So­ci­al, eco­no­mic and po­li­ti­cal im­pact of fi­nan­cing SDG in Af­ri­ca

Ge­ne­ral In­for­ma­ti­on


Project's Coordinator:
Dr. Frauke Banse, University of Kassel


Main Research Partners:
Prof. Dr. Akua Britwum, University of Cape Coast
Tetteh Hormeku, Third World Network Africa


Research Cluster:
Partnership in the global economy: agriculture, finance, and energy


Keywords:
SDG finance, market-based development finance, Africa


Main Re­se­arch Ques­ti­on

How and why do distinctive modes of financing SDG in Africa emerge, and what is their social, political and economic impact?


Ab­stract

The Sustainable Development Goals aim for sustained, inclusive, and sustainable economic growth and reduced inequality within and among states (SDG 8 and 10). One pressing question is how to finance the SDG. So far, one can distinguish between state/public-led and global finance/ private-led approaches to developmental finance. In state or public-led forms, the state intervenes directly in the allocation of development financing via state-owned financial institutions, and indirectly via banking and finance policy such as directed credit towards strategic sectors, explicitly guided by development priorities and closely coordinated with other macroeconomic policies, including monetary and fiscal policies. In contrast, global finance/private-led approaches put emphasis on the creation of SDG asset classes that can attract the trillions of global institutional investors, starting with infrastructure asset classes. This Maximising Finance for Development strategy, promoted by MDBs, the 3rd Addis Abeba Action Agenda of 2015 (UN 2015) and IFIs, has two pillars: the state redirects public resources towards derisking SDG asset classes constructed via Public-Private Partnerships and undertakes structural reforms of local financial systems towards market-based finance to create the conditions for liquid local currency SDG assets.

The private finance-led model has been heavily promoted in Africa, as it is claimed that potential domestic resources are too few and need to be complemented by external private finance. The research explores how and why do distinctive models for financing SDG in Africa emerge, their potential economic, social, and political impact, and what alternative forms of development finance might exist?

In order to answer these questions in detail, the project focuses on three African countries. Ghana, Ethiopia, and Morocco exhibit substantive differences in the degree of state/public-led or global finance/private-led modes of finance. The case selection will be finally decided upon during the applied preliminary research project.


Aims

  • Lay the (conceptual and empirical) foundations for a broader comparative research analysing the social, economic and political impacts of different forms of development finance in Africa.
  • Deepen and expand networks of expertise in Africa and beyond that can provide unique insights into African political economies of finance and development.
  • Deepen the link between academia and other civil society organisations in Africa and beyond, in order to develop common visions of alternative development finance and educational material on the topic (eg. online courses for CSO and universities).

Scope

The GPN funding will serve as seed money for writing a broader funding application. The envisaged research project is also meant as a follow up of the workshop on Global Finance and Development, hosted by TWN in February 2019 in Accra, bringing together scholars and NGOs from Africa and beyond (see attachment). In the planned broader research project, several of the colleagues present at the workshop will be invited to join, alongside other partners of the GPN -in order to have a continent-wide and global perspective, to strengthen a global partnership and therefore SDG 17.


Li­te­ra­tu­re Re­view

Global finance/private-led modes for financing the SDG have become central to global development discourses. With few exceptions, the political economy and the potential developmental outcomes are yet to be explored in the literature, particularly through a comparative analytical lens that fleshes out a typology of modes for financing development. This project, and the larger funding application that it seeks to generate, aims to fill in this gap. It zooms in on African countries, not least because the continent is at the center of global finance/private-led development programs and discussions.

The literature on global finance/private-led development is largely critical of the push to maximise private finance for development. It questions:

(a) the very limited democratic policy spaces to design and implement developmental projects, pointing also to the range of new derisking obligations that the state is expected to assume in order to attract private finance into PPP-based SDG asset classes (Bayliss/ van Wayenberge 2018, Gabor 2020, Dafermos et al 2020), ranging from liquidity, climate, demand to social and political risks increasing the dangers of public indebtedness (Gabor 2020, Aizawa 2017).

(b) the (gendered) inequalities that such partnerships may sharpen instead of addressing, as the development of PPP-based infrastructure asset classes, including (social) infrastructure, involves new or higher user fees and thus de-facto privatisation of public goods delivery (Hermann 2014, Verdynck/ Romero 2017), and the prioritisation of large-scale, profit generating infrastructure projects that have scalability for asset classes (UNCTAD 2018, ch. IV). Furthermore, private finance of development projects turns the idea of (tax-based) public financing upside down. While the limited taxation of wealthy individuals or multinational companies at home or abroad has sharply increased inequality, the push for state subsiding of SDG asset classes threatens to reinforce global inequality (Banse 2020; Musthaq 2020).

(c) the financial stability implications of reorganising local financial systems around market-based finance, prioritising the development of capital, repo, and derivative markets. Market-based finance is demonstrably more fragile (Gabor 2018), while the prioritising of portfolio inflows into local SDG asset classes increases the vulnerability of developing countries to global dollar funding conditions, despite claims to the contrary (Shin 2020). Furthermore, domestic resource mobilisation in global finance-led partnerships equates deeper and broader local financial markets with the privatisation of domestic social security/pension systems, with market-based infrastructure provision in order to create a domestic investor base that would act countercyclically in crisis (Banse 2019, Gabor 2018; AfdB, IMF, WB 2017). While this literature provides a powerful political economy critique of the ways in which global development discourses seek to support and promote financialised accumulation, it has little to say about the ways in which global finance-led modes of development have materialised at the country level, the political constraints therein or about alternative forms of finance. In comparing the three countries, the project examines the historical, political, and economic reasons for the diverse forms of development finance, to then turn to the political economy constraints behind the different forms of development finance.


Me­tho­do­lo­gy

During the preparatory study, a preliminary comparative framework will be developed in order to choose and justify the selected African countries, differing in their modes of development finance and their strategies for accommodating the global finance/private-led development models.

Then, the project team will undertake a literature review and conduct expert interviews with relevant global/local actors.

To root the research within a continent-wide discussion and practice, we will hold webinars with participants of the above-mentioned Accra-workshop, where we will discuss the chosen research design, the research questions, etc.