Financing Digital Innovation For Sustainable Development

Proposals for the Inter-American Development Bank (IADB) and the Food and Agriculture Organization of the United Nations (UNFAO)

DANILO PIAGGESI
Managing Director
K4D (formerly FRAmericas), Knowledge for Development
Organization in special consultative status with the United Nations ECOSOC since 2015
USA/Italy

 

1. The United Nations’ Sustainable Development Goals (SDG), 17 (SDG 17), supports “access to science, technology and innovation and enhance knowledge sharing … including through improved coordination among existing mechanisms, at the United Nations level”. SDG 17 pursues capacity building through improved access to data (i.e. solid statistics), information and knowledge to support decision-making and oversight. SDG17 is also closely linked to Objective 6, which covers the provision of technical knowledge, quality and services. Such guidelines embrace the economic viability, replicability and sustainability attributes that innovation must have to be called such, in the field of promoting digital innovation. Those guidelines provide a clear path to streamline efforts in this area by directing support to three crucial areas: (i) developing a market for digital innovation products and services; (ii) supporting initiatives to bring about new and more efficient business models and processes; and (iii) providing focused support to the generation of innovative products and services.

2. To achieve these ends, it is proposed to establish adequate mechanisms to provide technical and financial support in each one of those areas, utilizing partners and collaboration mechanisms.

3. In this context, the author proposes two different Digital Innovation Trust Funds financing innovation for sustainable development for the Inter-American Development Bank (IADB) and the Food and Agriculture Organization of the United Nations (FAO), reviewing other funds and funding sources with similar or complementary purposes that operate at international development agencies. Main observations1 derived from this exercise include:

  1. International development agencies are all consistently pursuing the overall goal of reducing poverty and promoting socio-economic growth, under the guidance of the UN’s Sustainable Development Goals. For that overarching goal, digital innovation, ICT for development and technology innovation are means to achieve those goals faster, more efficiently and more widely; while they do not appear as a sector or priority activity, they are present in practically each sectoral effort and project2. It is possible to say that today, digital innovation has been mainstreamed into development financing.
  2. Innovation funding tends to be directed towards financing: (i) applications of ICT to make more efficient and reach wider audiences for sector projects, with emphasis on education, health, transportation, environment, among others; (ii) applications of ICT to increase the amount, relevance and quality of information available to beneficiaries, in order to improve decision making; (ii) e-government and government capacity building; (iv) government digital strategy development; (v) knowledge acquisition, development, and management.
  3. Financing for basic or applied research is less common; responsibility for this type of investment is left to government intervention, if any. In practice, research and development rests with large private corporations mostly in developed countries.
  4. Financing in support of private sector investment is rare; some investment is present for the private sector (mostly small and medium enterprises) capacity building, but risk capital or equity investment is extremely rare. Identified sources of development (concessionary) financing in development countries are limited to multi-lateral banks and a couple of bi-lateral financial institutions. Financing for initial stages of product or service development (start-ups) is even less frequent, with only a handful of sources available.

4. There are several Funds devoted to the area of digital innovation, ICT for development and technology innovation. However, most of them tend to support the creation of ICT infrastructure or the establishment of conditions that would facilitate access to ICT, rather than the development of ICT applications for a specific development sector – for example, agriculture. In general, funds are vague as to the nature of the “innovation” activities they would support, which leaves the proponent to decide whether their proposal would fall or not within the realm of interest of each fund. The size of the grants tends to be small (less than US$50,000 each); project duration tends to be short -twelve months seems to be the most common duration – which may limit the long-term sustainability of the efforts they support. While there is some coalition among funding sources at the regional level (Latin America and Caribbean, Africa and Asia), funding seems to be too dispersed to be able to have significant impact to solve the problems of poverty and hunger in those regions. Finally, there are several Funds devoted to supporting ICT and Digital Innovation in their own countries, including some in the developing world3; multi-country Funds are less common.

5. Principal lessons learned from experience by other donors4 in the field of financing innovation sources – specifically ICT for Development funding – point at: (i) the importance of local ownership for sustainability and, concomitantly, the need to invest in capacity-building; (ii) the relevance of government (local, national and international) participation to provide conditions that make innovation viable – clear regulations, competitive environment, protection of intellectual property, among others; (iii) the role of private sector involvement, particularly for scaling up and devising commercial applications; and (iv) the need to invest in social inclusion for the projects to achieve tangible social impact.

6. Observations from success and failure stories from other donors as well as lessons learned in the implementation of innovation funding in developing countries will be used to shape the chapter’s proposal. The specific nature and workings of the financial instruments will be discussed in detail and defined further, presenting scenarios for the Inter-American Development Bank (IADB) and the Food and Agriculture Organization of the United Nations (FAO), two of the largest international organizations working for the development of emerging economies.

 

1 Piaggesi, Danilo. Working document for United Nations’ FAO/CIO, 2017.
2 See, for example, the European Commission’s ICT Research and Innovation Horizon 2020 Program. https://ec.europa.eu/programmes/horizon2020/en/area/ict-research-innovation
3 Initiatives have been identified in Canada, Netherlands, Finland, Ireland, etc, but also Pakistan (https://ignite.org.pk/ )
4 Kenya, Maori (www.tpk.govt.nz/en/whakamahia/maori-digital-technology-development-fund, among others. OECD. Development Assistance Committee. “Donor ICT Strategies Matrix”, 2003, Updated in 2004.