Innovations in development happen where traditional markets fail. The open discussion that followed the presentation I made on Monday to nearly 100 colleagues inside and outside the World Bank Group spurred the first of what I hope are many conversations on the role the World Bank Group and others can play in supporting social entrepreneurs in the developing world
China’s massive stimulus spending has raised widespread concerns about local government finances. Local governments have ramped up infrastructure spending since late 2008, while they are also under pressure to spend more on health, education, and social security, for which they are in large part responsible. With monetary conditions likely to become tighter this year and land revenues possibly slowing down or even declining, local government finances may become strained.
At the heart of the concerns are local government investment platforms. These are state-owned-enterprise (SOE)-type entities set up to finance infrastructure construction and urban development—sometimes also called Urban Development and Construction Companies. Set up in part to circumvent rules prohibiting local governments from borrowing, their investment activities are mainly financed by land sale revenue and bank financing, often using as collateral land requisitioned from local residents.
Global attention is mounting about this year's Annual Meetings of the Bank and the Fund in Turkey. From Egypt, where I am on MIGA business on my way to Turkey, the discussion is around whether the meetings will advance the G20 communiqué in terms of substance and specific implementation measures.
I spent two days earlier in the week with global private equity investors. Their anxiety mostly revolves around how financial sector regulation will evolve over the coming months. They feel the cold wind of oversight, and the discussion revolves around two competing plans for financial regulation, one emanating from Brussels and the other from Washington. But everyone accepts that an overhaul of financial sector regulation is the unfinished business from last year's financial crisis, even though views differ on the extent and content of the changes needed. My own concerns are whether the world's piecemeal international governance system will enable a coherent global regulatory structure to emerge from the wreckage of last year's financial meltdown.
In Istanbul I'm looking forward to taking the temperature of the financial world. I hope and expect the meetings to be more subdued than in past years, because we have some serious business to do; and many players who were around at the Singapore meetings are no longer with us (Lehman, Bear Stearns, Merrill, AIG...).
It's a new world.
Every year, the World Development Report focuses on a different topic of global importance, and, as part of its preparatory activities, consults with various groups around the world. The 2010 World Development Report on Development and Climate Change is no exception. This report has required unique attention to varying points of view because climate change affects different countries in drastically different ways. Over the past year, as we approached the task of putting together a report on such a significant topic, we sent our team of authors all over the world to consult with representatives from over 40 countries. We listened to stories about how climate change is affecting them, and sought their views on our report’s evolving messages, which I described in an earlier blog post. We compiled this feedback as it was received, and have posted summaries of these consultations on our website.
Proposals aiming to boost innovative climate change solutions often include some form of publicly-supported global venture capital (VC) fund. The rationale for such a fund is that government funding is generally available for R&D and private financing is available for the commercialization of mature technologies; but funding is unavailable for entrepreneurial activities—such as proof-of-concept, piloting, firm-building, and marketing—that happen between these two stages. Given this situation, a global climate change VC fund could have a decidedly stimulating effect. Of course, it would also be important for governments not to put all their eggs in this basket, since the VC instrument could quickly reach its limits.
The financing gap is particularly severe for climate change mitigation and adaptation technologies for a number of reasons. Not only is the market for these technologies still at a very early stage of development but it is also driven by regulation. Both of these factors represent significant risks for investors. In addition, low carbon technologies tend to be more capital-intensive and require much more start-up financing than other typical VC investment sectors like information technology. The funding gap is particularly deep in the developing world, which presents a riskier business environment and a more fragmented market for investors.
Several VC-style climate-change funds have recently been launched. The Carbon Trust, established by the British government, already invests in clean-technology firms based in the UK. In partnership with the Qatar Investment Authority, the Carbon Trust plans to set up a £250 million fund called the Qatar-UK Clean Technology Investment Fund, to be supported by both governments. The fund will primarily invest in the UK, but also to some extent in continental Europe and the Gulf Region. This will be the first major publicly-supported climate change VC fund of its size involving more than one country.
The author, Kwasi Owusu Gyeabour, won third place in an international youth essay competition sponsored by the World Bank and other partners. He answered the question “How can you tackle climate change through youth-led solutions?” The awards were announced in Seoul in June, 2009.
“There is never a time in the future in which we will work out our salvation. The challenge is in the moment, the time is always now.” -James Baldwin (1924 - 1987) Nobody Knows My Name, "Faulkner and Desegregation”
It is a privilege to be called on to share ideas on issues of our time, issues that can be solved through youthful action. In my essay, “Greening the Ghanaian Youth” I proposed several ideas that would help tackle climate change. Here is a sample of the ones I consider most practical.
Youth action at the community level is the most potent force in our fight against rapid climate change. So I proposed the establishment of a Green Sector Mutual Fund. This community-based fund will invest in firms that operate in the green/environmental sector. Now I consider this feasible because I have friends who have established mutual funds such as the University of Ghana Campus Mutual Fund which have turned out successful. The success of a fund mostly depends on factors such as advertising and the prestige and market reach of the fund managers. Most asset management firms these days would jump at the opportunity to manage something ethical just to create a sense of social responsibility and goodwill.
I had heard that the world spent less on energy R&D than on pet food, so I decided to check. Actually, it's worse than that.
|Photo © Sophielouise at Dreamstime|
Worldwide energy R&D spending in 2007 was about $12 billion according to IEA statistics that we are reporting in the upcoming World Development Report. I could not find what the world spends on pet food - so I looked up what happens in the US. In 2005, Americans spent $34 billion on pet products, 41 percent (or $14 billion) of which was on food and treats.
Afghanistan needs more well-trained Afghan soldiers and better Afghan police, but the question is who will pay for them? The country cannot afford to pay the additional costs out of its own limited budget resources—any further money coming from this source will be at the expense of much less funding for urgent development priorities like educating children, improving basic health, building public infrastructure, etc. Will the international community commit to provide predictable funding for a number of years for Afghanistan’s security sector? This is a critical backbone of the state, whose development is essential to over time progressively replace international military forces which are far more costly. Creating security forces without the ability to pay for them will lead to obvious problems. And while expanding the Afghan security forces, it is critical to ensure that sound oversight and accountability mechanisms are in place.
The two great challenges of the 21st century are the battle against poverty and the management of climate change. On both we must act strongly now and expect to continue that action over the coming decades. Our response to climate change and poverty reduction will define our generation. If we fail on either one of them, we will fail on the other. The current crisis in the financial markets and the economic downturn is new and immediate, although some years in the making. All three challenges require urgent and decisive action, and all three can be overcome together through determined and concerted efforts across the world. But whilst recognising that we must respond, and respond strongly, to all three challenges, we should also recognise the opportunities: a well-constructed response to one can provide great direct advantages and opportunities for the other.