Blog: From Aid to Investment with Climate and Migration as Drivers

Solidaridad has always strived to be at the forefront of sustainability innovations. But the world is changing quickly and needs new approaches that also address growing challenges like climate change and migration. Solidaridad is again adapting its programmes for a future where investments are quickly becoming an effective and lasting contributor to positive impact. Executive Director Nico Roozen explains how Solidaridad is preparing for this paradigm shift with new approaches and ambitions in his blog below.

A new paradigm for international cooperation

Leading perspectives on international development are changing faster than ever. Over the last decade, we’ve focussed our collective efforts on the well-known paradigm shift “from aid to trade”, transforming more traditional aid programmes into more market-based approaches. However, time is running out and development programming will soon need to find yet another innovative focus.

Climate-related innovations are even more urgently needed than indicated by the Paris Climate Agreement. Uncontrolled population growth in Africa could potentially bring waves of migration to Europe which will create serious challenges. But we need to approach these foreseeable issues with new ways of thinking. In the years to come, European policy makers will put climate and migration at the centre of their policy decisions and will need their CSO partners to take on a more proactive role. The challenge will be to transform aid programmes into investment strategies in which there is a clear return on investment, combined with measured evidence-based impact. This will be the new way forward.

In the future, credits from socially responsible bankers and equity from impact investors will be parameters for successful development programming. Modern CSOs ready to address the needs of the future will be earnestly looking for new partnerships in financial markets that have the potential to move new innovations from “slow & small” to “speed & scale”.

Sustainable trade: making markets work for the poor

The “aid to trade” agenda made a lot of progress in the developing world over the past decade. Markets became legitimate channels for social and ecological changes. Improving market structures and access gradually became more effective and efficient than other traditional NGO approaches. Public-private partnerships are now increasingly important for testing innovations and leveraging public funds with private contributions. 

As an early adopter of new innovations and with a track record going back more than 30 years to the first attempts at fair trade certification, Solidaridad is well positioned to take a proactive role in this new transformation toward impact investments. CSR models, commodity roundtable processes and national certification standards in developing countries were necessary first steps in transforming markets to make them more inclusive and sustainable. Gradually, governments embraced these initiatives from civil society and developed supportive policy frameworks for private-public partnerships, putting growth for the poor and market development at the centre of their policies.

From a learning perspective, evaluations of “aid to trade” programmes have shown at least two risks or pitfalls. First, the additionality question: just funding private sector initiatives with public money isn’t a guarantee for positive impact on inclusive growth and critical sustainability issues. Public subsidy schemes for businesses failed to be successful. Putting solution-oriented CSOs in the driver’s seat of programmes combining public and private money and efforts turned out to be a better starting point for achieving results and impacts which contribute to sustainability, and defending public interests and goods. In many programmes, Solidaridad could double each public euro with one private euro and reach out to more people for achieving better results in empowering producers and workers.

Secondly, public investments have to contribute to transformative change in markets to address the systemic shortcoming of said markets. Market transformation is needed to produce more socially and ecologically desirable outcomes to sustain the planet for future generations. This can only be achieved in an interaction between good governance, corporate social responsibility and solution-oriented civil society interventions.

But was this change fully effective and sufficient?

Continuity after project intervention

In order to prepare for and encourage this new way of thinking, Solidaridad will change its formats for proposal writing, programming and monitoring protocol to address the most prominent question. How will the programme be continued after our intervention? Until recently, programmes could be seen as successful when just showing positive results and impact over the duration of the programme. Supported by our digital data-driven monitoring systems, these results were made measurable and reporting has become evidence-based.

But adopting a more professional standard is simply not enough anymore. Programmes have to show continuity within a new dynamic, or proof of concept, which is scalable for others. Continuity could be delivered through three mechanisms:

  • improved policies which are supportive for continuity
  • improved markets with better access and functions
  • improved access to finance for further growth based on loans and equity 

Continuity through investments is key to creating scale and speed. Getting investors on board that see opportunity and share our vision is the biggest challenge of Solidaridad’s Ambition 2020 targets.

From business case to investable proposal

In Solidaridad programmes, the business case for sustainable production, service provision to farmers and food processing is bearing fruit. Economic, social and environmental aspects of production are approached in their mutual context and improved through integrated measures. But a good business case for the producer does not equal an investable proposition for a potential investor.

There are many issues to be addressed. Investors need scale to bring the transaction costs to a competitive level. For many farmers, their risk to bankers is the lack of collateral. Official records and ownership registration are often lacking. Historical data on business performance is missing. Digital illiteracy is an obstacle. Entrepreneurs need to have ambition and must be willing to invest and share risks. National financial markets often lack adequate supervision and policy frameworks or are disturbed by loan schemes from governments.

Attracting equity or debt to finance a business case requires a close network of relationships with banks and investors built on trust, as well as a deep understanding of the realities in the world of finance and transformation of financial markets. This is certainly a huge challenge but there is no other way forward to help development cooperation escape from its slow and small past and bring it to a future of speed and scale.

Climate and migration as drivers of the new paradigm

Inevitably, climate change has already had a huge impact on how business operates and climate mitigation needs to be accelerated in all sectors of the economy. Development cooperation can play an important role in this transformation. However, this can only be achieved when urgently needed grant-funded programming is linked to match funding from the private sector and investments from the financial sector to bridge the gap between impossible and possible among people with high potentials but limited resources.

The coming migration challenges are mainly linked to Africa, a continent growing from a population of 1 billion to 3.6 billion at the end of this century, of which 70% will be living in megacities. Recent research indicates a climate-smart modernization of the African agriculture sector in combination with an ambitious investment programme in the processing industry of agriculture products will create jobs for 60 million young people.

Creating decent jobs and providing an attractive future for these young people is the only way to halt migration. More chances on the labour market and better livelihoods for
farmers are crucial to feeding the megacities and mitigating intercontinental migration. From what we have seen in Asia, we know what kind of leadership and level of investments are needed to make megacities of more than 20 million people a livable place.

All scenarios for a productive and profitable future call for sustainable investments. When thinking on these issues, I’m often inspired by Kofi Annan making the statement: “Africa, too big to fail”. But if we fail, Europe will pay a high price indeed.

This blog was originally published on LinkedIn.

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