CHAPTER 16

The Principle Put into Action

Even if they still have strides to make in their cultural adaptation, development banks have a major role to play to promote a P4C cooperative approach and to help dispel suspicions that the public and private sectors harbor about each other. From my perspective, they must act like true orchestral conductors of global development finance. As I’ve said before, the development of the private sector and the cooperation with these players must become a central point of MDBs’ operational model, with sincere commitment beyond the financing and mobilization of capital.

The Role of Multilateral Development Banks as Engines

MDBs can finance only a fraction of the total cost of a project; the rest comes from mobilizing supplemental investors through syndication and other structures of group funding.¹ This financial commitment, as well as its structure, advice, and accompanying distribution of risks, must help bring together additional sources of funding and create, in the case of unexplored fields or endangered environments, a significant demonstration that can attract new projects and investors. But this mechanism benefits even more from liquidity. Private investors generally tell me they expect the MDBs to provide three things beyond the traditional instruments for risk sharing: (1) a selection of well-designed, prioritized projects prepared on their behalf; (2) an implementation that follows the strictest standards, as no investor wants to endanger their reputation; and (3) the capability to manage potential conflicts with public authorities during execution of the project.

From Billions to Trillions: How to Walk the Talk

MDBs got the message. In the report From Billions to Trillions, the MDBs committed to redoubling their efforts “to build a reserve of viable and attractive projects for investors from the private sector” through their project preparation facilities. They also intended to collaborate

to find the means to mobilize activity and investment from the private sector in a more systematic way than case-by-case: (i) by exploring effective solutions to manage risks by establishing individual or common mechanisms to offer guarantees, risk insurance, mixed funding, and other measures to distribute risk (for example, structured financing); (ii) by exploring the possibilities for structuring common mechanisms or co-investment platforms at the national, regional, or multilateral level to reduce individual costs for the investor in terms of project preparation and execution; and (iii) by offering a credit increase, allowing risk sharing with official entities.²

MDBs could also simplify and standardize their operations. The system has a tendency to reinvent the wheel with each project, and everyone wants to promote their own instruments, which causes excessive financial and administrative costs for the system as a whole. It has a tendency to restrict private investors to a backup or subsidiary funder role, although they participate in the project at the same level as other players. They should be present from the start, and development banks must understand that they have a need to facilitate this, because sometimes the gap that needs filling is more cultural than budgetary. Private players cannot just be called at the last minute and expected to accept everything that has been agreed to ahead of time.

The Case of Infrastructure Finance

The adaptations discussed are behind the creation of the Global Infrastructure Facility (GIF). The platform

coordinates and integrates the initiatives of multilateral development banks, investors and funding backers from the private sector, and countries interested in infrastructure investments in emerging markets and developing economies—supporting collaboration and collective action on complex projects that no single institution can finance. The private sector partners that have joined the platform alone manage over 12 trillion dollars in assets, with the purpose of diversifying through profitable investments that offer distributions that reflect the risks. By building a global reserve of investments projects for sustainable development, structured to respond to users’ needs and investors’ appetites, GIF has the potential to unleash billions of dollars to promote infrastructure in developing nations.³

In developing nations, the challenge of infrastructure is not only to make funding available; it is also to correct the lack of viable projects in which to invest.

GIF went operational in 2015, with an initial capital of 100 million dollars. Its first three years constitute its pilot phase, during which the idea of the platform, its activities, and its partnership model will be tested. In this phase, at least 10 to 12 support activities for projects will be supported, which will allow us to examine the model in diverse sectors, geographic zones, and national environments and in diverse project types. At the same time, the idea of a future flexible financing window will be refined and tested in order to mobilize supplemental resources, as needed.⁴

All the ingredients are there: clear cooperation between governments, MDBs, and private investors; focus on real projects with the goal of carrying them out; a pilot phase to allow for later adjustments; and distribution of the various roles according to the abilities and predilections of each player.

The collective impetus to face the challenges of infrastructure is even more valuable knowing—in a context in which money, budget, and structural policies seem to have become incapable of stimulating growth—that investment in infrastructure will be a pillar of economic policy, a real game changer to stimulate growth in the short-term to create stable jobs, as well as to raise the potential for growth in the long term. While GIF can seem quite modest with respect to the billions of dollars needed for global infrastructure, this potential can be amplified and connected to other related initiatives—like the Global Infrastructure Hub created by the G20 in 2014,⁵ the funding mechanism for preparing infrastructure projects at the New Partnership for Africa’s Development, or the Sustainable Development Investment Platform I have presided over since 2016.⁶ The idea is to demonstrate options for investment, alignment, and coordination between players in order to free up infrastructure project capacity, and to create a new ecosystem in which the MDBs keep their central financing role while also deploying a huge mobilization effort in parallel.

The challenge of creating investment ecosystems goes far beyond the problem of funding infrastructure. Development banks could assist the multinational organizations that develop interesting pilot projects to create shared value in a more structured way, such as the seminal initiative from Coca-Cola in Brazil, Coletivo,⁷ by duplicating them elsewhere to create a mass effect and gain visible results in development. This is the same spirit that carried the Danone Communities project, a social businesses network that aimed to reduce poverty and malnutrition.⁸ In practical terms, the MDBs could create relationships between these innovative companies and socially responsible shareholders, or philanthropic organizations and on-the-ground NGOs. The “scale for good” principle seemed promising to me for deploying impact investments on a large scale and making a new, globalized financial system that would make a difference. This virtuous mechanism relies on the P4C idea, and it is to this goal that I dedicate myself personally and professionally above any other: mobilizing global private savings for positive purposes while respecting investors’ expectations of returns. The head of a large insurance company recently told me that purchasing German debt at a negative interest rate was of no interest for Germany or his clients, and likely not for the world, either, and if he could invest under good terms in housing, healthcare, or agriculture in India or Peru, “that would clearly be useful at all levels!”

We can also encourage networks like the Sustainable Banking Network, launched in 2012 and headed by the IFC: this singular community in the world brings together regulatory agencies of the financial sector and banking associations from emerging markets to advance sustainable finance by facilitating collective learning of international best practices and the creation of pilot programs in member states.⁹

Financing Action to Defeat Climate Change When Consensus Might Falter

The other great world challenge for which cooperation is crucial and development banks play a key role is that of financing the effort to curb climate change. MDBs are expected to assist in the transformation of government resources and official development aid into much larger private investments that can support a low-carbon, resilient economy.¹⁰ Here, too, they must work together and in complementary fashion to do the most effective work, for instance, as executive agents of Global Environment Fund (GEF), Climate Investment Funds, and Green Climate Fund; as partners in global initiatives like Sustainable Energy for All, led by my former colleague, Rachel Kyte; and through a harmonized, transparent, and rigorous approach to following measures supporting the climate and financing. The World Bank is also committed, along with others, to assisting the international community in the effort to set a carbon tax, without taking part in any specific incentivizing measure (carbon markets, taxes, or standards): in every country, and in each national or municipal government, the best option depends on local circumstances. Nonetheless, after the Paris climate accord, the World Bank launched the Carbon Pricing Leadership Coalition to bring together the global public and private sectors on this topic. As another example, the Partnership for Market Readiness is a fiduciary fund for multidonor grants on a world scale that supports collective innovation and the piloting of various instruments for carbon taxation; many countries, from China to Morocco, benefit from individualized support through this organization. We must support these initiatives and encourage a stronger coordination, especially at a moment when the consensus on climate change is under threat.

The complexity of this jungle of acronyms is of little importance. It would make you laugh if it didn’t reveal so clearly the stand being taken on climate change. Naturally, the idea isn’t to give you an exhaustive list of everything involved, or to arbitrarily highlight this or that initiative. Instead, I want to emphasize the reality of the energy being expended on this. This is not fantasy or pious wishes. This is a world on the move.

P4C, the Key to an Economy with Purpose

Beyond the challenges of infrastructure and the climate, and in addition to helping developing nations, many diverse issues would benefit from a partnership approach. If we can sprinkle P4C around the globe like a new miracle ingredient, certain complex topics would benefit from an effort to establish a painful but profitable public-private cooperation.

Road Safety

Road safety draws simultaneously on legislation (we need laws to prohibit excessive driving speeds, drunk driving, or driving while using a cell phone), enforcement (we need police officers and radar), education (we must educate citizens about traffic codes, best practices for driving, and potentially dangerous behaviors), and infrastructure construction (we need well-built, well-maintained roads). Public authorities cannot address every aspect of this multidimensional issue. They have to get everyone involved, beginning with the private sector. Knowing that Coca-Cola has a fleet of more than 100,000 vehicles worldwide, we see that a multinational company of this size has a role to play in road safety. It is not just a matter of finding innovative funding: we will succeed only with an effective coalition to address the issue on a global scale.

Global Health

Healthcare and humanitarian aid can also benefit from innovative financial cooperation. The Global Financing Facility (GFF) was created in support of an initiative close to my heart, Every Woman, Every Child. This partnership combines the efforts of Canada, Norway, the Bill and Melinda Gates Foundation, and other partners under the aegis of the UN secretary-general. It pioneers a style of finance that connects foreign and domestic sources of funding through a sustainability lens to eradicate the problem of avoidable deaths among mothers, newborns, infants, and children, and to improve the healthcare, nutrition, and quality of life of these women and children by 2030. While the five-year investment plan remains under the helm of national governments, the implementation of an international financial facility allows us to guarantee ahead of time the anticipated funding of transfers expected for a certain period. Some $2.6 billion must be mobilized to allow the GFF funds to supply an initial grant to 63 eligible countries, including Ethiopia, Kenya, the Democratic Republic of the Congo, and Tanzania. These funds will allow us to leverage public and private funds for the Reproductive, Maternal, Newborn, Child and Adolescent Health program. This is a novel approach because of the partnership format and the flexibility of the instruments envisioned.

Education

We could follow the same logic in education financing. In both healthcare and education, the goal is to establish a plan and national priorities that account for the entire menu of philanthropic finance tools available, public and private, to recognize where they dovetail, to avoid duplication and competition, and to connect efforts and results, while being prepared to adjust the aim if the first shot fails. Education cannot be addressed with a national education plan alone but must also mobilize all kinds of public and private structures, and physical and virtual education tracks. For instance, we must not ignore the modern assets of teaching media such as MOOCs or the Khan Academy, which provide an opportunity for everyone to gain access to knowledge. As with healthcare, education is a complex subject that affords major social returns (an educated, healthy population works better and longer), but the economic benefits are not immediately measurable. Hence, the idea is to get governments in a sampling of volunteer countries to commit to ambitious goals (such as universal access to quality primary education). In return, we would solicit aid from donor countries as well as the private capital and capacity for financing and mobilization of international organizations such as the World Bank to translate these national plans into action. This is the whole idea behind outcome-based funding: money connected to results. By getting various actors around the table, we can agree on shared funding for a number of countries to have quality education. This is the purpose of the International Facility for Education (IFFEd), led by Gordon Brown and to which I have contributed since its inception. It was mentioned at the G20 in Hamburg in July 2017 and should be discussed in more detail in 2018.

Refugees

Work is being done to develop partnership financing to accommodate refugees in the Middle East. If all the sources of funding are used to address the need, countries like Jordan and Lebanon will not have access to the lowest-cost loans, since they are not classified as developing countries. One vision, which I contributed to, is to use the World Bank balance sheet and those of other multilateral institutions to request that countries like the members of the G7 or the Gulf Cooperation Council “subsidize” such loans by lowering interest rates, or better still by offering collateral on direct investments. In any case, providing funding means getting national private and public sectors and multilaterals to work hand in hand to meet the financial challenges that too often create snags because of lack of cooperation.

Pandemics

Another case in which the P4C approach could play a decisive role is in preventing pandemics. If we had used this logic when Ebola reached its peak, we could have saved many lives and limited the terrible damage done in Guinea, Liberia, and Sierra Leone. The crisis was poorly managed. We lost time, and funds were mobilized too late. Although the establishment of insurance mechanisms is an essential response to allow the rapid release of funds in the event of this type of epidemic, it is not enough on its own. On the ground, we need a collaborative approach. In the case of Ebola, we lacked hygiene products, for instance; Unilever could have easily contributed soap.  We lacked satellite telephones; Vodafone could have provided them. We lacked airplanes; UPS and FedEx could have made them available. We did not think, or thought too late, to solicit help from actors already deeply entrenched in the area who had the necessary products and distribution networks. The public sector did not naturally think to call on the private sector when help was needed. What a waste! But what if, instead of reinventing the wheel at every crisis, we created a reflex for collective, systemic, transverse response? Until now, we have had a vertical picture of health, specialized disease by disease. The Ebola crisis demonstrated the limits of this conception: without a nurse or community health worker in every village, we could not set up a health watch, and the epidemic was detected too late. Still, we recognize that we cannot speak about healthcare without talking about ideas for systems like education, transportation, and communications. These are ideas I promoted and continue to promote as cochair of the Global Future Council on International Governance, Public–Private Cooperation and Sustainable Development, under the framework of the World Economic Forum, which organizes the Davos summit. We created a spot to share stories and lessons about cooperation efforts. The best defense against pandemics is a transversal, integrated, and collaborative healthcare system, which remains to be developed.

Promoting Decentralized Cooperation

The case of Ebola demonstrates how the terrain is often already gridded with networks, initiatives, and actors who work in their own domains, whereas cooperation on a number of issues could be fruitful.

Water is one such issue. Our working group realized, or rather rediscovered, that water, while a global problem, is first and foremost a local topic:

Water is a territorialized resource. In terms of water, we come from a river basin before being of a country. Above all, water is managed locally. Services related to water are local services. Everywhere, the ultimate responsibility for water is municipal or broken down by village community. It is therefore within this reality that we must act, and we must bring our attention closer to this position. We have to understand that it is not so much a money issue as one of governance.¹¹

If you invert the perspective and improve governance, then you can find funding to meet the full challenge. This assumes

putting the local at the heart of the system, meaning organizing governance starting on the ground, closer to city needs and village women; from the river basins to the United Nations, and not the opposite. . . . Financially, this does not mean that a global fund [is] spraying its benefits around the earth in a mist, with the serious risk of evaporation related to that, but rather proper funding brought to municipalities and villages and projects themselves, relying also on dynamic local savings, specific protections brought to funds invested to account for the specific risks of water.¹²

To national, massive, and inefficient centralized cooperation, we must therefore add, “without taking anything away from the latter, a decentralized cooperation that links many communities at the smallest level: municipalities and villages, movements, and opinion campaigns.”¹³ Religious organizations, whether they be Christian, Buddhist, Jewish, or Muslim, as long as they manage prayer centers, schools, hospitals, or artisanal structures also play an essential role in cohesion, mediation, and coordination on the ground. We lose much by ignoring them, or worse, hampering their actions.

While this diverse, decentralized cooperation is less important financially, at its own level, it is likely more efficient, with “the major advantage of creating personal, living, and mutually enriching connections between civil societies all around.”¹⁴ In poverty zones, where the inhabitants often feel abandoned by the authorities, this mobilization of local, active forces, a distinctive element of on-the-ground NGOs, constitutes an indispensable asset for the success of operations: “The arrival of a business, whatever it is, with the goal of carrying out work of a type, location, and volume that has not been discussed with the population, provokes a justified fear and principled opposition. A local, dynamic NGO can save the day. The intermediary role of NGOs between the local population and the steamroller of administrations and modern companies is irreplaceable.”¹⁵

My experience with the complex water issue has convinced me that an institution like the World Bank—along with all the regional development banks and the national aid agencies—with its unique presence across the four corners of the world, has an eminent role to play in using centralized cooperation to increase decentralized cooperation. With offices in more than 100 countries, it holds its own compared to the largest multinational corporations. It has contacts everywhere. This network is an essential asset that the World Bank could use even better by strengthening the connections between the headquarters in Washington and the teams on location, organizing a more fluid line of communications and harmonious exchanges between the various offices, in order for each to have access to the useful information from every country.

Recipe Tested in the Jungle

This ability to react in the most remote locations of the world can create small miracles of development. For example, consider the action taken in recent years in the Solomon Islands, in the Pacific east of Papua New Guinea.¹⁶ I visited these islands, covered in tropical forests cut through here and there by summits reaching over 6,500 feet, which were the highlight of a voyage—even though it quickly became apparent that with such high heat and impenetrable jungles, this is not a place in which someone would normally want to invest. However, the approaches to the archipelagos are some of the richest fishing waters in the world, particularly for tuna. Over years, this fishing ground had been pillaged by intruders of all kinds who profited from the absence of a navy, and therefore absence of control, on the part of the small island state.¹⁷

A change occurred when 18 Pacific nations, with the cooperation of the Australian, Japanese, French, and American navies, set up a water surveillance system by satellite, which allowed them to organize their fishing rights. This measure not only allowed the islands to stabilize the resource (and thereby also contain the threat to biodiversity), but it also allowed them to receive significant royalties from fishermen (hundreds of millions of dollars, a significant sum for this small country). Because the participating parties were able to be heard, today they reap both environmental and economic rewards: it was a win-win consensus. So much so that it allowed them to create an even more profitable project: with the assistance of the World Bank, among others,¹⁸ the Solomon Islands has developed a tuna processing plant and created a brand, SolTuna, which exports prepared canned fish with exquisite local spices. Some 1,500 people worked there in 2014 when I visited the factory, of whom 75 percent were women, with the understanding that 500 new jobs were to be created in the next five years. I find this dynamic extraordinary: through international cooperation, we were able to create, in a remote area,¹⁹ a high local added value capable of spreading around the world—even authorized to supply the hyperregulated and demanding Japanese sushi market.

I see in this story the best of finance and of capitalism and globalization, and the best of the potential for cooperation. It confirms that all this is possible. Stories like this need to be broadcast more effectively; the more people see such examples, the more likely they are to trust the system again and see the impact they can have. May all those with goodwill around the globe find inspiration in this example!