European Report on Development 2014

“Financing and other means of implementation in the post-2015

context”Athens, 3 June 2014

ERD 2014 – background• Annual report commissioned by European Commission and

4 Member States. This will be 5th edition to be launched in December 2014.

• Process:– Consultations – Drafting reports

• Main report (ERD team; around 25 researchers)• Background papers (academics)• Country illustrations (country teams in Bangladesh, Ecuador,

Indonesia, Tanzania, Mauritius, Moldova)

• Target group varies by report: EU development officials & beyond. Now: Financing for Development Processes, UN Open Working Group, etc

ERD2014 research question

• “How can financial resources be most effectively mobilised and channeled and how can they be combined with selected non-financial means of implementation, to effectively support a transformative post-2015 agenda?”

Since 2000: Millennium Development Goals

• 8 MDGs, poverty, health, education, partnerships (UN, 2000)

• Monterrey 2002 Financing for Development to finance MDGs

• Implementation / financing of MDGs:– Finance needs studies (UN Sachs, World Bank, etc)– Aid was often seen as addressing needs– Aid (especially for social sectors) increased from

$50 bn a year in 2002 to $130 bn a year now

The incremental costs to reach development goals, $ bn annually

MDG 4,5,6

MDG 2

MDG 1

Infrastructure

1 10 100 1000 10000

6.8

7

20

1000

36

27.6

62

2500

maxmin

Aid

Millennium Development Goals

Examples:MDG 1 = povertyMDG 2 = educationMDG 4-6 = health

Finance a transformative post-2015 agenda

• Post-2015 agenda under discussion (“UN Open Working Group”). We describe sustainable development transformations:

– Allocating labour towards high productivity activities whilst creating employment

– Zero poverty, whilst reducing inequalities

– Energy access, whilst reducing CO2 emissions and preserving biodiversity

The role of finance in now much more complex?

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Specific policies for effective mobilisation of finance (national / local / global policies)

Supporting policies (Non-financial MOI) for effective use of finance (national / local / global policies)

Sustainable development transformations(economic, social, environmental)

Financial flows(public and private,

domestic and international)

Enablers• Quality of institutions• Capital (infrastructure),

labour, technology• Connectivity / integration

Finance for development(some emerging issues)

• Complex and messy!• Importance of public finance, but its role is

evolving• An important role for ODA, but in a

supportive/catalytic rather than delivery role• Beyond aid: Private sector flows / instruments

as countries evolve• Beyond finance: Context of finance matters

Finance flows (% of GDP) change by income levels (beyond aid)

Source: all WDI countries, 1980-2012 : Mauritius at 9.5 ($13.000)

Why beyond finance?

Two examples

Importance of supportive policies – policies to reduce interest rate spread

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

Sub-Saharan Africa

Low and middle income countries

East Asia and Pacific

High income OECD countries

Private investors in Africa face an additional costs of around US$ 15 billion (2 per cent of credit extended). Competition & innovation policies, (non-financial MOI) that would lower the African interest rate spread to the average of low and middle income countries increase availability of finance by 1.2% of GDP and investment by 6 per cent.

= 2 % points

Estimating sustainable energy finance needs

Low ca

rbon en

ergy

End-use

efficie

ncy

Nuclear

Renew

ables

Electr

icity i

nfrastr

ucture

0

500

1000

1500

2000

2500

3000

Current & planned policies

USD

(bill

ions

/yea

r)

Low ca

rbon en

ergy

End-use

efficie

ncy

Nuclear

Renew

ables

Electr

icity i

nfrastr

ucture

0

500

1000

1500

2000

2500

3000

Policies consistent with 2 degrees

USD

(bill

ions

/yea

r)

Difference in low carbon energy needs owing to different demand scenarios

Impact of better global mitigation scenarios on mobilisation of climate finance

Proposal Revenue mobilised (USD billions) Impact of scenarios and carbon price

Unconditional pledges

Conditional pledges

2⁰C

Norwegian proposal 3 15 26 The high volume of emission allowances auctioned

under the unconditional pledges does not compensate for the low prices, therefore the conditional pledge scenario mobilises more funds (the price effect is greater than the volume effect). The most stringent C02 scenario (2⁰C) mobilises the greatest revenue.

Swiss proposal 52 46 41 The higher revenue under the pledges scenario is caused by the higher emissions in these scenarios. The carbon price has a lesser effect on revenue than the scale of emissions.

IET levy 2 <1 1 The revenue is low, and influenced by level of emissions to a greater extent than carbon price.

Bunker fuel emissions tax 17 65 111 In all three scenarios significant revenue is mobilised.

The tax level was set at the global carbon price – the predictability could be increased by making taxation level independent of the carbon price. The carbon price (or scenario) however has a strong impact on revenue.

Increasing CO2 reductions = higher carbon price = more funds

ERD examples that support narrative

• Beyond aid (Tanzania hydropower requires different types of finance)

• Beyond finance (Tanzania workshop discussed role of supporting regulatory framework for renewable energy investment)

• Examine finance in a transformative context (role of aid the compensate losers in Mauritius)

Concluding issues

• Finance for Development framework to support a post-2015 agenda

• More complex than implementation of Monterrey / MDG suggested – Difference finance sources– Finance alone is not enough: complementary policies– New role for different types of finance in different

transformative contexts

• How is this signalled in a new framework?

Thank you!

For further information please contact:

ERD2014 Project Manager – Gillian Hart g.hart@odi.org.ukERD2014 Project Officer – Leah Worrall l.worrall@odi.org.uk