Post 2015: Global Action for an Inclusive and Sustainable Future

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CHApTER SEvEn Blending involves the complementary use of grants and non-grant sources such as loans or risk capital to finance investment projects in developing countries. 122 cyclical fluctuations. currently donors are hesitant to commit to further future liabilities in the form of such bonds because of fiscal constraints and financial market conditions, which limits the prospects of expanding their use. Blending blending involves the complementary use of grants and non-grant sources such as loans or risk capital to finance investment projects in developing countries. usually donors provide the grant component, which can take various forms including direct investment, interest rate subsidies or a loan guarantee. Development finance institutions or development banks often provide the non-grant component, usually using funds mobilised through bonds issuance in capital markets (Gavas et al., 2011; núñez Ferrer and behrens, 2011; Wälde, 2012). blending allows donors to use grants to make investment projects that have a high economic rate of return financially viable. 80 by providing a grant element, donors can close financing gaps in the project that prevent investment from materialising. In this way, blending can make investment projects more feasible by reducing overall project costs, including interest, and by reducing risks for the providers of non-grant finance. the grant element allows risk to be shared and ensures that in the event of losses, all financial returns accrue to the providers of the non-grant component. this can increase the risk-adjusted returns of investment projects, and hence unlock non-grant financing for investments where the economic rate of return is high, but the financial return is not enough for investors to be attracted without the grant element (rudischhauser, 2012). this is the case for many infrastructure projects in developing countries. For most investments in renewable energy, for example, the economic rate of return exceeds the financial EuropEan rEport on DEvElopmEnt 2013 rate of return. using the quantitative leverage of the grant element can hence catalyse non-grant financing from institutions borrowing in capital markets. 81 In addition, using non-grant financing releases grant funding for other development projects. this makes blending appealing to providers of SSc and donors such as the Eu (box 7.4), which have increased the use of blending facilities (núñez Ferrer and behrens, 2011). Finally, by increasing the financial viability of projects adhering to high social and ecological standards blending can indirectly contribute to development because the grant element, as a qualitative lever, serves to finance the additional costs associated with adherence to such standards. Its potential notwithstanding, blending carries the risk that development projects will be selected more on financial than on development grounds because investments must achieve a minimum financial return to attract non-grant financing. Where donors seek to depress the grant component and emphasise financial viability in order to attract funding, they may opt to engage in highreturn low-risk projects, although low-return high-risk projects may potentially have greater development impacts (Spratt, 2013; Griffiths, 2012). there are also high opportunity costs in using oDa to leverage non-grant financing for investment projects whose impacts on development may be ambiguous. Furthermore, where investors would have provided the funds without the grant component, oDa effectively crowds out non-grant finance (Griffiths, 2012). but it can be difficult to assess whether a project using blended finance has created financial additionality because of the lack of a counterfactual and because there may be limited transparency where blending relies on private finance, as contracts often have commercial confidentiality clauses (Spratt, 2013). there is some 80 the economic rate of return measures the total net economic and social impact of an intervention. the financial rate of return, which measures the net financial return to the project initiator, is a sub-set of the economic rate of return. 81 the leverage ratio (loan component/grant component provided) depends on the type of project, i.e. its economic and financial rate of return, and the gap between the two.
Box 7.4 EU blending facilities Since 2007, the European Commission has launched seven blending facilities to support large-scale infrastructure and SME development, including the Infrastructure Trust Fund (ITF) in Africa, the Neighbourhood Investment Facility (NIF) for European Neighbourhood and Partnership countries, the Western Balkans Investment Framework (WBIF), the Latin America Investment Facility and the Investment Facility for Central Asia. These facilities link EU budget grants (sometimes topped up with grants from financial institutions and EU Member States) with loans by accredited international, regional and European bilateral financial institutions such as the European Investment Bank (EIB), Agence Française de Développement (AFD) and KfW Bankengruppe. As Figure 7.6 suggests, these facilities have substantial leverage effects. For instance, the ITF has a leverage ratio of approximately seven whereas the NIF and the WBIF have leverage ratios of about 15 and five respectively. The leverage ratio refers to the ratio of loan component provided by accredited financiers against the grant component provided to approved projects since the inception of the facility until end 2011. Figure 7.6 Grant and loan components of selected EU blending facilities (million EUROS) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Accredited Financiers 0 ITF NIF WBIF Total Grant Source: The author, based on 2011 data and annual reports poSt-2015: Global actIon For an IncluSIvE anD SuStaInablE FuturE Blending carries the risk that development projects will be selected more on financial grounds because investments must achieve a minimum financial return to attract non-grant financing. 123
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EUROPEAN REPORT ON DEVELOPMENT 2013
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MOBILISING EUROPEAN RESEARCH FOR DE
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FOREWORD The development road we ha
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ACknOWlEDgEmEnT The European report
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TAblE OF COnTEnTS ACKNOWLEDGEMENT V
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CHAPTER 9. PEOPLE: LABOUR MIGRATION
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Figure 5.2 Evolution of depth of po
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EITI Extractive Industries transpar
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PSG peace-building and state-buildi
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mainly countries in Europe, north a
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ExEcutivE Summary poSt-2015: Global
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ExECuTIvE SummARy poSt-2015: Global
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poSt-2015: Global actIon For an Inc
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THE DEPLOYMENT OF A BROAD RANGE OF
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introduction poSt-2015: Global actI
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2. The case for global collective a
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upon in order to promote a developm
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to achieve inclusive and sustainabl
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contribute to a global framework fo
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Part i. KEEPing thE PromiSE of thE
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mortality, and clean water and sani
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Table 1.2 Non-income MDGs, 1990-201
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Several regions significantly reduc
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Figure 1.1 Sectoral allocation of b
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of tailored objectives that are ins
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policy discourse. In particular, th
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processes and implementation arrang
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NEPAL RWANDA COTE D’IVOIRE PERU E
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• Nepal after over 200 years as a
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Box 2.3 Côte d’Ivoire’s MDG ac
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Declaration and the mDGs, and were
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drive or obstruct poverty-reduction
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Driven by political survival and co
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oader political processes in which
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incentive structures within which e
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partners: their capacities as donor
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Box 2.9 Fragility - Country case ex
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towards the achievement of the mDGs
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3.2 The EU’s role in advancing th
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at the 2010 mDG Summit, un member s
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adopted by individual governments,
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discussions on pcD are not based on
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Part ii. thE changing contExt for a
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Figure 4.1 Changing global power 20
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crops (ErD, 2012). at the same time
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egimes, and donor-driven aid condit
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for an Eu position to be agreed ahe
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of people living in extreme income
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the mDGs needs to concentrate on th
Page 109 and 110: deprivation, whether directly or th
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Page 113 and 114: vulnerability (ErD 2012). this repo
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Page 117 and 118: need to focus on eradicating existi
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Page 121 and 122: 105 100 90 80 70 60 50 40 30 20 10
Page 123 and 124: due to the so-called arab Spring in
Page 125 and 126: moreover, migration policy can shap
Page 127 and 128: the Eu and 9% for the uSa. these sh
Page 129 and 130: accumulation patterns (from 35% of
Page 131 and 132: Table 6.1 Poverty projections expec
Page 133 and 134: 6.3.1 Atmosphere and global warming
Page 135 and 136: supports ecosystem services that pr
Page 137 and 138: about 70% (mainly led by china, Ind
Page 139 and 140: scarcity leads to high and volatile
Page 141 and 142: ECONOMY DEMOGRAPHY ENVIRONMENT NEUT
Page 143 and 144: Part iii. drivErS of thE global Par
Page 145 and 146: Current USD Billions Current USD Bi
Page 147 and 148: global financial crisis has reduced
Page 149 and 150: lmIcs and lIcs (oEcD, 2011b). Figur
Page 151 and 152: Box 7.1 Efforts to increase tax rev
Page 153 and 154: While SSc is not new, it has receiv
Page 155 and 156: India (de Jesus, 2012). there has b
Page 157 and 158: levels of formal education. third,
Page 159: While the mobilisation of funds fro
Page 163 and 164: Box 7.5 The toolbox of innovative f
Page 165 and 166: Figure 7.8 Net capital flows to dev
Page 167 and 168: which are many in developed countri
Page 169 and 170: and financial inclusion (Deuchert a
Page 171 and 172: Box 7.8 Implications for post-2015
Page 173 and 174: a means to reach development goals
Page 175 and 176: PREDICTABILITY ALLOCATIVE EFFICIENC
Page 177 and 178: this chapter first looks at some of
Page 179 and 180: social development, largely fuelled
Page 181 and 182: Box 8.1 Joining the flying geese Ka
Page 183 and 184: these structural shifts in the driv
Page 185 and 186: traditional donors and investors, c
Page 187 and 188: 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Sou
Page 189 and 190: Figure 8.2 Share of primary commodi
Page 191 and 192: Box 8.2 Political economy of commod
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Page 195 and 196: in turn is highly dependent on Eu p
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Page 203 and 204: fair access to and equitable distri
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Page 209 and 210: labour migration produces remittanc
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the 2008 global financial crisis le
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Macro-economic impact International
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Social impact and psychological wel
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labour during that period. this pro
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Millions 10.4 4 N 3 2 1 0 Mexico-US
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migration programmes (tmps) are usu
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date, four mobility partnerships ha
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labour organization (Ilo) refers to
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workers, point to areas of concern
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9.5.2 Mode IV in the WTO the Wto’
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9.6.2 What a post-2015 framework sh
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concluSionS and rEcommEndationS Thi
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‘how’). this chapter also consi
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and so do not figure much in the go
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tackling global challenges. While s
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10.3.1 Poverty eradication as part
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Box 10.1 Economic and social inclus
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Box 10.2 Youth Employment About 85%
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International development partners
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at the multilateral level, the link
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• South-South Cooperation resourc
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information and evaluation initiati
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for consultative processes to take
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e added later. Equally it would be
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- such as their size and geographic
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(com, 2011). the aid-effectiveness
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Box 10.5 Areas for EU support: Reco
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there will need to be a continuing
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unrISD (2010) Combating Poverty and
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moore, m. (2011) ‘The Governance
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Chapter 4 birdsall, n. (2012) ‘Th
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Kharas, H. and rogerson, a. (2012)
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Kharas, H. and rogerson, a. (2012)
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cobham, a. (2012) ‘tax Havens and
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lall, r. (2011) ‘reforming Global
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unDp (2012) ‘What Is South-South
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Fine, b. (2009) ‘neoliberalism in
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Sindzingre, a. (2009) ‘The impact
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chanda, r. (2004) Movement and Pres
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Kouadio, E.K., ouattara, Y. and Sou
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un-InStraW and SaIIa (2007) Gender,
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Winters, a. and martins, p. (2004)
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Goals and Targets (from the Millenn
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Goals and Targets (from the Millenn
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conflict assessment, which also del
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the case study report suggests that
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in rwanda compared to an average of
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large educated class. Immigration w
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administration, with greater autono
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example, in low increases in tax ef
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AnnEx 3 - CORE pRInCIplES FOR InvES
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MOBILISING EUROPEAN RESEARCH FOR DE
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Post 2015: Global Action for an Inclusive and Sustainable Future

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