Maximising the public-private investment multiplier

By Alain de Janvry and Elisabeth Sadoulet, Professors at the University of California at Berkeley and Senior Fellows at the FERDI
 

Development-finance

At the FERDI-IDDRI conference on “Development, Climate and Security” held in Paris on January 15, 2018, Barbara Buchner from the Climate Policy Initiative reported on the state of global climate finance flows for mitigation and adaptation. She made two points. First, finance is under-invested to combat climate change if the COP21 target in temperature increase is to be met. Second, private investment’s role in complementing public investment in climate finance is large, with an estimated 2/3 private for 1/3 public in current total contributions. This stresses the fundamental part private investment can play in meeting the COP21 objectives, particularly at a time when governments face multiple demands on public expenditures.

With public investment targeted to induce private investment, this raises the issue of public investment’s effect as a private investment multiplier. A useful way of thinking about the under-investment issue is consequently how to target public investment to maximise the public-private investment multiplier.

Continue reading

Promoting innovation: Lessons from the Global Fund

By Guido Schmidt-Traub, Executive Director, Sustainable Development Solutions Network

funding-health

Since its inception in 2001, the Global Fund to Fight AIDS, Tuberculosis and Malaria has become a highly respected pooled financing institution that scores top marks in independent reviews.1, 2

It has disbursed some USD 40 billion in grants for complex disease control and treatment programmes in fragile and non-fragile countries alike.

Success was far from assured in 2001, as developing countries, particularly in sub-Saharan Africa, faced a perfect storm of surging HIV/AIDS, multi-drug-resistant tuberculosis and surging malaria deaths. Control and treatment interventions were available in high-income countries, but no one knew how to tackle the diseases in resource-poor settings. In particular, HIV/AIDS treatment was deemed impossible in Africa and was outside recommended approaches for tackling the disease.3

The Global Fund was designed precisely to tackle the lack of quality programmes and implementation mechanisms in developing countries. All too often, however, it is seen as just another funding mechanism. Many reviews lump it together with other multilateral mechanisms and trust funds.4

This is a mistake. The Global Fund has unique design principles that set it apart from bi- and multilateral financing mechanisms with the notable exception of Gavi.5

Continue reading

Reflections on scaling up financing for development

By Charlotte Petri Gornitzka, Chair of the OECD Development Assistance Committee

Blended Finance Watering CanSpending last week at the World Economic Forum in Davos and today in the Private Finance for Sustainable Development conference, my head is spinning with financing for development issues.

Chairing the OECD Development Assistance Committee (DAC), I often find myself reminding members to uphold their aid levels and to use their public finance resources to stimulate private capital for sustainable development.

It’s a balancing act. Governments risk being accused of shying away from commitments when we talk too much about the “innovative financing tools” and about involving the private sector for development outcomes. It is true that upholding aid levels and directing them to countries most in need will continue to be important to leave no one behind. However, OECD countries must continue to move from talking to taking action when it comes to stimulating private finance.

Why? Faced with an estimated USD 2-3 trillion annual funding gap for achieving the Sustainable Development Goals, public or philanthropic capital will be able to meet only half of it; opportunities for the private sector, thus, are significant.

Continue reading

Helping entrepreneurs thrive in Africa

Forum Afrique2017-Visual Identity - FR-3

By Rémy Rioux, Director General of Agence Française de Développement


Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa
Register to attend


Africa-AFDAfrican entrepreneurs are a key driving force for the continent’s emergence. 80% of Africans view entrepreneurship as a good career opportunity. Take African start-ups. They pioneer social innovations. Thanks to the fintech industry, for example, the diaspora can connect with their relatives and directly finance their health expenses, as in the case of Leea. This company benefitted from Digital Africa, an initiative of the Agence Française de Développement (AFD) to help African start-ups through financing, coaching and business training. African entrepreneurs and customers show the way forward and accelerate the continent’s leapfrogging in terms of technology innovation in banking, health, agriculture, urban mobility, education, and more.

However, at a macro level, 80% of Africa’s labour force works in the informal sector. Unemployment is high, especially amongst the youth, who are three times more likely to be unemployed than adults. Development banks can play a role in addressing the macro policy, nurturing job-intensive growth across the continent and financing gaps. How?
Continue reading

Development Finance 2.0: Improving Conditions for Local Currency Financing

By Harald Hirschhofer, Senior Advisor, TCX 1 

Development-Finance-shutterstock_524218915Achieving the UN Sustainable Development Goals (SDGs) will require very large investments measured in the trillions until 2030. To mobilise such amounts, policy makers try to crowd-in the private sector, its financial resources and its entrepreneurial creativity. But private sector engagement will not happen if risk-adjusted returns are perceived to be unattractive. While telecom and mobile banking have shown that achieving development goals also means good business, perceived risks in most other sectors and countries are still too high for expected economic returns.

That is why donors, recipients and development banks have been developing programs to lower and share risks, including policy and structural reform, technical assistance and information sharing, and providing financial de-risking instruments. Especially in situations where private investors perceive risks as higher than they actually are, such de-risking measures can be impactful in catalysing private investment flows. Accordingly, development finance institutions (DFIs) are expanding their focus from mere funding to blending risk tolerant donor funds with commercial capital to offer de-risking services and support for (perceived) high risk activities.

Continue reading

Fiscal space in developing countries: It’s about revenues

By Alexander Pick, Fiscal economist, OECD Development Centre

planting-moneyFiscal space is big right now. It was an important part of the OECD’s policy prescriptions in last year’s Economic Outlook and was high on the World Bank President’s agenda at this year’s Spring Meetings in Washington. It also featured in discussions at the 2017 Forum on Financing for Development in May. Yet the term has a different meaning depending on whether it is applied to a developed or a developing country, and it doesn’t appear to resonate with policy makers at a national level.

So what does fiscal space mean for developed economies? The OECD and IMF view the concept in terms of long-term debt sustainability. By this approach, fiscal space is interpreted as the distance between actual debt levels and a theoretical higher level of debt that is nonetheless safe. Fiscal space suggests how much wiggle-room national governments have to increase growth-enhancing spending, such as infrastructure investment, without raising taxes. This is important in the current context of a sluggish global economy where monetary policy has done all it can to support growth and the pressure is thus on fiscal policy and structural reform to propel the recovery.

Continue reading

Making aid RANDy

By Simon Scott, Counsellor, OECD Statistics Directorate

rand
Entrance to the RAND headquarters in Santa Monica in 1968 (photo courtesy of the RAND Corporation)

It was the go-to think tank for the US Department of Defense during the Cold War. It was where Nathan Leites deciphered The Operational Code of the Politburo and Paul Baran conceived the “hot potato routing” system that would lead to the Internet.

But the RAND Corporation, spun off from an Air Force project with the Douglas Aircraft company to do Research ANd Development on intercontinental warfare, was active across the whole field of international relations. And at the height of East-West tensions during the 1962 Cuban missile crisis, DoD contract number ARPA/SD-79 had it investigating … a better way to measure foreign aid.

Up until that time, all official flows from rich to poor countries had been summed up indiscriminately, whether they were grants or loans, and whether or not they targeted development. John Pincus of RAND came up with a new idea – get rid of the non-developmental aspects and “reformulate the definition of aid [so that] all forms of aid are reduced to their value as grant or subsidy.”

Continue reading