Statement by Normand Lauzon
Executive Secretary
United Nations Capital Development Fund (UNCDF)

UNCDF and the Implementation
of the
Brussels Programme of Action for the LDCs

Mr. President,
Honourable Ministers,
Excellencies,
Distinguished Delegates and Friends,

It is a great pleasure for me to have this opportunity to brief you on the work of the United Nations Capital Development Fund in support of the implementation of the Programme of Action for the Least Developed Countries, and to share some of the highlights of the 2002 UNCDF Results-oriented Annual Report (also known as the ROAR).

To begin with, I will provide you with some information on the mandate and role of UNCDF. Secondly, I will explain how our work in local governance and microfinance contributes to the implementation of the Programme of Action (POA) for the Least Developed Countries (LDCs) and to the Millennium Development Goals.

The United Nations Capital Development Fund

In the early 1960s, developing countries promoted the idea to create a United Nations Capital Development Fund. This took place in 1966 with the adoption by the United Nations General Assembly of Resolution 2186(XXI). At that time, UNCDF was given a universal mandate. UNCDF was construed as a multi-sectoral investment Organization. Its main purpose at that time was to finance and help implement investment projects whose cost would be lower than that of the investments carried out by larger international financial institutions such as the World Bank and the regional development banks. Because of the low level of the resources placed at its disposal through voluntary contributions from the Member States of the United Nations, UNCDF did not actually become operational until the early 1970s.

In 1967, in order to establish better synergy with the United Nations Development Programme, (that is, to promote better complementarity between UNCDF investments and UNDP technical assistance), the UN General Assembly asked the Secretary General to entrust the role of General Manager of UNCDF to the UNDP Administrator. In the same spirit, it was agreed that UNCDF would report to the UNDP Executive Board, rather than be governed by its own administrative council. Since then, the General Manager of UNCDF has entrusted the strategic and daily management of the Organization to an Executive Secretary, the function I currently serve. In addition, in each country where it is operational, UNCDF is represented by the UNDP Resident Representative. The financing of UNCDF continues to come from voluntary contributions to its general resources as well as contributions earmarked to specific operations on the ground. The UNCDF administrative budget is entirely financed from voluntary contributions.

In 1973, the UN General Assembly adopted a resolution requesting UNCDF to concentrate its investments, first and foremost, in the LDCs. Since 1995, as in the case of many other multilateral development Organizations, UNCDF has come through intense and far-reaching changes. In this context, UNCDF has refocused its operational activities in order to improve the performance of its small-scale pilot investments; to better meet the needs of the LDCs; to take into account the experience acquired during the last 30 years; and, finally, to ensure — within the framework of its limited resources — the best possible impact on poverty reduction and the mobilization of national and local capacities. As a result, today, UNCDF is specialized in two areas of support to developing countries: support to decentralized public investments and support to private investments through microfinance. In 1999, the Executive Board approved this new focus. Within this context, UNCDF supports LDCs to pilot small-scale investments that can be replicated on a larger scale with the assistance of other development partners that can bring additional financial support. 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 short, UNCDF is a multilateral Organization whose specialty is the funding and implementation, in the LDCs, of small-scale investments, in the form of grants, in two specific areas of intervention.

UNCDF Contribution to the Implementation of the Plan of Action for the LDCs and the Achievement of the Millennium Development Goals

Now, I will explain how UNCDF’s work in these two areas — decentralized public investments and microfinance — contribute to the implementation of the objectives of the Programme of Action for the Least Developed Countries for the decade 2001-2010, and to the Millennium Development Goals.

It was recently pointed out by Jeffrey Sachs, Special Adviser to the UN Secretary-General on the Millennium Development Goals, in this year’s UNDP Human Development Report, that: “poor countries cannot afford to wait until they are wealthy before they invest in their people. This is the wrong way round. They need rural health clinics, schools, roads, and safe drinking water and sanitation, so that economic growth can take root in the first place. Investment in meeting basic needs isn’t just desirable in its own right for ending human suffering, but it is also a key part of an overall strategy of economic growth.”

I am pleased to say that UNCDF is entirely committed to addressing the MDG concerns raised by Mr. Sachs. Indeed, UNCDF invests with the poor in the poorest countries in decentralized socio-economic public investments and microfinance. And through its concrete actions on the ground, UNCDF contributes directly to the implementation of five of the seven commitments made by the international community within the framework for partnership contained in the Programme of Action for LDCs.

UNCDF investments are meant to foster a people-centered approach, promote good governance at the national and local levels, reinforce human and institutional capacities, reduce vulnerability and protect the environment. UNCDF activities are also geared to mobilize additional financial resources. In so doing, UNCDF is working with the poor to help address their needs for basic socio-economic infrastructure and financial services.

Decentralized Public Investments

In supporting decentralized public investments, UNCDF understands that decentralized public investments are meaningful to the poor only if they result, on the ground, in tangible and concrete results that meet their daily needs. Accordingly, our main concern is to ensure better access for the poor to essential infrastructure and socio-economic services in primary health and education, road transport, rural markets, potable water supply and natural resources management. By doing this, UNCDF contributes in a tangible way to the implementation of key development objectives retained in the Programme of Action for the LDCs: education for all; reduction of infant mortality; improvement of maternal health and of that of the population in general, as well as the prevention and the fight against malaria and other diseases such as the HIV/AIDS. UNCDF is helping to reinforce the capacities of individuals and of institutions at the community level. All these objectives also were adopted in the Millennium Declaration.

Although critical as an input to tackling poverty, investments alone are far from sufficient. We consider as equally essential the need to promote participation at the local level, in order to allow local populations to identify solutions that address their local challenges. As part of this approach, we find that it is necessary to ensure the effective participation of women in the decision-making processes, decisions that will affect their daily lives and the future of their children and families. It is also important to ensure the participation of the civil society as a whole. It is within this context that UNCDF has adopted as its modus operandi, the slogan "to invest with the poor", rather than "to invest for the poor." Indeed, when the poor participate in decisions affecting their own future — through processes of consultation and participatory planning specific to each country and each local community — they are generally committed to contributing their time, their building materials, and sometimes their money to construct the infrastructure they have identified as top priorities to their local needs. In addition, when the local population plays a more integrated role in the planning and financing of local infrastructure, it is more concerned about the proper use and maintenance of that infrastructure. We have found that local participation is a prerequisite to ensure the sustainability of any investment.

At the same time, while building the capacity of the communities, it is essential to build the capacities of local governments and locally-elected officials, so that public investments are managed with the common interest in mind. This is another way to speak of good local governance. At UNCDF, our approach does not consist in strengthening local capacities through a simple transfer of know-how. More importantly, we consider that the transfer of resources is imperative. This is the reason why our support to decentralized public investment provides for the transfer of financial resources to local governments, resources equivalent to the fiscal resource base that local governments would access if the decentralized tax systems were to produce the expected results. The main objective here is to enable local governments and their elected officials to acquire — through learning by doing rather than through a theoretical process of transfer — the knowledge and experience needed to manage decentralized public investments.

To contribute effectively to the Programme of Action and the MDGs, we at UNCDF are aware that we must constantly seek to build partnerships and ensure complementarity with the other development players, in order to concentrate our efforts on what we can do best. Partnership and complementarity can embody various aspects: among international, national and local resources to finance decentralized public investments; among decentralized investments, sector investments and community-based investments from the point of view of optimizing the use of scarce resources to ensure maximum impact on poverty reduction; and among the interventions of various actors, by taking into account their respective knowledge and their specificity, to help make our joint efforts more effective and efficient.

For us at UNCDF, it is clear that ownership of decentralized public investments by local authorities and the population at large is necessary. We also know that UNCDF’s comparative advantage is to pilot small-scale decentralized public investments that can help prepare the way for their replication on a larger scale by other development partners. This is the reason why we attach such a high priority to our complementarity with other development partners. We know that UNCDF’s work has greater potential for impact and sustainability when partners are engaged from the outset and when opportunities for joint programming exist. Opportunities that are anchored in national and local priorities, that are consistent with national poverty-reduction strategies and other planning instruments such as the Poverty Reduction Strategy Papers (PRSPs), Common Country Assessment (CCA), the UN Development Assistance Framework (UNDAF) and governance programmes, have a greater chance of success. Consistent with the Board’s recommendation, UNCDF has strengthened its working relationships, in 2002, with a number of partners, including UNDP, the donor community, the World Bank and the Regional Development Banks, the European Commission, NGOs, the private sector – national and international – and Centers of Excellence in the North and the South.

The ROAR for 2002 shows that, despite the challenge of difficult resource constraints that prevent us from meeting all the demands from programme countries, UNCDF projects in decentralized public investments have made significant gains in supporting local resource mobilization, as well as in policy impact and replication. In local resource mobilization, there were impressive improvements in strengthening the sustainability of local financing as local authorities were, in some cases, able to increase local revenues up to 200 per cent, and others were successful in mobilizing additional resources from other donors. And in terms of policy impact and replication, there has actually been a doubling of the number of projects reporting success in policy impact and replication. In the case of replication, there has been a trebling of non-core resource support.

While many positive results were achieved and recorded in 2002, there remains room for improvement. Indeed, we are reminded that the full benefits of decentralization and of its correlated participatory processes take time to materialize fully. Continuity and time are two important ingredients for success. We have learned that each country and situation is 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.

You will find in this room, in French and English, copies of our Annual Report on our Results for the year 2002. I will limit myself here to give you one example of our support to decentralized public investments. Since 1998, in close cooperation with the Government of Mozambique, UNDP and the Government of the Netherlands, UNCDF has supported the piloting of a decentralized public investment programme in the province of Nampula, entirely consistent with the four dimensions of our interventions I have just described. The lessons learned during the pilot phase made it possible for the Government to design a more elaborate follow-up programme.

Thanks to the contributions made to UNCDF for the Mozambique initiative by the Governments of the Netherlands and Norway, and thanks also to the constant support of UNDP and a financial contribution from the Swiss Agency for Development and Cooperation, the programme will be expanded in the province of Nampula and will be extended to another province. After an initial UNCDF investment of US $5 million, the amount of resources now committed for this expanded programme is $22 million — more than four times the initial investment. In addition, the World Bank plans to implement a similar programme in four other provinces of Mozambique, with an estimated budget of $30 million.

If we had more time here, I could cite other similar examples, in Bhutan, Mali, Niger, Viet Nam, Uganda, Senegal and in many other countries where our operational activities have benefited from the participation of the World Bank, the African Development Bank, the Belgian Survival Fund, Australia, France, Denmark, Luxembourg, the United Kingdom’s Department for International Development, or the Global Environment Facility.

Microfinance

I would like now to briefly highlight our achievements in the area of microfinance: UNCDF’s Special Unit for Microfinance (SUM) is managing UNCDF 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.

The ROAR for 2002 shows that UNCDF’s performance in microfinance has been quite consistent, with partial achievement of planned targets in outreach, and in sustainability, as well as satisfactory performance in building an enabling environment in microfinance. The quality of the UNCDF portfolio of microfinance investments has been improved and there has been demonstrable impact on the development of national microfinance policy in four additional programme countries.

From the experience we have gained in promoting an enabling environment for microfinance, we are now moving towards a sector development approach. 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 is expanding its support to include a 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.

Looking ahead, 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. 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. 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.

Managing for Results

The information that I have just presented should provide sufficient evidence to show that UNCDF strives to contribute, in a measurable and visible way, to the implementation of the Programme of Action for the LDCs. We are aware that our work by its very nature is inherent with risks and difficulties. Because of this we are constantly learning as we go — documenting our lessons learned in decentralized development and in the microfinance sector so that we can improve our performance on the ground.

As mentioned earlier, since 1995, UNCDF has come through intense and far-reaching changes. I am pleased to report that, to date, UNCDF has addressed all the recommendations of its 1999 external evaluation. This has included strengthening and formalizing partnership arrangements with UNDP through Memoranda of Understanding 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 line with UNCDF’s goal of strengthening its role as 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.

The ROAR for 2002 indicates that as a result of our conscientious follow-through on the recommendations to strengthen the results-orientation of our work, there have, indeed, been improvements in the quality of the concrete results we help produce on the ground, as well as increased focus and greater policy impact and replication for both our local governance and microfinance operations. This was, perhaps, the most significant achievement last year. Both local governance and microfinance operations attracted interest from development partners in 2002, and I am pleased to report that non-core contribution agreements more than tripled. These are additional financial resources that go directly to support the poor in the LDCs, and they constitute, indeed, a vote of confidence for the work UNCDF is doing.

Challenges remain in the need to increase the dissemination of UNCDF experience and lessons learned, in order to support policy impact and replication and to build on efforts to be a center of excellence in local governance and microfinance, as well as to enhance the financial efficiency of UNCDF through cost-recovery for its Technical Advisory Services.

The demand for UNCDF’s technical advisory services in local governance and microfinance has increased, and these services are 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 to 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 partners.

We will 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 an impact assessment, which is taking place this year, which the Executive Board requested UNCDF to undertake.

Conclusion

Mr. President, on the basis of the results we have attained on the ground, and from the feedback I have heard from the distinguished delegates and colleagues from both the programme and donor countries, I am convinced that UNCDF’s contribution is relevant to people in the LDCs, to their leaders and to the international community. During a recent meeting with the Under-Secretary General responsible for the LDCs, Ambassador Anwarul Chowdhury, I told him that he should consider UNCDF as one of the operational arms for the implementation of the Programme of Action. We agreed to pursue our discussions in the months to come and to work in close cooperation in this regard.

Mr. President and Distinguished Delegates, I assure you that we are doing everything possible to fulfill the mandate given to us by the General Assembly, to help reduce poverty in the Least Developed Countries, and to meet their Millennium Development Goal targets.

We are highly appreciative of the decision adopted by the Executive Board at its September 2002 Session (decision 2002/26), which recognized the excellent work done by UNCDF, and its unique role within the international development financing architecture. This Decision invited the international community to contribute adequate resources to support UNCDF’s work. The substance of the 2002 Decision was reiterated again recently, in the June 2003 session (decision 2003/9), when the Executive Board reaffirmed “the unique contribution of UNCDF to the achievement of the MDGs and the Brussels Programme of Action for the Least Developed Countries.” The June 2003 Decision also “urged the international community to follow up on decision 2002/26 in order to allow UNCDF to fulfil its mandate.”

I am very pleased with the endorsement by the Executive Board of our resource mobilization target. However, the actual flow of funds has yet to occur, and at this point in time, UNCDF is not able to meet the demands of the LDCs for its investment and capacity-building services. As noted by the Executive Board in June, “the regular (core) resources available to UNCDF fall far below the demand of programme countries, in particular the least developed countries, for its two areas of concentration: micro-finance and local governance/decentralization.”

I know that many countries where UNCDF is working – present here today – have been disappointed by this situation. I also know that many LDCs who have requested UNCDF’s support in 2002 have been disappointed by our incapacity to respond positively. We will be able to better support the implementation of the Programme of Action of the LDCs and the attainment of the MDGs if adequate resources are made available to us and to the poor with whom we invest.

Mr. President and Distinguished Delegates, let me conclude here by saying that we are most pleased with, and appreciative of, the strong endorsement of our work by the LDCs 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 its investments and capacity-building services and its ability to respond. Many programme countries have also expressed confidence in UNCDF by contributing to our core resources. With the support of the international community – donor and programme countries – UNCDF will be able to do more in investing with the poor at the local level. I have no doubt that UNCDF will get in the coming years the support it needs to fulfill its mandate in support of the poorest countries in the world.

Thank you.

Link: Substantive Session of ECOSOC 2003