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Contributions from
the Column
Focus
Assessment of the first years
Environmental protection in Thailand
Global education for sustainable development
The DEG as largest financing organisation
The BMZ programme / The criteria for PPP projects
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Development partnership with the private sector
The DEG as largest financing organisation
By Rolf Gerber
About 40 per cent of the funds from the German Federal government's Public-Private Partnership facility is placed
via the Deutsche Investitions- und Entwicklungsgesellschaft (DEG), or German Investment and Development Company. The company
promotes private sector projects which go beyond business objectives and have a developmental value added, particularly in the sectors
of technology transfer and training.
The private sector is now the driving force in economic and social progress in developing and reform countries. Foreign direct investment in these countries far exceeds official development assistance, although the former is focused on a very small number of transition countries and recently has been dropping sharply. German companies have also taken an ever greater part. Whereas at the beginning of the 1960s German entrepreneurs had invested slightly less than Euro 1 billion in developing countries, the total is now
Euro 49 billion. In addition, almost Euro 32 billion has flowed into the so-called reform countries of the former East Bloc.
It is also clear that there are synergies between the private sector and ODA which both serve development and release business innovation forces. In order to use more the potential of private investment in these countries in the interest of local development, the BMZ in 1999 initiated its Public-Private Partnership (PPP) programme. There are now public-private partnerships in many sectors of public life. They bundle public and private funds in order to implement joint projects from which both sides benefit. In development cooperation, this means better investment conditions for companies and better prospects for local people.
The BMZs PPP programme bears up to 50 per cent of the costs (to a maximum of Euro 200,000) of projects, mainly in the sectors of environmental protection, initial and advanced training, and pilot and demonstration installations. The companies must carry the remainder of the costs and are solely responsible for implementing the projects. Participation in the programme depends on the size of a company and its branch. Since 2002, companies based in other western European countries also have been able to take part in the programme. Whether a company is only now planning to invest in a developing country or has long been engaged in one is immaterial.
Promoting the private sector in developing countries, and in more recent times in the reform states, has been the DEG's developmental mandate for 40 years. As one of the biggest European institutes engaged in funding for development, it has co-financed about 1,050 companies in 120 developing and reform countries. For that the DEG made available Euro 5 billion and mobilised Euro 30 billion through its investment partners. The DEG is involved in implementing the PPP programme because of its decades-long experience in dealing with the opportunities and risks of investment in developing countries, and in more recent years in reform states, and specifically in financing projects that prepare and accompany the investments of German companies. About 40 per cent of the funds from the German Federal governments PPP facility is placed via the DEG. The organisation has realised more than 30 such projects since 1999. In 2002 alone, the DEG participated in 52 PPPs, for which it allocated about Euro 8.3 million.
The range of projects promoted by the DEG within the framework of the PPP programme is broad. To date, it has co-financed mainly projects in the sectors of technology transfer (building pilot and benchmark installations, introduction of new processes, adaptation of technologies appropriate to local conditions, etc.), and training and qualification measures. Two-thirds of these projects made an input to environmental protection.
Opportunities for both
sides
The PPP concept is based on the premise that commerce and industry bear responsibility for the ecological and social conditions at their locations and in their operations. Therefore as part of their global investment and business activities they are expected to become more involved in environmental and social issues. In the final analysis, they would also benefit from this engagement because only those companies which create a local working environment that is environmentally and socially acceptable can do good business in the long run. If German companies wish to invest in the environment, training and job security in developing countries they can count on the support of the DEG. Some examples follow.
Better working atmosphere: The German textiles company Gtermann AG created a socially acceptable and environment-friendly working atmosphere for its employees in Mexico. With PPP funds, the production shops were equipped with air-conditioning. Lowering the temperature and high humidity in the spinning mill greatly improved the employees working conditions and reduced the risk to their health. The electrostatic charging of fine particles during production was reduced, and thus the danger of allergies. Such measures help to motivate employees and identify themselves with the company. Also, because the cooling plant was powered by solar-generated energy this reduced pollutant emissions, and lower consumption of public-supply power meant that its procurement costs were amortised in a short time. Gtermann presented these environment-friendly and trailblazing innovations to Mexican companies as part of workshops in an aim to stimulate imitation.
Environmental protection: Involvement of local universities and research institutes in PPP projects results in a broader transfer of technology and know-how. An example is bio-research on the Chinese island of Hainan. The young Munich company Bicoll is cooperating with Hainan Normal College on research into medications. Researchers and students are helping to establish a bank of natural substances. They are collecting and determining rare plants and identifying the structure of their active substances for possible development of medications. Substances which prove to be valuable for the pharmaceuticals industry can then be synthesised by Bicoll on the basis of their master structure. This prevents harvesting of rare medicinal plants for the production of pharmaceuticals. The project thus contributes to the preservation of biodiversity in China and sensitises industry and the public to nature conservation. The privatisation of bio-technological and pharmaceutical research in China also helps to overcome the country's shortcomings in research.
Creating jobs: In Northeast Brazil, near Belm, motor vehicle components are being manufactured from coconut shell fibres. The idea for the project stemmed from a programme titled 'Poverty and the Environment in the Amazon Basin, which a German sociologist lecturing at the University of Belm and some Mercedes-Benz managers initiated 10 years ago. One of their ideas was to make further use of the shell of the coconut. What emerged from that is a production company financed by Mercedes-Benz do Brasil called Poematec, which manufactures car seats, headrests and sun visors from the fibres. The company's plant is the most modern for processing natural fibres in the whole of Latin America. The region's smallholders supply the eight processing installations with up to 100 tons of coconut shell fibres per month. As a whole, the project has created up to 550 jobs. The company is also to plant tree nurseries to provide the smallholders with seedlings of various plants. The aim is to promote mixed cultivation and protect the rainforest.
PPPs begin with private
sector initiative
A public-private partnership begins with a companys decision either to invest in a developing country or expand or modernise existing subsidiaries or joint ventures there. In the sense of partnership, this decision is linked with an idea for a project that is important for local development. Public PPP funds finance the companys extra costs arising from the projects developmental value added. The joint deployment of public and private funds means that developmental impacts can be achieved which could not be projected with the use of public funds alone, and in which a private company on its own also would not be interested .
The DEG takes up companies ideas and initiatives and supports them in developing a sound project concept. A brief outline of the planned project forms the basis for an initial discussion in which the concept and its implementation is concretised. The DEG aligns its decisions on applications for project funds on BMZ criteria. The application procedure is simple. On three to five pages, besides giving a brief description of the project and a project planning overview with a timetable and costing, the applicant company must portray how the company and the local people will benefit from it. The projects PPP-capability is decided on the basis of this application. Payment is made in instalments. Usually, the first is made following the beginning of the project, the second is based on an interim report after the first half of the project period, and the third following submission of a final report together with cost accounting. Implementation of the project is the sole responsibility of the company, but the DEG offers comprehensive consultancy at every stage.
Project example
Solar technology to dry
Asian fruit
Red chillies as far as the eye can see. Everywhere in Asian villages, the hot mini-paprika dries under the tropical sun on clean-swept loam soil. Traditionally, not only chillies, but also other spices and fruit are preserved in the open air. But the world market demands high quality and strict hygiene. The private limited company Gewrzmller [Spice Miller], of Stuttgart, tested the cultivation of new varieties of chilli in northern Thailand. Besides chillies, the company, which has been in the spice trade for more than 100 years, imports citronella, pepper and ginger from Thailand. With the aid of solar technology developed by the German private limited company Innotech, it is now processing chilli gently, ensuring high quality and saving energy.
The chillies are washed, cut, dried and packed in the pilot plant under a solar roof with built-in air collectors. The entire processing flow is integrated in one plant. Thanks to the new technology from Germany, the region's farmers can now grow more chillies and sell them at higher prices. For them it is a lucrative and important supplement to rice-growing, which hardly provides a living for their families.
The solar technology developed by Innotech is also being tested in Vietnam. In Bac Giang Province, a major agricultural region Northeast of Hanoi, a producers cooperative aims to double their acreage of litchi. The problem is that litchi can be harvested only when it is ripe and within about three weeks. Traditional drying by flue gases results in the fruit having pollution levels that are far above the limits permitted in Europe. A solution is offered by a solar tunnel dryer built by the cooperative as a demonstration plant. Local workers are also being trained in the new technology. The German company, based in the Stuttgart area, also developed a larger plant for manufacturers that produce for export. Its so-called rack dryer is an enclosed cabinet-chamber system with 50 or more shelves. Even, gentle drying is achieved by a stream of hot air flowing over the fruit. Solar panels installed on the roof, combined with additional heating generated by biogas, provide the environment-friendly energy for the project.
If this second demonstration plant, set up at a cooperative in Can Tho Province, in the Mekong Delta, is also received as well as expected, Innotech plans to manufacture components of the dryer, such as frames and ventilators, in Vietnam. Then only the more technically demanding solar panels and drive units will have to be imported from Germany.
Programme informations
The local partners:
PPP funds can be applied for by western European companies or their subsidiaries in the partner country. The prerequisite is that a company makes a financial contribution of at least 25 per cent of a project's costs and a significant management input.
The projects:
Pilot projects and plants, training measures in excess of a company's own needs (such as in-company training, qualification of suppliers or employees) as well as environmentally- and socially-oriented projects are co-financed.
The input to success:
The DEG bears up to 50 per cent of the overall costs, although as a rule not more than Euro 200,000 per project, and provides comprehensive consultancy at every project stage. The company must contribute at least the level of the public fund input to the costs, and is solely responsible for implementing the project.
The project locations:
PPP projects can be established in developing countries, as well as in Southeast Europe, in the Caucasus, in Central Asia, and in the transition countries.
The criteria:
The planned project is a lasting contribution to the development of the partner country. The project would not be implemented without the support of public funds, it is not related directly to the company's core activities, and it is not required by law.
DEG
Programme Financing
Department
Belvederestr. 40, 50 933 Köln
Tel: +49 (0)221 4986-476
Fax: +49 (0)221 4986-176
E-mail: ppp@deginvest.de
Rolf Gerber is head of the DEG
Programme Financing
Department
gr@deginvest.de
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