published: News item | 21-05-2015 | 13:09
Minister Ploumen’s Speech at the Post 2015 Development Finance Forum in Rotterdam
This year, the global community will set a new global development agenda that builds on the experience of the Millennium Development Goals. But the Sustainable Development Goals go further and will require more money to achieve. We need to change the way we think about how we finance development—Minister for Foreign Trade and Development Cooperation Lilianne Ploumen’s speech at the 2015 Development Finance Forum May 21, 2015, Rotterdam zooms in on this Finance Challenge
Ladies and gentlemen,
Welcome to Rotterdam! The public library here has this quote on the façade by Erasmus of Rotterdam: “Quaevis terra patria” – any country is your home country. We hope these words will inspire you today and tomorrow.
This is not your typical conference, I read in the booklet. That’s great, because this is not your typical year. I don’t have to tell you why – we all know the stakes, let’s focus on what it takes. What will it take to achieve the Sustainable Development Goals? What will it take to end poverty?
Let’s begin with some straight talk – that is what this city is known for. At the rate we’re going, we won’t end poverty by 2030. It’s as plain and simple as that. According to World Bank estimates, we need per capita growth in developing countries to go up to at least 4%. If you want a different result, you have to do things differently – that has been my motto from day one.
Harnessing trade and investment for development has been my modus operandi, based on my unique mandate of development cooperation and foreign trade. I am glad the recent MDB paper “From Billions to Trillions” embodies that same spirit of catalytic aid. While traditional ODA will remain crucial to the poorest and most fragile countries, elsewhere a paradigm shift is in order.
A shift involving the use of the ODA billions to spark trillions in private sector resources and developing country tax revenues. This is not about passing the buck to businesses and poor countries, as some say – it is about getting more bang for your ODA buck.
Here, we have something to learn from that other famous son of Rotterdam, Jan Tinbergen. He won the Nobel Prize for his contributions to economic theory, but he won our hearts with his focus on development practice. On getting out of the ivory tower to get things done. “From Billions to Trillions” sounds great in theory, but how do we put this principle into practice? How can we really leverage private sector resources and how can we jumpstart domestic resource mobilization?
Let me start with the latter, with domestic resource mobilization. The Monterrey consensus says that, and I quote, “each country has primary responsibility for its own economic and social development.” End of quote. Development starts at home.
Not coincidently, the very first actions Monterrey came up with relate to domestic resource mobilization. Financing for Development should to an important extent revolve around helping countries finance development themselves – providing TA in this area should be a top priority, also for the World Bank.
It already is a top priority for me, with an emphasis on making the tax man stronger, tax felons weaker and the tax base broader.
First, on making the tax man stronger, on capacity-building. Together with a couple of other donor countries, I am starting the Addis Tax Challenge Fund to boost the capacity of developing country tax agencies. The capacity to, for example, participate in the so-called Base Erosion and Profit Shifting negotiations in Paris and to implement agreements sealed there on the mutual exchange of information.
Second, on making tax felons weaker, on fighting tax evasion. The Mbeki Panel estimates that the illicit flow from Africa amounts to at least 50 billion dollars and offers useful suggestions to track it, stop it and get it. I think we have to especially double down on regional cooperation here.
Third, on making the tax base broader, on reducing tax avoidance. By renegotiating our tax treaties with 23 developing countries, I want to broaden their tax base and make sure international firms that make profits there also pay taxes there.
Ladies and gentlemen,
Aside from developing country tax revenues, our aim is to also harness private sector resources for development. Of course, we can’t expect the private sector to just write a check and bail us out, when it comes to paying for the SDGs. Private sector activities revolve around risk and return – and they should: within the framework of the SDGs and corporate social responsibility, the core business of business is to do business.
But with the right ODA-fueled instruments, we can influence the risk and return considerations when it comes to trade with and investments in poor countries and move the needle from charitable to profitable.
Our Dutch Good Growth Fund is such an instrument: this 700 million euro fund helps small business at home and abroad, by giving them access to finance and by taking the edge off risk. Another example is the Health Insurance Fund, an unconventional instrument in a conventional development sector. Through this public-private partnership, we are developing health insurance for the poorest Africans, so that for them disease does not always spell financial disaster.
In the same sector, we managed to get 200 million euro in private resources out of an initial 100 million euro public investment in a credit facility for small health care businesses. That is what I call catalytic aid in action.
Ladies and gentlemen,
During the recent Spring Meetings, I complimented the MDBs for the paper “From Billions to Trillions”, which hinged on the principle of catalytic aid. But I also said the last chapter was missing, the chapter with more details about MDB contributions to Addis and about how we could all work together better, based on those contributions. I support the World Bank’s push for innovative financing – please use the following days and weeks to further explore and explain as we get closer to Addis.
For example, by leveraging private flows, the Global Infrastructure Facility could help us close the global infrastructure gap. I am triggered by the Bank’s work on a trigger mechanism that could disburse funds quickly to countries hit by epidemics – more quickly than what we saw with Ebola. As it develops the details of its Pandemic Emergency Facility, we do expect the World Bank to search for synergy with in particular the World Health Organization and the IMF. Finally, the IDA-plus proposal holds the potential to benefit the so-called “missing middle” – the countries that first get ahead but then get in trouble because aid falls faster than tax revenue rises.
Ladies and gentlemen,
Financial instruments are instrumental to our 2030 ambitions. Money matters, ODA matters. On some of the most barren soils, in countries that are deeply fragile and dirt-poor, only the seeds of ODA can sprout and produce a crop – that is how we should continue to use ODA there, finding ever better ways to sow the seeds. Elsewhere, on better ground, ODA can be the fertilizer instead, helping the plants of the private sector grow.
But enough about money, because money is not enough. Policy, on taxes, on trade, on human rights, on human capital, also deserves pride of place in these discussions. At the end of the day, while we can throw billions or even trillions at the problem, we cannot free enough people from poverty’s prison by money alone.
We will never get to zero poverty if we don’t get the policies right – here, at the international stage, and at home, at the national level. What we need are policies that emphasize the rights of the many over the riches of the few – Tinbergen’s dream in a nutshell. In his words, which we can read on the façade of Rotterdam’s Erasmus University: “We reap the biggest profits when we share the wealth.”