The Foundation's Senior Health Economist Dr Lachlan McDonald made this opening statement at an Inquiry into the role of the private sector in promoting economic growth and reducing poverty in the Indo-Pacific on 15 August.
Strong and sustained private sector-led economic growth has been transformative in lifting millions of people out of poverty in the Indo-Pacific and elsewhere. This has also coincided with improved health outcomes in the region, including reduced prevalence rates of blindness.
The Fred Hollows Foundation believes that a focus on engaging the private sector in innovation and delivery of programs is an opportunity to build upon these gains and ignite a cycle of economic development that will deliver even stronger health and development outcomes.
However, economic growth should not be seen as an end in itself. Unabated, growth has often led to rising inequality. From the perspective of economic development this is selfdefeating. At a micro level inequality undermines human capital. At a macro level it constrains a country’s overall potential level of economic output.
Growth needs to be inclusive and broadly shared if it is to be most beneficial. This philosophy underpins The Foundation’s work on blindness and visual impairment as our work targets the most poor and vulnerable.
Blindness is a constraint on the supply-side of the economy because it removes people from the labour force. It is also constrains demand because it restricts individuals’ access to markets and resources. It locks up the human potential of millions and sidelines them from the economic system.
This creates a terrible waste – in human terms and in terms of economics – because most blindness is avoidable. The majority of people with restrictive vision loss could be helped by relatively straightforward interventions that deliver almost immediate results. By bringing people back into the system and broadening the base of economic activity, reducing blindness helps release the handbrake on the pace of global development and poverty reduction.
The Foundation recognises that a focus on the private sector, on innovation and on results can contribute to further gains in reducing avoidable blindness.
I’d like to tell you now about one particular innovation The Foundation is exploring, which is in private capital markets.
Private investors are increasingly looking for investments that generate a social return. This market is predicted to grow rapidly, increasing almost 30 fold to US $1 trillion by 2020.
The potential of financial markets to fund a new wave of economic progress in developing countries is enormous. It also offers an avenue for NGOs to decrease their reliance on traditional aid. For donors and emerging economies, it offers the prospect of increased self-reliance and sustainability.
To date, a combination of high transactions costs and uncertainty have meant that few investors have seriously contemplated social entrepreneurship in the area of international development.
The Foundation is looking to change this by designing and piloting one of the world’s first Development Impact Bonds. The innovation of impact bonds is that they source up-front capital from private investors to fund specific projects with known positive development impacts. A third party, typically a public donor, who shares the development goal, will repay investors only upon the successful achievement of results – thereby reducing the risks of the taxpayer funds they allocate for development. Partnering with NGOs that bring proven records of success also helps to keep implementation risks at a minimum.
This is where the Australian Government can help. Such innovative markets are unlikely to develop spontaneously. They require vision from governments and investors to prove that deals like this can be done.
Importantly, relatively small investments can be the catalyst for making large changes to the status quo in international development. The Foundation understands this is the stated intention of DFAT’s new “Innovation Hub”.
We welcome the establishment of the Hub and stand ready, willing and able to partner in driving private financial market innovation to achieve important results that affect the health and well-being of people in our region and around the world.
We believe that this is a great opportunity to build on and complement Australia’s strong track record of using its aid program to reduce poverty and provide humanitarian assistance in developing countries.