UNITED NATIONS — The majority of private sector investment in developing countries is too short term to be relied on as a primary source of funding, especially for key infrastructure projects, according to a new United Nations report on financing for development.
The report, “Financing for development: Progress and prospects 2018,” was issued by the U.N. interagency task force on financing for development on April 13. It will serve as input to upcoming intergovernmental negotiations in New York, as well as a potential tool for governments as they devise their own national financing plans.
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Achieving the Sustainable Development Goals will require a shift in the financial sector — specifically, a long-term investment strategy that places sustainability as a central issue of investment, the report said. Both public and private financial institutions need to be aligned with long-term development. Lack of long-term thinking and planning could mean that some risks, like climate change, will not factor properly into decision-making, it warned.
Part of this is because the private sector lacks financial incentives to do long-term investment in sustainable development, and is rewarded for short-term investments. Countries too may also not have the means to invest in the long term, and are limited to borrowing money or investing short term.
Infrastructure investment represents less than 3 percent of global pension fund assets according to the report, and investment in sustainable infrastructure in developing countries is lower than these overall rates.
“The good economic news in some regions masks the very real risk that the poorest will be left behind,” Liu Zhenmin, under-secretary-general for the United Nations Department of Economic and Social Affairs, said in a media statement. “There is no room for complacency.”
The report recommends a multifaceted approach to sustainable investment. Developing countries should continue to build competitive business environments, and governments could look at how to incentivize institutional investors to consider a long-term strategy. Using blended finance as a way to boost investment should also be considered, the report said.
“If we don’t invest in infrastructure projects like bridges, roads, and sewage systems, if the poorest and women are cut off from access to credit and other financial services, we have little prospect of achieving our global goals,” Liu continued.
Most development financing flows increased last year, supported by a “broad-based upturn” in the world economy and investment in ecosystems, water and sanitation, energy, and telecom. With the exception of the telecom industry, most of this investment was done by the public sector.
Certain factors — including high levels of inequality and declining private investment in infrastructure — pose risks to investment with long-term sustainable development in mind.
“We have to reach beyond the quick fix if we are going to create a world that can sustain all of us,” said Navid Hanif, director of financing for the U.N.’s Sustainable Development Office, in a media release. “Political leadership and public policies are indispensable.”
Global gross domestic product growth reached 3 percent in 2017, marking the highest rate in six years, according to the U.N. World Economic Situation and Prospects 2018 report. The U.N. projects steady global growth of 3 percent for 2018 and 2019.
These gains, though, are uneven around the world. While major developed economies grew, per capita GDP declined in West, Central, and Southern Africa and Latin America and the Caribbean in 2016. Negligible per capita growth, or downturns, are expected in these regions and Western Asia, home to one-third of people living in extreme poverty.