Promotion of inclusive and sustainable economic growth
Justification, challenges and opportunities
The high rate of poverty demonstrates the need to focus on ensuring high economic growth and job creation that benefit the poor. Bolivia has the potential to achieve growth rates above the 4–6 per cent achieved over the past 7 years but it requires improvements in the business climate.
Most of the people living in poverty work in small scale agriculture and/or the informal economy, where services such as commerce are a major provider of jobs. The production of natural gas and the modern mines which in recent years have contributed the most to growth and exports and to the increase in public sector revenues, do not provide many new jobs.
Production and productivity in agriculture are low, mainly because of the low technical capacity within the sector. Traditions and customs especially in the highlands to a large extent prevent the merging of small farms into larger and more profitable farms. Insufficient access to financing and markets are other constraints.
Small innovations could have considerable impact in terms of productivity and at the same time reduce pressure on natural resources. Currently the agricultural frontier is advancing rapidly with approximately 300,000 ha of forest being cut down annually. This occurs as people from the highlands and valleys migrate because of a lack of economic opportunities.
The change from small-scale farming to a more market-oriented form of production is still proceeding very slowly, especially in the highlands and the valleys. The current cooperation between Denmark and Bolivia supports the process of change and it has also developed support mechanisms with promising results. At the same time the demand for agricultural products is increasing, both internally – driven by Bolivia’s economic growth – and externally through the higher demand for special Bolivian products like quinoa, traditionally produced by rural communities living in extreme poverty.
In the tropical lowlands agriculture is often driven by foreign capital investing in high-yield production. These production systems are often not sustainable because there are insufficient incentives to invest in preserving the fertility of agricultural land seeing there is still new forest land available at low cost.
However, increasing agricultural production and productivity will not be enough on its own to create a sufficient number of new jobs. Even if development in agriculture helps increase the income in rural areas, migration to the urban areas will continue, where the migrants primarily find jobs in the informal economy, mainly within commerce and services. Therefore, there is also a need to create more decent new jobs in the urban areas.
Investments in the private sector are low at present – less than 10 per cent of GDP. Even if this figure does not appropriately account for the investments carried out in the huge informal economy, it is still a challenge for Bolivia to increase private, productive investments. At the same time, the home market and a growing tourism sector provide good opportunities (also for Danish enterprises).
The opportunities for increased production are not being fully exploited, as the private sector – including international investors – does not have confidence in the Government’s commitment to creating a good business climate. A number of laws and regulations for the private sector, including for small scale businesses, are still not in force and there is a need – and hence an opportunity – for supporting the development of these, including facilitating a social dialogue between the Government, employers and workers.
Increasing the level of trust between the public and the private sectors and improving the business climate would help attract more formal private investments (domestic as well as foreign), boost the markets for small and medium sized enterprises as well as for farmers and create a basis for introducing better and greener technology.
The willingness on all sides to cooperate on how to improve the business climate to promote good investments and jobs is still lacking, but there are opportunities to facilitate such a dialogue – even despite the tendency for increased state involvement in production.
The following key results are expected:
Content/areas of intervention
Support for capacity building is expected to continue for the Ministry of Rural Development’s policy development and monitoring of agricultural development. In addition, continued support is expected for the Ministry’s programme to increase agricultural production, productivity, processing and marketing in small and medium sized farms and their organisations in the poorest areas of Bolivia.
This programme works in close cooperation with local municipalities, farmers and their organisations who also provide co-financing. The programme contributes to strengthening the capacity to promote productive development in the municipalities. Several thousand rural families, almost exclusively indigenous peoples, will benefit from this. The aim is to include other donors.
Furthermore, continued support for the national agricultural and forestry research institute is expected, promoting public-private partnerships in the development and application of better seeds and more sustainable production methods. This support will be provided with other partners, including the World Bank and Switzerland.
Support to small and medium sized enterprises is still expected through cooperation with their organisations at the national level, with whom good experiences have already been achieved. Focus will be on assisting the enterprises in improving their access to technology, markets and financing which will contribute to increased productivity, sales and decent, financially sustainable jobs.
Furthermore, support is envisaged for promoting policy making and social dialogue between the private sector, the public sector, trade unions and employers’ organisations at the national and local level to help improve the business climate and labour rights.
The expected support for the sustainable use and management of natural resources in forests, especially in the Amazon Basin and national parks, will also contribute to the creation of permanent jobs, including production based on forest products, ecosystem services (such as clean water and the uptake of CO2) and tourism.
The Danida Business Partnership Programme will facilitate economic development and job creation through cooperation between Bolivian and Danish businesses and other partners, leading to increased Danish investments in Bolivia. Furthermore, Danida Business Finance could possibly provide financing for relevant projects within the environment, renewable energy, water, sanitation etc.
Emphasis will be given to the promotion of human rights, including labour rights, environmental sustainability and anti-corruption, in accordance with the UN Global Compact.
As its point of departure, the promotion of Danish investments and trade will mostly use the Danida business instruments and the opportunities they provide for Danish businesses, as well as gradually strengthening the facilitation of commercial cooperation.
The involvement of Danish research institutions could further promote sustainable development in agriculture and other productive sectors, including in cooperation with the Danida Business Partnership Programme. The possibilities will be evaluated with a view to undertaking efforts to facilitate cooperation between Danish resources (research institutions, businesses etc.) and Bolivian partners who need access to modern and green technology, where Danish businesses have a comparative advantage.
Ministry of Foreign Affairs of DenmarkDanidaAsiatisk Plads 2 DK-1448 Copenhagen K Tel. +45 33 92 00 00Fax +45 32 54 05 email@example.com