From billions to trillions to traps: Rethinking development finance from the periphery

As preparations intensify for the next Financing for Development (FfD) summit in Seville, Spain, starting on the last day of this month, the development community is once again reflecting on the promises and pitfalls of global finance. 

Since the first FfD conference in Monterrey in 2002 and the follow-up summit in Doha in 2008, these gatherings have served as key moments to redefine international cooperation on development finance. The 2015 Addis Ababa Action Agenda marked a major turning point, giving rise to the “billions to trillions” narrative — a bold vision to leverage limited public funds to unlock vast flows of private capital for the Sustainable Development Goals (SDGs). 

But nearly a decade later, the recent Economist article on the disappointing outcomes of this agenda has reignited debates across the field. For some, it confirms the futility of relying on private capital for development. But the reality is more nuanced — and more political.

The article highlights that most private finance mobilised for development is reported by major Multilateral Development Finance Institutions (MDFIs) — including the World Bank and the African Development Bank — and by national development finance institutions (DFIs). These institutions account for the lion’s share of what is officially tracked. 

However, this narrow framing overlooks the efforts of other actors, including smaller organisations such as the UN Capital Development Fund (UNCDF), which have had notable — albeit modest — successes in mobilising private capital for development, particularly at the local level. These efforts, while small in scale, offer valuable lessons about how to unlock finance in harder-to-reach markets and sectors.

What counts as development finance?

A deeper issue is what we choose to include under the term “development finance”. The Economist article focuses primarily on public infrastructure — roads, ports and power plants — which undoubtedly play an enabling role in economic development. And it is true that Africa’s development needs are heavily concentrated in this space. But infrastructure alone does not produce development.

What is largely missing from the conversation is the role of productive sectors — agriculture, manufacturing, services — which are central to any real transformation of African economies. 

From a Marxist and dependency theory perspective, the main barrier to African development is not the lack of roads or power plants, but the persistent weakness of domestic production and the structural limits of capital accumulation. These problems are compounded by extremely low tax-to-GDP ratios (from 2.6% in Somalia to 14% in Ghana against the OECD average of 34.0%), which in turn constrain public investment capacity and fuel a vicious cycle of underdevelopment.

This neglect of productive sectors is often justified by neoliberal economic thinking, which argues that development is a natural outcome of free markets, requiring only a “light state” to enforce contracts and protect private property. But this view misrepresents even the intellectual foundations it claims. 

Adam Smith, often cited as the father of market liberalism, emphasised not only the benefits of the “invisible hand” but also the essential role of the state in providing public goods, regulating markets (including trade and finance), and investing in infrastructure and education. 

In The Wealth of Nations, Smith advocated for state responsibility in areas such as roads, bridges and institutions of justice, which he saw as foundational to prosperity. Even the proverbial butcher, brewer and baker serve the public not just because of self-interest, but because they are embedded in local communities and shared norms, where trust and cooperation matter. 

In this sense, the market is not a self-sufficient mechanism but a socially and institutionally embedded process — one that requires active statecraft to yield equitable development.

The deeper structural problem

As theorists such as Samir Amin and Rodney Walter have long argued, the root cause lies in Africa’s subordinate integration into the global capitalist system. Rather than enabling catch-up, this integration perpetuates dependency and the extraction of surplus from peripheral economies. The result is a chronic lack of effective demand, which explains the failure of supposedly market-based solutions in African infrastructure.

Take the case of offtake agreements in the energy sector: private energy providers receive fixed payments from the state, even when the electricity is not used, because consumers simply cannot afford to pay cost-recovery tariffs. In this context, attracting private capital means that governments end up subsidising investors, often at the expense of public budgets and social spending. These are not development finance successes — they are fiscal traps.

MDB-led capital mobilisation: Development or imperial circuitry?

A final dimension often overlooked in mainstream commentary — but vital to understanding the current model of development finance — is the structural logic behind capital mobilisation via Multilateral Development Banks (MDBs). The securitisation of MDB loans, which The Economist describes as an “experiment,” should be viewed not only as a technical innovation, but also as a reflection of the systemic tendencies of capital in a world of uneven development.

At first glance, bundling development loans and selling them to private investors looks like a clever way to scale up finance for the Global South. In reality, it often serves the needs of capital in the North. With persistently low or even negative interest rates in the capitalist centre over the past decade, institutional investors — particularly pension funds and insurance companies — have struggled to meet long-term return targets. The problem is compounded by demographic aging and the shrinking ratio of contributors to beneficiaries, especially in Europe and Japan.

In this context, the Global South appears not merely as a recipient of development finance but as a site of potential surplus extraction, aided and de-risked by the credibility of MDBs. This is the contemporary face of financial imperialism. 

Michael Roberts and Guglielmo Carchedi show in “The Economics of Modern Imperialism”, the long-term decline in the rate of profit in advanced capitalist economies drives capital to seek higher returns in the periphery, whether through foreign direct investment, portfolio flows, or structured finance mechanisms like MDB-backed securitisation.

In this light, the current private capital mobilisation agenda must be seen as support not only for development, but also for capital accumulation in the North. Indeed, in many cases, the benefits for Western investors may outweigh those for host countries, particularly when local states assume contingent liabilities (for example through offtake agreements or viability gap funding), or when capital flows are structured to guarantee secure returns regardless of development outcomes.

Jason Hickel argues in The Divide that this is not a bug but a feature of the current global economic order. The language of “mobilising finance for development” often disguises an extractive financial architecture, in which public institutions in the Global South absorb risks while private capital in the Global North reaps secure profits. MDBs may provide the façade of neutrality and multilateralism, but structurally, they function as intermediaries in a process of imperial redistribution — from periphery to core, masked as aid.

The distortion is not only global. In many countries — particularly those governed by authoritarian or hybrid regimes — development finance has been subsumed into a domestic political economy of accumulation. The development sector has long ceased to be a neutral, technocratic space; it has become an industry in its own right. Project selection is frequently driven by political loyalty rather than developmental need. 

The resulting investments often benefit capitalist groups linked to the ruling regime, through mechanisms such as inflated public contracts, preferential access to cheap capital, or rent-seeking via state guarantees. In such contexts, development finance reinforces existing inequalities and consolidates elite power, rather than enabling inclusive transformation.

Beyond slogans, toward structural transformation

The failure of the “billions to trillions” agenda should not lead to the outright rejection of private capital mobilisation or MDB involvement. For many developing countries, MDBs remain critical sources of long-term finance, technical assistance and global legitimacy.

The issue is not whether to engage with MDBs, but how to reshape the terms of engagement so that development finance serves national priorities rather than global capital’s need for yield.

To that end, four priorities emerge:

First, instead of chasing private capital into traditional infrastructure at any cost, development finance must turn to more strategic support for productive sectors in developing countries. MDB instruments must be reoriented away from financial engineering aimed at investor comfort, and toward productive transformation. 

That means going beyond de-risking traditional infrastructure to support sectors that generate domestic value-added and employment (including advanced manufacturing, agro-processing, digital services, and green industrialisation) even if they are messier, less bankable, or technologically complex. These sectors offer greater potential for both developmental impact and private sector engagement. This requires de-risking structural change, not just investor returns.

Second, developing countries need to invest seriously in project preparation capacity. The Economist notes (citing McKinsey) that nearly 80% of African infrastructure proposals fail at the feasibility or business-plan stage. This mirrors my own experience, and was strongly echoed during the International Public-Private Partnerships Conference in Belgrade in May. 

In the African context, this high failure rate does not necessarily mean that the business idea is inherently flawed. More often, it reflects a lack of technical expertise and institutional capacity among project developers to identify and address the full range of risks — financial, legal, environmental and operational — that must be mitigated to attract investors.

The lack of local structuring capacity, technical design expertise and financial modeling is a major bottleneck. Initiatives like Africa50’s project development vehicle or UNCDF’s START facility in Uganda, show what’s possible. 

In Uganda, an initial de-risking fund of just US$2.49 million unlocked US$2.6 million from the Uganda Development Bank and other financiers, and US$6.78 million in contributions from the participating small and medium Enterprises  — yielding a leverage ratio of over 4:1. This is substantially higher than the 0.59:1 private co-financing ratio cited by The Economist for blended concessional finance in sub-Saharan Africa. 

But such efforts remain fragmented and underfunded. Creating national and regional project preparation facilities, linked to local financial institutions and supported by MDBs, should be a top priority.

Third, we must be honest about the asymmetric nature of global capital flows. As Roberts, Carchedi and Hickel have argued, much of what passes for “development finance” today is shaped by the crisis of profitability in the North, rather than the needs of the South. 

MDB-led securitisation may unlock capital — but it also funnels surplus extraction through institutional pathways that reflect and reproduce the centre-periphery hierarchy. This dynamic must be acknowledged, measured, and — where possible — mitigated through policy tools that enhance national autonomy.

Fourth, development finance must not lose sight of the local dimension. While MDBs and national DFIs will necessarily do the heavy lifting in mobilising private capital — simply because of the scale involved — it is often at the local level where development impact is most direct and transformative. Even modest investments in local productive capacities and supporting infrastructure can create significant positive externalities and multiplier effects. 

These investments may lack the glamour of multimillion-dollar infrastructure deals and may not attract international headlines, but they build resilience, support local enterprise, generate employment and respond to the needs most acutely felt by communities. Rather than being viewed as peripheral, local finance and productive development should be treated as central to the overall financing architecture.

A strategy for sovereign development

The answer is not to abandon the idea of private finance for development, but to recognise its limits and to change its orientation. Ultimately, the path forward lies not in rejecting private finance or international institutions, but in grounding them in a strategy of sovereign development. That means:

• Reclaiming development finance as a tool for domestic accumulation,

• Investing in the institutions that make project pipelines viable,

• Empowering local-level investment ecosystems,

• And resisting the temptation to view capital mobilisation as an end in itself, rather than a means to social and economic transformation.

Boris Kagarlitsky argues in The Long Retreat that in the absence of systemic alternatives at the global level, the creation of local “islands of socialism” — spaces where principles of solidarity, collective ownership, and democratic control prevail — becomes an urgent strategic task. 

Local investments that support the solidarity economy, promote the use and governance of common resources, and build cooperative forms of production can help establish these islands. They not only meet immediate needs but also prefigure a different kind of development logic — one that challenges the primacy of capital and affirms the agency of communities.

Only by addressing these structural imbalances — both within countries and within the global financial architecture — and by grounding finance in transformative, locally rooted practices, can development finance truly become developmental.