DFID Financing for Development and infrastructure meeting

Participants:

DFID:

Steve Sabey, head of World Bank Group team

James Bonner, economist, World Bank Group team

Lily Ryan-Collins, infrastructure adviser, Growth and Resilience Department

Abbie Pitt, policy analyst, Financing for Development (reports to Christoph)

Christoph Merdes, global partnerships adviser FFD

CSOs:

Jim Calverley, Results UK

Polly Meeks, ADD International

Beck Wallace, CAFOD

Behanu Tamene, CAFOD/ Africa Union liaison officer from SECAM

Luiz Vieira, Bretton Woods Project

Petra Kjell, Bretton Woods Project

Notes:

Christoph Merdes (CM):

• FFD from 2002 in Mexico, set out financing framework for MDGs
• Commitments from donors and governments on 0.7 commitments and own national responsibility agreed at Monterrey Conference
• Consensus, but on different perspectives – covers all issues normally discussed in DC
• Developing countries focused on strategic issues – bringing discussion in DC to N
• Lost political momentum and traction since Doha – bringing NY and DC together did not work as well as foreseen
• 2012 decision to have FFD before MDG summit in 2015, rather than after in 2016
• Good decision to have meeting prior to SDG meeting. Level of ambition higher, look at structural issues.
• Also means of Implementation – Goal 17 – and goal by goal means of implementation
• FFD should set the policy framework for SDGs, almost agreed
• UK objectives:

1. create momentum for other 2015 conferences, climate, trade summit – need to make Addis a success. Means of implementation key element in overall discussion.
2. Changing development finance conversation: from a focus primarily on ODA to a focus on ODA and all other sources of financial flows as well as policy measures, e.g. on tax, trade and transparency as well as contributions from emerging countries
3. Specific actions and outcomes that can be followed up on. Policy initiatives – across an entire series of entities – eg, tax. Various Bank initiatives, for follow up action post Addis.

• Process getting close and closer to final text – normal inter-governmental negotiations – current draft outcome document being negotiated. Final session will be week of 15 June.
• Facilitators have been successful in lifting everyone’s vision for a good document

James Bonner (JB):

• Role of IFIs from UK perspective:
• Advantage of Bank – access to finance ministry vs. foreign ministers at the UN. Successful Development Committee results
• Hope to see Bank more engaged in issues, IFIs producing more solid offer for Addis
• MDBs can play big role for infrastructure finance, capital finance
• IFIs well placed to assist on domestic resource mobilisation – want to ensure they are ready including for clearer position for Addis, pushing Bank to provide support. Improving anti-corruption and management
• MDBs own internal workings, involved in conversation – better use of their own balance sheet, different uses of equity to increase lending, exchanging exposure to decrease risk.
• IMF – increased lending to poorest countries and fragile states – agree in principle. Pushing IMF to think through implications. Also focusing on crisis response windows. Are there clear plans for coordination?
• Planned MDB review in current FFD draft – proposed by facilitators, conversation on how this goes forward. How do MDBs respond to new post-SDG world

Lily Ryan-Collins (LR):

• Pleased to see focus on infrastructure in SDGs and FFD – felt this was missing in MDGs. Agrees with general tone in draft. Public investment remains key – including ‘basic social services’ – however much more is required, including from private sources.
• Two key bottlenecks for mobilising private finance:
• Improving the enabling environment – laws and regulations, building capacity to manage private capital, etc
• Capacity to develop a pipeline of ‘bankable’ projects. Capacity to develop pre-feasibility and feasibility studies, carry out due diligence, etc
• Mobilising private finance key focus for FFD, also need to scale up public finance and improve efficiency including tackling corruption
• Integration between climate and infrastructure narrative – G77 want discussion to stay within UNFCCC process
• In light of many infra facilities – need to ensure coherence. Not supportive of additional actors/mechanisms
• Infrastructure for urban development focus
• MDBS critical players to build government capacity and using expertise to mobilise private finance
• Looking at possible areas in which MDBs could enhance their capacity to mobilise private finance, such as encouraging private sector arms, e.g. IFC, to securitise operational assets, scaling up risk mitigation instruments and guarantees.
• Global Infrastructure Facility etc influencing developments
• AIIB, UK commitment is in its first phase, yet to be approved by parliament
• Influence where we can – e.g. safeguards, and see how it impacts on own development portfolio
• G20 and FFD process linked to some extent, strong infra component.

Luiz Vieira (LV):

• What is gained vs lost by focus on foreign vs finance ministers – CSOs supportive of UN system
• Capacity development and financing should not be de-linked from sustainable development and rights based approaches
• FFD text proposals from CSOs, e.g. linkages on what happens after FFD – fear will be method of implementation of SDGs, which risks missing out on structural issues, dangers discussions get lost – what does the UK think about the follow up to FFD?
• Also concerns about emerging donors re ODA
• Tax issues: strong language in CSO draft, would like different system that is democratic

Beck Wallace (BW):

• CAFOD’s research found that 22% of micro and small entrepreneurs thought a lack of relevant infrastructure was the major challenge to them doing business, so we agree that infrastructure is key, but specifically what infrastructure was critical, for example off-grid access to electricity in rural areas would help increase productivity. We have also done research on what sustainable energy models work for people living in poverty.
• CAFOD is interested to hear about the definition of responsible business that DFID is working to. Our research on channelling ODA through private equity, in the specific case of the Climate public-private partnership (CP3) has shown that the most important thing is for DFID to have oversight of the economic, social and environmental costs, risks and benefits at the project level. We would like more detail regarding how DFID plans to oversee financial intermediaries that are used to leverage additional finance and/or fund projects which deliver poverty reducing sustainable outcomes.
• The IFC’s Asset Management Company currently manages one of CP3’s private equity funds. We understand that the DOTS system being revised because it’s quite narrow – what is DFID’s position on how to develop it? (Stephen and James replied that they did not work on this but would find out and respond to Beck after the meeting).
• Re: PPPs and pooled finance – we would like transparency of information about these areas of ODA spend so that there can be an informed debate amongst a wide range of stakeholders to help fuel a diversity of innovative and locally appropriate solutions to poverty reduction and low carbon development in LDCs. DFID’s focus on Domestic Resource Mobilisation sounds interesting, please tell us more about your plans.
• We think that PPPs and pooled finance should be thinking about robust exit strategies from the outset. In the case of CP3 we recommend that a robust exit strategy would necessarily include transparency to open data standards of:

1. contracts (perhaps redacted or fully disclosed after an initial agreed period of commercial confidentiality),
2. the beneficial owners of any business enterprise/special purpose vehicle or other entity that is a partner in projects which aim to deliver development outcomes.

• These measures would be helpful to build institutional capacity within host states to put in place measures to finance projects which actually deliver sustainable outcomes and to tackle corruption and capital flight. How is DFID approaching this issue?

Behanu Tamene

• Domestic resource mobilisation, agenda 2063, how will these supplement each other? Agree that this agenda is a way to ensure an expansion of policy space. Any country seeking to support domestic resource mobilisation should be assisted.

Polly Meeks:

• DFID has been good at disaggregated data, what about in FFD?

CM:

• Good discussion if UN is the correct forum or not. In addition to the UN system there is also IECD, G20, IFIs that have achieved succinct gains
• If the UN is designated as the main place to discuss an issue it can slow down process in other fora – much is lost in the process, striking how different the debates are. DFID’s view is that a lot can be achieved elsewhere in addition to the UN forum.
• Finance ministries are more engaged day-to-day. DFID does not support additional UN mechanisms where they are not needed.
• Tax committee as example – G77 asked for upgrade of UN Tax Committee as intern-governmental body, however, much is happening outside such as G20 and OECD. Can make more inclusive a mechanism that has shown results.
• Can’t support position that no discussion can take place outside the UN – the tax agenda led to policy change due to specific discussions
• Wants to see single process for FFD and post 2015. Integration would strengthen eventual discussion. Systemic issues should remain on the table but also include full range of issues. Developed countries are clear that they want follow up discussion on FFD, must include domestic agenda, national implementation
• On emerging powers, wants Addis to formulate commitments. Much UK effortspent on pushing 0.7% and focus on ODA. Need to also maximise other sources – new EU member states – now looking at 0.33 % ODA to GNI
• Following agreement at 2014’s High Level Meeting, the UK will work with other OECD DAC member countries to modernise ODA definitions so that it will remain a crucial part of international development co-operation in implementing the post-2015 agenda. Transition to a grant equivalent system for counting official flows, to further strengthen reporting transparency, will commence in 2018.
• Supportive of disaggregation of data
• Pushing for targets, hope there will be time bound commitments agreed next week
• Agenda 63 – strong point on convergence, domestic resource mobilisation way of owning development more strongly, language on support

LR

• 2014 released DFID infrastructure framework, but only the summary is publicly available. DFID spend £1.1 – 1.3 billion per year on infra , half is channelled through MDBs as un-earmarked core funding.
• Need to improve capacity to influence MDBs on infrastructure, new person will join in June
• Micro enterprises interesting, sustainable energy access one of the SDG targets, much will be off-grid
• Increased focus on cities and urbanisation – many micro-entrepreneurs are moving to cities. DFID is producing an Urban Policy Framework. Linkage between formal and informal enterprises.
• What does DFID do – economic development, structural transformation (per Secretary of State)
• Basic services, e.g. water – public finance, difficult to mobilise private finance
• Infrastructure services that creates economic opportunities for poor people –e.g. roads, energy.
• Big economic infrastructure – transport corridors. DFID supports enabling environment to benefit countries, downgrade risks, as important to generate growth
• Publication “Maximising the benefits to the poor from infrastructure programmes aimed at increasing growth”
• PPPs – DFID commissioned research on mobilising private finance for infrastructure coming to an end now. It will address: what are the barriers to overcome, what kind of PPPs, what happened, to help us see what we need to do on development impact, etc
• Anti-corruption – Construction Sector Transparency Initiative (CoST) in March we agreed another up to £7 million finance to CoST – this will depend on results of the pilots – so far pleased – working closely with Bank Governance Unit on strategic review. Hopes that the Bank will do more to integrate CoST disclosure standards in their own programmes
• Did study with IDS on development finance institutions before joining DFID, including following up with department working on IFD, re transparency and commercial confidentiality, interesting discussion
• Don’t lead on DOTS, but can follow up

Steven Sabey:

• World Bank’s systematic country diagnostics – big focus to ensure they are more accurate and useful than in the past, e.g. what are the barriers to growth, and how can removing these lead to poverty reduction

LV

• Enabling environments raises alarm bells, e.g. re labour markets, liberalisation
• PPP language, good concerns re contingent liabilities, also WB recognises it’s not a silver bullet, but not the same at the country level
• Some WB executive director have confessed PPPs are good for their countries, good business

Petra Kjell

• Would like more detail on the integration between climate and infrastructure narrative, what does this mean? Concerns about push for large scale hydro
• Global Infrastructure Facility is biased towards PPPs, despite OECD principles. Pipeline on bankable projects should focus on sustainable development, pro poor – not facilitating for the financial sector

LV

• FFD document makes presumptions re the private sector, unclear what type of private sector
• PPPs to postpone debts, but it’s not for free – is this part of the equation

LR

• Where is the demand for PPPs – coming from developing world, partner governments demand more PPPs, need more infrastructure and looking to bridge financing gap.
• DFID is very aware of potential contingent liability, have responsibility to ensure are carried out responsibly. Bank and IFC are aware and not selling PPPs as a way to get ‘free’ money, generally users pay through tariffs. The opposite, makes clear it is a complex procurement option. UK has had some challenging experiences with PPPs
• Market liberalisation is not my area, enabling environment means having the domestic capacity to manage PPPs, e.g. good laws in place, engage properly
• The World Bank has developed a free PPP course online on PPPs as a resource, also PPP accreditation scheme
• Climate and infrastructure narrative, G77 good reasons to isolate climate negotiations to UNFCCC to avoid double counting, but not constructive to not integrate discussions e.g. on adaptation
• Need to exploit more hydro in Africa if to meet energy needs, need to be taken seriously with ES standards
• Global Infrastructure Facility, need to ensure lessons learned and that PPPs are properly structured, but designed to meet strong demand from developing countries

JB

• FFD was discussed at spring meetings, WB going to negotiations in NY with positively received contributions. Good with joint work of MDBs which we’ve not seen much of