Is Technology a Third Lever for Financing the SDGs?

SDGs
SDGs

June 28, 2017//- When governments adopted the Sustainable Development Goals (SDGs), their message was one of ambition: a world in which poverty is eliminated, growth made sustainable, ecosystems restored, and no one is left behind.

This came with a price tag: annual investment needs of $4 trillion. With only $1.5 trillion now being invested, this means closing an investment gap of $2.5 trillion every year until 2030.

For International Finance Institutions, this is the central challenge of our time. It involves aligning the interest of global savers, and the investors who represent them, with the interest of citizens as they are expressed through the SDGs.

The fact is that the poorest countries have been left behind. To change this, we have focused on two levers: (a) reforms and instruments to manage risks of investing in lower-income countries, which are perceived to be of higher risk, and (b) sector policy and capacity to increase the flow of viable, high impact projects. At major gatherings in Addis Ababa, New York, Washington and Accra, we are working on these issues.

But, progress doesn’t only come from gatherings or instruments. It also comes from technology and innovation. Technology can help by reducing the cost of development solutions, and shrink the size of the $2.5 trillion financing gap. Can we push harder on this third lever?

New technology and business models have helped solar power costs fall by 80% since 2009. Energy storage costs are expected to fall by 70% in the next 15 years. Technology is enabling lean construction and new materials that can cut costs by 15%. Since construction comprises about 6% of GDP on average, globally, this is an $800 billion opportunity.

Consider health worker training. Because of a global shortage that WHO estimates at 4 million health workers, one billion people will never visit a health worker. A detailed comparison suggested that the cost of training community health workers can be reduced by 67% by using e-learning.

Finally, access to finance. Most have heard of M-PESA, which expanded access to mobile money to 70% of Kenyan households in under five years by dramatically reducing the cost of access. A recent study found a 2% reduction in poverty among Kenyan households using M-PESA, by empowering women to switch to higher-earning occupations. M-PESA reduced the cost of resilience.

As described in the 2016 WDR on Digital Dividends, developing countries will need to act to reap the benefits of technology, including through actions to improve the enabling environment, expand digital literacy skills, and strengthen relevant institutions. Data security and privacy must be assured, and gaps in broadband access and usage must be closed.

This will unleash a wide range of gains beyond what we’ve already seen: better targeting of social transfers, reduced fraud and leakage, more collaborative solutions, and, as high-frequency micro data (“big data”) becomes available, real-time feedback to continuously adapt and refine projects to achieve results.

How can we focus more on technology as third lever to help deliver the SDGs? We can start with a few categories.

Radical Transparency. The first step to bringing down the cost of SDGs is to make the cost of delivery transparent, in a way that is disaggregated across the full delivery chain. With transparency, technologists can target inefficiencies and entrepreneurs can turn efficiency into a business.

Rethinking fixed costs. Many innovative technology models reinvent how capital is deployed. Many startups no longer invest in servers and software, but instead buy them as services on the cloud, making fixed costs variable. Where assets must be deployed, such as in transportation, technology makes their utilization more efficient. By embedding transmitters in shipping containers, traffic is managed, downtime is minimized, and routes are optimized – the assets are better used. Sensors can help reduce the $45 billion of road infrastructure lost in developing countries in Asia, Africa, and Latin America between 1970 and 1990, by triggering preventative maintenance. As we invest, we need to think through how information will change how assets will be used.

Lowering transaction costs. Transaction costs pose an immense barrier to expanding services, such as agricultural and health insurance. That technology reduces search and intermediation costs is no secret; think Google or Amazon. Less appreciated is the role of technology in securing agreements between parties.

While the practice still needs to catch up to the promise, Blockchain, a trusted virtual ledger of transactions between parties, is already being used to reduce the high cost of remittances and secure other forms of transfer of title. Making contracts more secure will have ripple effects: reducing buffer inventory stocks, storage costs, and payment delays.

Rethinking regulation. Consumers will not enjoy these gains without the right policy environment. In the case of electricity, it requires partnerships with regulators to accelerate the development of flexible markets that allow utilities to deploy technologies, generation sources, and to buy, sell and store power to meet the needs of consumers, at the right quality, at lowest cost. In our policy dialogue with governments, we can either enable these gains or, unwittingly, lock them out.

Focusing on competition. The good news is that the focus we have already put on sector reform through the Cascade is on the critical path to using technology to lower the cost of the SDGs.

We focus on leveraging the private sector not only to access pools of untapped capital and preserve scarce concessional resources, but also to inject competition into how development is delivered – to lower costs, increase quality and drive innovation. This will drive demand for better technology.

Driving down the cost of the SDGs through technology is not inevitable, and the investment challenge will remain massive notwithstanding. But it will help, and it can happen if we think dynamically about how technology will change the future cost structure of the solutions we provide.

Meeting global aspirations requires all hands on deck: not only policymakers and investors, but also technologists and innovators.

By Magdi M. Amin, Manager of Corporate Strategy at IFC

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