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Publikationen des Deutschen Institut für Entwicklungspolitik (DIE)
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Financial stability as a precondition for the financing of sustainable development in emerging and developing countries

Wed, 09/12/2015 - 13:05
On 25 September 2015 the 2030 agenda for sustainable development was passed at the summit of the United Nations in New York. This agenda sees the Sustainable Development Goals (SDGs) replace the Millennium Development Goals (MDGs), which draw to a close in 2015. The new agenda follows a universal approach and will apply to developing, emerging and developed countries alike. It should also form the basis for a changed global partnership. The 17 Sustainable Development Goals link the principle of sustainability with economic, environmental and social development.
Financing plays a key role in the realisation of the objectives. In addition to trade, technology, the strengthening of local capacities and coherent international co-operation, financing is of paramount importance. Shortly before the passing of the 2030 agenda the financing of sustainable development was also discussed intensively within the scope of the 3rd UN Conference on Financing for Development. One of the goals of the Addis Ababa conference was to safeguard and improve the financing of sustainable development, particularly in developing countries. The necessary basis for this is a stable financial system, as a regional or global financial crisis could endanger the new development agenda. The final document places its priorities on the intensification of domestic resource mobilisation, the reliable disbursement of the funds for development co-operation and on tapping new resources of financing for developing countries. However, it does not address the role of financial stability in sufficient depth.
The choice of financing sources and instruments has a decisive influence on the stability of the financial system. During the global economic and financial crisis there was also a close interrelation between the financing structure and the effects of the crisis on the real sector. With the implementation of the 2030 agenda for sustainable development the question is raised as to whether the use of supplementary and new sources of financing fundamentally alters the financial structure in emerging and developing countries and what effects on financial stability are to be anticipated. This depends primarily on the financing conditions of a country. Secondly, the structure of the financial system plays a role because the size and breadth of the financial system and the role of cross-border financing determine the ability of the financial system to withstand systemic shocks. Thirdly, financing in order to achieve specific sustainable development goals can lead to new systemic risks. Its specific risk and financing profile makes the energy sector an example of this.
The risks to financial stability always need to be taken into account in the financing of investments in order to achieve the new sustainable development goals. On the one hand, the emerging and developing countries need to improve on managing financial complexity. On the other hand, more stringent international financial market regulation and more intensive co-ordination are required. This would enable the risks to financial stability to be contained and not used as an excuse for postponing investment in sustainable development.

New climate investments must strengthen sustainable development and minimize trade-offs

Wed, 02/12/2015 - 12:25
The impacts of global warming threaten to undermine the core objectives of sustainable development: Large-scale invest¬ments that aim to reduce greenhouse gases (GHG) are indispensable. A just low-carbon transformation requires that mitigation investments seek to generate sustainable develop¬ment (SD) benefits while also minimizing their adverse effects.
A central goal of the United Nations Framework Convention on Climate Change (UNFCCC) is alignment of the climate and the sustainable development agendas. Govern¬ance and operational structures of policy instruments and funds should attempt to prevent local communities being confronted with the impacts of both climate change and climate protection measures.
Ongoing negotiations of the rules governing post-2020 climate protection measures offer the opportunity to address these issues. This briefing paper begins by analysing how activities under the Clean Develop¬ment Mechanism (CDM) both positively and negatively impact sustainable develop¬ment.
It then compares these experiences with emerging climate governance approaches by examining the Warsaw Frame¬work for Reducing Emissions from Deforestation and Forest Degradation (REDD+) and the Green Climate Fund (GCF).
Key conclusions:
  • Activities under the CDM have both positively and nega¬tively affected sustainable development, depending on the type and local circumstances: Community-based activities regarding energy access reap high benefits for sustainable development and large-scale hydropower and reforesta¬tion projects can create negative impacts.
  • The CDM requires stakeholders to be consulted at the beginning of the project design but does not include international safeguards to prevent ongoing activities harming local communities.
  • More recent financing instruments and investment frame¬works such as the GCF and REDD+ have begun to formu¬late additional regulatory frameworks to promote sustain¬able development and avoid harmful side effects. While these frameworks still must be tested in practice, the GCF stipulates verification of sustainable develop¬ment impact and mechanisms for independent redress.
  • The future of a reformed CDM for financing climate protection and sustainable development depends on political decisions. However, the CDM offers critical in¬sights for designing a new generation of multilateral cli¬mate finance mechanisms. Post-2020 mechanisms should create strong and harmonized standards to help align the sustainable development agenda with climate protection.
While sustainable development and climate goals can be mutually reinforcing, there may be trade-offs between these agendas. Future climate finance mechan¬isms should minimize trade-offs and allow for appeals by vulnerable communities affected by investments in climate protection.

EU climate leadership: five building blocks for ambitious action

Mon, 23/11/2015 - 15:21
The United Nations (UN) climate summit (COP 21) in Paris is the most important opportunity for years to come to organise effective collective action at the international level to stabilise global warming at 1.5 degrees Celsius (°C), or at least limit it to a maximum of 2°C; facilitate the transition towards a zero-carbon economy; and mobilise significant financial resources to adapt to climate change, particularly in the most vulnerable countries. The European Union (EU) is in a unique position to contribute decisively to these ends.
With its climate pledge from March 2015, the EU has made explicit what it considers to be a fair offer, in terms of reducing greenhouse gas emissions. However, to further an ambitious and fair deal, the EU should be prepared to offer even more in the key negotiating fora, especially regarding adaptation and finance.
With the negotiations towards COP 21 in full swing and the EU’s negotiation mandate fixed, however, the real work will begin after Paris. Five building blocks will be of particular importance to demonstrate European leader-ship: (1) mitigation, (2) adaptation, including the issue of loss and damage (L&D), (3) climate finance, (4) a framework for non-state climate actions and (5) the building of ambitious alliances.
1. Mitigation: The Intended Nationally Determined Contribution (INDC) of the EU and its member states represents an important step in the right direction, but it is not ambitious enough to really make the EU a climate leader. The INDC target of 40 per cent emission reductions by 2030 is based on a scenario of 80 per cent decarbonisation by 2050. This puts the EU at the lower end of its long-term goal of 80–95 per cent by mid-century. Attaining the 40 per cent target by 2030 does not necessarily enable the EU to reach a goal of 80 per cent by 2050, even if it were on track to reach its 40 per cent target in 2030 – which it is not.
2. Adaptation and L&D: The international community has waited too long and acted too weakly to fully avoid dangerous climate change, meaning more vulnerable countries and populations will be increasingly affected by severe impacts of climate change. Action on adaptation as well as L&D is therefore crucial for COP 21 and beyond, and the EU should be seen as treating these issues with the same priority and urgency as mitigation.
3. Climate finance: Climate finance is the most straight-forward way to demonstrate an international commitment to fight climate change and its impacts. To demonstrate resolve and credibility, the EU’s contributions for mitigation and adaptation will need to be made in addition to its conventional development finance.
4. A framework for non-state climate actions: The EU has been a frontrunner in promoting greater engagement of non-state and subnational actors in global climate policy. It should thus support a long-term action agenda and policy framework to facilitate and galvanise bottom-up climate actions.
5. Ambitious alliances: Since 2011, the EU has made considerable efforts to revitalise its external climate action and related diplomacy. Paris will be a vantage point to capitalise on new opportunities.

Financing global development: Is impact investing an investment model with potential or just blowing smoke?

Wed, 11/11/2015 - 13:28
The Briefing Paper series “Financing Global Development” analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses the building blocks of a new framework for development finance.

Financing social service delivery is becoming more and more challenging. At the same time, private assets are increasingly seeking out investment opportunities. Some high-net-worth individuals and foundations are accepting lower returns as long as pressing societal objectives can be achieved. This presents an opportunity to mobilise more private capital for social investments. The so-called impact investors can play a promising role in financing social and environmental service delivery in G7 countries as well as in the developing world. Impact investing is intended to finance projects, organisations and social enterprises to intentionally create a measurable social or environmental impact alongside financial returns. One innovative instrument is the so-called social impact bond (SIB) – or, in the case of development cooperation, development impact bond (DIB) – through which private investors pre-finance the intervention, and governments or donors provide funding solely when the intended outcome goes beyond what would have occurred otherwise.
Advocates of impact investing see SIBs and DIBs as useful instruments for the financing of the 2030 agenda. However, they are still largely unproven; even though some promising interim evaluations exist, this innovative  
financing approach faces a number of challenges. Besides questionable or outstanding evaluations, the most important challenges are: limited transferability, the nascent development of the market, high transaction costs and the hurdles for investors. Nevertheless, given the urgency to mobilise finance for sustainable development in developed and developing countries, it is worth considering and prudently developing impact bonds further, and more generally impact investing. Supporting them would entail:
  • Data- and information-sharing have to be furthered by the impact investing community in order to critically evaluate first experiences of pilot SIBs and DIBs, provide recommendations and enable basic education for entrepreneurs and investors.
  • Further research should be encouraged to get a better understanding of how to create additional impact and to deploy different instruments in the development context as well as to offer exit opportunities for private investors.
  • Policy-makers should support the development of clearer definitions and a common impact-measurement system as well as standardised and mandatory reporting requirements to ensure effectiveness and quality.
  • Development finance institutions should become more active in the market by providing resources to encourage the implementation of SIBs and DIBs. Governments and/or donors need experienced partners who provide catalytic capital for first initiatives and serve as intermediaries.

The global regulatory framework for decarbonisation: 3x3 starting points for the reform of global economic governance

Wed, 11/11/2015 - 09:05
Mitigating climate change and limiting global warming to no more than 2°C require a fast and radical transformation of politics, the economy and society. Worldwide emissions of greenhouse gases need to fall to zero by 2100. Action needs to be even faster in the case of carbon dioxide (CO2), which is primarily released in the burning of fossil fuels. According to the Intergovernmental Panel on Climate Change (IPCC), global CO2 emissions need to reach zero by 2070 at the latest. In other words, the global economy needs to be completely "decarbonised" by then. The sustainable development goals (SDGs) of Agenda 2030 underscore the significance of this task.
The decarbonisation of our economic activity is dependent not only on the international climate regime, but also the regulatory framework for the world economy, i.e. global economic governance.
In addition to progress made in the context of the UN Framework Convention on Climate Change (UNFCCC) and the fundamental acknowledgment of all states of the need to tackle climate change in the scope of Agenda 2030 there are currently numerous initiatives that give cause for optimism – not least the commitment of the G7 states to the decarbonisation of the global economy and manifold climate actions of actors such as cities, churches and companies.
However, further reaching reforms of global economic framework conditions are necessary if a fundamental transformation is to be achieved. We therefore propose 3x3 starting points: 3 areas of action, each with 3 key aspects.    Of particular importance for the decarbonisation of the global economy are (A) adequate pricing, (B) a suitable body of regulations for international trade and investment and (C) the appropriate configuration of the financial markets. (A)    To achieve correct pricing it is necessary to (i) introduce a global carbon price, (ii) continue to remove subsidies for fossil fuels, and (iii) extend the system of payments for ecosystem services. (B)    A suitable regulatory framework for international trade and investment includes (i) climate-friendly multilateral trade rules under the aegis of the World Trade Organization (WTO), (ii) the promotion of plurilateral agreements for the liberalisation of environmental goods and services and (iii) increased focus on the right to regulate in terms of environmental aspects in bilateral and regional trade and investment agreements. (C)    In addition to the establishment of global funds such as the Green Climate Fund (GCF), the area of global financial governance has three starting points in particular: (i) regulation of financial markets, (ii) green guidelines for investment decisions and (iii) guarantee instruments for green investments. For all reform measures there is a need to identify potential win-win constellations that offer co-benefits to as many participants as possible. In addition, attention should also be paid to trade-offs and political economy. This includes the question of which actors are in favour of the necessary measures, which resist them and why and how coalitions of change can be formed and reinforced.


From military putsch to civilian government: appropriate responses by international actors

Wed, 11/11/2015 - 08:43
The trend for military putsches continued in 2015, with no end yet in sight. After the unsuccessful attempt in Burundi, the military in Burkina Faso once more seized power, albeit for a short duration. Putsches remain a widespread means of precipitating a change in government. Although the absolute global figure has decreased, Coups d'Etat remain particularly common in West Africa. Of 69 changes in government in the region between 1990 and 2014, 33 were elicited via elections and 18 via military putsches.
International actors usually react to military putsches with two standard responses. Firstly, they demand that the putschists cede power to a civilian government. The African Union (AU) and the Economic Community of West African States (ECOWAS) are just two organisations which have formally declared, in legally binding documents, that a junta regime may not remain in power and that the next government must be appointed via elections. Secondly, several states and organisations including the USA and the AU have decided to impose sanctions automatically.
This double response, consisting in the goal formulation of the swiftest possible transition to a civilian government and sanctions, creates a good basis for international actors to promote sustainable democratic structures. If democracy promotion is to be effective, however, three questions must be answered prior to any attempts in this area:
  • What is the military's attitude towards democratic order? In the event that the putsch is an attempt to destabilise democratic order (as was recently the case in Burkina Faso), a hard-line policy against the putschists is appropriate. However, if the military is overthrowing an autocratic leadership, it may well prove a useful partner.
  • What are the most pressing problems within the country's political system? International actors may be well advised to focus on military withdrawal in the event that a civilian government constitutes a sine qua non for democracy. However, this alone is not sufficient. Coups d'Etat are frequently an expression of deep-set structural problems. As a result, international actors should broaden their focus and address the root causes of the putsch. It may be expedient to combine steps towards reconciliation between political parties and security sector or judicial reforms with the demand for a civilian government.
  • Which actions are appropriate in order to achieve these more broadly defined objectives? The suspension of cooperation may be a suitable means to penalise junta regimes. However, these measures should be complemented by other strategies. Restricting action to sanctions constricts scope for action unnecessarily. Military force, positive and negative, material and immaterial incentives as well as long-term persuasion efforts can, under specific conditions, complement traditional sanctions. The ultimate degree of success enjoyed by such measures depends heavily on the level of consensus reached by international actors and their legitimacy in the eyes of the addressees.


Civil war outcomes and a durable peace: setting the record straight

Mon, 02/11/2015 - 10:12
One strand of current conflict research claims that military victories are beneficial for peace. It is argued that these outcomes produce more unified post-conflict societies, thereby facilitating reconstruction and economic development. The implication of this view is that, instead of encouraging negotiated settlements, international actors should either support one side to victory or allow a conflict to run its course. This briefing paper argues that the case for “peace by victory” is weaker than supporters claim. The most successful conflict resolutions address their root causes and involve a broad range of stakeholders. A quick glance at all civil war terminations since 1946 seems to suggest that military victories are slightly more stabilizing than other outcomes. Rough comparisons, however, are insufficient for drawing conclusions or offering policy advice. A full review of the context and content of peacebuilding reveals a very different picture.
  • Focusing only on military victories and peace agreements ignores the most common outcome of civil strife: an ongoing contest between belligerents, albeit with a limited use of force.
  • On average, the civil wars that ended with peace agreements lasted eight times longer than those that were terminated through a military victory. Indeed, a one-sided victory almost only occurs when fighting is counted in days or months rather than years. This indicates that protracted conflicts are unlikely to end if allowed to run their course and that negotiations are the only way to end a long-running war.
  • Differences in conflict duration mean that the challenges for reconstruction are substantially greater after negotiated settlements than after military victories. International actors seeking to contribute to the rebuilding that follows peace agreements are faced with societies with more victims and divisions, and greater physical destruction.
  • Regardless of how a conflict ended, the most important factor for post-conflict stability is the orderly demobilization of former fighters. After a war, it is also imperative for the underlying grievances to be addressed through non-violent policies such as offering the vanquished side the opportunity to form a political party and/or share power in the government.
Long-term success in conflict management calls for dismantling troop mobilization structures as well as those used for repression. This includes ensuring that both the army and militias return to the barracks and come under official civilian control. External actors can best contribute by helping to create outlets where grievances can be aired and addressed peaceably. Although it is very important to reduce violence quickly, armed belligerents must not be seen as the sole representatives of conflicting views. The following recommendations can be drawn from this paper: – Talks about the issues are the only realistic outcome of a protracted conflict.
– Conflict negotiations should not only involve the violent parties but also other non-violent, legitimate stakeholders. 
– While peace negotiations must be held in a central location, local efforts to promote intra-societal trust also need to be initiated and supported. Many potential peace-process spoilers are less concerned with the terms of a national agreement than with their immediate local security.

Civil war outcomes and successful peace: setting the record straight

Mon, 02/11/2015 - 10:12
One strand of current conflict research claims that military victories are beneficial for peace. It is argued that these outcomes produce more unified post-conflict societies, thereby facilitating reconstruction and economic development. The implication of this view is that, instead of encouraging negotiated settlements, international actors should either support one side to victory or allow a conflict to run its course. This briefing paper argues that the case for “peace by victory” is weaker than supporters claim. The most successful conflict resolutions address their root causes and involve a broad range of stakeholders. A quick glance at all civil war terminations since 1946 seems to suggest that military victories are slightly more stabilizing than other outcomes. Rough comparisons, however, are insufficient for drawing conclusions or offering policy advice. A full review of the context and content of peacebuilding reveals a very different picture.
  • Focusing only on military victories and peace agreements ignores the most common outcome of civil strife: an ongoing contest between belligerents, albeit with a limited use of force.
  • On average, the civil wars that ended with peace agreements lasted eight times longer than those that were terminated through a military victory. Indeed, a one-sided victory almost only occurs when fighting is counted in days or months rather than years. This indicates that protracted conflicts are unlikely to end if allowed to run their course and that negotiations are the only way to end a long-running war.
  • Differences in conflict duration mean that the challenges for reconstruction are substantially greater after negotiated settlements than after military victories. International actors seeking to contribute to the rebuilding that follows peace agreements are faced with societies with more victims and divisions, and greater physical destruction.
  • Regardless of how a conflict ended, the most important factor for post-conflict stability is the orderly demobilization of former fighters. After a war, it is also imperative for the underlying grievances to be addressed through non-violent policies such as offering the vanquished side the opportunity to form a political party and/or share power in the government.
Long-term success in conflict management calls for dismantling troop mobilization structures as well as those used for repression. This includes ensuring that both the army and militias return to the barracks and come under official civilian control. External actors can best contribute by helping to create outlets where grievances can be aired and addressed peaceably. Although it is very important to reduce violence quickly, armed belligerents must not be seen as the sole representatives of conflicting views. The following recommendations can be drawn from this paper: – Talks about the issues are the only realistic outcome of a protracted conflict.
– Conflict negotiations should not only involve the violent parties but also other non-violent, legitimate stakeholders. 
– While peace negotiations must be held in a central location, local efforts to promote intra-societal trust also need to be initiated and supported. Many potential peace-process spoilers are less concerned with the terms of a national agreement than with their immediate local security.

Between minilateralism and multilateralism: opportunities and risks of pioneer alliances in international trade and climate politics

Thu, 15/10/2015 - 15:34
Global challenges such as climate change or the dismantling of protectionism can only be countered through enhanced forms of global co-operation. Traditional multilateral co-operation has come up against limits in recent years. For example, efforts to achieve an international climate treaty have taken many years, with this now set to be signed at the end of 2015 in the scope of the United Nations Framework Convention on Climate Change (UNFCCC). At the World Trade Organization (WTO) the negotiation of the Doha Development Agenda has been extremely slow for many years. To lend new impetus to international trade and climate politics it is necessary to discuss innovative forms of co-operation, such as in the form of minilateral or plurilateral initiatives, in other words "sub-groups of multilateral actors".

In the global trading system many countries have reacted to the stuttering progress of the multilateral process by concluding bilateral and regional treaties outside of the WTO. In particular, the negotiation of ever-larger mega-regional treaties such as the Transatlantic Trade and Investment Partnership (TTIP) and the Transpacific Partnership (TPP) mark a turning point in the global trade system. The content of these treaties frequently extends beyond agreements in the multilateral context. Minilateral alliances in international trade politics are frequently viewed critically. They are regarded as second-best options – or no good solution at all – compared to multilateral agreements, as they may lead to detrimental effects on countries that are not part of the negotiations, as well as tying-up capacity and reducing incentives for the conclusion of the Doha Round. To the extent that demand exists for minilateral negotiations, these should therefore take place in the scope of the WTO. This requires the reaching of a compromise in the WTO that enables more efficient negotiations whilst at the same time supporting an inclusive, multilateral trading system. Consequently, it should be discussed whether and under which conditions plurilateral treaties should be accorded more scope within the WTO.

Pioneer alliances offer great potential for international climate policy, particularly where they also include sub-national and non-governmental actors. However, the same applies for climate politics as with trade politics: minilateral pioneer alliances should augment the multilateral process, not replace it, even supporting it in the ideal scenario. Although numerous international climate initiatives have already been formed, they tend to generate merely marginal rather than transformative changes. The basis for a transformative pioneer alliance could be, for example, the "Renewables Club" formed by Germany in 2013 along with nine other countries. In order for this club to become a transformative pioneer alliance it needs to first fulfil a number of key conditions: the members need to agree on a joint, ambitious vision and corresponding objectives; they need to concur on how to create additional benefits for all members; and they should support transformative strategies for climate protection and climate resilience in other parts of the world. In addition, it should also be ensured that minilateral alliances do not undermine multilateral forums, but instead complement them. After the COP21 it is necessary to discuss how pioneer alliances can be utilised to support ambitious climate policies and also the effective implementation of the agreements reached in Paris, e.g. by strengthening the ratchet-up mechanism.

Post 2015: The need for an enabling global economic governance framework

Thu, 08/10/2015 - 10:47
In September 2015, the United Nations (UN) adopted a new global development framework, the “2030 Agenda for Sustainable Development”, which includes the Sustainable Development Goals (SDGs). The SDGs thereby replace the Millennium Development Goals (MDGs), which were supposed to be realized by the end of 2015.
What is the role of global economic governance in the 2030 Agenda, and specifically in the SDGs?
The MDGs failed to adequately address issues of global economic governance. MDG 8, which was intended to develop a global partnership for development by 2015, did not create a more effective and fairer framework to enable countries to promote human development within the global economy. What is more, since the MDGs were adopted, broader economic globalization, with more interdependence between countries and shifting economic dynamisms, has changed the world economy.
The past two decades have witnessed the quadrupling of global trade and a tenfold increase in South-South trade. In the same period, emerging economies’ share in global foreign direct investment (FDI) increased from just 5 per cent to over 30 per cent. Similarly, financial flows have not just swollen during the past two decades, they have also switched direction, with financial surpluses from emerging economies flowing ‘uphill’ in order to cover current account deficits in advanced countries. In a decade’s time, inter-national cooperation has been transformed from the dichotomy of the ‘rich North’/‘poor South’ to new forms of international economic cooperation created by new actors.
In light of these new circumstances, the SDGs should place more emphasis on global economic governance issues – some of which are not at all or only inadequately addressed.
Whilst the 2030 Agenda for Sustainable Development does more to address global economic governance issues, it exhibits significant lacks.
Key global economic challenges remain inadequately addressed:
  • Greater adjustments to the international trading system are needed to ensure that trade and foreign investment support sustainable development. More must be done to increase developing countries’ access to global value chains, reduce their trade costs and reform the multilateral trading system, especially against the background of ‘mega-regional’ trade agreements.
  • The rules and institutions of global finance must be reformed to guarantee greater financial stability and improve global cooperation with respect to the fight against illicit financial flows and transfers. The global financial safety net and the global debt governance system remain incomplete.

Orchestration: an instrument for implementing the Sustainable Development Goals

Mon, 24/08/2015 - 14:10
From 25 to 27 September 2015, governments will meet at the United Nations (UN) in New York to adopt the Sustainable Development Goals (SDGs). As the list of 17 goals is now on the table, attention is shifting to the next phase of the new framework for global development: implementation. The UN Conference on Financing for Development in Addis Ababa in July 2015 has already laid some groundwork, but challenges remain. One major challenge will be to meet the growing demand for cooperation arising from the transformative and universal nature of the SDGs. The economic, social and environmental sustainability goals will not be limited to developing countries but apply to all countries in the world. In addition to national and local implementation, international cooperation must play a far-reaching role. This is especially true for goals such as a stable climate, sustainable consumption and production patterns, global health and security that can only be achieved through coordinated cross-border or global action.
At the same time, the conditions for global collective action have changed substantially. The international system is now more multipolar due to the rise of emerging powers. Important multilateral processes are stalled or advance only slowly. In contrast, transnational networks have become a central feature of global governance and allow actors from civil society, the private sector, ministries, agencies, cities and municipalities to assume a global role. Successful examples such as the C40 Cities, the Extractive Industries Transparency Initiative and the Global Vaccine Alliance (Gavi) demonstrate that such networks can make important contributions to global sustainable development.    These networks do not always emerge on their own and must overcome obstacles to cooperation. In various areas of sustainable development, such as environmental, health and development policy, approaches to foster global networks already exist under the catchword "orchestration". Yet these efforts are still very piecemeal. Governments and international organisations should develop orchestration more systematically into an integral part of the instruments used to achieve the SDGs.
An orchestration instrument for the SDGs would initiate, support and shape global networks. In addition, the instrument could specifically promote networks that integrate actors from middle-income countries into new cooperation initiatives for global public goods. The instrument would have two different objectives: firstly, mobilising contributions to global sustainable development (financing, sharing and co-creation of knowledge, standard setting, etc.) and, secondly, improving conditions for international cooperation as a whole (e.g. by reducing fragmentation or improving linkages between domestic and global policy processes).
Government departments and international organisations from different policy areas could have a role in managing orchestration for the SDGs. In principle, development cooperation actors are in a position to play a leading role in getting such an instrument up and running. They have a number of relevant assets on which they can draw as orchestrators (financial resources, operational capacity, etc.). The orchestration of global networks might, however, stretch the existing limits of bi- and multilateral development cooperation (e.g. eligibility for official development assistance, the need to use certain implementation mechanisms).


Financing Global Development: The BRICS New Development Bank

Fri, 10/07/2015 - 14:34
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development“ analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
The BRICS New Development Bank (NDB) was created in mid-2014 by the governments of Brazil, Russia, India, China and South Africa. It will have a fairly large capital contribution – initially of US$ 50 billion – from BRICS countries and can grow up to $100 billion with contributions from other countries. It will fund in-vestment in infrastructure and sustainable development on a significant scale. The NDB will provide valuable resources to help fill the massive gap in investment in infrastructure and sustainable development resources in emerging and developing economies, which has been estimated to reach at least US$ 1 trillion annually. It will also give emerging and developing countries a greater voice in the development finance architecture.
Other emerging economies are also creating institutions. Thus, BRICS leaders have also created new institutions, such as the Contingency Reserve Arrangements (CRA), in BRICS countries to provide official liquidity in times when balance of payments adjustments are needed. Furthermore, with China’s initiative, the Asian Infrastructure Investment Bank (AIIB) is being created. It will have 57 potential member countries, including all major European economies (such as Germany, the United Kingdom and France), with the largest share of the capital being contributed by China. China also announced the creation of the New Silk Road Bank to fund investment in infrastructure connections within Asia as well as those linking to Europe and Africa.
The creation of these new institutions contributes in a valuable way to the aims of financing sustainable development, as will be discussed in the Financing for Development conference in Addis Ababa on 12–16 July 2015.

Financing global development: Beware of ‘end poverty’ euphoria and trigger-happy reform of concessional finance

Thu, 02/07/2015 - 14:00
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development” analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
The client base of the concessional finance windows at the major multilateral development banks is shrinking as some of the largest borrowers by volume become richer, more credit-worthy and lose eligibility for ‘soft’ financing terms. Simultaneously, competition from new donors is growing, as is demand from low-income and lower middle-income countries for market-priced sovereign borrowing, spurred on by prevailing low-interest rates. Pressure to adapt to this changing operational context notwithstanding, the uncertainty facing the development finance industry suggests a gradualist, precautionary and insurance-oriented approach to the future of multilateral concessional windows.
A realistic assessment of medium-term growth prospects suggests that the pool of countries eligible for multilateral ‘soft’ finance windows will shrink slowly over the coming decade. In such a scenario, the number of people living in extreme poverty by 2025 would still amount to more than half a billion, with a sizable share living in middle-income countries that will be ineligible for concessional finance by current eligibility rules.
This Briefing Paper argues that trigger-happy reform suggestions for shrinking or scaling back multilateral finance are unrealistic and counterproductive: they ignore the option value of preserving international financial institutions and their concessional windows in a world with considerable uncertainty about future poverty outcomes and global governance failures that prevent first-best policy solutions.
Strategic options exist for the shareholders of the World Bank, the African Development Bank, the Asian Development Bank and the International Monetary Fund to attenuate the dilemma they face from their shrinking client base.
These options are:
  • redefining concessional fund eligibility criteria, so that it reflect more closely national capacity to raise domestic resources;
  • smoothing transition periods by making ‘blend status’ an explicit step in the graduation process, with funds directed towards measures of social inclusion and redistribution;
  • strengthening sub-sovereign allocation, to take account of within-country regional inequalities;
  • opening the multilateral soft windows for regional and global public goods, with climate change adaptation and disaster risk management as tracer sectors.


Financing global development: The role of local currency bond markets in Sub-Saharan Africa

Fri, 26/06/2015 - 11:06
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development” analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
The enormous deficiencies in Sub-Saharan Africa’s (SSA) local and regional infrastructure in areas such as water, sanitation, transport and energy facilities, mean that long-term financial resources must be mobilised to ensure sustainable development. Local currency bond markets (LCBMs) are still generally underdeveloped in SSA in comparison with other regions of the developing world. Yet for all SSA countries, including the poorest economies, LCBMs could become an important means of long-term financing and reduce the financial vulnerability associated with foreign currency borrowing. LCBMs provide alternative sources of financing and reduce a country’s dependency on foreign debt. They allow for risk diversification and can mitigate the effects of external shocks. Local currency government bond markets are also important for benchmarking corporate bond markets – another way to finance companies for the long-term.
Policy recommendations for improving LCBM development in SSA
We recommend supporting LCBM development through national and regional initiatives that strengthen the institutional and regulatory environments, broaden the investor base and create more liquid secondary markets.     Authorities in SSA need to ensure favourable macroeconomic environments and develop suitable financial infrastructures.
To avoid financial turbulence, capital account liberalisation should be pursued very carefully, with LCBM development going hand-in-hand with solid financial and institutional development. SSA authorities should put into place appropriate strategies for managing debt and capital accounts in order to address capital in- and out-flows, and ensure trained personnel to implement them. Authorities should further ensure the safety of investments by guaranteeing profit repatriation. In this respect, law enforcement is crucial.
Bilateral and multilateral donors can support LCBM development by offering technical assistance to realise debt management strategies. The Debt Management Facility of the World Bank and the IMF and the Debt Management and Financial Analysis System of the United Nations Conference on Trade and Development (UNCTAD) are good examples of donor support for developing countries that provide country-specific technical assistance at different levels. In SSA the African Development Bank has put in place the African Market Initiative (AFMI) which promotes LCBM development in SSA. Another fine example of donor support is the World Bank Group’s Global Emerging Markets Local Currency Bond Program (Gemloc), which promotes LCBM development in emerging market economies.
Since LCBMs can supply long- or medium-term capital for both governments and companies they have a large potential for financing the infrastructure needed in SSA and for supporting the achievement of the SDGs.


Financing global development: The potential of trade finance

Thu, 25/06/2015 - 15:47
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development” analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
Although international trade is an integral component of the conference in Addis Ababa, trade finance itself has not been taken into consideration. This omission represents a serious shortcoming because trade finance is essential to international trade, especially for developing countries with less developed national financial markets and limited access to international financial markets. Every trade transaction must be financed. The non-availability of trade finance may therefore become an obstacle to international trade that impedes sustainable development.
As international trade is one of the most important driving forces for economic development in developing countries and emerging markets, the availability of trade financing is extremely important for sustainable development. In particular, the integration of small and medium-sized enterprises (SMEs) into international trade is essential for emerging markets and developing countries and promotes economic development in an especially effective and sustainable manner. Trading in intermediate products has now become more important than end product trading, since goods are primarily produced within global value chains; two thirds of international trade is based on trade with intermediary products.
Participation in global value chains is therefore an important objective for developing countries. Empirical literature shows that countries which are strongly integrated into global value chains experience, on average, higher economic growth; however, frictions in finance represent one of the greatest obstacles to participation in global value chains. According to estimates from the Asian Development Bank (ADB) for 2013, the annual global gap in trade finance amounts to USD 1.6 billion. Increasing the availability of trade finance by 5% could raise production and the number of jobs by 2%. According to surveys of market participants, the financial crisis led to a huge decline in the supply of trade finance. And yet even after the crisis was resolved, the availability of trade finance remains a significant problem in emerging markets and developing countries. Surveys show that this is especially the case in Africa and Asia. The lack of development within the financial sector can pose a significant hurdle to international trade and prevent emerging markets and developing countries from integrating into the global trade system more effectively and taking advantage of trade benefits.
For this reason trade financing should be an important building block of the future framework for development finance. For developing countries, it is particularly important to put the focus on strengthening both local and regional banking sectors as well as their international interlinkages and on improving the connection between trade finance and value chains in order to promote the integration of SMEs into the global economy, for example by strengthening the respective support programmes for Supply Chain Finance.


Financing global development: Can foreign direct investments be increased through international investment agreements?

Thu, 25/06/2015 - 15:41
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development” analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
Foreign direct investment (FDI) is hailed as an important source of external financing for many developing countries. Improving developing countries’ access to global FDI flows is thus a central aim of the international community, as documented by the past two United Nations Conferences on Financing for Development, in Monterrey in 2002 and Doha in 2008. The need to set up a “stable and predictable investment climate” as a precondition to attract FDI was emphasised in the outcome documents of the Monterrey and Doha conferences. International investment agreements (IIAs) are mentioned as effective policy instruments to promote FDI flows. In fact, many developing countries signed IIAs to attract FDI and, in turn, promote economic development.
This standard justification is increasingly being questioned by critics of IIAs. An increasing number of policy-makers, scholars and non-governmental organisations argue that IIAs, by and large, have not resulted in increased FDI flows and, worse still, they fear that IIAs excessively restrict host countries’ ability to adopt public policies aimed at promoting sustainable development. Incidentally, this scepticism has also set the tone of the draft for the accord to be adopted at the Addis Ababa conference. It emphasises that FDI can have a positive impact on development, but only if foreign investors adhere to social and environmental standards, and if IIAs do not constrain domestic policy space to implement development-oriented policies.
The overview of the empirical evidence on the effects of IIAs on FDI flows suggests that this scepticism is well-justified. Although various studies find a positive impact of IIAs on FDI, in light of methodological challenges to actually measure this impact and alternative evidence, these results should be interpreted with great caution. Furthermore, researchers have only recently tried to account for different treaty designs. They find that treaty content matters and not all IIAs have the same effect on FDI flows. For example, treaties with market-access provisions have a positive effect on FDI, in particular if they are included in preferential trade and investment agreements (PTIAs). The hotly debated investor-state dispute-settlement (ISDS) clauses, on the other hand, have no effect on FDI.
Policy-makers in developing countries hoping to attract FDI should therefore pay closer attention to the actual design of IIAs. The empirical evidence suggests that they have some room to improve the compatibility of IIAs and national policy objectives by reformulating the standards of investment protection. In Addis Ababa, the international community should come up with proposals for how developing countries can be supported in order to reform their IIAs.


Financing global development: The role of central banks

Thu, 25/06/2015 - 15:30
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development“ analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
In many developing and emerging economies, central banks have begun over the past decade to place renewed emphasis on the promotion of economic development and structural transformation, looking beyond narrow mandates for macroeconomic stability. Developmental central bank policies have included policies directed at financial sector development, the promotion of financial inclusion and aligning the financial system with sustainable development.
This marks a shift from the orthodoxy that has dominated central banking since the 1980s and that has been promoted in developing countries by institutions such as the International Monetary Fund (IMF) and multilateral development banks. The orthodox approach to central banking – according to which central banks should primarily focus on price stability – has been severely undermined by the global financial crisis. It has become clear that central banks also ought to take responsibility for safeguarding financial stability. Moreover, in the aftermath of the crisis, many central banks have adopted unconventional policies to address problems of debt, stagnation and deflation. This has opened up a new discussion on the scope of – and limits to – the mandate of central banks. In practice, many central banks in developing countries nowadays proactively seek to promote sustainable economic development. Specifically, an increasing number of central banks and financial regulators have become active in promoting financial inclusion and in greening financial systems, rendering them important – albeit in international policy discussions often underrated – actors in development financing.
Widening the mandate of central banks can help to promote sustainable economic development by improving the framework conditions for financing the post-2015 development agenda. However, a wider mandate undoubtedly complicates matters, as developmental objectives may at times conflict with stability objectives. As central bank mandates widen, it will therefore be important to reform central bank policy frameworks with a view towards addressing the risks arising from a wider central bank mandate. The reform of central bank policy frameworks may help to ensure that central banks promote economic development and stability in a balanced manner, and thus be an important building block of a new framework for development finance.


Financing global development: What role for official development assistance?

Tue, 23/06/2015 - 12:28
The UN Conference on Financing for Development in Addis Ababa in July 2015 will pave the way for the implementation of the post-2015 development agenda. The Briefing Paper series “Financing Global Development“ analyses key financial and non-financial means of implementation for the new Sustainable Development Goals (SDGs) and discusses building blocks of a new framework for development finance.
Preparations for the upcoming conference show that the concept, provision and monitoring of official development assistance (ODA) remain contentious issues.
Divergent positions are being offered regarding the future role of ODA.
  1. There are groups proposing that ODA refocus on poverty reduction, mainly in poor and fragile states.
  2. Others advocate that ODA play a more catalysing role in terms of mobilising other forms of (particularly private) finance.
  3. There are calls for repositioning ODA as an instrument to deal with the provision of global public goods.
Although it is clear that not all expenditures on global public goods (e.g. clean air) should be reported as ODA, it will not be easy to separate what is relevant to development from what is not. A key tension remains: as the SDG agenda moves away from an agenda directly concerned with progress in individual developing countries, the ODA reporting system still focusses on resource transfers from  developed to developing countries. The SDG agenda will likely not reflect a consistent vision on global development finance but instead innovate where possible and conserve where necessary. The resulting hybrid vision will likely promote universality and North-South transfer simultaneously, representing one gradual step in converging towards a global sustainable development agenda with universal reach. As a main proponent of this agenda, the OECD has expended substantial political and technical resources on the ODA concept and its statistical system, to the relative neglect of designing a broader Total Official Support for Sustainable Development (TOSSD) measure and furthering discussions on the financing of global public goods beyond ODA. It needs to redirect this focus now that discussions on TOSSD have intensified.
In principle, all Addis Ababa stakeholders recognise a broader understanding of “development finance”, which includes all relevant financial contributions from all stake-holders. Nevertheless, ODA will likely remain a hot item on the conference agenda. Although it remains important to closely monitor ODA inputs, what the new global development agenda really needs is for the current system to evolve into one that places reporting on financial inputs at the service of multi-stakeholder efforts to share joint accountability for ensuring results. An important step forward would be to complement the existing provider-centric ODA reporting system by developing countries’ own reporting of development-relevant external finance through the UN High-Level Political Forum.


The G-7 and the post-2015 process: role and deliverables

Wed, 03/06/2015 - 14:35
At the upcoming G7 Summit held in Elmau, G7 members should seize the opportunity and push for a successful outcome of the major multilateral events of 2015 dealing with development finance (Addis Ababa), the post-2015 agenda for sustainable development (New York) and climate change (Paris). We identify opportunities for action at three different levels. •   The G7 should introduce changes at home with a significant global impact: (i) G7 leaders should commit themselves to formulate national, time-bound plans for implementation of the universal post-2015 agenda that are linked to existing national processes such as sustainable development policies and strategies; (ii) they should be frontrunners in tackling unsustainable consumption and production patterns and (iii) specify national contributions on how to limit global warming to 2°C. •   The G7 should support sustainable development in low- and middle-income countries (LICs and MICs): (i) The G7 should scale up support for national public health systems in LICs and help create a health contingency fund; (ii) reconfirm and specify commitments to contribute to global public finance, including         official development assistance (ODA) and climate finance and (iii) promote the transfer and development of technology for LICs and MICs. •   At the global level the G7 should promote global rules for global commons: (i) the G7 should implement reforms of the international financial architecture; (ii) advance the reform of the international tax system by promoting multilateral agreements to foster international cooperation among tax authorities and (iii) encourage an enabling international trade system for developing countries including a development friendly Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP). The post-2015 agenda for sustainable development reaffirms the universality of human rights and other core G7 values. While the current draft proposal of the Sustainable Development Goals (SDGs) is not perfect, it could trigger urgent collective action which is needed now to maintain and secure prosperity and wellbeing of current and future generations within planetary boundaries. Furthermore, the sustainable development agenda provides an example of how to deal with collective problems: in a rules-based partnership, based on ideas of fairness, equity and common but differentiated responsibilities. The G7 must play their part and help the negotiations succeed.

Let’s walk our talk: from the July 2015 Financing for Development Conference in Addis Ababa, Ethiopia, down the Road to Dignity by 2030

Mon, 01/06/2015 - 09:52
In a few months' time, the international community will meet in Addis Ababa, Ethiopia, for the third International Conference on Financing for Development (FfD). The Conference is expected to decide on the means of implementation (MOI) for the Post-2015 Agenda, which will be considered for adoption in September 2015, as well as those for the climate agreement to be reached at the 21st session of the Conference of the Parties (COP21) in Paris in December 2015. However, negotiations on the MOI have so far generated mainly declarations of intent – i.e. statements on what should ideally be done – as opposed to concrete commitments. Moreover, these declarations of intent are basically just requests for 'more'; for instance, more domestic resources, more private investments, more official development assistance (ODA). The MOI declarations that have been put forth to date are no match for the sense of urgency and ambition that marks the Post-2015 Agenda or that which is likely to mark the COP21 outcome document. Thus, the FfD Conference confronts a twofold challenge: closing the 'specificity gap' by moving from declarations of intent to concrete, actionable MOI commitments; and closing the 'ambition gap' by identifying the MOI issues that are of strategic relevance to the successful implementation of the Post-2015 Agenda. To successfully address these two gaps, a key complicating factor will need to be taken into account: the Post-2015 Agenda is setting out to achieve sustainable development goals (SDGs) of universal applicability at a time when the world is undergoing several foundational transformation processes. Accordingly, this paper aims to identify feasible ways and means of narrowing the identified gaps. It does so with a special focus on the national and international public finance side of the challenge. The principal suggestion is a three-step process that could be completed at the forthcoming FfD Conference and repeated at future review meetings. In the first step, the criteria for identifying the MOI issues of high strategic relevance would be determined. These, of course, may vary as the implementation of the respective outcome documents progresses. In Step II, the focus would be on identifying qualifying MOI issues. And in Step III, the decision would be taken to establish operationalization task forces (OTFs) for each of the identified topics. In this way it would be possible to ensure that the goals of ending poverty, transforming all lives and protecting the planet, shift from paper to reality – as we, the international community, 'walk our talk' along the road to dignity and, let us hope, beyond.

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