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Opinion: We Had High Hopes For Private Finance And The SDGs. Was Our Optimism Unfounded? (Devex)
January 19, 2018
From the article:
Many were optimistic when the United Nations Sustainable Development Goals were launched in 2015 that the private sector — and domestic resource mobilization — would fund much of the investment needed to achieve these goals — especially as public aid flows stagnate. As 2018 begins, we would do well to reassess these optimistic projections for private finance for development, and ask are the “billions to trillions” materializing?
The data and trends to date are far from encouraging. Global cross-border private capital flows remain depressed — 6 percent of global gross domestic product in 2016 compared to 22 percent in 2007. Low income countries continue to receive a minimal share — 1.7 percent in 2016 — of total private capital flows to developing countries. World Bank data show that the volume of infrastructure investment with private participation in developing countries is down sharply from over $210 billion in 2012 to $76 billion in 2016. And the poorest International Development Association countries capture very little of these flows: Less than 4 percent from 2011-2015.
For the private sector windows, or PSWs, of the multilateral development banks, these limited private flows are both a test and an opportunity. They, and bilateral development finance institutions, were conceived as the original impact investors, helping to unlock private investment with both commercial returns and development impact.
Yet, based on their business volume, MDBs can fairly be regarded as marginal actors. Their annual commitments to both the public and private sectors totaled $118 billion in 2016, compared to estimated annual finance gaps of $2-2.5 trillion for SDG investments, and $1-1.5 trillion for infrastructure investments in developing countries.