BRUSSELS — Few people are better placed to observe the effort to boost development spending from “millions to trillions” with the help of private investors than Werner Hoyer. The president of the European Investment Bank told Devex that reaching the Sustainable Development Goals requires a “paradigm shift” away from “donor-thinking and aid mentality” towards supporting “sound projects” backed by “good economics … for good purposes.”
For many NGOs, the increasing use of official development assistance to entice private investment — such as through grants, interest rate subsidies, or guarantees — risks favoring large infrastructure projects in middle-income countries, to the detriment of less developed nations where the need is greater, but so is the investment risk.
In an interview with Devex Editor-in-Chief Raj Kumar on the sidelines of the recent World Bank Annual Meetings, Hoyer said that, despite being a capital market-based bank that borrows and lends, the EIB remains guided by policy priorities set by the 28 EU member countries, including mitigating climate change and addressing the “root causes” of irregular migration.
“We have to observe these objectives but still be professional in the selection of the projects,” the German national said. “We must not allow wishful thinking in development projects, because that is sometimes the case, and afterwards you find out that you have produced basically an implicit increase in state debt for countries that you want to do something good for.”
For now, Hoyer says pension funds and others who might want to support projects aren’t convinced potential development partners speak their language.
They want to park their money and get it back with an interest rate, Hoyer said. “This is nothing obscene, this is part of our economic system.”
“As an investment bank that does most of its work in industrialized countries in Europe, we are more used to that,” he said of the EIB. “But if you have an exclusively development policy background, then you might overlook that sometimes, and even have some skepticism vis-a-vis those who come from the private sector.”
The European Fund for Sustainable Development: What's it all about?
Last month, EuropeAid announced the launch of the European Fund for Sustainable Development, worth up to 4 billion euros ($4.7 billion). But what is the fund, and how will it work? Devex explains.
Much of that will be put to the test under the new European Fund for Sustainable Development — an instrument launched in September to support investment in Africa and the EU’s neighborhood through a guarantee and other blended finance tools.
The EFSD is designed to tackle poverty, conflict, and a lack of job opportunities, with the aim of also reducing migration to Europe.
“The migration has had one positive impact,” Hoyer said, pointing to a growing recognition of the need to tackle issues in migrants’ countries of origin.
“People who have never been interested in development policy are all of a sudden very much of the opinion that the more we help those countries develop economic strategies that give a perspective for the future of these people there, the better it is for ourselves.”
Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you free every business day.
