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How To “Free The Funds” For Development: The Trillion Dollar Question Leaders Should Be Grappling With

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The cost of ending extreme poverty and achieving the UN’s Sustainable Development Goals is estimated to run in the range of $2.5-4.2 trillion. With the right leadership from those in philanthropy (both traditional and crypto), private wealth and public finance institutions like the World Bank, we could meet this challenge. With $2.5-4.2 trillion representing approximately 3 percent of the $112 trillion in assets under management worldwide, there is enough capital sitting on the sidelines that could be catalyzed. It is simply a trillion dollar question on how best to “Free the Funds”, as advocates have been campaigning for. With millions of additional people at risk of being pushed into poverty, now is time to embrace a new playbook.

Let's start with the public institutions like the World Bank and the International Monetary Fund (IMF). Here we have an ambitious roadmap - The Bridgetown Initiative - that's being championed by Prime Minister Mia Mottley of Barbados. One pillar of the initiative outlines how the major multi-development banks alone hold over $1.5 trillion in assets that could be better leveraged on capital markets to unlock as much as an additional $1 trillion. It will require such development banks to take onboard a number of reforms and an expansion of their risk appetite, as recommended by an expert panel of the G20. The important thing to note though is this greater financial firepower could be achieved without any additional contributions from the banks’ shareholders (primarily G20 governments). The forthcoming G20 meeting next month represents an opportunity to respond to these key recommendations.

The Bridgetown Initiative also outlines how we could give developing countries greater liquidity and fiscal space to respond to the multiple crises engulfing them while investing in long term resilience, particularly against climate change. For example, $100 billion in so-called Special Drawing Rights (SDRs) - a reserve asset of the IMF that were issued primarily to wealthy countries - could be recycled to support poorer nations. Dr. Akinwumi A. Adesina, the President of the African Development Bank is one of several prominent leaders advocating for such a shift. So far however, less than $60 billion in SDRs has been committed with France being the stand out by recently committing at this year’s Global Citizen Festival to recycle 30 percent of its share.

While we wait for others to follow suit, some countries have already started to secure preliminary commitments in SDR transfer illustrating their powerful utility. For example, Barbados itself recently secured provisional approval that could see it receive up to $300 million in SDRs that in part will go towards helping the country become powered 100 percent by renewables by 2030 while investing in more resilient infrastructure against the ravages of climate induced extreme weather events.

Other measures being championed by the Bridgetown Initiative include debt relief, including greater cooperation by both private and government creditors, and other measures to avoid future debt distress. Many countries – including 22 across Africa alone – currently stand on the brink of defaulting and the social unrest that would risk following. As I’ve previously outlined here, adding natural disaster and pandemic clauses to both government and private bonds could go a long way to lessening the impact of the present and future debt crises through creating an immediate debt repayment standstill when disaster strikes.

Beyond re-writing the playbook of public finance institutions and SDR recycling, private wealth and investment capital could also be better harnessed. Private sector capital could for example help meet the $70 billion investment estimated to be needed annually to replace fossil fuel infrastructure with renewable clean energy across the African continent. Of course, citing high levels of risk, such capital is unlikely to move first. To address this, there exists a few sources of catalytic capital that could be deployed to de-risk such investments, act as a guarantee and leverage additional private sector investment.

In a keynote speech in Accra last month, alongside President Akufo-Addo of Ghana, Global Citizen’s Africa Patron, Tshepo Mahloele, boldly argued that “here in Africa the private sector must either do the work – or perish in failed economies.” To this end, and according to Mahloele, there is enough African owned capital – held in pension funds and insurance companies in at least 10 cities across the continent – that could be the initial driver of filling Africa’s investment needs, helping to make it a less risky bet for international capital markets. By lowering the risk of entry, better and more affordable interest rates could also then be offered by overseas private lenders. As Mahloele further noted, “without strong capital formations we will not have the capacity to start or have word at the negotiating table. Or we will just be a taker of terms.”

A second source of catalytic capital is the more than $2 trillion in global philanthropy assets worldwide. I’ve written before how much of this capital is currently sitting idle on the sidelines and playing it safe. There is a huge opportunity for venture philanthropists to re-write the philanthropic playbook and take the lead in unlocking an investment revolution in developing countries. Yet, too much of philanthropy remains timid and is cautiously deployed at a time when the urgency and need has never been greater. Already, according to Citi’s latest GPS report, more than 60 percent of American philanthropists have said they will be even more cautious in their giving this year compared to last as a global economic downturn approaches. The irony here of course being that many of the holders of these assets themselves made their wealth through taking big bets. We need to urgently change the way people think about using (and leveraging!) their philanthropic dollars to create impact.

Arguably one way philanthropic assets could be leveraged is through supporting the policy entrepreneurs and advocates working so hard to “Free the Funds” that could be deployed by the World Bank and in IMF SDRs. In the new forthcoming film Uncharitable, fundraising pioneer Dan Pallotta talks about how NGOs must compete for peoples’ attention and mindshare with the massive marketing and PR budgets of big companies like Google and Apple. Making sure NGOs and advocates have the capacity to compete for the mindshare of the world’s top finance ministers and political leaders is no different, if not an even greater hurdle. To this end, a million dollar investment now into the capacity of campaigners and advocates to break through and garner attention for reform of say multi-development banks could in turn have the potential to result in returns in the hundreds of billions! Talk about return on investment.

Ultimately, traditional philanthropic capital could take a page out of the crypto philanthropy playbook. Although still accounting for a very small share of overall philanthropic donations, early signs seem to show that crypto asset holders are more likely to give to charity at proportionately much higher levels. According to Citi’s GPS report, charitable giving from crypto donors has skyrocketed in some cases by as much as sixfold or even twelvefold amounts. In times of crisis, such extraordinary generosity – if matched by traditional donors – could have a profound impact in kicking off the investment momentum needed to end extreme poverty NOW. Such a breakthrough could not come at a more critical time with at least one report estimated that as many as 200 million additional people could be pushed into extreme poverty this year alone.

The funds exist in philanthropic, private and public assets to end extreme poverty and power the clean energy transition in developing countries. The Trillion Dollar question is simply, how to “Free the Funds.” Fortunately in the ideas championed by the likes of Mia Motley, Tshepo Mahole, and Dan Pallotta the answer to this question exists. What we need now is the boldness, and the courage, to follow through and adopt a new playbook. We have zero time to waste.

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