COVID-19 and the global contraction in foreign direct investment

By Adnan Seric, Research and Industrial Policy Officer at the Department of Policy Research and Statistics (PRS) at the United Nations Industrial Development Organisation (UNIDO), and Jostein Hauge, Research Fellow at the Centre for Science, Technology, and Innovation Policy (Institute for Manufacturing) at the University of Cambridge


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


shutterstock_163440290COVID-19 is uprooting economic globalisation. As both supply and demand are experiencing simultaneous shocks due to lockdown measures, global production networks and international trade flows are being disrupted on a scale never seen before. Disruptions to flows of portfolio and foreign direct investments (FDI) — which are part and parcel of economic globalisation — are no exception. According to the International Monetary Fund, investors removed over US$100 billion of portfolio investment from developing countries since the beginning of the COVID-19 crisis, the largest capital outflows ever recorded. According to the UN Conference on Trade and Development (UNCTAD), global FDI flows are expected to contract by 40% during 2020/21.

The contraction in FDI is going to hit developing countries particularly hard, mainly for two reasons. First, FDI inflows to developing countries are expected to drop even more than the global average seeing that sectors that have been severely impacted by the pandemic account for a larger share of FDI inflows in developing countries. Second, developing countries have become more reliant on FDI over the last few decades — FDI inflows to developing countries increased from US$14 billion to US$706 billion (current prices) between 1985 and 2018, as seen from Figure 1. As a share of world FDI inflows, this represents an increase from 25% to 54%. Continue reading

How COVID-19 can change incentives for development co-operation

By Nilima Gulrajani, Senior Research Fellow, ODI


This blog* is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


cooperation-hands-puzzle-world-2There is nothing new in accusing bilateral donors of repurposing foreign aid to serve their domestic national interests. Even before the current pandemic, donors had been slashing aid in exchange for middle-class tax breaks, twisting the definition of official development assistance (ODA) to allow for the inclusion of expenditures in wealthier countries, and tying aid to the uptake of domestic consultants. So, what happens now, as economic and social needs expand globally with every case of COVID-19 detected and every grave marked?

The initial vital signs of international collective action are not promising. Some politicians have come under flak for donating personal protective equipment to other countries just before domestic demand skyrocketed, even if this equipment was set to expire and the favour returned in kind. Others stand accused of using medical aid to further diplomatic ambitions. Yet others have gone even further, seemingly keen to upend global co-operation and dismantle the very institutional architecture able to marshal both the transnational networks and political leadership required to detect, monitor and eventually stop this unpredictable pathogen. In short, there are worrying signs about the possibility of upholding a functioning multilateral co-operation system, even among supposedly like-minded actors. Continue reading

Remittances during COVID-19: Reduce costs to save livelihoods

By Paul Horrocks, Manager, Private Finance for Sustainable Development; Friederike Rühmann, Policy Analyst; and Sai Aashirvad Konda, Consultant at the OECD Development Co-operation Directorate


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Mumbai, India – Migrant workers return home during a nationwide lockdown due to COVID-19, on May 2020. Photo: Manoej Paateel / Shutterstock

The COVID-19 crisis is severely affecting migrants’ ability to send money home to their families.

The World Bank predicts a decline in global remittances by about 20 percent in 2020 due to the economic downturn caused by the COVID-19 pandemic. This decline threatens the livelihoods of millions of households in developing countries, and the international community must urgently invest in innovative, resilient, and cost-reducing solutions to support developing countries amid the crisis and in their recovery.

Impact of COVID-19 on remittances

Remittances serve as an important source of income for millions of households in developing countries and act as a safety net in times of emergencies, natural disasters and crises. In 2019, the flow of remittances reached a record flow of $554 billion to low-and middle-income countries. Continue reading

Mind the SDG gap: don’t forget sustainable domestic financing

By Sebastian Nieto Parra, Head of Latin America and the Caribbean Unit, OECD Development Centre, Mario Pezzini, Director of the OECD Development Centre and special Advisor to the OECD Secretary General on Development, and Joseph Stead, Senior Policy Analyst, OECD Centre for Tax Policy and Administration

 

closing-gapThe “Decade of Delivery” for the 2030 Sustainable Development Goals (SDGs) calls for finding sustainable ways to finance development. Closing the financing gap by 2030 will require between USD5 and USD7 trillion annually, and between USD2.5 and USD3 trillion of that amount for developing countries alone. There are several approaches to financing the SDGs in low-income countries. External private financing and official development assistance both have a role to play but these are not the only options. We must take an in depth-look at all options, including taxes, local financing through domestic private banks or national development banks, and local public-private partnerships. Due to the colossal amount needed to finance the SDGs, they must all be taken into consideration. But some can be particularly costly. Experiences of public-private partnerships in developing and emerging economies for example, have often resulted in high fiscal costs and a high rate of renegotiations after only a few years of operation.
Continue reading

New Approaches to Scaling Private Sector Funding for Sustainable Development

By Sonja Gibbs, Managing Director & Head of Sustainable Finance, IIF


This blog is part of the
OECD Private Finance for Sustainable Development Conference


Development-Finance-shutterstock_524218915Welcome to 2020–the “Decade of Delivery” for the 2030 Sustainable Development Goals (SDGs). While the international development community remains hard at work on solutions, success over the next decade will require addressing an “SDG financing gap” of $5-7 trillion per year, with emerging markets making up $2.5-3 trillion of that.  This will create tremendous opportunities for the private sector across the spectrum of investment vehicles—including foreign direct investment, listed and unlisted equity and private equity, in addition to the wide variety of debt instruments.  Indeed, given the massive buildup of debt over the past two decades—to over 320% of global GDP, from around 230% in 1999—a shift towards more non-debt financing could be a more sustainable approach to closing the gap.

With fewer than 10 years left to achieve the SDGs, many low-income countries remain very far off-target. At slightly above 50, the low-income countries median on the composite SDG index—which measures country-level performance in achieving the SDGs—remains well below that of either mature or emerging markets (though there is substantial variance among low-income countries). Continue reading

Why should investors care about ocean health?

by Dennis Fritsch, PhD, Researcher, Responsible Investor


This blog is part of the
OECD Private Finance for Sustainable Development Conference


Ocean health

“The World’s Oceans Are in Trouble. And So Are Humans, Warns U.N. Report” – a blaring headline in Time Magazine just after the IPCC published their landmark report Oceans and the Cryosphere in September 2019. It highlights what scientists and NGOs have been shouting from the rooftops for years: human activity has put the global ocean in a dire state and by doing so is endangering planetary life as we know it. But how has it come this far? In addition to producing over half of the oxygen we breathe, being the largest carbon sink on the planet and a haven for biodiversity, a healthy ocean is a source of economic livelihoods for billions of people. The value of global ocean assets is estimated at over USD 24 trillion[1] making it the 7th largest economy in the world in GDP terms. Due to its integral role in the global financial and environmental ecosystems, the ocean is high on the international policy agenda[2] and its importance continues to grow. The global ‘Blue Economy’ is expected to expand at twice the rate of the mainstream economy until 2030[3], and already contributes USD 2.5 trillion a year in economic output. Continue reading

How Blended Finance Can Plug The SDG Financing Gap

By Jean-Philippe de Schrevel, Founder and Managing Partner of Bamboo Capital Partners


This blog is part of the
OECD Private Finance for Sustainable Development Conference


Greenlight planet - Shopkeeper

We now have just 10 years to achieve the Sustainable Development Goals (SDGs). To date, the SDGs have been underfinanced. The annual financing gap to achieve the SDGs by 2030 currently sits at USD 2.5 trillion. The current approach is not working. Historically, financial institutions have focused on financing one or two SDGs in isolation, and this funding is often directed towards relatively low-risk investments. Collectively, we need to reconsider how we can realistically finance the SDGs by 2030, and this is where blended finance impact investment vehicles have an opportunity to shine.

Continue reading

Shifting public and private finance towards the Sustainable Development Goals 

By Paul Horrocks, Priscilla Boiardi and Valentina Bellesi, OECD Development Co-operation Directorate 


This blog is part of the OECD Private Finance for Sustainable Development Conference


dev-cooperation-puzzle-handBack in 2015, the international community committed to a shared global vision towards sustainable development – the 2030 Agenda – including 17 Sustainable Development Goals (SDGs).

The Goals identify the areas in which resources are most needed. But with the realisation that meeting the Goals by 2030 would require filling an annual financing gap of 2.5 trillion dollars, the Addis Ababa Action Agenda (AAAA) called upon a broader mobilisation of resources, including private ones.

Five years on, progress remains slow and uneven.

Three critical questions emerge from this context: How can we drive more resources towards the Goals? How can we make sure they are going where they are needed most?

And are they being used in the most effective way?

In order to guide the answers to those questions, we propose a three-step approach: Mobilisation, Alignment and Impact. Continue reading

Overcoming the Challenges of the Transition and Exit from Aid

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By Annalisa Prizzon, Senior Research Fellow, Overseas Development Institute 


This blog is part of an ongoing series evaluating various facets
of 
Development in Transition


 

ODI transition finance
Flat stairs, Sao Paulo by Jared Yeh / Flickr CC-BY-NC-ND

Since 2000, the number of low-income countries (LICs) has more than halved — from 63 to 31 — and have now joined the ranks of middle-income countries (MICs). Typically, these economies have strengthened their macroeconomic management, played a stronger and more visible role in global policy, diversified their sources of finance and received less external development assistance (or ceased to benefit materially from it).

As developing countries become richer and address their own development challenges, donors usually reconsider their programming and interventions. And so, transition and exit from bilateral development co-operation programmes should rightfully be celebrated as an indicator of success in economic and social development.

Challenges facing financing for development

However, as countries graduate from soft windows of multilateral development banks or as bilateral donors cut their country programmes — or they shift to loans if that is an option — the financing mix changes. Reliance on tax revenues and commercial finance when aid starts falling inevitably expands, and so does the costs to service debt obligations. Tax revenues do not necessarily increase to fill the gap. Continue reading

The Green Eureka Moment: Investing and Inventing to Stop Climate Change

By Raluca Anisie, Carbon Impact Analyst and Paul Hailey, Head of Impact, responsAbility Investments AG

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A family bakery in Ecuador that used a green loan from a GCPF investee to buy a more energy-efficient oven. Photo: José Jacomo

In the 3rd century B.C., Archimedes declared: “Give me a place to stand and with a lever I will move the world.” This phrase speaks to the potential of the right tools at the right time, but as anyone who has tried to build flatpack furniture will confirm, not having the right tools can derail any project, however grand.

In 2019, our quest to find and use the right tools to move the world is more urgent than ever. As UNEP stated at COP24, we are the last generation that can stop climate change. This challenge requires a mobilisation of investment on an unprecedented scale, yet enormous gaps remain, especially in the developing world. Filling these gaps will require ground-breaking investment approaches like blended finance, a method that uses public money to improve the risk profile of investments to catalyse private funding. However, tools such as blended products will also need to credibly demonstrate impact to attract and retain public and private investors. Continue reading