Development finance is the process of using shared resources to encourage investment in the private sector of low- and middle-income countries where attracting private capital poses challenges due to various risk factors. These investments are expected to have a positive developmental impact on the host country. Direct loans, loan guarantees, equity investments, credits, collateral, and a number of other instruments are used by development finance institutions to support and facilitate these investments, as well as to manage political and commercial risk.

Development financing has become an essential weapon in the battle against global poverty and economic inequality in recent years. In many circumstances, it has become vital to accomplish the Sustainable Development Goals (SDGs). It necessitates plans and answers to the problems that local businesses, industries, real estate, and the environment pose.

What Are SDGs?

The Sustainable Development Summit in 2015 saw South Africa join 192 countries to endorse the 2030 Agenda for Sustainable Development. This plan consisted of 17 Sustainable Development Goals (SDGs).

The goal of these SDGs is to provide a universal and visionary framework to collaborate and take action on a global scale by encouraging face to face collaboration to solve these challenges proactively.

The SDGs feature a comprehensive list of targets for each country and place a strong emphasis on all types of finance, notably from the business sector. Agenda 2030 recognises that the private sector is a source of jobs, innovation, technology, knowledge, and practical experience.

So what role do public and private stakeholders play?

What Are Public And Private Stakeholders?

Before delving into the role of each sector, we need to clearly define the difference between public and private stakeholders.

A stakeholder is a member of “groups without whose support the organisation would cease to exist”, as defined in the first use of the term in a 1963 internal Stanford Research Institute paper. R. Edward Freeman later developed and promoted the theory in the 1980s.

Members of the public or a large base of stakeholders affected by a project are commonly referred to as public stakeholders. Businesses or roles like Health and Care, Teaching, Emergency Services, Armed Forces, Civil Service and City Councils are considered public.

All other entities and individuals, excluding public officials, are considered private sector stakeholders. Businesses or roles like Financial Services, Law Firms, Estate Agents, Newspapers or Magazines, Veterinarians, Aviation and Hospitality are considered private.

What Projects are Impacted by Development Finance?

Now that we know what development finance is and what public and private stakeholders are, it’s essential to unpack the types of projects the development finance industry is interested in financing:

• Examples of government projects include roads, bridges, sewers, water facilities, schools, airports, docks, parking garages, utilities, and more.
• Our industrial, office and retail sectors are represented by established industries (depending on location). This category includes projects like industrial parks, manufacturing, tech/research hubs, and commercial retail locations, among others.
• Projects that require significant public resource commitments to spark new private sector development are classified as development and redevelopment. Examples are urban revitalisation, rural revitalisation and other transformative projects that require substantial public capital.
• Small Businesses and Micro-Enterprises are also quite self-explanatory. These projects are the backbone of our local economy. A small business, in general, is described as a company with fewer than 500 employees, whereas a micro-enterprise has fewer than five employees.
• Our future enterprises are represented by entrepreneurs. These are small businesses with one or two employees that are still in the early stages of their development. Entrepreneurs are often unprepared for standard finance and require a new approach to assist them in securing the operating capital they need to expand and flourish.
   

The key to understanding the development finance spectrum is identifying that there are distinct initiatives that necessitate specific financing.

The role of the development finance agency is to provide funding and facilitate projects and businesses that bolster the country economically and environmentally, while the role of public and private stakeholders is to determine these projects and bring them to the attention of a development finance agency.

To obtain funding, projects or businesses must first find a qualified development finance agency. Depending on the conditions of the project, there are many distinct agencies to choose from.

What Does this Mean for SDGs?

The way forward for development finance in relation to our SDGs is collaboration. It is essential, both within sectors and across industries, because no single organisation can solve any of these problems on its own. The goal is to assist, finance and allow collaborative efforts in moving forward to achieve SDGs and scale up efforts to combat global poverty and mitigate income inequality.

Private and public stakeholders can facilitate collaboration by:

Creating occasions where different industries can collaborate with other industry experts, customers, vendors, academic institutions and not-for-profit organisations in the hopes of finding widespread solutions,
Relying on existing networks to carry out roles and responsibilities collaboratively,
Partnering with government stakeholders to employ various resources more effectively in ensuring growth and stability.
 

Want to Know More about Development Finance?

Find your footing in the world of development finance and establish proactive approaches that leverage public resources to support the growth agendas of South Africa and Africa. Enrol in the internationally accredited PhD Development Finance programme at Stellenbosch Business School and acquire the advanced knowledge typically required in senior positions in policy-making institutions, government, public and private corporations, financial institutions, and international organisations.