Unlocking Finance - EDD Debate
Last Thursday, 4th June 2015, the UN Capital Development Fund (UNCDF) organized a debate on ‘Unlocking public and private financing for sustainable growth’, with the European Investment Bank (EIB) and the Swiss Agency for Development and Cooperation (SDC). The three panelists, moderated by Tillman Bruett, Manager of UNCDF’s programme Mobile Money for the Poor (MM4P), consisted of Ambassador Manuel Sager, Director-General of the SDC, Heike Rüttgers, Head of Mandate Management at the EIB, and David Jackson, Director of Local Development Finance at UNCDF.
The background to this debate were the consultations on the post-2015 agenda, which have suggested that the new Sustainable Development Goals (SDGs) will be more ambitious than the Millenium Development Goals (MDGs) and hence the cost requirements will be considerable. As Ambassador Sager noted during his introductory speech, the money is there, so it is less a question of creating new funds but rather of managing to unlock existing ones for propelling economic development.  
Self-sustaining developing economies will require coherent, dynamic and domestically-driven capital accumulation, intermediation, mobilization and reinvestment processes. It is critical for poor nations to gradually ease their dependence on aid and other forms of external funding for their development needs. These countries must enhance their own capacity in order to start generating their own revenue. This is crucial as lack of financing remains a huge obstacle to achieving sustainable economic development, and, in addition, domestic resources, public or private, form an important engine of growth and poverty reduction. Greater reliance on internal resources increases a country’s ownership of public policy, ties accountability to citizens, and reduces the volatility associated with outside funding.
Nevertheless, several challenges remain in unlocking domestic finance for investments, namely in the areas of domestic savings, private finance for infrastructure and SMEs and public funds. In this regard, David Jackson pointed to the necessity of leveraging public and private resources to enable structural changes in these countries, the so-called ‘transformative impact financing’.
Although Official Development Aid (ODA) will continue to play an important role, it is nowhere sufficient for financing the SDGs, especially after the enormous pressure aid budgets have experienced in donor states during the recent economic meltdown. Countries will need to increasingly resort to alternative forms of financing, including domestic resource mobilization and private-sector inflows, to make up for the sharp decline in foreign support. Nonetheless, strategically placed ODA can support this kind of domestic resource mobilization with high leverage. Therefore, the role of ODA needs to be carefully targeted at domestic resource mobilization, which in turn will enable governments to deliver on their long-term development goals.
In line with this, the debate addressed the important issue of how to increase the ability and willingness of finance providers to offer funding in developing countries. For its part, UNCDF strives to modify the culture of local banks and the regulatory frameworks to enable and incentivize the private sector to engage in infrastructure investment projects. Nevertheless, as Ambassador Sager observed, private companies make their investment decisions on the basis of economic analysis, but development organizations can certainly influence in tipping the balance of the decision-making process and moving the decision to investing in development projects. Meanwhile, the EIB helps medium-sized European companies who are interested in investing in the African continent but have a strong notion of risk. EIB supports these new investors to correctly assess risks and find the appropriate financing mechanisms that suits them. Once companies and banks see that others are investing in local areas, the necessary favorable atmosphere will be created for others to come in.
Finally, the topic of public-private partnerships (PPP) was discussed in-depth, as it certainly hides untapped potential for development finance. As Ambassador Sager noted, by partnering, the private sector can provide the financial incentives, while public agencies can provide the access to government institutions, the necessary contacts, their experience, etc. Furthermore, Heike Rüttgers explained how, when engaging in a PPP, a holistic and balanced approach is needed, one that takes into account all the actors involved and measures the overall impact, not only the profitability for the private sector.