After years of consultation, discussion, and debate, the sustainable development goals (SDGs) that will guide development efforts for the foreseeable future are close to becoming a reality — meaning a global commitment to end poverty in all its forms everywhere and eliminating extreme poverty entirely by 2030. But one crucial question remains: how to pay for it all?
The Financing for Development (FfD) conference met in Addis Ababa, Ethiopia earlier this month to try to reach an agreement on the right mix of development aid, taxes, loans, trade, and private investment to pay for the ambitious agenda set out in the SDGs, building on the failures and successes of the previous Monterrey Consensus and Doha Declaration.
Following the FfD conference, the Center for International Private Enterprise’s (CIPE) convened a panel of experts to reflect on the new SDG financing framework and outline important steps leading up to the summit in September where 193 heads of state will converge to ratify the goals.
Hosted by CIPE Executive Director John D. Sullivan, the panel featured Trevor Davies of KPMG, Christopher Jurgens of the United States Agency for International Development (USAID), Louise Kantrow of the International Chamber of Commerce (ICC), Kamran M. Khan of Millennium Challenge Corporation (MCC), and Sarah Thorn of Walmart.
Getting from billions to trillions
The difficult question of how to finance the post-2015 agenda comes down to ownership. With the understanding that the SDG and thus FfD framework are a set of challenges and solutions that everyone needs to take on board, the answer no longer relies only on overseas development assistance (ODA) or multilateral donors. Rather, it must be a combined effort on the part of donors, host country governments, and the local and international private sector, emphasized Christopher Jurgens, division chief of Global Partnerships at USAID.
“The billions to trillions analogy in that context becomes quite clear when you actually look at the numbers: ODA per annum is in the range of $160 billion, then private flows – remittances alone – are in the order of $340 odd billion per year, international private capital flows [are] over $900 billion, approaching $1 trillion, [and finally] you get into the domestic resources and domestic investment by companies in their own economies as a percentage of GDP totaling about 3.7 trillion [with] host country governments on the order of $5.5 trillion.”
The Addis Ababa Action Agenda placed equal emphasis on individual country ownership, calling for nationally owned sustainable development strategies. Mobilizing domestic resources through an increase in taxes collected and through local and international public finance was one key item on the agenda for Addis. To this end, Jurgens identified that USAID’s position, like other donors in the financing landscape, was to play an active role in fragile and post-conflict countries. He said the agency’s role was to work with governments and strengthen the enabling environment, filling in the gaps where the private and public sector might be more constrained in what they can do without that assistance. Whereas in middle income countries, where the resources of donors are comparatively much smaller but local capacity of private sector and government is rapidly increasing, donors should assume a catalytic role in making private sector activity happen.
Private sector activity in this regard is not limited not just to economic growth but to active participation from the private sector – mobilizing its capabilities, resources, and global supply chains and participating in policy reform and advocacy dialogue. This narrative triggers the ever-popular buzzword “public-private partnerships.” But what does a partnership truly mean and what can an effective model look like?
Sarah Thorn of Walmart explains an effective partnership as a win-win: “a true partnership comes when there’s actually a need on both sides that’s not met and you actually have a mutual goal you want to achieve.” By partnering with USAID, for example, Walmart can compliment programs that USAID has in place training farmers by buying their improved-quality produce — creating a sustainable loop.
“The private sector really came to the table and was ready for suggestions” said Louise Kantrow of the FfD Conference, who as the ICC Permanent Representative to the United Nations, organized the presence of the private sector and voice of business to negotiations in Addis. An unprecedented 800 business representatives registered for the conference, with good governance, innovation, economic growth and empowerment, and infrastructure at the forefront of their discussions.
Serena Brown, senior manager in the Global Development Initiative at KPMG UK, captured the essence and spirit of the International Business Forum in her remarks during a roundtable discussion in Addis, noting in particular “the energy to turn billions of dollars of funding into trillions; the conviction that we will achieve this by working together; and the consensus that we need to be very clever in how we deploy development bank finance, ODA, domestic resources and philanthropic funds to achieve maximized leverage of private sector funds.”
To unlock the trillions of dollars, Brown pointed to “the importance of evolutions in corporate reporting which accelerated an integrated, transparent, and accountable approach to value creation” to align capital deployment with sustainable development. Brown also lauded the development of infrastructure project preparation capacity and blended financing instruments as well as successful innovations in technology, products, services, distribution and business models that the global community can build on and scale.
Concrete models to support such thinking have taken form in the way of the new Sustainable Development Investment Partnership, which aims to mobilize $100 billion in financing over five years to infrastructure projects in development countries by reducing risk and thereby catalyzing investment, as well as Convergence, a virtual marketplace platform for sharing information and capacity building to facilitate and increase Blended Finance capital flows to developing countries.
Filling in the holes
While Addis achieved renewed commitments for incoming flows of finance into developing countries, not enough emphasis was placed on the outgoing or untapped sources of capital. Failure to organize tax collection in an inclusive way for both developed and developing countries, prevent illicit financial flows from sending money out of developing countries, engage those that remain excluded from the formal economy, and manage corruption with transparency and accountability will undermine the opportunity presented by this next set of development goals.
A major concern coming out of Addis in terms of civil society was the emphasis and perhaps, to some, over-emphasis on the role of private sector in development. “Integrity is critical for businesses – we need to be seen to be acting with propriety at all times in terms of our investments, how we deal with corruption, and how we deal with the tax situation,” stressed Trevor Davies of KPMG.
Sarah Thorn of Walmart also noted suspicion of the private sector in meetings with other stakeholders – concerns that the private sector fails to have a rights based agenda, lacks oversight in what it is doing, or has taken over the development role without allowing others to remain stakeholders. Thorn emphasized a need for more transparency and asked for better criteria for the private sector as a way to end these suspicions.
Kamran M. Khan, the vice president of the Department of Compact Operations at MCC, echoed this in relating the emphasis the MCC model places on accountability. “Too often things don’t happen and nobody gets hurt – a loan that’s supposed to be executed lags and nothing changes, there is no accountability.” Furthermore, he questioned the ability to deal with corruption and financial controls which comes down to the private sector’s “willingness to pay for less corruption and take on the difficult task of actually doing things to reduce corruption.”
While corruption sucks capital out of developing countries – be it through illicit financial flows, tax evasion, or the like – CIPE Executive Director John D. Sullivan highlighted the massive, untapped potential of the one-third to one-half of the developing world population that remains locked out of the formal economy. Though this subject has been touched upon at previous development conferences, the post-2015 agenda must get the interaction between good governance and economic growth and empowerment right if it intends to achieve the SDGs.
The trillion dollar question then is perhaps not how the global community will make the jump from billions to trillions, but if we can most effectively unleash the full potential of the global economy in an inclusive, transparent, and collaborative way.
Stephanie Bandyk is a Program Assistant for Global Programs at CIPE.