Ali Ibrahim, Young Global Leader Class 2013, discusses sustainable investment and social credits
According to World Bank statistics, as of 2008, there were 1.18 billion people living on US$ 1.25 to US$ 2 per day, the lowest scale of poverty. A greater collaborative impetus – say, in the form of devising regional poverty alleviation strategies – is needed. Developing countries should look to their neighbours for market-based solutions to poverty. As regional treaties for economic cooperation and global trade agreements have been put in place, the lessons learned by member countries of a regional organization or regional economic communities (RECs) should be used towards the global resolve against poverty.
There are several ways to connect poverty alleviation and economic development initiatives regionally. These include managing joint resources such as funds, capacity building and vocational training programmes and developing joint strategies to attract local and international investments to these initiatives. As for potential for investment, the market for professionally managed sustainable investments has grown to at least US$ 13.71 trillion. US$ 89 billion are currently invested in impact and community investing (which is part of sustainable investments). Impact investing, as an independent asset class, is also growing rapidly, and is likely to cross the trillion-dollar mark over the next decade.
Seeking to finance public amenities (e.g. agriculture, education, energy, health, housing and water) and infrastructure projects, developing countries should devise innovative public-private partnership models to attract private investments across their region. A well-thought-through incentive structure within the region will also attract social and impact investors.
One of the most attractive incentives could be to offer tax-adjustable social credits on these investments. The social credits should be backed by local legislations consistently across the region. As it scales up, a global platform for social credits will become essential for trading and securing other benefits, leading gradually to global tax adjustments and exchange for the owners of social credits.
Incentive structures should include adequate credit enhancement tools to mitigate country and related risks. Multilateral and development finance institutions currently offer various risk mitigation programmes, which should be explored. As part of the overall strategy, effective market linkages – in the form of developing an economic value chain within a country and across the region – can offer the right scale for micro, small and medium-sized enterprises. Boosting local businesses and, as the entrepreneurs and business start to interlink, private funding or crowdfunding platforms can bridge the increasing funding needs.
As the market size of sustainable investing increases and exiting from such investments becomes easier due to the scale, any group of REC member countries with well-structured joint strategies and incentives will become an attractive investments destination.
Author: Ali Ibrahim is Vice-President of Al Baraka Banking Group and a Young Global Leader Class 2013
Image: A truck is seen loaded with sugar cane in southern Brazil REUTERS/Paulo Whitaker