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7 Effective resource mobilisation

Even after a reorganisation aimed at improving effectiveness and an increase in public funding, this will be far from sufficient for developing countries to achieve the SDGs. New financial flows and investments must therefore be mobilised. Sustainable development can be accelerated through smart and efficient mobilisation of private capital and national resource mobilisation, if invested effectively. We think that Norway should aim to mobilise the equivalent to 0.7 % of GNI in private investments in sustainable development through new policy instruments and funding mechanisms.

In this chapter, we will

  • describe tools and measures for mobilising national resources, including the development of tax systems and handling illicit financial flows, which must be done in close collaboration with governments
  • show what Norway can do to increase mobilisation of private capital
  • consider which type of funding is best suited to the different goals in categories 1 and 2

7.1 Financing of Norway’s international efforts

There is broad recognition of the need to mobilize also private investments in developing countries to achieve the SDGs. Part of the challenge is that the cost of capital is very high in low- and middle-income countries. Through direct investments and investments in capacity-building, governance, framework conditions and different forms of guarantees, public development funding can trigger private investment and help the state to increase its revenues from taxation. There is currently a wide range of policy instruments and mechanisms designed to increase national resource mobilization in developing countries and to mobilise more private investments for sustainable development. In the following, we will discuss different policy instruments that could be effective ways of increasing mobilisation of private and public capital.

The different channels and forms of funding are not independent of the objectives they are mobilized to reach, as some forms of funding are better suited to reach some objectives than others. It is therefore important to distinguish between different objectives when discussing the mobilization of resources so as to avoid goal displacement. For example, a singular focus on using public aid to ‘crowd-in’ private investments can cause goal displacement in that more aid will be spent on reducing the risks of private investments, which favour some countries, groups, companies and topics over others.

7.2 Mobilisation of funding for 1a: Investments in poverty reduction and development

As noted above, our recommendation is for Norway to continue to fund Category 1 with at least 0.7 % of GNI, and more during major crises with associated humanitarian needs, and to fund Category 2 activities with 0,3 %, with a gradual increase over time with a goal of 1,4 % of GNI. There are also several other steps Norway can take to mobilise additional funding for development, both in the form of increased resource mobilization in developing countries, and in the form of incentivizing private investments. Below, we discuss different funding schemes and their potential and relevance for each of the two categories of aid.

The role of multilateral development banks

In the foreseeable future, the majority of the world’s LDCs and fragile states will be in great need of ODA for crisis response and investments that contribute to long-term development, climate adaptation and crisis prevention. This is particularly important for heavily indebted countries where repayment of debts takes place at the expense of the provision of services to the population.

The increased need for financing has spurred a debate about how the development banks’ lending capacity can be strengthened. A report submitted by a G20 expert group in the summer of 2022 shows that the World Bank and the regional development banks can expand their lending by borrowing more in international capital markets with the capital they have already received.138 The G20 group notes that so-called balance sheet optimisation will enable the development banks to lend more without jeopardising their current AAA credit rating. The credit rating means that development banks can borrow at the most advantageous terms possible, have access to international capital markets in times of market turmoil and have priority creditor status. Maintaining this rating while significantly increasing lending will require greater contributions from owners, either in the form of new or extraordinary capital replenishment, or through fund mechanisms and hybrid capital that do not change the voting balance of the World Banks’ Boards of Governors. An often-used way of increasing lending capacity without changing ownership shares and voting weights is the establishment of fund mechanisms based on voluntary funding from Bank member states. However, separate funds contribute to fragmentation of aid and does not have the same multiplier effect as replenishment of the basic capital.

The World Bank’s International Development Association (IDA) is a particularly important tool for countries in category 1a. IDA provides concessional loans and grant aid to low-income countries. This is also cost-effective for donors, as the World Bank – because of its ability to loan on favourable terms in capital markets – has a multiplier of up to four, where 1 USD of basic capital generates 4 USD in increased lending. Norway should ensure good funding for IDA through the replenishment mechanism, while also working to ensure appropriate follow-up of the G20 recommendation. Increasing the lending capacity of IDA (and the International Bank for Reconstruction and Development (IBRD) discussed under category 2), is a very cost-effective funding instrument.

National resource mobilisation

Contributing to increasing the revenue base of developing countries by facilitating tax revenues, stopping outgoing illicit financial flows, and lowering political and structural obstacles to private investments, both local and international, will be crucial to a country’s efforts to combat poverty. Development partners can contribute with advice and capacity-building in cases where there is a political consensus to implement necessary reform for effective taxation, better distributive policies, and facilitation for business, industry, and job-creation. The development banks have a key role in these efforts.

Norway has a strong international position in this field and has been an independent and clear voice in negotiations on tax collaboration. Compared with many other Western countries, Norway has taken positions that are more closely aligned with those of developing countries. This gives Norway an advantage that can be used to help developing countries to take advantage of international agreements and to facilitate private investment and growth in the local private sector, as discussed in the next section.

In parallel with global efforts through the OECD and UN, where Norway must contribute to the inclusion of developing countries, Norway should also continue to step up its professional collaboration on competence-building and capacity-building in public institutions of partner countries that want to establish good framework conditions for private investments and economic growth. This often takes form of knowledge programmes in which experts exchange experiences on how to build and reform public institutions and regulatory frameworks. This will require dedicated resources in the public administrations where Norway chooses to actively engage.

Mobilisation of private investment

At present, only a negligible proportion, about 0.2 %, of Norwegian foreign investments go to low-income countries. This is primarily due to local framework conditions and associated risk profiles, as well as insufficient knowledge about the investment opportunities in these countries. There are, however, many examples of effective mobilisation of private capital for the least developed countries in the world. Norfund is already investing in countries such as DR Congo, Somalia, and Sudan, and has a solid track record of profitable investments in poor and also fragile states. These efforts should be strengthened and developed further, and sharing information about these investments will also contribute to a better understanding of the investment opportunities in these countries.

Ensuring greater impact must be a key aspect of increased mobilisation. One example of this is the United States Agency for International Development’s (USAID) Development Innovation Ventures (DIV). Since the programme was established, DIV has funded more than 200 projects in more than 50 countries. Across projects, DIV has attracted additional funding from private investors and foundations, thereby helping to scale up successful projects. DIV has achieved noteworthy results in a number of fields. Similar mechanisms have been established internationally, including the independent Global Innovation Fund (GIF) and the French government’s Fund for Innovation in Development (FID). There are groups in Norway that possess technology and expertise that could be scaled up and contribute to development. Norway should consider establishing a platform to support this process or take steps to establish a joint Nordic initiative. Within the multilateral system, the World Bank’s Development Impact Evaluation (DIME) group has piloted a model called ‘trial and adopt’. DIME has tested the model across World Bank projects in 64 countries and can demonstrate a significant increase in development impact in cases where its model for piloting, experiment and scaling was used.

7.3 Mobilisation of funding for 1b: Immediate crisis relief and stabilisation

Similar to category 1a, the primary source of external funding for countries in need of crisis relief and stabilisation will be public concessional funds. We have already identified fragile states as a particular challenge. It may be necessary to take calculated risks in such settings, while it is also effective to combine humanitarian aid and long-term development funding to prevent new crises, thus helping limit human suffering as well as reducing humanitarian costs.

An innovative solution for quick and efficient mobilisation of crisis response funds is introducing insurance schemes for humanitarian organisations and states. Such schemes can help minimise risk and ensure that funds are made available faster, thereby reaching the target group sooner. This could in turn save lives and reduce long-term costs. Insurance schemes can have a preventative effect if coordinated with other measures, such as the preparation of response plans. Their usefulness is dependent on a sufficiently long-time horizon and broad donor commitment. Insurance schemes could be introduced or scaled up where deemed useful for achieving results. Coordination with other and existing measures will be crucial to the value of such schemes. One example is what is known as forecast-based financing, under which insurance is based on threshold values. This arrangement is gaining popularity among states and humanitarian organisations as a means of protecting vulnerable communities against climate risk. Six new such initiatives were launched during COP 27. The principle is that the insurance claims are reimbursed based on pre-defined thresholds, for example water level for a flood or wind speed for a hurricane. This means that no assessments need to be made after the crisis has occurred, and the insurance money can therefore be disbursed more quickly in response to a crisis.

The overall long-term costs of insurance can be assumed to be equal to or higher than any disbursements due to the insurer’s need to cover administrative and capital costs.These costs must be balanced against the added value described below. Another added value is that the actor buying insurance knows how much funds will become available in the event of a crisis. This predictability could contribute to humanitarian organisations not having to shut down programmes prematurely in order to transfer funds to a new crisis. It could also enable farmers to take greater risks, for example by investing more in food production, despite knowing the risk of flooding or drought.

Insurance as a financial tool is at an early stage and needs further development to become an effective mechanism. The growing number of crises caused by climate change will render these insurances unprofitable, and there are some climate-related consequences that are already impossible to get insurance against. Such schemes will therefore be dependent on concessional funding, for example through fund mechanisms.

A number of evaluations of how the multilateral system handled the covid- 19 pandemic pointed out that the system handled the crisis well, but several important organisations, including WHO and the UNDP, had to spend a great deal of time and energy mobilising extra funds in the early stages of the pandemic.139 It is important to put in place funding mechanisms that allow for rapid response in order to ensure efficient resource mobilisation in a crisis situation. There are several ways to do this. One important contribution will be to increase core funding so that multilateral organisations can set aside funds to have sufficient flexibility in a crisis.

7.4 Mobilisation of funding for category 2: Investments in global public goods for development

Calculations show that there are investment opportunities worth at least USD 1,300 billion per year towards 2030 in areas where private sector investment is suitable.140 The estimated amount only equals around 0.5 % of all available capital in the international capital markets, but is high compared with the level of private capital that has reached low- and middle-income countries in recent years.141 In other words, if the world is to achieve the SDGs, it is crucial to find new ways of mobilising private capital for low- and middle-income countries on a large scale.

Resource mobilisation in category 2 can probably be more innovative and expansive than what is possible in category 1, and it makes sense to look at instruments such as guarantee schemes to incentivize larger private investments. Climate funding is particularly important in category 2, and the World Bank, as well as regional development banks, have a key role to play in this regard.

There are several types of risks associated with private investments. These risks may explain why developing countries have not succeeded in attracting as much capital as one hoped when the World Bank in 2015 launched ‘From Billions to Trillions: Transforming Development Finance Post-2015 Financing for Development’. Investors encounter different types of risk: market risk, operational risk, liquidity risk, foreign exchange risk, credit risk and political risk. Private investors are used to dealing with the first few risks on this list, especially in familiar markets. Credit risk (the risk that the other party will not fulfil its financial obligations) or political risk, such as sudden changes to market regulation or inadequate due process protection, in additional to foreign exchange risks, contributes to making the cost of capital high in developing countries. In the following, we assess some of the policy instruments that can be used to lower these risks and thus increase private investment, for example in capital-intensive infrastructure such as renewable energy.

Development banks

How the World Bank can or should contribute to more climate funding is the subject of much discussion. The IBRD is the World Bank’s window for middle-income countries and higher-middle-income countries. The bank borrows at low interest rates in international capital markets, which is mobilisation of private capital in practice.142 The capital is then lent to middle-income countries with a small mark-up to cover administrative costs. The potential of following up the G20 recommendations on how to increase lending capacity is even greater for the IBRD than for the IDA. The loan volume can be increased significantly by taking more risks and using innovative financial solutions (which is a way of mobilising private capital), but there is also a need for the owners to contribute more, either through a new or extraordinary replenishment or through fund mechanisms and hybrid capital. Whether to also introduce interest rate subsidies for middle-income countries as an incentive for investment in climate measures such as the transition from coal to renewable energy, is an on-going discussion.

Hybrid capital is another example of an innovative financial solution that several development banks are working on. These loans are structured in such a way that they are considered equity by credit rating agencies and under international accounting regulations. The hybrid capital can thus be geared, which means that the issuer can borrow additional capital in ordinary capital markets. One way of guaranteeing the development banks access to cheaper hybrid capital, proposed by the African Development Bank, would be for shareholders to invest in the African Development Bank’s approved hybrid capital instrument using IMF’s Special Drawing Rights (SDR), which the bank can then use to increase its capital available for lending.

Guarantee schemes

According to the OECD, guarantees are the most effective instrument for mobilising private capital for developing countries – in particular state guarantees, which require minimal capital provisions.143 By alleviating some of the risks for investors, more projects achieve an expected profitability and risk profile that makes it possible for them to be realised by means of private commercial capital. At the same time, it is important to find a balance that ensures that guarantee schemes do not alleviate the risk private actors must expect to bear and what reflects the actual risk of the project. This calibration is challenging. But using guarantees is still highly cost-effective because it brings down the risk for private investors, and only incurs a cost under predefined rules and thresholds.

A number of policy instruments exist for reducing different types of risks. Normally, the investors’ banks will provide relief against credit risk by issuing letters of credit or international guarantees. The banks thereby undertake to pay the investors should the original counterparties fail to do so. Commercial banks will normally also provide relief for foreign exchange risk by using different forms of futures contracts to ensure a guaranteed cash flow in one’s own or another currency. It is a challenge that commercial banks are unwilling to take the risks of engaging in transactions with and relating to poor countries or countries with authoritarian or unstable regimes. Different types of government guarantees with corresponding characteristics could solve this problem and facilitate private investments.

Guarantees provide risk relief in several ways. If the challenge is to secure funding for a project that already has acceptable expected profitability and risk profile, several types of advance payment guarantees can have a triggering effect and make the project viable for investment. If the challenge is lack of trust in the party responsible for paying (the counterpart), other types of payment guarantees can be considered. If it is uncertain whether the project can be completed, for example due to political risk, then some form of performance guarantees can be considered. If there is uncertainty concerning the legal framework, contract guarantees can be considered. It is important to have a good understanding of the relevant risks, while the choice of investment projects to support by issuing guarantees must be based on reliable professional assessments. It may be useful to diversify the guarantee portfolio, ideally by investing in countries and industries that are negatively correlated. If things go wrong in one place, the situation can often improve somewhere else. It is also a possibility to issue different forms of guarantees for investments to ensure that investors get the expected cash flow, either in full or in part, should it disappear or be reduced as a result of political interference with the activities.

Multilateral actors, such as the Multilateral Investment Guarantee Agency (MIGA) and IFC, have the capacity required to take on major projects and cover, for example, different types of political risk. This could be guarantees that energy will be purchased once a facility is completed or guarantees to mitigate liquidity or credit risks. However, it emerged in conversations with private actors that the ICF and MIGA are perceived as bureaucratic and inflexible and that their case processing times are too long. This means that using their guarantees for smaller projects does not justify the cost. Consequently, many business and industry actors are unable to take advantage of promising investment projects, as companies cannot afford to have capital and resources tied up for too long. Sweden and USA have had development guarantee schemes in place for more than a decade. Denmark has modelled its scheme on the experience in Sweden, and the two countries are now collaborating. State guarantees of the type used in the Swedish model can be a useful tool for looking at climate and development funding in combination. The government’s risk is kept under control and minimised by means of guarantee premiums calculated on the basis of expected risk. So far, Swedish, and American payouts covering guarantee losses have never exceeded the sum of guarantee premiums, which are set aside for potential losses. The model is cost-effective, as no state funds must be allocated to cover any losses, except for a limited amount during the scheme’s start-up until the portfolio reaches a certain level.

The Swedish guarantee scheme has mobilised an impressive 58 times the ODA contribution and nearly three times its guaranteed volume.144 Considering the potential inherent in such an instrument and its system for tackling risk, Norway and other countries should consider setting up similar schemes to meet the anticipated need to finance the green transition in developing countries. By collaborating with Sweden, and possibly also with Denmark, it will be possible to scale up initiatives and draw on each other’s expertise.

Direct investments

Direct investments through state-owned investment funds and investment platforms are another relevant policy instrument. The strength of state-owned investment funds is that they invest where capital is in short supply and contribute catalytically by mobilising other co-investors. Norfund is owned and funded by the Norwegian government and is the Government’s most valuable tool for strengthening the private sector in developing countries, thus helping to reduce poverty. Norfund is an effective instrument with good results that can be scaled up and expanded to more sectors. One reason for its success is that it uses a relatively high equity component compared with other forms of FDI. The Climate Investment Fund, which is managed by Norfund, has renewable energy as its main focus. This fund is an important financing instrument for climate and development and could grow into an even more important instrument for green energy access in developing countries.

Boks 7.1 Norfund

Norfund is a state-owned fund that invests in private enterprises in developing countries. The fund invests in renewable energy and financial inclusion, scalable enterprises, and green infrastructure. Norfund has a dual mandate: development and climate. The fund’s objective is to help build sustainable companies and industries in developing countries by contributing equity and other risk capital. The fund invests in activities that would not have been initiated by the private market due to the high risk. The climate mandate states that Norfund will invest in the transition to net-zero in emerging markets. Norfund has had an internal rate of return (IRR) of 5 % since inception, which is reinvested. Twenty-five per cent of the Government’s capital contribution is financed via the aid budget, while the other 75 % are an investment that will be returned to the state treasury should Norfund cease to exist. The entire capital contribution is recognised as ODA.

Investment platforms can help mobilise capital from actors that would not otherwise have the capacity or willingness to invest in a project. Markets in developing countries expose investors to higher and other forms of risks than they are familiar with from more developed markets. Moreover, it will often take a great deal of capacity to find and develop new projects suitable for investments. An investment platform may help to reduce the risk by taking on the preparatory work through its local network and develop worthwhile investment projects. The risk can be reduced by spreading the investments over several sectors, countries, and instruments. Depending on the model, investment platforms can also help support local businesses and industry, for example by investing in and developing a country’s financial sector. During meetings with Norwegian investors, reference was made to the importance of such platforms in providing information leading them to invest in developing countries. The public-private partnership (PPP) Abler Nordic, which Norfund owns together with the Danish state-owned investment fund IFU and several private investors, was highlighted as a good example.

7.5 Financing of Norfund over the aid budget

Seventy-five per cent of the funds allocated to Norfund (including the Climate Investment Fund) under the national budget is not charged as expenses in the central government accounts. This means that it is not necessary to have corresponding revenues (tax revenues or transfers from the Government Pension Fund – Global) for this part of Norfund’s capitalisation. These 75 % are considered as investments and recognised in Norway’s capital account. The basis for this arrangement is that the Government expects the assets to be preserved, including a return to Norfund appropriate to the risk of the investment.

On average, Norfund has recorded a profit on its investments, and the 75/25 breakdown has been in place since its formation. The expected return can change, however. If Norfund’s mandate/operational arrangement changed, and as a consequence the Ministry of Finance perceives the risk for losses to have increased and not covered by expected or observed profits, they may decide to alter the current 75/25 split and potentially finance a larger share of the capital contributions as expenses rather than as investments.

The difference between capital contributions as investments and grant aid as transfer payments will become clear in the event of a realisation, i.e., divestment with funds returned to the state treasury. The sales price will then be recognised as negative ODA. In this case, ODA will consist of the difference between the capital contribution and the sales price. Without divestment (realisation), the capital contribution still differs from ODA, which consists of transfer payments (grant aid), because the government retains ownership of the assets.

The expert group is of the view that because of the low risk of the placement in Norfund, and because it is not an actual expense but an investment in the national budget, only the 25 % of the transfers to Norfund that are counted as expenses should count as part of the one per cent target for aid in the national budget. This will free up an amount corresponding to the placement of assets, for other effective sustainable development investments.

7.6 Ambitions to mobilise private capital corresponding to 0.7 % of GNI

The expert group recommends an ambitious approach when it comes to facilitating and mobilising private investment and proposes setting a target to mobilise additional private resources corresponding to 0.7 % of GNI in private capital over time. Strategic investments within the present one per cent target, for example establishing a guarantee scheme, will be an important policy instrument. Achieving a volume of private investment in developing countries that will really make a difference, however, will also require a more comprehensive approach where business and industry cooperate with public agencies across a wide range of issues, including on national resources mobilization in developing countries. This is the only way to maximise the benefit of the sum of Norway’s expertise and resources.

In follow-up of the ambitious target of private investments corresponding to 0.7 % of GNI, it would be useful to find an agreed method to calculate how much private investment in sustainable development in developing countries that Norwegian public funds triggers. One possible method would be based on estimates of total mobilisation efforts in a broad sense and can include the whole range from direct to more indirect mobilisation and the use of catalytic policy instruments to facilitate investment. The calculated private capital triggered will extend far beyond what we can with certainty attribute directly to Norwegian public funds. The point of this ambition is thus not to set stringent requirements to be strictly monitored, but rather to draw attention to the opportunities and needs found in developing countries and to use the whole array of Norwegian policy instrument system to help mobilize private investments.

Norway is already following the OECD’s international standard for measuring mobilised private capital triggered by public funds. This is a method for measuring mobilisation that primarily looks to avoid double counting between donor countries and establish a direct causal connection between public funds and mobilised private capital. The OECD standard for measuring private mobilisation does not therefore identify all mobilisation triggered by public funds (for example what is being funded through development banks and multilateral funds), nor other public investments and efforts where mobilisation cannot be adequately documented. According to the OECD method, Norwegian aid mobilised NOK 1.4 billion from the private sector in 2021, triggered by Norfund’s investments. This corresponds to only 0.03 % of GNI. As mentioned above, this figure is an indication only, but it nevertheless demonstrates the need to trigger more private investments. The expert group’s recommendation of an ambition to mobilise capital corresponding to 0.7 % of GNI is better matched to the needs of developing countries. Above, we pointed to the use of guarantees, increased funding for Norfund and the Climate Investment Fund, and support via the development banks as the policy instruments and channels that are most effective in triggering private capital. As we discuss below, however, it is necessary to think beyond these measures to help mobilize both public and private resources for development.

7.7 Other resource mobilisation instruments

Achieving the goal of increasing mobilisation of private capital will require more than simply more catalytic aid. It also depends on developing platforms for exchange of knowledge, linking value chains and innovation chains, and not least initiatives focusing on taxation, working conditions and other regulatory factors. This has been a recurrent topic in the expert group’s conversations with different representatives of business and industry, civil society organisations and research groups. These factors lie beyond the scope of innovative financing mechanisms but are nevertheless of crucial importance.145

The challenge is to create framework conditions that increase the probability of more private investments, in turn leading to poverty reduction. This can include anything from legal framework conditions to the qualifications of local staff and measures that can help to cultivate a local ecosystem for investment. Norway is already doing a lot and has a broad range of policy instruments in place, including those described here – such as Norfund – and the measures we suggest introducing, such as guarantee schemes. Other measures include business-development and -promotion schemes, and Norad’s Knowledge Bank has several relevant programmes, including – notably – Tax for Development. We propose establishing a Team Norway to bring together these policy instruments and coordinate them better. Such a team can operate as a platform or a network and will be able to bring together new and already available tools to achieve targeted and more harmonised efforts throughout the value chain for investments in selected countries. Team Norway activities will have to operate in close collaboration with the authorities of the host country and, if relevant, with local business and industry. It should include various parts of the Norwegian public administration with relevant expertise and tools, research institutions, the social partners and business and industry representatives.

7.8 Conclusion

In this chapter, we have shown that effective policy instruments for mobilising private capital exist. Conventional support in the form of aid will continue to be important to sustainable development. It is nonetheless necessary to mobilise private capital in parallel with aid to meet the extensive needs outlined earlier in the report. Considering the potential inherent in innovative financing schemes – in particular guarantees, direct investments via Norfund, as well as other measures – our assessment is that Norway should have ambitions to significantly increase the mobilisation of private capital.



 Oteh et al. 2022.


 Multilateral Organisation Performance Assessment Network (MOPAN) 2022.


 Wade 2022.




 The Government Pension Fund – Global, for example, held bonds issued by development banks worth a total of NOK 15 billion at the turn of the year 2022.


 Garvacz, Vilalta and Moller 2021. OECD (2021)


 SIDA 2023.


 This emerged, for example, at a meeting with the Confederation of Norwegian Enterprise’s (NHO) Forum for the promotion of business engagement on 13 February 2023.
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