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simple-math-development-finance

The Simple Math of Development Finance

  • File Details
  • Size: 25MB
  • Creator / Author: Joan Addedis
  • Resource Type: Africa Capacity Report
  • # Download: 254
  • Access: Open to Download

January, 2022

Basic Information
Creator / Author
Charles Kenny
Source / Publisher
Center for Global Development
Resource Type
Number of Pages
6
Geographic & Audience Details
Classification & Domains
Subject
Governments and Development, Sustainable Development Finance
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Abstract

Global gatherings from Addis Ababa to Glasgow are setting targets from climate through health and education to energy and transport that call for a lot of investment for sustainable development. But how much you can afford to invest depends on how much youre paying for it. And thats where the simple math of development finance comes in. The short answer: if poorer developing countries face a cost of capital that requires a 20 percent annual return or more, about the rate being demanded by international private investors at the project level, there isnt going to be much investment in clean energy, green transport, better healthcare, or more education. The situation is dramatically improved if projects only need to generate financial returns of 1 or 2 percent, closer to the interest rates currently demanded by multilateral development banks. In turn, that suggests any investment gap will only be substantially reduced with massive subsidies for private companies or considerably smaller financial infusions to bankroll international public investment.
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