“We can have a ripple effect”

On the sidelines of our Private Sector 25^th anniversary event in June, we spoke with Gabriel Azevedo, Chief Strategy Officer at IDB Invest, to hear his views on the power of innovation and partnerships for the Latin America and Caribbean (LAC) region.

What are the most pressing climate and development challenges in LAC?

We're facing a triple challenge in LAC. First, its growing social demands related to issues of poverty and inequality. Second, its limited fiscal space. And third, its low growth. These are the characteristics that challenge LAC. The situation is aggravated by stronger and more frequent natural disasters and climate-related events.

On the opportunity side, LAC can present itself as a “solution hub” for many of the world’s problems. I'll mention three to you: Food security, as a bread basket of the world, climate regulation and energy transition. LAC is the powerhouse of clean energy, including transition minerals such as lithium.

So how can we reconcile all that? That's one of our roles as an MDB, working with partners like the OPEC Fund. We work in synergy with the private and public sectors, developing an enabling environment to help the region overcome its challenges.

LAC is one of the regions most affected by the climate crisis. It is already here, but we want to avoid it getting worse. We just saw in my country, Brazil, tremendous floods that inundated an entire state. We also had a terrible drought across the Amazon Basin and we expect another this year, as well as wildfires. Anything we can do as a development community in terms of supporting those countries to adapt will go a long way towards fostering development and a better quality of life.

How can the private sector help address those issues? What policy reforms and risk-sharing tools can get more private sector on board?

The new business model of IDB Invest is centered on preparing good projects and upstream work, while determining what areas can make the most impact. We are also originating and positioning ourselves as a catalyst to bring like-minded impact investors — people who want to come to LAC but perhaps don't know the region or are concerned about the risks or are still looking for good projects.

With our sister institution, the IDB, we are continuing to work with the public sector on regulations and public policies to entice the private sector. What we often hear from people in the private sector is that understanding multiple regulations and the rule of law is a particular challenge. These are areas in which we can make a significant difference in LAC.

How important are partnerships in our very uncertain world?

They're more than important. I think they're essential. None of us can do this alone. The challenges and opportunities are so significant right now that there’s space for everyone. We need to bring together multilateral development banks, development finance institutions and bilateral agencies with governments, private sector and civil society to determine how we can effectively collaborate.

We need to create the conditions in the financial system to crowd in the private sector, not to crowd out the private sector. We need to work at scale, but stop talking about my project. We need to start talking about our projects. That's what we’re trying to do at the IDB Group by working with partners like the OPEC Fund, World Bank, International Finance Corporation and others — so we can have a ripple effect in which the sum of the whole is greater than the sum of the parts.

Should innovation play a larger role in development and climate action? How can we best apply new technologies, policies and processes to ensure maximum impact?

Innovation is essential. We need to be able to do more things with less resources. We need to be able to do it faster and to create that ripple effect. There's a lot we can do in terms of technology, but also we need to innovate on financial instruments. There's a lot more that needs to be done so that we have a larger toolkit of financial instruments that would play to the interests of different investors: Things like more blended finance, technical assistance for upstream work, performance-based lending and the whole set of instruments so that we can play to different projects. We cannot rely on one-size-fits-all.

Finally, and this is very important, you mentioned innovation in terms of regulations and policy. What regulations need to be changed? How can we change them? How can we bring knowledge from other areas so we don't need to reinvent the wheel? We can adapt what has worked and what has not worked from one location to another. So, yes, innovation can make a lot of difference.