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Financing sustainable development

Tue, 2015-09-08 11:08
Kriti Nagrath

The Sustainable Development Goals are ambitious and wide-ranging, but what are they going to cost, and who is going to pay?

photo: sustainable production for the building industry, Development Alternatives

What are we paying for?

2015 promises to be a landmark year in the global dialogue on sustainability, as we anticipate the signing of the Sustainable Development Goals (SDGs). Forming the core of the post-2015 development agenda or the post- MDG (Millennium Development Goals which end in 2015) era, the SDGs are an ambitious set of goals and targets that outline a global framework to end poverty and hunger and promote sustainable development for the next 15 years.

These 17 goals and their 169 targets range across issues of health, education, employment, water, energy, cities, oceans, forests etc. Come the end of September, global heads of states will assemble in New York to sign the dotted line and set the ball rolling towards ‘the future we want’.

While we rejoice in the participatory nature of arriving at the goals and the wide variety of issues they cover thus building the path for sustainable and inclusive development, there is a very important question we need to ask. What is this going to cost us and who is going to pay for it?

How much are we paying?

With the goals and targets almost in place, the global negotiations are beginning to address the more mundane operational issues of how they can be achieved. The question of money both how much and who is always tricky, whether between friends or when transcending the great global north-south divide. July’s ‘Financing for Development’ conference in Addis Ababa attempted to tackle this question. An especially sticky spot was separating global SDG pledges from continuing developmental aid and official development assistance (ODA).

The SDGs will have significant resource implications worldwide. At the global level, total investment needs according to UNCTAD (pdf) are in the order of US$ 5 - 7 trillion per year. Developing countries alone are expected to need investments to the tune of about US$ 3.9 trillion per year, mainly for basic infrastructure (roads, rail and ports, power stations, water and sanitation), food security (agriculture and rural development), climate change mitigation and adaptation, health and education. Current investment in these sectors is around US$ 1.4 trillion leaving a gap of around US$ 2.5 trillion and implying an annual investment gap of between US$ 1.9 and US$ 3.1 trillion (UNCTAD, 2014).

It’s (Post-2015 Development Agenda) about creating opportunity for all, giving people an equal chance to succeed in life and preparing the world to deal with the challenges of climate change and the next pandemic. We need trillions, not billions of dollars to accomplish these goals and the money will come from many sources: developing countries, private sector investment, donors and international financial institutions. By working together, we can help people build better lives with good education, quality health care, clean water and proper sanitation.”- Jim Yong Kim, President, The World Bank Group

A study of India’s financial requirements and gaps by Development Alternatives indicated that to meet its SDG goals till 2030 is USD, India requires US$ 13.5 trillion, of which US$ 1 trillion is apportioned to ensuring sustainable consumption and production patterns. The current gap in investment already stands at US$ 8.5 trillion.

Who is going to be paying for it?

As the conversation and the consensus moves from billion to trillions of dollars of investment we need to answer the ‘Who’. For the SDGs’ predecessors, the MDGs were supported by development aid and debt relief when investments were beyond the ability of the country. This led to a lot of aid flowing into the low income countries especially on issues of health, sanitation, water, hunger and education and raising their development standards. There are only 31 low income countries in the world today.

As the lines between developed and developing economies blur, the SDG negotiations saw the financial burden shift towards developing countries and the private sector. The emerging consensus in civil society is that mobilising domestic resources is a preferred source of financing for development, one that is more stable and fosters democratic ownership and accountability of the development process.

The Overseas Development Institute analysis warns against overkill. Most low-income countries have little hope of funding even the basic tenets of the SDG agenda such as social protection, universal health coverage and education, even if revenue collection improves. And in these sectors, the private sector is not well-placed to fill the gap. 

While not widely acclaimed as a success, some good did come out of last month’s Addis Conference on Financing for Development. The six major multilateral development banks and the International Monetary Fund collectively pledged US$ 400 billion in loans and other assistance to help the world’s nations meet their obligations under the new SDGs.

How Can We Pay For It?

With limited ODA, the onus is on developing countries to look at alternative investment opportunities. Middle income countries or emerging economies like India occupy an interesting space in the world today. They have moved from being recipients to becoming providers of capital, technical assistance and foreign aid for the rest of the developing world, but are at the same time home to two thirds of the world’s people living in absolute poverty. South-South technology transfer between developing countries is an interesting approach that can help nations meet their goals.

Goal 12 on Sustainable Consumption and Production targets efficient use of natural resources and implementing the 10 Year Framework Programme (10YFP), which includes Sustainable Buildings. Sustainable buildings need sustainable resource-efficient building materials

Development Alternatives with the assistance (technical and financial) of the Swiss Development Cooperation (SDC) adopted an old Chinese technology of brick firing called the Vertical Shaft Brick Kiln (VSBK) in the 1990s. The VSBK is one of the most efficient methods of firing bricks as it reduces fuel consumption and hence carbon emissions by 40%, environmental emissions by 80% and raw material wastage by 30% while providing a quality building material.

TARA has been instrumental through a South-South technology and knowledge exchange in transferring this technology to Bangladesh, South Africa, Malawi, Nepal and Vietnam as a result. So this approach can help for example Malawi to meet its target for sustainable consumption in the building sector.

There private sector is playing an increasing role. Whether prompted by state failure or seeing the large market there to tap – in Prof. Prahlad’s words – at the bottom of the pyramid, the private sector is increasingly moving into service provision. Social enterprises in the space of health, education, water and energy are mushrooming.

Goal 7 ensures access to affordable, reliable, sustainable and modern energy for all, with universal access to affordable, reliable and modern energy services and a substantial increase in the share of renewable energy in the energy mix by 2030.

Smart Power India (SPI) has been created to deliver support services to help scale and replicate sustainable businesses that provide renewable energy to the underserved in rural India. Funded by The Rockefeller Foundation, SPI will work closely with energy service companies (ESCOs) to enable electrification of over 1000 villages. ESCOs will be bringing in private investment to the tune of US$ 50 million to build and operate the generation and distribution of renewable energy to households and businesses. Though a small drop in the ocean, such models can be replicated across the country to cater for the 20,000 unelectrified villages in India.

The private sector often cannot bear the entire burden of investment. This is either due to the large amounts of infrastructure required or low perceived demand for essential services such as waste management, conservation, affordable housing etc. As a result public-private partnerships (PPPs) are emerging as the approach of choice. The public component comes generally in the form of incentives and ease of access of operation (getting land, and an assured market), while the private sector manages delivery of the service (capital and operational costs).

Goal 11 is to make cities and human settlements inclusive, safe, resilient and sustainable, seeking to reduce the adverse per capita environmental impact of cities by 2030, including by paying special attention to air quality and municipal and other waste management.

In collaboration with the Municipal Corporation of Delhi, IL&FS Environmental Infrastructure & Services Ltd (IEISL) developed a 10-year PPP pilot project in 2010 to demonstrate the potential of a scientifically managed process for collecting and recycling Construction and Demolition (C&D) waste in Delhi. The C&D waste is recycled into aggregates at the waste management facility, which is in turn converted to Ready Mix Concrete (RMC), pavement blocks, kerbstones and concrete bricks. This project demonstrates the viability of PPP models in processing of C&D waste.

Another mode of investment is domestic resource mobilisation or taxation. OECD countries collect 34% of their GDP as tax. Developing nations collect half this rate (DCR 91 (pdf)). This of course is not without internal political ramifications and therefore often not the tool of choice.

A case in point is the highly acclaimed city of Bogota, Columbia and its eccentric mayor Anatanas Mockus. When the City Council turned down his request to raise taxes to deal with the city’s expenses, he asked people to pay 10% extra in voluntary taxes. About 63,000 people voluntarily paid the taxes.

Another interesting initiative that arose from July’s Financing Conference was the Global Partnership for Sustainable Development Data, launched with modest seed financing, which could signal a new approach to building public accountability systems that track resources to results. Such mechanisms will help build the confidence of various stakeholders who invest in the SDGs in terms of finances, people, capacities, technology, knowledge and hope. q

Kriti Nagrath (email: knagrath@devalt.org) works for Development Alternatives. This blog was originally published in the special edition of Development Alternatives’ Newsletter, August 2015 (and is republished with minor edits).

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