Creative Commons

Wednesday, July 15, 2015

We need more creative models for funding development

This year, 2015, will go down in history as one of the most pivotal in modern history. This year will define in a large measure how we balance socio-economic prosperity and the Earth’s fragile ecological resource base.

In December 2015, the world will gather in Paris for the 21st conference of parties to the 1992 UN Framework Convention on Climate Change. This year  also marks the end of the implementation period of the UN Millennium Development Goals (MDGs) and the start of a framework for development under the Sustainable Development Goals (SDGs) framwork. And the 3rd Finance for Development (FfD) conference is underway in Addis Ababa.

The consultative process around the SDGs was impressive. All views counted and that is a very good thing. But it seems to me that a majority of stakeholders, especially from low income countries were under the illusion that a proliferation of development targets and goals would equate, invariably, to more money in development finance. At the moment, there are 169 proposed targets clustered into 17 goals. Hence, the SDGs are too sparwaled and unweildy. The largely unmet MDGs had 21 tragest grouped into 8 goals.

It is estimated that meeting the SDGs would cost between $2 trillion and $3trillion annually over the next 15 years. This scale of spending would be equivalent to between 3 and 4 percent of world GDP or 3 to 4 times the combined GDP of all African countries. In 2013 Africa received $55.8 billion out of $135 billion in global Official Development Assistance (ODA) flows.

According to the African Development Bank, the cost of funding Africa’s infrastructure priorities; energy, water, transport and ICT by 2040 is estimated at $360 billion, and nearly 80 percent of this cost is needed by 2020. At a cost of $2 to $3trillion annually, the cost of the SDGs is unfeasible, and it will need more innovative fiancing options, beyond traditional ODA.

This week, July 13-16, 2015, the great and the good are assembled in the Ethiopian capital to figure out, ahead of the UN General Assembly meeting on September 2015, how to finance the post-2015 development agenda.
My sense, based on previous global processes, is that the 3rd FfD conference will yield no more than a perfuntory and innocuous laundry list of so-called declararations, targets or concensus. But we must not hold our breath or expect any concrete action. This will be another global waffle fest, just like the previous FfD conferences.

What came out of the Monterrey Consensus in 2002 and what lessons are we bringing to Addis Ababa? What happened to the UN target, re-affirmed in Monterrey, to increase ODA contribution from member countries of  Development Assistance Committee (DAC) to 0.7 percent of GNI? Today only Denmark, Luxembourg, Norway, Sweden and the United Kingdom have honored this obligation.

The least we can expect from the 3rd FfD conference in Addis Ababa is a broad framework for development financing, which recognizes that the world hase changed and more than seven times of total ODA flows now comes from foreign direct investment, loans, and private philanthropy. Moreover, private capital flows, tax revenues and remittances are surging ahead as significant sources of development funding in the developing world. It is also important to note that there are new and significant players in development finance; Brazil, China, Russia, India and Turkey.

In essence, the 3rd FfD conference must define a new framework for development financing. First, the new partnership must define architecture for blended finance, which combines traditional aid, domestic resource mobilization, private capital (domestic and FDI), loans international trade, and remittances.

Second, the new framework must define the principles for sound policies, credible, transparent institutions, including civil society, to ensure effective delivery and impact and to help leverage the capacity of developing countries to mobilze domestic revenue and to attract private capital flows to complete the woefully inadequate ODA flows. Third, especially for Africa, there must be a link between development finance and climate finance, integrating the services of nature into national accounts.

Traditional aid, the sort that precipitates the ire of Bill Easterly and Dambisa Moyo is outdated. Financing for development must be crafted on a blended finance architecture. Blended finance must be nimble, adaptive and differentiated.

This time must be different. The 3rd FfD conference must yield more than innocuous, unbinding consensus.

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