Islamic Development Bank Group DRAFT GUIDING NOTE ON REVERSE LINKAGES

Transcription

1 Islamic Development Bank Group DRAFT GUIDING NOTE ON REVERSE LINKAGES I. BACKGROUND Transitioning from South-South Cooperation to Reverse Linkages in the IDB Group 1. The IDB is the only Multilateral Development Bank (MDB) whose membership is drawn entirely from the developing south. Since its establishment in 1975, the IDB has distinguished itself greatly in the way it has fostered social and economic development in its member countries (MCs). While the traditional role of all MDBs has been project as well as program-based lending, the IDB has all along championed a south-south development approach (in addition to project and trade financing). This was well before the international community embraced the south-south cooperation concept and trade facilitation as viable developmental and regional integration tools. The Articles of Agreement of the IDB clearly affirm the Bank s modus operandi wherein it is stated that the Bank would strive to ensure its member countries achieve a harmonious and balanced development through mutual financial and economic cooperation amongst themselves. The Articles further state that the IDB would be a development, investment and welfare-oriented institution, based on Islamic principles and ideas, and a practical expression of the unity and solidarity of the Muslim Ummah. 2. Indeed, the IDB Group has been promoting cooperation and integration among its member countries (MCs) through a variety of programmes and operations. For instance, the IDB has been financing trade operations since 1977 (shortly after the Bank s inception) as one way of achieving the objective of regional cooperation and integration. It has also launched several flagship programs aimed at enhancing member country-tomember country (MC-to-MC) partnering arrangements such as the Technical Cooperation Program (TCP), Trade Cooperation and Promotion Program (TCPP), Investment Promotion Technical Assistance Program (ITAP), Capacity Building Program for OIC Countries, Alliance to Fight Avoidable Blindness Program, Bilingual Education Program, Science & Technology Programs, Vaccine Production etc. The experience gained in the implementation of these programs has provided an avenue for the Bank to mainstream and scale-up successful stories and best practices through the newly introduced concept of Reverse Linkages (RLs). 3. Thus, Reverse Linkages are a revamped and enhanced MC-to-MC cooperation activities that are now being embodied in the IDB Group s regular operations and annual 1

2 work programs. It is an innovation that the IDB Group has introduced in its Member Country Partnership Strategy (MCPS) initiative to take such cooperation activities to the higher levels. Initially, the MCPS for Turkey provided the starting point for Reverse Linkages, when the Government of Turkey expressed the desire to share its diverse expertise with other MCs in a mutual beneficial way. Consequently, all the MCPSs have incorporated Reverse Linkages as one of their core engagement areas by the IDB Group. These activities are identified and captured in more consistent and comprehensive manner during the MCPS preparation process, and subsequently programmed in the three to five year business plans, for which they can be monitored and measured. 4. What is the MCPS? The MCPS, introduced and adopted in early 2010, is a tool that guides the operations of the IDB Group in the MCs. It is a well-grounded strategy document that clearly identifies niche areas for the IDB Group interventions over 3 to 5 years period. Chief among the implementation modalities for the MCPS are the Reverse Linkages. II. OBJECTIVES OF THIS GUIDING NOTE 5. This Guiding Note provides a framework (template) and standard definition to which all the IDB Group entities can relate their activities to. It is indented to help staff within the IDB Group conceptualize, identify and implement RL activities with relative ease. The Note has been formulated with the following objectives: Establishing a common understanding of the conceptual framework of RLs within the IDB Group. Proposing the modus operandi for RLs, with the view to actually implement them on the ground. Shedding light on the crucial roles to be played by member countries and the IDB Group when implementing RLs. Synergizing the on-going but fragmented operations and programmes, which fulfil the criteria for being classified under the RLs umbrella. Enhancing the alignment of operations between the IDB Group and the member countries to further strengthen cooperation amongst them. 6. The Note is divided into five Sections including the Background. Section II attests to the fact that MC-to-MC cooperation, which is the bedrock of the RL concept, is not something new in the IDB Group. Since its inception, the Group has promoted cooperation among its MCs as a matter of routine. If anything, the IDB Group has been a pioneer in forging south-south cooperation activities. Section III is perhaps the most important part of the Guiding Note as it strives to articulate the RL framework. The RLs in the context of the MCPS are a key factor of development. They would enhance capacity development, strengthen twinning arrangements, facilitate cross-border investments, promote regional cooperation, leverage resources and other shared endeavors. All these are expected to contribute to speeding up the development process of MCs, while at the same time achieving the IDB 1440H Vision objectives. The Section also highlights the potential 2

3 benefits that may accrue to: (a) Pivotal countries; (b) Recipient countries; and (c) the IDB Group as a facilitator. 7. How will the RL activities be formulated, implemented and financed? This is the subject of Section IV. As with regular operations, the processing and implementation follow-up of RL activities will be undertaken by Sector Departments or specialized business units within the IDB Group. It is proposed to have a dedicated unit within the IDB Group that will coordinate and process all Reverse Linkage operations. The IDB Regional and Gateway Offices will serve as nerve centers for the identification of Reverse Linkage needs and opportunities in their respective constituencies. With regard to funding modalities, all available financing modes would be utilized (TA Grant, Concessionary Loan, Ordinary Financing); while some RL activities will be facilitated by the IDB Group on a non-monetary basis. Section V discusses about budgetary, coordination and procurement issues. Because of the nature of RL activities, speed and flexibility will be required in applying the current procurement guidelines. The concluding Section VI revisits the objectives of the Guiding Note and briefly sets the agenda for the future. III. FRAMEWORK DESCRIPTION Definition of Reverse Linkages 8. Reverse Linkages are specific cooperation activities whereby MCs themselves are primary, forefront, and direct agents in the provision of specific expertise, knowledge, know-how, investments, success stories, best practices and other specialist services to address specific development constraints or exploit unique opportunities in other MCs in a mutually beneficial arrangement (win-win situation), facilitated through a strategic alignment and enabled by the IDB Group. Uniqueness of Reverse Linkages 9. There are three features that make RLs unique. First, the prime players are the member countries themselves, with the IDB serving actively in an advocating and catalytic role. IDB Group member countries are the direct agents on both ends of the development activities. Again, the underlying philosophy behind RLs is the IDB Charter, whose governing principles are based on mutuality, unity and solidarity. Second, RLs through the MCPS, where IDB Group would play proactive role in enabling strategic alignment, would further deepen, expand and embody the Group s traditional south-south (or MCto-MC) cooperation activities in its regular operations. And third, the IDB Group would be able to measure and evaluate the impact of RL activities as it does for its ordinary projects and programs. 10. An additional unique feature of the RLs is that the IDB Group will include potential RL opportunities within the MCPS process as a strategic pillar. Accordingly, a results-based matrix would be developed to set the KPIs and track the development outcomes and impact of RL activities. 3

4 11. It may also be emphasized here that the IDB Group regards RLs as prime factors for fast-tracking development and for promoting inter-country cooperation and partnership. This stems from the recognition that all the MCs irrespective of their development status (including the least developed ones such as Bangladesh or Uganda) have expertise in one or more fields that can be tapped by others MCs. This recognition further concretizes the ideas of unity and solidarity embedded in the IDB s charter. Objectives of Reverse Linkages 12. Reverse Linkages are many and varied, and therefore serve different purposes. Capacity development, through human and institutional strengthening, is one example. Exchanging country experiences and success stories is another. Investment facilitation, cross-border investments, twinning arrangements, technology transfer etc. are other examples. Globally, RLs are aimed at the following: i. Enhancing both economic and social bilateral relationship between MCs through the institutionalization of mutually-beneficial partnerships and sharing each other s successful experiences; ii. iii. iv. Promoting the transfer of knowledge and the know-how amongst MCs, which enhance MCs development process; Contributing to the deepening of the regional cooperation and integration through enhancing intra-oic trade and business activities; Supporting the advancement of solidarity between the MCs; and v. Contributing to the achievement of the IDB 1440H Vision and the internationallyaccepted Millennium Development Goals (MDGs). 13. Figure-1 below illustrates the conceptual framework of the RL initiative. At the centre of this framework is the provider country that is willing to share its expertise with other IDB member countries. This sharing is eventually made possible by the facilitation role of the IDB Group, resulting in far-reaching benefits accruing both to the provider and recipient countries. Figure-1: Reverse Linkages 4

5 Rationale for the IDB Group to Proactively Promote Reverse Linkages 14. The renewed vigour and interest within the IDB Group and amongst MCs to replicate, disseminate and scale-up reverse linkages has been prompted by two main factors namely; (i) the substantial support and interest of several Governments such as Turkey, Indonesia, Pakistan, and Malaysia that have been exposed to this concept as part of the MCPS process; and (ii) the successes of past south-south (or MC-to-MC) support initiatives. Besides the successful experiences in the past, RLs are also underpinned by several other factors, chief among which are the following: Alignment with the IDB 1440H Vision: The concept of RLs is directly relevant to the IDB Group s 1440H Vision of Comprehensive Human Development and to the Strategic Thrust 8 titled Facilitate integration of IDB member country economies among themselves and with the world. Speeding up the development process: The outcome of the IDB s recent reform agenda has underscored the need for the Bank Group to increase and sustain its enabling role so that MC-to-MC cooperation programs can be utilized effectively to speed up the development process of MCs. This, in turn, has called for a more coordinated approach at the IDB Group level for the delivery of these support programs. Hence, this Guiding Note strives to articulate a unified Group wide delivery strategy for reverse linkage activities. Enhancing synergy & coordination: Under the MCPS, RLs are implemented in a coordinated and comprehensive manner within a strategic alignment unlike in the past where they were largely provided on ad-hoc and fragmented basis. This is the valueadded feature of RLs under the MCPS. They are being packaged and documented in such a manner that their milestones, deliverables and outcomes can be measured and evaluated as in case of ordinary development projects. Leveraging resources: In comparison with other MDBs, the IDB has limited resources, especially concessionary funds. RLs, in which MCs leverage their accumulated knowledge, adapted / proven technologies, experience and capabilities for mutual benefit; are intended to augment the Bank s modest financing quantum and at the same time help countries achieve their development targets and goals more quickly. Creating and consolidating mutuality: The crucial feature of RLs is that all the vested parties derive benefits in various ways so that a win-win situation emerges as an outcome. 15. Some of the benefits/wins which would give firm incentives for the IDB Group and MCs to be willing to participate in the RLs can be summarized as follows: 5

6 A. Wins for the Pivotal Country (Provider) Increasing cooperation: Enhancement of solidarity with other MCs and hence having a chance to increase inter-country partnerships. This is one prominent feature of RLs for the pivotal countries. Visibility: Through cooperation with other MCs, the pivotal countries will have the opportunity to increase their visibility as emerging donors. Business opportunities: Market proximity, similarity in products and processes and business cultures would offer investors from the pivotal countries greater opportunities for increasing trade, market access and joint ventures with other IDB MCs. Capacity development: Through the involvement of a facilitator (i.e. the IDB), the pivotal countries will be qualifying for support from the Bank in getting the knowhow and developing their technical capacity for international cooperation. Fostering regional integration: RLs would boost the strength of regional integration, especially when the provider and recipient countries have geographical proximity or belong to the same regional economic or trading bloc. B. Wins for the Recipient Country Cost effectiveness: Many beneficiary countries are desirous of getting expertise in various domains at a low-cost. For instance, project costs would be greatly reduced by contracting experts from MCs instead of expensive experts from developed countries. Tested technology: Beneficiary countries will have the unique chance for the acquisition of tested and adapted technology from other MCs without the need for re-inventing the wheel. Fast-tracking: The social and economic development of MCs will be expedited through the transfer of knowledge and expertise available in one MC to other MCs. Benefits of similarities: Similar social/cultural situation and use of the same language could be made utmost use for effective cooperation between MCs. In this regard, more appropriate solutions to developmental problems can be offered by the emerging and more able MCs of the IDB to the less advanced countries. Tangible outputs: Possible provision of facilities and equipment by pivotal MCs are additional benefits to be derived from cooperation under the RLs. IDB s role and sustainability issues: Having the IDB as an intermediary to facilitate information sharing and partnering with pivotal countries ensures smooth and sustained implementation of Reverse Linkage operations. Regional integration: RLs would boost the strength of regional integration, especially for neighbouring MCs. 6

7 C. Wins for the IDB as the Enabler Achievement of its core mandate: RLs are in perfect alignment with the Articles of Agreement of the IDB, which aspire to promote mutual cooperation among the Muslim states in the economic, financial, social and other fields of activities in order to achieve a harmonious and balanced development. Increase in development effectiveness / impact: The IDB Group will have the opportunity to: (i) fast-track the development process in its MCs through the transfer of successful development experiences amongst them; (ii) reduce administrative and other costs by contracting experts from its emerging MCs; and (iii) complement and increase the impact of its development assistance. Collective growth of MCs: Because of the win-win feature of RLs, the IDB Group s facilitation and advisory role in this regard will boost development in MCs simultaneously, hence leading to collective economic and social advancements. Inception of new modalities: RLs will allow the IDB Group to introduce new operational instruments that will pave the way for regular exchanges of knowledge, skills, technology and services (with the monetary and non-monetary support of the IDB Group). Increased presence: The lending policy of the IDB does not discriminate any member country from accessing its financing. That is, all MCs are eligible for IDB financing. However, there are a few countries that do not require regular financing from the IDB but the Bank is duty bound to maintain its presence and relevance in these countries regardless. In such cases, RLs would help sustain the relationship between such countries and the IDB Group. Enhanced visibility: Playing the enabling role in RLs between MCs will greatly enhance the visibility of the IDB Group. 16. In summary, RLs will: (a) deepen and mainstream the traditional south-south (or MC-to-MC) cooperation activities into the IDB Group s regular lending operations; (b) strengthen unity, cooperation and solidarity among MCs; (c) augment/ complement IDB Group s funding operations; and (d) help achieve faster development. IV. FORMULATION, IMPLEMENTATION AND FINANCING MODALITIES Formulation & Implementation of Reverse Linkage Operations 17. As stated in the introductory (background) part of this guiding note, the IDB Group has a demonstrable experience in nurturing and implementing south-south cooperation initiatives for the benefit of its MCs. In this regard, Reverse Linkage Operations (RLOs) for a country would be formulated by a designated business unit (with the support from other departments and entities in the Bank Group). During the formulation, a more active role in matchmaking would be played between the pivotal countries and beneficiary 7

8 countries for enhancing efficiency and availability of resources through (i) the MCPS preparation process; (ii) Policy Dialogue; or (iii) Three-Year Programming exercise for non-mcps countries. 18. Similarly, depending on the nature and type of RLOs; their implementation at the country level would be undertaken by the most suitable business unit in the IDB Group. In any case, Sector Departments within the Operations Complex would bear much of the implementation workload, with the remainder being borne by specialized program-based business units in the IDB Group entities such as ITAP, TCPP, STATCAP, ICD Advisory Services etc. 19. Figure-2 below illustrates the formulation and implementation of the RL Concept. It involves at least three parties: the provider (pivotal member country), the recipient (beneficiary country) and the enabler or intermediary (IDB Group). It is incumbent upon the participating parties to play some key roles in order to achieve the desired outcomes. Some of the major responsibilities for each party involved in RLOs are as listed below: A. Pivotal Countries Willingness to contribute to some of the costs (this may be in cash and/or in kind) Desire to share its positive development experiences, technical know-how, etc. in a particular field with other IDB MCs Having proven expertise in the field that it is willing to share B. Recipient Countries Being proactive in discerning their developmental needs and vocal in articulating them Commitment and ownership for long-term sustainability of RLOs Willingness to contribute to the cost (in cash and/or in kind) C. The Enabler The IDB Group The pre-requisite of success for identifying RL opportunities is to have a good understanding of both the comparative advantages of the pivotal countries as well as needs assessment of the beneficiary countries. Establishing a platform with the purpose of information sharing and matchmaking between pivotal and beneficiary countries (e.g. Annual Workshops / Conferences on RLs, ICT-based databases, utilizing established platforms such as the Organization of Islamic Cooperation & World Islamic Economic Forum etc.). Developing donor/pivotal countries capacity for development assistance Contributing financially to the RLOs, mainly in terms of grants Involving other development partners in the process (e.g. sister MDBs, Coordination Group, bilateral agencies etc.) 8

9 Figure-2: RLs Process Flow Modes of Financing 20. RLs are of different types and require different financing mechanisms. As an example, the IDB Group may play a match-making role by inter-connecting different MCs for attaining mutually beneficial opportunities such as mobile operators in one MC looking for licensing or other investment opportunities in other MCs. In this particular case, there would be no financing requirements. IDB s role would be purely a matchmaking affair. Another financing mechanism is whereby the IDB supports private sector of two MCs, in which a technical assistance grant may be provided for enhancing investment climate in one of them. On the other hand, projects derived from the RLs can also be financed by the IDB Group through loan and ordinary resources as per the normal operations. 21. Thus, RLs (individually or collectively as a program ) may be financed through all modes of financing offered by the IDB Group (e.g. TA grant, TA Loan, concessionary loan and ordinary financing). A simple example may illustrate how this may actually work in practice. Assuming that Sudan wishes to increase foreign direct investment (FDI) flows into the country with IDB s assistance as part of its MCPS strategic alignment, but requires establishing a sound legal framework in the first place. The IDB Group is also aware through one of its MCPSs that Turkey, another MC and a successful FDI recipient in the past, has in place a well-functioning regulatory framework and desires to deepen its visibility in Africa through RLs. The role of the IDB Group in this case would be to facilitate the transfer of expertise and knowledge from Turkey (pivotal country) to Sudan (recipient country). It can do so by providing a TA grant or TA loan to the Sudanese Government to acquire the expertise of a Turkish firm (at a cost subsidized by TIKA as part of a structured deal) to help in establishing an appropriate legal framework in Sudan that would attract and retain FDI. 9

10 22. Through this simple operation, FDI may eventually come not only from Turkey, but also from other IDB MCs or non-mcs since the appropriate legal framework is in place in Sudan. With regard to Turkish manufacturers that may be interested to invest in Sudan, the IDB Group may play another enabling role by providing financing to them (to expand their operations into Sudan and export to other African countries). The IDB Group, through its private sector arm, the ICD, may also offer a line of financing to a local bank in Sudan for downstream suppliers. Similarly, IRTI may provide the required Islamic finance training to these local banks and ICIEC may provide investment insurance to further ease the political risk of Turkish investments in Sudan; while the ITFC may provide trade financing to other MCs in Africa to purchase Turkish products manufactured in Sudan. This would eventually help Turkey get access to African markets. All in all, it would be a win-win situation for all the parties involved. Sudan would benefit from FDI inflow, Turkey from market access in Africa and the IDB in fulfilling its core mandate of enhancing co-operation and integration among its MCs. 23. One of the most recent flagship reverse linkage operation involved BRAC (Bangladesh) and Bank Al-Usra, which is the first microfinance bank in Sudan. Bank Al- Usra needed capacity building. The IDB, through its Islamic Financial Services Department (IFSD) facilitated the transfer of the requisite expertise and knowledge from BRAC. Subsequently, BRAC set up Bank Al-Usra's systems and trained Al-Usra staff in the area of microfinance. The twinning had a lasting impact on Bank Al-Usra to the extent that this bank now assists IDB in implementing successful microfinance projects in Sudan with a possibility of extending its expertise to other IDB MCs in Africa. ITAP has also played significant role in implementing RLs. As an example, Technical Assistance was provided to the Uganda Investment Authority to attract investors from the Gulf region. Among many other examples, ITAP has also facilitated training of Kazakhstan Investment Authority by a Turkish counterpart. V. MANAGEMENT AND SUSTAINABILITY ISSUES Operational Budget for Reverse Linkages 24. In the Presidency s Key Performance Indicators (KPIs) for the period 1431H- 1435H ( ), it is expected that at least 20% of the IDB Group s resources under the MCPS initiative will be allocated for RL activities. This allocation, which is quite sufficient judging from the financing envelopes of the completed MCPSs, will complement the financial and in-kind contributions made by the pivotal and recipient countries. Moreover, contribution from the other MDBs and development partners including the Coordination Group will also be explored and again taking advantage where feasible of mutually beneficial arrangements. The IDB Group plans to host a conference on Reverse Linkages in February 2012 and invite MCs, OIC institutions and development partners to come and discuss opportunities for MC-to-MC partnerships. Moreover, the sustainability mechanisms would allow IDB Group to ensure meaningful development outcomes and to evaluate adequately the multiplier impacts of the RL activities. 10

11 Responsible Body 25. Currently, the focal point for MCPSs is the Country Programs Department (CPD). It oversees and assumes a central coordinating function in following-up the implementation of RLOs within the IDB Group. It would be assisted by different originating entities/departments, e.g. HDE, IFSD, ISFD, ITAP, TCPP, STATCAP (IDB Statistical Capacity Building Initiative) etc. The CPD or any other business unit that may be designated specifically for this purpose, would report the implementation of RLOs regularly to the IDB Group Management. Success Factors 26. The success of the RLOs will largely depend on the commitment of the different parties involved in the process. Strong ownership of RLOs and committed leadership of both the initiating and recipient countries are required to achieve the utmost success. It is expected that countries cooperating in RLs will demonstrate a high level of commitment to these operations because of the high benefits they would generate to either party. Another critical factor for the RLs to succeed is to have sufficient information about member countries needs and competitive advantages at the stage of match-making. 27. In this regard, (i) the MCPSs may become reference points between potential pivotal countries and beneficiaries with the IDB Group as an enabler/overseer and (ii) a special database for all the MCs would be established containing information on areas of competitive advantage for which MCs can offer to other MCs such as success stories, best practices, know-how, specific expertise etc. A similar database would be established for needy MCs that require assistance. Furthermore, the IDB Group would ensure that appropriate sustainability mechanisms are in place to allow meaningful evaluation of the development outcomes and impact of RLOs. Procurement Issues 28. By their very nature, RLOs require different procurement procedures from the existing ones, which for example, allow single sourcing only on an exceptional basis. This and other exceptions may be unavoidable especially during the initial phases of implementing RLOs (e.g. grant for enhancing enabling environment). Based on the previous experiences of different MC-to-MC programs, there is urgent need to introduce speed and flexibility within the current procurement guidelines to comply with the global best practices. Procurement procedures within the IDB Group entities will be redefined and agreed upon before embarking on RLOs. However, there will be no procurement issues from the IDB Group s perspective if RLOs are financed by sources from outside the IDB Group (e.g. by pivotal countries). VI. CONCLUSION AND THE WAY FORWARD 29. Although the official adoption of the term Reverse Linkages was taken only in 2010 after the Turkey MCPS, the IDB Group has all along been actively engaged in 11

12 various south-south activities aimed at strengthening the cooperation and solidarity among its MCs. These and similar activities are now being articulated in a much more formal and comprehensive manner under the collective banner of Reverse Linkages. Hence, this Note does not present a brand-new concept as such. Rather, it strives to bring Reverse Linkages to the forefront of the IDB Group s development agenda. 30. While the IDB will continue to play its traditional role of providing resources to its member countries through project, program and trade financing, it will consciously and proactively encourage Reverse Linkages through strategic and fruitful partnerships among member countries while carrying out its MCPS exercise. Reverse Linkage activities will be embodied in every MCPS and become part of the Group s regular operations. Moreover, the IDB Group would leverage partnership opportunities with other development partners. 31. What is new with the RL Concept? Pro-activeness in identifying RL activities, recognizing them as factors of development, having a coordinated approach at the IDB Group level (as against fragmentation) and consciously assessing / measuring the impact of RL activities at the country level constitute four basic elements of the RL Concept. Traditionally, IDB Group has financed projects with significant success in its MCs. During the last 37 years of IDB s existence, some MCs have experienced significant growth and development, while others have had slow growth. This calls for a change in the role of the IDB Group from a financier to a facilitator in development, especially for the least developed member countries (LDMCs). The RL initiative is one of the new approaches to re-invigorate the process where MCs can support each other under a coordinated (win-win) manner, facilitated by the IDB Group. In this case, the solutions would be tailor-made and bring more development outcomes with relatively smaller investments. 32. Unlike in the past, implementation of RLOs will, from now on, be centrally coordinated. In this regard, future programming missions by the IDB Group (to both MCPS and non-mcps countries) will focus on identifying viable RLOs for inclusion in the annual work programs. This will not only facilitate attainment of the Presidency s KPI on Reverse Linkages, but also provide added exposure to the IDB Group in processing and managing RLOs. 33. The planned Conference on South-South Cooperation Reverse Linkages among OIC Member Countries in February 2012 at the IDB Headquarters will discuss strategic themes and pilot operations for Reverse Linkages, as well as issues related to their funding and implementation modalities. The final outcome of the Conference will be to set a stage for the implementation of the first generation of RLOs as defined under this Guiding Note Final Draft Reverse Linkages (13 February 2012) REV (AK) 12