In this series, we asked speakers at the Milken Institute Global Conference to answer: How does one build a meaningful life in the age of technological disruption? Join the conversation by writing your own article here and including #MIGlobal.
Go almost anywhere in the world, and you’ll see people on cell phones and computers. As the internet and social media connect more people, they know exactly how everyone else lives.
Knowing how everyone else lives, in their own countries and abroad, is leading to a global convergence of aspirations. But these aspirations aren’t just for things that other people have; they’re demands for opportunities that too many don’t have.
Here’s the good news: aspirations, linked to opportunity, can breed dynamism and inclusive, sustainable economic growth. Aspirations can lead to new markets and opportunities for investors.
But if there’s no path to meet those aspirations, we fear that they could turn into anger, resentment, and possibly even extremism. We’re already seeing worrying trends – 2 billion people live in countries affected by fragility, conflict, and violence. Between 2012 and 2015, terrorism incidents increased by 74 percent, and the number of deaths from terrorism increased by almost 150 percent.
To meet these rising aspirations, we need trillions in investments of all kinds into emerging markets: public and private, national and global. The only way we can spur that kind of investment is to find ways to create markets and bring private sector rigor and innovation to developing countries.
At the World Bank Group, we are fundamentally rethinking development finance. Whenever possible, we need to work with countries to crowd in private capital. And we should combine this capital with our knowledge – technical expertise, knowledge about the countries and the economy – so that capital really works for poor countries and poor people.
We believe that all development finance institutions should be working to crowd in private capital through a set of principles that will maximize resources and benefits for the poor. We’re not there yet, but this is how we think we should proceed in order to get there.
First, for every project, we have to ask, “Can the private sector finance this on commercial terms?”
In 2006, the World Bank Group worked with the Jordanian government to finance improvements to the Queen Alia International Airport in Amman. This could have been financed solely by public money, but the government was interested to see if they could bring in the private sector.
We worked with the government to lay the ground work for private investment. Our private sector arm, the International Finance Corporation (IFC), put an appropriate deal structure in place, and invested $270 million of its own capital. We were able to attract enough commercial financing to cover the rest of the project.
The government contracted the airport’s operations to a French company, which pays Jordan an annual fee. It’s a genuine public-private partnership. Jordan receives 54 percent of the net revenue and they’re making money every year.
Over the last nine years, without any direct investments, Jordan has received more than $1 billion in revenue – and they don’t have project loans to pay back.
We have to look everywhere for more opportunities like the Queen Alia Airport.
Second, we have to encourage upstream reforms.
We saw this work in Turkey in the energy sector. Over a decade, with other partners, we supported the creation of power and gas markets – with a focus on regulations and pricing structure. We used public finance for public-good investments like transmission expansion and advised on regulatory changes for energy efficiency.
As the market liberalized, IFC invested in renewable energy. And our Multilateral Investment Guarantee Agency, which specializes in political risk insurance and credit enhancement, provided coverage. With just $5 billion of public investment and policy loans, Turkey was able to attract more than $55 billion in private power and gas investments.
Third, we have to use public or concessional finance in innovative ways to mitigate risk, and blended finance to support private investment. Here’s what we’re working on now – a risk mitigation mechanism called the Managed Co-Lending Portfolio Program. This platform allows institutional investors in OECD countries to invest in projects in the developing world and get a return on their investment.
IFC and the Swedish International Development Agency provide a first loss guarantee of 10 percent, creating an investment grade risk profile on a loan portfolio of emerging market infrastructure investments. This allows partners who have relatively conservative risk appetites to invest in emerging markets. German insurer Allianz is providing $500 million to this platform, which we estimate can mobilize 8 to 10 dollars for every dollar of public money.
Our goal, for example, is to find a way for a pension fund in the United States to be able to invest in building roads in Dar es Salaam that allow people to get to their jobs in the morning and get home to their families at night. Investors can get a reasonable return on that investment, and do a lot of good in the process.
For decades, the rich have used sophisticated tools – swaps, derivatives, debt – to get richer. We need to put those tools to work in creative ways on behalf of the poor. At the World Bank Group, we think of ourselves as strategic advisors and honest brokers who link capital looking for greater returns to countries looking to achieve their highest aspirations.
We believe that everyone in the development community can be an honest broker who helps find win-win outcomes – where owners of capital get a reasonable return, and developing countries maximize sustainable investments.
There’s never been a better time to find those win-win solutions. Right now, there’s $8.5 trillion sitting in negative interest rate bonds, $24.4 trillion in low-yield government securities, and an estimated $8 trillion in cash, waiting for better investment opportunities. We can mobilize this capital to help meet the exploding aspirations of people all over the world.
Aspirations are rising all around us; let’s see if we can raise our own to meet them.
