fosters broader transparencyand social accountability. Enhancingservice delivery and reform within

important governing institutions – frompublic administrations to parliaments tosystems of justice – generates newpossibilities for open government. Mobile technologies can reducebureaucratic holdups for average citizensand streamline work for civil servants.They enable citizens to bypassintermediaries who may take money forfacilitating transactions, making servicedelivery more efficient and transparent.

Significantly for poor people and ruraldevelopment, mobile technologies canhelp reduce information gaps andrestrictions inherent in marketplaceswhere consumers and producers havelittle means of comparing commodityprices between distant markets. Micro-entrepreneurs, for instance, can accessmarket information from remotelocations, increasing the speed of trade

and reducing travel expenditures.Mobiles also offer greater independence

for women by opening new channels ofinformation and affording greaterpersonal privacy. They can also offerwomen greater security, not only asemergency tools, but also to report andmonitor violence against women. And,where once women may have needed malerelatives to act as intermediaries, mobileplatforms now provide them the chance tomake decisions for their economic well-being by and for themselves, which in turncan facilitate female entrepreneurship.

Mobile applications are also being usedto combat poverty by expanding servicedelivery possibilities in health care,agriculture, employment and education.In the health sector, there have been manypioneering mobile initiatives improvingconnectivity and information

MakingIt12

‰

of the world’shouseholds are connectedto the internetDEVELOPING COUNTRIES:

41%

376million

373million

78% CONNECTED

28% NOT CONNECTED

28% CONNECTED

72% NOT CONNECTED

2013

DEVELOPED COUNTRIES:


MakingIt 13

GLOBAL FORUM

transmission in areas that are hard toaccess. As emergency response tools,mobile technologies have helped establishnetworks of communication betweencitizens, organizations and governmentagencies in times of crises. They are alsobeing used to educate and keep citizensand vulnerable stakeholders abreast ofenvironmental and energy-related issues,including weather patterns, climate changeand responsible environmentalstewardship.

By themselves, mobile phones willneither pull people out of poverty, norpropel democratic governance. Insteadthey are catalytic tools for enhancing andbroadening development programming ifdeployed strategically. They open newchannels for connecting the poor toservices, new ways for citizens to have theirvoices heard, and new opportunities forcivic engagement in larger governanceprocesses.

At the same time, to reach historicallyunder-served communities, policies needto be in place to help realize thedevelopment potential of this medium. It is important that policies support bothbroad access to information and servicedistribution, so that mobile services willreach difficult-to-access (and most timesun-lucrative) rural areas. It is alsoimportant not to overlook literacychallenges and infrastructure limitations.Yet, even within the constraints, mobiletechnologies are offering marginalizedpeople new ways to leverage theirresources to enter the marketplace anddemand public services.

Ten years ago, I was preparing for my firstever piece of work in mobile technology,two years of work which would lead to thedevelopment of an innovativeconservation service in 2003 – wildlive! –and the release of one of the earliestreports on the application of mobiletechnology in conservation anddevelopment. A lot has happened sincethen, not least an explosion in interest,buzz, excitement – and, yes, hype – and asense that mobile can be the saviour of,well, everything.

Back then, you’d likely be able to fiteveryone working in mobile-for-development (M4D) into a small cafe.Today you’d need at least a footballstadium. M4D – and its big brother,ICT4D – have become big business. Notthat I needed more proof of mobile’sstatus at development’s top table, inDecember 2012 I attended Vodafone’sMobile for Good Summit in London. Itwas a high-profile affair, and an extremelyupbeat one at that. Yet I left with mixedfeelings about where M4D is heading.

My five takeaways after a day of talks,debates and demonstrations were:

1. Everyone is still excited by the potentialof mobile.

2. The same projects surface over andover again as proof mobile works.

3. Mobile is still largely seen as asolution, not a tool.

4. It’s up to the developed world to getmobile working for the poor.

5. The top-down mindset is alive andwell.

Suffice to say, all of these conclusionstroubled me as I sat on the train home.

I’ve been thinking for some time aboutthe future of M4D and how far we’ve gotover the past ten years or so. I’ve writtenfrequently about the opportunities mobiletechnology offers the developmentcommunity, and my fears that we may endup missing a golden opportunity. I’ve longbeen a champion of platforms, andunderstanding how we might build toolsfor problem owners to take and deploy ontheir own terms. Yes, we should providelocal entrepreneurs and grassroots non-profits with tools – and where appropriateand requested, expertise – but weshouldn’t develop solutions to problemswe don’t understand, we shouldn’t takeownership of a problem that isn’t ours andwe certainly shouldn’t build thingsthousands of miles away and then jumpon a plane in search of a home for them.

But this is still, on the whole, whatseems to be happening. And this, I’mbeginning to believe, is rapidly becomingICT4D’s “inconvenient truth”.

An inconvenient truth?Ken Banks argues that the future of informationcommunication technologies for development lies with therise of homegrown solutions to development problems.

‰

RAÚL ZAMBRANO and RUHIYA KRISTINESEWARD, the Democratic GovernanceGroup at the United Nations DevelopmentProgramme’s Bureau for DevelopmentPolicy. The above is the executive summaryof Mobile Technologies and Empowerment:Enhancing Human Development throughParticipation and Innovation.


HOT TOPIC

MakingIt14

GLOBAL FORUM

A fulfilled future for ICT4D (of whichM4D is an increasingly dominant part) isnot the one I see playing out today. Itsfuture is not in the hands of westerncorporates or international non-governmental organizations (NGOs)meeting in high-profile gatherings, andit’s not in our education establishmentswho keep busy training computerscientists and business graduates in theWest to fix the problems of ‘others’.

The whole development agenda isshifting, and my prediction for the futuresees a major disconnect between what ‘we’think needs to be done, and what thoseclosest to the problems think needs to bedone. Call it disruptive development, ifyou like. As I told The Guardian newspaperin a December 2012 interview, “The rise ofhomegrown solutions to developmentproblems will be most crucial in future.That means African software developersincreasingly designing and developingsolutions to African problems, many ofwhich have previously been tackled byoutsiders. This, I think, will be the biggestchange in how development is ’done’.”

I’m not the only person to be saying this.Many good friends working at theintersection of African development andtechnology have been doing the same forsome time. The real change, and the bigdifference, is that it’s finally happening. A message which was previously given inhope, a message that was previously givenout of an inherent belief that there was abetter, more respectful and appropriateway of doing things, is now becomingreality. ICT4D is changing, and thebalance of power is changing with it.

FrontlineSMS is a free open sourcesoftware that I developed and which hasbeen used by developing country NGOs todistribute and collect information via text

messages. It has always spoken to anapproach I’ve long believed in, one whereusers are empowered to develop solutionsto their own problems if they so wish.There are many reasons whyFrontlineSMS continues to work – thedecision of the new management team toshift software development to Nairobi isone of the more recent ones. Butfundamentally it’s about what theplatform does (and doesn’t do) that reallyresonates with innovators, entrepreneurs,non-profits and problem owners acrossthe developing world. As a recentnewspaper article put it, “As open-sourcetechnology for mobile platforms,innovations like FrontlineSMS areessentially a blank canvas for grassrootsorganizations to apply to any localcontext”.

That local context is becomingincreasingly vibrant as university studentsacross Africa graduate with computerscience and business managementdegrees; as innovation hubs spring upacross the continent meeting a growing,insatiable demand for places to meet,

‰

“There’s no shortage of donormoney out there for projectsthat seek to implement thelatest and greatest provenWestern innovations in adevelopment context.”

Imag

e co

urte

sy o

f kiw

anja.

net


MakingIt 15

GLOBAL FORUM

of because those very skills and resourceswere not available. Well, now they are.

The ICT4D community – educationestablishments, donors and technologistsamong them – need to collectivelyrecognize that it needs to adjust to thisnew reality, and work with technologists,entrepreneurs and grassroots non-profitsacross the developing world to acceleratewhat has become an inevitable shift. Or itcan continue as it is, and becomeincreasingly irrelevant. “Innovate or die”doesn’t just apply to the technologiesplied by the ICT4D community. It appliesto the ICT4D community itself.

KEN BANKS, founder of kiwanja.net andFrontlineSMS, devotes himself to the applicationof mobile technology for positive social andenvironmental change in the developing world.He has worked at the intersection of technology,anthropology, conservation and development for the past 20 years and, during that time, haslived and worked across the African continent.His latest project, Means of Exchange, helpsreconnect communities with local business,local resources and each other.

work and network with like-mindedproblem solvers and entrepreneurs; andas investors launch funds that showthey’re starting to take young African techstartups seriously.

This activity hasn’t escaped big business.Google, IBM, Microsoft, Nokia, HewlettPackard and Samsung have been openingoffices across the continent, snapping upmuch of the talent in the process(ironically often at the expense – and tothe despair – of locally-based NGOs). Butwhile technology businesses take note anddevelop local capacity that enables themto develop more appropriate localsolutions, the broader development‘community’ seems trapped in an oldermindset of technology transfer.

Technology transfer, of course, is bigbusiness – there’s no shortage of donormoney out there for projects that seek toimplement the latest and greatest provenWestern innovations in a developmentcontext, and there are countless tens ofthousands of jobs that keep the wholemachine running. A lot has to change ifthe development community is to face upto all its new realities, yet it’s looking morelikely that the destiny of the discipline liesin the hands of the very people itoriginally set out to help.

So, if the future of ICT4D is notuniversity students, NGOs or businessgraduates devising solutions in labs andhubs thousands of miles away from theirintended users, what is it?

I’m not usually one for makingpredictions but it is my ten yearanniversary in mobile, so here’s a biggie.

Development is changing, powered byaccessible and affordable liberatingtechnologies and an emerging army ofdetermined, local talent. A local talent thatis gradually acquiring the skills, resourcesand support it needs to take backownership of many of its problems –problems it never took original ownership

“Development is changing,powered by accessible andaffordable liberatingtechnologies and anemerging army ofdetermined, local talent.”

Imag

e co

urte

sy o

f kiw

anja.

net


MakingIt16

nAccording to the 2013Sustainability Leaders survey,produced jointly by GlobeScanand SustainAbility, the privatesector outperforms only theworld’s national governmentswhen it comes to effectivelyaddressing sustainabilitychallenges. That is to say, theyare second to last.

Interface and Walmart roundout the top four, with 10additional companies areclustered roughly with similarrankings: (in descending order)GE, Marks & Spencer, Puma,Nike, Coca-Cola, Natura, IBM,Google, Nestlé and NovoNordisk.

Nearly all of these“sustainability leaders” areheadquartered in the GlobalNorth. Companies from theemerging economies of Brazil,Russia, India and China, are for

Phot

o: D

euts

che

Wel

le G

loba

l Ide

as

trends

BUSINESS MATTERS

Still, a handful of companies –and one in particular – arehighly regarded. Unilevercontinued its reign as the top-ranked company and actuallyincreased its score, according tothe survey, which is based on theresponses of 1,170 “qualifiedsustainability experts” polled inearly 2013. Companies are

named on a top-of-mind basis –that is, they are asked to nameleadership companies but aren’tgiven a list from which tochoose.

Another top-tier companywas Patagonia, which“catapulted to the No. 2 positionon back of strong gains in lastyear,” according to the study.

Medellín, Colombia, has beendeclared the world’s mostinnovative city. An online contestwas organized by Citibank andthe Marketing ServicesDepartment of the Wall StreetJournal Magazine together withthe Urban Land Institute. Voterswere asked to vote for a list of 200cities, and a first round of votingbrought the list down to 25.Another round of votingproduced three finalists: NewYork City, Tel Aviv and Medellín.

Announcing the winner inearly March 2013, the Urban LandInstitute (ULI) noted, “Few citieshave transformed the way thatMedellín, Colombia’s secondlargest city, has in the past 20years. Medellín’s homicide ratehas plunged, nearly 80% from1991 to 2010. The city built publiclibraries, parks and schools inpoor, hillside neighbourhoods,and constructed a series oftransportation links from thereto its commercial and industrialcenters. The links include ametro cable-car system andescalators up steep hills, reducingcommutation times, spurringprivate investment, andpromoting social equity as well asenvironmental sustainability.”

ULI continued, “A change in

Innovative city of the yearthe institutional fabric of the citymay be as important as thetangible infrastructure projects.The local government, along withbusinesses, communityorganizations, and universitiesworked together to fight violenceand to modernize Medellín.Transportation projects arefinanced through public-privatepartnerships; engineering firmshave designed public buildingsfor free; and, in 2006, nine of thecity’s largest firms funded ascience museum. In addition,Medellín is one of the largestcities to successfully implementparticipatory budgeting, whichallows citizens to define prioritiesand allocate a portion of themunicipal budget. Communityorganizations, health centres andyouth groups have formed,empowering citizens to declareownership of theirneighbourhoods.”

Many of Medellín’s suburbs line thesteep slopes of the Aburrá Valley,making the city an urban planner’snightmare. For many of the city’sresidents, the journey to the centre oftown was a long and arduous one,involving crowded diesel buses andshared taxis, negotiating narrow, hillyroads. Then, Medellin’s authoritiescame up with an innovative solution:six cable-cars that link the outskirts tothe city centre.

makingit_13_pp16-17_business-matters_print 11/06/2013 10:09 Page 16

MakingIt 17

the most part notable by theirabsence. Only Braziliancosmetics manufacturer,Natura,ranks among the top 15companies.

nGE’s third annual “GlobalInnovation Barometer” hasfound that while businessexecutives continue to valueinnovation as a strategic priority,one in three report concernsover their ability to maintain acompetitive edge in a faster-paced, more globalized and

resource-constrainedenvironment.

This emerging “InnovationVertigo” – an uneasiness with thechanging dynamics of today’sbusiness landscape anduncertainty over the best pathforward – is challenging leadersto think differently about howthey will achieve growth. Manyexecutives, however, seem to beembracing this complexity byexploring new and sometimesunexpected opportunities toinnovate.

“Innovators must be resilientor risk being left behind,” saidGE’s Beth Comstock. “Changehas become constant and we seeleaders responding by bettingbig on more unconventionalapproaches to innovation tounlock growth. At GE, we areexploring different markets,partnership structures andbusiness models – all in thepursuit of uncovering new waysto better serve our customersand meet the world’s biggestchallenges head on.”

The Barometer wasconducted by an independentresearch and consulting firm toexplore how business leadersaround the world view driversand barriers to innovation, andhow those perceptionsinfluence strategy. GEexpanded the study this year bysurveying more than 3,000senior business executives in25 countries, all with directinvolvement in theircompanies’ innovation strategyand decision-making.

A Pan-African science educationinitiative is supporting students inan effort to boost post-graduatedegrees and reverse brain drain.The Regional Initiative in Scienceand Education (Rise) supportspromising science andengineering students pursuingadvanced degrees in sub-SaharanAfrica. The programme hopes toboost higher-education inengineering and science across thecontinent – mainly through aseries of international networksthat connect universities, students,civil society and industry.

Arlen Hastings, executivedirector of the Science InitiativeGroup, which launched Rise, said,“The rationale behind theprogramme was that there aremany pockets of excellencearound Africa, but there aren’t thatmany African universities, outsideof South Africa, that have thecapacity to provide comprehensivePhD programmes in science andengineering. However, if you takeelements, pieces from each of abunch, you can put together apretty strong education.”

Rise has five subject-basednetworks – covering material andengineering science, naturalproducts, biochemistry and

informatics, water resources andthe western Indian Ocean region– which provide students withexpertise from all over Africa.Rise’s PhD candidates arerequired to have at least twoadvisers. One must be fromanother university in the network.

The Science Initiative Group atthe Institute for Advanced Studyin Princeton, New Jersey, USA,first started acceptingapplications for Rise in 2007under a US$3.3m grant from theCarnegie Corporation. By 2008,the initiative had selected its firstthree grantees from a pool of 48proposals. Four years later, Rise issupporting 63 Master’s and 67PhD students.

But creating academics isn’t thesame as retaining them, so Risealso focuses on training granteeslocally. Joseph Borode, acoordinator for Rise’s materialscience and engineering network,says that before Rise the bestoption was often to send studentsabroad for training, but manynever came home, meaning, hesays, that the investment in theirstudy abroad “had no return”. Toreverse the “brain-drain”, Riseincentivizes students to stay intheir home countries by buildingsupportive research communities,opening connections and pavingthe way to faculty positions,Hastings says.

Rising to thechallenge

makingit_13_pp16-17_business-matters_print 11/06/2013 10:09 Page 17

MakingIt18

Innovation has always played the decisive rolein countries’ economic and social develop-ment: it is the principal source of economicgrowth, it provides the basis for improvingproductivity, it is the foundation of competi-tiveness and it improves welfare. Today, withthe world in the midst of a serious economiccrisis, the application of newer vintages oftechnology can be the means to re-launch,recreate and reinvigorate economic activitiesworldwide. At the same time, major environ-mental challenges require wide-rangingchanges in patterns of production and con-sumption, and these can only be achieved bythe application of innovative solutions.

Innovation is fundamentally the task of theprivate sector and entrepreneurs, but historyhas shown us that at times of major transfor-mations and crises, the role of governmentshas always been crucial. It is only governmentsthat can assume the risks involved in thelaunching of large-scale programmes that helprenew infrastructure, and it is only govern-ments that can facilitate nationwide learningprocesses for innovative initiatives. Only gov-ernments can legitimately impose require-ments relevant to the educational, researchand other knowledge sources which areneeded to cope with deep and rapid techno-logical change. And, in most instances, it isonly governments that can fund the adapta-tion of these requirements.

As more and more countries start to for-mulate policies designed to support innova-tion, the experiences and existing good policypractices of dynamic economies, especiallythose in the developing world, can provide im-portant lessons. One of these lessons is that ef-fective and efficient approaches are based onan understanding that innovation policy mustcoherently address the overall innovation cli-mate. This goes far beyond traditional scienceand technology policy, and involves many gov-ernment departments in a ‘whole of govern-ment’ approach.

Government actionGovernment action can usefully focus on a fewgeneric functions. In the first instance, thismeans supporting innovators by providing thenecessary technical, commercial and otherservices. Services of strategic relevance for in-novation policy include basic industrial serv-ices like promotion, marketing, andinternationalization; technology extensionservices; metrology, standards, testing, andquality control; innovation in organization andmanagement; and information and commu-nications.

Governments can also reduce (or betterstill) remove, obstacles to innovation. Thismeans combating anti-competitive and mo-nopolistic practices, suppressing bureaucratichurdles and adapting the regulatory frame-work to support the search for and diffusion ofnovelty. This action requires the mobilizationof many areas of government, including taxes,customs, procurement and standards. It hasthe additional benefit of allowing ‘sunset’ busi-nesses to fade away, thereby releasing re-sources.

Intervening to strengthen the research anddevelopment (R&D) base is another govern-ment function, but one that many developingcountries have found to be prohibitively ex-pensive. The bulk of the world’s R&D effort hastraditionally taken place in the OECD coun-tries, although recently emerging economiessuch as Brazil, China, India and Russia havebecome significant investors in R&D.

More generally, the quality of the educa-tional system can help form a receptive andcreative population. Support for the comple-mentary competencies needed for innovation,such as engineering, design and business,should be provided, while “soft” skills, such asproblem-solving, communication and team-work, are also important. Governments in de-veloping countries should understand that forinnovation to develop, young people need tolearn additional skills relating to functionalliteracy and the ability to ‘think outside thebox’.

For each of these functions, economicallyadvanced, as well as less advanced, countriesoffer good practices that can be adopted and

adapted through ‘local lenses’ to local condi-tions and contexts. Depending on a country’stechnological competence and the quality ofits business environment, any one govern-ment will need to choose its goals and strate-gies. After focusing on the prime movers -those entities that drive the innovation thatmakes a difference in the marketplace – andcreating innovation endowments, such astechnology centres, science parks or exportzones, a government will need to build criticalmasses of innovative and entrepreneurial ini-tiatives. This can be done by promoting in-dustrial clusters, actively attracting foreigndirect investment (FDI) and possibly even cre-ating new cities.

Innovation systemsGovernment innovation policies are increas-ingly focusing on innovation systems, a con-cept which stresses that it is not only inputs,such as research expenditures, and outputs,such as patents, that are important. Equallycrucial is the interaction between the actorsthat are needed in order to turn an idea into aprocess, product or service for the market. Inother words, the flow of technology and infor-mation among people, enterprises and insti-tutions is the key to an innovative process.

The study of national innovation systemsdirects attention to the linkages or web of in-teraction within the overall innovation system,and an understanding of these systems canhelp policymakers develop approaches for en-hancing innovative performance in today’sknowledge-based economies.

One recent example of such a study wascarried out by the United Nations IndustrialDevelopment Organization (UNIDO), andlooked at Ghana’s National System of Innova-tion. The 18-month-long survey, concluded inlate 2012, was conducted in conjunction withGhana’s Ministry of Trade and Industry and

Frank L. Bartels considers the basics of innovation policyfor developing countries

Innovation policy: why, what and how

makingit_13_pp18-19_bartels_print 11/06/2013 14:33 Page 18

MakingIt 19

calibrated nor configured to successfully over-come the barriers to, and constraints on, in-novation. The major implications are thatthere are few or no externalities from thepublic goods of funding research institutions.Furthermore, business enterprises have littleaccess to external sources of ideation, andknowledge-based institutions’ outlets to mar-kets through intermediation and commer-cialization are highly restricted. Based on thesefindings, the report makes a number of rec-ommendations in relation to policies to en-hance the country’s innovative performance.

In conclusion, accelerating sustainable de-velopment requires new industrialization ap-proaches that exploit knowledge and

innovation. Such policy approaches representthe crucial elements of any economy’s abilityto enhance its competitiveness and economicgrowth. The national system of innovation(NSI) represents the strength and quality ofsystematically organized interactions betweengovernments, knowledge-based institutions,industry and financial arbitrageurs (those en-tities, such as banks or brokerage firms, thatengage in the practice of taking advantage ofa price difference between two or more mar-kets). The NSI’s characteristics, and the poli-cies that shape them, are the criticaldeterminants of efficiency and effectivenessin the application of science, technology andinnovation.

FRANK L. BARTELS is Senior Advisor tothe Deputy to the Director General ofthe United Nations IndustrialDevelopment Organization (UNIDO),and was previously UNIDORepresentative to Ghana and Togo, andChief of UNIDO’s Strategic Researchand Regional Analyses Unit.

key national stakeholders, the KwameNkrumah University of Science and Technol-ogy (KNUST), and the Science and TechnologyPolicy Research Institute (STEPRI).

The subsequent report, Ghana NationalSystem of Innovation (GNSI) – Measurement,Analysis and Policy Recommendations, surveysand depicts, for the benefit of policymakers,the essential and systemic features of the in-novation landscape in Ghana.

The report contained the following con-clusions: l The Ghana National System of Innovation(GNSI) suffers from low concentrations of or-ganizational capital, which prevent system-wide combinations of skills and assets fromdelivering significant productivity increasesbased on science, technology, engineering,mathematics and information technology. l The quality of market demand is character-ized by a few islands of sophistication in a seaof simplicity. This situation dissuades themanufacturing and service sectors from inno-vating in order to offer products of enhancedquality and value. l The organizational constraints within theGNSI and their bearing on the actors within itare unusually high. These constraints, mainlyrelating to managerial rigidities and invest-ment risks, combine to thwart adaptive behav-iour and prevent actors from responding tomarket signals. l The application of fiscal and monetaryschemes falls short of fully supporting the riskappetite of innovators and businesses in theearly stages of ideation (the creative process ofgenerating, developing and communicatingnew ideas), invention and start-up.

The gist of the report points to the GNSIbeing fragile, with an asymmetric distributionof actor linkages and with low-density rela-tionships between the actors. The policy in-struments that are available are neither

ww

w.v

ecto

rsto

ck.c

om/P

inip

in

makingit_13_pp18-19_bartels_print 11/06/2013 14:33 Page 19

MakingIt20

Phot

o: w

ww

.shu

tter

stoc

k.co

m/P

eter

Rei

jner

s

makingit_13_pp20-23_naude_print 11/06/2013 10:09 Page 20

MakingIt 21

Innovation is the driving force in development; without inno-vative entrepreneurs we would not have most of the tools andservices that provide many of us with a prosperity today that farexceeds that of ancient emperors. From birth control to the internet, innovation has fundamentally changed the world. Despite this, most of the work on understanding the process ofinnovation and its relationship to public policy has been con-ducted in economies at more advanced stages of development.Several authors have even downplayed the importance of inno-vation for developing countries. In a similar fashion there hasbeen a resurgence of interest in the role of entrepreneurship ininnovation, employment creation and economic growth, but

How does innovation impact ondevelopment? How, and under whatconditions, do entrepreneurs indeveloping countries innovate? And what can be done to supportinnovation by entrepreneurs indeveloping countries? Wim Naudéand Adam Szirmai investigate.

Innovation andentrepreneurship indeveloping countries

Takingaleap

‰


MakingIt22

in this literature the primary focus is onthe advanced economies.

Together with Micheline Goedhuys, weedited a book, Entrepreneurship, Innovation andEconomic Development, published in 2011 byOxford University Press, which deals withthese relatively neglected issues, and arguedfor a better understanding of the roles thatentrepreneurs can play in innovation even inthe poorest countries. The book focuses inparticular on the entrepreneurship–innova-tion nexus in the context of development. Inthis article, we share some of the findingsfrom the book.

Defining innovationThe Oxford Handbook of Innovation describesinnovation as the putting into practice of in-ventions. In a narrow sense, innovation refersto product and process innovations, or tech-nological innovation. In a broader sense, in-novation is the development of new products,new processes, new sources of supply, as wellas the creation and exploitation of new mar-kets and the development of new ways to or-ganize business.

Different types and degrees of innovationmay take place across different stages of de-velopment. Many entrepreneurship scholarsin the West believe (largely mistakenly in ourview) that innovation is not really importantfor economic growth and development in lessdeveloped (so-called “factor-driven”)economies. We believe that these types ofbroad-brush generalizations about the natureof economic growth understate and underes-timate the importance of innovation in ear-lier stages of development. One reason is thatone should distinguish between incrementalinnovations and more radical innovations,and between innovation that is new to a coun-try or firm and innovation that is new to theworld. The former type of innovation is imi-tation, where developing country entrepre-neurs adopt new products or processes fromthe rest of the world. Such innovation can playan important role in technological upgradingand increasing the utilization and the efficientallocation of production factors. China’s de-velopment achievement is an example of this– despite being classified by some Westerneconomists as being in the factor or efficiencystages of growth, it is outperforming manyrich countries in terms of innovation – morepatents were for instance filed in China in2011 than in the USA.

Another reason is that several developingcountries have indeed experienced rapid eco-nomic catch-up – in a sense, leapfrogging de-

velopment. They were able to absorb and cre-atively adapt international technologicalknowledge and thus to achieve acceleratedgrowth. Such adoption of existing technolo-gies goes beyond mere imitation – it is an ex-ample of creative and innovative behaviourand examples are provided in our book. AliceAmsden argues that privately owned, domes-tic firms in East Asia were better at adoptingand absorbing technologies from advancedeconomies than foreign-owned firms. ErikStam and André van Stel highlight how adop-tion of foreign technology provides entrepre-neurs with a potential to create new marketsand contribute to structural change and self-discovery.

Entrepreneurship and firmsEntrepreneurship refers to the discovery andexploitation of opportunities. It plays a po-tentially important role in development, in-cluding in cost discovery, gap filling,accumulation of human and physical capital,input completion, reallocation of resourcesfrom less productive to more productive re-sources, and supporting the process of struc-tural change. In this book we focus inparticularl on incentives, policies and institu-tions that liberate the productive potential ofentrepreneurship in development. Here,three strands of work on entrepreneurshipare distinguished. The first strand defines en-trepreneurship as a creative, dynamic charac-teristic of actors, be it the managers, owners ofsmall enterprises, or heads of departments. Inthis strand there is hardly any distinction be-tween entrepreneurship and innovation. Thesecond strand of literature focuses on firmbehaviour. Here we can make a clear distinc-tion between innovative and non-innovativefirms. The third strand of literature focuseson a subset of firms, namely owner-operatedfirms. Owner-operated firms are usuallysmall and medium-sized but can also includelarge firms. In this strand we can also make

the analytically desirable distinction betweeninnovative and less innovative entrepreneur-ship.

An important question throughout thebook asks who are the innovative actors in adeveloping country context. Are these largedomestic firms, subsidiaries of multination-als, owner operated small and medium en-terprises or micro enterprises? Alice Amsdenpoints out that large private-owned enter-prises are much more flexible and innovativethan the subsidiaries of foreign-owned firmsand that the importance of privately ownedenterprises in East Asia explains the eco-nomic success of this region, as compared tothe foreign-dominated economies of LatinAmerica.

Other authors in our book emphasize theimportance of small and medium-sized en-terprises. They account for a very substantialpart of employment in developing countriesacross the globe. Most small scale entrepre-neurs however are survival entrepreneurs andare hampered by weak infrastructure, lack offinance and lack of capabilities. The systemsof innovation are often not providing the bestincentives for entrepreneurs to become moreinnovative. However, in our book, Jaap Voetenet al. provide an encouraging example of in-novative behaviour amongst clusters of hand-icraft enterprises in Vietnamese villages,which are transforming themselves throughnew products or more advanced productiontechniques.

Policy implicationsPromoting innovation by entrepreneursacross the stages of development thereforeseems justified. But how? Answering thisquestion first necessitates raising the ques-tion, why do entrepreneurs innovate? Theanswer is they are driven by profit motives.Adam Smith realized that although entrepre-neurs act in pursuit of their own profits, theymay generate benefits to the broader societyin the process, and that there is a link betweenthe degree to which the entrepreneur willengage in innovation and the size of themarket. Markets can thus be seen as impor-tant drivers of growth and development.

In the poorest developing countries, mar-kets unfortunately fail to fulfil this drivingrole. Developing country markets are oftensmall, fragmented and imperfect, due to lackof infrastructure, low per capita incomes, mis-guided policies and institutional constraints.The political stability, predictability andtransparency, peace and other institutionalprerequisites for the functioning of markets

‰

“Several developingcountries have indeedexperienced rapideconomic catch-up –in a sense leapfroggingdevelopment.”


MakingIt 23

are often absent. With fragmented, small anduncertain markets there is often insufficientincentive for entrepreneurs to innovate.Where markets are restricted because of bar-riers to trade (either natural barriers such aslack of infrastructure or man-made barriers)it is difficult for innovations to spread.Through the ages, international trade has ex-posed traders and merchants to new ideas,and technologies. This is one of the reasonswhy trade functions as an engine of growth.Where markets are restricted by inappropri-ate regulations or strangled by predatory gov-ernments or monopolies, there is noincentive for entrepreneurs to introduce in-novations that are new to the firm. And whereinappropriate property rights and contractenforcement makes any returns on innova-tive activity risky, there will be little incentivefor entrepreneurs to invest in innovations,new to the domestic market or new to theworld.

While broadening the market may be oneof the necessary conditions for innovation, itwill often not be sufficient. The reason is thatinnovation is increasingly knowledge andskill-intensive. Because of the positive exter-nalities inherent in investment in knowledge,technological advance and human capital,public policy has been increasingly recog-nized as having an important complementaryrole to play in fostering entrepreneurial in-novation. Innovation requires not only highlyknowledgeable, experienced, and skilled en-trepreneurs, but also highly skilled labour.Thus, educational policies and capability-building are important public policies.

Without the latter, well-meaning donorand development organization policies mayfail to stimulate innovation. For instance,trade liberalization is often prescribed forsmall developing countries as a developmentstrategy, assuming that knowledge will auto-matically and without friction flow to thesecountries, not taking into account the needfor absorptive capacity. Donors often promotecompetition through private sector develop-ment programmes, not realizing that with toomuch competition, there may be little oppor-tunity for entrepreneurs to recoup invest-ments in innovative activities, particularly ifdomestic financial markets are underdevel-oped and entrepreneurs have to finance in-novation out of profits. Thus, in the absenceof careful government interventions and poli-cies, the operation of markets may result inunderinvestment in knowledge and innova-tion. Nowadays, ‘innovation policy’ and ‘na-tional innovation systems’ have become a

standard part of the economic growth dis-course in both advanced and developingeconomies.

The interplay between market develop-ment, systems of innovation and governmentscience, technology and innovation policies isan important theme of this book. For in-stance, Sunil Mani shows that in India theemergence of private institutions and initia-tives to complement government supportprogrammes for innovation, as well as an in-creased availability of skilled labour, were es-sential for the fast growth of the country’s ICTsector.

Many developing country governmentshave in recent years attempted to overcomesome of the weaknesses in the institutionalenvironments by supporting business incu-bators. Semih Akçomak provides a discussionof incubators as tool for innovation in devel-oping countries. He proposes eight dimen-sions of a good incubator policy, includingclarity of mission and purpose; clear selection,entry and exit criteria; managerial capacityand incubator management skills; engage-

ment in constant monitoring and perform-ance evaluation of participating firms;strategic selection of services; minimizationof start up costs and red tape; a focus on in-tangible services rather than tangible servicessuch as office space or infrastructure; promo-tion of networking as a deliberate strategy;and lastly, financial sustainability.

Finally, there is the puzzle of how many en-trepreneurs succeeded in innovating in oftendeeply adverse environments, characterizedby overregulation, high cost of doing busi-ness, weak enforcement of property rights,poor capital markets and underdevelopedmarkets. India is a case in point, as discussedby Suma Athreye. In India it seems, adversitypromoted creativity. She finds that the verysuccess of the software industry was a source

of subsequent improvement in the institu-tional environment – not brought about bygovernment taking the lead, but byinstitu-tional entrepreneurship. As she puts it, the“impetus for institutional reform has notcome from government, international institu-tions or their advisors, but primarily from thebusiness sector itself.”

There are three general lessons from ourbook. First, the impact of innovation is im-portant across countries and institutional con-texts. Entrepreneurs in developing countriesprovide innovations that are important forfirm and country growth. Innovation can playan important role in catch-up and growth in aglobal economy. This is so, first and foremost,through the varied innovations of local entre-preneurs, but also through the role of entre-preneurs in advanced countries whereinnovations are generated and applied in tode-veloping country context.

Second, large and small firms can beequally innovative, but in different ways. In ourbook there is a strong emphasis on small andmedium enterprises, as these predominate indeveloping (and many advanced) countries butwhich also face particular constraints to inno-vation. Often such small firms contribute togrowth, but not optimally, since they lack in-novativeness. Here, characteristics of the en-trepreneur (education, age, experience,networks), the region (location), and the sector(technological intensity) were identified to beimportant determinants of innovation.

Third, the policy and institutional environ-ment is an important determinant of entre-preneurs’ innovative behaviour. Governmentsneed to support innovation directly and indi-rectly. This can take many forms – fromreform of the environment for doing business,to providing venture capital, to tapping intomigrant workers and diasporas, provision oftechnical and managerial education, infra-structure, and state–private sector partner-ships. Sometimes, even an adverseenvironment can spur innovative behaviour,and entrepreneurs may become the drivers ofpolicy and institutional change.

WIM NAUDÉ is Dean Director, Research Director,and Professor of Development Economics andEntrepreneurship at Maastricht School ofManagement and also Professorial Fellow at theMaastricht School of Governance, University ofMaastricht and at UNU-MERIT. Previously, he was Senior Research Fellow at UNU-WIDER in Helsinki.ADAM SZIRMAI is Professorial Fellow atUNUMERIT and Professor of DevelopmentEconomics at the Maastricht Graduate School of Governance, University of Maastricht.

“Sometimes, even anadverse environment canspur innovative behaviour,and entrepreneurs maybecome the drivers ofpolicy and institutionalchange. “


MakingIt24

Peder Holk Nielsen,the CEO of Novozymes,a Denmark-basedbiotechnology company,explains how bio-basedproducts are improvingmanufacturingprocesses and savingresources and costs.

Moreresource scarcity as a catalystfor green industrial development

with less:

KEYNOTE

makingit_13_pp24-29_keynote_print 11/06/2013 14:01 Page 24

MakingIt 25

PEDER HOLK NIELSEN took office as President and CEO ofNovozymes on 1 April 2013. Up until his appointment as CEO, heserved as Executive Vice President and Head of Enzyme Businessfrom 2007-2013. During his 28-year career at Novozymes andNovo Industri/Novo Nordisk, Nielsen has played a central role inthe development of Novozymes in its current form. On takingoffice as CEO, he said, “Our success rests on our ability to bringnew innovation to our customers, and our ability to find new waysbiotechnology can help them improve their products and makemore with less. A key focus for me will be to make sure we bringthese innovations to the market even faster than we do today.” ‰


MakingIt26

Industries all over the world face an uphillbattle in meeting the material needs of a risingglobal population at a time when naturalresources are dwindling. To respond, industriesmust rethink the way they produce their goods.By sourcing raw materials from sustainablesources, minimizing water and energy use, andreplacing harsh chemicals with biologicallyderived alternatives, they must put sustainabilityat the heart of their – and the world’s – growth.

Bio-based products are already making thistransition possible. They are greening valuechains in diverse industries such as textiles, paper,food and detergents, helping boost agriculturalyields, and making biofuels from trash acommercially viable alternative to gasoline. They are reducing energy and resource costs for businesses, and raising living standards ofmillions of consumers, especially in emergingmarkets, without stretching natural resources to breaking point.

Inspired by natureBiotechnology has long had an impact on humansociety. Legend has it that ancient herders inCentral Asia accidentally discovered cheese bycarrying milk in bags made from calves’ stomachs,which contain the coagulating enzyme rennin.Baking, brewing and alcohol production are otherexamples of enzyme processes known sinceprehistoric times. Despite their fierce reputation,the Vikings are believed to have comforted theirinfants by giving them pacifiers made of a piece ofbread wrapped in cloth. The enzyme amylase,found in human saliva, broke down the breadreleasing sugars which kept the child happy.

Perhaps it is fitting that Novozymes, aDenmark-based biotechnology companyfounded in 2000, but with roots dating back tothe 1920s, is inspired by nature and is today theworld’s biggest producer of industrial enzymes.

Enzymes are basically proteins that helpspeed up biochemical reactions in all livingorganisms. Among many other uses, enzymesconvert food in our stomachs into energy, turnfallen leaves into compost, help soften leatherand increase the clarity of apple juice. As theyhave one unique function, and cause no sideeffects, enzymes are ideal tools for use in cleanindustrial production.

Novozymes’ scientists have sought micro-organisms, and the enzymes they produce, indiverse natural habitats. They have dredgedArctic lakes for enzymes that survive extremecold, which makes them suitable for use inlaundry detergents effective in cold water.Conversely, they have tapped geothermal springs to find micro-organisms resistant tohigh temperatures, and therefore optimal for use in baking. Our researchers have discoveredenzymes that function in harsh environmentssuch as places lacking oxygen, or in highly-alkaline soil, and then optimized them for use in industrial processes mimicking theseconditions.

Today, Novozymes supplies enzymes to over 40 industries, where they are used to turnagricultural waste into biofuel, replace oil-basedchemicals in detergents, and keep bread freshlonger, among others. We see these solutions assteps on the way to attaining a bio-basedeconomy, which is built on a sustainable, low-carbon approach to energy and production.

‰


MakingIt 27

Innovating with industry Innovation is the cornerstone of the bio-basedeconomy, and lies at the heart of Novozymes’business. Research and development (R&D)forms the backbone of our company, absorbingmore than 20% of its global workforce, and 13-14% of its revenues. We have built up aunique industrial biotechnology platform,including microbiology, protein engineering,bioinformatics, assaying and fermentationtechnology, which helps us undertakeinnovation in step with market needs and inclose collaboration with customers. Earlycustomer involvement in product developmentallows us to quickly find out if a proposedproduct will perform as intended, whether itsatisfies customer needs at relevant cost, andwhat, if any, are its competitor technologies.

Given our commitment to embedsustainability throughout our value chain, weuse Life Cycle Assessment (LCA) to understandbetter the future potential of our R&Dpipeline. LCA is a method of measuring theenvironmental footprint of a product, processor service from design and manufacturethrough to use and disposal. The idea is togain an understanding of what in our pipelinecould reduce environmental impact in theindustrial area in which it is deployed. Thesesustainability considerations are included inthe process which determines whether aparticular product finally comes to market.Typically, Novozymes brings 6-8 new bio-innovations to market per year, and holdssome 7,000 granted or pending patents intotal.

Cleaner textiles, detergentsand plasticsWe recognize that our customers buy our productsto improve manufacturing processes and saveresources and costs, which in turn improves theirsustainability. A vivid illustration of how this workscomes from the textile and fashion industry. Some nine million tonnes of knitwear – typicallyused for making t-shirts – are produced annually,consuming vast amounts of water and energy. This has a profound impact on water security, not least in China, which is the world’s largesttextile producer.

A Novozymes LCA shows that, by moving awayfrom traditional chemicals and adoptingenzymatic solutions, textile manufacturers save 70-90,000 litres of water and around one tonne ofcarbon dioxide (CO2) emissions per tonne ofknitwear. Were these solutions applied in thetextile industry globally, there would be potentialsavings of 630 billion litres water and nine milliontonnes of CO2 annually. That equals drinkingwater for 24 million Chinese living in rural areasand taking two million cars off the road.

By replacing chemicals with enzymes,manufacturers can reduce the consumption ofwater, energy and chemicals in many stages oftextile processing. For instance, the enzyme, pectatelyase, acts in a targeted way to degrade pectin andremove wax from raw cotton. This enables thetextile scouring process to take place at lowertemperatures, and reduces the number of rinsingbaths needed. In the 1980s, Novozymes’ enzymesreplaced the pumice stones traditionally used inmaking the wildly popular stonewashed jeans,leading to huge savings of water while improving ‰


MakingIt28

the lifespan of the fabric. Moreover, as enzymesdeactivate into tiny pieces of protein andcarbohydrate that function as food for beneficialmicro-organisms, and later degrade into harmlesscompounds, they greatly reduce the environmentalimpact of effluent from textile mills.

Big gains are also witnessed in the detergentindustry where enzymes make it cheaper and moreeffective to do laundry. Enzymes such as protease,lipase and amylase improve stain removal even whenclothes are washed at 30 degrees Celsius, down fromtypical wash temperatures of 60 degrees, therebycutting energy and chemical use. That translates intolower electricity bills and fewer CO2 emissions forconsumers.

In 2012 alone, we helped customers reduce theirCO2 emissions by an estimated 48 million tons –corresponding to CO2 emissions from 12 large, coal-fired power plants – by the application of ourvarious biosolutions. It is our ambition to enable a 75 million ton reduction in CO2 emissions in 2015.

And there are still more gains to be had. Last year,Novozymes developed a micro-organism – a fungus –that enables production of malic acid fromrenewable raw materials instead of oil. Malic acid hassignificant potential as a building block in thechemical industry. It belongs to a group of acidswhich can be converted into 1.4-butanediol, averitable Swiss Army knife of the industry, and whichcan be further converted into numerous chemicals,including plastics, polymers and resins for use ineverything from printing inks to cleaning agents.

In producing biochemicals, renewable rawmaterials such as starch from corn or cellulosicbiomass from agricultural waste are converted intosugars, which are, in turn, transformed into chemicalbuilding blocks by specifically-designed micro-

organisms. These biochemicals provide analternative to oil-derived chemicals, helping addressissues of energy security, price stability and CO2emissions. Analysts and researchers estimate thatbiochemicals could contribute as much as 17% of theglobal chemical market by 2025.

Investing in partnershipsTo fully realize the potential of the bio-basedeconomy, innovation must be scalable, addressmarket challenges, meet consumer needs and,ideally, involve stakeholders across business andsocial value chains and across the globe.

For instance, hundreds of millions of women inthe developing world have no choice but to feed theirfamilies with meals cooked on stoves fired with solidfuels like charcoal, which is produced in ways thatlead to deforestation. Pollutants from the cookingsmoke linger in their small, poorly-ventilated homes,causing an estimated two million deaths annually, aswell as underweight births, cancer, respiratorydisease, and increased rates of infant mortality.Moreover, nearly a third of Africa’s seven millionsquare kilometers of forest have already been burntfor charcoal, causing biodiversity loss and a hugerelease of greenhouse gases, while making areasmore susceptible to flooding or drought.

These elements have combined to create aperfect storm of environmental and healthproblems in Mozambique. But there now exists aclean, bio-based and sustainable solution to meetthe rising demands for food and cooking fuel inthat country’s rapidly-expanding urban areas.

In 2010, Novozymes initiated the CleanStarMozambique (CSM) programme, which has sinceconvinced thousands of smallholder farmers inMozambique’s Sofala province to move away from

‰


MakingIt 29

slash-and-burn agriculture and charcoalproduction. Instead, they cultivate a range of cropsand trees that improve their food security,rejuvenate soil through crop rotation, and sell anysurplus crops to the CleanStar Mozambique(CSM) company.

In turn, CSM operates a local food and ethanolcooking-fuel production facility and produces arange of food products, as well as a clean, cheap,renewable and safe ethanol-based cooking fuelmade from cassava, a crop which is widelycultivated in the area. These products, as well asclean-burning ethanol cooking stoves, are thensold in local, urban markets.

Novozymes brings to CSM its financial andbusiness development support, as well as enzymesolutions used in food, agriculture and bioenergyindustries. Other project partners provideexpertise in agroforestry, engineering, ethanolcooking stove manufacture and carbon finance.

Today, CSM has over 5,000 cooking stove andfuel customers, and has engaged more than 1,200smallholder farmers. It is on track to meet andimprove on its goal of 4,000 hectares of avoidedforest destruction per year in 2014. CSM’s firstcooking fuel plant, also in Sofala province, istargeting sales of 20 million litres per year in 2014, to serve 80,000 households.

Novozymes believes the CSM model isreplicable and scalable in many parts of thedeveloping world, including in over 40 majorcities in sub-Saharan Africa, where the urban poorrely on increasingly expensive charcoal. Themodel will improve market access for localfarmers, build sustainable and restorative bio-based markets, deliver clean and affordable energy,and help curb global greenhouse gas emissions.

Leading industry by exampleWhile promoting sustainable solutions toindustry and society, we are determined also tomake Novozymes’ value chain more sustainable.We source all electricity for our operations inDenmark from CO2-neutral wind power, andhave improved energy efficiency 38% and waterefficiency 32% in 2012, as compared with 2005.Furthermore, the company’s production facilityin Kalundborg, Denmark, is part of the world’sfirst functioning industrial symbiosis, where theresidual product originating from one enterprisein an industrial cluster, including energy,biotechnology and pharmaceutical companies,becomes the raw material of another enterprise.Residual products traded include steam, dust,gases, heat, slurry or other waste that can betransported physically between the enterprises.Organic waste from Novozymes’ facility isdistributed to local farms for use as fertilizer.

Recently, our desire to put sustainability andclean solutions at the heart of industry led us tojoin UNIDO’s Green Industry Platform. Weenthusiastically share its ambition of promotingcleaner production and scaling up theavailability of existing technologies that areproven to work.

Biotechnology and the bio-based economycan dramatically reduce resource consumptionand waste, improve energy security and fostergreen growth, at a time when climate changeaction and global economic recovery are top ofthe agenda. Industry must seize the chance tobe a part of this brave, new and sustainablefuture.n


MakingIt30

Illus

trat

ion:

ww

w.v

ecto

rsto

ck.c

om/B

onat

hos

makingit_13_pp30-33_jugaad_print 11/06/2013 10:11 Page 30

MakingIt 31

Jugaad innovators don’t view customers asmerely passive users of their products andservices. Recognizing the diversity of cus-tomer needs, they invent new solutions fromthe ground up by working closely with mar-ginal groups to identify their unique needs.They then engage local communities andpartners to set up a grassroots value chain tolocally build, deliver and support their solu-

tions – making these solutions, in turn, af-fordable, accessible and sustainable.

For instance, to effectively serve the sixhundred million unbanked Indians, Yes Bankis constantly experimenting with new tech-nology-powered inclusive business modelsthat tap a vast network of partners. The YesMoney service is one such initiative. As partof this initiative, the bank has teamed up with

various payment platform companies like Su-vidhaa Infoserve and Oxigen Services whichoffer payment services through about twohundred thousand ‘mom-and-pop’ retailstores in urban and rural areas. Yes Bank hashelped these companies to deploy a special-ized “domestic remittance” module, allowing,for example, migrant workers in cities to sendmoney to their families in far-flung villages

Jugaad is a Hindi word that roughly translates as “overcoming harsh constraints by improvisingan effective solution using limited resources”. Navi Radjou, Jaideep Prabhu and Simone Ahujasee jugaad (and its equivalents) as a powerful approach to innovation that is most active in theemerging markets of Asia, Africa and Latin America. It has the benefits of being frugal, enablinginnovators to do more with less. It is flexible, supporting improvisation and iteration. And it isinclusive, bringing in the knowledge of diverse swathes of customers and employees alike, whileaddressing the needs of previously marginalized consumers.

Use

to innovate faster,cheaper and better

JUGAAD

‰


MakingIt32

through the National Electronic FundTransfer system. Compared to money orderremittance services (offered by India Post, agovernment undertaking), Yes Money is aboutfive times cheaper and five times faster. YesMoney also offers a cost-effective alternativeto Western Union. Moreover, the majority ofthe fees collected are passed back to the pay-ment platform companies and the retailers –creating value for all partners in the YesMoney ecosystem.

Like Yes Bank, Zone V is positioning itsproducts as tools for economic empowermentrather than for passive consumption. Zone V’sphones can therefore enable blind women inrural India to manage not only the financesof their households but also those of theirneighbours and the village council. In thisway, the individual phone becomes a vehiclefor driving socio-economic growth in anentire community. To make all this happen,Zone V will rely on a host of partners. It hasoutsourced its design and manufacturing tocontract engineers and manufacturers, andrelies on non-government organizations likeSightsavers to distribute its phones in emerg-ing markets like India – especially in ruralareas. More important, Zone V will create aplatform for third-party software developersto develop “inclusive apps” for its phones.These apps will be available at different pricepoints depending on the customer segmentand the phone being used. Abhi Naha, CEO ofZone V, believes that many mobile app devel-opers will be motivated to create solutionsthat meet the basic needs of blind peopleworldwide.

In emerging markets, jugaad innovatorsoften partner with state-level and local gov-ernments to make health care, education andfinancial services more inclusive. For instance,GE Healthcare has signed a performance-based service contract with the government ofthe Northwestern Indian state of Gujarat.

Under the terms of this public-private part-nership agreement, GE-trained partners willoperate and maintain all the medical equip-ment installed in government-run hospitalsin the smaller cities of Gujarat. Rural hospi-tals, for their part, won’t need to invest in ex-pensive equipment or scramble to recruitqualified technicians. Nevertheless, they willbe guaranteed higher equipment uptime andlower utilization costs – all of which willtranslate into cost-effective and high qualitycare for rural patients.

Jugaad innovators cleverly employ tech-nology – especially mobile computing – toreduce the cost of delivering services to mar-ginal segments. They also leverage technologyto customize their offerings on a large scale. Acase in point is Reuters Market Light (RML), amobile phone service developed by ThomsonReuters in India. RML delivers to farmers cus-tomized and localized weather forecasts, localcrop prices, agricultural news and other rele-vant information (namely relevant govern-ment aid schemes), in the form of three SMSmessages sent daily to their mobile phones inthe local language. Such customized and

“Jugaad innovators cleverly employ technology –especially mobile computing – to reduce thecost of delivering services to marginal segments.They also leverage technology to customizetheir offerings on a large scale.”

‰


MakingIt 33

timely information enables farmers to betterplan their activities such as irrigation, fertil-izer use and harvesting. As a result, farmerscan better manage risks and improve their de-cisions regarding when and where to sell theirproduce to maximize profit. The service costsjust 250 rupees (US$5) for a three-month sub-scription. As of 2011, some 250,000 Indianfarmers from over fifteen thousand villageshad subscribed to RML. Thomson Reuters es-timates that over a million farmers across atleast thirteen Indian states have benefittedfrom the RML service. Moreover, farmers havereaped substantial returns from their invest-ment in RML. Some have realized up to200,000 rupees (US$4,000) in additional prof-its, and savings of nearly 400,000 rupees(US$8,000) from an investment of only US$5.

Another jugaad innovator using technol-ogy to bring low-cost services to the masses isDr. Liu Jiren, chairman and CEO of Neusoft,China’s largest IT solution and serviceprovider. Dr. Liu, a former professor of com-puter science, is worried that the Chinese,thanks to sustained double-digit economicgrowth, “have accumulated lots of wealth inthe past two decades, but have also accumu-lated lots of diseases as they got richer.” It isestimated that ninety million Chinese sufferfrom diabetes and two hundred million maybe suffering from cardiovascular diseases. Theexplosion of chronic diseases – which are par-ticularly devastating for low-income Chinesein rural areas – is forcing the government toinvest in a health care system that has so farbeen deficient or nonexistent in the ruralareas, which lag behind urban areas in med-ical resources and health care infrastructure.But Dr. Liu warns: “If the Chinese govern-ment were to build a health care system toserve 1.3 billion Chinese modelled on theUnited States [where health care spending isprojected to account for 20% of GDP by 2020]we will need a huge budget which will soonbankrupt our country. We need an alternativehealth care model that is smart, affordable andinclusive. We need a model that focuses on –and enables – disease prevention rather thantreatment.”

For its part, Neusoft has developed severallow-cost but high-tech solutions, such as af-fordable health monitoring devices andtelemedicine solutions for rural hospitals toserve low-income Chinese patients. More im-pressively, Neusoft has developed a cutting-edge wristwatch for chronic disease patientsto use as a mobile health monitor. On a regu-lar basis, the watch collects bio-indicatorsfrom sensors attached to the patient’s body.

This dynamic data is sent to Health Cloud, acloud computing–based expert system.Health Cloud analyzes the data using a healthcare knowledge database and offers cus-tomized advice to the patient in terms of ex-ercise plans and diet regimen, thus helpingthe patient make healthy lifestyle changes. Forinstance, if you are overweight, the system willsuggest a three-month jogging plan, monitorand report back your progress daily, and evensuggest improvements when needed.

Dr. Liu notes that in a rapidly aging China– where family ties are important and theover-sixty-five population is projected to in-crease from 130 million in 2010 to some 222million by 2030 – these wristwatches andhome health monitors have become populargifts from young Chinese to their parents.Through these gifts, young Chinese can re-motely track their parents’ health – throughdaily reports on their mobile phones – andproactively tend to their well-being. Dr. Liubelieves that Neusoft’s ability to serve mar-ginal groups (such as the elderly and the ruralpoor) faster and cheaper by harnessing af-fordable technologies like cloud computinggives the company an advantage over Westernmultinationals. He says: “We don’t have theresources of a large multinational corpora-tion, but we identify opportunities in under-served markets early on and execute fast onthem by harnessing the power of technology– especially cloud computing, which signifi-cantly lowers the cost of service delivery insectors like health care.”

Jugaad innovators like Dr. Liu successfullyinclude the margin by approaching marginalgroups as whole new markets, helping every-one climb up Maslow’s hierarchy of needs, co-creating value with customers and partnersthroughout the value chain, and makingclever use of affordable technology to scale uptheir personalized solutions. As Western firmsfocus more on emerging markets and asWestern nations become increasingly diverse,there is a growing urgency for Western com-panies to pay close attention to the margin.But there are several factors (explored inJugaad Innovation) that are holding back West-ern companies from including the margin intheir business strategies. l Excerpted with permission from the publisher,Wiley, from Jugaad Innovation: Think Frugal,Be Flexible, Generate Breakthrough Growth byNavi Radjou, Jaideep Prabhu, and Simone Ahuja.Copyright © 2012.

NAVI RADJOU is an independent innovation andleadership consultant and speaker based in PaloAlto, California, and a fellow at the University ofCambridge’s Judge Business School. JAIDEEP PRABHU is the Jawaharlal Nehru professorof Indian business and enterprise and director ofthe Centre for India and Global Business at theUniversity of Cambridge’s Judge Business School. SIMONE AHUJA is the founder of Blood Orange, amarketing and strategy consultancy with a focus onfrugal innovation and emerging markets.


MakingIt34

Innovation is a central driver of economicgrowth, development and better jobs. It is thekey to competing successfully in the globalmarketplace. Innovation provides the answerto numerous economic and social challenges,whether recovery from financial crisis, slow-ing climate change or winning the fightagainst deadly diseases. It is the source of im-provements in the quality of our everyday life.

Innovation is the space between a problemand its solution. A balanced intellectual prop-erty (IP) system is an indispensable part of aneffective innovation ecosystem. Working withits 185 member states, the World IntellectualProperty Organization (WIPO) supports global

investment in knowledge creation through thedevelopment of a robust and sustainable IPsystem, one that strikes an appropriate balancebetween the needs and interests of innovators,investors and society. Such a system fostersfurther innovation, and its diffusion, in a waythat benefits society at large.

IP translates knowledge into commercialassets. IP rights create a secure environment forinvestment in innovation and provide a legalframework for trading in intellectual assets. In-vestment in knowledge creation, and the main-tenance of a robust and balanced IP system,should feature prominently in any strategy toensure sustainable economic growth.

Francis Gurry outlines the role that a balancedintellectual property systemplays in incentivizinginvestment in newtechnologies, as well as infacilitating access to theknowledge embodied inthose technologies.

food security

information

licensingknow

ledge

healthjobs

public

private

collaboration

financial crisis partnerships

climate change

disease

databases

malaria

tuberculosissustainable developm

ent

investors

assets

creativity

science

technology

framework

meetingglobal challenges

innovationthrough

intellectual propertyinnovators

growthmarkets

makingit_13_pp34-35_WIPO_print 11/06/2013 10:11 Page 34

MakingIt 35

There is of course a need to ensure that theIP system safeguards the interests of all IPstakeholders – including developing countries– and that it continues to serve the publicgood. Indeed, this is a constant challenge forWIPO and its constituents. The internationalIP system must be able to deliver tangiblebenefit to all countries, irrespective of wherethey fall on the spectrum of technological oreconomic development. The reality for aglobal organization like WIPO, with its diversemembers, is that it must be fully able to serveall of them.

It is important to bear in mind that the IPsystem is a key tool for stimulating and dis-seminating innovation and creativity, forcountering unfair competition and for con-tributing to market order. The debates anddiscussions at WIPO are ultimately about howthe system can best serve these objectives,from which all countries stand to benefit.

An innovation-driven futureAlmost fifteen years since the world came to-gether and agreed a blueprint to rid the worldof poverty (the Millennium DevelopmentGoals), the international community is re-flecting on progress achieved so far and howto move forward. Significant advances havebeen made in better understanding the rolethat science, technology and innovation canplay in addressing some of the most urgentchallenges facing humanity. This is why I par-ticularly welcome the timely focus of the UNEconomic and Social Council (ECOSOC) onscience, technology and innovation, and onthe potential of culture to promote sustain-able development and achieve the Millen-nium Development Goals.

Science, technology and innovation play acritical role in addressing global challengessuch as climate change, food security andpublic health. IP has a role to play both in in-centivizing investment in the new technolo-gies that can help solve these problems, as wellas in facilitating access to the knowledge em-bodied in those technologies. In the patentsystem, a bargain is struck between the inno-vator and the state – in exchange for a limitedperiod of market advantage, during which in-vestment can be recouped, the innovator pub-licly discloses the knowledge on which theinnovation is based. To further encourage andfoster the dissemination of this knowledge,WIPO created Patentscope, the world’s largest,free technology database, with over 14 millionpatent documents.

Patent filings over the past years have re-vealed to what extent the geography of inno-

vation has changed. While a wide gap remainsbetween high-income countries and develop-ing countries, especially least developed coun-tries, some emerging economies, notably inEast Asia, are seeing remarkable growth in in-novative activity. For instance, demand forpatents – one indicator of innovation – hasrisen from 800,000 applications worldwide inthe early 1980s to 2.14 million in 2011. The in-crease was driven by Japan and the UnitedStates of America in the 1980s, Europe and theRepublic of Korea in the 1990s and, more re-cently, by China.

The new innovation eco-systemThe nature of innovation has also significantlychanged. Innovation is no longer typicallydriven by the R&D teams of one company, butrather by collaboration between individualswho in the past may never have had the chanceto work together. Chains of innovation andcreativity run far beyond the border of a singlecompany, or even a single country.

Encouraging innovation requires muchmore than a functioning IP system. It requiresan “innovation eco-system” to facilitate col-laboration and a flow of ideas between differ-ent innovation actors. Innovation ecosystemsare increasingly complex, internationalized,collaborative and open. Therefore, creating afree flow of information and knowledge be-tween the elements of the systems is increas-ingly important. Innovation leaders, whetherin the public or private sectors, enterprises orhigher education, have to work together toachieve the outcomes that public policymak-ers are looking for.

It is also important to note that IP alonewill not address global challenges where mar-kets are weak or non-existent. We see thismost clearly with respect to neglected tropical

diseases where patient populations are typi-cally the very poorest. Market-based incen-tives historically did not drive the investmentsthat were needed. This is why, since 2000, wehave seen a switch in the way in which inno-vation into neglected tropical diseases (NTDs)is funded and carried out, especially with theemergence of a whole range of new productdevelopment partnerships. WIPO is also play-ing an important role in finding solutions tothese complex problems.

WIPO-led initiativesWIPO has spearheaded the creation of WIPORe:Search, through which companies andother providers can share their knowledgeassets with researchers throughout the worldto stimulate more research and developmentin NTDs, tuberculosis and malaria for newand better treatment options for those suffer-ing from these conditions. WIPO Re:Searchwas launched in October 2011 in collabora-tion with eight of the top research pharma-ceutical companies, and more than 20 otherpublic and private sector partners from de-veloping and developed countries, and withthe World Health Organization as technicaladvisor. The partnership has now more thandoubled in size and researchers are startingto use the tools that WIPO Re:Search offers,including access to IP for pharmaceuticalcompounds, technologies and – most impor-tantly – making know-how and data availablefor research and development. More than adozen teams of researchers have started newcollaborations in this way.

WIPO is also working to create solutionsfor environmentally sound technologies(ESTs). Through our WIPO GREEN platformwe are looking to facilitate the sharing ofknowledge on ESTs and accelerate the transferand diffusion of these technologies to helpovercome the world’s many environmentalchallenges. It comprises a free database and apartnership hub. Once registered, users canaccess the searchable WIPO GREEN databaseto offer their green technologies for licensingor partnership agreements, or to notify othersof their technology needs. The WIPO GREENnetwork can also provide advice and servicesto assist partnership-building and bring to-gether relevant experts from around the world.

WIPO is committed to ensuring that IPplays the fullest possible role in harnessingman’s innate curiosity and creativity to tacklesome of the major global challenges which wecollectively face. We are doing this in partner-ship with governments and the private sector,as well as within the United Nations family.

“Innovation is no longertypically driven by theR&D teams of onecompany, but rather bycollaboration betweenindividuals who in the pastmay never have had thechance to work together.”

FRANCIS GURRY is Director General of the WorldIntellectual Property Organization (WIPO).

makingit_13_pp34-35_WIPO_print 11/06/2013 10:11 Page 35

MakingIt36

Montenegro became officially independent inJune 2006, becoming the 192nd member ofthe United Nations. Formerly a member ofthe Socialist Federal Republic of Yugoslavia,and then of the Union of Serbia andMontenegro, Montenegro had effectivelybeen running its own affairs for some yearsbefore independence, notably adopting theeuro as its currency in January 2002.

Over the last decade, high levels of foreigndirect investment (FDI) have made thecountry the economic standout of South-eastEurope. Gross national income has tripledsince 2003 and the country now has thehighest per capita income in the region.Poverty has declined from 11.3% in 2005 to9.3% in 2011 (the last year for which data wasavailable), and the country maintains arelatively moderate inequality of income.

Following a credit consumption boom andreal estate bubble that began in 2006, theeconomy hit a wall in 2009, contracting by5.7%. After recovering some growth in 2010-2011, it slipped into recession again in 2012.The crisis in the eurozone is partly to blamefor the slowdown but, as the World Banknotes in its May 2013 report, Montenegro:Preparing for Prosperity – EnsuringSustainability, Connectivity, and Flexibility forDynamic Growth, recent successes are beingoffset by negative trends in the country:“Until now, Montenegro has followed aneconomic growth model emphasizing capitalinputs, Foreign Direct Investment and asteady supply of inexpensive capital.Productivity growth in Montenegro, on theother hand, has been virtually non-existent.”

While praising the government’s reform

efforts, the World Bank is urging furtherimprovements to the business climate forinvestments and growth. In particular, theBank is encouraging Montenegro tocapitalize on its connectivity – via trade,infrastructure and human capital – to ensurethe kind of macroeconomic stability andsustainability necessary for long-term growth.

Zeljko Bogetic, World Bank LeadEconomist and lead author of the report, said,“Montenegro is an exciting place to dobusiness. It has a great location and is well-positioned in Europe to take advantage ofboth regional and global markets.Unfortunately, the country is not making thebest of these advantages.”

Structural issues holding the country backinclude the high level of the government’sindebtedness, which has been increased bythe burden of its support for the country’scrucial metals industry, particularly the partlystate-owned, Kombinat AluminijumaPodgorica (KAP) aluminium plant and theZeljezara Niksic steel mill.

In May 2013, the International MonetaryFund recommended the closure of the KAP,in order to stem a sharp rise in its public debt.The KAP factory produced 120,000 metrictons of aluminium in 2012, accounting for4.7% of the country’s economic output, but itstotal debt of around €350m is equivalent toone tenth of GDP, and it soaks up a further€3m of state subsidies every month. The plantwhich is situated on the outskirts ofPodgorica, the capital of Montenegro,employs 1,200 people, making it the country’sbiggest single industrial employer andMontenegrin politicians fear that shutting itdown would provoke social unrest.

South-east Europe’seconomic standout

MontenegroCOUNTRYFEATURE

Head of state: Filip Vujanović of theDemocratic Party of Socialists ofMontenegro (DPS). Population: 632,000 (2011)Urban population (% of total population): 61Population under the age of 14 (% of totalpopulation): 15Internet users (% of total population): 40 (2011)Electricity production from hydroelectricplants (% of total): 76 (2009 est.)Ranking in the World Economic Forum’sGlobal Competitiveness Index 2012-2013: 72 out of 144 countries GDP – composition by sector (2011 est.):agriculture: 0.8%, industry: 11.3%, services:87.9% Main industries: steelmaking, aluminum,agricultural processing, consumer goods,tourismOvernight tourism stays in seaside resorts (% of total overnight stays): 97

At a glance

makingit_13_pp36-39_montenegro_print 11/06/2013 10:12 Page 36

MakingIt 37

The other mainstay of the economy istourism. With a rich architectural and culturalheritage, a diversity of landscapes andclimates, and a well-preserved naturalenvironment, Montenegro is naturally well-suited for development of all kinds oftourism. The destination is especially popularwith visitors from Russia and neighbouringSerbia. Ranked one of the top ten destinationsto visit in Lonely Planet’s prestigious ‘where to

go in 2013’ list, Montenegro is described bythe publication as being “on a fast track totourism superstardom”.

To date, most investment in the tourismindustry has been concentrated on the coast inthe south-west of the country, and thedevelopment of glitzy resorts on the Adriaticcoast is providing a stark contrast with thelack of development in the mountainousnorth of the country. The northern region’s

11 municipalities score double theunemployment and poverty rates compared tothe 10 municipalities in the south. In order toreduce this gap and increase employment,ensure sustainability and an even spread ofeconomic opportunities, five United Nationsagencies in Montenegro are working toimplement a programme to support thegrowth of small and medium-sizedenterprises in the north.

CC

Montenegro has thehighest per capitaincome among the sixcountries comprisingSouth East Europe –Albania, Bosnia andHerzegovina, Kosovo,the Former Republicof Macedonia,Montenegro andSerbia.

Phot

o: G

eorg

ios

Gia

nnop

oulo

s


MakingIt38

Accession to European Union (EU) will offersome new opportunities for the economy butthe process will also pose some challenges.What are the implications of accession to theEU for Montenegro’s economy? In all the member countries, the process ofaccession to the EU exerted a strong transfor-mative effect on the entire society, includingthe economy. In the case of Montenegro, weestimate that the implications of the entireprocess will be multiple, and the effects on theoverall economic development, positive. At theend of this process, we will have a free flow ofcapital, people, goods and services with a largepart of Europe, which will change our marketand our economy for good. An integral part ofthis process is the commitment on the part ofMontenegro and the EU to promote intra-regional relations in South-east Europe, whichwill improve economic cooperation and thecompetitiveness of our market with respect tothe region.

Along with the EU, we are working toimprove our capacities for effective imple-mentation of European legislation. Accordingto the agreed agenda, our administration,numerous experts, legislators and the non-governmental sector will be focused, in thebeginning, on the chapters referring to therule of law and anti-corruption, as well as thechapter referring to science. However, havinglearnt from the experience of other countries,which have recently gone through this process,in particular we are preparing ourselves for thechapters referring to our key economy sectors– steel, aluminium, agriculture and fisheries –and environmental protection.

In the medium-term, we consider ourgreatest challenge to be the Montenegrineconomy’s existing structural problems andthe crisis-stricken international financial envi-

ronment, which could slow down or limit oureconomic recovery.What is the government of Montenegro’s in-dustrial strategy and what would accession tothe EU mean for the country’s strategic in-dustries? Industry has a very significant productionmultiplier effect for the Montenegrineconomy and it is quite important for thecountry’s overall economic development.Unfortunately, during the 1990s, due to thewars and economic blockade, economic activ-ities in Montenegro rapidly decreased, whichhad an impact also on industrial production.In addition, during this period and, later on,during the transition period, the structure ofthe Montenegrin economy changed a lot, witha shift in favour of the service sector. Produc-tion statistics demonstrate that, at the begin-ning of 1990s, industrial productionrepresented 40% of overall production inMontenegro but, by 2000, it was 19.1%, and, tenyears later, just 12.7%. However, despite itsreduced share in overall economic activity,industry is still one of the important economicsectors, especially because the largest compa-

nies in Montenegro, such as the aluminiumproducer, Kombinat Aluminijuma Podgorica(KAP), and the Nikšić steelworks, operatewithin this sector. Their joint multiplyingeffect on the entire social-economic situationis quite significant.

Today, the industrial sector of Montenegrois characterized by low productivity and weakcompetitiveness. The state of domestic indus-try demonstrates that Montenegro can nolonger be developed on the same basis as inthe past, and that it is necessary to change theconcept of industrial development. Keepingfocus solely on the big companies, at theexpense of the small and medium-sized enter-prises, is unrealistic and unjustified.

Due to the increasingly wide social andeconomic gaps and unequal developmentopportunities in different parts of Montene-gro, the government is working on defining adevelopment strategy for processing indus-tries. An additional factor, which adds to thesignificance of defining this strategy, is theprocess of accession to the EU, in the sensethat it is particularly important to be well-prepared in order to make good use of Euro-pean funds intended for the development ofthe economy. Through a quality projectapproach to these funds, we shall attempt toget closer to the average level of social andeconomic development in the EU.

In accordance with the above, in the follow-ing period, we have to define and implementan industrial policy which will support thedevelopment of strategic branches of industry,especially the energy sector, metal industryand infrastructure. By attracting foreigninvestment and using special state funds, wehave to strengthen industrial competitiveness,increase the opportunities for experts, stimu-late scientific and research work, and establish

An exclusive interview with His Excellency President Filip Vujanović

Born and raised in Belgrade, FILIP VUJANOVIĆgraduated from the University of Belgrade's LawSchool. He worked as a lawyer in Titograd(Podgorica) before entering politics in March 1993.He became a member of Montenegro’sDemocratic Party of Socialists (DPS), which hadformed in 1991 during the break-up of the SocialistFederal Republic of Yugoslavia. Vujanović served asMontenegro’s Minister of Justice (1993–96),Minister of the Interior Minister (1996-98) andPrime Minister (1998-2003). In 2003, he was electedPresident and supported the move to secede fromthe Federal Republic of Yugoslavia (comprisingMontenegro and Serbia). He became the country’s first president whenMontenegro made its formal declaration ofindependence on 3 June 2006. Vujanović was re-elected as president in 2008 and again in April 2013.

‘We have to change the concept ofMontenegrin industrial development’

MontenegroCOUNTRYFEATURE


MakingIt 39

Specific results in this field confirm that weare heading in the right direction: in 2011/12,the government provided 12 million Euros ininvestments for the development of agricul-ture, out of which 80% refers to small andmedium-sized farms in the north of Montene-gro. Also, a major part of a World Bank grantof 3.5 million Euros, provided throughMontenegro Institutional Development andAgricultural Strengthening (MIDAS) projects,has been allocated for the partnershipprogrammes of agricultural producers in thenorthern region. The lack of employment and income oppor-tunities for youth has triggered uprisings inmany countries in the Northern Africa andMiddle East region in recent years. What arethe policy responses that your governmenthas adopted to address this specific chal-lenge? Certainly, we have identified unemploymentas a peril to the stability of society if its causesare not addressed in a timely manner. The rateof unemployment in Montenegro is the lowestin the region. At the same time, the rate ofemployment of non-residents in seasonal jobsis the highest in the region. This indicates thatthere is a problem with the structure of thelabour force and a chance for additional train-ing and re-training. Owing to the preservationof the macroeconomic stability, we have hadno cases of major lay-offs. Also, we have had acontinuous responsible dialogue with thetrade unions, and no major social unrest.However, the global economic crisis poses achallenge to all of us in the region, and it is notour ally in solving the key causes of unem-ployment.

That is why our new government iscommitted to solving the problem of unem-ployment, especially as regards youth. TheMinistry of Labour has already launched aprogramme to fund first employment for theduration of nine months. We have introducedtax reductions for the small and medium-sized enterprises which create new jobs, andwe are expanding the incentive measures forentrepreneurs and for domestic companiesproviding seasonal employment in thetourism and construction industries.

“The general objective is to contribute to a more equitableregional development by strengthening competitiveness andcapacities for the creation of new jobs… especially in theless-developed municipalities in the north of Montenegro.”

an adequate infrastructure for the develop-ment of entrepreneurship.

Only such an approach will enable us toachieve the long-term, stable development ofpriority industrial sectors, a higher employ-ment rate and a more equitable regional devel-opment, which is the primary objective of theeconomic policy of the Government ofMontenegro.What efforts are the Government making toencourage economic diversification and toprevent further north-south populationmovements? Despite the significant infrastructural andother investments in the northern region ofMontenegro, the projects implemented so farhave not maximized the comparative potentialfor the development of tourism, agricultureand the energy sector in this part of thecountry. Our government has established thatthe future development policy of the statemust be based on the effort to make the best

use of the northern region’s resources and tovalorize them in the market.

In this respect, in May 2012, the Ministry ofEconomy, in cooperation with the UN systemin Montenegro, adopted the Strategy for sustain-able economic growth in Montenegro through theintroduction of business clusters 2012-2016. Thegeneral objective is to contribute to a moreequitable regional development by strength-ening competitiveness and capacities for thecreation of new jobs in micro, small andmedium-sized businesses, and especially inthe less-developed municipalities in the northof Montenegro. Another important objectiveis to stimulate the development of newcompanies and to create new jobs. It is impor-tant that the strategy also provides a basis forfinancing the projects arising from the processof EU support for our integration, which willalso contribute to the equalization of develop-ment opportunities for various economic enti-ties and regions.

Filip Vujanović, President of Montenegro, addressesthe UN General Assembly,24 September 2010.

Phot

o: U

N/R

yan

Brow

n


MakingIt40

An innovative footwear manufacturer that pays fair wagesand uses locally sourced materials is helping to transformthe economic landscape in Ethiopia. soleRebels, which wasfounded by Bethlehem Tilahun Alemu in 2004, has becomeAfrica’s largest footwear brand, with its range of artisan-made shoes now selling in 55 countries. In 2011, the com-pany ramped up US$2m in sales and it is expecting to gen-erate over US$15-20m in revenue by 2015.

Alemu has become one of Africa’s most celebrated busi-nesswomen. She was featured on the front cover of Forbesmagazine in January 2012, and was selected as a “YoungGlobal Leader” by the World Economic Forum 2011. In June2012, she won the award for “Most Outstanding Business-woman” at the annual African Business Awards, organizedby African Business magazine.

Export-oriented success storyHer success with soleRebels is regularly cited as a sign thatEthiopia is ready to transition from being reliant on foreignaid to being able to direct its economic future by exploitinghome grown skills, resources and business opportunities.The company is also held up as inspiration for Ethiopia’snewly-emerging private sector, particularly as an exampleof an export oriented success story.

Alemu explained how she set up the company in a smallvillage on the outskirts of Addis Ababa, “Having grown upwatching our family and neighbours struggling, we decidedto create the ‘better life’ we were all waiting for by harness-ing our community’s incredible artisan skills and chan-neling them into a sustainable, global, fair trade, footwearbusiness.”

She continued, “We selected shoes because we saw thatfootwear was an excellent platform to begin to share manyof Ethiopia’s indigenous eco-sensible craft heritages andartisan talents with the world. Our approach to footwearcreation – hand-crafted and eco-sensible – meant wecould source and make almost all our materials locally,thereby creating an export product from 100% localinputs.”

Tyre-soled shoesThe soleRebels footwear range includes sandals, flip flopsand shoes with soles made from recycled car tyres. Alemuexplained that the recycled car tyre-soled shoe has existedin Ethiopia for a long time. “It was the footwear from backin the day when the original “soleRebels” fought off theinvading forces and kept Ethiopia as the only African nationto never be colonized! We took this wonderful, indigenous,age-old recycling tradition and fused it with fantasticEthiopian artisan crafts and excellent modern design sen-sibilities, and turned it into footwear that has universalflavour and appeal.”

She is proud of the production process, stating that allthe company’s styles incorporate as much recycled and sus-tainable materials as possible, with ingredients like hand-spun and hand-loomed organic cotton fabrics, and naturalfibres, including Abyssinian hemp and koba. However, sheshuns the term, ‘green business’, stating that she regards itas something of a fad. “We are embracing these deeply sus-tainable and traditionally zero-carbon methods of produc-tion and materials because they are integral parts ofEthiopia’s cultural fabric, a tradition which we grew upwithin and feel passionate about preserving.”

Workers’ rightssoleRebels is also setting a high standard for workers’rights, providing 100% medical coverage for employees andtheir families and free doctor-run medical checks, as wellas providing transport to and from the worksite for work-ers with disabilities. Alemu insists that workers are treatedwith respect, noting that on average the company’s 90employees get paid four times the legal minimum wageand three times the industry average wage for similar work.

Unlike most companies in the apparel and footwear sec-tor, soleRebels does not use a quota system. Alemuexplained, “The quota system of work, endemic in the fash-ion business always struck us as truly demeaning. It is a sys-tem that shows no confidence that workers can be incen-tivized to achieve targets and it creates a hostile working

In the fourth of a series focusing onremarkable companies that are making waves in the areas of green industry andsustainable industrial development, Making Ittalks to Bethlehem Tilahun Alemu, the founder and managing director of theEthiopian footwear company, soleRebels.

soleRebels

makingit_13_pp40-41_good-business_print 11/06/2013 10:12 Page 40

MakingIt 41

environment. soleRebels pays all workers based on negoti-ated wages that are subject to mutually agreed, company-wide goals. This means that we are all in it together in termsof making sure that deadlines are met and that top-notchproduct quality is always achieved.”

ExpansionIn order to meet growing demand, the company is con-structing a new production facility and when it is finishedAlemu expects the workforce to grow in number to around300 employees. “Built with indigenous, eco-sensible mate-rials and employing 100% renewable and self-generatingpower, this first of its kind production facility will serveas a leading innovation centre, allowing us to develop thecultural wealth of the country, while simultaneously

expanding and enhancing our own production capabilities.”Alemu believes that her company can be emulated by

others and help foster inclusive, sustainable developmentin Ethiopia. She said, “soleRebels is living proof that cre-ating innovative world class products and trading themwith the world is the best road to greater shared prosper-ity for developing nations like ours.”

She also sees lessons for the rest of Africa. “Today, Africaaccounts for a mere two percent of global trade. If sub-Saharan Africa were to increase that share by only one per-cent, it would generate additional export revenues each yeargreater than the total amount of annual assistance thatAfrica currently receives. We simply need the opportunityto increase our market share, something every good, strong,global business seeks to do.”

soleRebels CEO,Bethlehem TilahunAlemu. “soleRebelsrepresents the tip of achanging dynamic inEthiopia, a historic andvital shift to control ourown destiny by risingup the value chain andexporting higher-value,branded, finishedgoods, instead of low-value commodityexports.”

Phot

o: s

oleR

ebel

s

makingit_13_pp40-41_good-business_print 12/06/2013 09:27 Page 41

MakingIt42

POLICY BRIEF

By MONIKA DITTRICH, STEFAN GILJUM,STEPHAN LUTTER and CHRISTINE POLZIN

In general, global dynamics during thepast thirty years have shown that economicgrowth entailed increased materialextraction and consumption. Althoughmost countries made improvements inmaterial productivity, the current amountof used materials and the continuedunequal distribution of consumptionbetween different world regions are farfrom being sustainable.

Some current trends are extremelyalarming. The development process itselfand the perpetuation of highly material-intensive lifestyles in rich countries, and inan increasing number of emergingeconomies, require large amounts ofresources. The quantities are so huge thatthis model of development cannotrealistically be provided for all humans.

Many countries with a relatively higherperformance of material use and resourceproductivity achieved this by outsourcingtheir material-intensive economicactivities. Those countries which increasedtheir activities in material intensiveeconomic sectors had a worseperformance. Nevertheless, bothdevelopments are two sides of the samecoin in the interlinked system ofinternational specialization. From thosefindings arises the question “What are theoptions that the green economy conceptcan provide?”

The potential of green economiesA key component of green economicstrategies is improved resourcemanagement. Green economies thus haveto improve resource productivity andreduce absolute levels of resource use.Such a transition could be achievedthrough concerted action by policymakers,setting the framework for increasedresource efficiency, by companiesexploiting the economic andenvironmental potentials of increasedresource efficiency and by consumersmaking informed and active choices forresource efficient products and services. A few examples for such effective measuresinclude:l a transition towards more sustainableenergy production by substantiallyincreasing investments in renewableenergy sources for power generation, whileconsidering limits, e.g. related to increasedbiomass use and environmental impacts;l a transition in manufacturing industriestowards closed material cycles and

Green economiesfor sustainableresource use

improvements in resource efficiency andproductivity;l a transition towards eco-friendly housingby constructing new green buildings andretrofitting the existing energy and materialintensive buildings stock, and l a transformation of the transport sectorby promoting access instead of mobility,shifting to less harmful modes oftransportation, and lowering carbonemissions by improving vehicles.

Some fundamental questionsBased on the information presented in ourstudy on green economies and its potentialto increase resource efficiency and decreasethe amounts of materials required forproduction for production andconsumption processes around the world,the fundamental questions humanity willface in the future are:l Is the current model of material intensivelifestyles desirable as a future vision? And ifnot, what is an attractive and sustainablealternative?l Are we willing to implement a limitedand equal distribution of materialconsumption globally? If yes, at what level?The current OECD-level, which wouldmean accepting a doubling ofenvironmental pressures? The currentglobal average, accepting globaldistribution and current levels of ecologicalpressure? A level oriented on current bestpractices or maybe less? If one of theseoptions seems to be favourable, what kind

“A sustainable system ofglobal resource use musttherefore operate on a levelsignificantly below the currentone; we need to reduce ourresource consumption inabsolute terms.”

makingit_13_pp42-45_policybrief_print 11/06/2013 10:13 Page 42

MakingIt 43

POLICY BRIEF

facts need to be taken into account whenglobal strategies towards sustainableresource use are being discussed. First, thecurrent level of global resource use is notsustainable. The significant growth ofresource extraction, trade andconsumption is the main driver for mostglobal environmental problems. At leastwith regard to some environmentalimpacts, humanity already exceeds theecological capacity of the Earth’secosystems. Climate change is the mostprominent example, but biodiversity loss,desertification and soil erosion are alsoclearly linked to our use of naturalresources. A sustainable system of globalresource use must therefore operate on alevel significantly below the current one;

of incentives and sanctions wouldhumanity accept to enforce them?l If an equal distribution is notworthwhile, what would be an alternativeapproach to reach a globally sustainablelevel of resource use? Should inequalitiesof more than a factor of 50, as we observecurrently, be maintained or would aminimum or maximum level of materialconsumption for each person be moreattractive? What level of inequality couldbe acceptable in terms of global socialjustice?

Reducing our resource use, improvingour quality of lifeIndependently of how those importantquestions are being addressed, two basic

we need to reduce our resourceconsumption in absolute terms.

At the same time, billions of people onthe planet are still living in materialpoverty and rightly demand a substantialincrease of their consumption andmaterial welfare. A strategy of reducingglobal resource use therefore needs to fullyaddress distributional aspects, bothbetween different countries and regionsand – to a growing extent – also withincountries. Ultimately, the objective is toensure a high quality of life for all peoplewhile keeping resource use within theecological limits of our planet.l Extracted from Green economies around theworld? Implications of resource use for developmentand the environment.

Phot

o: K

evin

Doo

ley


MakingIt44

POLICY BRIEF

By PETER ERICKSON and MARION DAVIS, theStockholm Environment Institute’s US Centre(SEI-US).

In recent decades, trade has become afoundation of the world economy: exportsnow represent nearly a third of globalGDP, more than double the share of just 30 years ago. Many economists see trade asa significant source of growth and well-being, but there are concerns that it mayalso lead to increased global greenhousegas (GHG) emissions.

We recently began exploring whethertrade could perhaps help reduce globalGHG emissions – if production of goodsand materials were to shift to places wherethey can be manufactured with the fewestGHG emissions.

We examined the relative GHG intensityof production of selected goods indifferent world regions and the potentialfor regions to access the low-GHG fuelsand feedstocks needed to expand low-GHG production, aiming to gauge whatconditions might enable countries to befuture low-GHG producers.

We found that the average GHGintensity of producing some of the mostsignificant traded goods and materials (e.g.clothing, electronics, vehicles, steel,) mayvary by a factor of two to over five amongcountries. Thus, there could be substantialpotential for reducing GHG emissions byshifting production, if these averages wereto hold.

The actual benefits of shiftingproduction are much more complicated toassess, however, and depend on severalfactors, including the ability of countriesto invest in new, efficient technologies andexpand use of low-GHG energy; theavailability of raw materials, theopportunity cost of diverting resources(energy, labour, or capital) and productioncosts.

Steel, for exampleFor example, significant GHG emissionsare associated with internationally tradedsteel. The GHG intensity of steel dependson the energy intensity of production(energy per tonne) and the carbon intensityof that energy (tonnes of CO2 per unit of

energy). There are three primary routes forproducing crude steel: basic oxygenfurnace (BOF), electric arc furnace usingdirect reduced iron (DRI-EAF); or electricarc furnace using scrap (Scrap-EAF). Ouranalysis shows the GHG intensity of thesethree primary routes can range from aslittle as 0.3 t CO2e per tonne of steel – theScrap-EAF route, if powered by renewableelectricity – to as much as 3.5 t CO2e – DRI-EAF with iron-making fuelled by coal andsteel-making powered by coal-basedelectricity.

Which of these three technologiescountries choose to make steel affects theGHG-intensity, but so does the efficiencyof operation (and vintage of thetechnology) and the GHG intensity of theenergy used. In theory, any region may beable to invest in the latest technology toexpand production, but regions may differin their ability to expand supplies of lower-GHG fuels (e.g. natural gas, or sustainablebiomass for charcoal-based ironproduction in a blast furnace) and low-GHG electricity (for production of steel inan electric arc furnace from direct reducediron). Shifting production to (or locatingnew production in) regions with access toexpanded supplies of these factors couldperhaps help reduce the overall GHGemissions associated with steelproduction, even after accounting for anyincreases in transportation requirements.This example is for steel, but similarconditions also exist in other sectors.

Could shifting thelocation of productionbring GHG benefits?

“The actual benefits of shiftingproduction are complicated toassess, and depend on severalfactors, including the ability ofcountries to invest in new,efficient technologies andexpand use of low-GHGenergy.”


MakingIt 45

POLICY BRIEF

Policy options and research needsIn theory, a number of policy options areavailable to steer trade one way or another;these include quantitative restrictions,punitive tariffs, anti-dumping duties orcountervailing duties (as a response tounfair subsidies), border carbonadjustments (BCAs), technical regulationsor standards related to the emissions ofenergy-intensive products, and preferentialtariffs and quotas.

The cost, environmental effectiveness andfeasibility of measures will depend, to a greatextent, on their specific design. Somepolicies, would likely be challenging bothfrom a legal and a political perspective: theseinclude outright bans or quantitative

restrictions on goods from specific countries.It may also be difficult to design trade

measures aimed at reducing GHGemissions that comply both with WorldTrade Organization (WTO) rules – whichrequire most-favoured nation treatmentamong all its members – and equityprinciples under the United NationsFramework Convention on ClimateChange. Measures that favour somedeveloping countries over others, or thatreward countries that work to reduceemissions, might face challenges under theWTO. One proposal to address emissionsembodied in significant trade flows thatcould be WTO-legal is to return revenuesfrom BCAs to the exporting countries as

climate finance. This proposal deservesfurther research.

ConclusionShifting production away from the more

GHG-intensive regions to less GHG-intensive ones could reduce emissions.However, significantly more research isneeded to explore the real-world feasibilityof such shifts.

We recommend more detailed and in-depth analysis of the costs and availability ofkey resources for low-GHG production ineach region, to help develop more specificlow-GHG pathways for specific industriesand specific countries. Data from industryassociations may be crucial in this regard.

Tata Steel employee,Rouha Hussaina, relights ablast furnace, Port Talbot,UK, February 2013.

Phot

o: Ta

ta S

teel

/New

scas

t


MakingIt46

ENDPIECE

Ahead of the next issue – looking at the roleand interests of middle-income countries inthe nexus of global sustainability andeconomic policy – EDWARD BARBIER –highlights the spatial poverty traps found inrural areas in the developing world.

A slew of recent reports suggest that weare winning the war on global poverty.The latest, from the Oxford Poverty andHuman Development Initiative, foundthat a multi-dimensional index ofwidespread poverty declinedsignificantly in 18 of 22 developingcountries, which contain over two billionpeople. This is good news for the WorldBank President, Jim Yong Kim, whodeclared, just over a year ago, that theworld could end poverty by 2030 if theright mix of development and aidpolicies is adopted by the internationalcommunity.

However, as I pointed out in NaturalCapital, Ecological Scarcity and RuralPoverty, a policy paper written for theWorld Bank, the renewed optimism over“ending” global poverty will be short-lived, unless the world is prepared toaddress an important, and seeminglyintractable, “hidden” dimension to thisproblem.

Since 1950, the estimated populationin developing economies on “fragilelands” has doubled. These fragileenvironments are prone to landdegradation, and consist of upland areas,forest systems and drylands that sufferfrom low agricultural productivity, andareas that present significant constraints

for intensive agriculture. Today, nearly 1.3billion people – almost a fifth of theworld’s population – live in such areas inlow and middle-income economies.Almost half of the people in these fragileenvironments (631 million) consist of therural poor, who throughout thedeveloping world outnumber the poorliving on favoured lands by 2 to 1.

In addition, around 430 million peoplein developing countries live in remoterural areas. These are locations with poormarket access, requiring five or morehours to reach a market town of 5,000 ormore. Of the rural populations in suchremote regions, nearly half are found inless favoured areas, which are semi andsemi-arid regions characterized byfrequent moisture stress that limits

agricultural production. Again, people inremote rural regions tend to be some ofthe poorest in the developing world.

To put these numbers in perspective,the total population in the richestcountries of the world is around 850million. In contrast, as noted above, 1.3billion people in the fragile environmentsin developing countries, and 430 millionpeople inhabit remote rural areas.

The clustering of rural populations inless-favoured areas and fragileenvironments is also likely to continueinto the foreseeable future, given currentrural population and poverty trends indeveloping economies. Although from1981 to 2005 the number of extreme poorglobally declined from 1.9 billion to 1.4 billion, current development policiesare not winning the war on poverty in therural areas of low and middle-incomecountries. First, despite rapid globalurbanization, the rural population ofdeveloping regions continues to grow, atjust over 1.0% per year in recent decades.Second, around three-quarters of thedeveloping world’s poor still live in ruralareas, even allowing for the higher cost ofliving facing the poor in urban areas. Ingeneral, about twice as many poor peoplelive in rural than in urban areas in thedeveloping world. As a consequence, ruralpopulations in poor countries aregrowing, rural poverty is endemic, andsubstantial spatial poverty traps arewidespread.

Overcoming such spatial poverty trapsand alleviating rural poverty in manydeveloping economies will therefore

The hidden global poverty problem

“Although from 1981 to 2005 the number of extremepoor globally declined from 1.9 billion to 1.4 billion, currentdevelopment policies are notwinning the war on poverty inthe rural areas of low andmiddle-income countries.”

makingit_13_pp46-47–endpiece_print 11/06/2013 10:13 Page 46

ENDPIECE

require a much more robust strategythan current global economicdevelopment efforts. Specific policiesneed to be targeted at the poor wherethey live, especially the rural poorclustered in fragile environments andremote areas. This will requireinvolving the poor in these areas inpayment for ecosystem services,targeting investments directly to therural poor, reducing their dependenceon exploiting environmental resources,and tackling their lack of access toaffordable credit, insurance, land, andtransport. Where possible, effortsshould be made to boost ruralemployment opportunities, especiallyfor those poor households dependenton outside labour employment.

Clearly, global poverty trends aremoving in the right direction. Butunless a serious effort is made, first, toacknowledge the “hidden” globalpoverty problem, and second, to takethese concrete policy steps to addressthis problem, then it is ratherpremature to be predicting the end ofglobal poverty in 20 years time.

l Originally published at TripleCrisis.com –global perspectives on finance, developmentand the environment.

EDWARD BARBIER is John S. BugasProfessor of Economics, Department ofEconomics and Finance, University ofWyoming, USA. For more info, see:http://triplecrisis.com/author/edward-barbier

MakingIt 47

Anthony, Scott D. – The Little Black Book of Innovation:How It Works, How to Do It

Chandy, Laurence, DervişKemal and Rocker, StevenRocker – Clicks into Bricks, Technology intoTransformation, and the Fight against Poverty

Dichter, Sacha, Katz, Robert, Koh, Harvey andKaramchandani, Ashish – Closing the Pioneer Gap

Gourville, John – The Curse of Innovation: Why InnovativeNew Products Fail

Govindarajan, Vijay and Trimble, Chris – ReverseInnovation: Create Far from Home, Win Everywhere

Harford, Tim – Adapt: Why Success Always Starts withFailure

Harvard Business Review – 10 Must Reads on InnovationINSEAD and the World Intellectual Property Organization

– The Global Innovation Index 2012 Koulopoulos, Thomas M. – Cloud Surfing: A New Way to

Think about Risk, Innovation, Scale, and SuccessMutua, Will and Ally, Mbwana (eds) – Innovative Africa:

The New Face of Africa: Essays on the Rise of Africa’sInnovation Age

OECD – Innovation for development: A discussion of theissues and an overview of the work of the OECDDirectorate for Science, Technology and Industry

OECD – Science, Technology and Industry Outlook 2012Taylor, William C. – Practically Radical: Not-So-Crazy Ways

to Transform Your Company, Shake Up Your Industry,and Challenge Yourself

World Economic Forum – Technology Pioneers 2013:Pushing New Frontiers

World Intellectual Property Organization (WIPO) –Understanding Industrial Property

WWF-UK – Green game-changers: insights formainstreaming business innovation

www.businesscalltoaction.org – Business Call to Actionchallenges companies to develop innovative businessmodels that achieve commercial success anddevelopment outcomes

www.the-hub.net – The HUB is a global movement toprovide the support structures that will facilitate thepower of innovation through collaboration

www.ideaslaboratory.com – Ideas Lab brings togetherexperts and thought leaders to address some of today’smost pressing issues, from manufacturing totechnology to jobs, serving as a platform for freshperspectives on critical policy challenges

www.innovationpioneers.net – The Innovation PioneersNetwork brings practitioners together to shareknowledge, experience, problems and commonchallenges

www.oecd.org/sti – OECD Directorate for Science,Technology and Industry

www.policyinnovations.org – Articles, multimedia andanalysis on how ethical innovations shape globalsociety

www.sirgtaiwan.wordpress.com – The Social InnovationResearch Group is a Taiwan-based think-tank studyinghow and why social innovation entities succeed or fail

www.unreasonableinstitute.org – The UnreasonableInstitute gets world-changing entrepreneurs whatthey need to scale their impact

www.wired.com/insights – Wired magazine website'sinnovation insights section


FURTHER READING

FURTHER SURFING

Manufacturing agro-processingequipment at the Rural TechnologyService Centre, Mampong, Ghana. In2011, Ghana was reclassified as a middle-income country by the World Bank.

Phot

o: ©

IFA

D/N

ana

Kof

i Acq

uah

makingit_13_pp46-47–endpiece_print 11/06/2013 10:13 Page 47

A quarterly magazine tostimulate debate about globalindustrial development issues


partner for prosperity

makingit_13_cover_print 11/06/2013 10:02 Page 2

Making It: Industry for Development (#13)

Documents

colombial hot topic

sustainablel hot topic

china number

gas flaring number

toimprove energy access

thedeveloping world

world of tomorrow

end ofthe world