Stefan Pagura is the Ambassador for the Young Diplomats of Canada. This fall, he will be attending the Hertie School of Governance in Berlin for his master's degree.
This week, the world's political and financial leaders have descended on Addis Ababa for the third International Financing for Development Conference. This will be the second of three major international development conferences set for this year, the first having been the annual spring meetings of the World Bank and the International Monetary Fund.
I had attended the spring meetings in Washington, and much like the agenda that is set for the Ethiopian capital, financing for the new United Nations Sustainable Development Goals (SDGs) took centre stage during that week's proceedings.
The SDGs have a hefty price tag, with some estimates reaching $2.5-trillion (U.S.). By comparison, formal funding by developed countries made toward the UN's last round of goals, the Millennium Development Goals, totalled just $1.5-trillion between 2000 and 2013. The consensus solution to filling the gap between these two figures is greater private-sector investment in developing countries.
With the creation of a development finance institution in the 2015 federal budget, the Canadian government took a long overdue step in the right direction. However, this pales in comparison to the leap that could be made if Canadian pension funds lead their international counterparts toward greater investment in developing countries.
Canadian pension funds are already some of the world's best when it comes to long-term focused investments, thanks in large part to the influence of Canadian thought leaders such as Dominic Barton and Mark Wiseman.
Mr. Barton, the global managing director of McKinsey & Co., and Mr. Wiseman, president and CEO of the Canada Pension Plan Investment Board, are co-chairs of the Focusing Capital on the Long Term initiative. At its core, this initiative aims to turn asset managers, corporate boards and corporate management from short-term thinkers into long-term ones. This means focusing less on quarterly results and short-term profits and more on long-term investments that chart a steady and sustainable course. This logic is gaining momentum, but it shouldn't be confined to developed economies. As the global community tries to find a variety of capital sources to fund the SDGs, the logic of long-term capital needs to reach the developing world as well.
To give credit where credit is due, Canadian pension funds are already investing in many emerging markets, notably in Latin America and Asia, but more can be done – especially in Africa. By applying the long-term capital logic in developing countries, Canadian funds such as the Canada Pension Plan, the Ontario Teachers' Pension Plan and the Caisse de dépôt et placement du Québec can be leaders in the push for private-sector engagement in the SDG's. Building capacity through investment in infrastructure, health care and technology can help to ensure more stable economic and social outcomes in the development process. Through long-term focused investments, Canadian pension funds can see real profits and help developing countries grow sustainably for the long term.
Early investment in developing economies also comes with the added bonus of greater institutional knowledge moving forward. For capital to truly be focused on the long term, it must pay greater attention to where global growth is taking place. The CPP Investment Board has already set up offices in India because it realizes the potential in knowing that market. Asset managers setting up offices in countries like Nigeria is a long way off, but by investing early in growing economies and knowing their investment climate, Canadian institutional investors can set themselves up for greater success in the long term.
These investments, like any, have inherent risks. But now, more than ever, international organizations are looking to help mitigate risks in order to spur private-sector engagement. For example, the World Bank has created the Global Infrastructure Facility (GIF), which offers end-to-end technical advice in both engineering and finance for infrastructure projects in developing countries. Initiatives like this allow investors to differentiate good projects from bad without much added overhead. The Caisse is already a member of the GIF, and more Canadian institutions should follow its lead. By leveraging new and existing programs backed by international organizations, they can gain lower risk access to developing economies while setting an important example for global capital markets.
In the aftermath of the 2008 financial crisis, the world turned to Canada and its financial sector for guidance and best practices. Canada has the opportunity to have a similar impact when it comes to financing for development as the world convenes to find ways to reach the UN's new goals. If the global community gets the private sector to buy in, we can end extreme poverty in our lifetime, but it requires capital to focus on the long term.