Investing in developing countries holds the power to enhance the lives of its citizens significantly. The right investments can improve infrastructure, provide access to essential services, increase amenities and boost overall human development. These investments positively impact health, education and economic opportunities.
Sustainable Energy Fund for Africa (SEFA)
The Sustainable Energy Fund for Africa (SEFA), which the African Development Bank (ADB) manages, serves as a prime example of the benefits of investing in developing countries. Established in partnership with the government of Denmark in 2011, SEFA provides catalytic finance to unlock private sector investments in renewable energy and energy efficiency, striving to increase access to affordable, reliable, sustainable and modern energy services in Africa.
High-income governments and organizations have made contributions to SEFA. Through its efforts to develop green mini-grids, finance green energy programs and establish blended-finance initiatives for small-scale renewables, SEFA actively contributes to the growth of renewable energy in Africa.
This investment in renewable energy projects not only enhances access to energy and stimulates economic growth, but also generates job opportunities in developing countries. This helps raise living standards and reduce poverty, while also advancing the achievement of the Sustainable Development Goals of “No Poverty” and “Affordable and Clean Energy.”
Increasing Efforts
High-income countries should increase efforts towards promoting economic growth, reducing poverty and inequality and closing the gap in achieving the Sustainable Development Goals (SDGs) by investing in developing countries. Despite the growth of sustainable finance, most of it remains in high-income countries, leaving lower-income countries in need of funding. To bridge this gap, high-income countries should remove barriers to financing access in developing countries and allocate more financing towards SDG investments.
The U.N. Conference on Trade and Development and the International Monetary Fund (IMF) predict that the “SDG financing gap could reach $4.3 trillion per year from 2020 to 2025,” a significant increase from previous estimates, according to OECD.
OECD expects the government revenue of developing countries to decrease in 2022 and 2023, especially for middle-income countries, resulting in a yearly decline of $95 billion and its recovery will likely be slow, potentially not reaching pre-pandemic levels before 2030.
Companies could reap numerous benefits from foreign investment in developing countries, such as increased competitiveness, favorable productivity spillovers, access to new technology, market expansion and improved workforce training and qualifications leading to higher wages and employment.
Investments in job creation and training could provide an economic boost to communities by creating jobs, driving demand for goods and services and enhancing the skills of the workforce. Furthermore, foreign investments could lead to improved infrastructure, access to basic services and amenities and overall human development.
Boosting the Integration
Investing in developing countries opens the possibility of boosting their integration into the global economy through the enhancement of foreign trade flows. The growth of international networks of affiliated enterprises and the growing significance of foreign subsidiaries in multinational companies’ strategies provide greater access to import and export activities. Thus, developing countries that embrace international trade are more likely to reap the benefits of foreign direct investment (FDI).
In today’s interconnected and globalized world, it is crucial for countries to take advantage of the potential of foreign investments in developing countries. By investing in these countries, companies can reap the benefits of economic growth and development while promoting sustainability for all. These investments provide access to new markets, resources, technologies and capabilities that drive economic growth, create jobs and build local infrastructure. Additionally, foreign investments are a key source of financing for sustainable development initiatives such as renewable energy projects or environmental protection programs.
By investing in developing countries, companies not only benefit from increased economic growth but also play a crucial role in global sustainability efforts.
– Nkechi First
Photo: Flickr
