7-8 JUNE 2017 / Tour & Taxis / Brussels

Sustainable investments in developing countries by the private sector

Sustainable investments in developing countries by the private sector

What can be done to boost private sustainable investments in developing countries so the Sustainable Development Goals can be reached?

debate
D6
Thursday, June 8, 2017 - 15:15 to 16:30

Key points

  • The Sustainable Development Goals (SDGs) require massive investment, which can only be mobilised if the private sector is involved.
     
  • There is a current debate about opportunities and risks of blended finance.
     
  • Blended finance should reinforce the market and support viable businesses.
     
  • Sustainable investment requires an enabling business environment.

Synopsis

Meeting the SDGs will require trillions of euros in investment over the coming years. These ambitious goals can only be met with private sector involvement, notably through foreign direct investment. Development actors, including the European Commission and the European Bank for Reconstruction and Development (EBRD), have increasingly focused their attention on ways in which to mobilise private sector finance in pursuing development goals.

This is especially important at a time when official development assistance (ODA) flows to developing countries are not increasing. However, European ODA has risen thanks to a rise in the cost of caring for asylum-seekers in Europe.

Blending – the strategic combination of European Union grants with loans or equity from public and private finance – helps to unlock investment and increases the impact of development aid. At the same time, donor funding will work best if it follows some basic principles. It should bring additional value-added to the investment (impact) and support commercially viable businesses; tackle an investment bottleneck (risk); and be additional (not distort) to the market. The key development outcome of such investment is the creation of decent jobs.

The main blockage to investment is frequently not the availability of finance but the local business environment. Since the Lisbon Treaty, the EU has been in a unique position in that it can launch a political dialogue with a partner government about issues such as the rule of law, an instrument that no development bank has at its disposal. These dialogues are a forum to address the main constraints to investment and to promote good governance. In addition to transparent regulation, private sector actors also require security and safety to operate, and hard and soft infrastructure, from transport and energy to health and education.

This is why the EU’s External Investment Plan (EIP), adopted in September 2016, operates as a three-pillar structure: the European Fund for Sustainable Development; technical assistance to develop financially attractive projects; and the promotion of a conducive investment climate. The EIP is expected to leverage €44 billion to €50 billion in investment with €3.5 billion in grants. Guarantees from the European Fund for Sustainable Development serve to reduce the risk for private investors and absorb potential losses. The EIP is currently focused on Africa and the European neighbourhood but could include other regions in the future.

Likewise, the EBRD invests €1.3 billion-€1.5 billion in the southeastern Mediterranean, focused on private sector development, largely through financial intermediaries. 

Insight

The panel highlighted examples of successful private businesses that were able to scale up their operations in a sustainable way using renewable energy, thanks to grants and loans from multilateral development banks.

Organised by

    Nanno Kleiterp
    Chairman of the Board of Directors of EDFI
    European Development Finance Institutions
    Hakim Marrakchi
    CEO
    Maghreb Industries
    Amaury Mulliez
    Deputy Chief Executive Officer, Operations in Africa and the Middle East
    PROPARCO
    Zsuzsanna Hargitai
    Director of EU Funds Co-Financing & Financial Instruments
    EBRD
    Roberto Ridolfi
    Director for Sustainable Growth and Development
    European Commission - DG for International Cooperation and Development
Photo gallery

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