The Trillion Dollar Question Leaders Should Be Grappling With

The cost of ending extreme poverty and achieving the UN Sustainable Development Goals is estimated to be high in the $2.5 to $4.2 trillion range. With the right leadership through philanthropy (both traditional and crypto), private wealth and public financial institutions like the World Bank, we could meet this challenge. With $2.5 trillion to $4.2 trillion, accounting for about 3 percent of the $112 trillion in assets under management globally, there is enough capital on the sidelines that could be mobilized. It’s simply a trillion dollar question of how best to “release the funds,” as proponents have campaigned. With Millions more people at risk of povertynow it’s time to embrace a new playbook.

Let’s start with the public institutions like the World Bank and the International Monetary Fund (IMF). Here we have an ambitious roadmap – The Bridgetown Initiative – this is being championed by Prime Minister Mia Mottley of Barbados. A pillar of the initiative describes how the major multi-development banks alone hold over $1.5 trillion in assets that could be better leveraged in capital markets to unlock up to an additional $1 trillion. It requires such development banks to embark on a range of reforms and an expansion of their risk appetite, such as: recommended by an expert panel of the G20. It is important to note, however, that this greater financial clout could be achieved without additional contributions from the banks’ shareholders (mainly G20 governments). The forthcoming G20 meeting next month provides an opportunity to address these key recommendations.

The Bridgetown Initiative also outlines how we could give developing countries more liquidity and fiscal space to respond to the multiple crises that are engulfing them, while investing in long-term resilience, particularly against climate change. For example, $100 billion in so-called Special Drawing Rights (SDRs) – an IMF reserve asset that was mainly issued to wealthy countries – could be recycled to help poorer countries. dr Akinwumi A. Adesina, the President of the African Development Bank is one of several prominent leaders campaigning for such a shift. So far, however, less than $60 billion in SDRs has been made available, with France noting itself by recently pledged to recycle 30 percent of its share at this year’s Global Citizen Festival.

While we wait for others to follow suit, some countries have already started making interim commitments to transfer SDRs, demonstrating their powerful utility. For example Barbados itself recently received provisional approval This could give it up to $300 million in SDRs, some of which will help bring the country to 100 percent renewable energy by 2030, while investing in more resilient infrastructure to withstand the ravages of climate-related extreme weather events.

Other measures championed by the Bridgetown Initiative include debt relief, including greater cooperation between both private and government creditors, and other measures to avoid future debt problems. Many countries – including 22 in all of Africa alone – are currently on the brink of insolvency and the threat of social unrest. As I have already outlined hereAdd Natural Disaster and Pandemic Clauses on government and retail bonds could go a long way towards mitigating the impact of current and future debt crises by creating an immediate halt to debt repayments in the event of a disaster.

In addition to rewriting the playbook of public financial institutions and SDR recycling, private wealth and investment capital could also be put to better use. For example, private sector capital could help cover the estimated $70 billion in investment needed annually to replace fossil fuel infrastructure with renewable clean energy across the African continent. Of course, given the high level of risk, this capital is unlikely to move first. To counteract this, there are some sources of catalytic capital that could be used to de-risk such investments, act as a guarantee and spur additional private sector investment.

In a keynote address in Accra last month, Tshepo Mahloele, patron of Global Citizen Africa, along with President Akufo-Addo of Ghana, made a bold argument “Here in Africa, the private sector either has to do the work – or perish in failed economies.” To that end, and according to Mahloele, there is enough African capital – held in pension funds and insurance companies in at least 10 cities across the continent – that could be the initial driver to meet and help reduce Africa’s investment needs risky bet for the international capital markets. By reducing the risk of entry, private lenders abroad could then also offer better and more affordable interest rates. As Mahloele further noted: “Without strong capital formations, we will not be able to go to the negotiating table or keep our word. Or we will just be a taker of terms.”

A second source of catalytic capital is the more than $2 trillion in global philanthropy assets worldwide. I have already written how much of this capital is currently lying idle and playing it safe. There is a huge opportunity for venture philanthropists to rewrite the philanthropic playbook and take the lead in unlocking an investment revolution in developing countries. Yet too much philanthropy remains timid and cautious when used at a time when the urgency and need has never been greater. Nice, according to Citi’s latest GPS reportmore than 60 percent of American philanthropists have said they will be even more cautious about giving this year than they were last year as a global economic downturn approaches. The irony, of course, is that many of the holders of these assets have themselves made their fortunes by making big bets. We urgently need to change the way people think about using (and spending!) their philanthropic dollars to make an impact.

Probably One way to use philanthropic assets is to support the political entrepreneurs and advocates who are working so hard to “unlock the funds” that could be used by the World Bank and in the IMF’s SDRs. In the upcoming film loveless, fundraising pioneer Dan Pallotta talks about how NGOs must compete for people’s attention and opinions with the massive marketing and PR budgets of big companies like Google and Apple. Ensuring that NGOs and lawyers are able to compete for the opinion of the world’s top finance ministers and political leaders is no different, if not an even greater, hurdle. To that end, an investment of now a million dollars in the ability of activists and advocates to break through and garner attention for the reform of, say, multi-development banks could, in turn, have the potential to yield hundreds of billions in returns to lead! Talk about the return on investment.

Ultimately, traditional philanthropic capital could take a page out of the crypto philanthropy playbook. Although they still make up a very small percentage of total philanthropic giving, early signs seem to indicate that crypto asset holders are more likely to make proportionately much larger charitable giving. According to Citi’s GPS report, charitable donations from crypto donors have skyrocketed by 6x or even 12x in some cases. In times of crisis, such extraordinary generosity – when complemented by traditional donors – could have a profound impact in igniting the investment momentum needed to end extreme poverty NOW. Such a breakthrough could not come at a more critical time, as at least one report estimates that up to 200 million additional people could be pushed into extreme poverty this year alone.

The funds consist of philanthropic, private and public assets to end extreme poverty and advance clean energy transitions in developing countries. The trillion dollar question is simply how to “release the funds”. Fortunately, there is an answer to that question in the ideas championed by the likes of Mia Motley, Tshepo Mahole, and Dan Pallotta. What we need now is the boldness and courage to pull through and embrace a new playbook. We have no time to lose.