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Beyond

Aid

Staci Warden, Milken Institute’s Executive Director of Global Market Development, explains how social investors can help countries bankroll their own growth and development.

Ghana’s President Nana Akufo-Addo captured global attention last year by expanding on his vision for an Africa Beyond Aid. “I am insisting that we use our resources to build robust economies that will propel us into the likes of the developed nations of the world,” he said. “I am insisting that we stop believing that our deliverance will come from benefactors.” Following his lead in part, the USAID has similarly framed its development assistance agenda around helping countries on a “Journey to Self-Reliance.”

The question facing philanthropists, then, is how to partner effectively with developing countries under a country-led paradigm, and in a way that supports their eventual independence. It starts with an appreciation for the importance of private-sector-led growth as a development strategy and an understanding that in order for the private sector to flourish, it must have reliable access to finance. That is, a country’s successful journey to self-reliance must also entail better financial self-reliance. And I will argue that this requires deep, well-regulated domestic capital markets.

The Plumbing System for Prosperity

‍Domestic capital markets engender growth because they enable the private sector to directly access the savings of domestic households. If capital markets work well, households can invest their savings in the stock market or other outlets, instead of in low-yielding bank accounts. This way, firms borrow household savings directly, instead of having to rely only on bank loans. Deep capital markets are the plumbing system for prosperity because they prime a virtuous circle whereby household savings finance companies, companies then grow and hire more workers, and more workers earning more income generate more household savings, and the investment cycle continues.


At the Milken Institute a deep belief in the power of capital markets to drive prosperity is in our DNA, and the Global Market Development (GMD) practice that I lead partners with developing countries and emerging markets all over the world to develop strategic roadmaps for this journey. We have worked with low-income countries on sector-specific action plans and we have worked with higher-income countries on the cutting-edge regulation of, for example, new FinTech ecosystems. In Rwanda, we were honored to play an active role in shaping its Capital Markets Master Plan, now legislated as the Capital Market Authority’s official roadmap.

What does building and strengthening capital markets have to do with philanthropy?

I would argue that philanthropists can do few things more impactful for supporting a Beyond Aid world — in Africa or anywhere else — than to support governments as they develop domestic capital markets, because, in short, capital markets enable countries to finance their own development priorities.

An attitude of genuine partnership is critical, and this means taking the time to foster the dialog required to develop country-led and country-appropriate solutions.
Help Countries Bankroll Their Own Economic Growth and Development

Philanthropists can support the development of domestic capital markets in several ways. First, and most importantly, they can make better use of financial-market instruments in their support of government priorities. For example, they can move beyond pure grant-making to take credit or equity investment positions in projects at non-commercial rates of return and with longer, more patient, time-frames.
This works well for projects that are critical but not always directly profitable (e.g. by helping to finance pioneering projects in the health or education sector).

Philanthropists can also use blended finance techniques to spark capital market growth. Essentially, this entails providing a guarantee or taking a first-loss position in front of private sector investors in order to reduce the risk of those investments. The idea is that philanthropists can mitigate some of the risk and thereby bring more private investors  to the table. Here, drug discovery or infrastructure investments are good examples.

Country-Led and Country-Appropriate Solutions

And this brings me to the question of partnership. Based on our work on several continents on capital market development, I’d like to offer a few observations on partnering with governments more generally. First, and perhaps most importantly, I’ve found that an attitude of genuine partnership is critical, and this means taking the time to foster the dialog required to develop country-led and country-appropriate solutions.

My own “Road to Damascus” moment happened when I was asked by a Minister of Finance to write a consultative report for their capital market development strategy.  When I arrived in-country to talk to officials and scope out the work, I unearthed two consultative documents, prepared years earlier. I asked what was missing from these studies and was told that “they weren’t commissioned here, so I don’t know what value they have.” The Minister in question wasn’t rejecting the substance of the reports; he was rejecting the idea of them. I had a kind of epiphany then of what it really meant for a country to drive its own development agenda.

I realized that the best ideas in the world mean nothing if there is no execution, and there will be no execution if public and private stakeholders don’t feel brought in, and stakeholders will not feel brought in unless they believe they have been a meaningful part of the process. Full stop. Country ownership means that policy officials and relevant stakeholders need to be deeply engaged in establishing the contours of the problem, the brainstorming of ideas, and the planning and program design of any solution.  

Leave Your Templates at the Door

This realization has formed the basis of GMD’s own consultative approach. We bring senior-level policymakers, private sector leaders, and outside experts together in a structured discussion around the strategic and tactical elements of capital market reform. Rather than prescribing template advice, we try to capture the various lines of argument, the perspectives of participants, and the risks and objections presented. We have found that this approach works well because officials and stakeholders are more likely to buy into a policy if they feel that they have participated in its nascency.

Second, we have found that governments rarely value what is free, and while philanthropists may think that poor countries, by definition, need charity, we have found that they need to have “skin in the game” of some kind, always. GMD also runs a Capital Markets Scholars program in partnership with the International Finance Corporation (IFC) that brings mid-career officials from developing countries to Washington D.C. for nine months of accredited business school coursework in capital markets, followed by internships with market participants. In this program, we insist that even the poorest countries continue to pay salaries and housing during the time that their scholars are resident in the United States.

Partnerships with governments are like marriages. And as with a marriage, it’s good to be in it for the long haul. In our case, for example, we expect that our strategic advisory mandates will come increasingly from the alumni of our Capital Markets Scholars program. In this way we hope to create a virtuous circle of long-term partnerships that can in some small way help countries to finance their own road to economic independence and self-directed prosperity.

Staci Warden
Staci Warden is the Executive Director of Global Market Development at the Milken Institute where she leads strategic initiatives on developing capital markets, innovative finance, and access to capital. She previously led JP Morgan’s public sector client franchise in EMEA for six years. Before that, she led the Nasdaq’s two micro-cap markets, ran a United States Treasury international debt restructuring program, helped start the Center for Global Development, and worked as an economist at the Harvard Institute for International Development.

Warden chairs the board of Rwanda’s Capital Markets Authority and sits on the boards of the Energy for Growth Hub and the Global Blockchain Business Council.