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April–June 2012

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A publication of the Asian Development Bank & How the private sector is helping to change the fortunes of Asia’s poor Work for Asia and the Pacif i c The only development bank dedicated to Asia and the Pacific is hiring individuals dedicated to development. www.adb.org/Employment/International PUBLISHER’S NOTE

WWW.DEVELOPMENT.ASIA © 2012 Asian Development Bank ISSN 1998-7528 ASIAN DEVELOPMENT BANK PUBLISHER Ann Quon MANAGING EDITOR Andrew Perrin SENIOR EDITOR Floyd Whaley EDITORIAL ADVISOR The Balance of Power Jo Yamagata ASSOCIATE EDITOR Maria Liza Solano COPY EDITOR Caroline Ahmad RESEARCH he combined budgets of the Asian Development Bank, the Bank, April Lee and every other development organization in the world make up just Ng Enna Shawn Pang a drop of the economic fuel needed to power billions of people into Samantha Seet Jamie Tan greater prosperity. Those who work in development have long known ART DIRECTOR Tony Victoria thatT the private sector must play a major role in the enormous economic change Development Asia features development issues needed to lift large numbers of people out of poverty. But it is not that simple. The views expressed in this magazine are those of Though their motives may be admirable, private sector companies are not of the Asian Development Bank and Haymarket created to help the poor and spur . They are complex Media Ltd. Use of the term “country” does not !" entities that play by a different set of rules than development organizations. Development Bank and Haymarket Media Ltd. as to the legal or other status of any territorial entity. Finding the right partnership between the private sector, the public sector, and

"# the development community is at the forefront of development work today. In ### ## response, this edition of Development Asia takes a careful look at the role of the # #" private sector in development work and examines innovative strategies being product or the entity thereof. employed in the region. COMMENTS In addition to examining the broad trends in Asia, we look at how Asian % [email protected] companies have matured to the point that they are investing globally. They now ADVERTISING face the same challenges of economic and social responsibility that western To advertise in Development Asia# [email protected] companies have grappled with for decades.

SUBSCRIPTIONS This edition also looks at the transition taking place from a focus on microlending &' to an increase in microsavings programs. We also look at the increasing recognition REPRINTS that the world’s poor—the Bottom of the Pyramid—are a major market for (Development Asia #" consumer goods. But should companies be selling cola, candy, and mobile phones ##"## "(# to people struggling to survive? # permission of Development Asia. For reprint In our articles section, we look at the cruel reality that many poor countries #' ") that discover vast mineral or energy resources end up less prosperous as a result. permission from the copyright holder for reprinting. We also examine the controversial theory of charter cities: setting up enclaves of Development Asia good governance in developing countries. Department of External Relations Asian Development Bank Our Reconnaissance section tries to keep us out on the edge. In this edition, it *#("& +,,/((# looks at the increasing popularity of soap operas as agents for social change. [email protected] " We hope this edition will give you a new perspective on private sector companies and the role they play in society.  Printed on recycled paper

Cover Photographs: AFP/iStockphoto Ann Quon Cover Photo Illustration: Tony Victoria 46#$<2>% Publisher

# "?(G www.development.asia April–June 2012 Development Asia 1 CONTENTS YEAR V, NUMBER XIII, APRIL–JUNE 2012

16 INVESTING FOR SOCIAL GOOD 40 WHEN WEALTH BECOMES A CURSE 44 CONSIDERING CHARTER CITIES

FOCUS 26 TINY SAVINGS 48 PROFILES IN DEVELOPMENT PRIVATE SECTOR After the enthusiasm and then A LEG UP DEVELOPMENT lowered expectations of microlending, A doctor in has spent decades advocates for microsavings take a more innovating prosthetic limbs specially 6 THE BIG READ cautious approach. designed for the poor. BANKING ON BIG BUSINESS By Marc Lerner By Karen Emmons Can private companies do a better job ______of reducing poverty than governments? 30 THE TRIPLE BOTTOM LINE 50 RECONNAISSANCE By John Otis Companies in Asia are reinventing SOAP OPERAS FOR ______the concept of corporate social SOCIAL CHANGE 14 THE BIG PICTURE responsibility by putting people and Serial dramas broadcast on radio or BRIDGING THE GAP television can be an effective way Public–private partnerships (PPPs) By Floyd Whaley of promoting social change at the offer an economically viable solution ______grassroots level. to infrastructure needs when public 34 POVERTY PROFITS By Margot Pfeiff funds are limited. Despite some The world’s poor are increasingly ______failures, PPPs continue to spread across being viewed as a lucrative market for developing Asia. the private sector. Is it exploitation or DEPARTMENTS By Mark Blackwell long overdue? ______By Jade Lee-Duffy 4 OFF THE PRESS 16 THE BIG VOICE ______Press clippings on global affairs and TAKING STOCK development issues Durreen Shahnaz thinks investors ARTICLES ______will buy stocks in companies based on 5 ON THE WEB social impact. She should know. 40 THE RESOURCE CURSE Recommended sites on the By Floyd Whaley worldwide web ______oil, gas, and minerals. But will it make ______20 GLOBAL ASIA them poorer? 38 OFF THE SHELF Asian companies are using their By Floyd Whaley Must-read books on economic and ______development topics worldwide, but they are not always 44 REPLICATING ______welcome. , 53 ON THE RECORD By John Otis Charter cities—small enclaves of good Notable quotes on global issues governance in developing countries— are gaining supporters, but some remain skeptical. By Shu-Ching Jean Chen

2 Development Asia April–June 2012 www.development.asia Letters to the Editor Contributors

Advocating for Public policy that makes a healthy Mark Blackwell has more than 20 years of lifestyle choice the easy choice can help experience working for news organizations, create a more equitable, healthy, and including the Hearst Corporation and prosperous region. Capital Cities/ABC. He specializes in The health edition of Development Asia information graphics. (July–December 2011) looked at an Pilar Lorenzana-Campo, MEP unprecedented challenge: the double Senior Associate, Planning and Jade Lee-Duffy has worked burden of infectious and chronic Development as a journalist in Hong Kong, disease. Rising diabetes, obesity, and Public Health Law & Policy China for more than 10 years. cancer rates not only have very real California, USA She is a regular contributor to economic costs, but, if left unchecked, the South China Morning Post. threaten the entire region’s social equity and long-term stability. Karen Emmons is a Bangkok-based How people travel, the food they Holistic journalist who writes on public health and eat, and the air and water quality social issues. in our neighborhoods and homes contribute immensely to the well-being While it is wonderful to see the Marc Lerner has been of any community. But policymakers accessibility of education increasing as based in Asia for more than must implement measures that reported [Development Asia, April–June improve the way cities function to 2011], surely we need to move away for The Washington Times support better health. from the model of “educating” to and later as senior editor for One successful example of this feed the industrial, mass production the World Health Organization. approach is the State of California’s machine. An all-round education of Tobacco Tax and Health Promotion Act head, heart and hands, is necessary to John Otis is the Colombia correspondent of 1998 (Prop 99). Since its inception in produce “imaginative” thinkers who for Time magazine, GlobalPost, and the 1998, Prop 99 has levied a 25-cent tax can bring the societal change that is BBC/Public Radio International program on each pack of cigarettes, a portion of so desperately needed. To paraphrase The World. which is devoted to funding tobacco Albert Einstein, “to bring change we control efforts in the state. The results cannot use the same type of thinking Margo Pfeiff is a -based journalist have been remarkable. Estimates that caused the problems in the who worked as a special correspondent for are that Prop 99 funded programs first place.” Reader’s Digest for 17 years. have saved more than a million lives in California, and $86 billion in David Simpson Shu-Ching Jean Chen health care costs. Teacher is a contributing writer of [The People’s Republic of] China Waldorf School, Forbes Asia. She also writes already requires “enclosed public news analysis regularly spaces” to be free of tobacco smoke. for the Business Times in Policymakers across the region should . She was a managing editor of consider building on that approach CFO, published by The Economist Group. with incentives and regulatory mechanisms to increase access to Email your comments to Floyd Whaley covers the healthy foods and encourage physical [email protected] for the International Herald Tribune and activity as well as interventions that *Please include your full name and contact The New York Times. He is the senior prevent easy access to fast food, information. Letters may be edited for space editor of Development Asia and operates alcohol, and tobacco. and clarity. Asia Editorial Services.

www.development.asia April–June 2012 Development Asia 3 OFF THE PRESS

Jobs Malaise Number of Middling Poor Growing

“What will offset the shrinking of P'\VV€ vast industries? New industries? >Q Well, we have new, digital industries, —The Economist, 3 March 2012, on the new global poverty estimates from the Google’s staff size to General Motors’, billion people with staff the size of a Burgernomics large newspaper. Amazon employs far fewer people than the bookstores P'#7YFZ\' it put out of business. So those new >^#^7^ `{ZV| wealth, but not many jobs.”—Jeff Jarvis, Q—The Economist’s Big Mac Index, which is based on purchasing-power Guardian Unlimited, 30 January 2012 parity, 12 January 2012

Stunted Growth Just Sharing Space

P"# P" 7 O # Tehran by way of South Kensington.”—Roger Cohen, The New York Times, either to death or a life shorter than her 2 April 2012 more likelihood of disease and less < unimaginable. What judge, or human Country-Specific Censorship => is what is happening to an estimated P%'S# FQVX G' limited by stunting.”— ' Children’s Fund Executive Director Q Anthony Lake, TIME, 31 January 2012 —Paul Smalera, Reuters, 28 January 2012

Achilles Heel of Emerging Markets

P}~7 S7' '\VVZ\VFV Q—Johannes Jütting, head of Poverty Reduction at the OECD Development Center in Paris, writing for Project Syndicate on 12 February 2012

4 Development Asia April–June 2012 www.development.asia ON THE WEB Daily Developments The Guardian’s Global Development Report http://www.guardian.co.uk/global-development

issues in the mainstream media. Most major media I ~ '{‚ The Guardian. In a partnership with the Bill & ^The Guardian ' Surprising Choices # Yourtopia ' http://www.yourtopia.net # ^ƒ =' ~ W ` †^ 'ˆ>S } ƒ P#S ~ QP most important. =#SQ {‰Pˆ ‰Š‹ G ŠQŒ ‡'{ '  important. ' ' # S{ ] %The Guardian’sƒ personal priorities. ' '  '{ ^ƒ‘^ƒ’ ““7S {{ PŒ^ƒ “ ^ƒ Q >“  >ˆ

www.development.asia April–June 2012 Development Asia 5 PRIVATE SECTOR DEVELOPMENT: THE BIG READ

Banking on Big Business Can private companies do a better job of reducing poverty than governments? BY John Otis

hen the Government of The system was so successful that FREE-FLOWING FOR NOW Residents , with the the Ministry of Education adopted of Hyderabad get potable water from a help of a private mobile mobile banking to pay teachers in tanker truck supplied by the government. network operator, 10 Afghan provinces—a decision that Opinion has been divided over whether W came after several couriers were killed to let the private sector modernize torn regions through mobile banking, a while delivering school payrolls. and manage ’s water distribution funny thing happened: the policemen Mobile banking will ensure “that no system, a move that may raise prices. thought they had received a 30% raise. ministry employee loses his life for a Here’s why. The policemen received ]Q}7" and make a difference in one of the credits on their cell phones that they " S] could later redeem for cash. Because Agency for International Development affected areas. Traditionally, reducing there was no way for commanding ‘"#ƒ’ human misery has been viewed as the the program. burden of governments, multilateral Afghanistan’s mobile payment ‘^ƒ>’

wages—and were startled by the experiment illustrates how the development organizations. But for a AFP amount. variety of reasons, experts say that the

6 Development Asia April–June 2012 www.development.asia task will increasingly depend on the because the lack of infrastructure has Proponents of the overlapping become a bottleneck to growth, a threat goals of poverty reduction and private of private companies. to competitiveness, and an obstacle #‚ Take the vital issue of employment. to poverty reduction, according to Prahalad, point out these companies In an era when many governments are Infrastructure for a Seamless Asia7 P downsizing, private companies now study of the Asian Development Bank Q'` ˜FV7 ‘ƒ>’ƒ> ƒ†‘`ƒ†’ Asian nations, according to International Institute in 2009. It recommends that describes these partnerships as Finance Institutions and Development Asia spend $8.3 trillion on infrastructure having the potential to “move beyond through the Private Sector. As a result between 2010 and 2020. philanthropy to a more sustainable P7~ “Virtually every country in the Q of employment in the private sector are region now needs more power plants, Yet for every uplifting chronicle Q7 expanded roads, water treatment of mobile payments to cops in report of 31 multilateral and bilateral Q Afghanistan, there are cautionary \VFF the report Infrastructure’s Unbalanced tales, such as the lawsuits that delayed With its engineers, scientists, Equation. “In many countries, the needs the opening of the new international technicians, and number crunchers, the Q terminal at ’s main airport or the private sector also carries a deep bench Aside from booming People’s cancelled contracts that nearly derailed of talent that can help governments }‘†}’ >S"'7 7 been spending at least 7% of gross †" In addition, research and development domestic product on infrastructure, 7 ‘}™ƒ’ " India’s Infrastructure Development outstrip those of governments. Vikram governments simply cannot pay for the ^" 7 to mesh private sector interests with in India, says his company spent more { ~ }™ƒ#S As it happens, the money is out there. ~ the past 5 years. P†7 “If people don’t have clean water and are getting {Q> sick, the problem isn’t just getting the money for "{ a water project. It’s also about understanding the ƒ “ technologies, the distribution, and the business devoted to expanding private sector models to figure out how to pay for that water” involvement in development programs. “If people don’t have clean water and —Barbara Samuels, executive director of the Global Clearinghouse for S7 Development Finance 7 It’s also about understanding the Amid the economic slowdowns {\VVQ` technologies, the distribution, and the Š" report warns that PPPs present “a severe organizational and institutional Q better returns in Asia. That’s one Q For the past 2 decades, private reason why between now and 2014, Indeed, problems can crop up at the companies have been working with expects that $90 billion of very start with unrealistic expectations governments to build highways, a proposed $140 billion in spending among governments about the speed power plants, water systems, on infrastructure will come from 7 telecommunications networks, and other #F\X † infrastructure that can help poor people ‘\VF\N\VF€’# move up the economic ladder. However, forecasts that half the money—about transparency in the procurement $500 billion—will come from private process, and cancelling contracts with N‘†††’ www.development.asia April–June 2012 Development Asia 7 PRIVATE SECTOR DEVELOPMENT: THE BIG READ

HOMELESS IN KARACHI Even slight improvements to infrastructure can often suffer the most when a city’s basic services—such as water, power and transport—are dysfunctional.

{ can come across as greedy and insensitive to the urgent needs and political pressures faced by governments. There have also been 7 and labor issues; faulty construction; and increased user fees for transport, electricity, and water. P#~ ' no tradition of true cost recovery for Q^} water shortages, power outages, and leads the infrastructure advisory team crumbling roads punish the destitute backlash if they try to raise tariffs. "† far more than the middle class and ‹" rich who can afford bottled water, the problem is not necessarily an † unwillingness to pay but rather an “Often, you have a river dividing vehicles. unwillingness to charge. He points expectations between the public and “The poorest people are the ones #~ SQ who suffer the most from the lack privately managed toll highways that 'S of infrastructure and, ironically are have greatly improved roads. institutions can step in. Many experts Q ^"{ ^ƒ>“ essential services, says Jo Yamagata, “India’s society is vibrant, dynamic, lending and instead focus on providing deputy director general of ADB’s Q loan guarantees and feasibility studies †"<ƒ P'~ while serving as advocates for good #S concepts… They are entrepreneurial government—the kinds of things that controlled water works is a prime and they are clashing with a state that is ] {'~ Q “The worry I have is that we will not > be successful either from a government compromised that half of the country’s governments, subsidies raise barriers to or a business standpoint in restarting treated water is lost to leakage and outside investment. Mehta pointed out Q theft. In the slums of Delhi and other that the Government of India is among Deborah Henretta, group president of cities, the people who can least afford the world’s largest underwriters of †™S to must buy water from tanker trucks products, a policy that tilts "\VFF N†Š lines then pilfer and sell the water at energy companies and gives pause to forum. “But I think a lot of that is exorbitant rates. within our power if we work together “Forty percent of the water is being in the sector. more closely in the private and public Q7 In other cases, the government Q Gupta, an opposition politician in charges nothing—but users get what ƒP' they pay for. TRAGIC IRONY One example is the state electricity When engaging the private sector, rupees as the people crave even a glass †7 development experts focus on Q offers free power to poor farmers. The its potential role in building up The government lacks the money policy has driven the board to the edge to modernize the system thanks, in of bankruptcy while the lack of public infrastructure because even slight AFP improvements can bring outsized part, to subsidized tariffs. There is or private investment in the grid has

8 Development Asia April–June 2012 www.development.asia ~ These breakdowns continue even PQ massive backlog of applications for as India’s telecom sector, which #] new connections. In the hopes of better features cutthroat competition among toilets. †7 more than a dozen private network now asking to be billed. operators, offers the lowest mobile PATCHWORK DEVELOPMENT This illustrates a key problem that Across Asia, thousands of PPPs have private sector participation in public who once had to wait years for the F˜˜V} utilities could address, says Edgar government to install landlines, can progress reports have been written. "††† now get a cell phone connection in a Œ#S Š† matter of minutes. ongoing struggles demonstrate, # For the poor, dialing on a mobile is making the marriage work has not branch of the World Bank. 7 become much easier. “The reality is that having no service With better communications, everyone “Everybody understands that SQ from rickshaw drivers to peasant governments need to leverage the he says. private sector. But the problem is % boost their earning power. Q" continue to claim it “A whole range of issues block the would be dangerous to transfer control factory from working. And if we don’t mobilize the private sector more, we companies, and note that the result is Critics say both the Q often higher rates. And in some cases public and private " they have a point. and private sectors suffer from tunnel Water is an especially emotional sectors suffer from issue because it is held up by poor tunnel vision, with and giving short shrift to political companies eyeing realities and governments obsessing ^` about patronage and public opinion What’s more, water have profits and giving { a long history of failure. In her book short shrift to With each side speaking its own Water Wars, Indian author Vandana political realities language, vital details that help "‰Pˆ ] " and governments translation. water to us free of cost, buying and obsessing about This situation can lead to setbacks patronage and in even the most prosperous countries right to nature’s gift and denies the †††} Q public opinion at the † For India’s poor, however, expense of economic " ~ efficiency 7 scarcity and higher prices for water says the promise of a pipeline of PPP " Of course, comparisons are transactions attracted legions of foreign points out that research in the eastern problematic. For private companies, { city of Gangtok showed that due to a the costs, complexities, and politics of But the results have been mixed, upgrading public water systems can spending 20 times more on medicine to be far more daunting than setting up dismal failures. For example, several a mobile phone network, a task that private companies spent large sums to water itself. ~ ~ “Amid this debate over whether involvement and has a history of to the government to build a new to bring in the private sector, the success in many countries. ` fact is that water has largely been " "‹\VV€††† privatized—but informally and India’s abundance of cell phones and was suddenly cancelled with no clear Q"P# scarcity of running water has caught explanation. A few years later, the the attention of the international Ministry of Education pulled the plug Q #` ††† www.development.asia April–June 2012 Development Asia 9 PRIVATE SECTOR DEVELOPMENT: THE BIG READ

“A lot of people like myself, who the bit to pour the concrete, cut the toward the same end. Mehta, the "††† ribbons, and reap the political points "{ have either left or are focusing on areas ahead of the next election cycle. But a different ministries deal with energy "Q} 7#P' It turns out that there is still a lot bureaucracies, they have their vested of confusion about PPPs. They were } interests, and they operate through "S"‹ Q mechanism to place government scheduled to open in 2014 with ' expenditures off the balance sheets. indoor and outdoor stadiums, an development—with some regions While this has proved to be a useful ~ ]O  central governments need help from 7F\' average people that they are the main tendering process eventually took ~7 6 years. and putting into practice policies Though transparency in awarding coming out of the capitals. But the two meanwhile, “the motives and huge government contracts is often sides don’t always see eye to eye. †††Q ~" Mehta points out that clashing says Michael Barrow, director of ADB’s out that onerous rules designed to visions help explain the gaps in India’s private sector infrastructure investment prevent corruption can also hurt the natural gas pipeline system that covers " ability to develop enough effective the north and west of the country but †††" ##} P" sometimes refuse to brainstorm with says the central government often of getting money to solve public governments about infrastructure due funding gaps rather than as a way to procurement rules that forbid them priorities. This creates issues with of bringing value for money, greater 7 7 risk scrutiny, and private sector helped to develop. “Historically, rather than 5 or 10 Q>P' P#SŠ< 7 think it’s a free ride, as in: ‘We’ll let room and you ask them why they are crucial to the of the private sector take care of building are not more engaged in sponsoring #FXV7 some infrastructure for us.’ They don’t 7 coming to market—none of which is really understand the complexity of to help countries develop, they’ll say very well developed or understood †††~ it’s because of the procurement rules Q as well as about risks and the costs of }‹ ~Q 7Q" situation has improved in recent years.  Different regions also have their own took a long time to warm up to the 7††† " concept, in part because many of their `> his advance work to pave the way for organizations were founded decades "#ƒS a toll road across six states in India. ago at a time when big government >" Because there was no legislation in programs were deemed the solution to to get a knock on the door from a place that explicitly allowed PPPs to many of the issues facing the poor. private company looking to form a operate, all six state governments had Even after PPPs are signed, the partnership. Donors can be excited to to rewrite their laws. That process took two sides sometimes work at cross leverage private sector resources and FQ7 purposes. When constructing toll capabilities. But governments need Patience however often pays off. roads, for example, some governments to ensure that players bring strategic Despite the extended process, are preoccupied with laying down value to the partnership and that they }"‹ as many kilometers of highway as 7 " possible while private concessionaires country’s core development goals. Overall, the integrity behind the athletic events. > partnership must be accounted for. “The venue is world class in design Then there’s the problem of timing. > and function, offers excellent value for Governments are often chomping at across the board need to work Q

10 Development Asia April–June 2012 www.development.asia BUMPER-TO-BUMPER Despite the challenges, the Unbalanced Equation. “Yet despite their standstill at the 32-lane toll plaza "% best efforts, they almost all left, deeply on Rao Tula Ram–Palam highway in committed to pursuing PPPs. “The New Delhi, India. Motorists have quickly Government’s interest in PPPs the impenetrable bureaucracy, their adapted to privately managed toll inability to enforce even the simplest expressways in India. 7 contracts, pervasive corruption, Qˆ> and the ingrained native distrust of In India, many of the new toll on its website. “The Government is Q ˆ now focusing its efforts on setting up > {`ƒ a framework to pursue PPP options from PPPs start rolling in, governments the satellite city of Gurgaon was built, in many sectors. A unit within the can sometimes lose sight of the huge planners forecast 120,000 vehicles per Ministry of Finance to deal with new risks private companies assumed at day would pass through its toll booths. Q the initial stages when there were no ' '"% guarantees that their partnerships that number. isolated incident. In fact, ever since would pay off. Œ PPPs started forming in earnest in “After time, those risks may fall {{ the 1990s there have been contractual Q>P> partnerships can fray as governments † government tries to reprice the deal attempt to renegotiate contracts to secure infrastructure points out that the and claw back more of the cream, a bigger piece of the economic pie. That F˜˜€ they may end up losing a lot more by Š"‚ the renegotiation of stacks of PPP scaring private investors away from contracts. This shaky legal environment ~Q FV|"%S eroded the perception of the strength of Yet in many other problem cases, needs and is owned and operated by contracts signed with governments, the deals collapsed due to blunders on Š"" report says. ~{ The plant began operating in 2003. “Through much of the 1990s, the was Enron’s 1992 agreement to build a But when a new government was American power companies and ~ Š" the European water companies, for terminal in the Indian city of Dabhol in charging too much for power. They example, sought to provide their ^7 wanted to nullify the contract and Q supposed to meet 3% of the country’s

'‹Š'#^Š"<#`ƒ# Œ<Š"‹‚^} mandate lower electricity prices. says another report, Infrastructure’s energy needs.

www.development.asia April–June 2012 Development Asia 11 PRIVATE SECTOR DEVELOPMENT: THE BIG READ

PARTNERSHIP GONE SOUR Some public–private partnerships have not worked out well. Right, operations at the Ninoy Aquino International Airport Terminal 3 in Manila have been hampered by the legal battle between the Philippine government and private contractors. power station in Dabhol in Masharashtra state, India before it was closed in 2001.

Infamous for its hubris, the ‹ the advice of the World Bank, which 7 the grounds that it was too big, too expensive, and economically irrational. Enron then negotiated the power plant contract with the Government of India in secret because both sides were anxious to avoid public hearings and scrutiny by the media, according to the book Conspiracy of Fools. Once ground was broken, Enron failed to give locals a sense of ownership by bringing in an Indian company as a corporate partner. Another company lapse was to overlook the political opposition while cultivating close ties to the Maharashtra state government. The strategy blew up in 1995 when a coalition of Hindu nationalists won state elections and threatened to cancel the contracts the ousted government had signed with foreign corporations, modernization of the Indian power social responsibility extremely such as Enron. sector by dampening the environment seriously because they realize their 'ƒ for foreign investment. More than a came online but it was a money decade after the Dabhol plant closed loser from the start and, amid a down, 40% of the Indian population shareholders. dispute over payments, it was has yet to be connected to the “These bigger companies sometimes closed in 2001—shortly before Enron electricity grid. “Q " Yet Eric Postel, the assistant Postel says. “If they are contributing The New York Times,"† administrator for economic growth, to primary education, they know former Indian power minister, said: "#ƒ that the people they are helping may “This was a classic case of what should 7 be employees or customers in 5 or Q abroad today come from another FVSQ Or, in the words of the International WORD TO ACTION compared with multinationals in the S"‰P' 'Š7 1960s. Even though the payoff may private sector has to make money. > on India. It gave the concept of not be immediate, he says, these AFP privatization a bad name and set back

12 Development Asia April–June 2012 www.development.asia reliable services, then you can have a state provided subsidized power to Finance Institutions to Catalyze Private NQ even the smallest villages. But when Investment, a report by the World #`{^ "F˜˜F Economic Forum that brought one of the world’s largest chocolate '7 together 200 experts to examine the manufacturers, has teamed up with plants were damaged or destroyed, untapped potential of development ˆ power was cut off to about half the # Foundation to train cocoa farmers population, and people began hacking shifting the focus from loans to partial ‹ ƒ are given advice on cultivation, to the high business risks and low 7 harvesting,fermenting and are provided incomes of the region, attracting out feasibility studies. It also called with cocoa seedlings, opening the door outside investment to restore power for a more active role in government to a vast expansion of the crop. seemed unlikely. capacity building in areas such as "7 It took awhile, but a solution was property rights, contract disputes, provide glowing publicity for Mars found through a partnership between bankruptcy frameworks, and while helping to insure a steady supply '7 corporate governance rules. ~ "“ˆ> These issues “have become the “Everything we do is about setting the ‚Š Q‹ ƒ Q Œ" ‚' the report said. “However, MDBs plant science and external research at created a privately owned special and bilateral aid agencies have not Mars. purpose company, Pamir Energy, to #NF\" generate and supply electricity to the circumstances… They must see companies, including Microsoft, region’s 250,000 residents. Meanwhile, themselves fundamentally as providing ^†“ 7YFV >7 and this should become their primary to increase accessibility to health care World Bank and a $5 million grant Q †}# "“ Though MDBs do not claim that ¡\VFF" keep tariffs affordable. private sector operations are their "%" `†7 †} “an example of how PPPs can work and rapidly expanding departments ††††} even in a transition country with development goals, but pointed out a perceived high level of political ƒ>{ it would also open up new export Q" " thinking to make the deal come private sector operations. It expects On occasion, there is even money together and some experts point to that by 2020 activities in private {7 such brainstorming as exactly the type sector development and private sector of work development organizations operations to comprise 50% of its losers. For example, poor people, at should focus on. The grants and loans that used eventually exceeding the value of prices for water or lights. Yet private to be their principle portfolio have ƒ>S7 become less important now that the Despite the increased emphasis on to lay water pipes and build power private sector is stepping up to partner the private sector by MDBs, not enough 7 with governments. Aid organizations progress has been made, according to improve living standards and help and MDBs, they say, should now " concentrate on their potential to “These are more complicated issues be catalysts for partnerships and 7Q That’s the idea behind the Pamir respected watchdogs that can promote Pˆ †††7 transparent government and stable consultants, and bankers so they have '7 legal frameworks. the skill sets to put together bankable The mountainous region was a This was also the conclusion of 7Š " Building on the Monterrey Consensus: concepts. But we need to go from Afghanistan war of the 1980s, thus the The Untapped Potential of Development Q www.development.asia April–June 2012 Development Asia 13 THE BIG PICTURE

Bridging the Gap Public–private partnerships (PPP) offer an economically viable solution to infrastructure needs when public funds are limited. Despite some failures, PPPs continue to spread across developing Asia

Private Participation in Infrastructure Projects Trends

Investment Commitments to Infrastructure Projects with private participation, in 2010 dollars Developing Asia* Central and West Asia East Asia $100 billion $3 billion $14 billion 12 80 10 2 60 8 40 6 1 4 20 2 0 0 0 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10

Pacific South Asia $160 million $80 billion $25 billion

120 60 20 15 80 40 10 40 20 5 0 0 0 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10

Number of Infrastructure Projects with private participation

Developing Asia Central and West Asia East Asia 250 16 120 14 200 12 80 150 10 8 100 6 40 50 4 2 0 0 0 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10

Pacific South Asia Southeast Asia 2 120 50 100 40 80 30 1 60 20 40 20 10 0 0 0 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10

* Afghanistan, , , , , , People’s Republic of China, , , India, Indonesia, , , Kyrgyz Republic, Lao People’s Democratic Republic, , , Federated States of Micronesia, , , , , , Philippines, , , , Thailand, Timor-Leste, , , , , , and Viet Nam.

14 Development Asia April–June 2012 www.development.asia Some Successful Partnerships While failure of a PPP is not unheard of, many projects have had great success in bringing better conditions and opportunity in areas that might otherwise have gone without such improvements

India: East Coast Road Toll road cut congestion Philippines: and local air pollution while improving Tsunami Relief North Luzon Expressway opportunities for Local PPPs established to rebuild Expanded toll road increased local business and improve water infrastructure safety, cut congestion, and trade in countries including Indonesia, created viable commute times, Maldives, Sri Lanka, and improved economic and Thailand opportunities in the area

Sri Lanka: Malaysia: Mixed-Use Tunnel Port Expansion A tunnel beneath roads diverts Improved efficiency, floodwaters in Kuala Lumpur increased port traffic, and carries automobile traffic and improved when clear of water, competitiveness cutting above-ground congestion

Indonesia: Urban Water To help address the major challenge of access to clean water in Jakarta, a PPP has been established and is increasing water delivery efficiency.

Type of Infrastructure Projects with private participation, 1990–2010

Across developing Developing Asia Central and West Asia East Asia

Asia, the majority of Water/Sewerage PPPs since 1990 have Water/Sewerage Transport 7% 19% 11% Water/ been energy projects. Energy Sewerage Energy 43% Telecoms made up a Energy 37% 39% large portion of Transport 43% 29% Telecom Telecom projects in the Pacific Telecom 39% Transport >1% and in Central and 9% 24% West Asia Pacific South Asia Southeast Asia

Water/ Sewerage Water/Sewerage Water/Sewerage 7% 2% Energy 11% 27% Energy Transport 44% Transport Energy 43% 27% 50% Telecom Telecom 66% Telecom 11% 12%

Sources: . 2011. Private Partnership in Infrastructure Projects Database. http://ppi.worldbank.org/explore/Report.aspx; United Nations Development Programme. 2008. Sharing Innovative Experiences, Volume 15: Examples of Successful Public–Private Partnerships. Research and design: Mark Blackwell

www.development.asia April–June 2012 Development Asia 15 PRIVATE SECTOR DEVELOPMENT: THE BIG VOICE

Taking Stock Durreen Shahnaz thinks investors will buy stocks in companies based on social impact. She should know BY Floyd Whaley

n 1991, Durreen Shahnaz was a DA: What is a social enterprise young professional working with stock exchange? Bangladesh’s pioneering Grameen DS: People think it is going to be like Bank during a time when it was the New York Stock Exchange with I bells going off and so forth. It’s not support. A group had come from New going to be like that. It is online and it York to conduct due diligence on basically provides the ability to invest Grameen before making a multi-million in a company, to sell and buy securities, dollar investment. After Shahnaz gave 7{' her presentation on behalf of Grameen, difference here is that the companies one of the women from New York will be showcasing their social and approached her. environmental return along with the “It’s a shame you were born ' in this country,” the woman told make investment decisions based Shahnaz. “You have such a good on the triple bottom line, not just ' ˆ called Wall Street and if you were SOCIAL CAPITAL Dureen Shahnaz wants attached to the platform, it will be born in my country, with your skill to establish a stock exchange that allows Impact Exchange—Asia’s (and perhaps set you could have worked there and social enterprises, or businesses that S’ made a lot of money,” the woman promote social change, to raise capital. ' said. Before Shahnaz could respond it is shaping up right now, it looks like to the comment, Grameen founder followed by work at we will initially have only accredited Muhammad Yunus jumped in and told in Bangladesh, World Bank and ' the woman: “Actually, Durreen came to International Finance Corporation in assist us in having less regulatory us from Morgan Stanley,” referring to Washington, DC, and Merrill Lynch in hurdles than a larger exchange, ˆ" Hong Kong, China. She later headed including not having a full-blown ' up the Asia operations of Hearst prospectus, which is very costly to Shahnaz. Having moved between Magazines International, Reader’s Digest produce with all the parties involved Asia, and Asia City Publishing Group. in creating it. As a result, the cost of enterprises her entire career, she '"“ raising capital on the platform will be blend the world of the private sector '{ media are interconnected and support and social enterprises in a more last stop in creating full-blown social one another. Born in Bangladesh, aggressive way than she has ever done capital markets. her grandmother was married at 11 before. She is the founder and chair without knowing how to read or of Impact Investment Exchange (IIX), DA: All stock exchanges claim they are write. With parents committed to which seeks to be a stock exchange committed to social improvement. her education, she obtained a degree that allows social enterprises to raise What makes IIX different? from Smith College; a master of capital. In line with that, she has DS: Other exchanges are trying to business administration from Wharton, started organizations that “assist social embrace socially responsible practices. University of Pennsylvania; and a enterprises in raising capital and in Some exclude companies that are into master of arts from the School of the process, create the space for social alcohol or smoking. In other words, ERIC SALES/ADB Advanced International Studies at capital markets.” She expects the social they conduct negative screening. Johns Hopkins University. A stint at enterprise stock exchange to be up and What we are doing focuses on positive Morgan Stanley in New York was running by mid-2012. rewards, not negative screening. We

16 Development Asia April–June 2012 www.development.asia are working with companies who in give a talk. I was asked to give talks at DA: When the exchange launches, if you their core are focusing on maximizing ' have a company that is performing social and environmental impact and at light speed basically in response well financially, but its social impact is ' decreasing, do you really think investors way. It is for organizations that, at ' will punish that stock by selling? their core, want to do social good. If it so much attention is because of the DS: It will be interesting how this is an energy business, they are doing 2008 crisis. It was a wake-up call. You manifests itself on the exchange. On renewables, they are creating energy just can’t continue to do things the the platform, we have had discussions out of waste, or they are using solar way they have been done. People are on the fact that if companies start panels that are not destroying the seeing there is not enough capital to losing the social aspect, they need to ' meet the demand for social change. be warned, and if no change occurs, approach of looking to do business 'S then they will need to be de-listed. ' pure private sector is not looking at it. ' companies and exchanges that cover But everyone is impacted by it. what regular exchanges do if the environment, social, and governance companies do not comply with their (ESG) indicators. IIX is basically ESG listing requirements and continue to plus plus plus. ##¤ “You just can’t will do due diligence to make sure DA: There is a lot of cynicism toward continue to do things they care about the social side. Having the markets and the global financial said all that, investors will still say, system these days, due to the global the way they have P# financial crisis. Has this created been done. People and if they have just a little bit of social problems for the launch of IIX? are seeing there is SQˆS DS: We have seen the opposite. When I " started talking about this idea in 2009, not enough capital to point of what we are doing. I know if even before I had a single word of the meet the demand for business plan written, I was already social change” the investors will love it. But if the getting calls to give talks on this. I was companies don’t have a strong social

AFP invited by the Indian government to aspect to it, we still won’t accept it.

www.development.asia April–June 2012 Development Asia 17 CLEAN ENERGY A worker cleans solar “giving away” money but investing like what happened in Andra Pradesh panels in Mehsana district, India. Impact and, in return, receiving a social and "‚"¥^¦" Investment Exchange (IIX) seeks to environmental impact. In many ways have been some abuses in the industry, promote investments in socially and impact investing may break the current but that cannot be used to judge the environmentally responsible businesses. philanthropy barriers and make Asians ^ help each other beyond our boundaries. done enormous positive things for Being in the position we are in, being the disadvantaged group. It is today ahead of the curve, we can make our DA: With that kind of mentality, why a $50 billion industry and millions of own rules. would Asian companies and investors people (especially women) have access support these social enterprises? ' DA: If corporate social responsibility DS: People in Asia like this kind of phenomenon could not have happened (CSR) is an indicator of a company’s investment because it is money that social impact, Asian corporations do they don’t have to give away altogether. Impact investing today is happening not appear to be doing very well. Why ' do you think Asian companies fare their money back and they can still ^§ so poorly on global CSR rankings? say they did social and environmental brought together the private sector, DS: In Asia, we are not very much good. If you are a wealthy individual public sector, and civil society in a very into “structured philanthropy.” I think or company and you want to get effective way. However, it should never it’s a cultural aspect. We care about into supporting social enterprises, have been seen as the silver bullet. our family. We care about our clan. we say, “this is not philanthropy, it’s ' We care about our village. And it ends an investment.” A lot of people are development. We have to keep on ' receptive to that. trying different models and should be happy if a model produces some village strength, but also in some ways DA: You worked with Grameen, the ' pioneer of microfinance, early in your #“ companies make money any way career. How do you feel about the and good work is still being done in they can and then give away a little situation with microfinance today? to the temple or to charity. Asian DS: ^ services that otherwise no one would companies are still in the dark ages bad rap because of a few “bad apples.” give. In terms of the negative aspects, of CSR. Our hope is that perhaps ˆ that was where greed came into it, where CSR could not take off, impact treated as a commercial investment and where players ignored the social side

investing will. With impact investing, the social side is not taken into account AFP the individual/organization is not then, yes, you will have situations backlash. It is a cautionary tale.

18 Development Asia April–June 2012 www.development.asia DA: Another hot issue where the PQˆS# private sector and development bring more people into doing good intersect is the debate about “Good work is in a sustainable way? Why can’t the marketing products to the poor, or still being done in different that I was fortunate selling to the “bottom of the pyramid.” enough to experience come together? Where do you stand on this? microfinance, giving We are after all in this together. We all DS: I recently went back to the villages access to financial share this one world that is impacted where I worked when I was with services that otherwise by our every action. Grameen Bank to visit some of the In my small way, I have always borrowers that I worked with back no one would give. In tried to blend these, the private sector then. It was wonderful to see that terms of the negative and human sides, in everything I do, after 20 years these women were all aspects, that was where “ running small enterprises—tailoring companies, in everything. I have felt ' greed came into it” like I have been jumping back and on average three mobile phones in forth and carrying messages across the each household, color television, and companies are taking advantage of the borders to the different sectors like a ] naiveté of poor consumers. missionary. If I give up, who will do it? also have come other changes in But, now almost 2 decades of doing consumption patterns. When I asked DA: You have spent your life this, it feels like the tectonic plates some women what they buy with their blending the work of the private are shifting and people are sitting up extra money, the resounding answer sector with human development. and taking notice. Slowly but surely was “Coke” and “Fair and Lovely Has it been a life well spent? everyone is coming into this same Skin Whitener.” I know I cannot be DS: I was born in Bangladesh but space. Yes, everyone may have their judgmental about the purchasing "' habits of these women. I do enjoy an are my two worlds and I always they are doing it. Everyone is seeing occasional Coke once in a while myself ' that we have to work together. So, it but of course the issue of using skin personal struggle of course very is happening, in our lifetime. We are whitener is another disturbing social/ ]# witnessing capitalism doing social cultural issue altogether so let’s not tried to merge the world of making good. If I can say I had a small role to go there. However, one has to wonder money with human development. play in that, I will die a very happy how much their decision is an informed Some tell me that it just makes life woman because I then did my part for one. Would they still consume the ## the world.  products on a regular basis if they had the complete knowledge about the product’s side effects?

DA: Should companies market candy, skin whiteners, and other non-necessities to the very poor? DS: I would say as long as it is an informed decision to buy. But I would say most of the time it is not an informed decision. Why don’t the rich use skin whiteners? Because they know there are issues of carcinogens and ' of that as well. Go ahead and market to the poor, but inform them. Many

MOVING UP A vegetable vendor speaks on a mobile phone at a roadside market

AFP in Allahabad, India.

www.development.asia April–June 2012 Development Asia 19 PRIVATE SECTOR DEVELOPMENT

Global Asia Asian companies are using their new-found financial might to invest worldwide, but they are not always welcome BY John Otis

ot far from the southern Colombian village of Los Pozos, which means “the wells” in Spanish, Marxist guerrillasN kidnapped four oil workers from the People’s Republic of China (PRC). That was on 8 June 2011, and to date there has been no trace of the abducted men who work for Emerald Energy, a subsidiary of the PRC chemical company . Emerald’s problems didn’t stop there. Shortly after the kidnappings, several oil trucks contracted by the company were sabotaged by the rebels. Yet for all the security problems, Emerald has forged ahead and continues to pump oil and explore for more deposits in some of the most dangerous areas of Colombia. It hasn’t always been easy. But driven by the need for raw materials to feed its dynamic economic expansion at home, the PRC, India, and other Asian nations are investing and trading at unprecedented levels with Africa and Latin America. Asian companies are buying oil, coal, soybeans, and other commodities. They are building factories and ~' construction of railroads, highways, and presidential palaces. This has fueled economic growth in countries

DRILLING AHEAD Workers from the Zhongyuan Petroleum Exploration

Bureau (ZPEB) of drill an oil well IMAGINECHINA in south Sudan. To meet its growing demand for fuel, the People’s Republic of

20 Development Asia April–June 2012 www.development.asia EXPANDING MARKET PRESENCE !"£ mobile phone company Bharti Airtel in the Kenyan capital, Nairobi. India is expanding its economic footprint in Africa in various industries, including telecommunications.

such as Argentina, Brazil, Nigeria, and South Africa. “The phenomenal growth in Latin America over the past decade is due to the growth in [the People’s Republic of] China,” Charles S. Shapiro, president of the -based Institute of the Americas, told a conference on the PRC last year. The PRC has garnered most of the attention because its two-way trade with Latin America has jumped from next to nothing a decade ago to more than $180 billion in 2010. Similarly, but Asia has always maintained an trade with African nations now stands ] at about $110 billion, while from 2008 “We sell oranges and , for example, provided huge to 2009 the PRC provided more loans they send us back sums of reconstruction aid following to poor, mostly African countries than orange marmalade. Latin America’s civil wars in the 1980s the World Bank. That needs to change” role amid the region’s debt crisis. MODEL FOR GROWTH The PRC supported many of Africa’s Although the numbers are smaller, —President Ollanta Humala of Peru national liberation movements in India and the Republic of Korea are the 1960s and the continent’s newly also greatly expanding their economic Indeed, the downsides to the new independent nations helped pave the links with Africa and Latin America, economic relationship often grab more way for the PRC to gain a seat at the as is Japan, though that country’s headlines. United Nations in 1971. economic ascendance has tapered off. Some nations fear their industrial “Chairman Mao said it was our Besides creating jobs and transferring bases are being hollowed out by a friends in Africa who sent us to the technology, experts say, Asia can, in ]' United Nations so, traditionally, some aspects, serve as a model for remains lopsided in a commodities- [the People’s Republic of] China has Africa and Latin America as those for-machines pattern—with Africa provided a lot of assistance to African regions attempt to attain similar high and Latin America exporting cheap countries and that helped us build a rates of economic growth. raw materials to Asia while buying pretty good business relationship,” “The same kind of incentives that back that region’s value-added says Junjie Zhang, an assistant work in Asia work in Africa,” says manufactured goods. In the words of professor of environmental economics Harry Broadman, chief economist of Peruvian President Ollanta Humala: at the University of California, † “We sell oranges and they send us San Diego. ˆ> back orange marmalade. That needs to The links are also personal. Legions “But so too can the disincentives change.” of Latin Americans live in Japan, such as the distortions due to price Africa and Latin America have which has become the region’s third controls, corruption, and the lack of traditionally been viewed as the largest source of remittances, after

AFP infrastructure. So it cuts both ways.” “backyards” of the US and Europe, the US and Europe. India has a huge

www.development.asia April–June 2012 Development Asia 21 PRIVATE SECTOR DEVELOPMENT

SOUTH–SOUTH LINKS Brazilian Alberto Moreno, president of the Inter- President Dilma Rousseff (left), American Development Bank (IDB). South African President Jacob Zuma It helps that the economies of these (center), and Indian Prime Minister regions are complimentary. join hands at a “In Latin America, there are abundant trilateral summit in Pretoria in 2011. minerals and natural resources. In [the Right, a shop selling Chinese-made People’s Republic of] China, we need shoes in the downtown area of these minerals and natural resources,” Kampala, Uganda. says Liu Kegu, a former vice-president of the China Development Bank, who expatriate community across much of made more than 20 visits to Latin Africa, even in Uganda where Indian America during his tenure. “In Latin residents were expelled en masse in America, technology is needed. In [the 1972 by then-dictator Idi Amin, who People’s Republic of] China, we have was eager to blame his domestic technology.” problems on outsiders. Many Latin “We are starting to see American capitals are home to throngs CAPITAL-INTENSIVE PROJECTS what the century of of PRC and Japanese expatriates, Even before the PRC adopted its while former Peruvian President “go out” policy in 1999 to encourage Asia will look like” Alberto Fujimori is the son of Japanese domestic companies to invest abroad, immigrants. †} —Luis Alberto Moreno, president of the Inter-American Development All of these ties have helped cement copper, and coal overseas. Those initial Bank (IDB) so-called “South–South cooperation.” investments were some of the most Yet, the main driver is Asia’s economic controversial. boom, which comes at a time when In 1992, for example, Beijing’s “We quickly realized that we were Europe and the US appear to be Shougang steel company bought an being exploited to help build the new stagnating. By 2040, some economists iron ore mine near the Peruvian town of [People’s Republic of] China, but estimate that the combined gross Marcona. Ever since that purchase, the without seeing any of the rewards domestic products (GDPs) of the PRC mining operation has been plagued by for doing so,” Honorato Quispe, 63, and India will be 10 times larger than annual strikes by workers who complain Europe’s entire annual output. of low wages, the hiring of PRC laborers, The New York Times in 2010.

“We are starting to see what the dangerous working conditions, and the Most PRC investments come from AFP century of Asia will look like,” says Luis dumping of toxic waste. state-owned enterprises that follow

22 Development Asia April–June 2012 www.development.asia countries and ventures that private KEY PLAYER Former Brazilian President Luiz Inácio Lula da Silva speaks at a shareholders, shy away from. Plus, business event promoted by Korean they can also afford to be patient. For $%&'* example, PRC’s Chery automobile Republic of Korea is the second biggest company recently opened a Asian investor in Latin America. $400 million factory near Sao Paulo, Brazil. With state backing, Chery can for boosting the region’s economies take its time in gaining a foothold in through strong demand for Brazil and does not expect to make commodities. { Like PRC companies, Indian While Brazil is pleased to have companies have also ramped up trade those well-paid jobs at the Chery and investment with Africa and Latin plant, there is growing concern that America, but their operations have the PRC—which has already replaced gone a little smoother. For one thing, tone-deaf to local concerns. More Brazil as the No. 1 exporter to the rest the language barrier is less of an recently, however, they have been of South America—is pushing local issue, while India, the world’s largest manufacturers out of business. The bulk democracy, has more in common community relations and have begun of antidumping complaints registered politically with the elected governments taking the notion of corporate social by Latin America before the World of Africa and Latin America. responsibility more seriously. Trade Organization involve the PRC. Perhaps as a result, experts say, “What’s more, PRC’s ability to Meanwhile, the Beijing government # provide large amounts of capital for sometimes balks at buying the region’s to bring local workers into their projects, from mining and petroleum processed goods. The PRC imports operations, transfer technology, and investments to infrastructure projects, huge quantities of Argentine and make good on commitments for direct gives it leverage with national Brazilian soybeans, for example, but investment. often resists buying soybean oil from “When you speak to their CEOs on sources of opposition to such projects,” those nations. the ground, they want to be known as says Evan Ellis, a PRC–Latin America The shifting attitudes in Latin African companies,” says Broadman, expert at the National Defense ] who also leads PwC’s emerging University in Washington DC. media where the PRC is depicted as markets practice. “They are able to In addition, its government-run ] integrate more easily into society as

AGÊNCIA ESTADO AGÊNCIA companies can invest in high-risk with industrial goods and savior a result of that prism. If you walk

www.development.asia April–June 2012 Development Asia 23 PRIVATE SECTOR DEVELOPMENT

MIXED FEELINGS Mining operations at a foreign steel company in Peru, above, have been beset by labor strikes. In Africa, right, Indian pharmaceutical companies have generated much goodwill through the production and distribution of cheap anti-HIV/AIDS drugs.

through their plants and assembly Amit Mitra, the former secretary the Republic of Korea, a $1 trillion lines, you see a fair amount of local, general of the Federation of Indian economy that has registered an annual African workers, and this is in contrast Chambers of Commerce and GDP growth of 7% since the 1960s. to many Chinese investments.” Industry, notes that India has stood Its trade with Latin America, for Along the way, India has burnished in solidarity with Africa on a number example, soared to $44 billion in 2010. its reputation by partnering with of major issues, including efforts to What’s more, Latin American exports the to set up the eliminate agricultural subsidies in the to the Republic of Korea go beyond Pan-African e-Network, a high- developed world. cheap commodities with about 30% “India understands the needs of represented by manufactured goods. the governments of all 53 African Africa,” he said in a 2010 speech at the Meanwhile, the Republic of Korea’s countries. It has been a driving force London School of Economics. direct investment in the region— behind the new African Institutes of But Indian companies are also such as Hyundai automobile factories Science and Technology, which aim sending inexpensive electronics in Brazil and Samsung electronics to replicate India’s highly respected and other goods to Africa and Latin plants in Mexico—totaled $5.1 billion institutes of technology. America. Maurico Mesquita Moreira, \VVª\VFVª More good will has been generated an IDB economist, warns that after larger than the PRC’s. Among Asian by the Indian pharmaceutical the initial shock of cheap PRC nations, only Japan invested more in companies Cipla and Ranbaxy, imports, these regions must now brace the region. which have opened subsidiaries and themselves for an Indian onslaught. A recent IDB report on the Republic manufacturing facilities in South Africa. “This is going to be a second shock of Korea notes: “Breaking with the That task was made easier by the fact and people will have to prepare for pattern of other Asian investments, that both companies have been lifelines that because it is going to make life for manufacturing has frequently been for Africans who are HIV-positive, manufacturers even more miserable the target of [the Republic of] Korea’s because they produce cheaper generic than it was before,” he says. investments in the region, providing Somewhat overlooked in the rivalry antiretroviral drugs than American and the basis for a more balanced and AFP European companies. between the PRC and India has been Q

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www.development.asia April–June 2012 Development Asia 25 PRIVATE SECTOR DEVELOPMENT Tiny Savings After the enthusiasm and then lowered expectations of microlending, advocates for microsavings take a more cautious approach BY Marc Lerner

ot long after breakfast on Many of the deposits cover payments HARD DAY’S EARNINGS A vendor a sunny December day, on modest loans the women have used counts his money at a public market in a dozen women emerge to launch small businesses that put Manila. Initial studies show microsavings from modest homes— food on their tables, keep their children programs offer a better solution to someN made of bamboo, others of clothed, and fuel bigger dreams. +7 cement blocks—and gather to settle But of the 50 townsfolk who make up than microcredit. their accounts under the shade of an }ƒ> aluminum roof in Bagong Anyo, a town who meet every Thursday morning in she could save. “But it is too tempting in Quezon Province in the Philippines. Bagong Anyo, only 18 have loans. The when you have the money hidden in After a brief prayer, one of the other 32 are simply savers. the house,” she says. “And too many women begins a roll call of those “It’s my dream to build a house people will ask for a loan. It’s much gathered for their weekly meeting with one day,” says Minerva Benavidez, better to keep your money in the bank.” }ƒ> a 55-year-old grandmother. “I only ˆ a rural bank with a strong focus on deposited P500 (less than $12) today, but has been closely associated with I can see my money beginning to grow.” microcredit—loans as small as $75 One by one, the women call out the Another depositor, Mary Grace de YFVV AFP amount of their deposit for the week. among the poor—microsavings

26 Development Asia April–June 2012 www.development.asia may offer a better option for many By reaching out to once-overlooked poor households. Efforts by banks, clients in rural and poor communities, cooperatives, and nongovernment “Putting clients in }ƒ>{ organizations to bring savings and 600,000 savings clients, according to debt as a way out Glenda Magpantay, the bank’s assistant now receiving support from a variety of poverty doesn’t vice-president for operations. The of sources, including the Bill & Melinda always work. In fact, money mobilized from savings also Gates Foundation; the Financial Access makes it easier for the bank to make Initiative; Grameen Foundation, which the poor can save and loans to small enterprises and budding operates independently from Grameen they can be quite good entrepreneurs, she says. Bank; Innovations for Poverty Action; at saving if given the The poor, of course, have always and the United States Agency for saved in informal ways—from buying International Development (USAID). opportunity” an animal to fatten for slaughter, to P' hiding cash in bamboo or hoarding focused too much on micro-credit,” —John Owens, project director small pieces of gold. Some even pay an for the Microenterprise Access to says John Owens, who has been intermediary to hold their money for Banking Services Program in the working with rural banks in the Philippines them. Philippines for 12 years as project Now rural banks, cooperatives, director for the Microenterprise Access Julie Peachey works for Grameen and other institutions—including to Banking Services Program, which Foundation as an on-site project }ƒ>> has funding from the USAID. manager in a rural area of the †>}# “But putting clients in debt as a way Philippines. She says banks must the Kashf Foundation in Pakistan, the out of poverty doesn’t always work,” make forays into rural communities }ˆS``"Šˆ he says. “In fact, the poor can save and villages, and maintain an ongoing Bank in India, and many others—are and they can be quite good at saving if presence if they want to extend savings proving that poor households can and given the opportunity.” will save through formal channels. “Many of these clients would never ^7 DOUBLE BURDEN walk into a bank; it would be too handful of clients in the mid-1970s in Jonathan Morduch, a New York intimidating,” says Peachey, who Bangladesh. There, Grameen Bank and University professor who heads the }ƒ>P> two similar institutions—ASA and school’s Financial Access Initiative, bankers are coming to them to explain >} says the poor face a double burden how savings accounts work and to ‘>}’O of low income and managing what collect deposits.” more than 17 million customers. little money they have without bank accounts or insurance. “Finance allows people to invest in the future and—importantly—to marshal resources to meet needs today,” explains Morduch. “Access improving the lives of the poor.” However, many of the poor, including some 2.8 billion adults worldwide, have no access to formal accounts.

NEW CUSTOMER A loan applicant in Ahmedabad, India completes the 9 ;

AFP turn borrowers into savers.

www.development.asia April–June 2012 Development Asia 27 PRIVATE SECTOR DEVELOPMENT

More than 3 decades after its founding in 1976, Grameen Bank holds a remarkable $1.40 in savings for every $1.00 in outstanding loans

Jameel Poverty Action Lab, which has pioneered the use of empirical methods to evaluate development programs. “The answer seems to be that the poor use the loan repayment schedule as a way to commit themselves to not spending a certain amount a week. If S NO QUICK FIX Poor families queue up comes pounding on your door. On the to receive free bags of food items from other hand, if you don’t manage to << save, there is no one to complain right a panacea for poverty, says Grameen ˆS Foundation’s Christopher Tan. “The to enable the poor to commit to save, move out of poverty is generational.” without having to take out a loan?” Approaches like that of Green Bank, CHANGING ATTITUDES A customer exchanges money at a street corner in support from partners and foundations, Karachi. Many of the world’s poor have have helped tip the balance from never used a bank’s services. microcredit to microsavings. The  Bank, is a prime example of this "] “In effect, Grameen turned itself # from a microenterprise lender into a Indonesia, Nepal, Pakistan, the true retail bank, but one that continued Philippines, and Viet Nam and have to focus on poor households,” say spread to Africa and Latin America, experts say. Banks also must innovate, Morduch and his coauthors in Portfolios using programs such as commitment of the Poor, once available only to the middle class savings accounts that require clients to to track the spending patterns of people and those with wealth. Globally, more meet self-imposed goals if they want living on as little as $2 a day. than 150 million poor people now have to earn full interest and avoid penalties. In fact, more than 3 decades after its In a sense, commitment accounts founding in 1976, Grameen Bank holds Most successful programs share the turn borrowers into savers. a remarkable $1.40 in savings for every same basic structure. They provide “If the poor can make loan payments, $1.00 in outstanding loans. simple and reliable services; require why can’t they save in similar <7 small and frequent payments; and are increments?” asks Esther Dulfo, an organizations have shown similar economics professor in a commentary, success. Hyderabad-based SKS visiting clients in their villages or The World of Poor Economics, which ^YªXV neighborhoods. she coauthored with Abhijit Banerjee. an initial public offering in 2010. This To attract customers, programs must Together with Sendhil Mullainathan, YFX adapt to the particular customs and they founded the Massachusetts ' AFP needs of clients in a variety of locales, Institute of Technology’s Abdul Latif “

28 Development Asia April–June 2012 www.development.asia created controversy. The shift by (about $45.00) she’ll need for her published in the Quarterly Journal of > children’s school fees. Borrowing at Economics in 2006. institutions into more traditional retail 20%, she realizes she’d repay P2,400— } banking has been accompanied by or P80 a day for a month. But by saving Microsavings and Payments Innovation criticisms of “mission drift.” just P67 a day, she’d have more than Initiative at Innovations for Poverty David Hulme, associate director of P2,000 in just a month. Action, says that while such early the Brooks World Poverty Institute “If you can plan ahead, saving is at the University of Manchester, says better than borrowing,” the poster is needed into other ways to stimulate Grameen Bank’s effort to expand and advises. savings. “Even then,” she says, “it is away from its original mission to serve !"###   important to think of microsavings, %' ) *+$ the extremely poor. ,-. $)//)  as well as microcredit, as one among 0S      “While the bank still proclaims its  $   the many instruments necessary for a mission of poverty reduction, my personal observations lead me to believe OPTION 1: SAVING optimally.” S that its clientele is less economically   % 'Š !"###  ( deprived than was the case in the 1980s Southeast Asia regional director for 1  % and 1990s,” says Hulme. 23  $" Grameen Foundation, says he’s seen %!"###    even small amounts of savings make BUSINESS MODEL a difference in the lives of countless saving 67 X 30 = 2,010 Emily Enad, vice-president of risk pesos per day days pesos people. management at 1st Valley Bank in OPTION 2: BORROWING “But it’s not a panacea,” cautions ƒ<  &  ( Tan. “Life for the poor is still Philippines, says her bank’s Gihandom ' &  !#4  (Dream) Savings Account program— %5#  $  generational.”  'S !"6##   which has nearly 2,000 clients with }‰ more than P710,000 (about $16,000) you pay 80 30 2,400 in deposits—is a business model that pesos a month X days = pesos are complex. And they give serious works. While the Gihandom accounts INFOMERCIAL 1st Valley Bank’s poster eager to improve their lot. represent a small fraction of the bank’s +7 “We came to see that money total portfolio, they help mobilize requiring an initial deposit of just 100 management is, for the poor, a deposits from clients who weren’t pesos (less than $3). fundamental and well-understood part saving before. “That’s a new pool of of everyday life. It is a key factor in money that allows us to lend to others Most microsavings institutions determining the level of success that launching small businesses,” Enad and larger banks with microsavings poor households enjoy in improving says. The accounts also bring in new options offer regular passbook their own lives,” Morduch and his clients who might later apply for loans accounts, automatic teller machine coauthors conclude in Portfolios of the and other services. cards, and commitment accounts. Poor. “Managing money well is not 1st Valley Bank and other banks Popular promotions include giveaways necessarily more important than being have to attract microsavers the same and lotteries with improved odds of healthy or well educated or wealthy, way they lure other customers—by winning for more frequent depositors. but it is often fundamental to achieving understanding their needs and While dozens of research projects those broader aims.” energetically marketing services on microsavings are under way, a 2006 It’s not just opening an account that tailored to those needs. study of commitment savings accounts makes someone a saver, but rather 1st Valley Bank uses the interest- offered by Green Bank on the island of the habit of setting aside some money bearing Gihandom accounts to target Mindanao in the southern Philippines for the future, says Tan, the Grameen clients that have likely never used suggested that such programs are Foundation regional director. a bank before. The accounts require making a difference, with savings “Twenty dollars might not be a lot an initial deposit of just P100, (about growing by as much as 82% in a year. of money from a middle-class point of $2.25). Bank posters with bright comic- “The savings response represents view,” says Tan. “But to the poor it can book panels portray an attractive a lasting change in savings, and not mean the difference between sending a young mother wondering whether merely a short-term response to a new young child to school or sending him she should borrow or save the P2,000 product,” concludes a research paper out to work.”  www.development.asia April–June 2012 Development Asia 29 PRIVATE SECTOR DEVELOPMENT

The Triple Bottom Line Companies in Asia are reinventing the concept of corporate social responsibility by putting people and the planet on par with profits BY Floyd Whaley

ot long after a allow for quick, charitable responses to PROTECTING FUTURES School girls 7.9-magnitude earthquake disasters. walk on the shores of Galle Face Beach devastated Sichuan Despite the quick donations, many in Colombo, Sri Lanka. Procter & Province, in the People’s of the global companies operating in Gamble’s Protecting Futures program RepublicN of China, in May 2008, the area—including KFC, Coca Cola, aims to keep teenage girls at school killing an estimated 70,000 people, the McDonald’s, Nokia and Samsung— through the provision of free sanitary corporate social responsibility (CSR) found themselves on a widely protection. mechanisms of global corporations in distributed SMS text message that the area kicked in. listed “international iron roosters,” a not only did not match those of The parent company of the derogatory term referring to a rooster local Chinese companies in terms of international fast food operation, KFC, that will not give up a single feather. scale or timeliness, but also were not immediately pledged 3 million yuan Chinese consumers expressed outrage commensurate with their presence in ($475,000) for disaster relief and later and called for boycotts of the companies, the Chinese market,” says a study on increased that to 15.8 million yuan according to a report in the Journal of the topic by the Wharton School of the ($2.5 million). Other multinational Multidisciplinary International Studies. University of Pennsylvania.

corporations made similar pledges “The popular perception was that The study notes that the AFP based on corporate policies designed to S multinationals often did not aggressively

30 Development Asia April–June 2012 www.development.asia publicize their contributions after the every other company has one, but they earthquake, which left consumers are more focused on the traditional unaware of them. Also, international “Is CSR a reflection charity work they have always done,” companies could not obtain approvals he says. “The culture of philanthropy is as quickly as local companies to increase of ‘window dressing’ strong but Asian companies are behind the levels of contributions as the disaster activities to support in the modern practice of corporate worsened. a marketing goal or social responsibility.” Local companies, closely attuned to public sentiment after the massive a reflection of the WINDOW DRESSING disaster, were quick to respond and company’s integrity to One key challenge in examining CSR is quick to escalate their donations. promote goodwill for They also widely publicized their P#"}]R philanthropy, sometimes linking the society?” dressing’ activities to support purchase of their products to a sense of ] nationalism. —Pacharaporn Kesaprakorn, of the company’s integrity to the dean of the School of The multinationals followed their promote goodwill for society?” asks Communication Arts of Bangkok (CSR) guidelines for responding to University in a recent study Pacharaporn Kesaprakorn, the dean of disasters, made donations according the School of Communication Arts of to company policy, and yet came off Bangkok University in a recent study. looking like poor corporate citizens traditional methods of generating In its simplest form, CSR involves deserving of boycotts. goodwill in the communities in charitable works that burnish a “For multinational companies used which they operate. And, as the corporate image, but only its most to operating under a global (CSR) multinationals in the PRC discovered, basic practitioners would espouse framework, the ensuing consumer they are keenly attuned to their fast- backlash came as a shock,” the changing customer base. Wharton study notes. “Many of the companies in Asia are ‰ Welcome to the complex, ever- still family-owned,” notes Francisco L. the planet. This is a strategy of looking changing world of corporate social Roman, the executive director of the responsibility in Asia. Manila-based Center for Corporate and return on investment, and instead As Asian companies emerge as global Responsibility. “They tend more toward taking a broader view of corporate players, they are embracing to a greater philanthropy than a modern concept of success that includes environmental degree the international concepts and corporate social responsibility.” and social dimensions. principals of CSR. Yet, experts note, “Large family-owned companies The Center for Corporate they are not leaving behind their in Asia will have a CSR unit because Responsibility puts it this way: “Corporate Social Responsibility consists of the conscientious actions a company takes to create general well-being for all of its stakeholders. In practicing CSR, companies integrate economic, social, and ecological concerns in their business operations and in their interactions with each of their many stakeholders.” This could mean anything from making donations to the community after a disaster to providing employees

LOCAL AID Proceeds from a book sale in Beijing went to the Sichuan earthquake relief fund. Thousands of Beijingers donated blood, money, and other

AFP essentials to earthquake victims.

www.development.asia April–June 2012 Development Asia 31 PRIVATE SECTOR DEVELOPMENT

CHARITY PREMIERE Chinese star Jackie Chan holds a check for victims of the May 2008 earthquake in Sichuan with US @<!* actress Misako Yasuda at a charity premiere. to disposing of company waste materials in a responsible way. It is a comprehensive attempt to operate a corporation in a responsible and sustainable manner.

LOW RANKINGS To make the matter more complex, CSR has strong regional variations. In Europe, for example, environmental “In the Japanese context, based on is a dominant aspect my research, one manager described of many CSR programs. In the PRC, how human rights are so fundamental Cultural differences CSR programs often focus on creating RS explain in part why harmony or national unity. how they are exercised,” Fukukawa Asian companies Such cultural differences explain in says. “But, of course, for assessment part why Asian companies generally purposes, if it is not documented, there generally score lower score lower on international corporate RSQ on international social responsibility rankings than Fukukawa suggests that the fact that corporate social North American or European there are fewer Asian companies on the companies, says Kyoko Fukukawa, international CSR lists than Western responsibility a senior lecturer in marketing at companies says as much about the rankings than North the Bradford University School of ranking systems as it does about the American or European Management in the . companies. Fukukawa, who edited the 2010 “We need to start thinking about companies book, Corporate Social Responsibility in how assessment criteria are devised Asia, conducted interviews with CSR and whether or not consultation FUTURE CONSUMERS managers of Japanese companies and genuinely occurs across a wide range In developing countries around the ]{ of stakeholders,” she says. “We ought world, impoverished girls miss school such as an employee’s opportunity to not to take rankings at face value and several days each month because they change jobs, scores high in the CSR label Asian companies as laggards, but lack basic sanitary protection to manage ranking system. realize that companies that are not in a their menstrual periods. To address this “Yet, in the Japanese context, long- rankings list can nonetheless be socially problem, a program called Protecting term employment and company loyalty responsible in various ways.” Futures provides education, sanitary is considered an important aspect for PˆRS protection, and sanitary facilities to help both a company and a prospective popular phrase right now, we should vulnerable girls stay in school. employee,” says Fukukawa. “There acknowledge there is a long history of Since 2006, the program has helped is a strong belief in and tradition of business ethics, which is complex and 80,000 girls in 17 developing countries. RS varied,” Fukukawa continues. “How Under the program, which uses the their employees.” many countries and stakeholders slogan “Protecting futures, keeping She also notes that many CSR outside of the G8 [Group of 8] are girls in school,” the girls receive ranking systems include upholding involved with rankings and the Always or Tampax, two products of the human rights in their criteria, but consultation in the development of global consumer product giant Procter that some Asian companies would ranking systems? Sometimes people/ & Gamble, Inc. not document that as part of their companies are not given opportunities While the program legitimately helps AFP corporate culture. to have their voice heard.” girls in need around the world, it also

32 Development Asia April–June 2012 www.development.asia INTEL TEACH Former Intel chairman Craig Barrett interacts with a student of Uttam School during his presentation in New Delhi in 2006. The Intel Teach program has trained more than seven million teachers in developing countries around the world.

SHAREHOLDER VALUE At the core of CSR lies the concept of self-regulation. CSR programs are theoretically designed to improve companies from within, not to institute reforms strictly for external consumption or due to outside pressure. And many proponents claim > deal with worker’s rights issues, the that strong and comprehensive CSR is such a program will likely continue environment, and product safety—are to buy those products throughout often driven by the desire to capture A study by MIT Sloan School their lives. market share in western societies of Management lecturer Caroline Similarly, computer giant Intel has that demand such principles from Flammer found that companies enjoyed enormous success with its Intel companies, says Hanlon, a postdoctoral received a direct boost in stock prices Teach program, which has provided research fellow at the Institute of Asian associated with responsible behavior. computer literacy training to more than Research at the University of British Her study tracked responsible and seven million teachers in developing Columbia. irresponsible environmental behavior countries around the world. Those Companies in the region are less by publicly traded companies in teachers have passed this training onto often driven by civil society, which has the United States from 1980 to 2009. their students, and all of them have been instrumental in corporate reform The data showed that companies used Intel products in the process. in many countries around the world, experienced an average stock price he says. increase of .84% in the two days A DIFFERENT DYNAMIC “In many western countries, there is following an announcement of Such programs are considered an active civil society that brings court environmentally responsible behavior, models of modern, sophisticated CSR cases that have forced companies to and were punished with a –.65% initiatives, but there is an increasing reform their supply chains, improve average decline when they were call by many for companies to look working conditions, and produce safer involved in activity that damaged inward when considering CSR. products. In Asia, NGOs often don’t the environment. The study focused And Asia is at the forefront of this have the leverage to mobilize a strong on publicly known environmental discussion, says Robert Hanlon, social movement to raise awareness or activities reported in the media. author of the report, Corporate Social ^ Responsibility, Corruption and Human bring a case against a corporation.” responsible corporate behavior is vital. Rights: Multinational Corporations in On the bright side, Hanlon notes, "} China and Southeast Asia. consumers in Asia are using the activities are intrinsically linked. “The conversations about CSR are Internet to force companies to embrace “I am skeptical of the altruistic much more meaningful in Asia,” says "} motives of corporations when it comes Hanlon. “In the West, it is often about courts or through the government. to corporate social responsibility,” says public relations and mitigating risk. “You have consumers taking their Hanlon. “But what I will say is that When you get to Asia, you are talking grievances online,” he says. “We have when companies reach a certain level about strikes, suicides in your shop, seen mass protests organized against environmental problems that can get companies polluting rivers and not make things better for their workers, you kicked out of a country.” being held accountable. It is a different try to improve the vicinity where they Asian companies that adopt dynamic in Asia than in the west, the are working, they tend to take actions  AFP modern CSR programs—which power structures are different.” in line with CSR.”

www.development.asia April–June 2012 Development Asia 33 PRIVATE SECTOR DEVELOPMENT

The world’s poor are increasingly being viewed as a lucrative market for the private sector. Is it exploitation or long overdue? BY Jade Lee-Duffy

utside Bahadurgarh, a day. However, this patient doesn’t This radically innovative machine near Delhi, a man with have to worry about Khurana’s was the result of General Electric’s trouble breathing and a electrocardiograph (ECG)—a machine ^" pain in his chest is lying that predicts and diagnoses patients on “reverse innovation”: a strategy Oon his back. He has just walked for with heart disease—breaking down an hour to reach a rural cardiac clinic from a power failure. products for emerging markets, and where Girish Khurana treats patients In 2008, the internist purchased ] every week. ^¬VVŠ Across India, thousands of rural machine, which had seemingly shrunk ^ clinics often lack basic infrastructure, from earlier 50-pound models wheeled redirecting their efforts to the “bottom telephone lines, and adequate medical around on hospital carts to a 7-pound of the pyramid”—the world’s poorest supplies, and routinely experience battery-operated machine about half people. These companies see the power outages for more than 12 hours the size of a fax machine. The $1,000 S cost also makes the portable machine believe they can change the lives of considerably more affordable for billions for the better. HANDY TOOL A farmer uses his mobile doctors in India, who previously Reverse innovation is a !7 couldn’t pay the $10,000 for an ECG developmental business process that western Bangladesh. Mobile phones predecessor. The saving also transfers goes against the conventional wisdom enable farmers to check crop prices and to patients, allowing Khurana to of in which companies allow migrants to transfer money easily. charge about half as much as before. develop premium-priced products for

34 Development Asia April–June 2012 www.development.asia ENTERTAINMENT VALUE A street vendor sells pirated DVDs. Research shows the poor usually save up to buy small luxuries, such as DVD players, rather than more rice and other necessities.

the world’s wealthiest 10% at the top of the pyramid (mainly consumers in "’ for markets, such as Europe and Japan, and lastly, trickle these products down to poor countries. However, adapting and repackaging " countries such as the People’s Republic of China (PRC) and India will only capture a fraction of the opportunities that exist there; the needs of emerging markets are very different to those of wealthier ones. Reverse innovation is the solution for many companies as the aggregate purchasing power of the world’s poor, who number more than 4 billion, is tremendous. In addition, the upward migration of products can be hugely Pˆ for developing markets, oftentimes you have to use the latest technology because the size of the unit is very important, as well as its portability “I think there has been a lot of interest in frontier Q^> Š markets at the bottom billion from the rich world. Healthcare tells Bloomberg. They know that the environment is risky and “We have turned it around 180 complicated, but opportunities are there” degrees, so now our products that are primarily developed for developing —Paul Collier, author of The Bottom Billion: Why the Poorest Countries are markets, we have been able to take Failing and What Can Be Done About It these products and bring them back " market. According to a 2011 United global accounting model, as of 2007. Western Europe. Nations Children’s Fund (UNICEF) "¬V|S “It’s an evolution over time, report, Global Inequality: Beyond the people increased their share of total leveraging the miniaturization of Bottom Billion—A Rapid Review of income between 1990 and 2007 by less electronics, and riding on the wave Income Distribution in 141 Countries by than 1%. of putting more things into software, #<“^ “I think there has been a lot of and really understanding what is the the wealthiest 20% in the world interest in frontier markets at the primary interface that was necessary.” represented nearly 83% of the total bottom billion from the rich world,” The people at the bottom of the global income, whereas the poorest says Paul Collier, professor of

AFP pyramid are clearly not an obvious 20% had exactly 1% under the economics, director for the Centre for

www.development.asia April–June 2012 Development Asia 35 PRIVATE SECTOR DEVELOPMENT

In the report, More Than 1 Billion People are Hungry in the World—But What if the Experts are Wrong? authors 7>7Šƒ] revealed that the poor didn’t eat more even when they could afford to, or when prices for staples, such as rice and grain decreased. The reverse happened; they actually ate less staples. A likely explanation was consuming more calories was not a priority, while buying better-tasting food and other indulgences such as televisions and PRODUCTS FOR THE BOTTOM BILLION DVD players, which could take months Multinationals are developing entry-level, to save up for, was important. low-cost products for emerging markets, “We shouldn’t forget, too, that other from medical equipment such as a things may be more important in [poor portable ECG to orange juice drinks. S¦† in the developing world spend large "Š economies are growing. Ghana was amounts on weddings, dowries, and The University of Oxford, and author the fastest last year, faster than [the G#" of The Bottom Billion: Why the Poorest †S}¦ families often spend so lavishly on Countries are Failing and What Can Be countries, there is little downside risk. funerals that they skimp on food for Done About It. “They know that the They have been so poor for so long, months afterward,” explain Banerjee environment is risky and complicated, there is a massive scope for growing,” ƒ] but opportunities are there.” says Collier. and selling nonessential food and Not only are companies such as “These countries have enormous goods, such as sodas and electronic ^`%S resources from extractions [of natural equipment, creates jobs. into emerging markets, but large ¦ “If you ask an African what is the sector is booming. In contrast, if you most valuable thing they have bought Africa as well. “A good example is JP look to the West, you have the deepest in the last year it would be a mobile ^ recession in decades.” phone. It’s much more important to huge list of important companies as While many perceive the PRC to be "ŠQ customers,” explains Collier. “Their the world’s fastest growing economy, says Collier. “If a landline doesn’t exist CEO Jamie Dimon is very interested Ghana surged ahead to take the top or is down, it’s an extremely useful in building Africa, and expanding spot in 2011, according to the World tool—farmers can use a mobile phone ¡†^Q Bank report, Global Economic Prospects Q Collier adds the core motivation for January 2011: Regional Annex. With In Asia, the situation is similar. international banks to enter Africa is large oil reserves, the report projected A recent study among the poor in several that their own clients and other major Ghana’s economic growth rate to be Asian countries found that mobile corporations are already investing in 13.4% in 2011 and 10% in 2012, while phones “have the characteristics of a the continent. the PRC’s gross domestic product necessity in the BOP [bottom of the P¥¡†^¦{ growth rate was projected to be 9.3% in ¦>†# "#Š`Š†‹<'<%#>}}ŒŠ''Œ#^Š" indication of a larger phenomenon in 2011 and 8.7% in 2012. "%†'Q FN\QP" With numerous multinationals “The wealthier the consumer, the when customers say, ‘Where is our lesser the importance of mobile phone bank?’ they are there to provide the emerging markets, such as Proctor and services in the consumer’s budget,” Q Gamble’s lower-priced diapers and notes the 2009 report, Bottom of the As the fastest growing economies in S^^†7 Pyramid Expenditure Patterns on Mobile the world are in Africa, the Far East, drink, is it ethical to sell goods and Phone Services in Selected Emerging Asian ^Š S Countries"% opportunities abound. “A lot of these basic necessities of food and shelter? based information and communication

36 Development Asia April–June 2012 www.development.asia GREEN ENERGY In a village in Nairobi, a woman recharges a solar lamp by hanging it from the roof. Sustainability expert Stuart Lloyd Hart says one of the keys to success in marketing to the poor is developing “small footprint” products and services that are reliable and affordable.

just survival machines who are trying technologies of today with the to grind out a living. They would like business models of tomorrow. New “The poor are people to feel magical about life, too,” says technologies for renewable energy, too. They are not just Hart, who coauthored the paper, The survival machines who Fortune at the Bottom of the Pyramid with information technologies, sustainable CK Prahalad. agriculture, and nanotechnology are trying to grind out “When faced with choices, they don’t created in developing markets are what a living. They would always choose nutritious, low-cost Hart describes as part of a green leap like to feel magical food, but neither would any of us, so strategy. He adds “small-footprint” why should we expect poor people to. products and services that are better about life, too” We should allow people to decide and suited to the bottom-of-the-pyramid participate in their own future.” context are one of the keys to success. —Stuart Lloyd Hart, the Samuel As aid money alone won’t solve P" C. Johnson Chair in Sustainable Global Enterprise and professor of the world’s chronic poverty situation, use water treatment can become so management at Cornell University’s other approaches must be explored. effective, reliable, and cost-competitive Johnson Graduate School of “There is not enough aid money to that they can ultimately compete Management make the transformational shift needed directly with incumbent offerings at the ¥¦S top of the pyramid,” says Hart. technology policy and regulation just about how to get people to be more Š^ think tank, LIRNEasia. productive, I’m thinking bigger than trickle-up innovation group, whose The report argues that mobile phone that,” says Hart, who also wrote Next focus is to create a new generation of should be seen as a necessary public Generation Business Strategies for the Base easy-to-use, inexpensive applications, service, not a luxury, and should be of the Pyramid with Ted London. notes Hart. The technology giant has taxed and regulated as such. “Given According to Hart, more than directed its initial efforts to India, where that mobile phones are part of 2 billion people subsist on less than it is planning to generate applications everyday lives and that they represent $2 day and have been left out of that combine mobile phones, software, a need among other needs in modern the global capitalism model. Rapid and the internet for the underserved societies, policies that foster and not industrialization of emerging markets segment of the market. hamper investment and industry or capitalizing on energy resources The Bottom Billion author Collier growth should be designed and such as oil are not sustainable solutions concludes there is credible hope implemented,” the report states. for lifting the base of the pyramid out for the world’s poor. “I think it can "%‹" of poverty, Hart says. “The only way to happen. Over the next decade they ¡" lift 4 billion people out of poverty and will be getting a lot of money from Global Enterprise and professor of to create a decent standard of living is natural resource extraction,” he management at Cornell University’s to look at the problem very differently,” says. “And to harness all that money ¡" he explains. for development depends on good ^ " economic governance. Whether they top and bottom of the pyramid should the world’s poor, says Hart, requires plunder their resources or not—that be given a choice of what they can buy. “leapfrog” green innovation that will be the classic struggle that plays  AFP “The poor are people too. They are not combines environmentally sustainable out in the next few decades.”

www.development.asia April–June 2012 Development Asia 37 OFF THE SHELF

Boomerang Demystifying the Chinese Economy By Justin Yifu Lin Travels in the New Cambridge University Press, December 2011, $75.00 By Michael Lewis W. W. Norton & Company, October 2011, $25.95 n Demystifying the Chinese Economy, the World Bank’s chief economist provides a theoretical framework and he author of the 2010 historical context for understanding the economic bestseller The Big Short turns development of his home country and its transition to a his attention to the credit marketI economy. bubbles in , Greece, Before joining the World Bank, Justin Yifu Lin was founding TIceland, and Ireland in a book that is director and professor of the China Centre for Economic part-investigative Research at Peking University in the People’s Republic of China. journalism and “A patriotic yet hardheaded look at how his country notched up average part-travelogue. annual growth of 9.9 percent for three decades… a pragmatic history of economic Michael Lewis is cause and effect—an insider’s account of why [the People’s Republic of] China, 7 which dominated the world economy right into the 19th century, fell so far behind and Bloomberg the West and how it came roaring back in our times.”—James Pressley, Bloomberg View columnist. “The book is a translation of lectures Professor Lin gave at Peking University. He also wrote Liar’s It offers an insider’s view of the biggest economic event of our era: the rise of Poker, The Money ¥†S}¦ˆO# Culture, The New argument persuasive—we have to understand how such a man thinks.”—Martin New Thing, Moneyball, The Blind Side, Wolf, Financial Times  Panic, and Home Game. “Combining his easy familiarity Deng Xiaoping “The focus of the book is writer, Mr. Lewis sets off in these Deng Xiaoping and the Deng’s unusual pages to give the reader a guided Transformation of China career trajectory, tour through some of the disparate By Ezra F. Vogel his unique style Belknap Press, September 2011, $39.95 of rule, and the 2008, like Greece, Iceland and Ireland, strategic choices he tracing how very different people for his book by the former made during and very different reasons gorged on the director of Harvard’s after the Cultural cheap credit available in the prelude Fairbank Center for East Revolution.… This book should be read to that disaster. The book—based on Asian Research and the Asia by anyone who wants to understand articles Mr. Lewis wrote for Vanity TCenter was named as one of the best the domestic and international Fair magazine—is a companion piece books of 2011. It was hailed by The dynamics that have led to [the PRC’s] of sorts to The Big Short: Inside the ŠP rise as a great power.”—Yanzhong Doomsday Machine, his bestselling 2010 Deng in any language.” Huang, Foreign Affairs Q—Michiko Ezra F. Vogel is Henry Ford II “He gives the reader the necessary Kakutani, The New York Times“ Professor of the Social Sciences historical context and background “In The Big Short Lewis realized that Emeritus at Harvard University. to understand why Deng made his the most exciting way to document the “Vogel’s new biography portrays decisions…. It is all about the grand credit crisis was to follow the action Deng as not just the maker of modern ‰ from the perspective of those who [People’s Republic of] China, but one of all of Deng’s amazing qualities, it is his saw it coming and made a massive grasp of a broad perspective and his ‹Boomerang shifts history…. This book is bolstered by keen sense of history that enabled him the focus to Europe and the ongoing insider knowledge and outstanding to achieve what so many had deemed melodrama of the euro.”—Andrew G' impossible.”—Chow Chung-yan, South Anthony, The Guardian  Deng in any language.”—The Economist China Morning Post 

38 Development Asia April–June 2012 www.development.asia Thinking Fast and Slow Honor in the Dust By Daniel Kahneman Theodore Roosevelt, War in the Farrar, Straus and Giroux October 2011, $30.00 Philippines, and the Rise and Fall of minent psychologist Daniel Kahneman distills years America’s Imperial Dream of research in one book to explain how the mind By Gregg Jones works—how we arrive at the decisions that we make. NAL/Berkley, February 2012, $26.50 Kahneman’s pioneering work with the late Amos TverskyE on decision making received the Nobel Prize in n American journalist Š"\VV\'] goes back to the early 20th economics, medicine, and politics, and helped lay the foundation for behavioral century when the United economics. States began its ascent as In Thinking, Fast and Slow, Kahneman says there are two systems that drive the Aa major world power. His story begins way we think: System 1 (fast, intuitive, and emotional) and System 2 (slower, with the young nation’s victory over more deliberative, and more logical). He reveals the extraordinary capabilities of , which gave it control of the of slow thinking. Thinking, Fast and Slow was rated as one of the best books of Philippines, then 2011 by The New York Times, The Economist, The Wall Street Journal, and The Globe a Spanish colony and Mail. that was at the “There have been many good books on human rationality and irrationality, but point of declaring only one masterpiece. That masterpiece is Daniel Kahneman’s Thinking, Fast and independence. Slow.”—William Easterly, The Financial Times Honor in the “Kahneman’s new and most accessible book contains much that is familiar Dust chronicles to those who have followed this debate within the world of economics, but it the Roosevelt also has a lot to say about how we think, react, and reach—rather, jump to— administration’s response to the conclusions in all spheres. What most interests Kahneman are the predictable Filipino guerilla resistance and charges ways that errors of judgment occur.”—Roger Lowenstein, Bloomberg Businessweek of US military misconduct in the “Many books about the mind—a crowded genre these days—combine vivid Philippines, and how these events have stories with accounts of seminal experiments and then proceed to argue for shaped America’s position in global changes in law, policy or business practices. Thinking, Fast and Slow is different. affairs. # Gregg Jones, the book’s author, was personal observation.”—Christopher F. Chabris, The Wall Street Journal  a correspondent in Asia for 10 years. ‹†“†“ and Gerald Loeb Award. His work has Together appeared in The Dallas Morning News, The Los Angeles Times, The Washington The Rituals, Pleasures and Politics of Cooperation Post, The Guardian, and The Observer By Richard Sennett (London), among others. He also wrote Yale University Press, December 2011, $28.00 Red Revolution: Inside the Philippine Guerrilla Movement. ociology professor Richard Sennett argues that “What is striking about Honor in the cooperation has become a necessary skill in a Dust, Gregg Jones’s fascinating new multicultural society. book about the Philippine-American “Critics may carp that Sennett’s handbook to the War, is not how much war has changed craftsS of cooperation sidesteps the hardest question of root-and-branch reform— in more than a century, but how whether of inner-city wealth distribution, or the global banking system. But little.”—The New York Times repair, as he insists, has to start in your own backyard—and over your own fence. “A lively, documented narrative For anyone who takes up Together’s challenge to make a ‘vocation’ of community, about an important but often neglected he may well help them to avoid both the squabbles in the playground—and the story in American history.”—Dallas riots in the streets.”—The Independent  Morning News  www.development.asia April–June 2012 Development Asia 39 ARTICLE

The Resource Curse Asian nations are finding billions in oil, gas, and minerals. But will it make them poorer? BY Floyd Whaley

] plagued Afghanistan, good news has been a very rare commodity. But in June 2010, United States I announcement that seemed to change everything in the long-suffering country. YF in untapped mineral deposits. The Government of Afghanistan later 7Yª in mineral and petroleum deposits, including copper, iron, gold, oil, chromites, uranium, and rare earth. But the massive discoveries were greeted with limited celebration. “The Government of Afghanistan and its allies have a narrow window of opportunity to become a world leader in resource transparency… as rights to these resources are being sold over {ªQ¡‚ a campaigner with the organization Global Witness. “The stakes could not be higher: get it right and minerals could be the catalyst for peace and prosperity; get it wrong and there’s a massive risk they will be lost to corruption, or form a new axis of ]Q Afghanistan is the latest in a string of developing countries in Asia that have in the last few years discovered vast natural resource deposits. These countries—including Cambodia, Mongolia, and Timor-Leste—are at on hard-learned lessons in Africa and PROSPECTING Miners drill into the center of a debate on how best to Latin America, countries with lucrative rock in a makeshift emerald mine ]{ in Panjshir Valley, Afghanistan. The associated with these discoveries. ] country is sitting on a gold mine of Economists have several names for the P{Q mineral reserves, perhaps the richest phenomenon of great wealth pouring PQ in the region, that offer hope for an economy mired in poverty after

into a fragile, developing economy The reasons for this phenomenon AFP with disastrous results. Based primarily are multiple. Export earnings from decades of war.

40 Development Asia April–June 2012 www.development.asia and mineral resources discovered in the value of the currency, which the country in recent years. According discourages manufacturing for export. “The stakes could not to the Asian Development Bank’s ] be higher: get it right Asian Development Outlook 2011 report, global prices can also create unstable and minerals could be investment in the country’s Oyu Tolgoi copper and gold mine is projected to ]{ the catalyst for peace Y¬{ of natural resource revenues can have a and prosperity; get it 2 years. With production expected to powerful, negative impact on national wrong and there’s a \VFª institutions and governance. In short, 2018, the overall investment is expected how do those in power overcome the massive risk they will YFQZ temptation to use these vast revenues be lost to corruption, of the mine. for their own enrichment? or form a new axis In addition, preparations are “One way to look at this question underway to develop one of the largest is to put oneself into the shoes of the of instability and '' president or prime minister of a country conflict” { Q to produce 15 million tons of coal each then Executive Director Johannes –Juman Kubba, a campaigner with year. Both sites—Oyu Tolgoi and Tavan F. Linn of Wolfensohn Center for the organization Global Witness Tolgoi—are located near the border Development in an article in 2008 with the People’s Republic of China, published by The Brookings Institution CASH HANDOUTS an avid buyer of mineral and energy in Washington, DC. “It is striking how In Mongolia’s windswept capital of resources worldwide. many decisions she or he has to take in Ulaanbaatar, high-end luxury shops The Government of Mongolia regard to the national energy wealth, and expensive sports cars can now has taken a variety of measures to how many opportunities there are to be found. It is not uncommon to see ]{ make the wrong decisions, and how Y¬VV energy revenue. One key feature of its many times she or he, and many others at restaurants. This is in a country that program has been the establishment in the government and in the energy in 2009 had a per capita gross domestic of the Human Development Fund in industry, may be tempted to engage YFXVV November 2009. The fund is expected in corrupt behavior in order to gain a Y¬\ to use mining revenues to give cash share of the resource wealth for political This overt display of wealth can be Q attributed largely to the vast energy #\VFV each Mongolian citizen received the ~YXV\VFF YFX were given.

DISTRIBUTION OF WEALTH Cash handout initiatives, such as those being undertaken in Mongolia, are at the center of the global discussion of ]{ revenues. Because resource revenues are volatile, governments need to save during peak earning periods in order to weather the times when prices and

BACKBREAKING WORK A miner emerges from a hand-dug excavation in a remote corner of Cambodia known as

PHOTONONSTOP the Gold Forest.

www.development.asia April–June 2012 Development Asia 41 ARTICLE

incomes fall. This is sometimes done through the establishment of natural resource funds. The problem with these funds is that they can be altered or raided by political leaders, says Laura Paler, a political scientist at Columbia University who has studied the issue. “Directly distributing revenue to citizens could bypass this problem by letting people decide how much to Q†P# argued that, if citizens know they are entitled to a share of the resource wealth, they will have stronger incentives to be politically engaged and to monitor government to protect revenue from Q “Still others have made the claim that natural resources belong to everyone “ {Q she adds. Such direct cash payments need to be managed carefully, argues the European Bank for Reconstruction and Development report, Managing Mongolia’s Resource Boom. Direct cash handouts can be a disincentive to work, which hinders the economic resource curse. “If individuals receive a basic income without having to work, the wages that they will need to be paid in order to persuade them to take a job—including in the non-resource sector—may need Q report notes. “This would reduce the competitiveness of the non-resource and accountable in its management BENCHMARK An off-shore drill ship Q of natural resource revenues and in in the Timor Sea. Oil-rich Timor-Leste A variation of this distribution Q has joined the Extractive Industries system that many experts think shows a description of the proposal on the Transparency Initiative, which sets global promise is a proposal being promoted center’s website. standards for oil, gas, and mining. by the Center for Global Development, According to Paler, this could help in Washington, DC, that would attach build the government institutions that “Directly distributing resource revenue taxes to cash handout programs. will be required long after the resources to citizens and taxing it back could “Having put this money in the run out. hands of its citizens, the state would “The notion is that while natural that depends not on windfalls but treat it like normal income and tax it resource windfalls can undermine {Q accordingly—thus forcing the state to development, many believe that “Such a proposal nevertheless also

collect taxes and fueling public demand taxation strengthens both accountability requires that politicians have the will AFP for the government to be transparent Q Q

42 Development Asia April–June 2012 www.development.asia Nina Merchant, assistant director for on actual government spending can the economic reform and development program of The Asia Foundation, “If citizens know people scrutinize government and hold agrees that one of the greatest they are entitled to a politicians accountable in resource-rich challenges to implementing an effective share of the resource Q cash distribution system is often the The Extractive Industries government and power brokers in a wealth, they will have Transparency Initiative, which sets a country. stronger incentives global standard for transparency in “Elites in most countries, to be politically oil, gas, and mining, is a key program particularly small and institutionally for helping developing countries to weak countries, have little incentive engaged and to manage their newfound resource Q^ monitor government wealth, says Paler. “Direct distribution not only deprives to protect revenue In addition, Mongolia in October the state of its resources, but also 2010 became one of the few countries deprives elites of their source of from being diverted in the world to achieve full compliance rents. In many institutionally weak to politicians” status with the Extractive Industries states—particularly those with weak Transparency Initiative. Other countries democratic institutions, corruption, —Laura Paler, a political scientist in Asia that have joined this initiative predatory or weak leadership—this at Columbia University and have reached full compliance with 7Q its standards include Azerbaijan and Timor-Leste. The Philippines is also in TRANSPARENCY the initial stages of joining. If countries can overcome the obstacles “ Donors and international associated with establishing a system Q development organizations have a key “Revenue is only one side of the role to play in the process, says Paler. resources into the hands of the people coin: civil society, the media, and They can be the catalysts for building who need it most, that is only the citizens also need a clearer picture on societal mechanisms to maintain a beginning, says Paler. where that money is going in order just and transparent system of sharing “Without access to information to be politically engaged and hold natural resource wealth. on the amount of resource rents Q† “When it comes to transparency, that government receives and how “My research shows that ensuring there might be greater scope for the that money is being spent, it is very that citizens get better information international donor and development community to work directly with domestic civil society organizations Q says Paler. “This could come from initiatives to strengthen the capacity of the media and civil society to advocate for better access to information, to monitor government revenue and spending, and to disseminate that Q But, she adds: “It is an uphill battle against often powerful and entrenched Q

BOOMTOWN Tourists shop for Genghis Khan-branded vodka in a store in Ulaanbaatar. High-end shops opened in Mongolia’s capital in recent years after vast energy and mineral resources were

AFP discovered in the country.

www.development.asia April–June 2012 Development Asia¬ª ARTICLE

Replicating Hong Kong, China Charter cities—small enclaves of good governance in developing countries—are gaining supporters, but some remain skeptical

BY Shu-Ching Jean Chen everal years ago, Paul Romer, where developed countries frame the GOOD GOVERNANCE Hong Kong, an economics professor at rules and hundreds of millions of poor China, a tiny enclave of good governance New York University, was families could become residents. that grew faster than its neighbors for struggling with a very basic Hong Kong, China, a tiny enclave decades, is often cited as an example of Squestion: why it is that some areas of good governance that grew faster the charter city concept. develop and reduce poverty, while than its neighbors for decades, is often others languish? cited as an example of the charter city plants and grid. Access to the sea is the His conclusion—embraced by private concept. only real necessity—as long as a charter sector specialists in development What exactly is Romer’s concept? city can ship goods back and forth on organizations worldwide—is that “My idea is to build dozens, perhaps container ships, it can thrive even if the key factor in successful poverty hundreds, of cities, each run by a new its neighbors turn hostile or unstable. reduction is good governance, or as he partnership between a rich country And any administrative costs can be puts it: people in poor countries around and a poor country. The poor country recouped from a special tax on the the world suffer from “bad rules” that would give up some land for the city, huge rise in land values that happens hinder their development. while a like Britain as a large well-run city develops.” “Instead of focusing on poor nations or Canada could contribute a credible These cities, ideally, would be and how to change their rules, we judicial system that anchors the rule roughly the size of Hong Kong, should focus on poor people and how of law,” he wrote in The Sunday Times China and Singapore, or about 1,000 they can move somewhere with better in January 2010. square kilometers—enough to house rules,” he wrote in 2009. “One way “With clear legal protections, private 10 million people in a population to do this is with dozens, perhaps investors will build the buildings and density of 10,000 per square kilometer, AFP hundreds, of new “charter cities,” infrastructure, including the power about half the density of central Paris.

44 Development Asia April–June 2012 www.development.asia He stresses that his concept is very suggests that the poor host country ]{' should give up sovereignty in a charter city—the host country, the “Instead of focusing exchange for the developed country source country of the people, and the on poor nations and government’s assurance that it would guarantor—could be played by the host act as guarantor to ensure the city’s government in various combinations. how to change their charter was respected and enforced. “Because these roles can be played by rules, we should Romer rejects this. “It was the absence a single nation or by several countries focus on poor people of voluntary choice that doomed working together as partners, there most colonial ventures,” he said. “The are many potential arrangements,” he and how they can commitment to voluntary choice is what states on the Charter Cities website, move somewhere distinguishes this new project.” which he set up to promote the concept. with better rules. Supporters of Romer’s controversial One of the variations is to allow proposal, such as Voxi Heinrich a government to assume all three One way to do this is Amavilah, an adjunct professor of roles in underwriting a charter city, with dozens, perhaps Economics at Glendale College, simultaneously playing the host, source hundreds, of new Arizona, see it as an innovative means of people, and guarantor, “much as of hastening the economic growth of [the People’s Republic of] China did ‘charter cities,’ where developing countries. Others recall in establishing the special economic developed countries similar successes in history, such as the zone where the new city of Shenzhen frame the rules and 12th century founding of the German emerged,” or even India’s recent city of Lübeck, the Republic of Korea’s initiative to create 24 new cities on hundreds of millions ultra high-tech Incheon smart city, and } of poor families could ’s low-tax and manufacturing- describes as “innovative governance become residents” focused “organized industrial zones.” structures and public–private Critics, meanwhile, point to the partnership.” —Economist Paul Romer ] Romer’s template invokes a city without regard for political and sanitized version of Hong Kong, China social consequences, and fret about the stripped of its historical and colonial “hollowing-out” effect of such cities ‹ as they sap top-end human resources cities as having four basic elements: a and undermine a government’s vacant piece of land, large enough for ability to launch national projects for § development. Others worry about advance the broad rules that will apply a repeat of the People’s Republic of there; a commitment to choice, backed China’s humiliation in the early 20th by voluntary entry and free exit for all century when many big cities, top residents; and the equal application of among them Shanghai, ceded areas to all rules to all residents. foreign powers as charter zones. He also seeks to embody in the charter Chris Blattman, an assistant cities the very best business practices of professor of political science and a global economy—from rules of law economics at Yale University, warns and transparency, to equality for all against the potential costs involved. residents—capping these with trade- “A trial-and-error process would, without doubt, produce dozens of cost to the host country as long as land successful charter cities around the can be successfully leased out, not sold, world. But the error and trial could to private operators—exactly like in have a very heavy human cost.” Hong Kong, China. At least two developing countries SHOWCASE CITY Factory workers signed on to a tailored version of the CONTROVERSIAL PROPOSAL assemble electronic components in proposal. The charter cities concept has been ; Madagascar, eager to tap foreign

AFP attacked for being neocolonial, as it transformed into a showcase charter city. investment, was contemplating the

www.development.asia April–June 2012 Development Asia 45 ARTICLE

REGIONAL HUB Puerto Cortes is Honduras’s main sea port and Central America’s biggest port. The country wants to set up charter cities as part of its plan to establish free trade zones.

possibility of building two charter cities in January 2009, though plans were derailed by the ousting of then- President Marc Ravalomanana by the military. Honduras succeeded in amending its constitution in December 2011 to trip to Asia earlier the same year by ††%‹ Singapore and Incheon in the Republic of Korea. The government enlisted Romer’s help as it found his idea to be in close alignment with their own of foreign investment, and rampant plans to set up free trade zones. Efforts smuggling of foreign imports into the to establish Honduran charter cities PRC, fueled by the zone’s lower tariff. continue. “Although the central government had laid down the direction for the THE SHENZHEN EXAMPLE special economic zone, it was so For those acquainted with Asia’s vague that Shenzhen did not have a recent economic history, charter cities clear idea of what [it] was going to might sound familiar, especially in be, but they needed to do something. the People’s Republic of China (PRC), Initially, there was an investment boom where success in setting up special focusing on real estate and smuggling. economic zones has impressed not only The booming of the city drained the Romer, but also an endless parade of resources out of [the People’s Republic visitors paying tribute each year. of] China and they had to change Shenzhen is a showcase charter DEVELOPMENT STRATEGY Workers sort because it ran against the national }< vanilla beans in Madagascar, the world’s interest,” says Thomas M. H. Chan, village of 30,000 people, Shenzhen has largest producer of natural vanilla. The head of the China Business Centre, grown to become a vibrant metropolis country considered building charter Hong Kong Polytechnic University, of close to more than 13 million, all cities to attract foreign investment. who criticized Shenzhen’s failings in a within 3 decades of being put on a path famous article that prompted a rethink to as a special and intended as an economic buffer by Chinese policy makers. economic zone and laboratory to break “ Shenzhen resurrected itself as a the shackles of a decaying planned with nearby, more advanced Hong low-cost, low-tax industrial park in the economy and lure foreign investment. Kong, China; Macau, China; and mid-1980s to tap foreign investment, Shenzhen may have appeared like the Taipei,China. Not all of them were anchored by newly created, state- poster child of new cities, but its path successful. linked local companies such as Huawei to glory was strewn with high-stakes and ZTE, and fueled by a rush of politics, power struggles, trial and creation as a special economic zone relocation by Hong Kong, China and error, and plenty of failures. in 1981 on a site about one-tenth of Taipei,China companies escaping high Shenzhen was one of three special its current size, Shenzhen acted as prices at home. Thus began Shenzhen’s

economic zones that were created at a border trading area, but was held rollercoaster ride that continues to AFP the same time, close to major cities, back by real estate speculation, lack this day. More than anything, “the

46 Development Asia April–June 2012 www.development.asia biggest advantage of Shenzhen is its other markets. Special economic zones convenient location at the junction used cheap labor which is no longer of [the People’s Republic of] China’s Hong Kong, China, possible in [the People’s Republic of] domestic and foreign markets,” says a tiny enclave of China. Without [Hong Kong, China’s] Zhong Jian, a professor at Shenzhen infrastructure and industrial relocation University’s School of Economics good governance from [Hong Kong, China], Shenzhen who specializes in the development of that grew faster than would not be able to build up its economic zones. its neighbors for export-oriented industries so easily. Chan thinks it’s not possible for other It’s not so much about the model, developing countries to duplicate the decades, is often cited but about how to solve the practical Shenzhen experience because of the as an example of the problems,” Chan adds. PRC’s dominance in the new global charter city concept Maybe a less costly approach is to trade order. “Nowadays, because of start with what International‘s the ‘China factor,’ there’s not much Duncan Green calls “charter villages.” room for expansion of other countries 89 high-tech parks, 13 bonded zones, “The approach has some success to export. The rules of the game have 16 border trade cooperative zones, 65 like in some special economic zones changed, not just because of [the export processing zones, 10 special in [the People’s Republic of] China,” People’s Republic of] China’s low logistics parks, 13 bonded ports, and 18 says Green, head of research at the prices, but because [it] has developed comprehensive preferential tax zones. ‚ The PRC’s strategy has been to develop development charity. “You create a infrastructure. It’s almost impossible for separate pockets of special zones and little experiment; if it works, then you other countries to compete,” he says. connect the surviving dots to form a scale it up; if it doesn’t work, you ditch strategic line and even a geographical it. If you come up with one big idea, STRUGGLING WITH THE block, according to Zhong. like charter cities, it could turn into CHINESE APPROACH Other than the PRC approach, a complete disaster. If you do small India, for one, tried to set up PRC- what else can developing countries experiments, then you would be more styled economic zones and failed. do to create charter-city-like zones as like venture capitalists. If one of them Back in 2005, the government proposed by Romer? Chan suggests succeeds, it will help pay the bills. passed the Special Economic Zones governments must be prepared You can experiment, but I think you Act to attract foreign investment, for the high costs associated with should have small experiments, rather generate export revenues, and create infrastructure building, from ports, than big plans. Small is better than manufacturing jobs. The plan went highways, and railways, to utilities. big. You have to be able to fail without They should also curtail their global destroying the system.” in acquiring land to set up the zones ambitions and focus on the domestic The Government of the PRC amid outcry that the policy would or regional market, and take the apparently thinks it is possible to create increase manufacturing employment time to cultivate various institutions offshore satellites of its special zones and investment at the expense of the overseeing the city. on a miniature scale. It has stepped livelihoods of millions of farmers, “You cannot guarantee to have outside its borders to spread the word who were the landowners. There were the market. You cannot guarantee and underwrite the establishment of also suspicions about government everything will go according to your special economic zones in various involvement in land transactions wishes. And there are institutions that African countries and Viet Nam. between private landowners and go beyond the control of capital. All But others remain skeptical. Ha- private developers. these institutions will not be recreated joon Chang, a development economics Š†} easily. In [Hong Kong, China] they professor at the University of creating another zone as big and have evolved over a long time,” Chan Cambridge observes, “It is one thing successful as Shenzhen. Still, there’s advises. for a country that is already well run no doubt as to its catalytic effect “The investment will be very to create experimental pockets run in stimulating a cocktail of wider expensive. The idea of building a by a foreign body (although even economic reforms across the country. city in a remote area is more like a that I doubt), but it is quite another A mishmash of copycat zones has plantation economy model in the early for a poorly run country to leave it to sprouted up since the mid-1980s, each stage of colonialism, in America and outsiders to run the most important meeting its own destiny, including Southeast Asia, using slave labor for places.”  www.development.asia April–June 2012 Development Asia 47 PROFILES IN DEVELOPMENT

herdchai Jivacate is best known for the prosthetic legs he’s made for two elephant landmine victims, Motala and TMocha, who were injured while working in Myanmar (though less so for the dog, ’ People in Malaysia know him for bringing them a vastly cheaper alternative leg. And Burundi, Senegal, and Aceh in Indonesia know him for the workshops he and his technicians set up in those countries to make a lighter who are poor can afford and use more easily and comfortably so that “their lives are better,”says the soft-spoken 71-year-old orthopedic specialist. Jivacate has also created a leg that lets farmers march through mud, run barefoot in their homes without losing their balance, and pray bent legged in a Buddhist temple. “I want amputees to walk normal and A Leg Up to have a leg that looks normal,” he says, In his native Thailand, there are some A doctor in Thailand has spent decades innovating prosthetic 30,000 leg amputees, now due mostly limbs specially designed for the poor to motorcycle accidents and infections, says Jivacate. War-affected countries, BY Karen Emmons such as Senegal, likely have many times that number. When he explained this method to The Princess Mother’s patronage Jivacate became well known in the Princess Mother of Thailand, who enabled Jivacate to create a mobile unit Thailand in 1991 after the Bangkok Post read about him in the newspaper, P headlined his creation of the “world’s and told her that he made the legs QO QO€VV often with his own funds, she offered remote areas and those that couldn’t ‘Y\F’O to cover his expenses. She and her afford to travel far. With donations down soda can tabs and acetone-melted daughter set up the Prostheses and volunteers, he now makes about Yakult fermented milk bottles his Foundation of HRH The Princess ' assistants collected from garbage bins. Mother, and ever since, any amputee spending a week in an area. He has After a Japanese television crew who is poor, regardless of nationality since set up small workshops in each picked up the story of how their or religion, receives a leg for free each province so that legs can more easily be country’s Yakult brand was being time a new one is needed. A child replaced. BANGKOK POST/YINGYONG UN-ANONGRAK recycled, he became a hit in Japan and will need about 25–30 prosthetic legs The Prostheses Foundation has received donations that he used to in a lifetime, while an adult amputee also trained most of the prosthetic make legs for the poor. will need up to 20 replacements, technicians working in public The existing prosthetic used by many Jivacate notes. hospitals, although some hospitals poor people in Thailand could be used At the King of Thailand’s suggestion, still use leg models made of imported ¡O Jivacate preferred the Yakult bottle O His mobile units have also worked in because it was cheaper and easier to the Lao People’s Democratic Republic, maintain. and then polypropylene. Malaysia, and Myanmar.

48 Development Asia April–June 2012 www.development.asia ‘FARMER’S FOOT’ Gone were the days of plaster Jivacate soon discovered that farmers and gypsum, replaced by a bag that treated the leg like a pair of festival resembles a cake decorating fabric tube pants they used only for special that uses vacuum-packed technology occasions for fear that working with it to make a negative mold with sand in would break it. “It was too fancy, bulky, about 15 minutes. A leg can be made and heavy for farmers wearing [it] on within a day from the mold, saving the farm or wading in water,” he recalls. poor people time and great expense. So Jivacate removed the foam The sand, which goes rock hard when cosmetic outer layer, strengthened the the air is sucked out, falls apart once the metal shank, and reduced the foot to a air is returned and can easily be reused. club shape, creating a kind of “medium- The negative mold, which perfectly tech” peg leg. He also replaced the resembles the stump, helps create the wooden keel inside the conventional ()! believes the system works even better with nylon and designed it into a than the more high-tech computer- C-shape, which gives the foot a human- generated models. like spring to push the leg forward and This is the technology Jivacate provide balance. installed in the workshops in Thailand; “The ‘farmer’s foot’ is the only one, then in Burundi in 2010; a few months I can say, in the world,” Jivacate almost ago in Senegal; and in Aceh, where a workshop installed in 2009 was RISKY RIDE There are some 30,000 updated. Jivacate can set up a workshop leg amputees in Thailand because of for around $30,000–$50,000 and annual Of the 56 staff motorcycle accidents and infections. costs can require only about $15,000, he members the estimates. He supplies at cost price the foundation employs, socket and the polyethylene foam liner infrared oven for baking the plastic legs higher up on a knee to create what he and foam liners, vacuum machines, and 14 are technicians with calls the Supra Condyle Suspension utensils that he and his technicians have prosthetic legs and 8 of model, a person can insert their stump designed and provides the materials for them are amputees at an angle, twist it forward, and start the legs, which are made in a chocolate- walking, as a technician demonstrates brown color for Africa, also at cost. in the Prostheses Foundation’s Although the Prostheses Foundation whispers, as if telling a secret. The workshop. Of the 56 staff members the provides the hard-to-replicate practice same technique and “C” shape is also foundation employs, 14 are technicians of giving free legs to every poor used in the cosmetic foot, which helps with prosthetic legs and 8 of them are amputee, the cosmetic leg costs about save energy when walking with an amputees. $160 to make, while the farmer’s leg can be fabricated for about half the price. REDUCING COSTS Jivacate retired 12 years ago from the wearing inside shoes, and thus are Through constant tinkering and prosthetic workshop he created at the unable to maintain balance when rethinking of their models, Jivacate northern Chiang Mai University Medical unfettered. Farmers, he adds, are given and his technicians have made a series Center during his residency when he two legs, the 1.2-kilogram farmer’s of improvements and inventions. In was only 27. He maintains his decades- version to wear for work and the 1995 they created a leg for above-the- old private practice and still lectures at 1.5-kilogram cosmetic one. knee amputations. In 2006 they made a the university about his prosthetics, but ! polycentric knee joint from aluminum much of his time is spent helping spread of which were held onto a leg stump that can make multiple movements, the use of his techniques. “My aim is with a leather strap, was sturdy but not including bending in a temple. And in !"(! "#"$ %&&'" leg,” he says. His next dream locations more convenient and cheaper after technique for quickly making the mold for building a workshop are Bhutan, Jivacate and his technicians removed of a leg stump, which is necessary to Myanmar, and Papua New Guinea,  HEMIS.FR the strap. By extending the brim of the where he knows the need is immense.

www.development.asia April–June 2012 Development Asia 49 RECONNAISANCE

Soap Operas for Social Change Serial dramas broadcast on radio or television can be an effective way of promoting social change at the grassroots level BY Margo Pfeiff

n a coastal Papua New Guinea But the programs are not selling soap. president of Communications and (PNG) village, Tomaru, a Instead, they deliver a broad spectrum Programs for the United States-based widower with two children, of positive social change through Population Media Center, a nonprofit (" educational entertainment. nongovernment organization that Iincrease his catches and make more During 208 episodes airing over produced Nau Em Taim and other "(! 2 years, each series features three serials in 17 countries throughout his children with an education. Then separate storylines of characters Africa, Asia, and Latin America. he meets a beautiful marine biologist, confronting issues from poverty, Using entertainment to educate is as Oini, doing research on coral reefs. violence, family planning, gender old as parables and fables, but it wasn’t They fall in love. But Oini promotes inequality, education, land ownership, until the 1970s that solid research $( and ecology to alcohol and drug on their impact was measured. In aghast when she learns that one of addiction, sexual behavior, malaria, 1977–1978, an early pro-development (( :>?:@O" soap opera, Acompaname (“Accompany is Tomaru. As the radio drama Nau making the right choices. “New Me”) was broadcast in Mexico to em Taim (“Now is the Time”) unfolds, Guinea is extremely mountainous with promote family planning. The creator, the widower struggles, weighing his few roads, a high level of poverty, Miguel Sabido, was vice-president love for Oini with the quest to help his and television ownership of less for research at a Mexican television children with fast cash and the fear than 10%, yet the two programs are station. He adapted the popular Latin of introducing his son to dangerous reaching into the homes of almost American telenovela (“television novel”) ":O half of New Guinea’s population of format of creating strong emotional O$ 6.7 million,” says Katie Elmore, vice- bonds between characters and viewers (!" reefs, a resource for the future. Every Tuesday and Thursday at 8:30 p.m. since February 2011 almost 3 million residents across PNG have tuned their radios to FM 100 to follow the trials, tribulations, and revelations of Tomaru and others in the local Pidgin dialect program; English speakers hear a similar series, Echoes of Change. Both are classic soap operas with a full roster of plot twists and cliff-hangers that have listeners anxiously awaiting the next episode.

TIME TO CHANGE In Papua New Guinea,

a radio drama promoting sustainable HEMIS .FR

50 Development Asia April–June 2012 www.development.asia STAY TUNED United States-based Population Media Center uses

over a lengthy period of time during which a dramatic and unpredictable plotline encourages viewers to continue tuning in. By 1986 Sabido had produced six social content serial dramas. During that time the number of family planning adopters soared, contraceptive sales skyrocketed and the country experienced a 34% decline in population growth. As a result, Mexico was awarded the 1986 United writers not only to create the long the popular culture in Hindi-speaking Nations Population Prize as the world’s format dramas, but also to direct northern India. Before the drama was foremost population success story. and produce them. That’s not just to aired, thousands of letters were mailed Sabido had created a step-by-step provide jobs and skills to carry on to future listeners inviting them to methodology of “entertainment with additional series, but also because send in their comments and queries. with proven social benefit” to reach locals best understand the subtle The radio station received 150,000 and change the behavior of large nuances of their culture, the issues, letters and answered them during numbers of people. The widely used taboos, and changes needed. radio discussion programs. Among template creates classic storylines like them was a two-by-three-foot “letter” boy-meets-girl and rags-to-riches, OW$(O$" carefully formulated to deliver 70% 184 residents of Lutsaan Village in entertainment with 30% educational Introducing Uttar Pradesh. It stated: “Listening messages woven into the script. television into to Tinka Tinka Sukh has benefited Multiple storylines such as urban, all listeners of our village, especially semi-urban, and rural scenarios unfold rural India exposed the women....” They formed a village at the same time to engage a wider women to a glimpse group, ended dowry-giving, and V"O of urban life where started a school. characters might begin with negative More than 200 health intervention values, but interactions with others women—generally educational entertainment programs and plot twists compel them to realize well-educated with have been used since the 1980s in the value of positive social behavior. few children—work 50 African, Asian, and Latin American It’s hardly surprising that carefully countries, primarily for reproductive crafted and focused programs can outside the home, health issues, such as HIV/AIDS instigate change: simply introducing run businesses, and awareness, family planning, teenage television into rural India exposed control their money pregnancy, environmental health, and women to a glimpse of urban life gender equality. Soaps are not only WWO"WX effective, they are also cheap, costing WWOW They can also regionally tailor as little as $.03 per rural Asian listener. outside the home, run businesses, and content: for a highly popular 20-minute With higher island costs in remote control their money. The consequent educational radio drama broadcast PNG, the price tag for an average drop in fertility of rural Indian women twice weekly for a year in India in (`{|}~&O$ exposed to TV was equivalent to 1996–1997 called Tinka Tinka Sukh each listener can still be reached for the increasing the length of time girls stay (“Happiness Lies in Small Things”), a 2-year duration of the series for less in school by 5 years! Bollywood singer was commissioned than $1. The project is administered To produce the serials, the to compose catchy tunes for this highly by the PMC and funded by the United

BILDERBERG Population Media Center trains local musical series designed to appeal to Nations, the David and Lucile Packard

www.development.asia April–June 2012 Development Asia 51 RECONNAISANCE

Foundation, Population Services Viet Nam has taken strongly to broadcasting a second serial, Hanh International (with a grant from Asian educational entertainment radio Trinh Zanh (“Green Journey”), focusing Development Bank), AusAID, the dramas. At the invitation of the United on and environmental Flora L. Thornton Foundation, and Nations Population Fund in Viet practices in four regions of the country Colgate-Palmolive. Nam, a 104-episode radio drama, Khat from river deltas to mountains. While “One powerful aspect of dramas Vong Song (“The Desire of Life”), was the varied characters of Hanh Trinh is that listeners relate to the radio created to address issues relating to Zanh are tested through dramas of characters and they discuss and reproductive health and HIV/AIDS, love, friendship, and family ties, gossip about the complex situations including improving the status of they struggle with accepting new in which they find themselves,” says women, delaying the age of marriage, sustainable farming methods and Katie Elmore, “and that provides a and valuing male and female children drought resistant crops, are deterred comfortable environment for them to equally. It debuted in March 2008 in from illegal tree cutting, and learn how tackle issues and personal experiences all 64 provinces on Voice of to survive in an economy increasingly they might normally not talk about Radio and is streamed online. An dependent on natural resources. with others.” That was the case in the interactive website allows listeners Radio may be low-tech and old- devoutly Catholic Philippines where to find more information about the fashioned technology, but it is proving the 120-episode Sa Pagsikat Ng Araw program’s issues, post their comments, to be an ideal information delivery (“The Hope After the Dawn”) radio and download episodes. method for social change, even in serial drama addressed delicate While most radio series focus a hyper-wired world. “Reaching so subjects like family planning, HIV/ on age-old concerns, they are also many people in remote areas at such a AIDS prevention, and spousal abuse being used to address new issues. low cost,” says Katie Elmore, “would in 2005. In July 2011 Voice of Vietnam began otherwise be impossible.”  PICTURE CREDIT

52 Development Asia April–June 2012 www.development.asia ON THE RECORD

“The fact that policies often fail for no good reason is annoying, but less depressing than the view that it is a big conspiracy against the poor. Name your favorite enemy—capitalism, corruption... Our view is easier. You think hard about the problems and you can solve them.”

Esther Duflo, Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics at the Massachusetts Institute of Technology and coauthor of the book Poor Economics with Abhijit Banerjee, in an interview with the Financial Times in March 2012

“In our quest for growth “At present, Europe’s debt problem poses the biggest risk and development I for the global economy, including think we have lost Japan’s. If the situation worsens the balance between further, it may trigger a global ” development on one credit crunch side and environment Bank of Japan Governor Masaaki Shirakawa at a news conference in January 2012 on the other ... If we have the political will, can Asia embrace sustainability? I say yes. “There’s this theory that you would do so? I confess that I do not know.” have to pick one: economics or

Tommy Koh, ambassador-at-large environmental performance. of Singapore, speaking at the Asian Development Bank’s Eminent Persons’ Forum in February 2012 That’s nonsense. Innovation is the way you can have both.”

Mark Vachon, vice-president of GE’s Ecomagination program, in a video interview at the biennial Investor Summit on Climate Risk at the United Nations in January 2012

“Removing barriers women and making small weapon in this battle.”

World Bank Managing Director Sri Mulyani

AFP, SINGAPORE PRESS HOLDINGS (PHOTO OF TOMMY KOH) OF TOMMY SINGAPORE PRESS HOLDINGS (PHOTO AFP, Indrawati

www.development.asia April–June 2012 Development Asia 53 Solving the poverty puzzle Good Governance. Strong partnerships. Investment in infrastructure, education, and the basic necessities of life. Th ese are the keys to solving the poverty puzzle and giving billions of Asia’s children hope for a brighter future. From 2–5 May, delegates from 67 member countries will gather in Manila, Philippines for ADB’s 45th Annual Meeting to discuss development in Asia and the Pacifi c. Find out more at www.adb.org

www.adb.org