A silent revolution has taken place in Finland’s development cooperation: Finland is seeking development impacts through investments, meaning that the invested capital flows back to Finland with a slight profit. Last year, development policy loans and funds yielded around EUR 2.2 million in revenue for the central government.
Since 2016, the Ministry for Foreign Affairs has provided part of its funding for development cooperation in the form of loans and investments. Like other development cooperation, the aim of the funding is to promote sustainable development by reducing emissions and promoting sustainable farming methods, for example, or by supporting women entrepreneurs. So far, Finland has provided nearly EUR 780 million in loans and investments.
A special feature of loan-based and investment-based development cooperation is that the invested capital flows back to Finland with a small amount of interest or revenue. In 2022, development cooperation loans yielded more than EUR 1.9 million in interest income, and Finland is about to receive its first repayment of around EUR 300,000 from fund investments, which has accrued in 2022. Finland will see the total revenue over the next few decades, as the loan and investment periods are between 17 and 40 years.
“All investments come with a certain degree of risk, but the investments made so far seem to have survived the ‘stress test’ of the pandemic,” says Permanent State Under-Secretary Pasi Hellman.
This form of development cooperation is particularly well suited for financing investments and developing businesses. Finland’s development policy investments focus on climate change mitigation through targets such as renewable energy, energy efficiency, and low-emission transport. Finland’s investments have the potential to reduce emissions into the atmosphere (CO2e) by megatonnes. Finland is constantly looking for investment targets to support climate change adaptation.
“Choices made by developing countries also matter to us. Climate change is a major security threat globally due to the food crises, conflicts, and migration it causes. This is also an investment in our own security in an era of instability and power struggles,” Hellman says.
Development policy investments respond to the investment needs of developing countries
One of the objectives of Finland’s investments is to mobilize other public and private funding to address the massive funding gap in sustainable development. According to a UN estimate, developing countries need approximately USD 4,200 billion more funding each year in order to achieve the SDGs.
Finland’s investments so far are estimated to attract approximately EUR 1.7 billion in other funding from public and private financial institutions. This “leverage effect” is based on the fact that public funding reduces the risks associated with market-based financing in developing countries, which are often very difficult investment environments. Finland’s investments have made it possible to build two solar power plants in Senegal, for example. They have produced affordable energy for more than half a million people since 2021.
There is enormous demand in developing countries for expertise in energy, infrastructure, digitalisation and education technology, which are sectors where Finnish companies have a lot to offer.
“Investments are always based on local development and investment needs,” Permanent State-Under Secretary Hellman emphasises. “But they also provide an opportunity to create jobs and livelihoods in Finland. Right now, electric vehicles in India are being charged using Finnish technology, and a solar panel factory based on Finnish technology is being built in Thailand. There is even more potential for cooperation.”