A strong evidence base is the backbone of our operations in communications, trade, investment and consultancy. We gain this knowledge from our own research, thought leaders, research institutions and other key sources of information. We stay abreast of developments in sustainability and industry innovation to keep our network members well informed. Click on categories to see a full list of our thematic areas.
A Primer on Blockchain Technology and its Potential for Financial Inclusion
The invention of Bitcoin in 2008/2009 gave consumers and businesses the possibility to transfer money nationally and internationally on a truly peer-to-peer basis (i.e. without a trusted central party such as a bank). Few people realised the full potential of the technology in the early days, but today blockchains are often referred to as the “internet of trust”. This term relates to the universal potential of blockchain technology, which goes beyond payment systems and enables people that do not trust each other to directly exchange (digitally representable) goods and services with each other. Today’s variety of blockchain technologies, including many crypto currencies, is impressive. Start-ups and IT incumbents are constantly reducing the speed, cost and effort it requires to transfer crypto currencies globally, while also increasing transaction capacity and offering services that go beyond payments. This discussion paper characterises the 10 biggest crypto currencies in terms of market capitalisation and explains the functioning principles of their underlying technologies. These variants of the technology are also essential for non-financial applications.
A focus of this paper is the potential of blockchain technologies to improve (international) payments and land registries. Bitcoin-enabled payments were the first application of blockchain technology, and frictionless (international) payments are an essential part of financial inclusion. In contrast, improving land registries is a more innovative use of the technology, but the connection to financial inclusion is not straightforward. However, land registries may indeed play an important role in fostering access to credit for financially underserved people.
Almost any technology comes with new risks, and blockchains are no exception to this rule. Although blockchains can provide a very high level of safety and immutability, it depends on the concrete design of the implementation whether this potential is realised. In addition, some blockchain technologies are very energy-intensive, which is an environmental risk. Finally, the high levels of volatility of most crypto currencies represent an economic risk for their users. National and international regulators are challenged by the rapid evolvement of the technology and should aim to mitigate its risks without compromising its potential.
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This survey of the 2016 replenishments of three multilateral development bank soft funds and of the Global Fund for AIDS, TB and Malaria shows that a significant re-set of the multilateral development finance system is taking place, with grant funding fr
This survey of the 2016 replenishments of three multilateral development bank soft funds and of the Global Fund for AIDS, TB and Malaria shows that a significant re-set of the multilateral development finance system is taking place, with grant funding from traditional donors generally in decline (the Global Fund is an exception), but with the accessing of the ‘hidden equity’ in soft loan-based funds offering a large increase in such funding (most notably in the World Bank’s soft fund, the International Development Association).
‘Graduation’ of countries away from eligibility for highly concessional multilateral finance is also changing the context. This paper underlines the need for more consideration of these wider structural issues.
Investment Laws Navigator
United Nations Conference on Trade and Investment (UNCTAD) has recently released the Investment Laws Navigator on UNCTAD's Investment Policy Hub. The new database contains detailed mapping of over 100 investment laws around the globe. Together with UNCTAD's databases on policy measures, international investment agreements and dispute settlement, it represents the key features of national and international investment policies.
The Investment Laws database allows users to access the full text of the national investment laws and search for key topics (e.g. entry conditions, investment promotion, dispute settlement) as well as for individual law articles (e.g. definition of investment, national treatment, expropriation clause).
The new UNCTAD Investment Laws database also offers a tool for policymakers, companies, academics and others to compare investment laws between countries and analyse their coherence between national investment laws and international investment agreements.
Working Paper: Patterns of international capital flows and their implications for developing countries
According to a standard economic theory, capital should flow from rich capital-abundant countries to poor capital-scarce countries. However, a reverse pattern has prevailed in the world economy. This is the so-called Lucas paradox.
In addition, it has been shown that counterintuitively there is negative correlation between capital inflow and productivity growth across developing countries. This is the so-called allocation puzzle.
This survey attempts to shed light on the following questions: 1) What are the patterns of international capital flows in the world economy? 2) What are the most plausible explanations for these patterns? 3) What are the possible implications of these developments for developing countries?
Exchanges with impact
Stock exchanges increasingly guiding markets on sustainability reporting. A stock exchange is often seen as only a market for trading stocks – a virtual point where buyer meets seller – but its role in ensuring the proper functioning of the market where it operates involves much more than providing the platform where stocks are bought and sold. Historically, stock exchanges have educated and trained both business and investors on a series of topics from listing rules and investment tools to regulation and product development.
Stock exchanges are the intersection between issuers, investors, capital market regulators, and policy makers, and as such they are constantly evaluating new demands from investors and policy makers and translating them to issuers. As the sustainability challenges facing capital markets and the corporate sector evolve, stock exchanges are adapting, and guiding both issuers and investors in this process by facilitating the information flow between them. One of those areas of guidance is sustainability reporting.
At one time, an investor’s toolbox for analysing investment opportunities contained only the company’s financial bottom line, usually reported in a quarterly manner, making capital markets inherently short-sighted and therefore misaligned with financing needs of sustainable development. But now, shareholders, fund managers and other capital market players are expanding their appraisals of a company by also evaluating its environmental and social practices.
In some markets investors are demanding new information on the sustainability activities of a company, and in others the move towards increased environmental, social and governance (ESG) disclosure is led by other market players. In all markets, stock exchanges have a key role to play. Led by a United Nations initiative, stock exchanges are fulfilling that role by guiding their issuers on how to disclose ESG information.
The United Nations Sustainable Stock Exchanges (SSE) initiative encourages stock exchanges to provide guidance to their issuers on ESG reporting and aids stock exchanges in doing so by providing a template that can be adapted to their local market, the “Model Guidance on Reporting ESG Information to Investors: A Voluntary Tool For Stock Exchanges to Guide Issuers.”
In September 2015, when the SSE launched its Model Guidance for exchanges, less than one third of stock exchanges around the world were providing guidance to issuers on reporting ESG information. As a result of the SSE Model Guidance campaign and their collaborative work with stock exchanges, the number of exchanges with sustainability reporting guidance has more than doubled (see figure 1).
The SSE is continuing its campaign and is working with its partners with the end goal of all stock exchanges providing guidance on reporting their ESG activities.
Figure 1: Number of Stock Exchanges with Guidance on ESG Disclosure
Anthony Miller is the Focal Point for Corporate Social Responsibility within the Investment and Enterprise Division of the United Nations Conference on Trade and Development (UNCTAD).
He has managed the Sustainable Stock Exchanges initiative since its launch by UN Secretary General in 2009. In 2011, the initiative was named by Forbes magazine as one of the “world’s best sustainability ideas” and by 2016 it included over 60 stock exchanges in the world representing over 70% of global listed equity markets.
Dr. Miller is a specialist on CSR, corporate governance and responsible investment, with particular emphasis on how these issues impact developing countries. He is a regular contributor to UNCTAD’s flagship World Investment Report and for over 10 years an annual guest lecturer on CSR and responsible investment at the Cambridge Centre for Development Studies. He holds an MPhil and PhD in Development Studies from the University of Cambridge.
UNEP FI Regional Roundtables on Sustainable Finance
UNEP FI is establishing Regional Roundtables to provide an opportunity for members and actors in the sustainable finance community to come together locally to discuss the latest trends and innovations, and share good practice. 2017 marks UNEP FI’s 25th anniversary, and in this landmark year, our first ever Regional Roundtables will be the focus of our celebrations.
September-December 2017 - Argentina, USA, Switzerland, South Africa and Japan. UNEP FI is establishing Regional Roundtables to provide an opportunity for members and actors in the sustainable finance community to come together locally to discuss the latest trends and innovations, and share good practice. Building on over two decades of successful Global Roundtables, these regional events are designed to create rich opportunities for UNEP FI members to connect with one another and to raise awareness of sustainable finance work in progress across banking, investment, and insurance. The Roudtable events will take place in Buenos Aires 5-6 September, New York 18-20 September, Geneva 16-18 October, Johannesburg 27-29 November and Tokyo 11-12 December.
Get more information on how to register for UNEP FI here
"Nigerian power sector knows what to do, needs to stand together and make it happen" says Future Energy Nigeria director
"I’m excited about Nigeria’s energy future, Nigeria IS the future" says a confident Ade Yesufu, who is heading up the Future Energy Nigeria initiative that is taking place in Lagos from 7-8 November.
As the Global Business Director for the upcoming Future Energy Nigeria, an event that has a solid reputation as a longstanding, high-level gathering place for the region’s power sector, Ade is currently in Nigeria to meet the country’s decision makers and pave the way for another ground-breaking power pow-wow in November.
"We have to restore investor confidence"
Ade Yesufu explains: "I don’t see the current recession as a reason to be negative or even cautious about Nigeria’s economic future. If anything, it has focused Government and industry alike to make sure we get the basics right to stimulate much-needed growth and we need a reliable and affordable power supply to do that. The Federal Government’s Nigerian Power Sector Recovery Programme is an important message to the rest of the world that Nigeria is planning significant improvements towards achieving structural economic change with a more diversified and inclusive economy. To me, this creates an important foundation to showcase the enormous business and investment opportunities that the sector provides and I cannot help but be very excited about that."
He adds: "we all know that there is a lot of work to do, we have to restore investor confidence, but we are ready to get everyone together and to make sure we showcase the myriad of opportunities in the sector; from gas to renewables, from generation to distribution and from actual building projects to providing specialised services. The power sector knows what to do, needs to stand together and make it happen. Nigeria is ready!"
New brand – same, innovative event
Formerly known as the West African Power Industry Convention or WAPIC, which was a firm, favourite fixture on the region’s power calendar for the last 13 years, Future Energy Nigeria, with the support of the Federal Ministry of Power, Works and Housing, Transmission Company of Nigeria, Nigeria Electricity Regulatory Commission, Distribution Companies and prominent Generation companies, will once again host many of the country’s leading energy decision makers from 7-8 November 2017 at the Eko Hotel & Suite Convention Centre in Lagos, Nigeria.
The rebranded Future Energy Nigeria will focus on the bold turnaround plan of the Nigerian government, known as the Power Sector Recovery Program, which is aimed at restoring investor confidence in the sector following reported problems in the country’s electricity market. U$D7.6-billion has been earmarked for this recovery process that the government developed in partnership with the World Bank.
The event is recognised as being a distinctive gathering of stakeholders within the power value chain which includes governments, power generation companies, transmission and distribution companies, off takers, developers, investors, equipment manufacturers and providers, technology providers, EPCs, legal and consulting firms all with a shared goal of supporting the on-going implementation of finding lasting solutions to Nigeria’s energy challenges. Co-located to the event is the Oil & Gas Council’s Nigeria Assembly.
Some confirmed conference speaker highlights:
- Lazarus Angbazo, CEO, Energy Connections Business, GE: Sub-Saharan Africa, Nigeria
- Hon. (Princess) Gloria Akobundu, CEO and National Coordinator, NEPAD, Nigeria
- Onyeche Tifashe, CEO, Siemens, Nigeria
- Akinwole Omoboriowo, CEO, Genesis Energy, Nigeria
- Patrick O. Okigbo III, Principal Partner, Nextier, Nigeria
- Sunkanmi Olowo, Head SME Banking, Ecobank, Nigeria
- Bart Nnaji, CEO, Geometric Power, Nigeria
- Joy Ogaji, Executive Secretary, Association of Power Generation Companies, Nigeria
- Joel Abrams, Managing Director, Nigeria Solar Capital Partners, Nigeria
- Olumide Noah Obademi, CEO, Afam Power PLC, Nigeria
- Nicholas Okafor, Partner, Udo Udoma & Belo-Osagie, Nigeria
- Olubunmi Peters, Executive Vice Chairman, North South Power Shiroro, Nigeria
- Segun Adaju, President, Renewable Energy Association of Nigeria, Nigeria
- Engr. Faruk Yabo, Director Renewable Energy & Energy Efficiency, FMoPWH
The 14th edition of the event once again enjoys widespread support from the industry with Lucy Electric, a global secondary distribution leader in the electricity sector, and SkipperSeil Limited already confirmed as platinum sponsors, while Genesis and Jubaili Bros are gold sponsors and Conlog, Landis+Gyr, Hexing and Vodacom are silver sponsors.
Future Energy Nigeria is organised by Spintelligent, a multi-award-winning Cape Town-based exhibition and conference producer across the continent in the infrastructure, real estate, energy, mining, agriculture and education sectors. Other well-known events by Spintelligent include African Utility Week, Future Energy East Africa (formerly EAPIC), Future Energy Central Africa (formerly iPAD Cameroon), Future Energy Uganda, Agritech Expo Zambia, Kenya Mining Forum, Nigeria Mining Week and DRC Mining Week. Spintelligent is part of the UK-based Clarion Events Group.
Future Energy Nigeria dates and location:
Strategic conference: 7-8 November 2017
Venue: Eko Hotel & Suite Convention Centre, Lagos, Nigeria.
EXECUTIVE PERSPECTIVE: The Secret Life of Green Finance
Simon Zadek is writing in his personal capacity, and currently serves as the senior advisor on finance in Executive Office of the Secretary General, is co-Director of the UN Environment’s Inquiry into the Design of a Sustainable Financial System, and is Visiting Professor at the Singapore Management University.
Green finance’s meteoric rise has been a remarkable feature of the contemporary global financial landscape. From London to Nairobi, and Sao Paulo to Singapore, green finance has become the currency of high profile advocacy, policy and regulatory developments and increasingly market practice.
The G20’s embrace of green finance as a legitimate topic for finance ministers and central bank governors has catalysed action across the world, from the green finance work being led by the Reserve Bank of India to the European Commission’s High Level Expert Group on Sustainable Finance. The G7 has highlighted the growing focus of the world’s major financial centres on green finance as a basis for product innovation and competitiveness, such as the City of London’s Green Finance Initiative. And the darling of green finance, green bonds, has seen a ten fold increase in annual issuance over the last five years.
The logic of green finance’s rise is undeniable. Environmental challenges have impacted markets and returns, through droughts and other natural disasters, volatility in food and other commodity prices, and growing liability risks as the more stringent enforcement of environmental and climate-related regulations become a global norm. Climate change necessitates accelerated action by the world’s largest emitters, both to keep global temperature rises below 2 degrees, and to more effectively manage investor risks.
Beyond downside risks, environmental stewardship and resilience has become a source of value. Renewables have transitioned from a side-show to the main game across global energy markets, stranding along the way carbon intensive assets. Electric vehicle and battery technology threatens to overturn the all-powerful auto industry and reward investors who have backed businesses at the nexus of environmental concerns, policy responses, and breakthrough technologies.
Financial regulators have woken up to systemic risks in such a transition, especially those linked to climate, requiring the financial community to demonstrate their will and capability to manage this new generation of risks and report accordingly.
History’s impeccable logic alone, however, rarely guarantees the right response. People make a difference, and the secret life of green finance is a disparate band of people who have made it their mission to green the global financial system. Dr Rahman, for example, placed Bangladesh on the global map by championing the development role of central banks in advancing financial inclusion and green finance.
Dr Ndung’u, likewise, as Kenya’s central bank governor, was a key player in turning Kenya into a global leader in digital finance, which now underpins the country’s growing eco-system of green financing innovations connecting mobile payment platforms, distributed solar and now also crowd-sourcing, block chain and crypto-currencies. Muliaman Hadad, until recently Commissioner of the Indonesian Financial Regulatory Authority, has championed what was arguably the world’s first ‘sustainable finance roadmap’. And in Brazil, Murilo Portugal, president of the powerful bankers association, Febraban, has championed the greening of the country’s banking community.
Further north, Mark Carney, Bank of England’s charismatic governor, delivered a world first in championing a prudential review of climate risks to the UK’s all-important insurance sector, and then in his role as Chair of the Financial Stability Board established the Task Force on Climate Related Risk Disclosure. Meanwhile, in another part of London, Mark Campanale led the charge with the Climate Tracker Initiative in effectively inventing and then globalising the narrative about climate-related stranded assets, just as ‘down-under’ Sean Kidney has worked tirelessly to advance the cause of green bonds around the world.
Across the English Channel, the Dutch pensions regulator, Frank Elderson, along with researcher and civil society activist Rens Tilburg, mobilised the country’s pension industry alongside its banks and insurance sector in advancing a national sustainable finance dialogue and strategy. And across the pond, it would be wrong to ignore the contributions made by such luminaries as Mary Shapiro 29th Chair of the U.S. Securities and Exchange Commission, Mindy Lubbers as inveterate green investor campaigner, and Al Gore in his role as co-founder and Chair of the sustainability-minded Generation Investment Management, along with co-founder David Blood.
Yet it has been in China that the most ambitious game plan has been hatched and progressed to green the country’s rapidly developing financial system. Early leadership came in the form of Yi Yanfei, a modest champion buried deep in the China Banking Regulatory Commission, in advancing the Green Credit Guidelines, encouraged and ably supported by Rachel Kyte’s team when she was at the World Bank. More recently, however, leadership has come from Dr Ma, without doubt one of the world’s more unusual central bank chief economists.
Catalysed into action by China’s destructive air pollution, Ma Jun advanced first an ambitious domestic green finance initiative, working with a UN-based initiative launched by Achim Steiner, then head of the UN Environment Program, making full use of the central bank’s convening and signalling power. Then at the IMF Annual Meetings in Lima in 2015, his boss, Deputy Governor Yi Gang, announced that China would take the topic of green finance to the G20 under its Presidency in 2016, a move that has catalysed action on green finance across the G20 and elsewhere.
Leadership counts, all the more so when the need for transition is so urgent, and the scale of change required is so great. Dragging a reluctant mainstream into the future, requires the kind of inspiration and persistence that is too often absent from either corporate or public technocrats. Such leadership is, however, more of a relay race than a marathon.
The success of today’s leaders depends on the unsung efforts of their predecessors, just as tomorrow’s efforts will be taken forward by others. More recently, for example, key leadership has come from that most unlikely source, central banks and financial regulators, reflecting their broader rise to power over the last decade. Going forward, other sources of leadership are likely to become more important, such as the world of digital finance and its intersection with big data, artificial intelligence and the internet of things.
This article first appeared in Thomas Reuters
Exchanges Play a Crucial Role in Developing the Sustainable Finance Market
Stock exchanges play a crucial role as an intermediary between investors and issuers, but their role in the sustainable finance market – as platform and infrastructure providers, as facilitators of cross-market standards development, and as educators bringing visibility to new asset classes – is so much wider than that. We speak with Robert Scharfe, CEO of the Luxembourg Stock Exchange, a leader in sustainable finance with over half of the world’s green bonds listed on its exchange, on how to attract more investors and borrowers to the market.
Q. We have seen an impressive EM rally this year, and some of that has to do with China’s better-than-expected performance. How would you assess the outlook for China and emerging markets for the next 12 months? Where do you see the main risks and best prospects?
A. China, as one of the largest economies in the world, is of course very influential in determining how the rest of the world economy performs. The most recent news – that China’s economy has grown more quickly than anticipated, 6.9% in Q1 2017, reaching an estimated annual growth of 6.4% – is significant. Coupled with improving activity and job growth in the US and Europe, this is good news for emerging markets. Globally, one could say the outlook is cautiously positive.
There are of course a number of caveats and key factors to consider here. China needs to ensure that growing at the current rate is not harmful to the economy itself in broad societal terms, which is part of the reason why sustainability – and the sustainable finance market – has become so immensely important there.
In terms of risks, we still see quantitative easing affecting market prices, and it is likely we will see this come back to the fore as the world’s central banks look to unwind or reverse their asset purchases. Uncertainties around the US Administration, and a possible rise in protectionism around US imports, could also have a significant influence on global markets.
Overall, the global picture is cautiously positive, but we need to manage potential interest rate hikes and the unwinding of major QE programmes around the world to ensure distortions can be minimized.
Q. The first ever green bond, the "Climate Awareness Bond" was listed in Luxembourg in 2007. How has green financing evolved since then? What has the Exchange done to promote and develop these kinds of instruments?
A. The European Investment Bank took a lead in this space with the first Climate Awareness Bond, but the timing was somewhat unfortunate to an extent because the global financial crisis that emerged in 2007 and 2008 largely put a halt to the development of the green bond market. Governments were too busy saving the world economy from collapsing, quite frankly. That said, it became clear by the Paris climate talks in 2015 that the sustainable finance agenda needed to move forward, and public consensus around the importance of sustainability as a broad concept – in energy, finance, and general corporate ethos – was gaining momentum. At the same time, investors globally, for a variety of reasons, are increasingly looking for more transparency in how their money was being used by recipients.
Now, I get the sense we are in the midst of a protracted education process across the market: investors want to invest in initiatives that have a strong ESG angle, but want to be sure that they can still generate adequate returns; corporate and public-sector entities want to access new pools of liquidity, but want to ensure they can generate both internal and external benefits.
Government-backed banks and multilateral development banks have played a leading role in the development of this market, but we need the private sector to enter the picture – not just energy companies, but any entity willing to take a fresh look at their supply chain and make changes to address their carbon footprint through targeted investments. The onus is also on investors. Investors have enormous purchasing power here, given the sheer amount of institutional money they manage, and they are in a sense the guarantor that capital simply won’t be available to just any issuer or borrower unconditionally. That’s what will push this market forward.
Q. The Luxemburg Stock Exchange has signed an agreement to launch a green bond index with the Shenzhen Stock Exchange and Shanghai Stock Exchange, which simultaneously displays green bond quotes in China and Europe. What is the primary purpose of this programme and how can it be replicated in other geographies?
A. When this market started 10 years ago with the first Climate Awareness Bond and eventually, the first green bond, nobody was paying much attention to it. It was only following the 2015 Paris Climate Agreement – COP21 – that we found an agreement that could supplant previous pacts, like the Kyoto Protocol or the Copenhagen agreement, and facilitate the growth of the market. Since 2015, the growth has been exponential, despite the fact that the size of the market is still relatively small – less than 1% of the global debt market.
Within that context, we decided to launch the world’s first dedicated green exchange, a platform for green bonds that has since expanded to social and sustainable bonds, and is open to a range of instruments and indexes. Looking at the overall market, we cover more than 50% of global listed green bonds. There are also large domestic markets, like China – by far the largest local currency green bond market globally – that are strategically important to partner with in order to heighten the visibility of these assets. Both the Shanghai and Shenzhen Stock Exchanges have indexes that represent the performance of labelled and unlabelled green securities in China. The objective is to open this market further to foreign investors, and in order to do that you need to promote these indexes domestically within Shanghai and Shenzhen, and abroad, which is what drove our partnership with both of these exchanges. The market can use these indexes to set up dedicated investment products, like ETFs, or, through the new Bond Connect programme, make Chinese local currency green bonds available to foreign investors. What we are doing here is bridging the gap between the local green bond market and international investors, and helping to make it more accessible to investors. Partnerships like these are especially important in an environment where the US is retrenching from its climate change mitigation commitments, and creates added scope for Europe and China to work more closely together to move down the path decided at COP21.
Q. How has LGX helped to expand the universe of sustainable finance?
A. Exchanges in many ways offer the critical infrastructure, indeed a meeting platform for investors and issuers, and we need to make sure that we create a level of transparency that makes both sides comfortable. This means that both need to be able to access the full stock of information available in order to make informed decisions. That’s where stock exchanges have a tremendous role to play.
The second role is heavy linked to education. We can inform the market about standards in a way that helps issuers and investors understand this segment; we can show the nuances between issuers of different origin by making data available to the market; and we can bring visibility to new and exciting sustainability instruments. How do we create leverage in all of that? One initiative, the Sustainable Stock Exchanges Initiative - a United Nations initiative which works with over 65 exchanges worldwide - is working to develop guidance to listed companies around the world in order to promote sustainability in terms of environmental, social and corporate governance transparency. Exchanging best practices is extremely helpful in order to accelerate this movement, and very important for the creation of common standards – around reporting the impact of investments – in sustainable finance. These standards are what will enable investors to compare these investments in a common framework, and as such are of supreme importance. If we achieve this kind of alignment across the sector globally, investors can effectively choose what to invest into.
Q. Regulations play an important role in stimulating the market, by helping to support the creation of standards as well as incentivise the market. What are the major challenges from the regulatory perspective when dealing with green bonds?
A. If you look at the European or international regulatory landscape, most of this has evolved on the basis of standards that have been developed by the industry – like the Green Bond Principles, for instance. Industry self-regulation, so far, has worked tremendously well. We consider frameworks like the Green Bond Principles and the Climate Bonds Standard, developed by the Climate Bonds Initiative, as best practice in the market. In order to list or display bonds on our Exchange, bonds have to fit any of these frameworks – which means mandatory certification and reporting. In other words, we have become stricter than what the market is typically looking for, to the benefit of investors – who secure a second opinion and impact report – and issuers – which gain access to a wider pool of liquidity.
However, regulators can still play a role in helping to develop and shape these standards. If we want to see the market grow faster and further, we need a more robust framework going forward, which can mean creating standard definitions and terms of reference, as well as standard obligations related to publishing certain documents on a mandatory basis. Consider, for instance, Article 173 of France’s Climate Transition Law, which obliges institutional investors to display the carbon footprint of their investment portfolio. In this instance, regulators aren’t posing restrictions on the market – but by displaying this you create awareness and give investors important information to help facilitate the market. China’s regulators have also been very forward-thinking in this space; they have asked every issuer to display how proceeds are used to finance green initiatives within prospectus’ of conventional bonds as well as green bonds, which is a significant step forward. In this respect, China is leading the pack.
Regulators should also consider incentives to help boost the market. In any event, it’s less a question of using regulation to impose more work on issuers, but about the broader question on how one frames this market to entice both issuers and investors of moving in the same direction – and faster.
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Bonds & Loans is a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets.
An exploratory analysis of measures to make trade facilitation work for inclusive regional agro-food value chains in West Africa
Authors: Torres, C., Seters, J. van, Karaki, K., Kpadonou, R. 2017. An exploratory analysis of measures to make trade facilitation work for inclusive regional agro-food value chains in West Africa. (Discussion Paper 214). Maastricht: ECDPM.
Spurred by growing populations, increasing purchasing power and rapid urbanisation, demand for food in West Africa is growing rapidly, and the composition of this demand is changing. West Africa is increasingly importing food from outside the region, as the region faces a huge challenge in attempting to meet food demand through regional production and trade. Intra-regional food trade is mainly informal and generally considered to be well below its potential. In this context, the region and its member states seek to support the development of regional agro-food value chains and to improve the functioning of the regional market. This transpires from policy frameworks such as the ECOWAS Agricultural Policy (ECOWAP), the UEMOA Agricultural Policy (PAU) and the West African Common Industrial Policy (WACIP).
This study seeks to contribute to reflections and actions in this area, by looking at how corridor initiatives focused on trade facilitation could be made more ‘transformative’ by combining them with other developmental measures, in this paper referred to as “accompanying measures”. It focuses on the examples of the rice and livestock (cattle and small ruminants) value chains and takes political economy dimensions into account. Geographically, the study focuses on a particular subregion within West Africa, comprising the “Central Basin” and Senegal and Nigeria.
- In West Africa, better performing regional agro-food value chains are seen as crucial for meeting growing demand for food and for contributing to inclusive economic growth, employment creation, poverty reduction and enhanced food and nutrition security.
- Promoting regional agro-food value chains, however, requires coordination between different policy areas, not least between agriculture, trade, private sector development and infrastructure development.
- Corridor initiatives, which are crucial for connecting Sahelian countries to global markets, could be more ‘transformative’ and supportive of regional agro-food value chains if they combined trade facilitation and infrastructure development with ‘accompanying measures’.
- For example, West Africa’s rice and livestock value chains would benefit from measures to ensure: better road linkages to production areas; a strategic knowledge and communication agenda; effective public-private cooperation; and a more conducive trade policy environment.
Smart industrialisation through trade in the context of Africa's transformation
Africa's experience of industrialisation has been disappointing. Globally, the share of manufacturing in total output rises with per capita income until countries reach upper-middle-income status, then declines as services become more prevalent at higher incomes; however, this has not been the case in Africa. Fresh thinking is needed on how to achieve Africa’s industrialisation objectives, and trade has a key role to play.
This brief, produced in partnership with the United Nations Economic Commission for Africa, explores how the idea of using trade and trade policy to support industrialisation has experienced a recent resurgence, and provides a set of policy recommendations for African economies looking to industrialise smartly through trade.
Economic diversification: Explaining the pattern of diversification in the global economy and its implications for fostering diversification in poorer countries
Economic diversification is very relevant for poorer developing countries to create jobs and foster economic development. That need has been recognised in key internationally agreed development goals. The empirical economic literature has identified several stylised facts about the pattern of diversification of economies, but the development of explanations for those patterns in general has been only loosely associated with economic theory on growth, trade, technology change and structural transformation. Making that connection is relevant because it could inform policymakers in developing countries in designing and implementing policies for promoting diversification. This paper presents a model of structural economic dynamics and endogenous technological change that is able to replicate empirical regularities related to economic diversification. The model is used to study strategies to foster diversification in poorer countries, which could help to better target action in the implementation of internationally agreed goals related to the economic diversification of these countries.
Keywords: Diversification, Economic Complexity, Structural Transformation, Productive Capacities, Economic Development
JEL Classification: C61, C63, E12, E14, O11, O30, O41
Unlocking Investment in West Africa
West Africa’s integration into the world economy is low
The region attracts only 5% of Foreign Direct Investment into Africa
Countries are working to break down barriers to investment
Despite West Africa’s enormous investment potential, its integration into the global economy is low. One sign of this is that the region captures only 5% of Africa’s total Foreign Direct Investment (FDI). The main hurdles for national, regional, and foreign investors are cross-border constraints. Small businesses and service providers are especially affected.
“In Nigeria, burdensome and non-transparent administrative procedures, land, the clearance of goods and services at ports and airports, and access to finance are some of the obstacles hampering investors,” said Bala Bello, Deputy Director for Policy and Advocacy at the Nigerian Investment Promotion Commission.
With its Improved Business and Investment Climate in West Africa Project, the Trade and Competitiveness Global Practice of the World Bank Group is looking at ways of addressing these problems by supporting both regional organizations and individual West African countries. It wants to help them address a range of investment policy issues that constitute barriers to private sector investment across the region.
“This project seeks to take pragmatic steps to facilitate the emergence of a conducive and predictable investment climate in advancement of the ECOWAS Common Investment Market vision," said Kalilou Traore, Commissioner of the Industry Private Sector Directorate at the Economic Community of West African States (ECOWAS).
At the heart of its work is the establishment of a strong, regional public–private dialogue mechanism. “The participation of the private sector in contributing their opinions and practical experiences is essential,” said Iyalode Alaba Lawson, Vice-President of the Federation of the West African Chambers of Commerce and Industry.
“Since 1979, the private sector has held observer status at the ECOWAS Heads of State Summit, contributing the view of business to the Trade Liberalisation Scheme,” she said. “Regional-level private sector involvement, from investment policy initiation to formulation through to execution, allows for easier implementation when introduced into the business environment.”
The first forum for this was at an inaugural technical workshop in the Senegalese capital of Dakar in June 2015, and has since been moved up to national level. National reform action plans have been made by six, pilot countries—Cote d’Ivoire, Mali, Senegal, Ghana, Nigeria, and Sierra Leone—for a formal commitment to a regional monitoring scorecard.
Non-pilot countries have been invited as observers to help them prepare for future reform. A regional workshop with national governments and private sector associations deepened their familiarity and understanding of investment policy and promotion. Countries explored how they can promote and retain new and existing investment, and how they can leverage FDI for domestic business environment reforms.
Another avenue for convergence is the launch of the ECOWAS Investment Climate Scorecard. Over 70 public and private sector representatives from 15 member states, as well as representatives from the ECOWAS Commission, the West African Economic and Monetary Union (WAEMU), the European Union, and the World Bank Group, have formally endorsed the scorecard as a tool for deepening regional investment integration.
The scorecard is an innovative instrument that enables both the ECOWAS Commission and national policymakers to identify investment barriers and track the progress of national and regional reforms.
A digital dashboard will aggregate its data to facilitate analysis and decision making.
“At the national level, we must make our countries more attractive to investors, each focusing on its own unique potential,” said Zeinabou Keita, Head of the Technical Unit of Business Climate Reform at Mali’s Ministry of Investment Promotion in Private Sector, who added that removing constraints would make individual economies and the region more competitive. “The scorecard is an indispensable tool to help countries refocus efforts on issues that result in too much red tape for investors,” she said.
“West African countries have enormous potential to strengthen competitiveness and increase investment, which can drive growth, reduce poverty, and deliver jobs to the region,” said Eme Essien, International Finance Corporation Country Manager, Nigeria. She said the project was using a unique, hybrid approach to support the ECOWAS Commission to further regional integration by working simultaneously at regional and national levels to identify, address, and monitor the elimination of specific barriers to the expansion of cross-border investment.
The Improved Business and Investment Climate in West Africa Project is a four-year initiative that was launched in November 2014. The project is funded by the European Union and implemented by the World Bank Group.
Coordinating public and private action for export manufacturing: issues for Rwanda
One of the keys to economic transformation across Africa today is a greater role for employment-intensive, export-oriented manufacturing. After taking due account of differences in contexts and time periods, international experience – especially in Asia but also in Africa-region leaders such as Mauritius – points to employment-intensive manufacturing as a crucial and indispensable step in the transition from poverty to development.
Rwanda is – along with Ethiopia – exceptional in Africa in that it has in place a nation-building project centred on the aim of economic transformation. Features of its political economy also mean Rwanda lends itself easily to comparison with the best-documented experiences in Asia. This paper explores the ways in which international experience of success in manufacturing-based economic transformation can provide valuable insight for Rwanda, in the areas of government coordination, engagement with and representation of the private sector, and the experimental learning process.
The IPA Observer Investment promotion and facilitation monitor
The publication looks at investment facilitation and how investment promotion agencies (IPAs) in different countries have adopted and developed various tools and programmes to better serve investors.
Case studies are from Kenya (the implementation of UNCTAD’s eRegulations programme), Jamaica (the preparation and packaging of potential investment projects) and Germany (the creation of technology partnerships).
The note provides several takeaways for IPAs:
· Investment promotion and facilitation go hand in hand,
· Investment in the SDGs requires enhanced facilitation,
· Partnerships in investment facilitation dramatically improve a location’s offer.
There is a wide range of policy options and measures available to IPAs for expanding and improving their service offer to investors. UNCTAD's Global Action Menu for Investment Facilitation provides a guiding framework to support a new generation of investment facilitation strategies that can mobilize investment in sustainable development.
Implementing the new CDC strategy: four tests of success
The CDC Group, the UK’s Development Finance Institution (DFI), published its new five year strategy today.
Overall, the strategy marks a welcome shift away from investing in isolated, profitable projects towards a more strategic approach. An approach in which DFIs such as CDC use their commercial skills to play a transformative role in contributing to the achievement of the Sustainable Development Goals (SDGs).
This change in emphasis will have implications for both CDC and its main stakeholders. And it also suggests that it will need to be governed differently by its only shareholder the Department for International Development (DFID). It should also change how it works with other DFIs. This won’t change overnight but we all have an interest in it working and the new strategy provides a good enabling framework.
CDC’s new strategic priorities are ambitious: embedding development throughout its operations (reflected in the choice of countries, sectors, financial products, and partners); investing responsibly (setting environmental, social and business integrity standards); addressing key development challenges in new ways (e.g. using an impact accelerator facility) and growing its operations significantly in a way that responds to market needs and satisfies tax payer concerns.
Four tests of success: implementing the strategy
Development Finance Institutions (DFIs) are a key feature of development architecture. ODI’s research over the last decade has analysed the achievements and challenges associated with DFIs including CDC. This analysis should guide the implementation of their new strategy.
1. More active targeting of transformative and collaborative projects
DFIs already tackle global challenges and have a macro-economic impact, but more needs to be done. DFIs themselves tend to focus on the financial and development impact of individual projects. But because the DFI sector has grown rapidly over the last decade, macro-economic impacts have become more visible. Our recent work on DFIs, cited by Secretary of State for International Development Priti Patel, in parliament, indicates that DFIs already contribute significantly to economic growth and productivity in Africa. They are actually more effective (at stimulating growth) than traditional aid.
To successfully implement the CDC strategy, more active targeting of transformative and collaborative projects framed in a macro-narrative will be necessary. As mentioned by Priti Patel in the foreword to the strategy, CDC cannot solve development challenges alone – its work must complement other aid approaches.
2. Move from competition to collaboration amongst DFIs
DFIs do work together on some projects, but ODI analysis suggests that DFIs sometimes compete with each other for projects in the use of subsidies. We noted the need for improved collaboration amongst DFIs so that these subsidies achieve the greatest possible development impact. Creating a pipeline of investable projects (in frontier countries, sectors and instruments where the private sector does not already go, or could be encouraged to invest with the help of DFIs) is key.
If CDC’s new strategy is to be a success, fostering collaboration around sector transformation must be a theme for the future.
3. Re-balance the need for development impact, financial returns and risk taking
ODI analysis informed the CDC reform process in 2011 and 2012, comparing CDC against other DFIs. We were also specialist advisor to the House of Commons’ report suggesting CDC had, at the cost of development impact, too aggressively prioritised financial returns. In part this was due to the type of financial instruments used and country coverage. The report also suggested using a separate fund that focuses on additional development impact by taking higher risk.
CDC’s new strategy includes a new impact acceleration facility that appears to be a direct response to this recommendation. This innovative approach should ensure CDC focuses on additional development impacts.
4. Find your place in the expanding development landscape
The landscape of development finance is changing rapidly and CDC needs to find its place in it. In 2000, DFIs tended to be small players. They have since come out of obscurity, investing around $75 billion a year in the private sector in developing countries. That is equivalent to half of overseas development assistance spent in 2014. In a paper with the Centre for Strategic and International Studies we argue that this brings new demands from shareholders and stakeholders. DFIs will need to clearly articulate how they contribute to development goals.
The new CDC strategy is framed ambitiously around the UN’s Sustainable Development Goals, but CDC must also realise that this requires a different way of thinking if it is to be successful in implementation and delivery.
The new CDC strategy requires a new way of thinking and working
The effective implementation of the new CDC strategy will require an active approach from the start including with a wider set of stakeholders. CDC will now 'invest to transform whole sectors' and as well as investing in individual projects, according to CDC’s Chairman Graham Wrigley, it will 'solve market and sector problems'. This shift has the potential to be truly transformative. The opportunity now is to turn that into action, even when it’s challenging.
To support this, DFID must set the correct parameters to incentivise collaborative partnerships around CDC. It also requires a significant change in mindset by CDC investment officers. They must shift away from thinking in terms of isolated projects with high financial returns, towards a more collaborative, strategic approach in which investment (together with other policies and instruments) transforms whole sectors. Engagement with public sector officials in developing countries and the creation of effective relationships with key actors will be crucial in this. If the new strategy is to be a success, CDC also needs to take a more active and more visible part in development debates showcasing the transformative potential of DFIs. This new strategy is an ambitious first step in setting out a CDC vision of how it aims to achieve that.
Mobilising private financing for manufacturing in sub-Saharan Africa
Since the downturn in global commodity prices in 2015, sub-Saharan African macroeconomic conditions have deteriorated, and 2016 saw the slowest economic growth in more than two decades. To maintain progress in economic transformation, employment-intensive and higher-productivity sectors need to be developed. Manufacturing – including agricultural processing – offers this opportunity, including through participation in regional and global value chains. However, beyond the challenge of macroeconomic stability, discussed in this paper's companion paper, this requires the mobilisation of significant private finance for investment in the sector.
To date, mobilising of finance has been muted and, at current levels, is not strong enought to support growth in the manufacturing sector. Furthermore, the finance that has been mobilised has been concentrated in very few countries. This paper explores how sub-Saharan African economies seeking to attract finance face not only economic constraints, but firm-level ones that are hindering investors' efforts. It goes on to suggest that only by robustly tackling those firm-level constraints, will finance be effectively mobilised on the scale required to drive economic transformation.
World Economic Forum to Support 22 Countries and EU in Doubling Investment in Clean Energy R&D by 2021
World Economic Forum to work with Mission Innovation, a commitment by 22 countries and the European Union, to accelerate global clean energy innovation to address climate change
Collaboration aims to support Mission Innovation by enabling public-private partnerships that enable a more sustainable, affordable, inclusive and secure global energy future
Mission Innovation includes the world’s leading economies, five most populous countries and represents over 80% of clean energy R&D budgets – members pledged to double governmental investments in R&D by 2021
Beijing, China, 08 June 2017 – The World Economic Forum and Mission Innovation, a commitment by 22 governments and the European Union to accelerate global clean energy innovation, will collaborate to support Mission Innovation’s goal of doubling governmental investments in clean energy R&D by 2021.
The aim of the collaboration is to encourage public-private partnerships which will have the greatest impact on three areas of investment – or Innovation Challenges – carbon capture; clean energy materials; and affordable heating and cooling of buildings. The Forum will support by driving engagement from industry, investors and its network of Technology Pioneers, a global community of trailblazing companies, to reduce the costs of low carbon energy solutions, making them widely available, affordable and reliable.
“Public-private partnerships are critical to fast-track innovation from early stage design to full scale-up. This is a critical time for energy innovation and we are delighted to be working with major governments in the quest to accelerate access to clean energy for everyone,” said Cheryl Martin, Head of Industries, Member of the Managing Board, World Economic Forum Geneva.
“This partnership allows us to make the most of the clean energy momentum that Mission Innovation has created and collectively enable those participating to reach our aim of accelerating energy innovation in the private sector – which is at the heart of economic growth for many of the countries behind this,” saidLeonardo Beltrán Rodríguez, Mexico’s Deputy Secretary for Planning and Energy Transition.
Mission Innovation includes the world’s five most populous countries (Brazil, China, India, Indonesia, and the United States) and represents over 75% of global CO2 emissions from electricity and more than 80% of clean energy R&D budgets. Mission Innovation member governments have pledged to double R&D investment to reach over $30 billion a year by 2021. Details of each country’s plans are available here.
The announcement was made as ministers from all 22 member countries gathered in Beijing at theSecond Mission Innovation Ministerial and Eighth Clean Energy Ministerial.
Mission Innovation will convene energy innovation stakeholders at the World Economic Forum’s Annual Meeting of the New Champions 2017, taking place in Dalian, People’s Republic of China, 27-29 June. They will also meet at the Strategic Dialogues on Energy Futures event, hosted by Mexico, on 12-13 September 2017.
Africa's Prosperity Tied to Powerhouse Pair South Africa and Nigeria
- Size does matter: The fortunes of Africa are tightly bound to those of its two largest economies, South Africa and Nigeria, and the continent will not prosper unless they succeed
- Global economic shocks, notably the commodity price crash, have hit both of these countries and they must learn from the setbacks and set about fostering growth in new ways
- Switching from a heavy reliance on foreign investment to more intra-African trade is a clear priority
- Follow the 2017 World Economic Forum on Africa at http://wef.ch/af17
Tackling Africa’s massive social challenges is impossible without harnessing and coordinating the power of its two largest economies, South Africa and Nigeria, said Kuseni Douglas Dlamini, Chairman of Massmart Holdings, South Africa, at the World Economic Forum on Africa, which opened today in Durban. Dlamini pointed out that the two economic powerhouses together contribute 60% of the gross domestic product of sub-Saharan Africa. “Africa cannot succeed unless they succeed,” he added.
However, neither South Africa nor Nigeria is currently on a high-growth path. The global slowdown has clearly had a profound effect, but the countries’ leaders need to consider whether they have fully applied the principles of inclusive and sustainable growth. One example of effective leadership would be a redoubled effort at regional integration. At present, only 10% of all Africa’s trade is intra-African – the lowest ratio of all continents in the world. If this could be boosted to 20% it would make meaningful inroads into creating jobs and tackling poverty.
Haruki Hayashi, Executive Vice-President and Regional Chief Executive Officer, Europe and Africa, Mitsubishi Corporation, United Kingdom, said that South Africa and Nigeria should be “leaders, drivers and role models” for other African countries. This does not necessarily mean they shouldn’t be competitive – after all, the African market is a huge one with many trade and development opportunities for both. Hayashi said that policy consistency, political stability and turning back the tide of corruption are imperatives to South Africa and Nigeria assuming a leadership and mentoring role on the continent.
Danladi Verheijen, Co-Founder and Chief Executive Officer of Verod Capital Management, Nigeria, said that diversification of economies is a priority for many countries, but particularly for Nigeria, given its heavy reliance on its oil resources. He said oil has been seen as fuelling the Nigerian economy, but it should instead be seen as “lubricating” it. “Quick wins” are important to kick-starting growth away from current low levels.
Geoffrey Qhena, Chief Executive Officer of the Industrial Development Corporation of South Africa, said that Africa’s larger economies could, counter-intuitively, benefit from global moves towards protectionism. Rather than remaining reliant on imports in many sectors, countries like South Africa and Nigeria with the capacity to build new industry and manufacturing sectors could do so – with obvious long-term benefits for themselves and their neighbours. It might be important to collaborate on such initiatives and leaders need to engage and iron out their differences regarding impediments to cooperation.
The 2017 World Economic Forum on Africa takes place on 3-5 May in Durban, South Africa, under the theme Achieving Inclusive Growth through Responsive and Responsible Leadership. The meeting convenes regional and global leaders from business, government and civil society to explore solutions to create economic opportunities for all. It will also provide insight from leading experts on how Africa will be affected by the onset of the Fourth Industrial Revolution, particularly in terms of safeguarding the region’s economies from negative disruption and exploiting opportunities for further growth and development.
UNCTAD: Special Issue of its Investment Policy Monitor on the promotion of investment in the digital economy.
The digital economy – the application of internet-based digital technologies to the production and trade of goods and services – is becoming an ever more important part of the global economy. In many countries, this is reflected in digital development strategies and investment promotion priorities.
For the World Investment Report 2017 on Investment and the Digital Economy, UNCTAD examined to what extent digital development strategies address financing needs. It also conducted a survey of investment promotion agencies (IPAs) on investment promotion and the digital economy.
This Special Issue of the Investment Policy Monitor presents the findings of these two studies. Key findings include:
* The development of the digital economy is a key objective for almost all countries. Many countries and economies have adopted digital development strategies. An UNCTAD survey of the investment dimension in more than 100 digital development strategies shows that almost all such strategies acknowledge the need for investment.
* However, hardly any strategy contains a specific 'investment chapter'; most strategies discuss investment needs only at a general level. Less than 25 per cent contain details on investment requirements for infrastructure, and less than 5 per cent on investment needs beyond infrastructure, including for the development of digital industries.
* Policy measures to promote investment proposed in digital development strategies tend to focus on improving the enabling (sectoral) regulatory framework. Other measures include incentives and general facilitation, digital standards, and clusters and incubators for digital business development.
* Less than half of digital development strategies explicitly consider foreign investment as a source of finance. Investment promotion agencies mostly do not feature in the plans.
* Responses to a separate UNCTAD global survey of IPAs confirm that they are generally not involved in the formulation of digital strategies. Nevertheless, for most IPAs, the promotion of investment in digital infrastructure, digital firms, and the development of linkages in the digital sector, are priority objectives.
* However, while incentives and facilitation measures are frequently proposed in digital development strategies, only a minority of IPAs confirms the availability of investment promotion instruments for the digital economy.
* The results of the two surveys suggest that policy coordination, between investment authorities on the one hand and ministries and public institutions charged with digital development on the other, can be improved.
Considering the pressing need to increase investment in digital infrastructure and businesses, policymakers in charge of investment, on the one hand, and digital development, on the other, should work synergistically. The forthcoming World Investment Report 2017, on Investment and the Digital Economy, will provide policy recommendations on how to strengthen the investment dimension in digital development strategies.
For more details on these and other findings I invite you to download the Special Issue of the Investment Policy Monitor here