Environmental and Industrial Biotechnology in Developing Countries

David Kryl*
United Nations Industrial Development Organisation (UNIDO)
Biodiversuty Unit SES/PEM
Vienna International Centre
P.O. Box 300
A-1400 Vienna, Austria
Tel: 43 1 26026 3014
Fax: 43 1 26026 6810
Email: d.kryl@unido.org

Modern biotechnology, which in this paper refers to the application of biological organisms, systems and processes to the provision of goods and services (OECD, 1998), has grown from being solely the domain of research scientists in academic laboratories to being an enabling technology capable of being incorporated into many different sectors of an economy. Much of this development has thus far been concentrated in the medical field and involves drug-directed research by pharmaceutical and biotechnology companies. The second largest application, although only one-tenth the size of the medical sector in terms of funds spent and income generated, is in agriculture (Kate and Laird, 1999). Interestingly this latter sector has captured the public spotlight to a much greater degree than its larger counterpart mostly as a result of the actions taken by domestic and international interest groups. The third broad sector of biotechnology is in its application in industry and to environmental problems. So far this sector has received a lack of attention not only from the media, but also the financial and policy perspectives. This paper is intended to give an overview of the opportunities and barriers to the industrial and environmental application of biotechnology in developing countries.

The target areas for industrial biotechnologies can be seen as falling into three main categories: industrial supplies (biochemicals, enzymes and reagents for industrial and food processing); environmental (pollution diagnostics, products for pollution prevention and bioremediation); and energy (fuels from renewable resources). Industrial processing refers to chemicals, pulp and paper, textiles and leather, while environmental applications relate mostly to the effects of the metal and mineral industries. In the energy sector, an important area is the replacement of fossil fuels with renewable raw materials, (OECD, 1998; Kate and Laird, 1999)

In assessing the potential of industrial and environmental biotechnology in developing countries, some points should be considered. First, even in industrialized countries, the expected economic benefits of this sector of biotechnology are orders of magnitude smaller than those found in pharmaceuticals and agriculture (OECD, 1998; Kate and Laird, 1999). This essentially restricts activity to niche markets and justifying production changes with environmental considerations. Second, the capital outlays required to use bio-based industrial processes are presently higher than those of traditional mechanical or chemical processes. Thus, it can be difficult to justify starting new industries based on biotechnology, which leaves such innovations to existing facilities. This leads to the observation that only intermediate developing countries, those with existing industries and some scientific capacity, can realistically consider applying biotechnology to industrial processes. Other developing countries could still become involved in this sector in a limited fashion, through the use of their biological resources.

From the economic perspective, early studies in industrialized countries indicate that replacing existing chemical-based production methods can lower operating and energy costs (Griffiths, 2001). This report also found a consistent reduction in hazardous waste products. Thus, the industrial application of biotechnology, if managed properly, could have a net positive effect in developing countries. The qualifier "net" is an important one in this context. Some potential negative effects arise from the Schumpterian concept of innovation, which recognizes that a new innovation can render its predecessor obsolete while creating new opportunities. The potential negative consequences of obsolescence, such as worker displacement, dependence on new materials and changes in process management, should be considered to avoid running the risk of raising expectations too high, as has been the case with agricultural biotechnology.

The incorporation of biotechnology into industrial settings in intermediate developing countries also faces financial barriers. Largely, this comes down to not having enough money for capital equipment upgrades. Since bank financing is not an option in many developing countries (with banks demanding collateral of equal value to the loan), private investment, either domestic or foreign, must be considered. Here there are several constraints including domestic institutional gaps, such as lacking private venture capital companies or underdeveloped stock markets to liquidate investments. There is also missing public capital investment resulting from economic stagnation and falling commodity prices (Avramovic, 1996). On the positive side, it may be less expensive to overhaul an obsolete factory in an intermediate developing country than to do the same in an industrialized one. Thus international investors or companies may be more willing to consider bio-based process for their industrial partners in developing countries. Another advantage is that many industrial technologies are scale-neutral so that even small businesses can take advantage of them. Interestingly, the special challenges in obtaining international financing of industrial biotechnology in developing countries may be smaller in some respects than for health or agricultural biotechnology. This derives mainly from the consideration of mining, pulp and paper, textiles and chemical manufacturing as traditional investment targets since investors can calculate net present value and other accounting necessities based on known valuations and experience.

Structural resistance can also hinder the successful introduction of biotechnology into current industrial enterprises. One source of resistance can come from chemical and mechanical engineers with no biological training or even knowledge of the potential benefits of biology to their trades. To them there is no obvious advantage to change processes. To effectively manage this inherent resistance, there needs to be a local pool of scientists that can explain the role of biotechnology in the manufacturing process participates during the technology transfer process. Another potential source of structural resistance comes from the nature and context of the targeted industry. The end-users may not require that an entire process is overhauled, only one or a few steps. Any involvement by a third party in trying to assist in biotechnology transfer should consider the absorption capacity of an industry with regards to fundamental research breakthroughs. It has been noted that investments in upgraded equipment can be wasted, unless accompanied by investments in complementary methods of organization and management (Milgrom and Roberts, 1990). Furthermore, in order to be used effectively, processes involving biotechnology do require certain production standards. It is important to bring industrial processes involving biotechnology up to international standards from the beginning. Not only will this provide the option of exporting products, but it will also prevent unexpected future capital outlays should domestic regulations be rewritten to accommodate international obligations.

Taking the aforementioned conditions into consideration, it seems that the most likely form of industrial biotechnology that could be introduced into intermediate developing countries in the near future is in cleaner production processes. This type of technology introduction would only need to affect specific parts of a given production process, could show economic benefits relatively quickly and also help companies conform to environmental obligations. One factor that should be remembered is that often "dirty" industrial processes arise from the tendency of foreign investors to engage in ventures with high yields in the short term so as to avoid economic and political volatility (Newell, 2001). Thus it is often foreign-owned firms that need to be convinced of the value of cleaner production. A useful contention could be that biotechnology is not "clean" per se but that environmental and economic sustainability flow from producing wastes that are degradable or recyclable (OECD, 1998).

With respect to the direct environmental application of biotechnology, there are options as well. An example of replacing a chemical process with a bio-based one comes from Kenya and the product BIOFIX, which is an alternative to chemical fertilizers. Measurements show that 100g of BIOFIX replace 90kg chemical nitrogen (Zechendorf, 1999). This reduces not only toxic environmental exposure but human as well since fertilizers are spread manually in most developing countries. In the energy sector, Brazil is developing a strategy for using soy oil and sugarcane as a source of ethanol to be refined into biodiesel (Ford, 2000). Realistically though, any effort to promote bio-based substitutes for petroleum products will have to be undertaken specifically to support either a particular primary production sector or environmental directives since oil is currently available at the lowest price in history. Other uses of biotechnology in the environmental sector relate to the production and distribution of substances that absorb toxic products from either soil or water. Most of these processes are not yet economically viable in industrialized nations and so it would be difficult to transfer them to developing countries at this time.

The only viable involvement for many developing countries at the present time in industrial or environmental biotechnology is based on providing the products of natural resources, such as enzymes, as process components. Inherently, due to lacking infrastructure and financial resources, this involvement will require foreign investment and/or partnerships that would have to navigate through the international debates surrounding benefit sharing and access rights.

Intellectual property rights are currently and will continue to be for the foreseeable future, a relatively unimportant factor in the transfer of industrial and environmental biotechnology. For example, in the pharmaceutical sector, an empirical study has shown that patents and patent law are not necessarily the major barrier to AIDS treatment across Africa as has been assumed by many in the development field (Attaran and Gillespie-White, 2001). In many developing countries economic barriers alone will suffice to allow near exclusive financial benefits since the capital outlay for implementing biotechnological processes cannot be easily duplicated locally. If monetary conditions do eventually allow for competition, then an industry has been established and local players will have both the means and interest to demand appropriate legislative action from their government.

Some factors appear when considering the most effective means for international institutions to help introduce biotechnology into the industrial sectors of the developing world. First, success should be demonstrated by targeting projects to appropriate regions and existing industries. One useful concept is that of intermediate developing economies, which have a scientific base but weak industrial structure. Such economies often exhibit a dependence on imported technology and a limited degree of industrial integration. However the basic ingredients are present, so new initiatives can have a noticeable impact upon the status quo by demonstrating the viability of biotechnology. As well, since even a small scientific community will be familiar with the techniques being introduced, a local resource exists for helping other entrepreneurs adapt to the new processes. This could start a "virtuous cycle" (Fontes, 2001). Another factor to consider involves relating capacity building exercises to international environmental agreements. The use of biotechnology in implementing cleaner production methods, especially in industries with heavy chemical use such as leather and mining, could be more actively assessed and promoted.

In addition, international agencies can promote private sector involvement by helping mitigate risk through the establishment of mechanisms to identify promising technologies and perhaps even provide parallel investments at the initial stages of process conversion or technology development (Bazley, 1999). Microfinancing for small company owners is another option (Walsh et al. 1995). The above strategies could also be applied to supporting private sector investment in identifying and characterizing natural resources, such as enzymes, that could be used in industrial processes.

Strong local government involvement is needed, if not in large-scale structural and financial support, then at least by publicly displaying a positive attitude to both biotechnology and entrepreneurship (Bazley, 1999). Governments could do well to remember that biotechnology is an enabling technology because of its widespread impact. Many process/enabling technologies may increase the productivity and sustainability of industrial processes currently in use and as such, major technological changes can initiate structural changes and economic growth across an industry.

From the standpoint of the companies that could consider biotechnological processes, one important issue is the economic advantage gained from entering or creating a particular niche market. Another important issue would be the possibility of reducing pollutant emissions at the source. This may not be of direct economic benefit since the majority of developing countries have either weak or non-existent enforcement of environmental regulations regarding waste treatment, however it may be used to enhance public image and generally improve the environmental conditions of the workforce. Since economic benefits from industrial and economic biotechnology will be relatively small in any case, it may be useful to think about the use of a highly publicized subsidy structure as an incentive to manufacturers to adopt new technologies. This structure may take place in the form of guaranteeing large-scale orders (Mehra, 2001). Such schemes are used in the US and Brazil to promote alternative technologies such as ethanol fuel and bioreactors to benefit their agricultural sectors.

In the near future, industrial and environmental biotechnology will likely only benefit those intermediate developing countries that have already established some industrial enterprises, for example in leather or metal production, and have at least a rudimentary set of environmental regulations. Reasons for this include the reality that it is generally easier to modify existing industries than to create new ones and that even minimal pollution control measures can be used to convince industrialists to take advantage of external assistance, either national or foreign, to adopt bio-based cleaner production process.

Attaran, A. and Gillespie-White, L. (2001). Journal of the American Medical Association 286:1886-1892.

Avramovic, M. (1996). An Affordable Development? Biotechnology, Economics and the Implications for the Third World. Zed Books Ltd., London, New Jersey.

Kate, K. and Laird, S.A. (1999). The commercial use of biodiversity. Earthscan Publications Ltd., London.