Can Blended Finance and Industrial Policy Work Together to Provide the Financing Developing Countries Need?

While I view the Sustainable Development Goals (SDGs) with some skepticism (are they financeable, or achievable?), they have raised the stakes for concerted action by the development community. And they have brought to the policy forefront the long-brewing academic discussion about the government’s role in promoting economic activity—the so-called “industrial policy.” Moreover, the SDGs have started a discussion about how private financiers and the international financial institutions (IFIs) can pool resources, knowledge, and logistics to increase financial flows to developing countries to support growth-oriented investment under the rubric of “blended finance.”

Parallel conversations converging: blended finance and the new industrial policy

These two discussions have largely been in parallel, but it’s becoming clear that they must intersect. In its recent report, the Eminent Persons Group, tasked by the G20 to look at reform of the IFIs, recommends that developing country platforms (i.e., government generated plans for growth) be used to coordinate IFI support. At the same time, they urged IFIs to make changes that would allow them to leverage more private sector money to support developing countries: planning meets finance, public meets private, national development plans meet international support.

The initial promise of blended finance bringing billions of dollars to developing countries is a work in progress. Private financing for development is concentrated in a few sectors, is more abundant in lower-middle income countries than low-income countries, and the rate at which IFIs are leveraging private financing is very low. There is a lack of consensus as to how to allocate public funds earmarked for blended finance and how to evaluate their impact on markets and development outcomes.

As the financial community works to find the ways to mobilize SDG funding, the academic community is engaged in a discussion as to what the role of government should be. As observers look at the rapid growth of China and India, long-standing faith in “pure” market solutions for growth is giving way to a rethink of how governments can incubate economic activity without subsidizing inefficiencies. Markets are not perfect, but how can the theory of the second best can be turned into practical guidance for developing country policymakers and their supporters in the developed world.

Want to learn more? Register today for CGD’s upcoming conference

On November 8 and 9, CGD will host a conference in Geneva, Switzerland to bring together these parallel conversations. Co-sponsored by CGD, CDC, and the Graduate Institute’s Centre for Finance and Development, the conference, “Blended Development Finance and the New Industrial Policy,” will welcome academic thinkers, development policymakers, financiers, and developing country officials to tackle important questions facing development finance today.

Here are some of the important issues that the more academic sessions will tackle:

  • As developing countries look to promote growth, they naturally look at what has and hasn’t worked elsewhere—The sessions will examine recent research on and experiences with industrial policy and blended finance in India, Ethiopia, Uganda, South Korea, and Tanzania and assess the types of countries where these tools work best.

  • Blended finance tools work will need to be tailored to the needs of sectors—one session will be devoted to infrastructure financing while another looks at how public and private finance can be used to provide health and education services in developing countries.

  • Several papers take a step back from country experience and look at the theoretical case for industrial policy and blended finance, but they too provide insights as to when, where and how these tools will be most helpful and how their impact might be measured.

The policy sessions will focus on the roles of the various players—governments, international development finance institutions, national development banks, and the private sector and how these roles need to evolve across sectors and over time to scale up the level of financing available for development:

  • There will be two sessions on the role of development finance institutions in partnering with governments to design and finance development policies and another on how to engage the private sector in planning and finance.

  • John Lipsky, former First Deputy Managing Director of the IMF, will lead a discussion with Nancy Birdsall (CGD), Alan Rousso (EBRD), and Colin Buckley (CDC) on the critical choices development finance institutions are facing in today’s changing development landscape. Catch this discussion live on CGD’s website on Thursday, November 8 at 6:15am EST/11:15am BST/12:15pm CEST.

  • A panel of leading practitioners and observers of blended finance will draw lessons on what we have learned so far and how we might accelerate progress in the months ahead. You can watch this panel on CGD’s website on Friday, November 9 at 10:00am EST/3:00pm BST/4:00pm CEST.

Can’t make the conference? Here’s how to follow what’s happening

Even if you won’t be in Geneva this week, we’ll be webcasting panels and sharing blogs, podcasts, and email updates with key takeaways from these exciting discussions. Join the conversation online at #WhyDevFi, look out for our Facebook live on Wednesday, November 7 at 11:00am EST/4:00pm BST/5:00pm CEST, and be sure to sign up for CGD’s Sustainable Development Finance Update right here to follow the conference from your inbox!

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.