Financing for development: learning the lessons

13 Jul 15

This week’s International Conference on Financing for Development will determine the policy for aid spending until 2030. It must ensure improvements in wellbeing are the goal of both international development assistance and domestic policymakers

The global development landscape has seen huge change over the more than a decade since the first UN International Conference on Financing for Development was held in Mexico back in 2002 and endorsed the "Monterrey Consensus" on financing for development.

Since then, we have witnessed a growth in private philanthropy, through initiatives such as the Bill and Melinda Gates Foundation, the emergence of organisations targeting pressing problems, like the Global Fund to Fight AIDS, Tuberculosis and Malaria, as well as the rise of new multilateral sources of financing, highlighted by the recent sign-up of 50 countries to the China-led Asian Infrastructure Investment Bank. Private capital also plays a much larger role now in development finance.

Now, global finance leaders are set to meet at the Third Financing for Development Conference in Addis Ababa from today until 16 July.

While the UN Summit in September will agree a new set of Sustainable Development Goals to 2030, it is this month’s meeting which will ensure that those goals truly mean something by ensuring that the world can finance them. So the stakes are high.

When the Financing for Development Conference was first launched, its task was specifically to mobilise global resources for development. The structure of the Monterrey Consensus document reflected the need for this mobilisation of resources to be expressed in two important ways: through developing countries’ own policies and through international assistance from donor countries.

This need for a joined-up effort in development is as relevant today as it was then, and it doesn’t have to mean increasing budgets. If you think about national development in terms of improvements in the well-being of citizens, rather than just narrowly in terms of gross domestic product growth, there is much that can be achieved that is not principally budget dependent, for instance in the realms of civil society or governance. Improvements in wellbeing in these areas typically stem from making sound – if sometimes difficult – policy decisions.

So domestic policymaking and strong leadership with a commitment to wellbeing have a crucial role to play.

At BCG, this is an idea that we have explored in our new report, Why Well-Being Should Drive Growth Strategies, the 2015 Sustainable Economic Development Assessment.

For example, in the area of health in sub-Saharan Africa, we have seen a combination of both domestic policy initiatives and outside support coming together to achieve great results.

Yet what we’ve seen demonstrated so notably in the area of health still remains to be seen in other areas of wellbeing such as education and infrastructure. This represents an opportunity for future development efforts, where domestic and external assistance in collaboration can drive further improvements in wellbeing.

The challenge facing leaders at this year’s conference is therefore to leverage the resources available in two ways. Firstly, to draw on the range of resources available from donors and private capital, including through indirect finance mechanisms, such as guarantees. And secondly, to ensure that domestic policy initiatives, in areas such as governance and civil society, which do not have to be costly, are brought into play to contribute to citizens’ wellbeing too.

Robust institutions, trusted to allocate funds wisely, support development and be accountable for it, have an important role too, as evidenced by the fact that all known cases of sustained high growth are accompanied by strong institutions that facilitate commerce, clarify the rules, protect contractual rights and responsibilities, and enable innovations through the generation and spreading of knowledge.

By bringing these components together, some of the greatest improvements in wellbeing can be achieved. And to ensure a sharp focus on wellbeing, we must have measures for it and broaden our conception beyond GDP alone, to capture the breadth of factors that contribute to the well-being of nations’ citizens. Only then can we successfully devise and fund inclusive long-term growth strategies that effectively translate global development and growth into gains in wellbeing.

 

This article is based on the report ‘Why Well-Being Should Drive Growth Strategies’, the 2015 Sustainable Economic Development Assessment, from The Boston Consulting Group.

  • PublicFinance International
    Enrique Rueda-Sabater

    Enrique Rueda-Sabater is a senior adviser to The Boston Consulting Group and a visiting fellow at the Center for Global Development. His earlier career at the World Bank spanned two decades, including four years as director for corporate strategy.

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