Lilianne Ploumen at the TCX 5th Anniversary Conference
Speech by Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, at the Currency Exchange Fund (TCX) 5th Anniversary Conference,
Amsterdam, 9 April 2013
Your Royal Highness, ladies and gentlemen,
Development cooperation has changed a lot.
Once we were used to governments giving aid.
Now individuals, companies and governments are investing in developing countries – jointly or separately,
changing the lives of smallholders and companies all over the world.
Take Basanti, a woman in India.
A few years ago she started a spice business.
Depending on market demand, she buys cumin, coriander and cinnamon.
She mixes and grinds the spices to make new products.
And she sells these products to make a living.
On wakibi.nl – a Dutch crowdfunding website – she applied for a loan as part of a group of ten women living in the same community.
To expand their businesses and improve the quality of their families’ lives.
After she has repaid her loan, Dutch lenders can invest again,
so that more people benefit from their modest capital.
That, ladies and gentleman, is how development cooperation often works today – and even more how it will work in the future.
With investment instead of aid.
On a footing of equality instead of dependence.
And promoting sustainable economic development instead of offering short-term aid.
To adapt to this reality we need a new approach,
with new tools, new partnerships, new ways of stimulating funding and driving development.
The Currency Exchange Fund fits well in this new world of development cooperation and is a model of good practice.
But as you all know, we can’t rest on our laurels – one good model is not enough.
We need more such innovations to make the new development cooperation a success.
The private sector is now playing a bigger part in development cooperation – that’s good news.
Because foreign investment fosters economic activity.
Companies have valuable knowledge and expertise to share,
which they can use to the benefit of industry abroad.
Small and medium-sized enterprises too have an important part to play in the economy.
They provide scope for growth and employment – especially in low-income countries.
They also offer opportunities for investors,
and for social and economic progress.
But we can’t rely on the market alone.
Sustainable development demands more than capital and trade.
The market isn’t necessarily a respecter of people or the planet.
And it isn’t perfect – supply and demand often don’t match.
So we can’t leave the future of the world to the market alone.
Because even in booming markets, there are essential preconditions for successful investment.
Political stability is an absolute must.
So is a reliable tax system.
And without sound infrastructure, trade won’t take off.
There are also many financial preconditions.
For the private sector, the risks of investment in a country are decisive.
Governments can share these risks with the use of instruments like guarantees, insurance and subordinated loans.
Such instruments and innovative mechanisms enable us to encourage long-term, socially and commercially profitable investments.
So with relatively little help, we can create the right conditions for trade,
for substantial private sector investment in high-risk countries and sectors,
and for SMEs to start, expand and flourish.
All this promotes development and sustainable growth.
Let’s return to the example of Basanti in India.
Without Wakibi, she would never have come into contact with her investors.
They lent her money because the website provided the right conditions:
a 98% repayment rate,
and the ability to select an entrepreneur online – with the help of a project description, a photo and a personal story.
This shows the importance of innovative mechanisms in stimulating investment – and the role of capital as a catalyst.
Innovative approaches attract a wider range of investors,
not only traditional donors.
This means less dependence and more sustainable growth.
The work of TCX is a fine example of innovative finance.
You were ahead of your time in establishing your fund.
By addressing an important precondition for investment – protection from currency risks – you improve the capital market in emerging economies.
You have also brought together parties from once different worlds: governments, development banks and commercial banks.
The subordinated loan that the Netherlands and Germany gave TCX for its start-up resulted in new, direct commercial investment by TCX shareholders,
which amounted to more than seven times the initial sum that was lent.
And with a return on equity of about 3% per annum,
TCX is an excellent example of a revolving mechanism:
consistently profitable and therefore economically sustainable.
Thanks to TCX, long-term investments, in local currency, are now being made that otherwise would not have happened.
Take the Kenya Women Finance Trust, for example.
Due to TCX, this fund can hedge foreign exchange risks of long-term loans on the international capital market, in local currency,
giving women business opportunities they need and stimulating the Kenyan economy.
This shows how TXC is linking trade and development.
Today you are discussing the question, ‘What do lenders really want?’
You want to find inspiring new ways of providing funding responsibly.
That makes me happy,
because I want to see more innovative solutions like this for the shortcomings of the market.
I’m asking all kinds of parties to help – including you.
Because creativity is also needed for the new international development agenda – the agenda that will replace the Millennium Development Goals.
Let’s spur governments on to create the right conditions for business to flourish.
We should engage the private sector not only in setting the agenda, but also in delivering results.
On the basis of a fair share of responsibility.
The Netherlands is putting the transition from aid to investment into practice.
We have been involved for some time in using innovative financing mechanisms for private sector development.
And I’ll continue to stimulate commercial investment even more by promoting public-private partnerships.
With funds for private investment in agriculture, infrastructure and health insurance, for example.
At the same time, I’m thinking about what more we can do.
What I’ve heard about the TCX research department is helping.
The models the research department develops are used by emerging markets and central banks to forecast price fluctuations – an intrinsic risk that merits more attention.
These models can be very helpful to the market and to governments.
And they are an example of what we can do to make the market work even better in developing countries.
The Netherlands should continue to take the lead.
Together we can come up with more innovative forms of finance in the interests of sustainable development.
So I urge you to continue looking for innovative funding methods.
So that women like Basanti in India can have successful businesses,
and better futures for themselves and their families.
Which will mean a more sustainable and equitable future for the world.
I wish you a happy anniversary.