Jesse Griffiths, Guest Blogger
Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad). He was one of the co-authors, together with Matthew Martin (Development Finance International), Javier Pereira, and Tim Strawson (Development Initiatives) of the European Parliament’s report “Financing for Development Post-2015: Improving the Contribution of Private Finance.”
The European Parliament has just released a major report with a clear message for all those engaged in the growing debate about the role of external private finance in development: quality matters far more than quantity. As the post-2015 debate on financing development continues, and the UN gears up for a major Financing for Development conference in 2015 or 2016, this timely paper – authored by four experts (I was one of the co-authors) gives clear recommendations on how European governments can ensure that fighting poverty stays at the heart of this agenda.
The Current Picture
Firstly, here are the main findings of the report’s review of all available data on global private finance flows:
- Domestic private investment is significant and growing. Public and private investment, taken together, have grown as a proportion of GDP, from 24.1 % in 2000 to 32.3 % in 2011.
- Outflows of private financial resources are extremely large. Most are not productive investments in other countries but repayments on loans (over USD 500 billion in 2011), repatriated profits on foreign direct investment (FDI) (USD 420 billion) or illicit financial flows (USD 620 billion).
- Figures greatly overstate the real net financial private flows to developing countries. Foreign Direct Investment (FDI) is the largest resource flow to developing countries, but outflows of profits made on FDI were equivalent to almost 90% of new FDI in 2011. In addition, FDI includes the reinvestment of earnings from within the ‘destination’ country: not an inflow.