STATEMENT TO THE EXECUTIVE BOARD
BY NORMAND LAUZON
EXECUTIVE SECRETARY UNCDF
ON
THE UNITED NATIONS CAPITAL DEVELOPPEMENT FUND
2002 AND BEYOND
NEW YORK, 11 JUNE 2003

Mr. President, Distinguished Delegates, Colleagues and Friends,

I would like to thank the Associate Administrator for his endorsement of our work and the support he and the UNDP Administrator have consistently shown UNCDF. It is a pleasure for me to introduce our 2002 Results-oriented Annual Report (ROAR) (DP/2003/13) [ROAR pdf]. We are very pleased to have with us this afternoon senior representatives of the Government of Niger who will present the main results and challenges of the decentralization process in Niger, a process supported by UNCDF, UNDP, the Belgian and French Governments and other development partners.

Mr. President,

This year, we formulated our ROAR in a more management-oriented manner, covering the key results produced by the organization, the main challenges and the way forward. My colleague Yee Woo Guo will present to you the main findings and conclusions of the ROAR on each of these management aspects. I will therefore limit my remarks this afternoon to two issues which I know are important for your deliberations: firstly, the performance of UNCDF with respect to our focus, results and management, and, secondly, our resource situation — current and future.

I am pleased to say that as a result of far-reaching changes over the last eight years, UNCDF is a focused organization. With poverty reduction as its overarching goal, UNCDF is concentrating its resources and energy in local governance/decentralized public investments and in microfinance. While our own pilot small-scale investments are concentrated in the LDCs, with the transfer in 1999 of the Special Unit for Microfinance (SUM) from UNDP to UNCDF, our advisory services in microfinance extend worldwide.

In local governance, UNCDF, through its Local Governance Unit, is focusing its efforts on providing support to decentralization processes that lead to decentralized public investments and local development. In 2002, many positive results were achieved in this area, as reflected in our 2002 ROAR. For example, UNCDF is now firmly established among the network of practitioners on Decentralization and local governance, including the recently established UNDP subpractice on Decentralization, Local Governance, Rural and Urban Development. Other strong partnerships for knowledge have been established with the World Bank, the Asia Development Bank and regional networks in Africa. This is in line with our goal to become a centre of excellence in local governance.
While positive results were achieved and recorded in 2002, there is also room for improvement. Indeed, we are reminded that the full benefits of decentralization and of its correlated participatory process take time to materialize fully. Continuity and time are two important ingredients for success. We have learned for sure that each country and situation are specific and that while there are common features to the decentralization processes in the various countries where we work, there is no such thing as one size fits all.

I will leave it to the delegation from Niger to go into greater detail on our support in the area of local governance, and to those Executive Board members who may want to say a few words on their findings during their recent field visit to Mozambique.

As reported in the ROAR, the reduction of our programme expenditures had a negative impact on our performance on the ground in the area of local governance, despite efforts from all concerned to minimize the shock. Indeed, we had to rephase activities and cancel some of our previous commitments in light of our lower than anticipated resources. I appreciate that this has resulted in slowing down and delaying operations on the ground and in frustrations at various levels. I very much regret that situation. I know that many countries where UNCDF is working – present here today – have been disappointed by that situation. I also know that many LDCs who have requested UNCDF support in 2002 have been disappointed by our incapacity to respond positively.

I would like now to briefly highlight our achievements in the area of microfinance: UNCDF’s Special Unit for Microfinance (SUM) is managing UNCDF strategic investments in microfinance and also serving as a technical and policy advisor to UNDP in this area. SUM promotes the development of young and emerging microfinance institutions to help bridge the financing gap for poor and low-income customers caused by limited institutional capacity at the retail level. As the field has developed and a general consensus has grown around the need to promote microfinance as an integral component of financial systems development, SUM has broadened its support to include the wider range of activities needed to develop mature microfinance industries. Under this sector development approach, increased access to financial services for the lower segments of the market will be developed as an integrated part of the broader financial sector, with the success of the two intimately linked. Main activities will include support to the development and implementation of national microfinance sector strategies and action plans.

Demonstrating its commitment to results, UNCDF recently participated in a Donor Peer Review as part of a 20-agency initiative to examine aid effectiveness by using microfinance as a test case. The Peer Review recognized UNCDF’s Special Unit for Microfinance as a center of excellence. Building on its trusted role as UNDP’s technical and advisory center, UNCDF will manage a review of UNDP’s portfolio of microfinance projects in 2003, and implement a post-review action plan to help improve the effectiveness of microfinance initiatives and their contribution to the MDGs.

UNCDF, in concert with the UN Department of Economic and Social Affairs, is engaged in drafting the Programme of Action for the International Year of Microcredit – 2005, to be presented this fall to the General Assembly. As such, UNCDF will work in close collaboration with other development partners and other UN agencies to: expand public awareness of microfinance; stimulate pro-poor financial systems; increase microfinance sector capacity and promote innovation and strategic partnerships. The Year will highlight the critical role that microfinance plays in mitigating poverty throughout the world and its significant contribution towards achieving the Millennium Development Goals.

Now I would like to turn to management issues: I am pleased to report that UNCDF has addressed all the recommendations of its 1999 external evaluation. As indicated by Mr. Diabre in his opening remarks, this has included strengthening and formalizing partnership arrangements with UNDP through MoUs in the areas of local governance and microfinance. Our active partnership with the World Bank has resulted in a number of concrete collaborative initiatives in programme countries and at the global level. In line with UNCDF’s goal of becoming a center of excellence in its two areas of focus, we have established and are building other strong knowledge partnerships with other bi- and multilateral organizations, microfinance and research institutions, and with civil society organizations.

Perhaps the most significant news to report to you this year is in the area of non-core resource mobilization. Both local governance and microfinance operations attracted interest from development partners in 2002, resulting in a 205 per cent increase in non-core resources over the previous year. The demand for UNCDF as a provider of technical advisory services in local governance and microfinance increased as well, with these services being provided on a cost-recovery basis.

More and more post-conflict countries are tapping into UNCDF’s technical advisory services and small-scale investment funds to enable them replicate best practices in local governance and microfinance. In addition, many countries are increasingly requesting UNCDF to execute or implement specific programme components, once funding had been secured from UNDP or other development agencies. Considering this growing demand for UNCDF to act as an executing or cooperating agency, we are preparing a formal proposal for consideration by the Board.

We continue to improve the effective implementation of our corporate policies, especially in areas of gender mainstreaming, monitoring and evaluation, infrastructure operations and maintenance and the quality of our own microfinance investments. The overall results of these efforts will be documented in the impact assessment, which the Executive Board requested UNCDF to undertake. Although currently we are still looking for the necessary funding to fully implement the assessment, we are committed to presenting its results to the Board at its June 2004 session.

We know that it is not good enough to produce good results. They also have to be publicized so that our stakeholders have a better idea on what we are really doing. Therefore our outreach — either through publications, our website or regular meetings — will be increasingly focused on our results on the ground and our substantive and operational contribution to the MDGs and the Plan of Action for the LDCs. More importantly, we believe that the best way to ensure UNCDF is known and recognized is for representatives of the programme countries to say how we are contributing to their development efforts.

I had the honour last week to meet with the President of Benin, currently President of the group of the LDCs. On that occasion the President expressed, on behalf of the LDC group, his great appreciation for UNCDF’s concrete action on the ground in support of the goals of the Programme for Action for the LDCs. He also expressed hope that UNCDF will be able to continue its work, which for the most part depends on the evolution of our resource situation.

Before addressing this important issue, I would like my colleague, Mr. Yee Woo Guo, to highlight the main findings of our 2002 ROAR.

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Yee Woo Guo, Chief, UNCDF Evaluation Unit, addresses the Board.

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Now, Mr. President, I would like to say a few words on UNCDF’s resource situation. At our annual sessions of the Board in 2001 and 2002 and at our September session last year, I informed you that the resource situation in UNCDF was a matter of concern. Once again this afternoon, I would like to bring this important matter to your attention. To do so, I would like to provide you with updated information on our core resources, programme approvals and expenditures against these core resources and our administrative budget.

UNCDF core resources: As shown in the Summary Table attached to the printed version of my statement [ pdf ], UNCDF’s core contributions declined by nearly 45% from 1992 to 2002. Despite the good results produced in recent years in our two areas of concentration, core contributions to UNCDF decreased from US$33.4 million in 1996 to US$24.0 million in 2000. This period coincided with the time when UNCDF was implementing the new approach in its two areas of focus. One would have hoped for at least a stable funding level in core contributions during that period.

In 2001, for the first time, the negative trend in UNCDF’s core contributions was reversed with a small increase of 1% to US$24.3 million in 2001. But in 2002, core contributions to UNCDF declined to roughly US$22.3 million.

The main reason is that one of our most generous supporters decided in 2002 to reduce, for burden-sharing reasons, its core contribution to UNCDF. Although disappointing, this situation should not come to us as a total surprise. Indeed, already in 1999, the Executive Board in its decision 99/22 warned us that such a situation could happen. In recognizing that the over-dependence on a limited number of donors carries risks for the long-term sustainability of UNCDF, the Board invited all countries in a position to do so to make voluntary contributions to UNCDF to secure adequate funding for its programmes

Let me now turn to UNCDF programme approvals and expenditures against its core resources: During the period 1992 to 1999, UNCDF maintained a level of annual programme approvals higher than its annual total core income. As indicated in the Summary Table attached to my printed statement, after the adoption in 1995 of a new approach in two areas of focus, UNCDF’s annual approvals during the subsequent five years ranged from US$40.4 million and US$65.1 million. The strategy adopted then by UNCDF for this high level of annual approvals was consistent with the partial funding system formula and was aimed at achieving two main objectives: maximum impact on the ground and reduction of accumulated liquidities.

Until 1999, drawing on its accumulated liquidities, UNCDF was able to maintain – against its core resources - a level of annual programme expenditures averaging US$40 million. However, Mr. President, declining core contributions and a reduction in accumulated liquidities necessitated that we adopt drastic measures beginning in 2000 to ensure the financial integrity of UNCDF. This was achieved through a combination of reduced levels of programme expenditures to US$39.3 million in 2000, to US$32.9 million in 2001 and to US$22.6 million in 2002 and reduced levels of programme approvals, down to US$9.5 million in 2002.

We know the consequences on the ground were severe for the programme countries. But we had no other option but to reduce both programme expenditures and approvals. The good news is that as of 2003, UNCDF expenditures and income will be aligned, thus ensuring the continuing financial health of the Fund. Our financial situation continues to be reviewed on a regular basis by the Board of Auditors to which we have provided the information I have just given you.

Regarding our administrative budget: UNCDF’s annual administrative budget has remained quite stable and at a rather low level during the entire period 1992 to 2002, varying between US$5.1 million and US$6.0 million. In 2002, our expenditures against our administrative budget reached US$5.5 million. Of this amount, US$ 2.8 million or about half was allocated to the provision of technical support services by our technical colleagues. Therefore, the cost spent to administer the organization was actually much less than the administrative budget itself. In addition, six of our technical staff were funded out of the cost-recovery income generated through our technical advisory services. The recent review of our cost-recovery experience was used to fine-tune our cost-recovery policy in order to guarantee full recovery in 2003, up from 24 % in 2002. For the next biennium covering the period 2004 and 2005, we will submit for the consideration of the Board at its September 2003 Session, an administrative budget proposal that in real terms will represent a reduction of more than 16% of the current administrative budget.

However, even with a lean administrative budget, should the annual contributions to UNCDF’s core resources remain at $US22 million, its level of annual programme expenditures will have to be reduced to below $20 million — a level considered below the critical mass needed to make a difference in support of the LDCs.

It is now time to bring our attention towards the future. What have we done to mobilize additional core contributions? We have done our very best to produce concrete results on the ground in our two areas of focus. Through these concrete results on the ground, we have demonstrated that UNCDF has a role to play in support of the LDCs within the international development financing architecture. We hope that this will continue to help us secure the confidence and support of the international community, thus reversing the downward trend in core resources and assuring growth in both core and non-core resources.

This approach has produced good results with regard to the diversification of our resource base. Three additional OECD/DAC countries have joined the group of contributors to UNCDF since 1999. In terms of volume, however, this has not been sufficient to produce the needed boost in our core resources.

In non-core, however, many countries have contributed resources in support of programmes funded by UNCDF. I am pleased to report that non-core contribution agreements have more than tripled from US$ 4.1 million in 2001 to US$ 12.5 million in 2002. This is indeed a vote of confidence for the work UNCDF is doing.

I must say that we are most pleased with the strong endorsement of our work by the programme countries themselves. These countries have constantly – in various fora and bilateral meetings – indicated that UNCDF needs to have more resources to reduce the gap between their demands for our investments and capacity-building services and our capacity to respond. Many programme countries have also expressed confidence in UNCDF by contributing to our core resources. This is a very important action taken by the programme countries in support of UNCDF.

We are also highly appreciative of the decision adopted by the Executive Board at its September 2002 Session (decision 2002/26). As you will recall this decision recognized the excellent work done by UNCDF, its unique role within the international development financing architecture and invited the international community to help UNCDF achieve its core resources mobilization target of US$ 30 million/year.

Before concluding Mr. President, it is important to emphasize that core contributions to UNCDF have a much greater impact than the value of those core contributions themselves, making UNCDF a sound investment for the international community. For every $1 channeled through UNCDF, we have calculated that there is another $1 mobilized from programme country governments, local communities and other donor countries in the form of non-core contributions. Furthermore, a significant proportion of UNCDF’s pilot initiatives are replicated on a much larger scale with the support of development partners like the World Bank, resulting in yet another increase in the value of that original dollar.

Mr. President, we consider the implementation of our core and non-core resource mobilization strategy to be an imperative in order to ensure a level of programme expenditures at roughly $35 million/year, a level that nevertheless would still fall far short of the demands of the LDCs for our small-scale investment support. We consider this strategy to be realistic and achievable. Indeed, if UNCDF is producing the results it is expected to produce and if UNCDF – as a small-scale investment organization working in two critical areas for the poor — has a role to play within the international development financing architecture in support of the poorest, we believe that it should be feasible to mobilize initially an additional amount in core contributions of US$8 million a year. We are very much encouraged by the decision adopted by the Board last September (decision 2002/26) and would very much welcome your views and guidance on how we can best move forward on this issue so critical for the future of UNCDF.

Thank you.

Attachements:
UNCDF Financial Summary Table [ pdf ]
2002 Results-oriented Annual Report [ pdf ]