From aid to Global Public Investment: an evolution in international co-operation

DEV-IN-TRANS-BANNER

By Jonathan Glennie, independent writer and researcher, and Gail Hurley, Policy Specialist on Development Finance at UNDP


This blog is part of an ongoing series evaluating various facets
of
Development in Transition. The 2019 “Perspectives on Global Development” on “Rethinking Development Strategies” will add to this discussion


arrows-changeIt is time to bring aid to an end.

Gradually, maybe, as a few “pockets of poverty” still persist. But this symbol of global collective action that has lasted seven decades will now, inevitably and as planned, be ended.

That is the common view of almost everyone. Whether you are a member of the general public in a “donor” country, still feeling the effects of an economic downturn, or a citizen of a “recipient” country whose economy feels like it is taking off for the first time in living memory. Whether you believe the aid era has been an unqualified failure and should be ended as soon as possible, or that aid has actually been quite successful in promoting development but has now largely “done its job” and can be rolled back as countries reach “middle income” status. Whether you think the hole left behind by aid can be filled by fairer tax collection or by better-targeted private sector finance, both of which are experiencing growth of historic proportions. Even (perhaps especially) if you are part of the aid industry and are well-practised at repeating the mantra that “our job is to do ourselves out of a job”.

Whatever side of the political spectrum you sit on, you are unlikely to disagree with the notion that aid should be decreased as recipient countries’ incomes rise, bringing to an end an experiment intended to kick-start growth in sluggish contexts, but not to last in perpetuity. With only 34 so-called low-income countries left, the only question left to be discussed is how to manage a good “exit strategy”.

Aid is temporary. Success is when aid is no longer necessary.

That’s what we thought, too. That’s what we were taught. But it’s wrong.

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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.

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Blended Finance: Critical steps to ensure success of the Sustainable Development Goals

By Chris Clubb, Managing Director, New Products and Knowledge, Convergence

blended-investmentThe facts are known. Official Development Assistance (ODA) from member countries of the OECD’s Development Assistance Committee (DAC) will not grow at the rate necessary to fully deliver on the Sustainable Development Goals (SDGs). Blended finance, defined as the strategic use of official (public) funds to mobilise private sector investment for emerging and frontier economies [1] , is recognised as an important tool within the development toolbox to mobilise new capital sources to achieve the SDGs. Through blended finance, public funds can target a risk that the private sector is unwilling or unable to take. It also can be used to improve the risk-return profile of an investment to an acceptable level for the private sector. What all this does is attract much-needed private sector investment and know-how to projects.
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Call for Comments: Maximising development outcomes from natural resources through public-private collaboration

By Lahra Liberti, Senior Advisor and Head of the Policy Dialogue on Natural Resource-based Development at the OECD Development Centre

Governments and extractive firms are increasingly looking at how natural resources can generate benefits for their economies and societies as a whole. In Zambia, for every 10 direct mining jobs, approximately seven are created in first-tier mining suppliers. In turn, the incomes generated in mining and supplier industries stimulate non-mining industries. Accordingly, the total amount of employment created through mining in Zambia is almost five times as high as direct employment in the sector. Similarly, in Ghana’s gold sector, 2.8 jobs are created in first-tier mining suppliers for each job directly created in mining. These are just two among other positive examples.

However, generating positive economic spinoffs from extractives is not always easy. Past lessons show that over-reliance and dependence on resources can adversely affect an economy’s long-term competitiveness given increased exposure to external shocks, severe price volatility and little economic diversification. The conditions can be challenging too: The world’s known mineral, oil and gas reserves are often found in tough contexts beset by geographic remoteness, political risk, weak technological and skills capabilities and environmental pressures ranging from water scarcity to climate change to competition for access to limited resources. In addition, conflicts with local communities as well as investment disputes between governments and extractive companies complicate matters.

Recognizing both the opportunities and the challenges, new efforts are emerging for exploiting commodities and at the same time promoting structural transformation for sustainable and inclusive development. Why? Public scrutiny and awareness are on the rise as citizens increasingly demand greater participation in their economies. Consumer demand across many emerging markets is driving an unprecedented sustained demand for raw materials. There is a growing realization that weak infrastructure and poor governance are showstoppers. And even the organisational structures of leading commodity firms have evolved. In the past, mining, oil and gas companies were self-sufficient and vertically integrated: They made the majority of the intermediate goods and services they needed.  Today, they are much more often using external suppliers. The need to reduce cost pressure and increase flexibility has prompted multinationals to make their operations more flexible, outsource non-core activities and diversify their supply chains. Yet, shortages of skills across technical and managerial levels limit their progress. All these factors provide a substantial opportunity for a win-win alliance between leading commodity firms, local economies and national governments.

Indeed, lack of skills, insufficient technological and innovation capabilities, inadequate local infrastructure and weak local institutions require long-term coordination and collaboration to effectively create shared natural resource-value. This means, among other things, fully engaging all parties, clearly defining roles and responsibilities and tapping governments and industry to evaluate together the potential for local value creation. In short, public-private coordinated responses are vital to effectively overcome structural obstacles and develop targeted, local and mutually beneficial solutions.

That is why the OECD Development Centre is hosting a multi-stakeholder process to develop a systemic approach to resource-based development as part of its Policy Dialogue on Natural Resource-based Development. What has emerged is an advanced draft of the Operational Framework on Public-Private Collaboration for Shared Resource-based Value Creation. Liberia and Norway led the inclusive and transparent multi-stakeholder drafting of the Framework with the active involvement of Switzerland, South Africa, the African Union Commission, AngloAmerican, Antofagasta Minerals, the Chilean Mining Council, the Columbia Center on Sustainable Investment, Eni, Exxon Mobil, the International Council on Mining and Metals (ICMM), IPIECA (the global oil and gas industry association for environmental and social issues), Shell, Social Clarity and Total.

This Framework works to shape collaborative public-private solutions to maximise socio-economic benefits along the entire value chain of extractives. It intends to effectively enable deeper collaboration among governments, non-governmental organizations, development partners, the private sector, and communities to explain how extractives can contribute to the sustainable management and efficient use of natural resources. By doing this, it seeks to boost the competitiveness of local economies and generate opportunities for local development and greater well-being that outlive the life-cycle of extractives.

What do you think of the Framework? Comments and feedback are welcomed from September 15th to October 30th as part of a broad public consultation now underway. Comments received will inform further revisions of the operational Framework’s final text for possible endorsement this December. Be a part of the process and send comments directly to: DEV.NaturalResources@oecd.org

This article should not be reported as representing the official views of the OECD, the OECD Development Centre or of their member countries. The opinions expressed and arguments employed are those of the author.