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November 12th, 2018

Financing and public-private partnerships in water, sanitation & agri-food sectors

Published by PPPLab,

This exploration (PDF) by PPPLab discusses the financing of development projects in food security and water primarily form the perspective of the commercial financier. Private investors are increasingly asked to take up a role for the SDGs and fill the funding gap. In some sectors the private sector is very active, but in the water, sanitation and agri-food sector, the interest of private investors is limited. Why is this? Reaching the SDGs requires substantial inflow of commercial finance. For this, revenue mechanisms should be included in businesses and projects to repay commercial financing. Private commercial money will need to be unlocked, but commercial finance only focuses on bankable propositions. Impact investors are commercial investors with a specific focus on creating impact. However, they still want their money back. Despite the urgency of the SDGs, commercial investors have problems filling pipelines with projects that fit their criteria. Compared to other sectors, the food security and water sector are not seen as attractive to commercial investors, with as important reason their embedding in the public domain. Moreover, the food security and water sector are generally not considered commercially viable, on account of the lack of a convincing and stable business case. Some approaches that can overcome these bottlenecks are: service delivery models that can scale; partnerships between private companies and governments; blended finance mechanisms whereby grants or public money are used to mobilize commercial financing. In-country financing is becoming more important as source of financing including for funding the SDG. In practice, SDG projects compete for scarce private funding. Commercial financiers prefer sectors other than food and water. Financial instruments blending grants and commercial financing are emerging. Stakeholders need to work together, requiring a change of thinking and perhaps of mandates.

Curated from ppplab.org