This September, the Millennium Development Goals will expire and be replaced by the sustainable development goals. As the development agenda evolves, we need to change the way we finance development, too.
In 2014, development assistance spending from all governments totaled $135 billion. The estimated cost to meet the proposed SDGs is in the trillions. This is an insurmountable gap to address through government funding alone. We need to find new ways to mobilize both public and private investments into developing countries to build sustainable development outcomes.
New blended finance initiatives
Canada’s partnership with Sarona Asset Management is successfully bridging the ‘missing middle’ — access to finance and know-how — for small- and medium-sized enterprises in emerging markets, so they can grow and create new jobs.
In 2014, Canada, the United States, Norway and the World Bank Group launched the Global Financing Facility in Support of Every Woman Every Child. This exciting new facility will help to sustainably finance innovative initiatives with the private sector in maternal, newborn and child health — Canada’s top development priority.
In 2007, Canada was one of five donor countries, along with the Bill & Melinda Gates Foundation, to launch the first advance market commitment for a pneumococcal vaccine in developing countries. Normally, new lifesaving vaccines only reach low-income countries years after being introduced in high-income countries, and often at unaffordable prices. Through Gavi, the Vaccine Alliance, donors help pay for the future purchase of the pneumococcal vaccine, creating an incentive for vaccine-makers to produce for the world’s poorest countries right now — usually at a price that is 90 percent lower than the cost of the same vaccine in Europe and the United States.
To address these financing gaps, Canada has developed a number of tools. We just announced plans to establish a Canadian Development Finance Initiative. Housed within Export Development Canada, the Canadian DFI will provide financing to private firms and foundations for commercial projects in low- and middle-income countries that have development outcomes, but cannot find private sector financing.
This decision was inspired, in part, by the success of the Canada Investment Fund for Africa, which used government funds to make smart investments in private companies throughout Africa. The fund created development benefits by supporting the growth and profitability of these businesses, which in turn generated jobs and revenues local governments could use to provide basic services. It also increased trade and investment between Africa and Canada.
Our government is also working to improve another important source of private money that goes to developing countries — remittances. According to the World Bank, Canada is one of the top countries in the world for people sending money to their families overseas. Remittances are an important source of income for families to pay for essential needs such as food, education and health care.
Our government is creating a website that will compare fees charged by different companies to ensure people always get the best rate. This will benefit Canadians by providing greater competition between service providers and will drive down prices. Reducing transfer fees by a few percentage points means millions more dollars in the pockets of families in developing nations.
Canada is also actively promoting blended finance, which is an exciting new field of investment that uses public and philanthropic funds to unlock massive amounts of private capital for development. It offers a new approach to reducing the financial risk for investors in order to increase private investments in sectors such as health, finance or infrastructure.
Blended finance has already generated a significant amount of buzz within the development community. The challenge is that it involves a complex web of actors, sectors, geographies, instruments and terminologies. What we need now is a way to bring all these moving parts together in one space.
Canada, in partnership with the World Economic Forum, Dalberg and a number of other players, recently announced the Global Finance Exchange for Social Advancement. GFX will be an online marketplace, knowledge broker and accelerator for innovative development finance models. Done right, it will help leverage new sources of financing, turning billions into trillions, and significantly contribute to ending global poverty. The private sector will also benefit from new investment opportunities in developing nations.
These new approaches are why the Organization of Economic Cooperation and Development and WEF set up the ReDesigning Development Finance Initiative in 2014. As chair of the steering group, I am working with global partners to expand the pool of foreign and domestic capital to help accelerate social and economic progress. Our aim is to identify, test and scale up public-private blended finance models in a systematic way.
Canada believes that a holistic approach to financing development — with effective domestic and international interventions like DFI, increased remittances, blended finance and GFX — can change the way we do development. With a price tag on the SDGs in the trillions of dollars, these are exactly the type of solutions we need and now is the time to add them to our respective toolkits.
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