MANAMA: The public private partnership (PPP) model can fill $2.5trillion investment gap for Sustainable Development Goals (SDGs) which are currently being formulated by the United Nations and a wide range of stakeholders, UNCTAD’s World Investment Report 2014, revealed.
The report launched simultaneously in Bahrain and Geneva, which is subtitled Investing in the SDGs: An Action Plan, offers a bold framework to understand and enhance the role of private sector contributions to the pursuit of positive economic, social and environmental outcomes in developing countries.
Astrit Sulstarova, Chief, Trade and Data Section Investment Trends and Issues Branch, Division on Investment and Enterprise was in Bahrain to launch the WIR 2014. Astrit Sulstarova was joined by Dr Zakriya Hejres Head of MENA Investment Centre and Chief Economist at the Economic Development Board (EDB) Dr Jarmo Kotilaine.
“Private sector contributions, through both good governance in business practices and investment in sustainable development, will be critical to the realization of the SDGs,” the report added.
“Public sector contributions will remain indispensable, but may be insufficient to meet demands across all SDG-related sectors. Nevertheless, increasing private sector contributions poses challenges and policy dilemmas which must be addressed.”
At current levels of investment in SDG-relevant sectors, developing countries face an annual gap of $2.5 trillion. Estimates for total investment needs in developing countries alone range from $3.3 trillion to $4.5 trillion per year, for basic infrastructure (roads, rail and ports; power stations; water and sanitation), food security (agriculture and rural development), climate change mitigation and adaptation, health, and education. At today’s level of investment – public and private – in SDG-related sectors in developing countries, an average annual funding shortfall over 2015-2030 of some $2.5 trillion remains. Bridging such a gap may seem a daunting task, but it is achievable. The potential for increased private sector investment contributions is significant, especially in infrastructure, food security and climate change mitigation sectors. Structurally weak economies need special attention; UNCTAD estimates that a doubling of the growth rate of private investment in the least developed countries (LDCs) is required.
Increasing the involvement of private investors in SDG-related sectors, many of which are sensitive or of a public service nature, leads to policy dilemmas. Guiding principles are needed. UNCTAD identifies four key policy dilemmas: risks of increased private sector participation in sensitive sectors; the need to maintain quality services affordable and accessible to all; the respective roles of public and private investment; and the apparent conflict between the particularly acute funding needs in structurally weak economies, especially LDCs, and the fact that especially these countries face the greatest difficulty in attracting such investment. A common set of principles for investment in SDGs can help establish a collective sense of direction and purpose. The following broad principles could provide a framework.
Increasing private investment in SDGs will require leadership at the global level, as well as from national policymakers to provide guiding principles for dealing with policy dilemmas, and also to set investment targets, ensure policy coherence and create synergies, establish a global multi-stakeholder platform on investing in the SDGs, and create a multi-agency technical assistance facility for investment in the SDGs.
“Challenges to mobilizing funds in financial markets must be overcome. Such challenges include market failures and a lack of transparency on environmental, social and governance performance, misaligned incentives for market participants, and start-up and scaling problems for innovative financing solutions. Policy responses that build a more SDG-conducive financial system might include creating fertile soil for innovative SDG-financing approaches, building or improving pricing mechanisms for externalities, promoting Sustainable Stock Exchanges, and introducing financial market reforms in order to favour investment in SDGs.
“Once mobilized, funds need to be channelled to SDG sectors and projects, which present a different set of challenges. Key constraints to channelling funds into SDG sectors include entry barriers, inadequate risk-return ratios for SDG investments, a lack of information and effective packaging and promotion of projects, and a lack of investor expertise. Effective policy responses may include: reducing entry barriers, with safeguards; expanding the use of risk-sharing tools for SDG investments; establishing new incentives schemes and a new generation of investment promotion institutions; and building SDG investment partnerships.
Finally, private investment must maximize its positive impact on sustainable development, while minimizing the associated risks. Key challenges in maximizing the positive impact and minimizing the risks and drawbacks of private investment in SDG sectors include weak absorptive capacity in some developing countries, social and environmental impact risks, and the need for stakeholder engagement and effective impact monitoring. Policy responses could include increasing absorptive capacity, establishing effective regulatory frameworks and standards, good governance, strong institutions, stakeholder engagement, and implementing SDG impact assessment systems.