Remarks by Judith Karl, UNCDF Executive Secretary, at the Group of Friends of LDCs Breakfast

  • July 08, 2016

  • New York, USA

Ambassador Frankinet
Ambassador Çevik

Thank you for inviting UNCDF to address you this morning – it is our first interaction with this group and we are delighted to have the opportunity.

I would like to congratulate the Government of Turkey for hosting such a successful event; Ambassadors Frankinet and Zinsou on facilitating the negotiations that led to a very good outcome document that strengthens the link between the 2030 Agenda and the IPoA; and of course USG Acharya for OHRLLS’ role in the whole MTR process.

Our involvement spanned many months with a range of New York based side events, and a regional expert group meeting in Africa on subnational finance that is forming the basis of a report we are taking to Quito for Habitat III. And we prepared with UNDP a conceptual framework and three detailed case studies on reaching the last mile in LDCs.

In Antalya, we co-organized with Turkey, UNDP, and Italy three side events – on technology; reaching the last mile; and financial inclusion respectively – and participated in a number of others, including the Private Sector Forum.

From all of these I’ll focus on five main take aways that we believe are relevant to LDC graduation.

The first is that, for the kind of blended finance that the AAAA foresees to work in LDCs, the entire global financial architecture needs to be able to incorporate solutions that will incentivize and drive local economies. While we all seem to agree that traditional ODA is crucial to helping LDCs leverage in additional finance where barriers are greatest, the full range of finance mechanisms - including traditional ODA channels - need to work with this in mind - Global Climate finance, disaster relief finance, urbanization finance, infrastructure finance, and investment finance. To what extent is development finance reaching local economies, poor households, and stressed localities, what are the

barriers to access and how can they be eased so incentives are in place to attract finance to where it will have greatest impact for excluded localities and populations. They are not just beneficiaries of more vibrant national economies, they are active contributors to them.

Panelists emphasized the need to meet longstanding commitments for the proportion of ODA to be directed to LDCs, along with support to aid-for-trade and south-south and triangular cooperation, including for technology dissemination. OECD DAC members are agreeing to modernise reporting practices including creating incentives for providing more highly concessional loans to LDCs. This can be good news or bad news for fighting poverty at the local level, depending on how deliberately and how well new concessional finance windows can incorporate the needs of direct access for local economies. Will the terms of the deal make it harder to fund the type of infrastructure that local economies depend on? Will the impact be neutral (which for LDCs will be insufficient to make the breakthrough for the last mile)? or will the terms of the deal make it more conducive for leaving no one behind, with higher value leverage for poor households and integration into national economies.

So, ODA commitments to LDCs need to be met and at the same time we need to be adjusting funding flows across the full range of mechanisms to maximize leverage for and into local economies. This will require some experimentation, innovation, and intermediation.

Second, the evolution in financing instruments presents a real opportunity for LDCs, where traditional finance instruments are not adequately leveraging additional resources for local development. These instruments for instance include public-private partnerships, green bonds, new generations of impact investing, diaspora financing, and guarantees.

UNDP and AFD launched a report on new financing instruments at a side event I moderated, and I recommend it to all of you – it is titled Financing the SDGs in the Least Developed Countries (LDCs): Diversifying the Financing Tool-box and Managing Vulnerability. Instruments that can help countries manage risks and vulnerability include weather insurance or indexing debt service to GDP, so that countries’ payments decline

during a downturn or crisis. These are important at the macro level, but also at the household level, as we heard at a financial inclusion event from the Ethiopian National Planning Commissioner, who mentioned the work there with farmers’ cooperatives to develop viable insurance products, or experiments UNCDF is running in the Pacific on collective insurance. Innovations in municipal finance in LDCs faced with fast paced urbanization will also be critical to meeting the New Urban Agenda.

Many LDCs are already using some of these financial instruments. But, over the next five years, there is considerable space to expand their application.

This requires that development partners and investors tailor financing instruments to the specific circumstances and needs of LDCs, and also build LDCs’ capacities to utilize these tools effectively. This too will take innovation, experimentation, and intermediation, and a readiness to learn (which means a readiness to fail some of the time).

A third message is the importance of technology to address some of the more stubborn barriers to inclusion and access for localities and households.

One issue that came up repeatedly was the transformative power of digital solutions.

One of our case studies examined how “pay-as-you-go” mechanisms, which offer people ways to pay for clean cook stoves or solar panels in the same way they use prepaid mobile airtime, is expanding clean energy access.

We also heard from a Ugandan microfinance institution partnering with UNCDF on how digital financial services are reaching women, young people, and rural communities previously considered unbankable or too costly to reach with traditional banking infrastructure.

Our partners in West Africa noted that there is no one “right” way when it comes to digital financial services. For instance, telecoms develop specific products depending on the country. But everyone agreed that getting the enabling environment right is essential to take digital solutions to scale.

We also heard at the World Humanitarian Summit a strong call for a shift to cash programming as a higher percentage of overall humanitarian aid. As WFP has shown, and as we documented in our case study on the effectiveness of digital payments to Ebola response workers at the height of the crisis in Sierra Leone, digital makes this cash revolution possible in crisis settings. It gets critical money reliably into the hands of intended recipients, and it helps drive early recovery by increasing local purchasing power and re-starting local economies. The big lesson here is that disaster preparedness needs to include getting the digital infrastructure right, before disaster hits. This needs to be part of the humanitarian cash programming revolution, and UNCDF and the Better Than Cash Alliance have the experience to do it.

Technology also matters by helping to ensure climate adaptation investment is directed at the most critical infrastructure. The Korean Environment Institute showcased its climate forecasting and satellite expertise so that local governments can prioritize their investments based on expected impacts to their ecosystems.

Adapted technologies are only meaningful to poor localities and households if they are accompanied by the financial intermediation and adapted business models to facilitate access. Participants in Antalya believed there is huge potential for technology to contribute to LDC SDG achievement across a range of goals, including clean water, housing, sanitation, smart cities, internet access and disaster response if finance solutions accompany technology solutions to work in the last mile.

A fourth message is that leaving no one behind in LDCs will not come by waiting for rising averages. We need specific solutions that tackle persistent exclusions and inequalities in the local economies and communities where poor people live and work.

A consistent finding of our case studies and side events concerns the need to deploy public resources, including ODA and climate resources, directly to the sub-national level, and in ways that specifically address how poor people live and work. This is essential for ensuring growth is inclusive and equitably distributed across a territory.

Some 2.5 billion people will be added to the world’s urban population by 2050, with some 90% of the increase in Asia and Africa. But, only about 7% of total aid goes to urban development. Also, perceptions among investors of high risk, insufficient returns, and weak accountability at the local level keep resources away.

Participatory planning approaches have yielded important aspirations and development plans at the local level. But year in and year out, these plans are under- or not funded, under-serving local economies and driving young people in search of work away from their home communities.

Well-targeted public resources can address this funding gap by de-risking the local investment space and crowding in additional public and private investments for local infrastructure, financial and other services.

At the last mile side event, the managing director from a development bank, for example, explained how in Tanzania there are domestic savings and bank liquidity, but no sustainable pipeline of projects where these can be invested. The Swedfund managing director highlighted the need for more investment opportunities in LDCs. Using ODA to develop and de-risk that pipeline can show investors the viability of financing projects in under-served communities.

The expert meeting on subnational finance we arranged in Dar Es Salaam underlined the importance of municipal finance in helping growing cities cope with the pressures of urbanization and population growth. We will shortly convene another such meeting for Asian LDCs. We are taking these messages to Habitat III as part of the New Urban Agenda, which holds enormous promise for helping LDCs achieve structural transformation through empowering local authorities.

During the remainder of the IPoA, it is essential that all partners support, invest in, and direct public and private finance to sub national levels to build stronger local economies and accelerate inclusive growth and structural transformation.

And my fifth and final message concerns risk.

To move the needle in the last mile, we cannot just play it safe. A former official who led Kenya’s charge on digital financial transformation stressed how their willingness to embrace technological disruption and empower the private sector made all the difference when it came to getting game-changing products like M-PESA off the ground. And he did it without much of a safety net.

But risks can be mitigated when the right instruments are made available. A senior Dutch official noted how they use public-private partnerships to manage and reduce risks for their ODA investments in new technologies.

The fact is that some failures will be necessary in order to make the critical breakthroughs that LDCs need to meet their graduation targets with high levels of inclusion and SDG achievement. Disruption and innovation require experimentation and learning. Risk-taking is a key component, and the Global financial architecture needs to have that baked in for the transformation process to work. If we continue to work only where results are guaranteed or in high productive areas, we will continue to leave millions of people behind.

I thank you for your attention.