Venture Capitalism for the Third World? UN Gives It a Try

Unlikely venture capitalists they may be, but one branch of the United Nations has discovered that a little entrepreneurial spirit goes a long way.

As government development aid declines worldwide, the United Nations Development Program increasingly looks to the private sector. And the private sector has welcomed the overtures.

Acting as a venture-capital firm of sorts, UNDP searches developing countries for projects worthy of attention, whether that means providing Internet service, energy-efficient buses, or water pumps.

Investors are found to back projects and create a company, after an initial injection of $300,000 in seed money from UNDP. These kinds of partnerships are just recently being accepted, says Luis Gomez-Echeverri, director of public-private partnerships for the Urban Environment Program at UNDP. Fifty such projects are planned for this year.

"There was an image of the multinational as a rapist, a thief, in many developing countries," says Mr. Gomez-Echeverri. "And for a long time the UN wouldn't consider working with anyone outside of governments. But ... the private sector has become more accepted as there a realization that governments won't always - and can't always - do something."

Private investment from industrialized countries amounted to $234 billion in 1996, the last year for which figures are available, according to the Organization for Economic Cooperation and Development. That's up from $161 billion in 1995. But only 12 percent goes to the regions that need it most, such as sub-Saharan Africa, says Bradford Gentry, director of the research program on private finance and environment at the Yale Center of Environmental Law and Policy in New Haven, Conn.

"No doubt much less private money goes to sub-Saharan Africa or parts of Asia," says Mr. Gentry. "But the question is not whether public-private partnership works, but how to make it work better. The problem with places like sub-Saharan Africa, is that there is constant turmoil, no predictable returns, and the rule of law is lacking."

Until radical change occurs, public money will still be needed, says Gentry. But official development assistance decreased from $60 billion in 1995 to $58 billion in 1996. That fact pushes people like Gomez-Echeverri to woo new partners.

"With 90 percent of the world's population expected to live in developing countries, most of which will live in urban centers, governments will continue to struggle to meet the needs of urban dwellers," he says.

In one initiative in So Paulo, Brazil, a fleet of buses, operated by hydrogen fuel cells, will soon roll through the streets. The local government initiated the project because of heavy air pollution. It's a combined effort of UNDP, the local Brazilian government, and Ballard, a Canadian company.

In another initiative, Hewlett-Packard, the Palo Alto, Calif.-based computer giant, recently joined UNDP to give small island nations affordable access to the Internet. The company has so far allocated more than $1 million to the program, meant to enable such countries to exchange information about sustainable development.