France's Bold Bid to Reshape Development Finance Amidst Global Crises

Jun 24 , 2023.

As the ravages of the COVID-19 pandemic continue to reverberate around the world, a daunting statistic has emerged, indicating a reversal of a previously encouraging trend. Despite global efforts to combat poverty under the UN’s Sustainable Development Goals (SDGs) framework, 120 million people have slipped below the poverty line in the past three years. This grim revelation forces an acknowledgement that the existing approaches are failing to deliver the promised change. Climate change looms large and unrelenting. Unprecedented and devastating natural disasters are becoming the norm rather than the exception, exacerbating existing problems and adding new dimensions. The frequency and intensity of such events have had a profound impact, particularly on regions already reeling under the weight of economic constraints. Droughts, for instance, have plagued regions worldwide, crippling agricultural sectors and affecting food security, an untenable situation that demands an urgent global response. Further complicating this cocktail of crises is the escalating issue of unsustainable debt trajectories. Countries worldwide, particularly those on the economic periphery, are finding themselves mired in seemingly insurmountable debt. With economies stagnated by the pandemic and the rising costs of addressing these issues, a vicious cycle of debt has ensnared many countries, threatening to stifle their development for years, if not decades, to come. To address these mounting global crises, French President Emmanuel Macron called an unconventional summit held in Paris last week, where Prime Minister Abiy Ahmed (PhD) and his team were among the attendees. In this crucial moment of global crisis, the world looks to the French-led summit for a blueprint for action, the necessary spark to ignite a shift in the collective approach to tackling poverty, climate change, and debt, says Remi Marechaux, France’s Ambassador to Ethiopia. “The summit stands as a testament to our capacity for ingenuity and adaptability in our efforts to confront them,” he told our Managing Editor, Tamrat G. Giorgis, who spoke with him and Lucile Porte, deputy head of mission for the economic department. “However, the road to solutions will be fraught with fierce debates and complex negotiations, as these challenges intersect with powerful vested interests.” Once a Director General for Africa at the French Ministry of Foreign Affairs, and a former ambassador to Kenya and Somalia, the Kiswahili-speaking diplomat is a seasoned hand in Africa’s affairs. He emphasised that last week’s summit was more than another diplomatic gathering. It recognised the stark realities of an interconnected world, a call for a more integrated and inclusive approach to combating global issues. The stakes are high, but so too is the potential for transformative action that could redefine the collective future. As the world watches, the summit carried the hope and the promise of a unified approach to global challenges, from fighting poverty and mitigating climate change to managing debt.

Fortune: I understand this was not a summit for any particular resolution or trying to create any new international organisation. Can I say it was designed as a warming up for something big?

Amb. Marechaux: Its unique structure brings together state and non-state actors alike in a collective endeavour to reimagine the world’s financial systems. The roster is a far-reaching mix of 32 state actors, 28 international organisations, and a constellation of philanthropies and NGOs, each with a role to play in the collective fight against these global challenges.

Neither does it aim to produce immediate resolutions, but rather to create a roadmap for future actions, providing guidelines for subsequent summits and specific gatherings. Proposals formulated last week will shape the agendas of the G20 Summit, World Bank and IMF meetings, and the International Maritime Organization gatherings. This approach represents a departure from traditional diplomacy, reflecting the changing dynamics of the 21st Century and the increasing role of non-state actors.

The scale of the proposals tabled for discussion matched the audacious ambition of the summit. The summit challenged existing norms and structures by creating a carbon emissions market that accurately represents 60pc of emissions – a 15-fold increase from the current four percent – to mobilising new guarantee tools to make development bank loans more affordable.

The initiative builds on France’s historical role as a leader in development finance, capitalising on its positions within the G7, G20, the Paris Club, the IMF, and the World Bank. France’s commitment to development - evident in its annual outlay of 15 billion dollars and its instrumental role in launching new SDGs and pioneering innovative financing solutions - sets the stage for this transformative meeting.

With a focus on improving global financial mechanisms, the summit also looked at catalysing the full funding of the Alliance for Green Infrastructure in Africa, another step towards a greener future. This initiative, coupled with the aim for better cooperation between the World Bank and regional development banks, sought to harmonise financial products offered to developing countries.

For instance, the taxation of maritime transport emissions is still a hot-button issue and its proposal remains highly contentious. Currently exempt from taxation, these emissions play a significant role in the unfolding climate crisis. The summit sought to grapple with the challenge of effectively integrating this large and influential sector into the global climate action plan.

Lucile Porte: Transparency in carbon emissions reporting was also a focal point of discussions. The proposal aimed to instil trust in a currently opaque system, bolstered by establishing a credible and neutral international body to verify emission declarations. Coupled with this is the ambitious goal to expand the carbon market to include 60pc of global emissions, a transformative move designed to incentivise corporations to reduce their emissions more aggressively.

The summit was set to address the thorny issue of credit ratings. Developing countries have often criticised the system, administered by predominantly Western-based agencies, as biased and unrepresentative of the realities of emerging economies. By advocating for more transparency in ratings and arguing for a more objective appraisal of risk, the summit tried to mitigate the lending costs for developing nations.

One summit objective is to bring the private sector to deal with and create incentives to put resources into clean climate-related investments. It also encouraged the big banks to buy back private debts to reduce the burden on the indebted countries.

Q: The geopolitical landscape is in flux, with the traditional creditors sharing the stage with emerging economies like the Middle East, India, and China. How do you expect the summit to chart the course with this changed playing field?

Amb. Marechaux: These ‘new kids on the block,’ as you call them, were part of the summit. For instance, the Prime Minister of China has participated, as was the UAE and Brazil’s President Lula. Their inclusion signified a crucial evolution. The G20’s Common Framework initiative is a prime example of this evolution, marking a shift in the traditional creditor-debtor dynamics by bringing China into the fold. The Committee of Creditors for Ethiopia, co-chaired by France and China, reflects this shift. There is a growing recognition among potential creditors about the necessity of working together towards debt sustainability. It is a departure from the past when developing countries could shop for favourable conditions. Despite minor disagreements, as in Zambia’s case, we observe a convergence of views, as illustrated by Ethiopia’s case.

Q: Leaders of developing countries like Ethiopia, Ghana, Zambia, and Chad participated in the summit. What do you think was their takeaway from the gathering?

Amb. Marechaux: The leaders attending the summit should gain clarity on the Common Framework. This includes understanding its methodologies and the timetable for its application. It is particularly important for countries like Ethiopia, which needs to secure the replenishment of very concessional resources to fund its next IMF program.

Q: Could you elaborate on the role of the private sector in this new debt landscape? What are some of the ideas floated to ensure meaningful private-sector participation?

Porte: There are three primary focus areas for engaging the private sector. Reforming the risk assessment system could lead to better private sector mobilisation. The push towards standardising the Public-Private Partnership (PPP) process is essential. This would mean that private sector participants would not need to negotiate conditions separately with the state they plan to invest in. Lastly, introducing mechanisms for buying back private debt is a significant step. Additionally, initiatives like the process to steer a global roadmap on bio credits led by France and the UK aim to increase private investment in natural capital and foster green investment strategies. All these measures are designed to incentivise the private sector to participate actively.

Q: Given the potential influx of private capital, how does the summit plan to strike a balance between taxing and incentivising private investment?

Porte: An important part of our strategy is the expansion of carbon markets. This not only encourages companies to reduce emissions but also provides resources for countries impacted by climate change, which can fund projects dedicated to adaptation and compensation for losses.

Q: The role and structure of multilateral financial organisations like the IMF and the World Bank are under scrutiny, with newer creditors calling for reform. Do you think there could be any breakthroughs in this context?

Amb. Marechaux: While there is unanimous political support for the idea of reform, the details of these reforms are yet to be defined. I have not seen any specific proposals with definitive figures in the preparatory papers. However, the discussion surrounding these reforms will certainly be lively and enlightening.

Q: The world is under intense economic pressure, grappling with inflation, climate issues, and geopolitical tensions. How did this summit fit into this global context?

Amb. Marechaux: The summit is a platform for all stakeholders to rally around previously agreed global goals, such as the Paris Agreement and the Sustainable Development Goals (SDGs). It is an opportunity for everyone to discuss with a shared target in sight, fostering a sense of unity in working towards these common goals.

Q: Looking ahead, do you think this summit will leave a significant mark on global governance when you look back 10 years from now?

Amb. Marechaux: Our intent in organising this summit was guided by our conviction that it would yield tangible results. The summit is not merely a diplomatic exercise; it is a strategic assembly of countries committed to tackling the world’s most pressing issues. We believe it can effect changes evident in global governance a decade from now.

Q: From your perspective, what would constitute a disappointment from the summit?

Amb. Marechaux: Failure to deliver on the agreed timetable and proposed reforms would be a significant disappointment. The summit’s success will not be measured solely by what happens within its duration but by the results it fosters in the months to come. If we fail to seize the opportunities for reform in the months following the summit, that would be a disappointment.

PUBLISHED ON Jun 24,2023 [ VOL 24 , NO 1208]

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