Check against delivery

Midterm review of the United Nations Capital Development Fund, Strategic Framework, 2018-2021, including the annual report on results achieved by UNCDF in 2019.

Mr. President, Distinguished Members of the Executive Board, Excellencies, colleagues and friends,

I am very pleased to join you today for the second regular session of the UNDP/UNFPA/UNOPS Executive Board for 2020.

Thank you Ambassador Rugwabiza for chairing this session, and thank you Associate Administrator a.i. Mr. Wahba for your kind introduction.

As you saw in the short video, we have been active over the first two and a half years of our Strategic Framework period.

As we concluded our midterm review, the COVID-19 pandemic started spreading across the world. But even before that, we had witnessed uneven and insufficient progress on the SDGs in the least developed countries.

The impacts of COVID-19 are still evolving, but with their weak health and social protection systems and their fragile economies, the consequences for LDCs will be severe. Any progress made on the SDGs now risks being reversed.

As we celebrate the 75^th Anniversary of the United Nations, we recognize that the crisis the world faces today is exactly why the organization was established. To mitigate the impacts of COVID-19, especially in the LDCs, requires global solidarity and multilateral collaboration.

It is in this context that I am joining you today to discuss UNCDF’s role in supporting LDCs as part of the wider UN system.

Our midterm review highlights three main areas where we are making progress in unlocking public and private finance in innovative ways that ensure no one is left behind as the LDCs strive to achieve Agenda 2030.

Last mile investment finance

First, as you know, one of the groundbreaking elements of UNCDF’s investment finance work is the establishment of our LDC Investment Platform in 2017. With your agreement and Sweden’s originating contributions, we have now piloted and fully activated our capital mandate and we have established professional capacity to deploy loans and guarantees to last mile investments in LDCs.

This responds to the pressing need of LDCs to address the financing gap faced by small enterprises and small-scale infrastructure projects. Our joint 2018 and 2019 reports with OECD and other partners on “Blended Finance in the LDCs”, show that only 6% of all private capital mobilized through blended finance approaches reaches LDCs. When private investors talk about “emerging markets”, they are rarely referring to the LDCs.

With the COVID-19 crisis, this situation is not likely to improve. We have recently surveyed more than 2400 MSMEs in all 47 LDCs to understand how Covid-19 is affecting them and initial findings show significant disruption to small business operations. 88% report substantial reduction in operations and 34% indicate they cannot sustain their business for more than 3 months. Preliminary findings also appear to indicate that these disruptions will affect female led businesses disproportionately. We will keep you informed of the more detailed findings of this important survey.

If there ever was a time to use ODA resources to help stabilize SMEs and unlock additional long-term private investment capital, it is now.

Let me give you an example of the catalytic role ODA can play, through UNCDF. In 2018, UNCDF gave a $250,000 loan to a firm in Uganda called Aptech Africa, which provides a pay-as-you-go service for solar-powered water pumps. This small company was started by two Eritrean migrant engineers who developed a promising business to meet high unmet demand for affordable clean energy, drinking water and irrigation.

Due to a lack of collateral and credit history, this company was unable to get a loan from commercial lenders. However, timely repayments on the loan from UNCDF helped Aptech establish credit history and show profitability. This, then, helped the company to access $800,000 in additional financing from one of the major banks in Uganda.

The capital has enabled the company to significantly expand its business, hire more employees and serve more customers.

There are thousands of similar companies across the LDCs that are unable to expand their businesses because of the lack of small amounts of risk capital.

This constitutes an enormous lost development opportunity.

This is the financing gap the LDC Investment Platform seeks to address. We now have a pilot portfolio of 17 loans and guarantees which demonstrates that last mile investments can be both financially viable and have significant development impact. These are investments not serviced by the multilateral banks, development finance institutions or private investors, including domestic banks, due to their size and risk profile.

When we talk to private investors, last mile investments in LDCs are not on their radar screen. They perceive risks to be too high and they lack local knowledge and boots on ground. Even domestic banks stand back in the face of perceived risks and non-existent credit histories for SME actors. UNCDF can address these challenges through presence, risk capital, strong accompaniment on the ground, and support to the policy and institutional environment.

Our transactions are therefore sourced and structured by UNCDF’s development professionals, who assess both the financial and development impact of each investment using our dual key instrument, an approach recognized as outstanding by the IFC in its 2019 SME finance awards.

With critical support from the Netherlands, we are also deploying a new team of investment specialists in Africa, to work with the wider UN system to identify investment opportunities that are both SDG positive and financially viable. These investments can then be supported with early stage finance from UNCDF directly on our balance sheet, and with larger follow on financing from domestic and international capital providers.

As part of the last-mile investment architecture we have put in place, we have also launched an external third-party managed blended finance fund for LDC-based SMEs called BUILD. This Fund is expected to mobilize up to $250 million in private and concessional capital.

We are grateful to Luxembourg and Norway for providing the first loss capital necessary to operationalize the BUILD fund.

Excellencies,

We have demonstrated proof of concept with this work and are now ready to move to more meaningful scale.

In our current Strategic Framework, you welcomed our ambition to establish a US$ 50 million revolving UNCDF Investment Fund, to make the types of catalytic early stage investments I have described. Many of you have supported us in piloting our approach, including notably Sweden, Switzerland and Korea, and we are grateful for this. We now ask you all for your support to continue the journey and help us capitalize this Investment Fund.

Local development finance

A second area where we continue to make progress is in our support for local government finance and municipal finance.

Achieving the SDGs and responding to COVID-19 requires localized approaches. An estimated 65% of SDG targets cannot be achieved without action by local governments.

This includes climate change adaptation, SDG 13. UNCDF’s LoCAL mechanism directly supports 280 local governments representing 10 million people in 14 LDCs. In Bangladesh, 2 million people are benefiting through 228 investments in areas such as road elevations, water filtration systems, flood walls and tree plantations.

This model is designed to be replicated and scaled up to cover many more local governments through the integration of climate adaptation into planning and budgeting systems, using a performance-based financing instrument to channel and manage resources.

The LoCAL mechanism has been recognized by the secretariat of UNFCCC as a tool to localize national adaptation plans in line with the Paris Agreement.

This effort is scaled up through the partner governments’ own resources, through UNCDF’s support to access global climate financing, and with partners such as IFAD, European Union, Sweden, Switzerland, and Belgium. With our help, national institutions in Cambodia and Bhutan have been directly accredited to the Green Climate Fund and other countries are in the pipeline, including a multi-country proposal with the West African Development Bank.

In the coming years, our ambition is to fully embed our local climate finance mechanism in all LDCs and connect them to sources of international climate finance such as the Green Climate Fund.

Other critical areas of concern are Africa’s rapid urbanization and development of its productive capacity. To increase productivity and ensure that inequalities do not become locked into the urban fabric will require increased levels of investment at local levels. UNCDF is working closely with United Cities and Local Governments, UN Habitat, the International Finance Corporation, member states and partners to secure the policy, regulatory and investment climate to address these challenges.

In parallel to unlocking public development and climate finance for local authorities, we are also making progress in supporting mobilization of commercial capital for climate resilient municipal investments.

In addition to our existing eight-country Local Finance Initiative that promotes local economic development with domestic banks, we are helping to establish the International Municipal Investment Fund, a third-party managed blended finance fund targeted to raise 350 million euros. UNCDF will manage a technical assistance facility that will work with networks such as United Cities and Local Governments to identify and prepare a pipeline of investment-ready municipal projects for this Fund.

Excellencies,

These are important pieces of the work you have entrusted to us to assist local governments in LDCs to access larger amounts of public and private development and climate finance. We count on your continued support to take these ambitions forward.

Inclusive digital finance and digital economies

In our third area of work to support financial inclusion, we have connected 7 million people to access financial services in the 2018-2019 period. 4.2 million of these were reached through digital financial services.

We have witnessed how digital financial services are increasingly embedded into other services in the real economy, whether agriculture extension services, access to markets for MSMEs, or clean energy solutions. The emergence of digital economies can be a powerful accelerator for SDG achievement.

UNCDF is supporting this shift in LDCs. For example, in 2019, we helped bring clean energy products to over 3 million people through financial innovations. The Better Than Cash Alliance, which we host, has 75 government and private sector members committed to transitioning to digital payments.

The rapid digital transformation is why we pivoted last year toward “Leaving No One behind in the Digital Era”, to pursue a market development approach to bring digital finance and digital economy solutions to scale in LDCs.

A main focus of the strategy is to ensure that the digital transformation is inclusive and does not lead to growing inequalities. The LDCs are already lagging behind, with only one in six citizens connected to the internet. We aim to ensure that women, youth, small farmers, migrants, and refugees also benefit from digital technologies, and that digital economies lead to inclusive development.

Going forward, this involves scaling up our support for digital and financial literacy, deepening our longstanding work with policy makers to develop an enabling environment and digital infrastructure, and expanding our engagement with the private sector for development of inclusive digital solutions that can be commercially viable.

For example, in the ASEAN region, we plan to reach 3 million low-income clients across seven countries by 2025, by using crowdfunding and blended finance solutions to drive the digital transformation of MSMEs. This builds on UNCDF’s work in the region over the past five years, which has supported 44,000 MSMEs with financial services, 86% of which were women-led.

In Uganda, we work with the Government to mainstream digitization into the national development planning process to build an inclusive digital economy and achieve the “Digital Uganda Vision”. This includes supporting implementation of the country’s Financial Sector Development Strategy to leverage digital finance for inclusion and economic development in rural and under-served communities.

Our goal is to apply this strategy in more than 20 countries in the coming years. This includes taking action on recommendations from the UN Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals, which UNCDF played a key role in supporting.

It is clear that the rapid digital revolution can bring tremendous opportunities for sustainable development and help countries respond to and recover from COVID-19. However, without ramping up investment and support, the digital divide will grow and LDCs will fall further behind.

As we move forward with rolling out UNCDF’s digital strategy, we count on your continued support and engagement.

COVID-19 response

Our work and proven financing models have also been highly relevant in the context of COVID-19, where we have developed a tailored offer that is closely aligned with the UN Framework for Socio-Economic Impacts of COVID-19.

For example, UNCDF guidelines for local governments to deploy emergency financial resources for COVID-19 response have been adopted in many countries, and we currently work in six countries to accelerate COVID response through local government action in line with WHO protocols.

We also support accelerated digital payments solutions to keep payments flowing, and we finance innovations such as contact tracing apps and e-commerce solutions in more than 20 countries. With UNDP, the World Bank, Switzerland, the UK and other Member States, we launched a global Call to Action to keep remittances flowing during the crisis.

Finally, we have strengthened our capacity to deploy rapid grants and concessional loans to small and micro enterprises most at risk, including to enable them to adjust their business models to survive the crisis.

Our COVID response will remain dynamic and flexible as needs become clearer and as we better understand the impacts.

Moving towards meaningful scale

As we move to accelerate our support and increase impact going forward, we are taking several additional steps.

As part of UN reform and the next QCPR, we will deepen collaboration with other UN entities to bring our financing capacities together with UN development expertise to expand options for financially viable SDG investments in LDCs. This will build on our deep collaboration with the Joint SDG Fund and our many ongoing partnerships with UN entities, including our 26 joint initiatives with UNDP. In cooperation with UNDP and DCO, we have also ensured a stronger participation in the UN Country Teams in a large number of the LDCs where we are present.

Second, we will expand our partnerships and advocacy with the private sector. This includes continuing our collaboration with OECD to advocate for improving conditions to attract private capital to LDCs through blended finance approaches. Building on our ground-breaking joint reports on Blended Finance in the LDCs in 2018 and 2019, we are currently producing a third joint report with OECD, for release in late 2020, that will include an assessment of Covid’s impact.

Third, we will further prioritize women’s economic empowerment across all our workstreams. This will include funding female entrepreneurs, working with UN-Women and UNDP to benefit tens of thousands of women, and producing tools such as the Women’s Economic Empowerment Index, which provides gender-sensitive investment criteria to assess and rank private sector and infrastructure investment projects. We will also expand our focus on women as builders of inclusive digital economies, building on our work to help millions of women access and use digital financial services over recent years.

Last, we will engage closely to support the Fifth United Nations Conference on the LDCs and the next LDC programme of action. As the only UN development entity fully dedicated to LDCs, UNCDF naturally views the LDC-V as a top priority.

Resources and institutional effectiveness

Our ability to respond to growing demands is limited only by our footprint and funding.

Over the past year we have shown that we are able to expand delivery capacity, as our expenditures increased 18 per cent compared to 2018.

We have had clean audit opinions over the past seven years, demonstrating our ability to manage resources in an accountable manner.

On the resource side, the situation is stable but mixed. Contributions of non-core resources increased in 2019 to $94.5 million, with a significant portion of multi-year funding.

However, we are falling short of the ideal resource scenario in the Strategic Framework. Our regular resources remain far below the targeted $25m. This constrains our ability to act as a more strategic and innovative partner to countries and the UN system, including a robust country presence in 40 LDCs as targeted in our Strategic Framework.

We are also falling short on the one-time capitalization of $50 million for the LDC Investment Fund outlined in the Strategic Framework. This will be a top priority for us going forward.

Our deep appreciation goes to all Member States who provide core resources. Sweden, Switzerland, Luxembourg, Norway, Australia and the United States were our top core donors in 2019, and in many cases also provide multi-year core funding and additional non-core.

We also thank Austria, China, France, Vietnam, and Thailand for their important core contributions.

Our largest non-core contributors in 2019 were the European Union, Sweden, the Multi-Partner Trust Fund Office, Switzerland and the Netherlands. We are grateful for their critical support.

In 2019, we continued to operationalize the goals in our gender strategy, 2018-2021, and we increased our performance against the United Nations System-wide Action Plan on Gender Equality and the Empowerment of Women 2.0 to 88 per cent. The percentage of our expenditures with a significant gender component and with gender as a principle objective reached 52.7% in 2019.

In terms of transparency, 99% of our programme expenditures were reported on the IATI dashboard.

In 2021 we will prepare the next UNCDF Strategic Framework for 2022-2025; a blueprint for this process will be shared with the Board in January 2021. This will be a critical exercise and we count on you and our other partners to engage closely to co-create this new plan with us.

Excellencies, Distinguished Board members,

Now is a pivotal time for the global community and multilateral system to support LDCs to tackle the impacts of COVID-19 and make progress on the SDGs.

At UNCDF, we are ready to keep punching above our weight. While we are small, we also achieve significant impact. We have built the necessary foundations to scale up and be fit for purpose to partner with the LDCs to achieve the SDGs and their other development ambitions through the Decade of Action.

We count on your continued support to help us do so.

Thank you.