The Importance of the Private Sector in Financing for Development

The Importance of the Private Sector in Financing for Development | Page 1

The Importance of the Private Sector in Financing for Development



What are The Sustainable Development Goals (SDGs) and why do they matter?

•  SDGs are a new, universal set of 17 sustainable goals and 169 targets that the UN member states for the period 2016-2030 will frame their agendas and political policies over.

•  They are developed and will be adopted by the world’s nations to

help guide the future course of the planet – with both economic, social and environmental objectives.

•  The SDGs are not just goals for the developing world. They are also

goals for the developed countries. •  The responsibilities are shared – the world is in this together.

An attitude is changing – it is possible to do good and do well at the same time. Profits and development impacts can happen simultaneously.



So the next big question is: How do we finance these development goals?

“These goals are ambitious, and they demand equal ambition in using the billions in ODA and in available development resources to attract, leverage, and mobilize trillions in investments of all kinds: public and private, national and global, in both capital and capacity. This will require making the best possible use of each dollar from every source, drawing in and increasing available public resources as well as private sector finance and investment. In every country, regionally and at the global level, we must work together to generate the resources needed to realize the transformative vision of the proposed SDGs.”

(Source: www.worldbank.org/mdgs/documents/FfD-MDB-Contributions-July-13-2015.pdf)

If these goals are to be achieved – the role of the private sector is KEY!


Many might think that the financing for development is inadequate?

However, this is actually not the case. The problem is GETTING THE RESSOURCES MOBILIZED AND CHANNELED FOR DEVELOPMENT. No doubt short- and long-term financing is necessary if we are to meet the SDGs. So WHAT can be done to make the private sector interested in investing in developing countries? And WHO can help in achieving this?


A very important actor that needs to involved are the Multilateral Development Banks (MDBs) and the International Monetary Fund (IMF).


WHAT do they do to help countries achieve their development goals and HOW can they help?

v  By giving direct financial assistance/support v  By giving technical assistance v  By giving policy advice v  By using their capital base to multiply funds (1$ managed by MDBs

often results in 2-5$ in financing for development) By implementing these initiatives the MDBS/IMF will help move the international community from billions of dollars in ODA and other official assistance to trillions in finance for development from all sources – public and private, national and global. (Source: http://www.worldbank.org/mdgs/documents/FfD-MDB-Contributions-July-13-2015.pdf)


As a private company looking to invest – the following areas are important to look for in a developing country that want to improve public-private partnerships and to attract investors.

•  Political/macroeconomic stability is essential

•  Transparency and the rule of law (e.g. laws need to be enforced and courts need to be ruled)

•  Delivery of key public sector services including adequate infrastructure

•  Strengthening of the local financial and capital markets

•  Fair treatment and equal access •  Business environment to support

growth •  Easy access to starting up, operating

and also closing a business down


Policy reforms that would help private sector incentives:

Ø  Lowering the withholding tax for external creditors that are financing public projects,

Ø  Changing legislation to permit private investors such as commercial banks and pension funds to invest in public-private investment projects, and

Ø  Allowing commercial banks to increase leverage for every dollar they invest in Public-Private-Partnerships.

(Source: Financing for Development, WBG Week 2 quiz)


So assuming most the above criteria in the developing country are met - WHICH investment categories could then be interesting for private investors?

- energy investments, transport, water.

– especially important in low-income countries.

– important in resource rich countries in e.g. Africa.

– health services and education. - financial sector.


The table below shows five investment categories – including their challenges.

Source: http://www.brookings.edu/research/papers/2014/07/mobilizing-private-investment-post-2015-develoment-kharas-mcarthur


The links from the above investment categories to achieving the SDGs are strong.

By investing in infrastructure, SDG no. 6 (clean water and sanitation), SDG no. 7 (renewable energy), SDG no. 9 (innovation and infrastructure) and SDG no. 13 (climate action) could be achieved.

By investing in social sector, SDG no. 3 (good health) and no. 4 (quality education) could be achieved.

The SDGs are intertwined and hence by investing in the categories above, SDGs such as no. 1 (no poverty) and no. 2 (no hunger) could also be achieved.


WHY are developing countries so interested in getting private investments – WHAT do they get out of investments made by private firms:

•  The investments contribute to government revenues,

•  The investments can generate innovation and cost competiveness,

•  The investments expand access to and quality of infrastructure and social services and finally,

•  The investments contribute to jobs and income

Therefore, private sector investments in developing countries are very attractive. Furthermore, all of the above also link very well to the SDGs.


Private sector involvement and investment in development countries are crucial to achieve the SDGs. Many developing countries are still not geared for private sector investments. But many developing countries are very willing and eager to implement the reforms needed in their countries to attract the private sector. By working together with the MDBs and IMF they can get the technical and policy advice needed to attract the private sector. The prize for the private sector is that by investing in developing countries there are possibilities for high-returns and diversification – a very important factor.

The Importance of the Private Sector in Financing for Development

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