Donor funding can be a powerful de-risking instrument for new emerging industries. Such external funding from international and bilateral funding programmes and Development Finance Institutions (DFIs) has seen associations with development partner driven projects not fit-for-purpose and possibly a flavour of neo-colonialism.
More value could be unlocked by beneficiary country pro-actively participating in the design and allocation of the funding envelope offered by the DFI.
Country-ownership is key to the appropriate design, successful implementation, and long-term sustainability of the donor-funded or co-funded interventions. Donors are entitled to their agenda in development cooperation, sector or sub-sector preferences and implementation modalities.
It is however critical that a strong alignment between a country’s development planning ambitions and sector specific targets and the donor funded project or programme is achieved during the negotiations on any form of grant funding.
Some of Namibia’s development partners are exploring new forms of partnerships explicitly expressing the value of country ownership for donor aid effectiveness and sustainability. Recent examples of these are the 2023 social contracting model introduced by the Ministry of Health and Social Services (MoHSS) for Global Fund, Pepfar and other grant funding, the 2020 Government-to-Government (G2G) grant financing milestone approach by USAID for support to the Ministry of Youth, Sports, and National Service (MSYNS), and the 2009-2015 Millennium Challenge Account (MCA Namibia).
What these approaches have in common is a direct relationship between performance targets (and in the case of the MCA socio-economic rates of returns) and the release of funding. These mechanisms are more widely referred to as a Payment-for-Results in development financing.
In more detail these Payment-for-Results mechanisms create a performance-driven culture for funding recipients by expecting accountability, measurement of impacts, ongoing monitoring, evaluation and learning since the actual funding is released only once progress towards the objectives of the activity and the grant are demonstrated.
At the same time this approach creates a certain level of autonomy for the beneficiaries (be that public, NGOs or private sector parties) to set out how they implement and reach the agreed targets and equally a healthy distance between the funding partner and the actual implementation of the project activities.
Another innovative form of development assistance is to employ the grants and/or concessional funding to de-risking private sector investment in emerging sectors, such as the Green Hydrogen (GH2) sector. The Government of Namibia has identified the Green Hydrogen sector (for GH2 production and industrialisation) as a priority sector to contribute to global decarbonisation efforts, towards achieving the Nationally Determined Contribution (NDCs) on reduced CO2 emissions, and socio-economic development to include job creation.
The current relatively high cost of production of green hydrogen and related products such as green ammonia requires innovative funding mechanisms to reduce the cost of capital and ultimately the cost of GH2 vis-à-vis other forms of energy.
When country ownership is observed the likelihood of a win-win in funding for development is higher. Important pre-conditions for effective country ownership, reaching set targets during the project duration, and inherently better prospects for sustainability are an active, well-informed/researched and professionally managed approach. Such capacity can be found or developed in Government Ministries (as is the case for MSYNS), in NGOs (as for social contracting) or in special purpose units that report to Government (such as the MCA Namibia).
The recently established Namibia Green Hydrogen Programme (NGH2P) is another example of such a vehicle. Overarching support for this win-win approach comes from the National Planning Commission (NPC) that is facilitating the various forms of delivery of donor aid to Namibia.
Where the ultimate goal of a government-originated project or programme is to unlock or de-risk private sector investment in a particular sector of the economy, country ownership is all the more critical to arrive at a win-win situation. In this scenario, where the private sector is expected to make sizable investments in a high-risk, not yet fully known environment, de-risking instruments need to be carefully crafted to strongly resonate the Government objectives for that sector.
This involves a challenging and oftentimes temperamental tango between adequately but not over-incentivizing the private sector and requiring the consistent progression towards a final investment decision (FID) for the project. The incentivizing is done, inter alia, through quality data collection and research, environmental and legal de-risking, development of support infrastructure, granting of work permits for expat expertise currently not available in-country, industry-targeted training programmes, and the facilitation of access to finance.
* Eline van der Linden is Head of Impact and ESG at the Namibia Green Hydrogen Programme (NGH2P). Under the “G” in ESG falls donor coordination.
