In a tightly argued piece Development Finance: Enter the Private Sector featured in Global Brief, Senior Fellow Brett  House examines the challenge  of how to turn the financial pledges to support the new Sustainable Development Goals (SDGs) into real investment for development.

Ridding the world of extreme poverty by 2030 is at once an ambitious and entirely feasible goal: ambitious because the world has never done it before; feasible because the world has the technical means to do so. Some plan to increase public financing for the SDGs will almost inevitably be brokered in Addis Ababa in July. … The world also needs to come together to increase the flow of poverty-alleviating private investment in the countries and sectors that see little of it now. Reforming, renewing, expanding, and freeing the world’s DFIs (development finance institutions) – as well as adding to their ranks – is the most immediate way to put private capital to work to achieve the SDGs. After 15 years of practice on their MDG predecessors, the world knows what to do. And this is the year to make it happen.

development-finance-articleMaking poverty history by 2030 will require massive increases in private investment, not just public aid

This year has the potential to be pivotal for international development. In 2015, the world reaches the target date for the 15-year-old Millennium Development Goals (MDGs). In September, the UN General Assembly convenes in New York to agree on their successors – a new set of ‘sustainable’ development goals for 2030. Just beforehand, in July, governments will gather in Addis Ababa to make financial pledges to support these SDGs. Turning these pledges into real investment for development is a huge challenge: while the MDGs have been successful in rallying new resources for poverty reduction, they have never been fully financed.

— In order to get ahead, developing countries require greater domestic savings, increased tax revenues, inward foreign investment, and more aid. In 2011, Bill Gates underscored to the G20 that these are not interchangeable bargaining chips. Private money and public aid are complements, not substitutes: they finance different things that need each other to succeed. Public money is the only viable financing for goods and services whose social returns exceed the profits that they generate for individual private investors. Left to the private sector, these public goods would be underprovided, or not provided at all. Conversely, the World Bank estimates that 90 percent of all jobs in the developing world are created by the private sector. In other words, public and private development are two sides of the same poverty-reduction coin.

Public money remains crucial, but it will not be sufficient to hit the SDGs. Aid could provide an additional US$200 billion per year; innovative financial levies could add US$1 billion at most; and improved tax collection and reduced tax evasion could yield up to US$225 billion in additional public financing. Pooled funds like the GFATM [Global Fund for AIDS, Tuberculosis and Malaria] might mobilize further monies. And yet, at just over US$425 billion in new resources, public money would still not hit even the lower estimate of additional annual aid needed to reach the SDGs.

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