Address by Dr. (Mrs.) Anna K. Tibaijuka, Under-Secretary General and Executive Director of UN-HABITAT, to CFC’s 20th Anniversary Seminar on the Role of Commodities in Development

Session Theme: Investment in the Commodity Value-chain

14 December 2009, The Hague, The Netherlands

Ms. Giuseppina Zarra, Honourable Chair of the Session,
Your Excellency Ambassador Ali Mchumo, the Managing Director of CFC,
Distinguished Speakers,
Excellencies,
Ladies and Gentlemen,

It is a great honour and privilege for me to address the first session of CFC’s 20th Anniversary Seminar on the Role of Commodities in Development.  I would like to take this opportunity to thank my good friend His Excellency Ambassador Mchumo, Managing Director of CFC, for inviting me to this important event.

UN-HABITAT is very pleased to have been invited to share its views and contribute to the discussion on the Role of Investment in the Commodity Value-chain. Both CFC and UN-HABITAT share a common vision and firm conviction – that is to help citizens of our member states lift themselves out of poverty and forcefully promote sustainable development.

Ladies and Gentlemen,

Representing the UN programme on human settlements, I shall base my address on the spatial dimension of the commodity challenge. I shall focus on the last question that this panel seeks to answer, namely, the relationship between rural-urban linkages and investment in the commodity value chain.

Commodity production is the largest source of revenue and employment for over a billion people worldwide. Africa is the world’s most commodity-dependent continent. One half of African countries generate 80 percent of their export earnings from commodities. The situation is no different in many landlocked developing countries and small island states. It is the poor who depend on commodities for their meager survival and therefore getting a fair deal for the commodity sector is a pre-requisite for achieving the Millennium Development Goals.

Commodity producers in the developing world have suffered from a myriad of problems for several decades that are familiar to this distinguished audience. The biggest problem has been the frequent and sharp declines in commodity prices and high price volatility. For example, real prices of 41 out of 46 leading commodities declined significantly between 1977 and 2001. In 2002, the real price of coffee was just 14 percent of the real price of coffee in 1980. As you all know, for millions of people in Africa, coffee is the main source of income and livelihood. A number of other factors also have contributed to the precarious situation the commodity producers and commodity-dependent countries find themselves in today. On the demand side, continued deterioration of terms of trade for developing countries and trade distorting measures adopted by developed countries are proverbial. On the supply side, commodity producers have also seen dwindling incomes from falling yields because of a combination of constraints including stagnant technology, inadequate agricultural support services (research, extension, credit and inputs) to deal with new challenges such as new pests, diseases, and now as we are finally aware, climate change. Agricultural marketing services also suffered a major setback in the lost decades of the 1980s and 1990s under structural adjustment programmes. In remote rural areas, private sector marketing services failed to emerge in place for the state owned or cooperative services they had been expected to replace, creating a huge gap. The outcome of all this is depressed farm incomes triggering an exodus of people from rural to urban areas in search of better opportunities.  It is important for us to recognize that raising rural productivity in an environment of fair, equitable and stable commodity prices are key to alleviating poverty in developing countries and achieving the MDGs.

Ladies and gentlemen,

As a result of the above, we are living in a rapidly urbanizing world today. Over half the world’s population and three-quarters of people in developed countries now live and work in cities. Although nearly 60 per cent of people in the developing world still live in the countryside, they are moving into cities in larger numbers than ever before. Although this may surprise some, Africa is the fastest urbanizing continent in the world today. By 2030, half of its people will be living and working in cities and towns. Asia, which is home to 60 per cent of the humanity, is also urbanizing quickly, and by 2030, 60 per cent of Asians will be living in cities. Poor employment prospects, inadequate development and provision of services and facilities in rural areas, not to mention poverty, civil wars and natural disasters, have all contributed to the high influx of people into cities.
From a human settlements perspective, this situation is worrisome. Rapid and chaotic urbanization that is happening in the developing countries means that the majority of the urban dwellers, the ex-commodity producers fleeing rural poverty, have ended up in even worse conditions in urban slums. Slum populations make up 65% of urban Africa, 46% of urban Asia and 33% of urban Latin America. Apart from its sheer unacceptability in terms of human health, welfare and dignity, this kind of existence is a recipe for social disorder and tensions. Another feature is also huge or mega cities, often administrative capital cities or ports. We have an increasing number of cities with more than 10 million people, which we call mega cities. Cities with over 20 million people are called meta cities. But also we have a situation where cities are doubling their populations every 12-15 years, making it impossible to plan adequately for housing and urban infrastructure. It is a vicious circle.
The signs are already clear in terms of high crime rates and other anti-social behavior. While the poor are not criminals or terrorists, it is also a fact that excessive inequality and deprivation creates veritable grounds for criminal minds to suck idle impoverished youths into anti-social behavior. Improved farm and off farm employment in rural areas matched by better and stable terms of trade for commodities is a clear way to decelerate the rapid and chaotic urbanization that is going on currently.
For UN-HABITAT therefore this seminar is important and timely. It offers an opportunity to provide you with the implications of dysfunctions in global trade at the local level. Populations moving out of their homes prematurely into cities that are not prepared to offer them alternative employment is not a way to deliver the MDGs and fight poverty. It is a recipe for disaster in the long-term. Corrective measures are required at all levels warranting necessary international support measures.  I shall henceforth, and in the interest of time, list what I consider as key measures or interventions at global level, this being a global event.

(1) Understanding the economics of settlement patterns and its linkage to commodity production. People move not because they will be better off, but because they expect to be better off. This is the well known Harris-Todaro model of migration. If the profitability and stability of commodity production is not addressed, peasants and farmers will move into cities prematurely, creating food shortages, food riots, and new forms of pressures and tensions at local and finally at international level. International migration is an outcome of the rapid and chaotic urbanization taking place in the developing countries. The youth trying to swim from Africa through the Mediterranean Sea are a case in point. We ignore addressing the fundamental cause to this problem at our collective peril. Putting fences around affluent countries or neighborhoods (read gated communities) is only a palliative that will not work in the long-run. Small-scale commodity producers have a right to an equitable compensation for their products. CFC was created to secure this ideal, but as we all know it remains challenging. So people have voted with their feet and abandoned production of such commodities altogether where they have found alternatives, or moved to cities.

(2) Secure balanced territorial development (BTD) through investments in transport and other relevant physical infrastructure. We have to appreciate and embrace the principle of balanced territorial development and work to promote it. BTD requires investment in transport infrastructure so that regions would be connected to markets and sell their goods competitively. Ask any family living in poverty anywhere in the world today, whether in towns or in the countryside, and they will tell you that transport is a major part of their meagre budget. Transport and roads are the essential link in balanced rural and urban development. People in rural areas will find it hard to prosper if they do not have access to services and markets for their products in cities while cities cannot flourish without growing rural economies. Development of urban-rural transport, specially trunk and access road networks, is a potent tool for promoting balanced territorial development. They facilitate people’s access to goods, services, and jobs in both areas as well as adding value to rural produce and reducing transaction costs.
Commodities are often low value high volume produce that require to be moved by rail. Yet, Africa’s rail network is the poorest in the world. At present, Africa’s rail freight is under 2 per cent of the world total and air freight is less than 1 per cent. Its road network is also poor. Vast areas in the continent are not accessible by road. Its per capita power generation capacity is half that of Asia and Latin America. Africa’s marine capacity is only 11 per cent of the world’s total marine capacity. Over 20 per cent of Africa’s total population lives in land-locked countries that are far away from the nearest large markets and import-export destinations. What we must build is a network of infrastructure connections that stretches across villages, small towns, large cities and peri-urban areas – a network of urban-rural connections which will accelerate development.
The concentration of investment has turned cities into places of opportunity, economic growth – and hope. No wonder then that millions in the countryside dream of a better life in the city. But the economic growth of cities will only be self-sustaining if the concentration of services in cities also drives development in the rural areas. This is why UN-HABITAT is promoting the importance of improving rural-urban linkages. Improved rural-urban linkages are crucial for the development of the commodity sector in developing countries. Imagine how this could be secured in Africa without investment in rail-networks?  In this regard, I regret to point out that on the African continent, 50 years after independence, it is only the Chinese built railway line between the port of Dar es Salaam in Tanzania  and Lusaka in landlocked Zambia that has been added to the stock inherited from the colonial era. As you might be aware, this was accomplished in the context of a political struggle to break the monopoly of the then apartheid South Africa. I put it before this August assembly as a single indicator of the lack of seriousness in the transformation of African economies that continues to prevail. It is difficult to see how any commodity producer, however efficient he or she was at production, would compete effectively in international and regional trade without access to efficient modern rail transport infrastructure. Even if one succeeded at value addition that my colleague from UNIDO has already ably elaborated, in today’s globalised world, economic competitiveness is also in transport and trade facilitation. Regional trading also requires such infrastructure support. Otherwise it will continue to be cheaper for coastal cities (that also dominate and comprise 60% of urban Africa’s populations) to import commodities from abroad instead of their hinterlands. This way the vicious circle would continue. The imperatives of saving the climate have also added a new impetus to this issue of reducing dependency on fossil fuels for long distance haulage of produce or energy production. As for horticulture, we need efficient air-cargo infrastructure, cold storage chain etc. In this regard, I recommend that CFC convenes, as a matter of great urgency, an African Expert Meeting or seminar to discuss the issue that would lead to a political conference to raise awareness. UN-HABITAT will be pleased to partner with you on such an undertaking to underscore the settlements dimension of the current laissez faire!

Ladies and Gentlemen,

(3) Invest in irrigation infrastructure countrywide to secure human settlements and raise rural productivity. Another issue that I would like to mention in particular is the failure of African countries to make full use of their most precious natural resource - water. Only 4 per cent of the renewable water resources in Africa are under irrigation. It is even much worse in sub-Saharan Africa where only 1.6 per cent of the water resources are used for agriculture. Only 7 per cent of the arable land in Africa is irrigated compared to 40 per cent in Asia. As we know, most of the farming in Africa is done under rain-fed conditions. Unless African governments make significant investments in irrigation infrastructures and better water management techniques their hopes of achieving food security will remain an illusion. It cannot be overemphasized that climate change also makes this more urgent than ever before!

(4) Good urban governance and secondary towns development for commodity processing and creation of off-farm season employment: Following on from my UNIDO colleague, I like to emphasize the importance of undertaking adequate investments in the area of value-addition in the commodity sector, albeit from our settlements perspective. The need for processing of commodities in places of production is essential if one is to fully utilize commodities for a country’s own development. We often say that commodity-dependence is a root cause of low development in many developing countries. Commodity-dependence per se is not the problem. The problem is that the commodity sector in these countries is suffering from low-productivity, low value-addition, low product quality and low competitiveness. Of course there are also restrictive business practices that must be eliminated by the WTO mechanisms. But generally, for Africa for example, there has been colossal loss of the share of the trade because of poor productive capacity and supply competitiveness.

Commodity processing, by and large, reaps additional benefits when it exploits locational advantages.  These advantages are often to be found by locating processing facilities in well functioning urban centres, which by definition should have economies of scale, lower input costs and greater workforce availability.  A properly articulated settlements hierarchy will help ensure the availability of urban centres to meet needs of investors in commodity processing.  Regrettably, few developing countries undertake the regional planning necessary to ensure this.
Furthermore, if cities are dysfunctional and fail to reap their in-built advantages due to poor governance, higher input costs will result leading to a less attractive environment for commodity processing.  Good urban governance, which is promoted by UN-HABITAT, is therefore essential to harvesting the value-added potential of commodity processing. Rural-urban infrastructure also stimulates growth of small and medium-sized towns.

(5) Support Local Economic Development Initiatives in Secondary Towns .Small and medium-sized towns are an effective mechanism for providing services to rural areas, including educational, health and financial services. If properly formulated and implemented, these policies and strategies can significantly contribute to the attainment of several of the MDGs.
In this regard, UN-HABITAT is pleased that CFC was willing to support our first pilot project at promoting Local Economic Initiatives in Secondary Towns. The Lake Victoria in East Africa is a typical commodity dependent producing region with coffee and tea as dominant products historically. However, over supply of coffee requires diversification to improve and stabilize incomes. Although the region is one of the leading banana producers in the world, its remoteness from the sea limits possibility for it to join the banana trade. Opportunity was identified in processing using an indigenous technology to extract banana juice. This product has huge potential both locally and in the international market. CFC has provided ground breaking finance to test this model. UN-HABITAT is interested in the area to promote sustainable urbanization in Africa’s most strategic yet fragile eco-system, the source of the Nile, on which a huge part of Africa depends. CFC has a key role to play in this joint undertaking by assisting farmers to develop alternative incomes to coffee and tea from banana juice. It is a win-win situation and we look forward to continue working with you on these issues.

(6) South-South Cooperation: Another area through which we can increase the efficiency of the commodity value chain is by forging strong cooperation in the area of agricultural research and technology transfer among countries in the South. South-south cooperation is a centerpiece of UN-HABITAT’s mandate and the way of doing business. It has been so since the adoption of the Habitat Agenda in 1996. South-south cooperation calls for enhanced co-operation, technology transfer and the systemic exchange of knowledge, expertise and experience at all levels. The first step in any form of cooperation, including south-south cooperation, is to match supply with demand for knowledge and expertise in a systematic manner. In the area of commodity development, developing countries, particularly those in Africa, can learn a great deal from countries such as China, India and Brazil. South-south cooperation has become increasingly effective and meaningful in today’s information society. The use of information-communication-technology offers us unprecedented opportunities for matching supply with demand for knowledge, expertise, know-how and technology. It is incumbent upon us to make use of this opportunity. South-south cooperation also provides new means for achieving greater coherence as countries can learn from each others’ experience across borders. It also provides effective means of reducing transaction costs as we avoid re-inventing the wheel. For these reasons and many other reasons, south-south cooperation must become an explicit and well-funded endevour for the development of the commodity sector in developing countries. In addition to enhanced south-south cooperation in the areas of expertise and technology transfer, countries in the south also need to foster stronger trade links among themselves. South-south trade has a huge potential for commodity trade between commodity exporting countries and the fast growing economies in Asia like China and India. South-south trade will provide a great window of opportunity for commodity exporters to increase their earnings from commodity export.

Distinguished Guests, Ladies and Gentlemen,

I hope this seminar will contribute to creating awareness, better understanding and recognition of the crucial importance of the commodity sector in developing countries. It also gives us a great opportunity to reflect upon various constraints confronting the poor commodity producers world-over and how to address these issues. I have talked from an angle of human settlements, something that you might not be familiar with. However, I believe my perspective has shown that all development action is local and in fact delivering the MDGs is about promoting local action for global goals.  Let us join hands to bridge the development divide between rural and urban areas in developing countries through the development of a viable commodity sector in vibrant secondary towns that will be economic growth nodes.

I thank you for your attention.