MDB Private Capital Mobilization Market Failure Elevated at World Bank Meetings

Africa investor (Ai) issued a Memo today entitled “More Smoke & Mirrors: The Calculated Mirage of Adequate MDB Private Capital Mobilization for Africa’s Climate & SDG Investment Goals.” This memo coincides with the Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG) in Washington DC.

The high-level Memo serves as a cautionary note to African Heads of State that despite the World Bank’s recent self-congratulatory progress updates on the implementation of the long overdue Multilateral Development Banks (MDBs) reform agenda, they continue to preside over an epic Private Capital Mobilization (PCM) market failure, with inadequate PCM key performance indicators (KPI’s) and no answer to mobilizing the desperately needed trillions, to industrialize and transform Africa’s abundant natural and human capital.

The Memo highlights that MDBs are notoriously criticized for competing-with and crowding out rather than crowding in, the domestic and global institutional investment community. As a $1.5 trillion collective global balance sheet (including the World Bank, AfDB, etc.), MDBs PCM reforms are falling disturbingly short, with the potential to close only a mere 10% of Africa’s financing gap between now and 2030-2050, even after the implementation of current significant MDB PCM reforms.

This contrasts sharply with the global institutional investment community, representing over $200 trillion of assets, capable of closing up to 90% of Africa’s financing gap through institutional investor-public partnerships.

The G20 reports that for every $1 of MDB finance provided, MDB’s are mandated to mobilize $10 of private capital. However, according to the G20, MDBs’ actual delivery is a mere 20-38 cents mobilized from the private sector for every $1 of development finance.

Given the fiscal constraints managing the implications of the ever-expanding genomic poly-crisis, means that Africa unlike industrialised countries will need to majoratively finance its Nationally Determined Contribution (NDC) and Sustainable Development Goals (SDG’s) projects through private capital.

The magnitude of addressing the MDB PCM market failure requires a tectonic shift in mindset, leadership, and institutional investor engagement.

Collaborative efforts with institutional investors, recognizing the value of natural capital, and redirecting concessional funds towards the most impactful private proposals that can deliver the $1:10 PCM ratio are essential immediate steps.

To optimally partner private capital to mobilize the trillions, it’s crucial to make ‘Development Investable’ rather than ‘Investment Developmental’.

Pursuant to this and in response to the African Union’s Committee of African Heads of State on Climate Change’s (CAHOSCC), February statement made during the 37th African Union Heads of State Summit, on the importance of its goal to work with the domestic and global institutional investment community, to mobilise private capital at-scale to realize the objectives of the ‘Nairobi Declaration’ (Africa’s Inflation Reduction Action (IRA) equivalent/Green Investment Deal framework), Institutional investors called for Climate Investment Statesmanship, to champion the establishment of a Heads of State-Climate Investors’ Coalition, as a global private climate capital mobilization at-scale high-level initiative for African green industrialization.

Dr. Hubert Danso, CEO and Chairman of Africa investor (AI) stated,

‘Given the MDB’s private capital mobilisation philosophy and bureaucratic culture, consistently resulting in PCM market failures, MDBs are fundamentally the wrong institutions to lead advisory support to governments on setting-up the enabling policy frameworks to mobilize private capital at speed and scale for climate and SDG’s investments’.

The proposed Heads of State-Climate Investors’ Coalition, with its Heads of State and Institutional investor members, would co-develop a ‘Nairobi Declaration’ aligned, Private Climate Capital Mobilization at-Scale institutional investor-public partnership, to close the gap for Africa’s $3 trillion of NDC and SDG’s bankable projects and work collaboratively on the following key thematic issues:

  • MDB Climate Financing, De-Risking Reform & Catalytic Concessional Funding,
  • Legal and Regulatory Reforms,
  • Democratized Access to Data for Investment Decision Makers (especially GEMs 3.0),
  • Mainstreaming Institutional Investor-Public Partnerships (IIPPs),
  • Enfranchising Carbon Markets,
  • Private sector and SME development for the Just Energy Transition.

The Coalition, akin to the objectives of the Inflation Reduction Act (IRA) and the EU Net Zero Industry Act (NZIA), would develop competitive market incentives for domestic and global institutional investors, to allocate capital at scale to African green industrial infrastructure as a globally competitive investable asset class, programmatically de-risked and implemented through transparent and predictable institutional investor-public partnerships (IIPPs) regulatory frameworks.

Dr. Danso emphasized the critical opportunity for investors and Heads of State to align growth mandates and jointly lead in addressing climate change. He highlighted the importance of aligning Africa’s investable industrialization opportunities with bankable global decarbonization value chains. Dr. Danso stressed that by making development investable and aligning with the $200trn asset mandates, managed by domestic and global institutional investors, as long-term investment partners, African Heads of State are uniquely positioned to deliver climate investment statesmanship.
He emphasized the need for green industrialization institutional investor-public partnerships to bridge the current 90% MDB PCM market failure, for Africa’s $3 trillion of NDC Climate & SDG’s investment opportunities. Dr. Danso emphasized the importance of the ‘Nairobi Declaration’ and the Africa Green Industrialisation Initiative (AGII) that was launched at GOP28, leveraging the $4.6 trillion African Continental Free Trade Area (AfCFTA), in partnership with the proposed coalition, to scale the continent’s participation in the $10 trillion per annum and growing global green industrial economy value chains. This partnership would focus on significantly increasing Africa’s global market share for African manufactured green technologies, delivering investors market-appropriate climate and risk-adjusted returns, accelerating Africa’s just energy transition, and contributing to industrial-scale decarbonization worldwide for the benefit of people, planet, and nature.

This timely Memo, calling for institutional investor-public partnerships to close Africa’s 90% PCM gap, comes at a critical juncture for the continent and the world. Africa is grappling with the compound effects of trade-debilitating climate disasters, high costs of capital, rising levels of debt distress, investment outflows, and reduced development assistance.

These challenges have profound implications for advancing the global decarbonization agenda, given Africa’s unparalleled wealth of investable transition assets and emerging green industrial city special purpose manufacturing destinations. These assets encompass its substantial youth population, abundant renewable natural capital resources, and superior global stocks of critical minerals essential for powering green technologies in the rapidly expanding $10 trillion global green industrial economy.

The Memo issued during the World Bank Spring meetings, whilst serving as a cautionary note on MDB PCM market failures, outlines a roadmap to shift away from dependence on short-term subsistence development finance. Instead, it advocates for mutually rewarding, ambitious long-term private industrial investment partnerships that could quickly establish the continent as the world’s premier manufacturing hub for investable green technologies and artificial intelligence innovation.

The Heads of State-Climate Investors’ Coalition, outlined in the Memo, has emerged as the hot climate investment initiative at the World Bank Spring Meetings. Public and private sector finance leaders alike acknowledge its novelty and recognize its potential to not only accelerate Africa’s just energy transition, but also to drive industrial-scale decarbonization worldwide, benefiting people, the planet, and nature.

Click here to read the Memo.

See Ai MDB Reform Private Capital Mobilization Initiatives here