recent experiences and challenges in promoting cleaner production investments in developing...

Journal of Cleaner Production 11 (2003) 629–638www.cleanerproduction.net

Recent experiences and challenges in promoting cleaner productioninvestments in developing countries

E. Ciccozzi∗, R. Checkenya, A.V. RodriguezDepartment of Financial and Management Accounting, Economics and Administration Faculty, State University of Rome, Rome, Italy

Received 27 August 2001; accepted 21 March 2002

Abstract

The paper presents on the experience of the first year of implementation of the UNEP project ‘Strategies and mechanisms forpromoting cleaner production (CP) investments in developing countries’. An insight into the experience gained in two developingcountries, Guatemala and Zimbabwe is given in separate cases.

The paper attempts a preliminary—by no means exhaustive—analysis of the current status of CP awareness among the financialcommunity in selected developing countries and the main barriers to funding CP from a financial sector perspective. The experiencegained in five developing countries allows to better investigate the ways whereby the financial community could, and perhapsshould, more effectively promote financing of CP, thus contributing to the spread of the CP concept and measures at the macro(government), medium (industry associations, chambers of commerce) and micro (enterprises) levels. In doing so, the paperindirectly emphasises the role of other key stakeholders.

Suggestions and recommendations expressed in the paper have to be taken clearly with a pinch of salt, as each country in thedeveloping world has its distinct economic, political, social and cultural features. 2002 Elsevier Science Ltd. All rights reserved.

Keywords: Cleaner production; Eco-efficiency; Developing countries; Financial institutions and investments

1. Introduction

Increasing evidence of the main economic—otherthan environmental—benefits of cleaner production(CP)1 has succeeded in gaining industrialists’ confidencein CP, thus improving their CP knowledge and uptakeover the last years.

A survey conducted by UNEP/DTIE under the project‘Strategies and mechanisms for promoting CP invest-ments in developing countries’ [2] revealed that severalnew initiatives have been developed to promote invest-ments in eco-efficiency oriented approaches and techno-logies, other than waste minimisation—albeit mostly atthe initiative of governmental, quasi-governmental insti-tutions and non-governmental organisations (NGOs).

∗ Corresponding author. Tel.:+33-1-44-37-76-37; fax:+33-1-44-37-14-74.

E-mail address: [email protected] (E. Ciccozzi).1 CP is used here interchangeably with eco-efficiency and refers to

pollution preventive strategies, technologies and techniques.

0959-6526/03/$ - see front matter 2002 Elsevier Science Ltd. All rights reserved.doi:10.1016/S0959-6526(02)00106-3

Some consulting companies have also developed ser-vices on the same issue. The survey also highlighted thatin the face of CP merits, in terms of, e.g. reduced coststhrough enhanced resource use, reduced environmentalrisk, improved corporate or company environmental per-formance and competitiveness, financial institutions(FIs) appear to lag behind in these efforts to promoteinvestments in CP.

This is true in developed countries but more evidentin developing countries and economies in transition,particularly where the banking sector and capital marketsat large are still in their infancy and/or the legal frame-work to create an environment conducive to investmentneeds to be built or bolstered.

One year of activities in the field2 has confirmed thepersistence of a host of barriers to CP that were alreadyidentified in a research conducted in 1997 by IVAM,

2 UNEP project field activities take place in five selected countries:Guatemala, Nicaragua, Tanzania, Vietnam and Zimbabwe.

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mainly aimed at mapping the situation of CP in fiveselected countries [2]. A particularly important deterrentto investments in eco-efficiency still remains a dearthand difficult access to financing.

Two cases from Zimbabwe and Guatemala arereported in this paper as Appendices A and B, with aview to supporting some of the main issues raised ther-ein, with evidence from the ‘fi eld’ .

2. FIs and other financing sources

Most developing countries are still characterised bycomparatively poor financial sectors and difficult accessto credit for any type of business. Political instability,sadly still a common feature in many developing coun-tries, also acts as an important negative variable on theflow of global investment towards a certain country.3 Itshould also be added that in order to correctly analyseany bank’s strategic and operating policies, as well astheir products, one should pay heed to considering thecountry in which the bank operates.

In developing countries lending terms and conditionsare generally strict with high interest rates, short repay-ment periods and request of guaranties (in most CentralAmerican countries for instance, commercial loans areoften given on the basis of personal guaranty or guaran-ties for up to 2:1 or 3:1 to the capital), mainly financingworking capital.4 Additionally, loans are by preferencedirected to retailers and commercial enterprises.

Most banks in the developing world share an incapa-bility to distinguish a CP investment from an end-of-pipeproposal. A ‘higher risk and lower return perception’ ofCP investments coupled with general difficulties to trackcompanies’ records (especially small and mediumenterprises, SMEs), contributes to banks normallyrejecting eco-efficiency based loan applications, orincreasing the risk premium of their credit supply.Additionally, CP investment options often referred to assmall-sized investments (e.g. in the case of low-costoptions that may require financing in the range of a fewthousand US dollars up to some 50,000$), which furtherprevents banks from financing them. It is in fact mucheasier and cheaper (especially in terms of transaction andadministration costs of loans) to deal with fewer but big-ger (in capital terms) loan applications than with manydifferent small projects.

Field experience gained through the project shows that

3 In Zimbabwe, mainly as a result of an increasingly unstable polit-ical situation, inflation rate has grown as high as up to 60%, associatedwith an ‘unrealistic exchange rate’ (source: ‘The Economist’ , 12–18May 2001).

4 It has been noted that in developing countries banks also basetheir decision on less conventional, yet equally important elements,such as personal relation with the entrepreneurs.

as eco-efficiency investments relate to techniques andrather complex technologies with which bankers are notyet fully familiar, the likelihood that a CP loan appli-cation is not preferred to non-CP investment alternativesis comparatively high. Commercial banks do not nor-mally choose big investments in new facilities or con-cerns which involve radically different technologies forwhich there is not much proven commercially andprofitably operating evidence.

It is worth noting that commercial banks in their ordi-nary operations follow conventional screening criteria,adopting pretty well-standardised checklists or question-naires; they do not screen financing options by projecttype (e.g. eco-efficiency project vs. an end-of-pipe one).If a project is bankable, it does not matter whether it isCP based or not. In this sense, it is safe to say that thereis no such thing as bank prejudice vis-a-vis CP invest-ments. However, it should always be kept in mind that,ultimately, banks would look at the financial soundnessand creditworthiness of the whole concern and not justthe project submitted for funding. This explains why attimes potentially bankable projects are discarded if theapplying company does not show good financial health.

It might come as a surprise that in many developingcountries there still exists a paradoxical situation as oneof a wedding without the bride, where banks (includingmultilateral development banks) have environmentallydedicated funds or credit lines, which remain untappeddue to the scarcity of bankable eco-efficiency projectproposals.

So, why is it that financing of CP is still difficult indeveloping countries—as well as in developed ones,though to a lesser degree?

To simplify the analysis, one could identify the mainbottlenecks on the supply side (financiers) in terms ofbanks not being fully aware of and able to appreciatethe financial, other than the environmental advantages ofa CP investment. On the demand side (enterprises), it isstill observed that many companies in developing econ-omies, even if aware of the benefits of CP and convincedto invest in it, are not capable to prepare a good bankableCP loan application.

From the above it can be asserted that a preconditionto promote CP investments in developing countries is tokeep raising FIs’ consciousness of the salient benefits ofeco-efficiency. Concurrently, the capacity of local FIs toassess risks and fully appreciate costs and benefitsinherent in CP should be strengthened, so that bankerswould start considering CP-oriented companies as cli-ents with a potentially higher competitiveness, and givepriority to CP investments over alternative choices.

Only a clear understanding of CP benefits, corrobor-ated by real case figures, can have a positive influenceon bakers’ investment decision-making process.

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Reduction of cost input materials, water and energy aswell as in waste management costs; continuous environ-mental improvement, increased productivity competi-tiveness and improved corporate image; reducedenvironmental impact and risks,5 are good enoughreasons to convince banks of the viability of CP invest-ments.

From the bankers’ customer perspective eco-efficiency would represent in effect a win–win situationwhere the bank’s client can concurrently achieveenvironmental and financial benefits while reducingcompany’s business costs and improving market pos-ition.

Purpose training to bank and FIs managers is crucialto this end.

It might be argued that any banker gets regular trainingin capital budgeting, project appraisals and financinganyway in the course of his/her career, so why wouldbanks bother about sending their already trained credit orfinancial officers to additional training on CP investmentrelated issues (with additional costs for the bank in termsof training fees and lost working hours to attend thecourse). One of the main answers is that relevant trainingcosts (which should be rather considered as investments)generate benefits that are not immediately tangible.These clearly become so, whenever a bank’s customerfails to meet environmental legislation, thus starting toreduce its productivity, sales, cash flow, normally losingthe market share. This would entail for the financingbank the payment of clean-up costs—depending on howstrict and complex the local environmental regulationsare—in addition to an increased risk of client default.Had the bank been able to accurately assess the feasi-bility of the funded project also from the eco-efficiencyperspective, it would have probably decided not to fin-ance what resulted to be a non-performing loan. That iswhere the benefits of a rigorous training to build bank-ers’ knowledge in CP investment risks and opportunitiesare most evident.

Another point that should be pushed through in theinternational FIs agenda, is the adoption by banks of CPguidelines and checklists in the standard procedures forloan application appraisal. In the face of generally sharedcriteria for the due diligence process, each bank wouldfollow its own format normally paying little heed toenvironmental issues and neglecting CP.6 International

5 Banks are particularly exposed to direct legal risks, e.g. liabilityand clean-up costs, but also to indirect credit risks such as loan defaultdevalued collateral. However, reputational risks are receiving increas-ing attention by bankers, most notably from industrialised countries.

6 Banks wishing to get finance from the World Bank (WB) or theInternational Finance Corporation (IFC) have to follow WB guidelines[3] or the IFC ‘exclusion lists’ .

agreements or initiatives amid banks of the same regionsor type (e.g. associations of micro-FIs) are one exampleof harmonisation efforts with respect to environmentallyrelated issues The UNEP Financial Service Institutions7

could also be a powerful contributor to getting eco-efficiency into FIs’ mainstream business, although thecurrent scope and policy of the Initiative do not foreseespecific prescriptions on CP.

Where the banking system is not well developed andcompetitive, and/or companies do not have the capacity,strength or maturity to successfully access these funds,other sources of financing could be considered.

Financial leasing, a growing business also in manydeveloping countries, is increasingly becoming a con-venient alternative to bank credit for CP-orientedenterprises. This might be attributable to the fact thatleasing appears to meet some of the characteristics ofCP investments requiring small credit to be implementedoften by entrepreneurs with a poor track record and/orcreditworthiness. Other advantageous aspects of leasingmake it a suitable source for CP investments. Leasingdoes not require the purchase of the CP equipment, thus,enabling the user (lessee) to save on the initial invest-ment; in a lease contract—provided the lessee has agood, however basic, financial management accountingin place—the rent can be adjusted to the positive cashflow (CP savings). An additional advantage of leasingused to come from fiscal regulations that made equip-ment lease tax exempt. This particular tax incentive,however, has been gradually softened when notremoved, in several countries, as it resulted in aggravat-ing state budgets and/or creating market distortions. Onthe non-positive side, financial leasing companies mightnot be so easily favourable to accept financing of CPinvestments where the risk of lack of collateral value isparticularly felt (for more details see Ref. [2]).

Establishment of green funds or special CP dedicatedcredit lines should be furthered (e.g. the revolving fundoperated by Nordic Environmental Finance Corpor-ation (NEFCO)).8

In the case of revolving funds, however, experienceshows that the participation of private banks is crucialto the financial success of the fund. As a general rule,measures should be taken to avoid that the fund capital-isation would be or remain too small to finance ampleadoption of CP, hence the risk that the fund will beworking mainly as a demonstration financial project. A

7 The UNEP Financial Services Initiative, launched in 1992, is avoluntary agreement whereby signatories commit to include environ-mental aspects into their agenda. Banks signatories to this VoluntaryStatement accept to abide by the guidelines and codes of conduct setforth therein. For more details, see the UNEP FS Initiative web site:http://www.unep.ch/etu/

8 The NEFCO launched in 1997 offers a revolving facility for CPinvestments.

http://www.unep.ch/etu/


solution could be to pool a few FIs, ensuring the partici-pation of (a) commercial bank(s) to secure a good levelof capitalisation and management.

In several developing countries there are various non-conventional financial intermediaries, a majority ofwhich are micro-credit NGOs. Normally these entitieswould start as an interest group with seed capital and/orother forms of support from donors and the mandate togive credit to micro-entrepreneurs (craftsmen, farmers,etc.). Often, these NGOs succeed to grow and establishthemselves as the main—if not the only—credit sourcefor micro-enterprises, however, by lending at short-termand relatively high interest rate conditions. These initiat-ives would need be encouraged, supported by localgovernments and certainly, by the financial community.It would also be desirable that private banks start toregard and deal with micro-credit NGOs as trustworthy‘peers’ , even better if they could inject funds into theNGOs capital. Further, as micro-credit NGOs are theclosest intermediaries to micro-entrepreneurs, in additionto funding, they should provide their customers withbusiness advice and assistance in preparing loan appli-cations and managing funds. The international com-munity could play an important role in this respect (e.g.by providing training to the NGOs’ credit officers).

Finally, the involvement and commitment of leadingor highly influential local and international FIs, couldhave an important impact on spearheading the financingof CP-oriented companies. Some big banks are alreadyvery active in what can be generally defined as ‘sus-tainable business’ that encompasses social responsibleinvestments, energy efficiency related investments, greenfunds and the like. It would be equally desirable to havesome ‘champions’ in the financing of CP related invest-ments.

3. Potential positive interaction with otherstakeholders

3.1. Government

It is commonly argued that one of the principal waysto trigger CP and ensure its proper implementation, lieswith government capacity to establish a legislativeframework for environmental prevention and protection,supported by an enforcement system of in-country aswell as international laws and rules, particularly on emis-sions and discharges. More importantly, for the purposeof our discussion, government should strive to create orreinforce a legal framework that is conducive to invest-ments, especially, foreign investment, with a particularemphasis on investments in eco-efficiency technologies.This would require government policy measures rangingfrom licensing to property rights; fiscal regulations tothe earmarking of special purpose funds in the national

budget, as well as in the regional and provincial one,depending on the country political and administrativestructure.

In developing countries, the government should startintroducing or reinforce eco-efficiency incentiveschemes (e.g. special tax regimes), taking care that thesedo not create market distortions that could result in alower adoption of CP (a glaring example is given bysubsidies on energy and water) and remove disincen-tives. The introduction of favourable rates for invest-ments in cleaner or best available technologies wouldgreatly contribute to the adoption of such technologiesby local industries. Evidence shows that even whenentrepreneurs are conscious of the potential environmen-tal and social damage that their activity may cause, theycannot invest in CP alternatives. Such investments infact, would be too costly and bear a negative impact onthe companies’ cash flows in economic realities whereenterprises are obliged to look for short-term activitiesand survival. Pricing of natural resources, with specialregard to ground water, should equally be seriously con-sidered. Interventions to smooth bureaucratic environ-mentally related procedures requested from enterprisesto access public funds, would also be a welcomeimprovement. As an example, environmental impactassessment (EIA) procedures—that in severaldeveloping countries are obligatory in order to accessgovernment supported funds—appear often to be a time-consuming, cumbersome and costly process that fre-quently discourages entrepreneurs to apply for funds.

At a micro- and sectoral-level, governments of lessdeveloped countries could promote financing in environ-mentally friendly productive sectors with a promisinggrowth potential, e.g. eco-tourism, wood and forestry.

3.2. National cleaner production centres (NCPC)

They are known to be powerful catalysts for promot-ing CP. Likewise, they could be valuable enabling forceto promoting investments in CP. Although NCPCs of thelatest generation9 also have in their mandate the pro-motion of investments in CP, the achievement of thisgoal appears to be a relatively hard task. Field experi-ence under the UNEP project shows that most Centres’consultants, however, knowledgeable in CP and wellversed in CP assessments, are rather weak when it comesto assisting companies in compounding and organisingCP options into creditworthy loan applications. This isan area where more efforts should be spent, what wouldadditionally help NCPCs establish their credibilitywithin the financial sector at large; hence, the importanceof training NCPC staff in financially related issues.NCPC should base their strength on a group of pro-

9 Reference here is made to NCPCs established by UNEP/UNIDO.


fessionals with sound expertise in CP related matters,coupled with equally robust knowledge of key financialand accounting topics such as capital budgeting, projectappraisal, cost accounting and financing techniques.

Experience gained through the project so far witnessesthat the centres are often best placed to make companiesunderstand that CP and environment at large representindeed an opportunity rather than cost, as a large numberof entrepreneurs still believe in the less developed world.

A second area where NCPC should dedicate morehuman and financial resources is that of information dis-semination. The availability of quality-proof and updatedinformation and knowledge on CP related matters areessential to create and foster a CP conscience, while theprovision of statistics and figures proving the financialattractiveness of investments in CP and guiding in thechoice of alternative technologies available could be aformidable way to persuade sceptical investors. Thus,the establishment and careful management of NCPCdatabases would be all the more desirable. An ideal scen-ario would see the NCPC as a (the) prime source ofinformation for potential investors in CP technologiesand projects.

3.3. Academia and educational institutions

The educational system has a potential to positivelymake an impact on the increase of investments in CP.Indeed, universities should be looked at as key stake-holders in the dialogue to foster CP financing, given theircontribution to the creation of the decision-makers andconsultants of the future. In this sense, it would be desir-able that local government allocates state or regionalbudget funds to help universities enrich their curriculae.g. by including CP as a mandatory topic for financialand business faculties. At the same time, Banking Train-ing Institutions should increasingly include eco-efficiency related topics in their courses, starting fromthe entry training programmes for newly recruited offi-cers. The setting up of relevant databases and net-working should also be pursued.

3.4. Media

It is high time to consider the important contributionthat media could give to the promotion of CP and, albeitmore indirectly, its financing. Topical articles, specialsurveys and reports on CP investment success storiesboth in national and international newspapers and maga-zines (e.g. the Financial Times), as well as in specialisedpublications (e.g. Bankers Associations Bulletins10),would likely serve the purpose.

10 Some important banks already publish information on theirenvironmental performance portfolios and investment in eco-efficiency(e.g. Deutsche Bank and UBS).

Unfortunately, environment keeps being covered inboth developed and developing countries predominantlyin relation with conservation issue or when disastersstrike. It is only very recently that climate change relatedmatters have started to seriously fill newspaper columns.CP or eco-efficiency is still far from hitting the pap-ers’ headlines.

4. UNEP’s role

Since its very inception, the before mentioned projecthas been led by a demand-driven approach, consideringcountry needs and opportunities, trying to empower localcounterparts as well as those actors that are onlyindirectly affected or are in a position to affect the pro-ject’s result. One example is given by the ‘ inter-activetraining on financial engineering’ , conducted under theUNEP project. This exercise has confirmed that CP dem-onstration projects should not only mainly or uniquelyfocus on technical activities and procedures description,but should also cover financial management aspects.

Efforts were produced to create a group of CP financ-ing experts and advocates in the five developing coun-tries, not just a team of CP practitioners via training,practice and awareness raising that have acquired astrong ownership of the different aspects of CP. Theyare expected to play a pivotal role in disseminating infor-mation and building knowledge, creating or broadeningCP financing networks. The UNEP programme strategyand activities are in this sense aiming at a multipliereffect, trying to ensure the integration of CP in compa-nies’ strategy, banks’ due diligence process for invest-ment appraisal, as well as in the curricula of academiaand relevant institutions.

Cooperation and coordination with programmesinitiated and/or run by other technical assistance pro-viders is steadily sought by UNEP, to avoid duplicationand yield synergies, and to leverage funds, both withdonors and bankers.

Strategic alliances have been forged in the five coun-tries with selected stakeholders who are instrumental forthe sustainability of the project’s impact. It is in thisperspective that have to be seen e.g. agreements sealedwith some local institutions hosting the training courses,whereby these entities will continue to offer UNEPcourses beyond the project’s life.11

5. Conclusions

Investments in CP still account for a modest percent-age in the portfolios of most FIs in the industrialised

11 The Institute of Financial Management in Tanzania and the Asoci-acion de Gerentes in Guatemala are the only two examples of suchinstitutions.


world. This situation is more evident in developingcountries where eco-efficiency is still an obscure topicto many bankers, and entrepreneurs’ environmentalinvestments tend to be mainly in end-of-pipe measures.

The need to increase the basic level capacity in CPespecially in developing countries and economies intransition has to be further pursued. These countries stillhave the opportunity to incorporate CP at their initialstages of development, basing their economic growth oneco-efficiency and sustainability principles, which wouldprevent the growth leading to increased pollution loadsand inefficient use of natural resources, energy andwater.

The financial community at large has an essential roleto help developing countries embark or continue on agrowth path that is environmentally and socially sus-tainable, other than economically viable. The chan-nelling of resources towards CP related activities andeco-efficiency should be therefore encouraged. It appearsthat the best way to pursue this is to keep raising banks’awareness of the overall comparative benefits of CPinvestments, while building their technical knowledgeand capacities in this field. As witnessed by first fieldexperiences under the UNEP project, training based onconcrete cases corroborated by figures and data seemsto be an effective tool to this challenging end. At thesame time, complementary strategies and measuresshould be taken by those key actors (government,national CP centres, academia and media) who also havethe potential to foster investments in CP in developingcountries. The role of governments in framing the neces-sary regulation and ensuring the enforcement thereof,remains crucial in this effort, as it is also confirmed inthe two cases from Africa and Central America.

Appendix A. Case 1. A voice from Zimbabwe

Introduction

In October 1999 UNEP launched the project ‘Stra-tegies and Mechanisms for Promoting CP Financing inDeveloping Countries’ in Zimbabwe.

Drawing from findings from a study undertaken bythe Cleaner Production Centre of Zimbabwe (CPCZ) anda consultant from UNEP FI, 10 Zimbabwean companies,from a variety of targeted industries participated in ademonstration programme [1].

The aims of this exercise were to:

1. Generate local examples to demonstrate the benefitsof CP;

2. Develop CP basic level capacity and core com-petencies to enable engineers, accountants, financemanagers, Chief Executive Officers (CEO), to audittheir production processes, evaluate CP investment

opportunities and prepare investment proposals andobtain funding for their implementation.

In a joint effort the CPCZ, the Scientific IndustrialResearch and Development Centre of Zimbabwe(SIRDC) and local Financial Analysts, and Consultantsfrom Apini Institute in Lithuania, conducted a two-work-shop based ‘ Inter-active training on financial engineer-ing’ .

This training saw the involvement of FIs, as well asrepresentatives from companies participating in the dem-onstrating activities (e.g. CEOs, accountants, financialmanagers, engineers).

The first workshop was focussed on raising CP aware-ness and introducing the CP methodology to participat-ing companies, mostly represented by CEOs. After theworkshop completion, the companies involved togetherwith local CP experts conducted CP assessments so thata CP assessment report was generated for each facility.

The second workshop introduced financial aspects ofproject development and saw the participation of finan-cial managers, accountants and selected engineers. As aresult, CP investment options were generated, assessedand organised into loan applications which were sub-sequently submitted for funding.

Five of these loan applications have since been fundedwhile the balance is still to receive funding. Additionalfive companies submitted their investment proposals forfunding, thus increasing the Zimbabwean CP investmentportfolio to about 15.

Training

The capacity building component of the UNEP projecthas resulted mainly in four training modules to try andcover the entire CP project development process.

Seven local CP and finance experts underwent a week-residential training of the trainers course and are cur-rently conducting the four-modular course aimed to:

� Raise awareness in CP concepts and practice whileintroducing concepts regarding capital budgeting andfunding of capital project;

� Develop skills in demonstrating the profitability of CPprojects; and

� Prepare bankable investment proposals.

Level of participation in CP finance training courses

Overall, some 473 participants attended the awarenessraising courses while 312 company representativesundertook the skill development courses.

Altogether 685 company representatives haveattended on an average one to six full day training. Ofthe companies that have been exposed to CP through


training or have had CP assessment undertaken, somehave implemented CP at different levels.

Study on past investment practices

The CPCZ and a UNEP International Consultantundertook a study to analyse past investment practices.Twenty local companies and FIs participated in the inter-views aimed to gain an insight into past and currentinvestment practices [4].

Factors influencing the ability to promote CP

Reasonable efforts have been made to promote CP inZimbabwe through the UNEP project. What factors arehindering these efforts from achieving the desiredresults? The following sections attempt to providesome insight.

The economic climate� The economic climate of Zimbabwe is currently

characterised by: high inflation (60%), high interestrates (45–57%), high political instability, a very weakcurrency (depending on outlet).

� Most companies are struggling to survive, to such anextent that one cannot even talk about prosperity asa company goal. Companies are operating on a handto mouth basis. Their focus is on short-term gains,with survival being the daily operating goal. Withsuch high interest rates, investment project profitabil-ity is difficult to assess using usual techniques (in factno projects assessed thus far have been able to dem-onstrate profitability).

� There is a significant lack of foreign currency. Cur-rency is obtained from the informal sector at a veryhigh price (no apparent cost structure). The cost ofinputs is increasing.

� The economic environment is complex and dynamicmaking long-term planning impossible. Plans becomeobsolete before they are hatched. CP projects takeapproximately three to four months between assess-ment phases and implementation. Also whereverpossible changes are captured, a project outlookchanges drastically within this period.

� The work force is struggling to make ends meet.Increasing costs of transportation, accommodation,and food prices are threatening basic survival. Workermorale is low, especially for longer-term projects.

The political/legal environment� The Zimbabwe government is signatory to various

international, national and regional environmentaltreaties and conventions. But there is a significantneed for effective implementation. Efforts fromNGOs, technical assistance providers, etc. have a lim-ited scope of possible assistance in this regard.

� There is an absence of effective legislation. TheEnvironmental Bill has been awaiting approval formany years. Current environmental legislation is scat-tered among various government departments makingenforcement impractical.

� Enforcement of existing laws is lacking/not prohibi-tive. It is cheaper to pollute and pay taxes rather thanimproving environmental performance. Enforcingregulations are also not effective due to lack of skilledenforcing agents.

� There is minimal pressure from the public to improvethe environmental situation.

� Because of general political unrest, Zimbabwe isviewed as ‘ risky’ , certainly for large and long-terminvestments. There is currently no investor confi-dence.

Current investment/business operating practice—statusof banking and financial system with regards tocommercial lending� It is generally difficult to access cleaner technologies,

because of the significantly weak Zimbabwean cur-rency.

� Companies seem to pay less heed to any promotionefforts where costs are externalised.

� Imports from countries with stricter environmentalregulations are invading the Zimbabwean market.Even where companies are aware of the environmen-tal damage of these cheap imports, the alternative istoo costly (companies are aiming for short-term gainsand basic survival). So best available technology, atypical concept of CP, is not a driving force. Zim-babwe is looking for cheapest available technology.

� Banks lending requirements have become very strin-gent to compensate for the increased risk exposure—the lowest current lending is offered at 25%.

� Some banks are only just discovering CP, thanks torecent UNEP training programmes. Banks are nowreviewing their lending practices to incorporateenvironmental risk. A few of them confessed usingsector guidelines to manage risk. Two banks reportedto use an environmental exclusion list and guide asdemanded by IFC and WB. Ordinarily, the samebanks do not have guidelines for even ordinary lend-ing.

Available skills/capabilities (enterprises)� Lack of testing/monitoring equipment—to measure

waste generation (emissions, leaks, etc.).� Lack of well-documented accounting information,

which makes profitability assessment very difficult.� Some companies in Zimbabwe have the investment

decisions made for them from their international headoffice. They have to implement the projects as perinstructions from the head office and have little sayin the what/how of the project. Promoting CP to this


group has little effect as they are not involved in thedecision-making process.

Attitudes, beliefs, and value of waste� ROSCAM12 has undertaken a research study [5]

whose preliminary findings reveal that Zimbabwe hasa culture of waste. Daily evidence seems to indicatethat as long as one is not directly responsible for pay-ment, waste is not an issue. The study looks at whatrespondents view as waste. It further investigates howmuch Zimbabweans know about waste and its costimplications, both tangible and intangible.

� People are generally very poor and have very weakbargaining power. Consumers have little bargainingpower because of the lack of substitutes.

� Employees often tenuously hold on to their jobs andtherefore fear complaining about poor environmental,health, and safety conditions in their workplace.

� Some companies are aware that the source of theirwaste lies in the inputs to their processes. However,they are few out of several small customers and havevery little bargaining power. Some of the inputs areimported and are sold as per the supplier’s convenientspecifications. Negotiating for custom specificationswould make the cost of the inputs much higher. Oftenlocal suppliers have a monopoly making it difficultfor companies to influence their inputs.

� There is no market for most waste materials, thoughcompanies have admitted that they may not recoverthe true cost of waste. Off site recycling and reuse isperceived as a cheaper and practical option.

� Some companies operating within the domestic mar-ket feel that there really is not much incentive to adoptCP because they face little competition. There are noprice controls so they can transfer all their productioncosts to the consumer.

Conclusions

Economic rather than environmental issues are theselling point for CP. For CP projects to be economicallyviable, three major elements need to be in place:

1. The true cost of waste needs to be allocated to thecentres of costs that actually originated that cost inthe internal management accounting mechanism.Environmental regulation, whose implementationschedule is well articulated, coupled with adequateenforcement, will provide an economic incentive forcompanies to make CP investments. Increasing thecosts of utilities and waste disposal will cause compa-

12 A strategic development consultancy hosting the UNEP nationalproject coordinator.

nies to better internalise environmental impacts usingan economic mechanism.

2. A mechanism for obtaining project financing must bemade available.

3. There is a need for the CP training courses to bedelivered in a modular fashion.

Appendix B. Case 2: A voice from Guatemala

Introduction

Guatemala’s current situation is featured by some fac-tors and circumstances that might negatively make animpact on the promotion of investments, particularlythose in CP. However, it is necessary to consider that ina changing environment as the one currently featuringGuatemala, as well as most regions in the world, thesefactors could vary in their trends over time. Some ofthese factors are analysed more in detail below.

Economic climate

� Although macroeconomic indicators are relativelystable, according to Bank of Guatemala’s data otherfactors that are key in stimulating and attractinginvestment both at the national and at the internationallevel, are not yet solidly in place in Guatemala. Thisis the case for political and legal stability, trans-parency of fiscal and monetary policies as well ascivil society safety.

� Guatemala has been passing through a difficult econ-omic situation for several years, situation aggravatedby the fall of coffee prices, one of the main sourcesof income for the country. As a result, industries arecurrently more concerned with survival than withimproving their processes in environmental terms, fore.g. by adopting CP.

� In 2000, the Guatemalan society at large was invitedto participate in the elaboration of the ‘Fiscal Pact’ .13

However, most proposals contained therein could pro-duce no tangible effects mainly due to capital flight—a phenomenon still typical of Guatemala—while writ-ing this paper, the government is working on isolatedmeasures focussing on fiscal collection.

� The rise of import-tariffs on some raw materials con-

13 In line with the ‘Guatemalan Peace Agreement’ , a ‘PreparatoryCommission on the Fiscal Pact’ was established in 1999 to work ona platform document defining principles and targets of the NationalFiscal Policy. This document was elaborated into the Fiscal Pact, anational agreement among several stakeholders to facilitate theincrease of fiscal collection as well as the transparent and efficient useof public resources. Fiscal administration and decentralisation; publicspending and debt; public estate and revenues are some of the mainareas of action and commitment embedded in the Fiscal Pact.


tributed to Guatemala’s failure in fulfilling specificcommitments within then Central America CommonMarket, other than to increase the informal sector.

� The central government’s financial situation has wors-ened during the current fiscal year, due to the rise ofpublic spending and a concomitant fall of fiscal col-lection.

Political and environmental legislation� Guatemala is undergoing a phase of institutional tran-

sition with regard to environmental policy. Until theend of 2000, the National Commission of theEnvironment, CONAMA, was the regulating andcoordinating entity for environmental administrationin Guatemala. The Ministry of Environment andNatural Resources, MARN, has only recently beenestablished, taking up the functions of the formerCONAMA, in addition to other responsibilities ger-mane to the ministry.

� The replacement of CONAMA automatically meantthe end of the Commission’s role as the body respon-sible for environment within the framework of thelegislative decree 68–86 that originated the ‘Protec-tion Law and Improvement of the Environment’ . Thisremains the only law that regulates environmentaltopics in an integral way. Other important norms, asthe Code of Health and the Municipal Code, containsome regulations covering environmental aspects.

� Several regulation proposals have been elaboratedover the time, some in the so-called form ‘consensua-da’ , that is with the active participation of the indus-trial sector. Some of these regulations are on residualwaters, atmospheric contamination, and hospital solidwaste, among others. Unfortunately, not one hasbeen approved.

� Due to lack of resources, it is not possible for MARNto effectively monitor all industries of Guatemala.However, the existence of a civic conscience has con-tributed to prioritise public attention to pollutingindustries, also through a mechanism of denuncia.14

Current investment/business operating practice� Local capital markets are practically non-existent,

which contributes to exacerbate a shortage of financialproducts for industry and projects of any type.

� To finance any project, it is indispensable that theapplying company be financially solvent. In theabsence of such requisite, even a profitable projectproposal will not be worthy for FIs.

� No major difference is currently observed between theway of analysing a CP investment project and a pro-

14 The mechanisms foresee the possibility to lodge an ‘accusation’concerning a polluting activity, to the Ministry of Environment, Juridi-cal Department. This, would thereafter examine the accusation.

ject of any other type. The biggest level of involve-ment with environmental issues shown by Guatema-lan banks is in the requirement of an EIA study as aselective criterion for certain types of loan, e.g. forinvestments in infrastructure and equipment.

� One of the key elements that all FIs evaluate beforefinancing is the capacity of growth of the company.

� Banks, based on their internal policies, fix the interestrate for a project according to the sector to which theybelong and the amount of the requested investment,among other things.

� Guatemalan FIs recognise an inadequate level ofknowledge among most financial analysts, over theevaluation of CP investment projects. They haveexpressed their interest in knowing more about thetopic and receiving qualified training thereon.

Available skills/capabilities (enterprises)� There is a general lack of capabilities to monitor

industrial processes and assess how much in terms ofraw materials, energy and water is being used andhow much waste is being produced, not only in termsof quantity but also in terms of costs.

� Entrepreneurs are still largely unable to identify allelements to correctly define a project’s cash flow.Often the necessary information is not sufficient tothis end. Hence, even when financial indicators arecalculated (IRR, NPV VPN, benefit/cost ratio, etc.)these may not represent accurately the actual profita-bility (or non-viability) of a project.

� Normally, companies will not use financial statementsas a tool of financial management, rather as a docu-ment to meet a fiscal requirement.

Attitudes, beliefs and value of waste� Generally, there is a feeling of little environmental

responsibility by most industrialists in Guatemalawho still perceive environment as an additional costrather than an opportunity.

� However, because of international regulations relatedto globalisation and local regulations passed accord-ingly, environmental issues are becoming increasinglyimportant for industries (in the case of Guatemala,this can be observed mainly in relation to liquidwaste).

� Because natural resources are generally under-pricedor have no real cost, as it is the case with water, indus-tries may not give enough importance to water lossesduring the productive process.

Conclusions

� Although the current Guatemalan economic and polit-ical situation is neither sufficiently stable, nor con-ducive to foreign investments, there is some intereston the part of the industrial sector in optimising its


processes by moving towards eco-efficiency to obtainhigher profitability, improved access to markets andbetter social image.

� Within the Guatemalan financial sector there is anincreasingly clear interest in financing CP as well asin knowing more in depth about sustainability factorsthat should be considered when assessing invest-ment proposals.

� The government has shown its willingness and deter-mination to pass regulations that not only punishenvironmental pollution but also stimulate and facili-tate law enforcement. However, it is felt that beforepassing specific regulations, mainly those on residualwaters, the ‘Maximum Rector’ 15 of the environmentin Guatemala, should focus on regulating its ownfunctions and responsibilities.

15 The prime authority on environmental matters in Guatemala.

References

[1] Cleaner production: institutions promoting investment and financ-ing, UNEP, April 2000.

[2] Van Berkel R, Bouma JJ. Promoting cleaner production invest-ments in developing countries: a status report on key issues andpossible strategies. Amsterdam: IVAM, Environmental ResearchUniversity of Amsterdam, November, 1998 [The UNEP projectwas elaborated on the basis of the IVAM study’s chief findings].

[3] The World Bank Group. The World Bank pollution prevention andabatement manual. Washington DC: World Bank, 1998.

[4] Financing cleaner production: study on past investment practices.UNEP 2000.

[5] Knowledge, attitudes and practices of Zimbabweans in relation towaste. ROSCAM, Zimbabwe; July 2000.

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