Davos hot topic: public-private partnerships with developing countries
International collaboration is needed to build green infrastructure in
developing countries, says Dominic Waughray
Waughray for the <http://www.guardian.co.uk/guardian-professional
> guardian.co.uk, Friday 27 January 2012
Floods have cost the Thai economy US$45bn in 2011, about 7% of its GDP
according to the World Bank, with wider disruption to many global supply
chains. Parts of China are experiencing the worst droughts in 60 years,
affecting more than four million farmers. Low rainfall across Djibouti,
Ethiopia, Kenya, Somalia and Uganda has created the worst drought since
1950, affecting more than 10 million people and pushing up food prices.
Worryingly, these events could be trends rather than outliers. In a recent
report, the <http://www.ipcc.ch/
> Intergovernmental Panel on Climate Change
(IPCC) said it was 90% certain that heat highs previously occurring about
once every 20 years would be occurring once every two years by the end of
the 21st century, in most regions of the world.
Increasingly, governments of developing countries are choosing to design
more sustainable, resilient pathways to economic growth. They are investing
in clean energy, water management systems, climate-resilient agriculture,
smart grids and low-carbon transport systems. This strategic shift has been
termed "greening the economy" or making a "green growth" transition.
Developing countries now have more than half of the world's global renewable
power capacity, according to the Global Status Report of the Renewable
Energy Network. And these investments are growing. Bloomberg New Energy
> Finance calculates
that in 2011, for the first time, global investment in renewable power
plants surpassed fossil fuel power plant investment.
This is creating a new investment opportunity.
markets are forecast to represent more than 60% of global GDP by 2030. The
World Economic Forum's Infrastructure Initiative estimates a market size of
US$18.7tr in cumulative investments in infrastructure within developing
economies over this time period. However, public finance alone (whether
domestic or international) will not be able to fund the green infrastructure
transition for most developing countries at the speed and scale required.
The ability to leverage significant private investment into these new
national green growth plans will be crucial. But private investment is not
currently being attracted at sufficient scale or speed. This is due to the
range of perceived risks in developing countries and a sense of newness
among the investor community about the market for these new technologies.
Small amounts of well-targeted public finance can help to mitigate risk and
catalyse private finance in this area and new models and initiatives are
starting to emerge. For example, as a result of discussions convened by the
World Economic Forum to address scaling up private investment in India's
National Solar Mission, the Asian Development Bank recently launched the
Partial Credit Guarantee mechanism (PCG). The PGC seeks to mitigate legal,
political, commercial and technical risks encountered by solar project
developers. Several projects representing over 600mW of new solar capacity
are now in the due diligence stage, and are seeking to benefit from this new
Another partnership example is the <http://idfc.org/
Development Finance Club. This is a new network of 19 development banks that
seek to combine their strengths and know-how to attract a step change in
green investment from the private sector into developing countries. It
includes many emerging economy financial institutions, such as the Brazilian
National Development Bank (BNDES) and the China Development Bank (CDB) .
Can new models of public-private finance and innovation like this stimulate
green investment in developing countries and help rescue the global economy?
This is a core theme of the "green" discussions at Davos this year.
Getting countries to agree on how to tackle greenhouse gas emissions is
vitally important, but it is also a slow process. Last year's UN climate
summit in Durban was a diplomatic success in that it managed to extend the
Kyoto Protocol and finalise a process to agree a new global accord to cut
greenhouse gases. But countries have until 2015 to negotiate the new accord,
and the measures won't actually come into force until 2020. Climate
scientists, while welcoming the progress, are frustrated by the pace of
these talks and are concerned that inevitable compromises will create too
weak an agreement. Without a shift to low-carbon investments, most new
emissions will come from developing countries as they rightly seek to grow
A first meeting of heads of state, ministers, investors, business leaders
and international agencies will take place at the World Economic Forum in
Davos later this week to discuss these issues. The group will develop a set
of practical ideas for green infrastructure finance models and partnerships
to be considered at the G20 meeting in June.
By triggering different ways of thinking and by promoting the emergence of
new models, discussions in Davos may prompt a turning point in how the green
infrastructure investment market in developing countries is considered. This
is the kind of great transformation that the annual meeting seeks to
Dominic Waughray is senior director at the <http://www.weforum.org/
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Received on Sat Jan 28 2012 - 06:36:27 EST