The Addis Ababa Conference opens an exceptional cycle of major international conferences. They have the power to bring about far-reaching changes in the way in which we manage the planet and to make it an inhabitable place for all human beings for the long term. The aim of this Conference is to explore new avenues for financing. To feed into the discussions, I put forward 5 potential avenues for action.
The challenges are known and convergent: more equitable development, a more inclusive economy, growth that consumes fewer raw materials and fossil fuels, and to achieve this – if these conferences keep their promises – a common roadmap, massive financial transfers, and multipolar governance.
However, seeing these many delegations of professionals of international negotiations gathered in closed forums could give our fellow citizens the feeling that the issues under discussion – and therefore the responses that will be given to them – are a matter for specialists who speak a coded language.
The fact that certain reports mention that trillions of dollars are required to meet the long-term needs for sustainable and equitable development may also give our fellow citizens the feeling that the solutions are the exclusive domain of the world’s major financiers.
The Addis Ababa Conference must counter this twofold impression by giving the impetus required to mobilize all forces and all the savings and investment resources to meet the sustainable development challenges.
Five potential avenues for action
1- Recycle the savings of the poor: the over-exclusive focus on microcredit makes us forget that the poor save. They generally do it via informal structures – Rotating Savings and Credit Associations– or semi-informal structures, such as Mutual Savings Credit Unions in West Africa and SACCOS in East Africa. For example, in Kenya, 300,000 savings groups have 15 million members. In India, the 6 million self-help groups have over 60 million members and savings of some USD 1bn. A proposal: give high priority to the development of local savings in developing countries and to its recycling for local development projects by removing regulatory barriers to its collection and to intermediation by microfinance institutions, as well as by integrating it more into formal financial circuits.
2- Earmark migrant savings: migrant remittances towards their countries of origin stand at USD 440bn. A more substantial proportion of these savings could be “earmarked” for local development projects via long-term non-interest bearing savings accounts or social investment funds. Crowdfunding and mobile banking can be used to support this virtuous loop between the diasporas and their communities of origin. But the cost of monetary remittances needs to be halved, which the G20 pledged to do, and labeling and sponsorship mechanisms are needed to ensure the soundness of the funded projects.
3- Invest employee savings: In France, EUR 4.1bn were collected from solidarity-based employee savings funds last year. Unfortunately, this powerful tool for the collection of long-term solidarity-based savings de facto excludes the cause of development, as it can only benefit enterprises approved as solidarity-based which have their headquarters in France. A proposal: create a certification for “social enterprises that support development” to allow companies whose core mandate is to fight against poverty in developing countries to have access to long-term solidarity-based employee savings. The large French companies working at international level could thereby offer their employees solidarity-based employee savings funds invested in projects or enterprises that give the poorest access to essential goods and services. An additional proposal: export this exemplary mechanism in Europe!
4- Direct philanthropy more towards development: while statistics for Official Development Assistance are known right down to the last cent, there are none for the financial contribution of philanthropy and patronage for development finance! There would appear to be a pressing need to create a global observatory for Private Development Assistance. In Europe, the cause of development is estimated to account for some 12% of the total expenditure of Foundations. In France, according to a 2010 report of the Inspectorate-General of Finances, the contribution made to development assistance by philanthropy is estimated at between EUR 600m and EUR 800m. These figures are modest if they are compared to the EUR 54bn spent by European Foundations and the USD 71bn spent by American Foundations. The role of private foundations is complementary to the role of public development actors, NGOs and companies. In order to allow private Foundations to play their full role in achieving the future Sustainable Development Goals, it is necessary to involve them very early on in the definition of programs and establish public-private partnerships for their implementation. In the USA, Foundations can implement their social mission either through the traditional system of grant programs or in the form of mission-related investments. This approach still has to be devised in France. A proposal: remove the barriers that prevent French Foundations from playing a much more active role in impact investing.
5- Mobilize the investment potential and expertise of enterprises: enterprises are an essential vehicle for development. In the context of a renewed approach to their CSR, they can contribute to creating pilot social business enterprises to which they provide the benefit of their capacities in terms of investment, expertise and innovation. The large French companies have resolutely engaged on this pioneering path by creating appropriate investment vehicles with various legal statuses: Danone brought about the creation of the danone.communities SICAV and Livelihoods Funds, GDF-Suez the creation of the SAS Rassembleurs d’énergie Initiative, Crédit Agricole has set up the Grameen Crédit Agricole Foundation and Schneider has just launched the Access to Energy Fund. AFD-PROPARCO Group has decided to support this movement by adopting a complete toolkit to finance social business. In addition to these pioneering initiatives, the challenge lies in giving a European dimension to this “new CSR” and developing a new asset class likely to attract the most socially motivated institutional investors.
The eradication of poverty is the central objective of the Addis Ababa conference. All resources need to be mobilized in order to achieve this. However important issues related to increasing Official Development Assistance or contributing to the Green Climate Fund may be, financing for sustainable development will only achieve its core objective if it mobilizes a very broad coalition of public and private actors, and if appropriate tools for the collection and recycling of savings and for investment are created or improved.
In Amharic, Addis Ababa means “new flower”. Let us hope that the Addis Ababa Conference will see a hundred thousand new flowers bloom for development finance!