Massive International Flows of Private Capital now Shaping World Environmental Future

FOR IMMEDIATE RELEASE
Wednesday, April 23, 1997

Hilary F. French, Worldwatch Institute Vice President

The hundreds of billions of dollars of private capital now flowing to developing countries have growing power to make or break efforts to build an environmentally sustainable global economy, according to "Money and the Future of the Earth" a special issue of World Watch magazine. The special issue notes that funds from public sources such as development banks have been largely supplanted by private investments during the 1990s, and calls for new policies by governments and international agencies to steer these funds toward environmentally sound enterprises.

The flow of private money to the developing world has surged from $44 billion in 1990 to $244 billion in 1996, according to World Bank estimates. "The bulk of this investment--which is much harder to track than public flows--is underwriting environmentally destructive forms of development including mines, coal-fired power plants, and logging projects," reports Hilary F. French, author of the issue's lead article, "When Foreign Investors Pay for Development."

Yet French also argues that many good investment opportunities that benefit the environment are now available, and are essential to averting large-scale destabilization of the planet's forests, watersheds, and climate. However, the new technologies and approaches need financing if they are to be adopted. New financing and investment approaches are described in two accompanying articles: one on new strategies for financing solar energy in rural areas of the developing world, and another on a model program that integrates the protection of wildlife with the financing of local development in African villages.

French's article reports that the boom in infrastructure development and resource exploitation is destroying large areas of the planet's forests and threatening to accelerate the destabilization of climate, in addition to disrupting indigenous peoples in many areas.

• In Malaysia, the Swiss-based engineering group Asea Brown Boveri is the prime contractor for the Bakun Dam project in Borneo. If built as planned, the 2,400 megawatt hydroelectric project would clear more than 170,000 acres of rainforest, flood an area the size of Singapore, and displace 9,500 people from their ancestral land.

• International investors are jockeying to finance the more than 500 power plants that China plans to build by 2010, many of which are to be fueled by coal. China is already the world's second largest emitter of carbon dioxide, and could top the list within two decades if these projects are completed.

• Timber companies that have liquidated their own countries' forests are now aggressively clearing forests in other parts of the world. In recent years, companies from China, Indonesia, Malaysia, and South Korea, among others, have won timber concessions that could deforest large swaths of the globe in Brazil, Cambodia, Cameroon, Gabon, Guyana, Nicaragua, Nigeria, Papau New Guineau, the Solomon Islands, and Suriname.

• Several U.S. companies have announced plans to step up gold mining overseas. The Newmont Mining Corporation, based in Denver, began extracting gold in Peru in 1993, in Uzbekistan in 1995, and in Indonesia in 1996.

French sees hopeful signs despite these threats. Most notably, some foreign investment is funding new energy technologies in the developing world, which offer opportunities to break the dependence on heavily polluting and climate- altering fossil fuels.

The manufacture of efficient compact fluorescent light bulbs is now shifting to developing countries. In 1994, China made some 60 million of these bulbs - - more than any other country -- with funding and technology in part from joint ventures with firms in Hong Kong, Japan, the Netherlands, and Taiwan.

On a limited scale, international private capital is financing biodiversity preservation -- including pharmaceutical prospecting, eco-tourism, and sustainable forestry. Ston Forestal, the Costa Rican subsidiary of the South Carolina-based Ston Container company, holds 12,800 hectares of small woodlots on Costa Rica's Osa Peninsula that have been certified as sustainable.

While such "green" investments are still dwarfed by the vast sums pouring into such environmentally damaging operations as coal-fueled generation of electricity and wholesale cutting of forests, World Watch describes policy tools that could shift the weight of investment toward safer forms of resource extraction and manufacturing.

The article "Shining Examples," by Christopher Flavin and Molly O'Meara, examines the challenge of financing household solar electric systems in the developing world. The authors note: "While the power markets of the 1990s seem awash in capital, virtually none of this money is directly available to the 2 billion people in the world who still lack electricity."

However, they find that "a handful of visionaries" at nonprofit organizations, private foundations, investment firms, and the World Bank are working to bridge this gap. The World Bank's private sector lending affiliate, the International Finance Corporation (IFC), is backing several efforts to provide financing for both producers and purchasers of rooftop solar electric systems. And a Dutch investment bank, Triodos Bank, has begun to provide loans to solar-service companies, credit institutions, non-governmental organizations, and village cooperatives to promote the purchase of solar electricity home systems. Based on successful pilot projects in Uganda and Swaziland, Triodos launched a Solar Investment Fund in late 1996 that is now negotiating 10 solar loans in Africa, Asia, and Latin America.

In "The Price of Habitat," author Cheri Sugal examines the financing challenges that arise in southern Africa where the fragmentation of habitat and swelling herds have made elephants a menace to local peoples. Sugal highlights Zimbabwe's Communal Areas Management Programme for Indigenous Resources (CAMPFIRE), in which local people receive revenue from the regulated sale of sport hunting licenses. The income has been used to build health clinics, fund soccer teams, and invest in a grinding mill, among other ventures. And the program has reduced the number of elephants killed by both hunters and poachers. Sugal argues that: "To find long-term solutions, it will be necessary to find ways to bring economic benefits to the people whose villages take the brunt of elephant breakouts."

Other financing strategies also show promise, reports Sugal. The World Wildlife Fund-U.S. is working to broker "debt for ivory" swaps, in which African nations agree to increase spending on conservation programs and either destroy or better protect their ivory stockpiles, in exchange for debt relief from northern creditors.

French's article calls for a number of international policy reforms to encourage a greening of international investment, such as stronger enforcement of environmental standards in the World Bank's private sector lending operations and the development of baseline international environmental standards for industry.