The financing gap for sustainable development goals is around $2.5 trillion. And experts are warning that to achieve the 17 United Nations goals by 2030, the existing funding just isn’t enough.
Progress on achieving the goals was already slow before the Covid-19 pandemic, and now governments and international bodies are looking for alternative funding to fill the trillion-dollar gap – enter the private sector.
“Everyone was worried before Covid-19 that the SDG agenda would be derailed, and Covid-19 hit and GDP rates were shaved and growth rates decreased and there was even more suspicion that we would be able to achieve these goals, and here came the idea that we should push the private sector more into that space,” Egyptian Minister of International Cooperation Rania Al-Mashat told Arabian Business on the side lines of the Egypt International Co-operation Forum in Cairo.
OECD estimates that 1 percent of current assets in the banking sector could fund the gap, but within existing structures it’s not possible.
“If you look at official development assistance (ODA), which is approximately $150 billion-a-year, there’s no way to fill the trillion-dollar gap, unless we introduce mechanisms to bring in the private sector,” said Citibank vice chairman Jay Collins at the conference.
Low and middle income countries are eligible to receive ODA, provided via governments to promote economic development, according to the Organisation for Economic Cooperation and Development (OECD).
Underneath the fancy finance terms though, are real people. And development finance proves to help the most disadvantaged who even before the pandemic had limited opportunities.
“Private sector money in development isn’t just about money, it’s about people, and changing the life of people. And the Covid-19 pandemic has shown we need to do more to address inequality in society, and the private sector has a critical role to play in this transformation,” Estherine Lisinge-Fotabong, head of the delegation representing the African Union Development Agency, said during a panel at the Cairo conference.
But investors are pragmatic, and before they invest, they want to know that the environment is stable and low-risk, a message that was repeated by experts on stage.
Collins said that only around 2 percent of money in development finance comes from the private sector, but blended finance may be an attractive option for private sector investors as it provides financial returns.
Blended finance “is the strategic use of development finance for the mobilisation of additional finance towards sustainable development in developing countries”, according to the OECD.
However, Collins said by his best estimates, only around 1 percent of development finance is blended.
“And those numbers will grow if we do a couple things. We have to set an objective to blend,” he said.
There is a huge opportunity, but to minimise investor risk and ensure stability, policy and regulation must first be developed, argued Stephanie von Friedeburg, senior vice president of operations at the International Finance Corporation.
“This is where the conversation needs to start. It seems like we’ve started with capital mobilisation, but we’ll get the capital when we get the policy and regulation in place to create these bankable projects,” she said.
Private sector appetite, at least in some part, seems to be there already.
“There’s a substantive lack of projects. The private sector is competing for the projects that exist in some of these markets because there’s not enough of them,” von Friedeburg said.
Al-Mashat is keen to highlight success cases, pointing to Egypt’s Benban Solar Park that marked a fundamental shift in how the country financed electricity. The government previously spent more on electricity subsidies than it was on education, healthcare, and social welfare combined, according to the International Finance Corporation. Under a World Bank Group-supported program, private companies were encouraged to contribute to national growth and development.
“Let’s take the successful examples and scale them in other African countries with the help of the international community,” she told Arabian Business. “It’s only through collective action we can be put on a path towards recovery.”
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