UNIDO: POTENTIAL PARTNER ON CLIMATE CHANGE, BUT REFORMS

UNCLAS UNVIE VIENNA 000622

SIPDIS

SENSITIVE

EPA FOR COUNCIL ON ENVIRONMENTAL QUALITY

E.O. 12958: N/A
TAGS: ETRD EIND ENRG EAID UNIDO UNDP UNEP AORC KUNR KGHG
UN
SUBJECT: UNIDO: POTENTIAL PARTNER ON CLIMATE CHANGE, BUT REFORMS
INCOMPLETE

REF: STATE 122077

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SUMMARY
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1. (U) The UN Industrial Development Organization (UNIDO) has
implemented a substantial reform over the last decade that has
improved its efficiency and relevance, making it a potential partner
for the U.S. on issues like climate change and energy as well as a
useful exemplar for the reform of other multilateral organizations.
Although the reform process is not yet complete, UNIDO's reforms
have instilled a culture of accountability and innovation,
eliminated duplication with other UN programs, overhauled its
operations and personnel practices, and allowed it to take a leading
role in coordinating UN services in the field, according to an
independent assessment by the British government. UNIDO's goal of
promoting natural resource management and sustainable energy
strategies for industry in developing countries makes it a
potentially useful partner on U.S. climate change initiatives. The
organization still faces many challenges, however, including a weak
field presence and incomplete decentralization that hinder delivery
of services at the country level. Some members see UNIDO as
marginally effective and are wary of mandate creep as the
organization gets involved in the response to the global food
crisis. We also worry that zeal for reform may ebb after the tenure
of the current dynamic Director General, Kandeh Yumkellah. End
Summary.


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Bloat and Crisis
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2. (U) UNIDO was created in 1966 and became a specialized agency in
1985, acting as the central coordinating body for industrial
activities within the UN system. UNIDO's vague mandate and weak
management structures led to a proliferation of projects, many of
which overlapped those of other UN agencies and programs, like the
UN Development Program, with impacts that were difficult to
determine. By the mid-1990s, perceived inefficiency and sprawling
mandates led several major contributors to quit UNIDO. Australia,
Canada, and the U.S. withdrew between 1993 and 1997 -- and Germany
and the U.K. threatened to leave -- criticizing UNIDO's lack of
focus and unwillingness to promote private sector development.


3. (U) In the wake of a one-third reduction in staff, a 20 percent
decline in its program budget, and member state concerns about its
relevancy, UNIDO embarked on a "big bang" reform, drafting a
business plan in 1997 to focus its work and streamline the
organization. The plan reflected the desire of member states to
enable UNIDO to carry out high-priority activities within a
tightened budget, and the organization reduced or discontinued
hundreds of programs. By 2001, UNIDO had reduced the number of
stand-alone projects from more than 1,000 to 250.


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UNIDO Remakes Itself,
But Reforms Are Incomplete
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4. (U) Since 1997, UNIDO has refocused its programs on small and
medium enterprises (SMEs),where it considers itself to have the
greatest comparative advantage, embraced market-based solutions, and
forged partnerships with other UN bodies and the private sector,
increasing efficiency and responsiveness to the development needs of
the poorest countries. A second wave of reform begun in 2004
refined UNIDO's programmatic focus by replacing more than a dozen
work modules with three thematic priorities: poverty reduction,
trade capacity-building, and environment and energy. The UK
Department for International Development (DFID) in an independent
assessment in 2005 ranked UNIDO second out of 23 international
organizations on developing effective partnerships.

-- UNIDO created programs in 2007 to improve entrepreneurial,
technical, and organizational skills of women and youth in rural
areas, according to its annual report.
-- The organization partnered with Microsoft in 2007 to provide
low-cost computers to small businesses in sub-Saharan Africa,
according to several technology-focused websites.

-- UNIDO has become a leading agency in the eight "One UN" pilot


programs designed to streamline delivery of UN services in the
field. One Western diplomat called UNIDO the only UN body that was
genuinely following up on the "One UN" recommendations. In 2007,
for example, it led an interagency working group in the production
of a trade-capacity building resource guide.


5. (U) UNIDO also has tackled an array of management reforms,
improving efficiency and accountability. It overhauled accounting,
procurement, property management, training, recruitment, and support
services practices, according to a DFID study in 2005 and UNIDO's
2007 annual report. UNIDO has met several management objectives of
the UN Transparency and Accountability Initiative (UNTAI),such as
creating an independent oversight function and increasing public
access to program and budget information (see paragraph 20). The
introduction of frequent reporting and evaluation has increased
accountability and made middle managers stakeholders in the reform
process.

-- The DFID assessment in 2005 ranked UNIDO fourth out of 23
multilateral institutions on internal performance.

-- A recruitment drive since 2005 has reduced the field vacancy rate
from about 45 percent to 12 percent, according to UNIDO's 2007
annual report.


6. (U) Some of our partners who are members of UNIDO caution that
the reforms are incomplete, and the "new UNIDO" - centered around
the DG and his management team - has not yet vanquished the "old
UNIDO." UNIDO has had difficulty decentralizing management to the
field, mainly because of the reluctance of qualified staff to serve
away from headquarters, according to UNIDO officials. Many
now-senior officials joined UNIDO before the introduction of the
current field mobility policy, expecting to serve only in Vienna.
DFID ranked UNIDO only 11th out of 23 multilateral institutions on
its ability to achieve results in the field, in part because of the
agency's overly centralized management structure.


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UNIDO's Priorities,
Budget and Staffing
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7. (U) A key element of UNIDO's reform was to identify its niche
and avoid overlapping with other UN programs. UNIDO is the only
organization in the United Nations system mandated to promote
economic growth and poverty reduction through manufacturing and has
the largest portfolio of trade capacity building projects in the UN
system. UNIDO promotes market-based approaches to improve living
standards in developing countries, prioritizing growth in small and
medium enterprises (SMEs),which it regards the key generator of
wealth in most developing countries. UNIDO experts, for example,
provide technical assistance on industrial standardization which
helps SMEs compete in global markets.


8. (U) UNIDO is the lead agency in the implementation of major
environmental agreements, such as the Montreal Protocol for the
elimination of ozone depleting substances (ODS) and the Stockholm
Convention for the elimination of persistent organic pollutants
(POPs),which have key industrial components, and plays a leading
role in the development of sustainable energy by improving
industrial energy efficiency and promoting renewable energy.
UNIDO's comparative advantage in these areas derives from its
technical and policy expertise in helping countries implement
alternative industrial production methods.


9. (U) For 2008-09, UNIDO has an annual budget of approximately
Euro 190 million, including Euro 77 million for the regular budget,
Euro 11 million for operational costs, and approximately Euro 102
million in voluntary contributions. UNIDO implemented technical
assistance activities in the amount of $117 million in 2007.
Montreal Protocol activities accounted for 24 percent, the
Industrial Development Fund 17 percent, and the Global Environmental
Facility 14 percent, with most of the remainder allocated to third
party-financed trust funds. Of the $92 million in
regionally-allocated technical assistance, Africa received 37
percent, Asia-Pacific states 31 percent, Latin American and
Caribbean states 11 percent, and Europe-NIS 9 percent.


10. (U) UNIDO, as of December 2007, employs 651 regular staff
members, including eight Americans who were hired before the U.S.
withdrawal, and draws on the services of some 2,800 international
and national experts, roughly half from developing countries, who
work on projects throughout the world.


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USG Collaboration
with UNIDO Projects
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11. (U) The USG is involved with several UNIDO projects on a
collaborative basis. The Department of Energy is active in UNIDO's
Cleaner Production programs, for example, and the Environmental
Protection Agency participates in UNIDO's program to reduce mercury
use in artisanal gold mining, through the UNEP Global Mercury
Partnership. USG activities are typically complementary to those of
UNIDO, and the collaboration does not involve the transfer of funds
between the USG and UNIDO.


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Major Donors Largely
Favorable, But With Caveats
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12. (U) Key donor countries in Vienna generally regard UNIDO as an
effective and well-run organization, following its successful
reforms and the dynamism of the new management team. They are
largely satisfied with the focus of UNIDO's programs and activities,
but in discussions with several Vienna-based diplomats, some
expressed concern about the need for more management reforms and the
organization's drift into new areas beyond its mandate.


13. (U) Italy regards UNIDO very highly and is one of the top
voluntary donors to the organization. The Italians praised UNIDO's
objective evaluation methods, its interagency coordination,
innovative partnerships, and its work as an implementing agency of
the Global Environment Facility (GEF). UNIDO is one of the best UN
agencies in collecting funds in the field, particularly from the
European Commission, suggesting that it is working in the right
direction, according to a Vienna-based Italian diplomat.


14. (U) France believes that UNIDO's strengths are its technical
expertise, particularly in energy and standardization, and notes
that it is well-regarded by developing countries. Italy and
Switzerland are deeply involved with UNIDO, as are Spain and Turkey.
Several other countries, including Ireland, Norway, Sweden, and
Russia, are considering deepening their relationships with UNIDO,
according to Vienna-based diplomats who cover the organization.


15. (U) Japan approves of UNIDO's work and is especially interested
in developing youth employment, but as the biggest funder (paying 21
percent of the regular budget) Tokyo's primary focus is trying to
reduce the budget, according to Vienna-based diplomats.


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Lingering Concerns over
Mandate, Field Staff
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16. (U) Several member states, despite their overall favorable view
of UNIDO's management, have criticized its perceived mandate creep
and the poor quality of field staff, though these concerns were
characterized as minor shortcomings rather than major faults. The
U.K., for example, has been unimpressed by the quality of UNIDO's
field staff and noted that there was a recent case of corruption in
one field office, although it considers this an isolated incident.
London recently completed a reassessment of its commitments and
UNIDO failed to make the list of high priority international
organizations. A senior British diplomat in Vienna was decidedly
sour on the organization, calling it only marginally useful, and
another diplomat added that the decision to be in UNIDO was a
political one not based on the organization's effectiveness. France
noted to us that UNIDO lacks sufficient expertise in energy
efficiency to take on proposed larger projects. Many member states
consider UNIDO's new emphasis on agro-industry and the global food
crisis an unwarranted departure from its core mandate that
duplicates the work of the UN Food and Agricultural Organization and
the World Food Program.


17. (U) Canada and Australia, which left the organization at the
same time as the United States, currently have no plans to reassess
their relationship with UNIDO, suggesting that UNIDO still has work
to do to win back its harshest critics. We are working with our
Canadian and Australian colleagues in Vienna to obtain more




information about their lingering concerns and conditions for
reengagement with UNIDO.


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Able But Limited Potential
Partner on Climate Change
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18. (U) UNIDO is the second largest agency implementing the
Montreal Protocol and probably would be a receptive partner in
pursing any post-Kyoto Protocol emission targets, based on
discussions with UNIDO officials, but its focus on the least
industrialized countries probably will limit its impact in the
reduction of greenhouse gas emissions.

-- UNIDO's Montreal Protocol program helps enterprises phase out
ozone-depleting substances by facilitating implementation of new
production technologies.

-- UNIDO's work with the Kyoto Protocol's Clean Development
Mechanism (CDM),a market-based system that credits developed
countries for stimulating sustainable growth and emissions
reductions in developing countries, focuses mainly on Africa, rather
than high-emissions countries such as China and India.

-- The Cleaner Production program helps enterprises in 43 countries,
mostly in Africa and Latin America, adopt new technologies to reduce
waste and pollution and cut energy consumption.


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An Exemplar for
UN Reform?
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19. (U) UNIDO's transformation offers lessons for reforming other
multilateral organizations with large bureaucracies and complex
mandates, such as the UN Development Program (UNDP),Food and
Agriculture Organization (FAO),and the World Food Program (WFP).

-- First among these lessons is that comprehensive reform is
unlikely without a serious threat to base funding. UNIDO switched
from piecemeal to radical reform only after the withdrawal of
several top donors, including the U.S. - action that threatened its
very existence. Many of the subsequent reforms were consciously
tailored to woo the U.S. back, according to a UNIDO official.
(Comment: UNVIE's posture towards UNIDO remains in a strictly
"listening mode." We have discouraged speculation about terms for
U.S. return to the organization. End Comment.)

-- UNIDO's experience suggests that organizational transformation
requires sustained effort and long-term commitment, making the
vision and inspiration of the senior leadership critical to ensure
the buy-in of the workforce. Kandeh Yumkellah, UNIDO's Director
General since 2005, has been a charismatic and dynamic leader,
willing to take risks and eschew established institutional
practices, according to several diplomats. Yumkelleh is expected to
serve a second term, which would keep him in office through 2013,
but the workforce's fervor for additional reforms is likely to wane
after his tenure.


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Path to Potential
Reengagement
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20. (SBU) Given the major strides UNIDO has made over the past
decade, Mission recommends a closer and more active analysis of
specific indicators that could lead to U.S. reengagement, up to and
including rejoining the organization. Steps include:

-- A rigorous evaluation of the steps UNIDO has taken to modernize
its governance structure. This could follow many of the standards
outlined in the UN Transparency and Accountability Initiative
(UNTAI) that serve as indicators of good governance, such as
financial disclosure statements and public access to relevant
information. UNIDO appears already to meet many UNTAI standards,
but to date the organization has been left out of the assessment
process (see reftel) because the U.S. is a non-member. A closer
look at these fundamentals will provide a better view of how UNIDO
is performing as an institution and what further reforms are

required.

-- Senior-level meetings with UNIDO to hear upper management's take
on UNIDO's progress and plans for continued improvement. These
meetings should be designed to evaluate the progress of UNIDO's
reform efforts in the last decade, in particular the issue of
overlapping mandates. While such meetings would incite rumors of
U.S. reengagement, they could also spur UNIDO to further advance and
institutionalize its past reforms.

-- Coordination with fellow non-members Australia and Canada to
reach consensus on benchmarks for reengagement. Reengagement could
be discussed in a series of working-level meetings, perhaps in
concert with other Member States, such as Germany, who were critical
of the organization but choose not to withdraw. Such discussions
could be used as an incentive to promote further reforms.

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Comment
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21. (SBU) Today's UNIDO is not the sprawling, inefficient
organization the U.S. left a decade ago; it is leaner, more focused,
and more effective, although its reform is still a work in progress.
We recommend exploring potential avenues of increased U.S.
engagement with UNIDO, whose resident expertise and global
deployment would act as force multipliers in the pursuit of U.S.
objectives, such as entrepreneurial development and promotion of
clean energy.


22. (SBU) A move to closer ties to UNIDO would increase U.S.
influence over UN system-wide reform, because UNIDO is a key driver
in efforts to streamline and integrate the delivery of UN programs
in the field. Given that the U.S. left UNIDO due to mismanagement
and waste, additional engagement would send a strong signal that the
U.S. will reward the reform and rehabilitation of inefficient
multilateral organizations, especially if coupled with a
disengagement or withdrawal from mismanaged organization(s). A
decision whether to rejoin UNIDO ultimately will be driven by issues
that transcend our responsibilities in Vienna, however, and goes
beyond the scope of this message. Regardless of that debate,
however, we will continue using our dialogue with UNIDO staff to
advance our goal of reform in the UN system. End Comment.

SCHULTE