Q: The Dutch economy is experiencing a modest recovery but is still underperforming. How is this affecting trade and investment?
A: I would say that our recovery is mainly due to trade and investment. Trade is by far the largest source of growth in the Netherlands. Indeed, in 2012 and 2013 it was the only source of growth. Right now, we’re seeing a pattern that is typical of the Dutch economy: exports recover first, followed by corporate investment and, finally, domestic consumption.
Throughout the crisis, the Netherlands has seen continuously strong and even increasing greenfield investment inflows, especially from Asia and North America. This underscores foreign investors’ confidence in the Dutch business climate. At the same time we need to beware of complacency: competition is fierce. We need to constantly search for new business models and new markets.
I recently commissioned a study on the new paradigm of global value chains. This concept offers a whole new way of looking at international trade and investment flows, focusing on the fact that production chains have become more fragmented as transaction costs have fallen. This means huge business opportunities for SMEs, as they can participate more easily in the global economy, offering their specialised expertise to one particular element of a larger, fragmented production chain. So we need to make sure that they are able to seize these opportunities, by further lowering trade barriers and by improving the climate for entrepreneurship in developing countries.
This is what my combined mandate for aid and trade is all about: successful aid eliminates barriers to trade and investment and creates opportunities for vulnerable groups in society to participate. In the end, both developing countries and Dutch businesses benefit.
Q: An investment fund of €700m was created for financing SMEs in developing countries. What is the rationale behind it, and what has been the impact so far?
A: SMEs are crucial for economic growth and development: they are the ones who innovate and create jobs. Giving SMEs the opportunity to grow and invest will lead to higher employment and strengthen the economic structure in developing countries through the transfer of knowledge, skills and technologies. But this requires sufficient access to finance, a major stumbling block for SMEs around the globe.
The World Bank has estimated that there are about 40 million SMEs in low- and middle-income countries with unmet financial needs of more than $800bn. Local businesses are often refused loans by banks in their own countries, and foreign banks are often not yet active there or are reluctant to invest because of perceived high risks. That is why we launched the Dutch Good Growth Fund in July: to offer access to finance for SMEs in developing countries with solid business cases, as well as Dutch SMEs seeking to do business with these countries. We have since received more than 100 applications. I expect that the fund will act as a lever, lifting a new wave of investments that will benefit both businesses and general wellbeing, fostering sustainable, inclusive growth.
Q: Since your appointment you have reportedly created a shift in Dutch development policy ‘from aid to trade’ as the engine of sustainable development? Why? Where does FDI fit into the paradigm?
A: To my mind, combining aid and trade within a single mandate is an obvious choice, given the current global economic order. The world’s centre of economic gravity has shifted dramatically over the past few decades. Many developing economies have become important actors in international finance, trade, investment, innovation and development. They are no longer dependent on aid and are looking to engage in trade. Moreover, economic development – spurred by increased access to international markets – has been the driving force behind the halving of extreme poverty over the past 30 years. So aid and trade are very much linked: by explicitly combining them, we help developing countries create the right conditions for inclusive growth, which in the end also benefits our own economy.
FDI plays a very important role in this paradigm. Foreign investors can give developing countries access to knowledge, technology and a network of foreign markets. This allows them to become part of global value chains and to use that as a path to development. To some extent, we can already see this happening: FDI flows to developing countries have increased enormously, and in 2013 they represented more than half of global FDI flows.
However, FDI does not automatically lead to sustainable and inclusive growth. Both governments and investors have a responsibility here. Creating sound business climates is key. Much work still needs to be done by governments of developing countries in terms of transparency, legal certainty, infrastructure, access to finance, anti-corruption measures, and so on. This is not new, but it is a point that is too often forgotten. For instance, in too many countries, solid and fair land ownership arrangements for women are still far from universal.
On the other hand, investors should take responsibility for making sure their investments have a positive impact on the recipient country. Building the shortest possible road, using your own firms and your own people to transport raw materials as efficiently as possible does a disservice to the host country and, I am convinced, will eventually result in setbacks. Build the road in collaboration with the local population and make sure as many people as possible benefit from it. Create jobs and as much spin-off as possible. The material and moral dividends will be huge.
Q: What are the biggest challenges in the international development landscape today and what role can the Netherlands play in addressing them?
A: The deadline for the UN Millennium Development Goals is approaching rapidly. We have made substantial progress, but much still needs to be done. Negotiations on a new long-term development strategy have been ongoing for a while. The list of goals currently on the table is a good basis for further debate. It rightly focuses on helping developing countries transition to sustainable and inclusive growth. But to make this happen, it is essential that all of us in the international community act to respond to the major global challenges facing us in terms of peace and stability, access to food and water, environmental degradation and climate change. This will not be an easy task.
The issue of financing the new development agenda is another immediate challenge. Here too, we must recognise the new reality of a more diverse development landscape. The private sector has come to play a much more prominent role; many countries that were until quite recently considered ‘less developed’ have come to the fore: their economic, organisational and technological capacity has greatly increased. The demise of the North-South divide opens the way for co-operation on a much more equal footing than ever before. Our aid and trade agenda fits very well into this new reality. I strongly believe that a good mix of domestic resource mobilisation, private investment and contributions from aid donors is the model for the future.
Co-ordination is key, however. Here I see a clear role for the Global Partnership for Effective Development Co-operation, of which I am co-chair, together with my counterparts from Malawi and Mexico. This forum brings together all actors in the development community, from philanthropists to private companies, in order to better co-ordinate our efforts and funding. This is absolutely necessary, given the challenges the world faces in the next few decades. We need to work together, and we can. This is the good news: the opportunities and capacity for international co-operation in the field of sustainable development have never been greater than they are now.