Thank you for joining us today.
Thanks to Switzerland for conceiving of this side event, and to you, Sweden, and Benin for your ongoing support to UNCDF and for agreeing to convene this event.
This meeting follows the Financing for Development conference in Addis and is in the run up to the launch of the SDGs. Next year is the midterm review of the Istanbul Programme of Action.
These events have major implications for LDCs, UNCDF’s primary focus countries. This makes it critical that we continue to meet and exceed the enormous expectations placed on us.
I have four points.
First, LDCs still have a steep hill to climb to set a sustainable course for meeting the SDGs by 2030, graduating from LDC status, and achieving growth that is inclusive. While LDCs have enjoyed unprecedented economic growth since 2000, they continue to be challenged by economic vulnerabilities, lower levels of human capital formation, and severe infrastructure deficits.
In the past few years, growth in LDCs has been lower than the seven per cent average target in the Istanbul Programme of Action, and it has often been concentrated in sectors such as urban real estate or commodity exports, with limited linkages to other sectors of the economy or parts of the territory. There are stubborn market failures that prevent growth from reaching out to the majority of the population, outside capital cities.
My second point is that ODA will continue to be a critical funding source for meeting the SDGs, but alone it is not enough.
While LDCs need additional finance from a blend of sources, they can face major constraints in mobilizing those resources.
Often conditions are not perceived by private investors or international actors as ripe or sufficiently secure to guarantee returns. So existing business and financing models leave out critical investments in localities, small enterprises, and poor households.
My third point is that developing sustainable models that bridge this “last mile” can be both a driver of growth and a channel for growth. This way, LDCs can follow an inclusive path to growth so that when they graduate, they will not have left huge parts of their populations behind.
And my fourth point is that UNCDF’s response to this challenge is to address market failures in that last mile by helping to build new business and funding models where others have not done so. Using ODA to innovate, learn from, and replicate such models, while demonstrating the investment value for public and private actors, can help de-risk, build confidence, and ultimately contribute to more sustainable and inclusive development pathways. This is especially relevant where barriers to inclusive growth outside capital cities include high levels of unbanked and excluded populations; low levels of infrastructure development; and dormant and unproductive capital.
Financial inclusion is one critical pathway for inclusive growth and for mobilizing resources for development.
Greater access to formal financial services promotes entrepreneurship, lifts people out of poverty, and supports overall economic development. Focusing on pro-poor savings led financial services means that sustainable financial models are built on the back of savings that already exist in the economy. ODA can prime the pump, but sustainability comes from mobilizing poor peoples’ own savings, putting those savings into productive circulation, and using them to help build household financial resilience, drive livelihoods creation, and finance SMEs.
UNCDF uses seed funding to develop the models that “reveal” those markets to investors by showing the demand, and demonstrating that investing in the poor is viable, and profitable. We help financial service providers close the last mile by reaching poor people and businesses with appropriate and responsibly provided savings, credit, insurance, and payment products.
We help them invest in digital finance innovations that drive down costs, expand access to the last mile, and enhance transparency.
With formal options, people can take money out from under their mattresses, and put it in less risky savings vehicles, giving them the means to manage their financial futures.
Strengthening lending to micro, small and medium enterprises can vitalize the private sector, creating jobs and economic opportunities, especially for women and youth.
We also know that there can be no inclusive growth without local development finance.
Inclusive growth requires that capital investments reach all geographic areas, and that the investment requirements of, say, growing peri-urban areas and local productive industry are fully financed.
This accelerates transformative growth and retains value within local economies, avoiding high growth-low poverty reduction patterns.
But one of the biggest challenges facing LDCs is that insufficient public resources flow through to localities, and local development plans remain vastly underfunded. Investors do not see these projects as investor-ready.
Again, UNCDF uses seed funding to show investors that such investments are viable, and profitable. We help local authorities turn local infrastructure plans into viable, bankable projects that can attract a critical volume of public and private investment, especially domestic resources, for local infrastructure development and service delivery.
Investments in local productive infrastructure can have enormous impact on local food security, job creation, women’s economic empowerment, renewable energy, and climate-resilience.
From UNCDF’s experience, developing new business and financial models to reach the last mile requires a combination of innovation and scaling up capital. ODA through our core fuels the innovation; ODA and other forms of finance through non-core fuels the de-risking and consolidation. Both sources allow us to demonstrate the viability of new financing models; to leverage domestic capital from banks and investors into the local space; and to help countries identify funding sources for wider scale-up.
We demonstrate leverage of 1:10 or more, of UNCDF contribution to other resources mobilized.
With sufficient resources, we have an opportunity to show how innovative financing models can work in the maximum number of LDCs in the context of the SDGs. We have an opportunity to show how financing models can help LDCs drive inclusive growth at the level of localities, helping poor households build resilience and financial independence with highly leveraged ODA; and helping governments pursue blended finance models to meet their local infrastructure needs to build the backbone on which local economic development can be built.
UNCDF plays a unique role in the international architecture by testing new financial models to reach the last mile, helping public and private actors to develop sustainable models to take the best of these to scale, and thereby supporting growth that is inclusive and sustainable.
Working together, we can assist LDCs to transform their economies and ensure that no one is left behind.