WTO outlines six areas of action to deliver on SDGs, climate transition
SIX areas of action were needed to deliver on the United Nation’s Sustainable Development Goals (SDGs), as well as climate transition, said Ngozi Okonjo-Iweala, director-general of the World Trade Organisation.
Speaking at the New Development Bank’s ninth annual meeting, held in Cape Town, on Friday, she said there were daunting challenges facing emerging markets and developing economies.
UN Trade and Development (Unctad) estimates there is a $4 trillion (about R17.8 trillion) annual investment gap for delivering on SDGs and climate transition.
Over half of the shortfall, or $2.2 trillion per year, related to the energy transition; $500 billion to investment in water supply and sanitation; $400bn to economic infrastructure, particularly transportation and telecommunications; and $300bn related to agriculture.
Emerging markets and developing economies, other than China, would need $1 trillion in external financing per year by 2030.
However, Okonjo-Iweala said the UN estimated that the amount of actual investment in SDG sectors in developing countries, measured as green deal projects and international project finance deals, was $471bn only in 2022.
“There is a gulf, we all know, between rhetoric and reality,” she said. While the $4 trillion annual investment gap for delivering on development goals and climate ambitions “sounds huge”, Okonjo-Iweala said it represented only around 1% of global financial assets. With the right signals and incentives, carrots like de-risking and sticks like carbon pricing, the financial system could do much more.
Looking ahead, she said to get from where the world was now to where it needed to be, “we must use every tool at our disposal”.
Six areas for action:
First, finance. Leveraging private finance, which Okonjo-Iweala said still had a way to go. Only a fraction of private investment had been mobilised in contrast to the $2 trillion- plus needed in annual climate finance alone.
The WTO welcomed creative mechanisms like the new Liquidity and Sustainability Facility, which had brought together asset managers and other financial institutions to create a repurchase or repo market for holders of African sovereign bonds by allowing bondholders to post them as collateral for low-interest loans.
She said the mechanism increased demand for sovereign bonds, thus lowering African governments’ borrowing costs and expanding their fiscal space. It was working to encourage African countries to issue green bonds by offering investors favourable terms or using them as collateral in record transactions.
Second, domestic resources. Emerging markets and developing economies needed to mobilise more domestic resources. The International Monetary Fund estimated that better tax policy design and improved public institutions would help low-income economies increase their tax to GDP ratios by up to 6.7 percentage points on average. From 2000 to 2021, African economies collected only 24% of the potential VAT revenues.
Third, reforming existing subsidy practices. This would deliver environmental and economic gains while unlocking hundreds of billions of dollars to finance sustainable development. For example, there was about $1.33 trillion in fossil fuel subsidies, among others.
"We need to be brave enough to act on even a small portion of these subsidies so we can repurpose them to finance development and climate transition needs,“ she said.
Fourth, a global carbon pricing approach. This would potentially raise billions of dollars on green investments while putting growth on a more environmentally sound footing.
According to the World Bank, existing carbon pricing schemes raised about $104bn in 2023, with most of the revenues used for climate-related programmes.
Okonjo-Iweala said one could raise more funds if there was international co-ordination on this issue.
At the WTO it was co-ordinating a carbon pricing task force, including the World Bank, the IMF, OECD, Unctad, among others, to try to develop a global approach of pricing, with the first report due in October.
Fifth, remittances and mobilising finance for development. Okonjo-Iweala said diaspora communities with foreign direct investment (FDI) were typically overrepresented in FDI to their countries of origin. (A diaspora is a group of people who don't live in their original country but still maintain their heritage in their new land.) India got almost one-fifth of all global FDI, for instance.
Sixth, trade. Okonjo-Iweala said trade was needed to lead the financing and development equation.
“Recent experience shows that trade-led growth can help poor countries powerfully accelerate the attainment of economic equity and environmental goals, reducing their financing needs.
“Increased participation in global trade by poor countries over the past 30 years has been a major factor in bringing down the share of the world population living in extreme poverty from 33% in 1995 to 9% in 2022,” she said.
Okonjo-Iweala explained that integration into global markets helped countries attract FDI and earn currency to service debts and financing.
Open and predictable global trade, according to the WTO, remained a vital force for growth and development.
“To close the SDG and climate finance gaps, we will need the public and private sectors to do so much more, but we'll need to also be smarter about what we do to mobilise finance and how we do it. Part of that means maintaining open global trade as a force multiplier for everything we are hoping to accomplish to improve lives in emerging markets and developing economies,” she said.
Okonjo-Iweala also called for support for the multilateral trading system and the WTO.
She urged NDB members to use their voices at the WTO to shape a positive future agenda for global trade and development. | BUSINESS REPORT