The last calendar quarter of 2015 stands out as a watershed moment for the UN’s global economic diplomacy, with the adoption of the Sustainable Development Goals and the Paris Climate Agreements over a of just ten weeks.
Three years have passed, but the profound implications for the Global South in terms of a required “gear shift” in response to these ecosystem changes, have not received the attention required.
This observation refers particularly to the entry of non-traditional capital to complement ODA flows, to finance development interventions. This new kind of capital needs to be courted with attractive proposals of a particular kind.
The Global North is busy and distracted at present. The Global South--whether it realizes it or not--now has new collective responsibility for attracting this unfamiliar breed of blended investor capital. This new blended capital is mainly looking to finance a range of high impact development interventions. They must deliver measurable positive outcomes and do so with sufficient scale. In short, the new capital pool needs a well-prepared pipeline of projects and interventions which can show development impact, and on which they can carry out further due diligence. But such an effort is not underway anywhere at international scale.
So What Happened and What Has Changed?
On 25 September 2015, at the UN Sustainable Development Summit in New York, the 193 countries of the UN General Assembly adopted the 2030 Development Agenda titled "Transforming our world: the 2030 Agenda for Sustainable Development".
This Agenda document is the home of the 17 Sustainable Development Goals (SDGs) to end poverty, protect the planet and to ensure peace and shared prosperity.
Meanwhile a separate group of negotiators were still hard at work.
On 12 December 2015, at the 21st meeting of the Conference of Parties (COP 21) in Paris, 196 Parties to the UN Framework Convention on Climate Change reached a landmark agreement to combat climate change and to accelerate and intensify the actions and investments needed for a sustainable low carbon future.
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Learning the new ropes of development finance, particularly the “billions to trillions”, is of utmost importance for any country seeking financial and technical support to achieve its SDG and Paris targets. This involves gaining a deep understanding of what the new non-state and non-ODA investor classes want, in order to unlock funding which they control.
Private sector capital of various shades<1> represents the “trillions” in the common refrain of “billions to trillions” that will be needed. Private capital is indeed slowly emerging to supplement the world’s Official Development Assistance (ODA) flows in support of development goals.
But as noted, private funding has unique requirements, specialized metrics and a non-negotiable need for documented evidence of impact, that almost no one in the Global South is really used to. Hence it is proving difficult in a vacuum, to prepare and place pipelines of sufficiently well-prepared shovel-ready project proposals in front of impact investors who want to know “what’s out there” to invest in.
A Role for South-South Partnership (SSP)?
African countries, in order to succeed on this new playing field, must be able to leverage Indian experience and strong capacity-building track record.
India for its part, must be able to rise to the challenge of this partnership and provide meaningful help to its African members to attract impact funds for the SSP collectively, in ways that they could not achieve on their own.
India is better placed than most to adapt and take on a leadership mantle, to reach out and carry along others. It will initially navigate new terrain a world that looks for “scaled solutions and more bang for the buck” to reduce transactions costs, and gain “more crop per drop” in every investment decision.
India for its part, must be able to rise to the challenge of this partnership and provide meaningful help to its African members to attract impact funds for the SSP collectively, in ways that they could not achieve on their own.
A high-quality and task-oriented SSP of professional excellence, for mutual benefit and consisting of India and a varied group of African countries<2>, is needed to be incubated at this point.
If successful, this partnership will eventually articulate specific, innovative and localized outcome-based solutions to long-standing development challenges, for presentation to investors. There is no shortage of blended funds for proposals which are able to demonstrate positive outcomes at scale.
Are Positive Social and Climate Impacts Really Worth Paying For?
A laser focus on “impact” helps investors to see what is working and what is not, and to identify where and which kinds of positive impacts need to be created in order to tackle current adverse occurrences.
For socially minded impact investors, the cost of not having those positive outcomes is judged to be higher than paying for them to be delivered.
Outcome and Impact investors are willing to cede to others the “secret sauce” for how the agreed outcomes are actually achieved. This is why the new private investor will not waste time going over invoices and checking drafts of tender notices. They want to rely on third party monitoring of agreed end-results instead.
What will unlock the final round of money is an independent evaluator’s report certifying that promised outcomes were delivered and positive impacts have happened. The SSP needs to be trained to navigate this.
How Did We Get Here?
Publicity around the UN SDGs and the Paris Agreement have raised unprecedented global public awareness of multiple local dangers from faraway negative social and climate impacts that threaten the world’s collective peace and prosperity.
This realization dawned recently again around 2003 with global epidemics like SARS, when the disease caused over 8,000 cases in 37 countries in under ten months, and led to 774 global deaths. It was followed by other treatment-resistant epidemics like MERS, Ebola and Zika. These caught the world’s attention, and for the first time created “ordinary citizen stakeholders” in the Global North, with deep concerns for what was happening in distant lands.
Global inter-connectedness has once again come to the forefront through the refugee crisis. Ordinary folks especially in Europe, are trying to seriously understand why young men and women in the prime of their lives would pay their life-savings to traffickers, undertake a hazardous Sahara desert-crossing, or an overland crossing from Asia to Turkey, and subsequently risk drowning in different parts of the Mediterranean.
People are wondering: what would it take instead to create local productive employment, decent livelihoods, decent health-care, decent skills-training and fulfilled lives for them at home? In short, how can we help them to meet the SDGs and the climate targets, and make their home countries a better place?
Impact investors are willing to pay for successful demonstrations of project outcomes that can show the creation of positive impact in developing countries.
< style="color: #333333">Impact investors are willing to pay for successful demonstrations of project outcomes that can show the creation of positive impact in developing countries.
A well-structured SSP can meet them halfway. It can share the load on initial project identification, first round due diligence and formulation of numerous additional impact-oriented project proposals. This will ensure that the pipeline is far bigger than otherwise. With more projects, the Global South will also benefit more from the “increased bang for the buck” that private capital is demanding for every transaction.
<1> The OECD has identified traditional philanthropy, venture philanthropy, social investing, impact investment, sustainable and responsible investing, and fully commercial companies, all potentially serving as investors in development outcomes.
<2> Possibly initially consisting of Nigeria, Ethiopia, DRC and Tanzania for high population, which can offer scale, and Kenya, South Africa, Senegal and Ghana for innovations already underway that could be of interest to others.
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