Institutional capital to benefit the world’s poor
Together with USAID, Sida focuses on mobilizing forces from the external financial world to the benefit of the world's poor. New models are discussed to enable investments from pension funds for sustainable infrastructure projects in Africa.
Sida has been tasked by the Swedish government to find more potential actors in order to accelerate the work combating extreme poverty. An important part of this agenda, which is also a burning issue for the international community, is to link aid to other financial flows.
"Today, there are 83 trillion dollars in global institutional capital. If we can get only a small part of this invested in Africa, we can reach very far in providing the continent with basic infrastructure which is essential for poverty reduction", says Lena Ingelstam, Head of the Department for Partnerships and Innovations at Sida.
Some of the institutional capital are pension funds. Sida, together with USAID and several Nordic pension institutions, collaborate to carve out new models that could increase investments in Africa, especially for sustainable infrastructure projects.
At a seminar at Sida on the 22nd of October this year, a wide range of representatives from banks, financial institutions and donor agencies, gathered to discuss these possibilities. The collaborating pension institutions are The Third AP Fund, SPP / Storebrand and Folksam.
"We as a pension fund have little knowledge on how to build railways, bridges and other infrastructure in Africa. But we know how to raise capital, how to manage risks and how it can be safe to invest", said Staffan Hansén, Head of Asset Management at SPP / Storebrand during the seminar.
So how does he feel about collaborating with other actors and aid agencies?
"We want to be part of a long-term sustainable economic development in the world and Africa needs investment. In order to participate, we want to work with several different partners", stressed Staffan Hansén.
At present, there are some models in which pension funds are used in development cooperation, often in conjunction with other institutional capital. At the seminar several different options of how institutional, private and state capital can be used to improve infrastructure were presented.
The participants could for example listen to the World Bank, the European Development Bank and the Senegalese FONSIS fund, Fonds Souverain d'Investissements Stratéques.
The European Investment Bank was also there, highlighting its fund GEEREEF, Global Energy Efficiency and Renewable Energy Fund, which focus is to invest in renewable energy to respond to the climate challenges. Gunter Fischer, program coordinator, at the European Investment Bank, starts to see results in rural areas of South Africa.
"We are working to mobilize private and government capital for investments in projects that are climate-related globally but mostly in Africa. Just recently, I have seen some initial results where a solar power plant generates power to the national grid", he says.
These experiences inspire partners to find new approaches to reach greater development impact through collaboration. USAID and Sida are finishing the touches on a new model that takes care of the risks and complies with regulations.
"The current investment models have not been acceptable to the legal framework the pension institutions have to comply with. What we do now is to make it more simple and tailored to their needs and regulations. The next step is to meet with a number of global actors, so that together we can realize investments to Africa through the new model, says Sida's financial expert Roger Garman.