About DFIs

Experts' insights

Back to all experts' insight

Building on the progress in fighting poverty

Erik Solheim

Erik Solheim is Executive Director UN Environment. Previously, he was chair of the OECD’s Development Assistance Committee. He has served as international development minister and environment minister of Norway.

How far have we come in the fight against poverty?

It is important to recall how much progress has actually been made. The absolute number of people living in poverty increased every year until 1990, even if the relative share started to decrease after the industrial revolution. Since 1990 global poverty has been cut in half. Consider, for example, the improvements in global health. 2015 was the first year without any polio cases in Africa and we are close to eradicating polio from the planet. Malaria death rates in children have fallen 65% since 2000. In fact, it is a challenge to get people to understand the progress we have made. Many still believe it’s going the other way with more poor people and worse education and health.

What are the main factors behind this progress?

Better policies are a major factor. After the end of the Cold War period, on the whole, fewer have suffered due to armed conflicts than before and many countries adopted more pragmatic policies that served people better. We moved past the big clash between communism and extreme market liberalism. Almost all countries recognise the market and the importance of private investment. The debate about private investment was not won by theorists but by policy-makers in China, South Korea, Singapore and other places which opened their markets to investors and realised enormous economic progress. The average South Korean is more than 300 times richer now than in the 1950s.

Scientific progress in fighting diseases and technological innovation in areas like information technology have also been very important. Even the poorest people almost all now have access to mobile phones and an increasing share of global population gain access to the internet. There has also been an education revolution. The countries that have made the most progress have acted massively on education.

What do you see as the priorities now?

Better policies, private investment and the markets are the most important factors. What we need is more of these things that have proven to work; and this needs to be done even better in more countries. We need to support good political leadership and avoid conflicts to make private investment possible. There is too little investment in Africa outside of oil, gas, gold and minerals. Africa needs a dramatic commitment to industrialisation that can only come through private investments in production of goods. We see countries like Ethiopia, Rwanda and Senegal that are starting to get a textile production for the world market, taking up these opportunities as salaries in China increase. This is the kind of thing that needs to be built on.

What should we expect of private investors?

The most important thing private businesses do is to run their core business well so they can create jobs and grow. They have to be responsible and pay taxes so authorities can improve health, education, etc. This will also benefit their employees and the business. Job creation is desperately needed. One million young people will enter the labour market each month in both Africa

and in South Asia and the majority of jobs will have to come from private sector. This means a lot of investment is needed. A lot of the opportunities will be in manufacturing, in agriculture, and in service sectors like tourism funds so they can be invested again and again. More aid is being channelled through the DFIs. OECD’s Development Assistance Committee has also been asked by our member countries to change the regulations on aid so that it becomes easier to use these institutions.

Better policies, private investment and the markets are the most important factors. What we need is more of these things that have proven to work.

What are the implications then for DFIs?

DFIs are becoming increasingly important. Policy-makers in donor countries are recognising the role of private investments and want to emphasise policies that promote growth. So we are seeing a focus on mechanisms that can help catalyse more private investment and where successful projects return the

What are the challenges that DFIs must address now?

The DFIs need to find ways to go to scale. Many projects are managed well but are quite small. We also need institutions to come together for more substantial investments. The critical thing is to bring in private investors alongside the development finance. The DFIs can go into markets where private investors are not already going on their own and they can maintain high standards in terms of environment and working conditions.

Too many in the public sector talk about the private sector rather than with the private sector. DFIs may act as an important link between the private sector and policy-makers. They are in a better position to have a genuine dialogue with private investors – including banks, insurance companies, pension funds – about the barriers facing their investment in poor countries. It is also important to stand against the pressure from the media and organisations if anything goes wrong. A serious company would not exit the U.S. or Europe if they have a failed project but that may be the case with Africa or India. Both companies and politicians are afraid to discuss these difficult challenges in public. The DFIs can definitely help by talking more about their experiences and track-record in difficult markets.