By Rob Mosbacher
Rob served as President and CEO of the Overseas Private Investment Corporation (OPIC) from 2005-2009. He was also very actively involved in the drafting and passage of the BUILD Act which created the US Development Finance Corporation (DFC).
For the past two years, I have had the pleasure of Chairing the Project Advisory Board for the DFI Transparency Initiative, and I am delighted to see the launch of the DFI Transparency Tool. However, as the Publish What You Fund team will tell you, at the start of the initiative, I had some serious reservations. Although there is no question that DFIs must be more transparent in their disclosures on projects, particularly as we rely more heavily on private capital and development finance to achieve the SDGs, I was concerned about how vigorous or aggressive this pursuit might be.
Unfortunately, there is very little pressure from the boards and stakeholders of the various DFIs to significantly increase transparency and one can envision a situation in which, if expectations are set too high and the recommended requirements for disclosure are considered too burdensome by either the DFIs or their business clients, then they would simply ignore the recommendations, or adopt the easiest parts. In short, the team has had to constantly balance what is ideal with what is possible and realistic. In general, I think they have done an excellent job of that. While the expectations they set for greater DFI transparency are high, I believe they are realistic about the time it will take to adopt new standards. Moreover, they have provided a very practical tool that DFIs can incorporate to help harmonize disclosure practices across the sector.
“Greater transparency is essential because we are talking about the expenditure of public resources and it is very difficult, if not impossible, to know what DFIs are actually accomplishing with the current level of disclosure. It is hard to discern what works and at what cost unless there is a more standardized or harmonized way of disclosing data.”
There are a couple of general observations I want to make based upon the inquiries they have made, the data they have collected, and the in-depth analysis that the team has done. First, the current level of disclosure among DFIs is surprisingly low. There are a few exceptions, but in general, most DFIs have quite a way to go before they can claim that they are operating in as transparent a manner as possible.
As a private sector business owner and operator, I understand concerns about disclosure of proprietary or confidential business information. However, the team’s research shows that not only are many business clients of DFIs willing to disclose more information regarding their transaction, but much of the purportedly confidential information can be found in the public domain.
When I purchased political risk insurance from OPIC almost 30 years ago, I assumed that doing business with a public sector entity would entail some level of disclosure that would not be the case with a purely private sector business. I think sometimes non-disclosure agreements are used as an excuse to avoid the release of pertinent project information and I believe that a move toward more transparency among DFIs can be accomplished without compromising what private sector businesses consider truly confidential.
My second general observation is that greater transparency among DFIs is not just desirable, it is essential in this day and time. We are living in a world in which official development assistance has plateaued, if not declining. The global effort to reduce poverty will increasingly depend upon private capital flows and the degree to which DFIs can facilitate greater investment in low and lower-middle income countries.
Greater transparency is essential because we are talking about the expenditure of public resources and it is very difficult, if not impossible, to know what DFIs are actually accomplishing with the current level of disclosure. It is hard to discern what works and at what cost unless there is a more standardized or harmonized way of disclosing data. If you are on the board of one of the DFIs, or a key stakeholder, you should want much more information about the developmental impact of the projects that are being financed and whether you are crowding out or crowding in more private sector capital. Are DFIs keeping up with the rapidly evolving focus on environmental, social, and governance standards in the private sector and if so, how?
Finally, we are in a global competition over models of development. One approach suggests that economic growth can be accomplished through project financing which is secretly negotiated and largely hidden from public scrutiny or view. The other model insists upon open, transparent competition for projects in which the ultimate terms of the transaction are made public. It is that latter model which most DFIs embrace and it is incumbent upon those of us who promote that model to the rest of the world, to set an example of what real transparency and disclosure looks like and why that must become the norm rather than the exception.
I’ve seen first-hand the extraordinary impact that DFIs can have. I’ve seen the jobs and opportunities which they can create, the products and services they can provide, and the major change in access to electricity and water which can come with big infrastructure projects. But we mustn’t limit ourselves to thinking that the positive impact of DFIs should reside only in their investments. Rather, we should also think of them as models of best practices in how to invest in and finance economic growth and as providers of practical market information that will encourage and enable others to invest.
The team at Publish What You Fund have proven themselves a constructive critic of aid transparency more broadly, and now, by collaborating with DFIs, the private sector and civil society, they have provided a roadmap to move the whole DFI sector forward. They know that a number of leading DFIs are clamoring for a granular definition of transparency, one that they could operationalize, and would improve the availability, timeliness, and comparability of investment and policy information. That doesn’t mean it will be easy, or that all DFIs will be able to provide all the data that is sought. However, I believe this report and the DFI Transparency Tool is a huge step forward in the process.
The DFI Transparency Tool was launched at a virtual event hosted by the Brookings Institution on 3rd November 2021. More details are available here.
The DFI Transparency Tool is available here.