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‘Initial focus’ on Africa for new development finance initiative

Out-Law News | 21 May 2014 | 12:47 pm | 2 min. read

The World Economic Forum (WEF) and the Organisation for Economic Co-operation and Development (OECD) have launched an initiative to help developing countries speed-up economic growth through private sector financing, “with an initial focus on Africa”.

WEF said the ‘Redesigning Development Finance Initiative’ will bring together development finance institutions, governments, official development assistance (ODA) providers and private sector investors to expand the pool of foreign and domestic capital available for sectors including infrastructure, agriculture and energy.

According to Development Initiatives, an independent organisation working on poverty elimination, around $1.7 trillion flows from developed countries to the developing world. The WEF-OECD partnership aims to boost cooperation to clearly “target” ODA as finance for development and to spur growth.

WEF said the goal is to “extend the reach and effectiveness of private investment and ODA in achieving development impact through the deployment of risk mitigation and concessional finance tools”. The initiative’s main areas of focus will include helping developing countries to understand ‘blended financing’, a mechanism that links a grant element, provided by ODA with loans from publicly-owned institutions or commercial lenders.

Canada’s international development minister, Christian Paradis, chairs the Redesigning Development Finance Initiative’s high-level steering group. Other members include The Bill & Melinda Gates Foundation, the Swedish International Development Cooperation Agency, the Partners Forum for Private Capital Group for Africa and the US Agency for International Development.

Paradis said there was “a growing consensus” that more strategic use of funds flowing from the developing world “is critical to achieving their full potential for impact towards social progress and sustainable development”.

According to a recent European Parliament report, ‘Financing for Development in Post-2015’ (43-page/1,000 MB PDF), foreign direct investment (FDI) statistics “underscore the necessity of considering the contribution of the private sector in any discussion about how to finance global development goals”.

The report said: “The blending of grants with loans and equity, as well as guarantee and risk-sharing mechanisms, can catalyse private and public investments and the EU is actively pursuing this. While the vast majority of existing blending has been to support the public sector... plans for the future include a significant scale-up of private sector blending.”

However, the European Network on Debt and Development (Eurodad), a network of 48 non-governmental organisations from 19 European countries working on issues related to debt, development finance and poverty reduction, has urged caution on blending public development finance with private finance.

Eurodad said in November 2013: “When looking at who benefits and who profits from the current increase in blending mechanisms... although the majority of the funding currently goes to support public investments, the (European Commission) plans a massive expansion in the private sector as financiers and beneficiaries. Unfortunately, there is little clarity about which section of the private sector would be targeted and how this would happen. The rationale is to provide access to finance for small and medium-sized enterprises. However, so far there is not enough information to assess whether blended finance has actually reached its intended targets.”