Methodological and Technological issues in Technology Transfer

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1.4 Trends in technology transfer

Little is known about how much climate-relevant hardware is successfully "transferred" annually. When software elements such as education, training and other capacity building activities are included, the task of quantification is further complicated. Financial flows, often used as proxies, allow only a limited comparison of technology transfer trends over time.

The 1990s have seen broad changes in the types and magnitudes of the international financial flows that drive technology transfer, at least that occurringetween countries (see Figure TS 1). Official Development Assistance (ODA) experienced a downward trend in the period of 1993 to 1997, both in absolute terms and as a percentage of funding for projects with a significant impact on technology flows to developing countries. However, in 1998 there was an increase in ODA funding. ODA has become relatively less important to many developing countries given the dramatic increase in opportunities for obtaining private sector financing for technology acquisition.

Sources and amounts of development finance, some portion of which goes for technology transfer, vary widely from region to region. Countries in Sub-Saharan Africa received in 1997 an average of some US$27 per capita of foreign aid and US$3 per capita of foreign direct investment. By contrast, countries in Latin America and the Caribbean received US$13 per capita of aid and US$62 per capita of foreign direct investment. Recent initiatives to spur development progress in Africa aim to respond to these disparities.

Levels of foreign direct investment (FDI), commercial lending, and equity investment all increased dramatically during the 1990s. As a result, by 1997 private flows supplied more than three fourths of the total net resource flows from OECD member countries to developing countries compared to one third in 1990. Probable causes for this shift, and what it means for governments and the private sector, are described in detail in the Report. FDI, loans, and equity are the dominant means by which the private sector makes technology-based investments in developing countries and economies in transition, often in the industry, energy supply and transportation sectors. Private sector investment in the form of FDI in developing countries has favoured East and South East Asia, and Latin America.

Fig. TS 1: Total Net Resource Flows to Aid Recipient Countries; OECD, 1999c.

Total private flows to developing countries peaked in the first half of 1997 and then fell significantly in the wake of the global financial crisis that started in Asia during the middle of that year. Most of the decline was due to reduced bank lending by the private sector, although this remained robust to Latin America. Foreign direct investment in developing countries is estimated to have increased slightly during 1998 and 1999.

Overall, FDI still represents a relatively small share of total investment in developing countries, both in absolute values and as a share of all developing-country inflows. FDI exceeded 10 percent of gross fixed capital formation in only eight countries, and in most it is much less than seven percent of the total. Despite the small size of inflows, FDI is still important for many of these economies. Foreign direct investors are often manufacturers that occupy a dominant position in the supply chain and that play a major part in the industrial sectors in which they operate. In the best circumstances they bring to the host country, and the firms with whom they work, state-of-the-art technologies and high standards for environment, health and safety, and quality assurance. International financial statistics, however, indicate only the quantity, and not the quality, of FDI. Table TS 2 shows the increase in net private capital flows (of which FDI is a component) to low and middle income countries by country group and region during the period 1990-1996. Notable is the low share received by countries in Africa.

Table TS2 Net private capital flows to low and middle income countries by country group (US$ billion) (Source: World Bank.)
COUNTRY GROUP 1990 1991 1992 1993 1994 1995 1996
All countries 44.4 56.6 90.6 157.1 161.3 184.2 243.8

Sub-Saharan Africa

0.3 0.8 -0.3 -0.5 5.2 9.1 11.8

East Asia and the Pacific

19.3 20.8 36.9 62.4 71.0 84.1 108.7

South Asia

2.2 1.9 2.9 6.0 8.5 5.2 10.7

Europe and Central Asia

9.5 7.9 21.8 25.6 17.2 30.1 31.2

Latin America and Caribbean

12.5 22.9 28.7 59.8 53.6 54.3 74.3

Middle East and North Africa

0.6 2.2 0.5 3.9 5.8 1.4 76.9

Low income countries
Excluding China and India

1.4 3.0 2.4 5.8 6.3 5.5 7.1

China and India

10.0 9.1 23.0 44.2 50.8 47.9 60.0

Middle income countries

32.0 44.0 64.8 107.1 104.2 130.7 176.7

Grants by NGOs to developing countries have stayed fairly constant during the last decade, ranging between US$5 billion and US$6 billion per year since 1990. Despite their relatively modest amounts, many of these are directed at least developed countries and at capacity building efforts.

The general increase in the importance of private sector investment in developing countries does not reduce the role of ODA. First and as noted above, private sector investment has been very selective (see Table TS 2). While almost all countries have benefited to some degree, a handful of countries (East Asia and Latin America) have received most of the attention. ODA is still critical for the poorest countries, particularly when it is aimed at developing basic capacities to acquire, adapt, and use foreign technologies. Second, ODA is still important for those sectors where private sector flows are comparatively low, like agriculture, forestry, human health and coastal zone management. Moreover it can be essential for certain activities including the leveraging of funds for capacity building activities and supporting the creation of enabling conditions which may leverage larger flows of private sector finance into ESTs. Third, private investment, most notably foreign portfolio equity investment and commercial lending, is volatile. Many developing countries have found to their distress that private investment can quickly dry up if investors perceive more attractive--or less risky--opportunities elsewhere.

Measuring Technology Transfer of EST
Because of the limited comparison of trends in technology transfer on the basis of financial flows, better indicators and data to quantify the level and flows of climate-relevant EST are needed to give governments better information on which to base their policy. In addition, technology performance benchmarks for different sectors could be compiled to give an indication about the real degree of implementation of EST and the potential for technological improvements. It would be useful to have simple and agreed upon criteria for measuring the transfer of ESTs.

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