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The Future of Public Development Banks: questions and answers from the webinar

Added 27 Mar 2018

The webinar 'The Future of Public Development Banks (PDBs)' took place in early March 2018. Experts from three CSOs -  María José Romero (Eurodad), Anna van Opik (Both Ends) and Dario Kenner (Cafod) - discussed recent reports and their recommendations to ensure that PDBs are more effective. During the webinar, many questions were asked by the participants. Below you will find the answers to those questions. 

 

The webinar recording is available to watch in full here: https://youtu.be/QkhgbJUSYE8 


What reactions did Eurodad get to the proposals to the report Public Development Banks: towards a better model? Were the reactions different when it comes to regional, national and global banks? What proposal has been most difficult to get a positive response to?


María José Romero: At the theoretical level the proposals were well received by most institutions. The tendency of most institutions is to positively receive just the proposals/recommendations that they are already implementing, while trying to avoid any substantive debate on ones where they lag behind. There are some key aspects of the good governance and the operational strategy pillars that are controversial for some institutions, for instance 'the equal borrower representation' and the 'careful choice of methods of investing.'



What is the future of PDBs given the ongoing fiscal constraints esp. in the EU?  I notice there are many different funding models. Any recommendations on this?

María José Romero: There is no 'one size fits all' approach to how PDBs should raise money, and this depends very much on the national contexts. The government should aim for the right mix of public and private funding for the PDB. PDBs should carefully assess the different sources of funding available and the pros and cons of each, as their funding sources can have a significant impact on their ability to remain true to their development mandate. If PDBs rely heavily on commercial financing, they may face similar market incentives and pressures as private institutions do.


I'm interested in why each country is setting up their own PDB instead of joining/capitalising existing ones?

María José Romero: In recent years both developed and developing countries have established new development banks, either national or regional/global institutions. For instance, Productive Development Bank or BDP in Bolivia (2007); Bpifrance in France (2012); BRICS’ New Development Bank (2014); the Asian Infrastructure Investment Bank (2015); and FinDev Canada (2018)). In the case of emerging and developing countries, the creation of some of these institutions can be understood as a political response to the discontent with the lack of representation and the slow pace of governance reform, as well as frustration with the policy advice from the traditional multilateral institutions, particularly the World Bank. For instance, in the 2014 communiqué the BRICS pointed out the lack of democratic governance at the World Bank. While there was an acknowledgment of the “potential of [the World Bank’s] new strategy” they mentioned that “this potential will only be realized, if the institution and its membership effectively move towards more democratic governance structures,” something that these countries have been calling for in each and every international fora in which they participate. On the other hand, when it comes to new institutions from developed countries, it is important to think about the role that some northern driven DFIs have played in the support of their commercial and foreign affairs priorities.


It's been more than two years since FfD and 2030A. PDBs were called for to step up their financing muscles toward SDG implementation. Do you know of any PDB (NDB and MDB) that have included SDG conditionality in their loan/investment criteria? I mean, officially in the conditionalities list?

María José Romero: I will comment on how most regional and global PDBs have been working to implement the 2030 Agenda. Importantly, that they are focused on implementing the ‘from billions to trillions’ agenda established in a joint document published by several institutions in 2015. According to this document, “to meet the investment needs of the Sustainable Development Goals, the global community needs to move the discussion from “Billions” in ODA to “Trillions” in investments of all kinds: public and private, national and global, in both capital and capacity.” This means that they are focused on leveraging private finance, through the promotion of public-private partnerships and blended finance. This approach runs the risk of compromising the SDGs, and poses several challenges from a development finance point of view, including the risk of commercial objectives taking priority over development objectives, and poor transparency and accountability. The most updated plans in this regards came from the World Bank in what they call ‘maximising finance for development.’ Last October I published a briefing on infrastructure financing and the World Bank’s approach.

 

Does anyone have good reports measuring the additionality of PDB's investments? If not, how to best investigate and measure additionality?

María José Romero: Demonstrating the development and financial additionality of PDBs’ interventions is particularly important for multilaterals. Multilateral PDBs should provide clear documentation that identifies the need for the loans/investments to take place with support from a public institution and how this contributes to the national development plan, and what the additional development impacts are. In other words, PDBs should carefully evaluate the development ‘additionality’ of their activities, and not just assume it. Demonstrating ‘financial additionality’ – showing that a national financial institution could not have made the same investment – is important for multilaterals, as they are an external influence on domestic financial sectors. Without a demonstrated financial additionality, there is a risk that multilaterals can undermine the development of national financial sectors by limiting the market for national actors, including national PDBs. Measuring additionality is difficult. To read more about some of the limitations of current practices, please see the report by Javier Pereira ‘Blended finance. What it is, how it works and how it is used,’ and the report published by the Development Committee of the European Parliament ‘Financing for development post 2015: improving the contribution of private finance’.


What do you see are the strengths and limitations and the differences between MDBs and National Development Banks?

María José Romero: When comparing multilaterals PDBs and national PDBs, there are some features that refer to strengths of national institutions. Importantly, national PDBs need to be well run and governed, and to apply the principles set out in our report. When this happens, they are more able to serve democratically decided national development strategies and the development of a local private sector. Moreover, once well established, national PDBs can become significant sources of stability for the national financial sector, and become drivers of economic development, supporting national development plans. As long as they are well structured, and depending on the democratic situation in the country, national PDBs can also provide a much more direct accountability route for their activities than multilaterals headquartered in a different continent, whose governance is dominated by foreign governments with their own trade and geopolitical interests. This is particularly important for redress mechanisms, as most multilaterals cannot be taken to a national court.


Anna, most PDBs have all the guidelines and safeguards on paper, what is missing to get them enforced?

Anna van Ojik: Of course enforcement is the most important (and the most difficult). What is needed is on the one hand still more guidance of how to implement the policies. Better and clearer roles and responsibilities on, for example, FPIC processes. What is also needed is better due diligence from the DFI: including specific due diligence based on Human Rights. So Human Rights risks assessments and human rights impact assessments. DFIs should be more aware of where they operate and what the context around their project looks like (contextual risk analyses), and how they select their client (client policies). They should also have clear protocols in place for what they do if something (appears to) goes wrong (like how to deal with threats to human rights defenders and for example shrinking civil society space). On the other hand, transparency disclosure needs to be improved so the monitoring of the implementation of the policies can happen in the right way. From within the bank big changes are necessary in terms of incentives and performance. This is a more structural (long term) change: the thinking and working in the bank needs to shift from profit-oriented to sustainable-oriented. People should get rewarded for the most sustainable inclusive projects, not for the most profitable ones.

 

Are the recommendations in the BOTH ENDS report for the host govt or donor govt on oversight, etc?

Anna van Ojik: Our report lists both. In the webinar I focussed on the recommendations for the 'donor' governments as that is what I am dealing with most in The Netherlands. Of course there is also a big role for the host government but they are often part of the problem and harder to influence on, for example, human rights.


Did you come across any cases that you thought were more positive cases of DFI financing?

Anna van Ojik: Unfortunately it is more the negative cases that come to the light and that we focus on. I believe these cases help us to show where and how things go wrong and what needs to change. I am sure that FMO has many positive projects as well (or at least projects where not much harm is done). It has been an idea for a long time to also look into some positive projects be it of FMO or other DFIs so we can also show what is the right way to do it. This is one option of where we can hopefully coordinate and use each others knowledge and experience/

 

Does anyone have any comments on Proparco? Its investments will double in size by 2020. 

Anna van Ojik: No, but I would love to coordinate with French groups to work on Proparco. Proparco is included in the land grab report so please take a look. I do know that there have been discussions of Proparco setting up a grievance mechanism and that they wanted to join the mechanism of FMO and DEG.

 

María José Romero: Here are some good links on Propoarco that should be useful to access:

 

Dario, can you talk about CDC's approach to SDG7, and specifically whether they are increasing their focus on energy access, and what types of projects (if any) they are funding in this area so far?

Dario Kenner: Their aim is to generate energy for economic growth. I am not aware of them having a goal to increase energy access. They do however invest in off grid solar, see: http://www.cdcgroup.com/Media/News/News-New-US20m-CDC-investment-will-help-bring-solar-power-for-a-million-off-grid-homes-in-East-Africa/

  

Could you see some of the suggestions made by Maria Jose as applicable to the CDC? Especially in terms of a pubic orientation and democracy.

Dario Kenner: As the UK Department for International Development is the only shareholder it has oversight over CDC. DFID is democratically accountable to the UK parliament and citizens.

It’s been more than two years since FfD and 2030A. PDBs were called for to step up their financing muscles toward  SDG implementation. Do you know of any PDB (NDB and MDB) that have included SDG conditionality in their loan/investment criteria? I mean, officially in the conditionalities list?

Dario Kenner: No. There are more references to how an investment contributes to the SDGs but this is different from it being a condition prior to investment.

Do you know whether CDC has dedicated environmental and social policies? Additionally, do they have an independent complaint office where communities affected by CDC projects can file complaints if such E&S policies are not followed?

Dario Kenner: Here is a useful link: http://www.cdcgroup.com/How-we-do-it/Responsible-Investing/

In particular the Code of Responsible Investing: http://www.cdcgroup.com/How-we-do-it/Responsible-Investing/Our-Investment-Code1/

Complaints and whistle-blowing: http://www.cdcgroup.com/Get-in-touch/Make-a-complaint/