Government proposes act on development policy investments

The Government has submitted to Parliament a proposal for an act on development policy investments. The proposal would create a clear legislative foundation for Finland's development policy investments and define their objectives, principles and procedures.

The proposal implements the objectives set out in the Government Programme to strengthen the role of the private sector in development policy and attract more private capital for investments that advance sustainable development in developing countries. The proposal is one of the measures set out in the Report on International Economic Relations and Development Cooperation (2024) to achieve these objectives.

“The financing required to achieve sustainable development substantially exceeds the public funds available. For this reason, we need a range of instruments to attract private capital to finance investments, business activity and job creation in developing countries,” says Minister for Foreign Trade and Development Ville Tavio.

The proposed act aims to promote the use of development policy investments as an instrument of Finland's foreign and development policy, increase the transparency and predictability of activities and prevent distortions of competition. The act would also clarify the powers of the Ministry for Foreign Affairs and promote the efficient use of central government funds.

“While development policy investments have formed part of Finland's development cooperation since 2017, they have not previously been governed by specific legislation. We are now addressing this by updating the legislative framework. Our effective development cooperation includes financing in the form of grants and investments.  Development policy investments have become an established development policy tool in Finland,” Minister Tavio says.

Under the proposal, the Ministry for Foreign Affairs could make development policy investments in funds that promote sustainable development. So far, the Ministry has primarily invested in funds managed by international development finance institutions. In future, investments could also be made in funds managed by private management companies. Investments could be made with private investors on the same or different terms. Investments would have to be in line with development policy objectives and address market failures; in other words, advance projects that would otherwise not be realised.

The reform may create opportunities for Finnish fund managers to establish funds focused on emerging markets.  A better functioning financial market and a stronger private sector in developing countries may also open up new business and investment opportunities for Finnish companies.

Development policy investments support private sector development through funds and encourage private investors to finance businesses and investments in developing countries despite market failures. The expectation is that development policy investments will return the invested capital to the state with a nominal profit.

Since 2017, Finland has made development policy investments worth approximately EUR 312 million. These investments have supported, among other things, climate action, digital infrastructure, business financing and agricultural development in developing countries. So far, they have helped mobilise approximately EUR 1.6 billion in private funding, demonstrating their leverage effect. The Government proposal is part of the Foreign Ministry’s set of legislative projects on development cooperation, aimed at reforming Finland’s legislation on development financing and ensuring its functioning in a changing context. Preparatory work began in 2023.