Brave new world: An Introduction to Financing for Development

Henry J. Kröger, Earth System Governance International Project Office [@ave_frater] • Apr 30th, 2015
Brave new world: An Introduction to Financing for Development

In July 2015, global political leaders and stakeholders from the business world, the non-gonvernmental sector as well as international instutions will gather in Addis Ababa, Ethiopia for the 3rd conference on Financing for Development, supported by the Financing for Developmen Office (FfDO)

The goal of this conference is an intergovernmental agreement to contribute to and support the implementation of the post-2015 development agenda. It was orginally set in motion in UN resolution 68/204 as a follow up to the conferences in Monterry, Mexico in 2002 and the review conference in Doha in 2008, while its scope was further defined in UN resolution 68/279.

In particular, the conference is set to

  • Assess the progress made in the implementation of the Monterry Consensus and the Doha Declaration;
  • Analyse the obstacles and constraints encountered during this process;
  • Address new and emerging issues during the implementation process; and
  • Develop strategies to overcome said obstacles. 

In preparation of the main conference in July 2015 a number of regional consultations were held in March and April in five different locations. The expected outcome of the conference is regarded as one of the most important contributions to the post-2015 development agenda in order to secure a stabel financial situation for implementation of all post-2015 goals (read more about these goals in our other article). Thus it is worthwile to have a deeper look into the Financing for Development framework and recall the outcomes of previous conferences and consultations.

Monterrey Consensus

The Monterrey Consensus is the result of the first Financing for Development conference in March 2002 in Mexico. One of the majore agreements within the outcome document is to implement and constantly improve the effective usage of financial resources towards the eradication of poverty, sustainable development and economic growth. New partnerships between developing and developed nations are to be established (such as the New Partnership for Africa's Development) on the basis of international trade as the motor for global, national and local growth.

A strong focus is given to the mobilization of domestic financial resources as a form of self-help via the use of international assistance and investment. This is to be achieved through combatting corruption, promoting public-private partnerships (we also published a critical analysis of the PPPs here) and implementing an effective, efficient and transparent fiscal system. From a macro-economic perspective, developing nations are advised to establish a capital market system to allow for business development, particular for small- and medium sized enterprises following good corporate citizenship. 

From an international perspective, on the one hand, Foreign Direct Investment (FDI) and the associated transfer of technology and knowledge is encouraged. Nevertheless, it is also stressed that these investments need a favourable domestic and international environment to allow for efficient and effective financial flows. International trade is to become open, non-discriminatory and multilateral with meaningful trade liberalizations where seen fit and necessary. On the other hand the significant role of official development assistantance (ODA) is emphasized, especially for those countries lacking the ability to attract FDI on their own due to the lack of infrastructure, human capital or other domestic resources. ODA serves as means to build such capacities necessary to allow for FDI inflows in a developing country as well as empowering least developed nations to achieve the global development goals. 

Last but not least, the Monterrey Consensus addresses systemic difficulties in the coherence and consistency within and between the international monetary, financial and trading system. It is recognized that the three systems need to be coordinated better to achieve greater coherence in the collective effort towards the fulfilment of the development goals. This includes more transparency on the international level regarding the transformation of the international financial architecture. The International Monetary Fund (IMF) is directly addressed to increase its efforts in forecasting potential international as well as national crises to actively prevent the happening of such.

Doha Review Conference

The Doha Review Conference critically acclaimed the outcome of the first conference on Financing for Development and acknowledge significant improvements in several development countries economic frameworks towards more open trade and the establishment of an effective and transparent financial sector. It is accentuated that an environment, which allows for entrepreneurship as well as small- and medium sized companies to prosper, is an important step towards a more productive domestic economy including income growth and empowerment. 

Countries are urged to focus their macro-economic policies on high rates of economic growth, working towards full employment of all citizens as well as minimize internal and external shocks to ensure growing wealth for all citizens. The domestic reformations of tax systems should be "pro-poor" and if applicable, supported by the international community.

Fighting money-laundering, illicit financial traffic and corruption is re-strengthened with noteworthy remarks about the Stolen Asset Recovery Initiative of the World Bank Group and an urge to ratify and accede to the UN Convention against corruption.

It is noted that, even though FDI flows have been on the rise since the Monterrey Consensus, there is still a long way to go for a significant number of countries. A stronger focus will be given to these countries for they are in need of assistance to increase their popularity among FDI providers. Similar difficulties are observed for the Monterrey proposed broadened access to international markets resulting into the situation where many developing nations are still at the margin of international trade. 

All in all the Doha conference participants are convinced that substantial progress has been made in solving all of the in 2002 outlined problems, although full solutions are still bound to further effort by the international community.

Chief among those challenges not covered by the Monterrey Convention, but recognized by the review conference are the 2008 financial crisis, additional cost for climate change mitigation and the volatility of international markets, especially for key commodities. 

Addis Ababa Conference

The upcoming conference will include two different formats:

  • Plenary meetings
  • Multi-stakeholder round tables parallel to the plenary meetings

It will include the possibility of institutional stakeholders not yet part of the Monterrey and/or Doha process to be accredited to the 3rd conference on Finance for Development.

In line with the previous two conferences, as well as the zero-draft outcome document of the 3rd conference from March 2015, the conference talks and negotiations will likely cover the following topics as well as some further ones:

  • Achieving sustainable, open and effective FDI in order to grow domestic markets and facilitate technology and knowledge transfer;
  • Combatting corruption and illicit financial trafic;
  • Strong support for entrepreneurial activities and small- and medium sized companies;
  • Further establishment and increase of ODA efforts of the developed world;
  • Meaningful trade liberations as well as improvements to the international trading system;
  • Reduction of systemic problems (e.g. environmental challenges, international financial system).

Tags: Finance For Development (FFD),frameworks and conceptualizations,Post-2015 intergovernmental process