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Why investors must take a chance in the world's most fragile countries

Stephanie von Friedeburg's picture
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Microfinance in DRC. © Anna Koblanck/IFC
Microfinance in DRC. © Anna Koblanck/IFC


Fragility, conflict and violence affect more than two billion people across the globe. And while poverty on the whole is declining, that's not the case in countries affected by conflict.

It is these countries plagued by near-constant political and economic instability that are often the ones most in need of private investment. Yet they are also the places few private investors are willing to go. The risks seem to outweigh the rewards.

The United Nations’ Sustainable Development Goals (SDGs) aim to pull hundreds of millions of people out of extreme poverty by 2030 – an extraordinary undertaking that also comes with an extraordinary price tag.

Governments and official development assistance fall well short of this entire bill, estimated to be over $4 trillion per year. The private sector, with trillions of dollars sitting on the sidelines seeking investment return, is the most obvious alternative when it comes to filling that gap.

Fortunately, private corporations are increasingly stepping up – investing with an eye to development impact as well as to rate of return. Ontario’s Sarona Asset Management targets emerging and frontier markets by investing growth capital in private equity funds and companies that benefit local communities and the environment. The Washington, DC-based CrossBoundary works to bring advisory services as well as investment to those same markets.

But if the SDGs are to be realized, we all need to consider adding the world’s most fragile countries to our investment portfolios. Private investments are driven by complex judgments about risk and reward. Getting the balance right often requires governments and the private sector to work together. It demands the creation of new financial instruments and platforms that can mitigate risk and encourage the flow of private capital into challenging markets.

The International Finance Corporation (IFC) has already helped attract private investment to a multitude of emerging markets, tapping private pension funds and others to build more than $24 billion worth of new roads and highways in Colombiapartnering with private investors to bring off-grid solar energy to nearly 500,000 people in east Africa, and bringing mobile banking to sub-Saharan Africa. We have created a variety of innovative platforms – including the Managed Co-lending Portfolio Programme for Infrastructure – that have mobilized billions for investment in the world’s toughest markets. These investors are willing to go into developing countries because the IFC helps pave the way into them, absorbing some of the risk.

Today, more and more investors are extending this approach further into fragile and conflict-affected areas. According to the Brookings Institution, “of the 1,600 USAID public-private partnership since 2001, one-third are in the 50 countries on the list of fragile states”.

Many sectors offer potential in these countries for both healthy return on investment and strong development impact. Technology, for example, presents massive opportunity to do good by doing well.

Without technology, people living in remote, poverty-stricken regions often have no access to healthcare services, educational opportunities or banking. As of late 2016, more than half the world’s population remained cut off from the internet’s digital economy. That’s why projects like the East Africa Submarine Cable System (EASSy), a 10,000km, $235 million undersea cable system deployed in 2010 along the east and south coast of Africa, are so critical. Owned by a consortium of private companies, the fibre optic cable is the first system to deliver direct connectivity from east Africa to Europe and North America.

We need more projects like EASSy that will help create new markets, attract new investors and realize the SDGs – particularly in fragile and conflict-affected countries. The World Bank’s International Development Agency (IDA) recently created the $2.5 billion Private Sector Window to help do just that – catalyze private sector investment in the poorest countries, especially unstable and war-torn ones.

We need more ways to draw in investors who are willing to take chances in countries that need us most. These are the places where we can all make the greatest difference in ending extreme poverty and boosting shared prosperity. These are the places where economic and social progress would ensure peace and stability.

These are the places where the private sector matters most.


Originally published by the World Economic Forum as part of the World Economic Forum Annual Meeting.

Comments

Submitted by Nadezhda on

Russia is a big platform for investment. Great opportunities for joint projects. There are such terririi as Sochi, this is an international platform and awaits the impact of investment. Crimea is a very integral region from which it is possible to create a miracle of the earthly Paradise. Therefore, Russia is ready for cooperation.

Submitted by Harris Maduku on

This speaks directly to the fact that private investment alone has no clear objectives of helping societies to escape the jows of extreme poverty basically because they are profit driven hence they can only put their money where they are certain that they will harvest. As mentioned in the article, some the reasons why private investment can not help significantly to halve poverty is the risk and uncertainty that the fragile states are couple with. We need more of public private investment if we are to have businesses that are guided by the zeal to help societies to be poverty free. The advantage that come with public partnering with private investors is the confidence that the private investor will have and that will have reduced the amount of risk involved in the business if the partnership wasn't there.

Submitted by Angapat Raghu Menon on

In and around world the developed countries should take inititative to invest in Poor countries those are in South Asia and African continent. The return will be very slow in the poorer countries, as if they cant get immidietley. Some extent the economic development will take place very slow and poverty will be eliminated with in 20 or 30 Years in the time. The developed countries should invest in the poorer countries, they should invest complsery,as if the return will be very slow. We must fight to eliminate Poverty in the African countries is must. Hope it will take place with in 2030 as if the people will be happy in their own countries.

Submitted by Ozaveshe Ade Balogun on

The United Nations Sustainable Development Goals focus to reduce poverty in the developing nations of the world by 2030 is the best of all programs. One thing is certain, the role of the private sector is truly very important. However important this role might be, good laws by the host government is also very essential, as all businesses seeks maximum returns on their investment. For poverty to be totally eradicated or reduced to its lowest level in any community, they should have a say in such company's activity or be made part of such business. For example the poor people in locations and sites where solid minerals are being exploited have nothing to show for it. Instead they are left with environmental degradation, poor health as a result of polluted air, damaged farmlands and so forth. The Mining company host state government in Nigeria have no control of what is happening in their area for it is under Federal government control. I would rather suggest that State government should be allowed to have a say whereby the operators of such mines could be held accountable for certain responsibilities. Another way to reduce poverty in such situation is to compel such mining companies to establish industries that will add value to the raw materials gotten from that land and thereby creating jobs for the unemployed adults and youths together. But this is not the case for now. However, this is truly the situation in Igarra, Ikpeshi, Okpella all in Edo North, Edo State, Nigeria. where solid minerals abound in very large quantities and been mined yet the people are so very poor. The international community can beam their searchlight on this, to ensure the success of the UN Sustainable Development Goals target date of 2030 in eradicating poverty in developing nations, my view.

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