Pascale Bonzom, UNDP, BRC

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Fostering Inclusive Markets in South Eastern
Europe and the Western CIS
Pascale Bonzom, UNDP, BRC Thessaloniki, September
12 2008
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Population earning less than US2 a day per
region (World Bank)
2.6 billion excluded not only a Development
Challenge but a long-term Business Opportunity
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A vibrant Private Sector is a key component in
meeting development goals..
Economic Growth is a pre-requisite for human
development

• A vibrant Private Sector drives economic growth
  and empowers the most vulnerable people through
• Provision of quality products and services
• Jobs
• Entrepreneurship
• Tax revenues and redistribution options

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Additional ways in which business and development
intersect
Development benefits
Traditional CSR
CSR / Social investment
Philanthropy

• Social investment that is strategic to the core
  business and that contributes to reduce exclusion

• Contribution of financial or in-kind resources
  to development projects

Business benefits
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evidence is emerging that core business assets
need to be deployed in order to achieve core
business objectives while including the poor
Development benefits
New Generation CSR
Pro-poor business models / inclusive markets
Policy dialogue / advocacy

• Enterprise solutions that accelerate and sustain
  access by the poor to needed goods and services
  and to livelihoods opportunities

Traditional CSR
CSR / Social investment

• Dialogue which contributes to more effective
  governance institutions, rules, policies and
  processes

Philanthropy

• Social investment that is strategic to the core
  business and that contributes to achievement of
  the MDGs

• Contribution of financial or in-kind resources
  to development projects

Business benefits
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Why engage in pro-poor business models and
inclusive markets?

• To access to new opportunities/markets
• To develop/test new business models/innovate
• To take enjoy the first movers advantage
• To create value chain efficiencies (e.g. sourcing
  from small holders)
• To secure the license to operate from local
  communities
• To implement a CSR vision/strategy/commitment
• To leverage voluntary labels such as Fairtrade
• To do good business
• while doing good at the same time

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Core Business Development A Mutual Value

• Businesses benefit from including the poor in a
  number of ways that increases their revenues,
  profits and long-term value generation
• on the supply side finding new customers,
  creating long-term customer loyalty, developing
  transferable innovations
• on the demand side improving production
  capacity, getting access to high-quality inputs,
  expanding customer reach
• The poor benefit from participation in markets
  in a number of ways that increase their
  opportunities
• getting access to goods and services
• getting access to income opportunities as
  suppliers, employees, distributors and
  entrepreneurs
• increased choice and power
• Inclusive business has 4 characteristics
  profitability, participation of the poor,
  sustainability, and human development impact

Many examples show that providing basic goods and
services as well as income opportuni-ties to the
poor can be a sustainable and profitable
busi-ness strategy and contribute to human
development.
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But barriers to Private Sector Development remain
significant in most transition economies

• The foundations for private sector activity are
  not in place
• Unfavorable business environment including weak
  policies (e.g. competition policies) and legal
  and regulatory institutions,
• Limited private sector participation in policy
  dialogue,
• Lack of access to finance
• Lack of skills and knowledge to respond to market
  opportunities
• Business value chains and market linkages too
  weak and unbalanced
• Lack of adherence to principles for responsible
  investment and business
• Leading to.
• High degree of companies operate in the informal
  sector
• The majority of enterprises are subsistence
  micro-enterprises, most of which are concentrated
  in low value added sectors
• Lack of competition - large incumbent enterprises
  frequently stifle entrepreneurial energy
• Local demand and ability to pay is weak

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How can UNDP help Business engage?

• Local knowledge (markets, constraints, service
  providers, etc)
• Convening power (local business partners,
  governments, civil society and donors)
• Regional network (of partners and expertise)
• Project alliance facilitation
• Feasibility studies/Market research co-funding
• Technical assistance for strengthening local
  value chain partners
• Continuous problem solving and facilitation
• Monitoring and evaluation of development impacts

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Business Brokers our main delivery mechanism

• Dedicated and pro-active
• Public and private sector background
• On the ground, with local knowledge and contacts
• Support of the UN access to government, donors,
  civil society and regional players
• Facilitate business linkages
• Provide country and sectoral information
• Identify investment opportunities in priority
  sectors
• Assistance with addressing knowledge and skill
  gaps among local partners

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• Local Manufacturing in Bosnia
• An inclusive market case study

Lead company My Cycle (Slovenian
Company) Innovation Brokering partnerships for
new employment opportunities in
Bosnia Investment US 6.2 million (EUR 4 mm)
over 2 years
Challenge
Solution
Business result

• Broker introduces My Cycle to potential sites and
  facilitated contacts with local authorities
• My Cycle purchases non producing factory in
  Srebrenica for EUR1 mm (US 1.5mm) and renovates
  it according to their needs
• The company will initially employ 60 people from
  the Srebrenica area, and later an additional 120
  employees will be added to the workforce

• My Cycle from Slovenia is seeking new location
  for its factory
• The companys core business is manufacturing of
  wheel chairs, and over 90 of the products will
  be sold via export
• Srebrenica, known for the 1995 genocide during
  Bosnian war, is an economically depressed region

• The project demonstrates the relevance of the GSB
  service offer and the advantages of the on the
  ground presence
• Factory operations to begin in 2009

Development result

• An opportunity for women to participate in
  direct formal employment in the factory
• Reduced unemployment in the region

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• Wine sourcing from Moldova
• An inclusive market case study

Lead company Svorov, Pucari (Moldovan SME) and
Domain Menada (Polish SME) Innovation Brokering
new relationships to diversify wine export
sales Investment Modification of manufacturing
practices for EU standards (TBD)
Challenge
Solution
Business result

• Wine accounts for 1/3 of Moldovan GDP and is a
  major export product for Moldova
• Russia was a key importer, but in 2006 a ban was
  enacted on Moldovan wine
• The industry and the livelihoods of hundreds of
  small farmers are now at risk

• Broker facilitated market linkages between
  Moldovan wine producers (Suvorov Vin and Purcari)
  with Domain Menada, a Polish importer and wine
  distributor
• The Moldovan exporters have also changed
  manufacturing practices - such as bottle size -
  in order to comply with EU standards, therefore
  opening up further future opportunities as a
  result of this project

• As of 2007, 1.4 million bottles exported to
  Poland
• Suvorov Vin has contracts with 15 large firms
  (approximately 1,500 farmers)

Development result

• New markets for smallholder farmers creating
  greater income security and growth potential for
  the future

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• Local Wool Sourcing in Moldova
• An inclusive market case study

Company Dari Prirodi and Toplu Yapa wool
collectors Filatura
Ungheni yarn and carpet producer Innovation
Development of a pro-poor supply chain
Solution
Challenge
Development result

• Broker approached Filatura, wool collectors as
  well as USAID (already working with Filatura) and
  brokered the idea of developing a local supply
  chain
• UNDP facilitated and co-funded 2 feasibility
  studies one on wool sector in Moldova overall
  and the other on improving the quality of local
  wool
• UNDP facilitated access to working capital loan
  for wool collectors
• UNDP and Filatura initiated quality improvement
  of the wool produced by local farmers

• Number of farmers involved in supply chain
  doubled
• Quality of wool led to a price increase from 10
  Lei to 14 Lei/kg

• In 2006 Filatura Ungheni purchased 97 of its
  wool from abroad and only 3 from local sources
• Out of 10,000 sheep farmers in under-developed
  rural areas, around 2,000 in the supply chain
• Local wool did not meet quality criteria by
  Filatura Ungheni

Business result

• Filatura Ungheni purchases up to 20 of its wool
  from local sources, cost savings app. 1 mil USD
• Wool collectors gained access to working capital
  loan

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Where do we work?

• Currently have brokers in the following
  countries
• South East Europe Western CIS
• Albania Belarus
• Bosnia I Herzegovina Moldova
• Turkey Russia
• Ukraine
• Armenia
• Georgia
• In the process of securing funds for expanding to
  the following countries Kosovo, Kazakhstan and
  Uzbekistan.
• Possibility to expand into new countries should
  there be converging private sector and country
  demand.

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CONCLUSION A new model of inclusiveness with a
double bottom-line
Neutrality convening power
Innovation
The Poor / UNDP
On-the-ground experience
Execution
Business
Local expertise
Resources
Sustainable business Profits Growth
Sustainable development MDGs Local enterprise
development
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Contact information pascale.bonzom_at_undp.org UNDP
Bratislava Regional Center for Europe and the CIS