Financing a Paradigm Shift in Development Models in Asia-Pacific and Latin America


  • Water has shown to be the first line of defense against Covid19. We have an unusual window of opportunity for systemic change, but it requires collaboration – not as a one off but consistently across the next decade.
  • To drive systemic change, we need to change the scale at which we plan and prepare investments and how we measure success.
  • The ultimate test of effectiveness is: are our programs creating the conditions for systemic change and favoring empowerment of local actors in the long term over efficiency in project delivery in the short term?

Climate impacts challenge our status quo. Covid-19 is a stark reminder that a shift in our economic development paradigm is urgent. Three revolutions are urgent: a revolution in understanding, a revolution in planning and a revolution in finance.

Last Stockholm World Water Week we engaged with 140 participants from five continents to answer “Which partnerships could trigger the required systemic change and finance the transition?”

Cañete basin in the province of Lima, Peru. Peasant community of Laraos working on wetlands management and recovery. Picture Michell León / Project Merese – Fida with financing from GEF

Starting with a presentation from the Netherlands, IADB’s and ADB’s strategies and roles in making the transition possible; we then engaged in a moderated dialogue reflecting on the view from the frontlines. From our conversation, it became clear that in order to succeed in driving a paradigm shift in our development models we need to make two key changes in water and infrastructure finance practices:

Firstly, this concerns the scale at which we plan and prepare investments. We can not continue thinking in projects, but in programs designed to have impact at system scale. A transformative pipeline of infrastructure projects can only be developed responding to future and not past needs of all groups in society. This requires much deeper understanding of the dynamics between the water cycle, ecosystems and our economies.

Secondly, this concerns the way we measure success; embracing new KPI’s that explicitly measure the capacity of these investment programs to create the conditions for systemic change and favoring empowerment of local actors in the long term over efficiency in project delivery in the short term. Special attention needs to be put to prevent that concessional finance and development assistance programs reinforce local dependencies and crowd out local commercial and private finance as well as local human capital.

As water sector we need to:

  • Move from competition towards collaboration. Not as one off, but consistently across the next decade. Ensuring that every innovation we put in place is changing our institutions at system level, triggering new formal and informal partnerships and raising the individual capacities of all players. This requires consistency, continuity and commitment in the way we explore opportunities, scale them up and replicate them across.
  • Move from a water-centric to a more holistic approach, where environmental security of our economies is at stake. Including not only water and climate risks but also the risks triggered by biodiversity losses in our definitions of resilience. Recognizing that, ultimately, it is not about water but about decisions taken outside the water sector that impact water.
  • Keep investing in science-based analyses to guide decision making and investment planning. Without proper understanding of the water cycle dynamics and its interplay with productive activities, setting priorities and deciding on investments is risky. We need first to understand water, then value it across different scales (local, regional and transboundary) and manage it accordingly.

The contributions from our speakers and panelists give reason for hope.

 
Jequetepeque Basin, Cajamarca Department in Peru. Association of farmers El Ingenio working on reforestation with alder and elderberry. Picture Michell León / Project Merese – Fida with financing from GEF

Donors like the Netherlands are partnering with multiple stakeholders in global and regional initiatives like Valuing Water and Water as Leverage and through these provoke rethinking of our economic development models for the investment case for inclusive, comprehensive and sustainable infrastructure fit for the future to materialize.

ADB and IADB are driving the shift through transformative projects and new ways to look at these systemic issues. ADB’s recent examples are:  a) their Climate resilience and smart infrastructure loan to the private sector in China, after 30 sponge cities pilots through sovereign financing, b) their new contingency and disaster financing line for natural hazard and health emergency and c) their flood risk management and pandemic response in Chennai, India.

Meanwhile the IADB, has shaped a new Water Security strategy for LAC that aims to drive a change from a water-centric way of managing water resources towards a more holistic way. Through several investment programs, they will place water in the wider environmental security context for sustainability and resilience of LAC economies. These programs will invest simultaneously and in a synergetic way in four pillars: hydraulic infrastructure, advancements in science and technology, institutional and regulatory frameworks and altogether driving a change in public and private investment planning; where-under resilience in a water-energy-nexus perspective will be central.

The Global Environment Facility has been working on providing science-based and reliable information for decision making for the last 30 years. They have consistently funded capacity development of MDB’s and local players to muster the required science and understanding for the management of transboundary basins that informs ministerial level decisions and the development of transformative investment programs.

Picture portraying the composition of the new Fiji Eco-Seawall design, which combines vetiver grass, boulder and mangrove forest. Location: Raviravi village, Macuata, Vanua Levu.

Finally; the governments of Peru and Fiji have taken consistent and pioneering steps in developing a clear aspiration and vision towards a green transition. Peru has made significant changes in their regulatory framework to consider natural infrastructure in their competitiveness and infrastructure investment programs and has introduced a payment for watershed services scheme that create earmarked revenues for utilities to invest in watershed conservation and NBS. However, a new challenge is being faced as the capacity to prepare projects and develop hybrid investment portfolios remains limited, slowing down the implementation of the funds collected since 2016.

Fiji is introducing a new model of flood protection and piloting ecological flood barriers that can prove to be substantially more cost-effective than traditional grey flood protection options. Like Peru, they also face challenges and experience the need of more flexible and consistent financing instruments that are tailored to develop local capacity to prepare projects and develop the competencies of the local private sector in time to provide operation and maintenance and other related services. This would not only improve sustainability in service delivery in the long term but also reduce the dependency of SIDS to external aid.

 
Fiji Prime Minister (Frank Bainimarama) (orange shirt) and Minister of Environment (Dr. Mahendra Reddy) (white shirt) commissioning the Viro Village Eco Seawall on Ovalau Island, Levuka.

Water, in the context of this pandemic, has shown to be the first line of defence and the best first step for recovery. We have an unusual window of opportunity for systemic change, but it requires collaboration not as one off but consistently across the next decade. Together, we can set in motion a green and transformational recovery.

To make sure we speed up the transition, we need safe spaces for systemic reflection and the development of transformative relationships. Because only if we commit with our hearts, not just our minds, we can engage in strategic partnerships that muster the required leadership and political will to achieve the required changes.

For more detailed information about the session, including a video recording:

 

Monica is a Public-Private Partnerships specialist at Deltares and advisor to the Netherlands International Water Affairs team. Committed to making water security financially viable for developing countries in times of climate change. She applies economics of infrastructure and systems engineering to analyze the institutional framework for infrastructure finance and facilitate complex multi-party financing.

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