South-South Cooperation

South-South Cooperation

The Challenge

Since the adoption of the Millennium Declaration in 2000, many developing countries have experienced significantly faster economic growth than developed economies. The rising South is incontestably a key force behind the progress we have seen towards the Millennium Development Goals (MDGs). Global poverty decreased significantly and several other MDG targets have also been met ahead of time, including access to improved drinking water, gender parity in primary education and political participation of women, while some others are on track to be met, such as the targets on fighting malaria and tuberculosis.

Despite these achievements, stark disparities persist – and in many cases have increased – between and within countries, between men and women, across urban and rural areas. Much unfinished business remains to realize all of the MDGs.

Against this backdrop, the rise of the Global South and the dynamism of South-South cooperation represent great news and key potential drivers for the implementation of the post-2015 agenda. The trends we observe are extremely encouraging: South-South cooperation continues to grow rapidly, more than doubling between 2006 and 2011. While data on concessional South-South flows are incomplete, they are estimated at between $16.1 and $19 billion in 2011, representing more than 10 percent of global public finance flows. Nonconcessional South-South flows, such as foreign direct investment or bank loans, have also expanded dramatically in recent years.

Financial assistance is just one element of South–South cooperation. The value of South-South cooperation and assistance is enormous when we consider the ‘bundling’ of financial assistance with trade, investment and (often trade-related) technical cooperation.

What Do We Do?

From the vantage point of an UN agency with a financing mandate, UNCDF has a clear responsibility in helping to pilot and scale up financing mechanisms that facilitate more and better financing to support South-South and Triangular cooperation.

This implies using ODA where needs are greatest, including least developed countries; make sure public financial resources can catalyse private financing, help forge innovative public-private partnership and foster domestic resource mobilization.

UNCDF’s flagship programme MicroLead is recognized as an innovative approach to South-South cooperation for developing Inclusive Financial sectors. MicroLead phase I supported southern microfinance market leaders to enter LDCs, with a focus on mobilizing savings from low-income populations. The competitively selected market leaders from the South (which include Equity Bank from Kenya, Basix from India, BRAC from Bangladesh, CARD from the Philippines) brought approximately $100 million as their own equity to fund their expansion in LDCs. The results, after 5 years of operations, are impressive, with over one million net depositors reached who are saving over $643 million. The deposits are intermediated and invested back in the local economy, strengthening LDCs’ abilities to full economic growth. The success of this initial phase of MicroLead resulted in the formulation of MicroLead Expansion which continues with the focus on deposit mobilization but emphasizes reaching ‘last mile’ populations by downscaling commercial banks, creating/ strengthening rural credit unions, and linking informal savings groups via technological innovations.

Another aspect of South-South cooperation – characterized by great innovations – is the increasing cooperation between cities, towns and local governments. UNCDF is part of the network of global local governments that are exploring ways to promote local economic development and meet common challenges such as climate adaptation and the provision of infrastructure and housing in growing urban areas. Networks such as ICLEI and the United Cities and Local Governments (UCLG) unite towns and cities from the across advanced and emerging countries in addressing these problems and develop concrete ways of designing innovating financial mechanisms that foster local development.

In the field of climate change, UNCDF has taken this logic a step further to create a mechanism –called the Local Climate Adaptive Living Facility (LoCAL) – for local governments in LDCs to secure public and private finance for building climate resilience. This is a concrete example of South-South collaboration as the mechanism is governed by the LDCs themselves and includes an active agenda for knowledge-sharing. As a result of this framework, countries like Cambodia and Bhutan have secured climate finance for their local governments of over 50 times the original UNCDF seed capital investment of $1million.