Development & Multilateral Finance Instruments: Time to transform

The MedaWeek Barcelona (Mediterranean Week of Economic Leaders) is nowadays the iconic conference dedicated to promoting the Mediterranean region worldwide. This event endorses the key economic sectors and the cultural values of this region through a wide variety of forums. MedaWeek Barcelona serves as the main meeting point for voicing the interests of the private sector in the socio-economic development of the Mediterranean countries.

On the 18th November 2020, MedaTalk held an important talk to provide an updated comprehensive overview of donor and financial instruments available to institutions, chambers, business associations and start-ups, and SMEs across the region and about mechanisms available for the private sector in the Mediterranean.

Issues discussed can be found below:

A. Multilateral Finance Instruments post COVID-19

  • How the pandemic has forced organisations in the development sector to change their approaches to fundraising?
  • Supporting Mediterranean Private sector’s economic empowerment post-pandemic.
  • Role that impact investors, financial institutions, responsible investors and the private sector could play in sustainable job creation and why this must be at the forefront of the Mediterranean region economic recovery post-pandemic.

B. Time to transform Development & Multilateral Financial resources in the Mediterranean region

  • Donor funding, banking and novel financial Instruments.
  • The rise of Development & Multilateral Finance institutions.
  • 2020-2025 funding preview: Looking at donors’ pipelines for the coming years.
  • What kind of work will the selected fund be used for?
  • Financing and promoting Mediterranean investments, creating partnerships, improving governance and mitigating risk can help make the region more attractive to business interests.
  • How can the necessary financial resources be mobilised and available to the Mediterranean private sector?
  • How can we help Business Support Organizations (BSOs) in the Mediterranean play a more active role in developing the private sector, SMEs and entrepreneurs, beefing up exports, luring investments and creating new jobs?

Guests:

Mohammad Abbadi, Senior Investment Manager, United Nations Capital Development Fund (UNCDF), participated to the talk and offered the contribution below:

The United Nations Capital Development Fund (UNCDF) makes public and private finance work for the poor in the world’s 47 least developed countries and developing countries. With its capital mandate and instruments, we offer ‘last mile’ finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development.

Let me focus my intervention on two areas:

One on urbanization in developing countries as trends clearly show that it is happening at an unprecedent rates… we see small villages and towns evolving to urban cities or towns at a rate that does not catch up with the infrastructure needs, creating an over load to the existing infrastructures and the inability of local governments and municipalities to meet the basic demands of their people.  To top it off, many cities and local governments in the developing countries depend largely on fiscal transfers from central government, with limited authority over their own source revenue, such as tax collection, which in most part is collected by local governments but transferred upward to central government, so it limits the revenue streams under local management and investment.

To add to the complication, in many developing countries, national policies may not always provide flexibility for municipalities to access capital markets, which further limits the financing flows to the local level which is where most development efforts are needed, and where over 50% of the SDGs targets must be met. So clearly we have a choice to make here, Either we build green cities that provide quality lives for the next generation or we face a paradigm shift in our existence with millions of people facing enormous challenges in their lives – many of whom will choose to migrate, as the increasing migration trends we are witnessing to the Mediterranean region.

At UNCDF we see this as a challenge and an opportunity, especially as a result of the Covid-19 Crisis, it was very evident that Local Governments were at the front line in the emergency response, and their role in the preparations, mitigations and rebuilding became center point in every discussion.

Here, it opens the question on what the role of the private sector is in fostering local economic development and the challenges faced at the local level. I think we can all agree that the private sector is the backbone of all developing countries, but such role cannot be looked at in isolation, because if we want a systemic approach that is inclusive and sustainable to the people and local territories, we must create an eco-system where both local officials, local planning and investment bodies are working hand in hand with private sector entrepreneurs and the youth in a coordinated way that can transform economies and investment in productive capacities. Not every growth is meaningful growth, and for growth to have an impact on the people, it has to be transformative and sustainable.

The UNCDF Center of Excellence in Local Government Finance and Local development Finance brings these two together. Our award Winning Dual Key approach, investing with impact, works through our various programmes, financing tools and instruments with cities and the private sector on three fronts:

  1. Systematically identify and encourage productive and catalytic investments in the developing countries;
  2. Strengthen small and medium-sized enterprises (SMEs) to make them bankable and investment ready;
  3. Unlock access to domestic finance and international commercial finance for private and public private investments that are revenue generating, but most importantly, have a transformative and measurable impact on the local economy such as on climate change, women’s economic empowerment and resilience.

Putting this in practice, we support Local Partners to source investments, undertake full due-diligence, structure the investments, assess the development impact and the financial impact additionality and sustainability, unlock additional financial flows to each investment through various blended finance instruments including UNCDF’s own grants, reimbursable grants, loans and guarantees, support the investments in the implementation phases, and advise on performance and impact measurement and reporting.

Our SME pipeline of investments have unlocked significant flows of financing from domestic commercial banks, and in some countries such encouraging results transformed into building national financing systems, such as sovereign wealth funds and line of credits in commercial banks that apply our Dual Key Approach on financing SMEs.

On the Municipal Front, we are building a global coalition with our partner UCLG on Municipal investment Finance to support local governments and municipalities in accessing financing flows, including blended finance instruments, to respond to their most pressing infrastructure needs including revenue generating investments, PPPs, Special Purpose Vehicles and even Pure Private Sector Investments that can transform local economies, create local jobs, protect the environment.

We have also entered into an agreement with a third party fund manager for the creation of the first in the world International Municipal Investment Fund (IMIF), which will provide debt instruments to cities and local governments for revenue generating investments at conditions that are more favorable to cities. UNCDF also entered into another agreement with a third-party fund manager dedicated for SME loans in the growth stage called Build. These are just few examples of new tools and financing flows that we are making available to developing countries.

The Covid19 experiences tells us that we need to build back better, but we cannot build back better if we keep looking at each client in isolation.  Our efforts brings both actors towards a common Local Economic Development approach that identify capacity gaps in promotion of LED, economic analysis, planning and investments, financing modeling and other tools to public and private partners; it focuses on building national platforms and mechanisms that sustain our approaches through local development funds, guarantee schemes, technical assistance facilities and financing networks’ and the Enabling environment to tackle policy, legislative and regulatory support for privates sector development and finally; supporting the development of pipeline of revenue generating investments in catalytic sectors that drive local value chains and add value to local economies and proof of concepts to markets, domestic commercial banks, international financiers.


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