The UN’s Financing for Development Conference is happening in Addis Ababa this week. It’s the first of three events this year that could set the global development agenda for the next decade and a half. It’ll be followed by final agreement on the Sustainable Development Goals (SDGs) in New York in September, and (hopefully) an agreement on climate change in Paris in December.
UN estimates put a price tag on the global development needs that will come out of the New York and Paris meetings: $11.5 trillion a year. (We can dissect the math if we like, but the sum probably stays within an order of magnitude; more here, which I confess I haven’t read.)
Addis Ababa kicks off the trio of conferences with an obvious question: How’re we going to pay for all this?
There’s a general recognition that the answer isn’t “more aid”. OECD official development assistance last year totaled $135 billion; that’s barely 1% of the projected needs. The World Bank and other multilateral banks provided $127 billion in financing last year; again, barely 1%. And the world’s largest private foundation had giving around $5 billion; less than 0.04% of the projected need. Adding other foundations and private giving won’t shift the needle much either. Aid will continue to be a drop in the bucket.
The bulk of the financing will come primarily from three channels:
- Domestic resources: This shouldn’t be surprising. We already know that most development is not international development. Most development is incredibly local or at the most national, and so most development financing is as well. That $11.5 trillion estimate includes local tax revenue spent on schools and health clinics (SDGs 3 & 4), even if that money never leaves the city level.
- Government borrowing: The international lending market is getting crowded. The Bretton Woods institutions are joined by the New Development Bank (aka “BRICs Bank”), the China-led Asian Infrastructure Investment Bank, sovereign wealth funds, and increasing access to private capital markets by national governments. The trouble is often not access to finance, but allocation, execution, and anti-corruption to ensure that the funding promotes development.
- Private investment: Foreign direct investment can create jobs and grow into domestic tax bases—or exploit workers, destroy the environment, and avoid taxes through sweet-heart deals. The devil is in the details. Of course, increasing domestic direct investment is also hugely important.
In other words: Taxes and markets, just like always.
And what does $11.5 trillion get you? Look closer and you’ll see why the total gets so big. Essentially, that number is what it will cost the world to achieve health, education, justice, gender equality, good jobs, clean water, reduced inequality, ocean conservation, and all the other 17 goals and 169 targets of the SDGs—regardless of whether that activity and its funding are channeled through donors, governments, or private sector actors.
Just as the SDGs aggregate all “development” activity under their umbrella, we’re aggregating a range of capital flows under the “development finance” heading. No one intends to actually bring these capital flows together, just as no central body will exist to direct achievement of the SDGs.
Financing for development is not ultimately about committing new resources to promote activities in the Official Development Sector. Most true development occurs outside that sector. Rather, it’s primarily about two things. First: Redirecting and reshaping all financial flows so they better promote those historic processes of pro-social development and sustainability everywhere. And second: Better accounting for the positive flows that exist and ensuring they’re effective.
Hence the inclusion of domestic revenue mobilization and targeting, as well as stemming illicit financial flows and tax-dodging, in the broad agenda of development finance. Taxes and markets, only better.
That’s hugely ambitious. But if that’s your ambition—to increase and account for all funding that promotes the SDGs regardless of whether those spending the money even know it—then why stop at $11.5 trillion? Here’s a comparison point for that big number: global GDP is somewhere around $80 trillion, so financing for the SDGs is estimated at around 15% of global economic activity. Yet the SDGs put forward a positive vision for nearly every aspect of economic and political activity, from clean energy production to food security to full employment. Doesn’t that leave the other 85% actively detracting from human progress? As long as we’re redirecting flows, how about we redirect all the flows?
Of course, the SDG process lacks the power or even the incentives to accomplish that. So it aims to redirect 15% of global financial flows in pro-development directions, and will be lucky to get a third of that. The work will continue over the next decade and a half, as activists and agitators of various stripes keep inching it upwards. As 2030 approaches and we debate the Transcendental Development Goals, we’ll shoot for 50% and maybe we’ll finally get our 15%.