22 MAR 2021
At the adoption of the UN’s Sustainable Development Goals (SDGs) in 2015, the UN estimated that 2.5 trillion USD per year were missing in order to reach the targets by 2030.
“The UN has publicly announced that a vast majority of the resources need to come from the private sector. Governments and official development aid are not nearly enough”, says Lucas Tschan, Head, Advisory & Partnerships at iGravity. “2.5 trillion USD per year sounds like a lot of money, but in relation to worldwide available assets standing at 400 trillion USD, it’s comparable to a pebble on a playground. To close the gap, we would need to channel 3% of all global investable assets in the right direction.”
But mobilizing these resources, even though it is just a fraction of global private wealth, sounds easier than it is. “Opening development projects to big business can be a delicate balancing act for governments. Reputational risk, impact washing, and misalignment of visions are only a few concerns to name”, says Lucas who advises international donors and NGOs on their private sector engagement.
Profit-making and development assistance?
It makes sense for governmental agencies to be conservative on risk-taking when it comes to their reputation, because public trust is one of their main assets. However, development agencies are increasingly recognizing the signs of the times, for example, the Swiss Agency for Development and Cooperation (SDC / DEZA) has made private sector engagement a strategic priority. Unsurprisingly, the public outcry from some NGOs and left-wing politicians can be big, when governmental agencies, such as SDC, partners with multi-national companies, such as Nestlé. However, most of the polemic is biased and short-sighted, as Lucas elaborates:
“Of course, there needs to be some kind of a business case for private companies to engage in development projects. However, development and profit do not cancel each other out, very often they are complementary. And in such cases, if businesses and governments join forces, they can reach far more impact than alone. “
To address many concerns of non-governmental actors, the agency released its General Guidance on the Private Sector in the context of the International Cooperation Strategy and a related handbook, integrating year-long experience of collaboration with the private sector and establishing clear guiding principles, also when it comes to risk management.
Source: Geberit (https://www.geberit.com/insights/technical-skills.html)
As an example for a successful private sector engagement project, he mentions a collaboration from Ukraine, where Geberit, a Swiss manufacturer of sanitary ware, modernized the vocational training of plumbers with the help of an SDC-financed local NGO. “While the project gave Geberit a head start on the fast growing Ukrainian market for sanitary wareby adapting the training standard to the reality of the job market, the SDC made sure that generations of young adults can profit from the collaboration and that Geberit is not rewarded with exclusivity”, says Lucas.
Avoiding risks by asking the right questions
Despite notable successes of private sector engagement projects, there are some non-negligible risks: “When grant-funded organisations get involved in private sector affairs, there is always a concern about market distortions”, says Anaëlle, Analyst, Advisory & Partnerships at iGravity. Therefore, it is essential that every joint effort is rigorously examined with additionality considerations in mind. To this end, Anaëlle refers to the cascade approach, which was initially launched by the World Bank, poses three sequential questions that help to scope the development agencies approaches:
1) Can the private sector provide the required service, either fully or partially?
2) Can ODA-funded activities optimise the risk profile in such a way as to make an investment affordable for the private sector?
3) To what extent are ODA funds needed to engage the private sector and trigger additional funds for sustainable development?
The cascade approach
Source: own illustration.
Answering such questions can be tricky. That is why the base for any successful public private partnership is a shared understanding of the development challenge at hand. “If that is a given, the opportunities of collaboration outweigh the risks”, says Anaëlle.
Then she lists some of the advantages: “NGOs and governments can benefit from the innovation, expertise, scale and commercial viability of the private sector. As such, private sector actors can bring both the financial and non-financial resources that is dearly needed for sustainable development.”
No other option
When public institutions use the strength of the private sector for their endeavours, their role in the overall development project changes. In an insightful report on new models of public private partnerships, Zurich Insurance and Population Services International outline how governments could de-risk private investments in a way that catalyses millions of dollars into developing markets.
That is not happening at a big scale though. If public private partnerships do not pick up dynamics, the seventeen Sustainable Development Goals are likely to remain a utopia. Today – six years after the adoption of the SDGs – it seems that efforts to use aid money, public funds, and philanthropic capital to mobilize trillions of dollars of private investments towards the development agenda is well off target.
This means that it is high time to accelerate innovative finance mechanisms and public private partnerships. Or, as Lucas puts it: “It is as simple as that: Development lacks trillions. Donor governments will not fill the gap. So, the best plan that we have, is to work with the private sector. We simply do not have another option, if we want to get those millions of people out of poverty any time soon. And that’s something all of us should be putting at the very top of our agenda.”
If you would like to know more about iGravity’s work in the field of Private Sector Engagement, you may contact Lucas Tschan, Head Advisory & Partnerships of iGravity, through lucas.tschan@igravity.net.
Author: iGravity Story Telling Team