How Localization Can Help Overcome Extreme Poverty

mic Listen to the podcast:

World Bank Group’s Mahmoud Mohieldin and Wharton’s Djordjija Petkoski discuss how innovative financing and partnerships are helping to reduce poverty.

Countries that have invested in human capital, infrastructure, and decent systems of social protection have made more progress than others in reducing extreme poverty, according to Mahmoud Mohieldin, the World Bank Group’s senior vice president for the 2030 Development Agenda, United Nations Relations, and Partnerships. At the same time, entrepreneurs and corporations must accept responsibility for shaping their business environments, notes Djordjija Petkoski, a senior fellow at Wharton’s Zicklin Center for Business Ethics. Mohieldin and Petkoski discussed these and other ways to meet the United Nations’ Sustainable Development Goals, or SDGs. Below is an edited version of their discussion.

Knowledge@Wharton: At the recent spring meeting of the World Bank and the International Monetary Fund in Washington, D.C., the new World Bank Group president David Malpass said that more than 700 million people around the world are still mired in extreme poverty. What is the thinking at the World Bank and the IMF about creating jobs and increasing the median incomes for people who are so poor?

Mahmoud Mohieldin: We face a big challenge, especially since heads of state and country leaders agreed in 2015 to eliminate extreme poverty by 2030 (as part of the 17 Sustainable Development Goals). We only have 11 years to go. The success in halving the number of the poor under the World Bank’s Millennium Development Goals has been attributed to different countries achieving higher growth that enabled better jobs and higher incomes, especially in China and India.

Now, the struggle is in countries in Africa and other low-income countries, which are not growing sufficiently. We need to invest in human capital, in infrastructure, and in systems of social protection to deal with economic shocks or natural disasters. Economic growth [in those countries] has been in decline during the last couple of years, and the World Bank and the IMF have revised their growth estimates for 2019 and for the next two years. In order to deal with the challenges of extreme poverty, especially in Africa, you need steady growth exceeding 6%.

Knowledge@Wharton: Djordjija, if the world economy has to grow at more than 6%, especially to deal with extreme poverty, what could make that happen?

Djordjija Petkoski: The first challenge is that we measure growth through [the metric of] GDP and how much that captures the quality of, and the cost of, the growth. We might have short-term growth, but it is not necessarily at a sustained level. Most people who do not have jobs are young people. It is not about creating growth so that they can be employed. The question is, do they have the relevant knowledge to be employed? This is usually neglected. The second [challenge relates to] the quality of the jobs and whether they provide opportunities to improve their knowledge.

Knowledge@Wharton: Mahmoud, at the same spring meetings you led a panel discussion on the World Bank’s Sustainable Development Goals and the need for countries to integrate some of those into their national budgets. Why is that important? Are some countries doing a better job than others in that respect?

Mohieldin: I like to draw a picture of finance like a river with many sources: public, private, domestic and external. In order for that river to give you the required water for life and development, all sources need to be active. Unfortunately, many countries talk about the agenda for development in a generic or general way, but do not attach costs or spending priorities to that.

“[Consider] finance like a river with many sources: public, private, domestic, and external. For that river to give you the required water for life and development, all sources need to be active.” –Mahmoud Mohieldin

I have recently come across good examples of work by India and Bangladesh at the state level, and at the country and at state levels in Columbia. Vietnam and China have been masters of long-term planning. Strategies, plans and budgets [are important], but at the end of the day it is all about implementation. You need to get the right public and private financing, [safeguard] the environment, encourage collaboration in business, link it to the SDGs, and get as local as you can in terms of implementation. It is a new system that respects the priorities and the comparative advantages of local communities.

Knowledge@Wharton: In your experience, what are some of the barriers to implementation? What could be done to overcome those barriers?

Mohieldin: We are pushing towards more localization, based on the experience of the Millennium Development Goals that ended in 2015. In our work with the United Nations Development Program, we found that the difference between failure and success is delivery where it matters. All of our development goals mean better life, better services, and better support to individuals wherever they are. We have seen by evidence that if the focus was centralized, assuming that there would be some magic from a trickle-down effect, that did not work. The countries that achieved better results than others in education, health services and transportation are those that factored in local priorities and engaged the communities in setting their priorities.

With budget constraints, you cannot do everything at the same time. It is better to engage the local communities, who know what they need. Then, you can always [specify] standards at a national level and encourage competition between different cities to achieve the goals.

One positive example is from Columbia. It had been facing a civil war, drug trafficking and other tensions for many years. In the last couple of decades, it has transformed itself to become a member of the OECD (Organization of Economic Cooperation and Development), which is the club of the richest countries in the world. That did not happen by leaving matters for time to solve, but with good policies, good institutions, and a great deal of localization.

Knowledge@Wharton: Djordjija, what could other countries learn from the example of countries like Columbia, which seem to have figured out how to overcome some of their challenges?

“If the focus was centralized, assuming that there would be some magic from a trickle-down effect, that did not work.” –Mahmoud Mohieldin

Petkoski: Localization is also about understanding the needs of the local communities. You also need entrepreneurship to address those needs. In budgetary allocations, it is important to look at leveraging portions of the budget to bring in the private sector. The World Bank Group is doing a lot in the context of blended finance, and such innovative thinking is needed also from governments.

The more direct knowledge is exchanged between countries without intermediaries, the better. Young people could play a tremendous role in that. Last semester, one of my students who was doing a project on homelessness in Philadelphia, visited Bangalore during the winter break, and came back with ideas on how to address that issue. This semester, she started implementing some of those ideas. Another student is developing a new model with a few of his colleagues to address the issue of healthcare for low-income people in the U.S. He said their concept could be equally relevant for Africa. By engaging in Africa, they also get inspiration on how to do it in Philadelphia. This knowledge exchange is what we need to support.

Knowledge@Wharton: Mahmoud, in some of your writings you have said that in the past, billions of dollars of investment were required to implement the U.N. Sustainable Development Goals, but that need is in the trillions. What innovative financing solutions have you seen that could help bridge that gap?

Mohieldin: By some estimates, the funding gap to achieve the 17 Sustainable Development Goals was between $4 trillion and $6 trillion. In only five areas – education, health, and three areas of infrastructure like water and transport and energy – the IMF estimates a gap of around $2.6 trillion.

Those gaps are part of a bigger story. The global system today has more than $100 trillion of available funds and assets, but many of those assets have negative yield or zero return. We have to encourage such funds to take perhaps more calculated risks, with the help and partnership with different agencies including the World Bank and the regional development banks, and get a part of those funds to where the priorities of development are.

Those funds will not flow directly, and need to be incentivized. They need to have better business environments, governance, rule of law, and pipelines of projects. The World Bank has such partnerships with many countries, where we do not just do transactions, but also help in improving the business climate and the pipeline of financeable projects.

We need to deal with all of the gaps together. In addition to the gaps in finance, there are gaps in implementation and data. The gap of data is responsible for much of the lack of funding in many countries; many investors may be guided by perceptions that might be wrong or suffer from prejudice. The government needs to understand the language of the private sector, and they both need to understand the language of the community or society.

“In budgetary allocations, it is important to look at leveraging portions of the budget to bring in the private sector.” –Djordjija Petkoski

Knowledge@Wharton: Djordjija, do you have any thoughts on how entrepreneurship could help in achieving the SDGs, especially among women entrepreneurs or those at the bottom of the pyramid?

Petkoski: The Zicklin Center and the World Bank Group have been working for five years with the Ideas for Action program for young entrepreneurs. We have another program called SDGs and Her (an online competition for women entrepreneurs to showcase how they contribute to the SDGs). Here, the entrepreneurs are learning that it is not sufficient to have a good business model and a good startup, and that they need to also help shape the business environment in which they operate.

Corporations should follow the same philosophy. Sometimes they say, “We don’t go in fragile states because they are fragile. There is no institution. The risk is high.” Yes, maybe the risk is high also because of their old business models. New business thinking helps them to be a part of building these institutions.

We have a good example of partnership in an investment in Uganda in vanilla production. (The partnership is between Firmenich, a flavors and fragrances company and one of the world’s largest buyers of sustainable vanilla, DANIDA, the development arm of the Danish Government; and Uvan Ltd., Uganda’s local vanilla processor.) They understood they needed to build partnerships and have local engagement, particularly in the case of vanilla, where women are the main producers. The more they are engaged in that, the stronger social cohesion in that environment will make it easier for other companies to come. We should not measure the success of these initiatives like engaging women entrepreneurs just by how many new businesses have started, but by how through such engagement, new spaces have been created.

Knowledge@Wharton: The World Bank has made a major commitment of $25 billion to digitalizing Africa, with an equal amount to be sourced from the private sector. Mahmoud, could you explain the strategy here? What is this so important in reducing extreme poverty?

Mohieldin: There is no way for Africa to come out from the traps of poverty and inequality without embracing the fruits of the knowledge, ideas and outcomes of the fourth industrial revolution, which is about how to deal with big data, new platforms of knowledge, including e-commerce and artificial intelligence.

This requires huge infrastructure. It should not be left [only] to some smart, skillful business people and young people alone. They are doing their part. There is a great deal of investment that should be done by the public sector and by the private sector in order to enable these countries to be part of this new world.

We are also keen on innovation in finance, for instance, through fintech, where we need the regulators and supervisors to be aware of the pros and cons. In addition, we need the society itself, which is the ultimate beneficiary of all this digitalization and innovation, to be brought up-to-date with the requirements of the new world.

Knowledge@Wharton: What do you both see as the biggest obstacles to the achievement of the SDGs by 2030? What should be done to overcome those obstacles?

Mohieldin: It is a country-level challenge. Some countries may suffer from fragility and conflict, while others are focused on the short term. What could help are long-term investments in education, health infrastructure, and in taking care of the environment and the climate. The other challenge is with resources. You may have a sophisticated government and community, but your public resources are not enough. We pursue a tailored approach that understands the pros and cons and the comparative advantages and disadvantages of each country, and try to provide solutions to their requirements.

Petkoski: We need to [focus on] management education. If the private sector creates most of the jobs and creates value, are we preparing our students to take the lead in this space? We also need to understand the challenges of the SDGs and for companies to engage with them. Students also need to be better exposed to the sustainable development goals and the challenges there.

Citing Knowledge@Wharton

Close


For Personal use:

Please use the following citations to quote for personal use:

MLA

"How Localization Can Help Overcome Extreme Poverty." Knowledge@Wharton. The Wharton School, University of Pennsylvania, 20 June, 2019. Web. 06 December, 2019 <https://knowledge.wharton.upenn.edu/article/localization-can-help-overcome-extreme-poverty/>

APA

How Localization Can Help Overcome Extreme Poverty. Knowledge@Wharton (2019, June 20). Retrieved from https://knowledge.wharton.upenn.edu/article/localization-can-help-overcome-extreme-poverty/

Chicago

"How Localization Can Help Overcome Extreme Poverty" Knowledge@Wharton, June 20, 2019,
accessed December 06, 2019. https://knowledge.wharton.upenn.edu/article/localization-can-help-overcome-extreme-poverty/


For Educational/Business use:

Please contact us for repurposing articles, podcasts, or videos using our content licensing contact form.