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Coming together is the way forward: Maximizing Finance for Development

Hartwig Schafer's picture
Also available in: Español



Those following the discussions during the IMF and World Bank Group Annual Meetings held in Washington last week will have noticed that our approach toward international economic development is changing in a major way—and, I believe,  for the better.
 
Saturday’s panel discussion on Maximizing Finance for Development set the context that many in the development community now know well, but bears repeating: It will take not billions, but many trillions of dollars to meet rising aspirations for better infrastructure, health and education. Specifically, we are talking about $4 trillion every year needed to meet the Sustainable Development Goals to which the international community agreed in September 2015.

That’s a ton of money. It’s much more than multilateral development banks or international donors can provide by themselves. At Saturday’s event that featured President Paul Kagame of Rwanda, Renu Sud Karnad from the Housing Development Finance Corporation of India, Adrian Orr of New Zealand’s Super Fund, Bill Winters from Standard Chartered—moderated by Ali Velshi from NBC News—World Bank President Kim said bluntly: “No matter how much [official development assistance] goes out, we will never be able to meet that demand.”

That’s not to say that the financial resources to meet the Sustainable Development Goals don’t exist.  Adrian Orr was clear: “There is a wall of capital…wanting to get invested into long-term infrastructure. Frontier markets, emerging markets, are a fantastic source of opportunity for long-term investors.” He said that the World Bank Group can act as a clearinghouse to marry the supply of private capital and the exploding demand for infrastructure in emerging markets. To leverage longer-term private capital, Bill Winters, CEO of Standard Chartered, pointed out that we will need products and assets to be easily understandable and standardized.

This is a much-anticipated union. In fact, this past summer in Hamburg, G20 finance ministers approved the Principles of Crowding-in Private Sector Finance to give MDBs a common framework for increasing private investment in support of countries’ development objectives.

But how can we do this sustainably and sensibly? This is where, like any union, it can get complicated. First, the policy, regulatory, financial, and market conditions must be right. Processes should be standardized wherever possible; investors should be invited and encouraged to participate in well-developed, bankable infrastructure projects.

From the Bank Group’s perspective, upstream, we can use our tools and resources to help countries create those conditions. This serves the dual purpose of encouraging investment while promoting good governance and adherence to high environmental and social standards.

Once the groundwork is laid for investing, we have several arrows in our quiver and more in development as we work hard and quickly to innovate for development. For example, public-private partnerships can better allocate investment risk between the public and private sectors, paving the way for greater investor participation in infrastructure projects and freeing up public funds for other development purposes. Other important tools are guarantees and credit enhancements that can reduce financial and political risks that would otherwise keep the private sector away.

The good news is these tools already exist, both within the Bank Group and other multilateral development banks. They are tried and tested. The sea-change taking place is simply that we are actively promoting them more heavily to attract more financing for the huge infrastructure and service needs of the developing world.

One lesson that has emerged and was articulated clearly throughout the Annual Meetings is that partnerships matter—for sharing knowledge, resources, and risks. Developmental challenges are too big, and the stakeholders too many, to take any other approach.

Maximizing Finance for Development already has enjoyed traction with client governments, investors, multilateral development banks, and donors. It’s not hard to see why; the need is more apparent than ever before, as are our limitations.

Indeed, during Saturday’s event, President Kagame noted that his country’s partners, including the Bank Group, have been instrumental in helping attract the private sector for reaching Rwanda’s development goals.

He distilled the approach perfectly, saying: “Coming together is going to be the way forward.” 


Follow the conversation on Twitter with #fin4dev
 

Related links:


Watch: Maximizing Finance for Development event during World Bank & IMF 2017 Annual Meetings

G20 – Principles of MDBs’ strategy for crowding-in Private Sector Finance for growth and sustainable development

Slight bump in half-year private investment in infrastructure: a sign of recovery?
 

Comments

Submitted by Dr. Mohamed Taher Abdelrazik Hamada, Ph.D on

Money is the main reason for better infrastructure ,health , and education for
sustainable development goals.
The World Bank and other multinatinoal banks are walls for funding capital to the developing world.
These banks have supported and still supporting private sector and emerging markets . World well qualified
investors are necessary for sustainable development .
Good governances are major factors to attract these investors . The World Bank
does it's best and still doing it's best through (PPPS) public, private partnership projects , among other numerous projects to better allocate investment in the developing world , and to avoid risks between the public and private, sectors are achieved. The whole world is looking for further approaches in sustainable development from the World Bank and other multinational banks.
Yours Very Respectfully,
Dr. Mohamed Taher Abdelrazik Hamada, Ph.D
Senior American Citizen
Retired Professor at Strayer University, USA
Address
[redacted]

Submitted by Robert P Bruce on

The key thing about SDGs is not that we can't afford them, but to understand that in an increasingly integrated World we can't afford NOT to implement them. Politicians must learn to join the dot's between climate change, poverty and inequality to the civil wars, terrorism and mass migration which they create. Just one million refugees fleeing to Europe in 2015/16 was almost enough to break apart the EU, so what will be the effect if 100 million Africans flee poverty and violence in the coming decades? Also the cost of $4T is not large in a Global economy with GDP now over $75T pa. In fact it amounts to just over 5%, and would also generate major economic returns in accelerated growth, so the SDGs must be viewed as an investment not a cost.

Certainly no one strategy can shift such enormous flows of capital into developing countries, but rather a combination of radical changes is needed.

1) A relatively easy step should be to end G20 tolerance of Global tax havens which rob developing countries of at least $170 B every year - far more than the total aid budget of all G20 countries put together. Not only would this increase tax revenues, but would provide the trace-ability of financial transactions needed to clamp down on corruption, removing one key factor that deters greater FDI into developing nations today.

2) Another key approach is to motivate FDI with the promise of long term asset growth. Developing countries need new cities that will grow vastly in the coming decades if they attract the FDI needed for infrastructure and industrial development. Realistically these will be pockets established in areas that can easily be connected to Global markets at low cost (so will not be the biggest part of the development of Africa for example which is far too vast and landlocked to follow a classical Western model of industrial development). Nevertheless these new industrial cities will present huge opportunities for growth, which we know always results in long term rise in real estate values. Simply ensure that foreign investors have a big enough stake in the infrastructure of these new cities and it will be in their own interests to ensure they are economically successful. Incentives for growth could be increased by making these cities "free trading" ports that can operate under international legal jurisdiction to reassure investors, and perhaps with special tariff concessions into rich markets countries. Such a strategy raises the political question of large scale foreign ownership of city real estate, but this seems a small price to pay for the much bigger prize of accelerated economic development. In any case national governments can still gain a share of this growth through building in a significant Land Value Tax which will rise in contributions as real estate values climb.

3) Even these approaches of course will not deliver the level of investment needed to meet the Global Goals in full, and if projects are going to be attractive to private investors then serious international aid will still be needed, from seeding investment to loan guarantees and "confidence" stakes in major public/private ventures. The problem with national aid is of course that voters object to "our" money being spend on "others" when we believe we have pressing needs at home too. The answer must be to create an international source of funds that does not "belong" to any one country. Such a model can only be established through a new "Global Partnership" of major countries ( G20 plus or minus a few members ) who could agree to co-ordinate a Global financial transaction tax with money collected from banks on international trades, and paid into a central fund. Many of the Worlds top 1% would not be happy, but from the point of view of ordinary voters or citizens of the World's biggest countries this money would not "belong" to them, so taxing it at a low level to fund the SDGs should not be as controversial as increasing national aid budgets above current levels.

Hopefully these types of measures would become self-reinforcing over time. So
building effective tax gathering systems, free from corruption, will pay off as economic growth climbs. Similarly, shifting away from fossil fuels to renewable energy sources will reduce imports of petroleum products for many countries, improving their current account balance, and may even create opportunities to export electricity in peak periods. And once a cycle of sustainable growth is established, greater private flows of FDI will be attracted by the huge long term potential of some of the fastest growth opportunities in the World.

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