Belgium highlights pioneering role in linking private sector to aid policy

Alexander De Croo on 16 November 2017 in Tallinn. [Council]

Alexander De Croo, Belgium’s Minister for Development Cooperation, made a passionate plea on Wednesday (15 November) for closer synergies between private and public funding for development, using his country’s pioneering experience as an example.

De Croo spoke at AidEx, a Brussels gathering in its seventh edition this year, which has gained notoriety as an important platform for the development community to come together and improve the efficiency of aid.

The Belgian minister argued that while opening avenues for the private sector, it was equally important not to create an environment in which profits go to private companies, and losses are borne by the public sector.

He used the example of Belgium, which recently opened to private investors the capital of Bio, an €800 million investment fund for developing countries. A quarter of the fund is made up of government funding but three quarters of it is private money, coming from companies and private investors who are looking for a certain return.

Another example is the “Humanitarian impact bond”, which Belgium is launching together with some other countries in partnership with the International Committee of the Red Cross (ICRC). In his words, this represents “the first ever impact bond in the humanitarian sphere”.

Under the project, three new physical rehabilitation centres in Africa are being built over a five-year period in Nigeria, Mali and the Democratic Republic of Congo, providing services to thousands of people.

The idea, he explained, was that private financing was pushing any project in the direction of results, efficiency and profit, and therefore sustainability.

The investment in the rehabilitation centers is made by private partners. If the targets are reached 100%, donor countries will pay back eight years later than private investors, with a maximum profit of 7%. If the targets are not achieved, the donor countries will pay back only 60% of the investment made to private investors upfront, and the ICRC will pay a penalty of 10%, De Croo explained.

So for the private investor the range of return is between 70% and 107%, he said.

“But this is the first time in the humanitarian world that we have built a system where we say we want to pay for the results that we get,” De Croo said, adding that ICRC were “enthusiastic”, as the model was much more transparent than similar past projects.

“Will it work for any humanitarian need? Maybe not, but for 30% of the humanitarian model, it could,” he said.

Technology: a great enabler

De Croo also argued that technology was a “great enabler for development”. The single most promising investment in Africa is mobile networks, he said, adding that this was done not by governments, but by the private sector.

“If this was a charity, you would have had a few million smartphones in Africa today. But the figure is of 700-800 million smartphones, because this is not charity, but business,” De Croos said.

Half of the Millennium Development Goals have been met so far, De Croo pointed out. And achieving all of them by 2030 is perfectly feasible if aid policy is done differently from the last 50 years, De Croo argued.

“We are today in the framework of SDGs and one of the elements in them is the need to involve the private sector”, he insisted , quoting the President of the World Bank Jim Yong Kim who said that moving aid from billions to trillions is possible only with private investments coming on top of government money.

“But if you want to move private money into development, you need profit, and that concept is a controversial one. But sustainable business is profitable business. If you want to attract such flows of money, you need to create an environment where that investment can make a profit,” he said.

Using offshore wind farms as an example, De Croo said that everyone accepts today that it’s OK to make a profit there. “So why would it be problematic in the development sector?”

Empowering women

The Belgian minister also emphasised the need to empower women, recalling the success of the “She Decides” campaign, an initiative aimed at countering the decision by US President Donald Trump to slash funding for healthcare and family planning services in developing countries.

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De Croo reminded that during the conference held last March, €181 million were collected to compensate for the discontinuation of US funding. He said €70 million came from private donors, adding that those were US private donors, of which a few had asked to remain anonymous.

“But they said we want to show there is another side”, De Croo said.

In fact, family planning is the key for breaking the cycle of poverty, he argued.

“If a 12-year old girl has a choice – a choice of not becoming pregnant at the age of 12, not having to marry someone who is maybe three times her age, not to have 7 or 8 children – but make a choice to go to school, you are giving a future to her. And you are actually making sure that she will not have daughters who are in exactly the same situation,” he said.

Providing that choice means giving access to contraception and to family planning, De Croo argued, saying this was the most efficient way of breaking the cycle of poverty.

More women in society means more economic growth and more means for the government that can be used for the country’s development, he further argued.

Investing in women throughout the world is a way of creating a more inclusive economic growth, De Croo continued, saying economic growth as such was not enough. Inclusive economic growth, he argued, is growth that benefits the people, and for that, involving women in economic growth is tantamount, he pleaded.

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