Private investment is essential to raise living standards in fragile states, but it will only arrive if governments work to create the right environment for the private sector.
That was one of the main messages from two Friends of Europe events on 31 January, which brought together experts to discuss how best to unlock private investment in difficult environments.
The 2015 United Nations General Assembly agreed on 17 Sustainable Development Goals, which aim to promote development in a way that protects the environment and respects human rights. But the scale of their ambition means they won’t be inexpensive, said Nena Stoiljkovic, Vice-President for Blended Finance and Partnerships at the International Finance Corporation. “Trillions are needed to make all the SDGs happen,” she said. “The private sector will be essential in contributing to the needed financing,” she told at the Development Policy Forum’s Policy Insight 'Unlocking private sector investment in fragile states'.
Large-scale private sector involvement marks a departure from the traditional reliance on official development assistance (ODA). But the role of foreign governments, such as those in the EU, will be crucial. First, they must identify the kind of private sector activity likely to contribute most effectively to different developing countries.
Then they have to help to reduce factors that often discourage multinational investors – which can mean promoting the rule of law, helping to build transport infrastructure and working with local administrations to ensure a supply of power. “It’s a process,” said Stoiljkovic. “Work on the systemic issues, that’s where the World Bank comes in, and IFC can ‘de-risk’ the projects with our own capacity building advice and financing.”
Marrying aid and private investment sounds like a tricky balancing act. But the private sector is increasingly aware that only sustainable economic activities will be profitable in the long term, “Aid and profit are not antagonists anymore,” said Stefano Manservisi, European Commission Director-General for International Cooperation and Development. “The concept of economic activity is, strictly speaking, linked to sustainability concept of the SDGs,” he told a dinner-debate entitled 'Innovative financing tools for development – From theory to practice'.
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