Monday, December 11, 2023

In numbers we can prevail, meeting told

Making his contribution to the discourse on setting Development Finance Institutions (DFIs) for the implementation of Sustainable Development Goals (SDGs) at the Joint CEO Forum of the World Federation of Development Finance Institutions (WFDFI) held last week Dr. Lufeyo Banda, Director at the Economic Consulting Group in Botswana, explained that by establishing better coordination amongst DFIs the continent can create inclusive growth. Banda referred to DFIs and SDGs as two different initiatives but however very closely related. He identified the deficiency of DFIs in taking a reactive modus operandi as opposed to assuming a proactive approach, which typically results in them running behind in terms of strategic planning.  The Forum was hosted by Citizen Entrepreneurial Development Agency (CEDA) as a member of WFDFI under the theme ‘DFIs sustaining relevance in the age of disruption.’ 

“In number we’ve got the power.” Banda made this remark to illustrate the critical role DFIs need to engage in within the context of Africa of collectively mobilizing funds from organizations in possession of significant amounts of it such as pension funds as to provide financing that offers reduced risk, better pricing and long term maturity. “The experience is that pension funds take money abroad, which is the same place DFIs go to borrow the same funds but at a high cost,” he said. He outlined three priority areas which he regards important in setting the agenda for the implementation of SDGs, starting first with Agriculture which he referred to as the bed rock of sustenance in Africa but is however neglected by DFIs in terms of adding value to it. The second is on enhancing industrialization from the mineral resource richness of the continent of which the current trend observed is exportation. The third is regional integration as to allow free movement of capital and people but also to establish links across the continent’s capital markets so as to pool resources. 

 “DFIs are our only way to finance SDGs,” said Aniket Shah, Director, Financing for Sustainable Development at the SDGs Centre for Africa when delivering an intriguing narrative that refutes the notion of an absence of capital to achieve SDGs. “There’s absolutely no shortage of capital to finance SDGs. The issue is that we need better intermediary organizations to mobilize global capital,” he said.  The gist of Shah’s account was to emphasize that a deficiency of larger, stronger and coordinated DFIs runs the danger of relegating SDGs to a marketing imagery instead of a planning tool. As a planning tool, he explained, SDGs will derive their usefulness as they will be translated into a long term investment plan. He proposed a re-direction of capital from its high concentration and movement between developed countries, to geographic areas starved of such capital. To support his statement, he cited that only 5 percent of US savings are invested in emerging markets. Suggesting a way in which capital re-direction can be aided Shah said, “We need to figure out how much it costs in each country to achieve SDGs, how much of it can be publicly financed and how much of it can be privately financed, quantify the gap and find ways to close the gap.”    

A comment from the audience raised an issue in response to Shah’s proposal that the reality on the ground speaks to a mismatch of the source of capital and the expected market return caused by currency fluctuations observed particularly in commodity driven countries such as Angola and Nigeria. It was in that regard suggested that a better approach is to tap on the enormous local currency liquidity that pension funds offer, hence give access to sustainable funding. Responding to the comment, Shah recognized the reality but however said that the issue can be addressed by identifying a return that is cognizant of the nature and role of DFIs to which he suggested a long term slow yield solution.

Sharing the experience of DFCC Bank, a development financing bank in Sri Lanka, its Director and CEO Arjun Rishya Fernando said they have had to form a conglomerate such that rather than one bank trying to implement the SDGs, all banks can focus on their achievement. The benefit, he said, is that it counters the high cost of SDG implementation.


Read this week's paper