THE 17 Sustainable Development Goals (SDGs) adopted by the 2015 UN Summit constitute the most ambitious development agenda approved by the international community. Implementation of these goals will require simultaneous achievement of economic growth, social inclusion and environmental sustainability.
Their implementation depends on: adequate incorporation of the SDGs in national development plans, programmes and projects; access to capital required to finance these; and the capacity — national and international — to implement the plans, programmes and projects.
The greatest challenge is the deployment of adequate financing for implementation of the SDGs. It will require an additional public and private investment of $3 trillion annually in low-carbon energy, agriculture, health, education and other sustainability sectors.
There is a solid economic rationale to prioritise global investment in developing countries.
At least 70 per cent of the additional investment should be in the developing countries. There is a solid economic rationale to prioritise global investment in developing countries, especially since return on investment in developing countries is double and triple that in ‘investment-saturated’ advanced economies.
This investment volume of $3tr is not so daunting when compared to the size of the global GDP ($120tr and growing at 3pc); the world’s stock of financial assets ($300tr, growing at 5pc annually); and available finance (an estimated $10tr locked into negative yielding sovereign debt).
As the 2016 report of the Business and Sustainable Development Commission has noted: “There is no single type of investment (more essential) for the achievement of the SDGs than infrastructure”, which includes all major energy, transport, telecoms, land use, water, and waste investments. Long-term and sustainable growth requires targeted investment in physical, human and social infrastructure.
Such sustainable infrastructure investment is key to the structural transformation needed to meet the core criteria for SDG achievement: growth, social inclusion and low carbon outcomes. It will also revive growth in the global economy.
The generation of sustainable infrastructure investment will require long-term national, regional and global planning and vision. It will be essential to mobilise the right investors (ie those able to invest at scale in infrastructure projects); deploy new technologies (to reduce costs and ensure sustainable structural transformation); and align new infrastructure with the goal of limiting global warming.
It will also require an overhaul of the world’s infrastructure financing mechanisms. There is a huge deficit in current infrastructure financing. The US and EU invest around 2pc of GDP annually in infrastructure. The developing countries invest much less. They need to put in 6pc to 8 pc of GDP into infrastructure to ensure 5pc GDP growth. Multilateral development banks (MDB) invest around $40 billion in developing country infrastructure and the private sector only $15bn. This is partly because of lack of adequate project preparation in developing countries.
Global infrastructure finance required for the structural transformation of the world economy is $90tr over 15 years, or $6tr annually. The financing gap is $2tr to $3tr. To bridge this gap, Governments should aim to contribute $1tr to $1.5tr, the private sector another $1 to $1.5tr, MDBs $150bn and official development assistance around $50bn annually.
The large and long-term finance required for infrastructure investment has to be actively mobilised. The following policy actions are essential for such mobilisation:
— expanding the capacity and incentives of national and multilateral development banks to provide long-term infrastructure financing;
— enabling, including through appropriate investment guidelines, sovereign wealth funds, pension funds, private equity funds and endowments and the $30tr insurance sector to deploy a larger part of their capital on long-term infrastructure investment;
— expanding national capital markets, especially in developing countries;
— encouraging businesses to adopt frameworks for long-term value creation (rather than quarterly returns);
— supporting regional and cross-border infrastructure initiatives, such as China’s Belt and Road Initiative;
— utilising advances in IT and digital applications eg Blockchain, to promote innovative financial products and inclusion eg mobile banking which has in some cases doubled revenue pools;
— assisting the developing countries to prepare feasible/ bankable infrastructure projects (which can cost up to 10pc of project costs).
Finally, a sustainable infrastructure organisation (SIO) could be established to mobilise and deploy adequate long-term financing for infrastructure investment, especially in the developing countries.
The Group of 20 has approved the creation of a global infrastructure forum; but this would exclude the majority of developing countries. To be universal and credible, a SIO should be created under the umbrella of the United Nations which, apart from being universal, has the responsibility to mobilise, maximise and coordinate actions by governments, commercial and non-state entities to advance the realisation of the SDGs.
Such an SIO could be open to membership by states, international/regional organisations and public and private companies. It could associate selected non-governmental organisations with its work. Its activities could be financed by budgetary contributions from all members.
The SIO could create the following mechanisms to facilitate long-term sustainable infrastructure investment:
- A compendium of pre-screened and viable infrastructure investment projects. 2. An execution directory containing data on both public and private companies with the capacity to execute projects. 3. A financial alliance, bringing together on one platform all major sources of long-term investment finance committed to sustainable infrastructure investment (major development banks, development finance institutions, pension funds, insurance companies, private equity funds, foundations etc.). 4. A ‘FinTech’ mechanism which can ‘match’ projects, execution capabilities and sources of financing. 5. An opportunity creation unit empowered to help developing countries prepare concrete and bankable investment projects including through pre-feasibility and feasibility studies, investment insurance, public-private partnerships, risk mitigation.
The costs of creating and operating such a small sustainable development organisation dedicated to promoting sustainable infrastructure investment would be modest as compared to its potential impact. This could ignite the world economy, alleviate poverty, assure progress towards the Paris climate change accords and ensure the implementation of the SDGs.
The writer is a former Pakistan ambassador to the UN.
Published in Dawn, February 3rd, 2019