The following are the outputs of the captioning taken during an IGF intervention. Although it is largely accurate, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors. It is posted as an aid, but should not be treated as an authoritative record.
***
>> DEEMAH ALYAHYA: Thank you very much to Mr. Eugene Kaspersky for this kind keynote. We're very pleased to have him with us today. Ladies and gentlemen, we will now move into a panel discussion on the topic of digital funding with the participation of the Governor of the National Development Fund Mr. Stephen Groff and it will be moderated by Mr. Mohammed Sear, who worked at Ernst & Young, join me in welcoming them on stage.
(Music)
>> DEEMAH ALYAHYA: Mr. Mohammed Sear, the floor is yours.
>> MOHAMMED SEAR: Do you feel we want to rearrange?
>> STEPHEN GROFF: Closer.
>> MOHAMMED SEAR: So first of all, thank you very much IGF, DGA, giving us the opportunity to have a discussion about the topic, I think at the core of creating digital Nations.
And I'm Mohammed Sear. I have the pleasure of having this discussion with Dr. Stephen Groff. And really to explore how funding, financing can play a significant role in bringing to life a nation from a traditional form to the vibrant Digital Nation. Let's start with you giving an introduction of yourself, please, if you don't mind. And also sharing one thing that you are passionate about, other than your day job which I know you are passionate about.
>> STEPHEN GROFF: Thank you, Mohammed and thank you to IGF and DGA and organizers for having me here today. I'm Stephen Groff Governor of National Development Fund of Saudi Arabia. We're a holding company that sits on top of 12 sectorally developed focus funds, and we're the financing arm, if you will behind those funds.
So we're tasked with organizing the funds in such a way that they can contribute to the achievement of vision 2030. And help the establishment, the growth of businesses of enterprises in the Kingdom and full range of different Sectors and segments of the economy.
As well as contributing to the diversification of the Saudi economy across the board. All, again, in support of achievement of the vision.
As far as my own self, personally and my background. My background is in development finance largely in developing and emerging markets.
That whole part of my career was started as a volunteer working in a small fishing village in the Philippines after I graduated from college, where I found that, you know, that people really inspire me. And people's stories really inspire me. And the passion that people bring to their own, you know, self betterment and achievement is critical. But giving them the vehicle, giving them the opportunity to realize those visions is critically important. That is really what I have focused my whole career on over the almost coming up on 40 years now.
And it is really an honour for me to have the opportunity to bring that to the Kingdom.
I have been here now for six years, supporting the building of the National Development Fund. I have a large Group of very motivated and passionate colleagues that are helping us realize the long term vision.
>> MOHAMMED SEAR: It is great to hear. As we were talking as well, it is great to hear similar passion that I hold coming working from the UK Government many years and moving to this Region, the one thing that has been very at heart for me is how can I make a difference in the lives of people? And it is really incredible to see what Saudi Arabia particularly is doing and this Region, really investing in its people and its nation, transforming towards a nation that can create more opportunities for its people.
And if we would look at the world we're living in today, some would argue it is becoming more and more digital. A lot of what we do today is moving online.
It has been for some time. Data is becoming the core of many things we do. So one could argue we're becoming digital Nations as such.
For that, obviously, the core is how do you enable for this nation to transition and build it into this new world that we're living in order to you know, that we're living in today. And NDF obviously has been established with a vision. As we were talking earlier as well, it has been done in a slightly different way to how Conventionally maybe things would have happened.
We would love to hear more about, you know, why it was created and it's mandate and core role in enabling Saudi to really transition into this Digital Nation that it is looking to become.
>> STEPHEN GROFF: Sure. So the Kingdom has a long history of development finance. When NDF was established back in 2017, originally, there were six sectorally focused development funds, the investment fund, the agricultural fund, Saudi fund for development and social Development Bank, all of which had largely sectorally focused Missions. And with the advent of Vision 2030, there was a need to make sure the sectorally focused funds were redirecting toward the achievement of objectives. NDF was established as an oversight body on top of the funds to ensure they were aligned behind the vision to minimize overlaps between the funds.
And lastly, to ensure that we're making best use and most sufficient use of the resources that were aligned with the individual funds. In the early establishment days we realized that there was about $130 billion equivalent of capital in that ecosystem, and less of an issue with overlap between the mandates of the funds and more of a need for additional mandates to help build and diversify the Saudi economy and achieve the vision objectives. That led to using the same capital to establish six new funds, focused on infrastructure. Focused on there is an XM bank, tourism established, funds established, SME bank established. So a whole range of new funds that are going to help, again, the Kingdom realize the vision and fully diversified and more modern economy.
The other piece of that is that development finance is using capital, using resources efficiently, effectively and strengthen capital markets. There is no exposure of the six legacy funds to the capital markets. No leverage in that balance sheet. So this is also part of the process that we have initiated is to ultimately leverage that $130 billion equivalent into development financial institutions, clients, Germany, Japanese and Korean institutions that are levered five, six 30 times, take that and make it a trillion dollars.
You need to do it judiciously make sure you have the right Governance, processes, procedures in place, but make more use of the capital over time to help deepen and strengthen the capital markets in Saudi and make sure that we're doing the best that we possibly can to support the ultimate diversification and growth of the Private Sector in the Kingdom.
>> MOHAMMED SEAR: So one of the things that often we see is that when it comes to big infrastructure projects, there is a lot of funding available for that.
But when it comes to digital infrastructure, we see challenges around there. Both in terms of talking maybe earlier on about public good, we will build the roads and bridges we won't think about so much the ROI, which maybe later on we'll think about how we can monetize some of the assets. But when it comes to digital infrastructure, from day one we're thinking about it from a perspective of there needs to be an ROI, less government intervention and less funding, especially for developing nations.
I know you have a perspective on that as well. How can we shift the needle on that? Because for public good we need the infrastructure in place.
>> STEPHEN GROFF: The key there is how do we define the assets at the end of the day. Like you said, infrastructure traditional infrastructure is largely a public good. You can't restrict access. It is available to all citizens or residents of any area or country.
Government has the responsibility to invest in the assets to make transportation smoother, to reduce friction and costs to the economy. So there is a return overall economy, but less a focus on what the ROI or ROE in that specific investment. Whereas digital infrastructure, the history of the evolution of digital has been largely focused on the Private Sector. And a lot of the benefits of that in one way or another, while shared by the public, are captured by the Private Sector. Now, that is not inherently good or bad, it is just a reality of how we have evolved our focus on digital.
So I think part of that is the policy discussion that happens and how do we define a public good? How do we define? I think the focus you see particularly in developing and emerging markets around the Digital Divide is the essence of the conversation.
It is that there is a huge cost to Digital Divide. There is a huge cost to society and economies by this increasingly large chasm between the people that have access or don't have access. And those that can afford or can't afford it.
There is a responsibility of a public good element to this, about narrowing that divide. Providing investments that will help narrow that divide and improve access.
And along the way, reducing the costs of the access over times.
>> MOHAMMED SEAR: Yes, this is the challenge we see especially in developing Nations, the argument about accessibility to digital infrastructure. Generally, in the rural areas, it is the biggest challenge. Urban areas, you will find a lot more investment coming from the different Private Sector organisations. But the rural areas suffer. It remains to be a challenge. We will talk about this, like earlier as the universal service fund kind of construct. It is trying to bridge that gap a bit to try to push forward investment from the Private Sector that can go into some kind of universal service fund. That is invested into creating connectivity.
Do you feel this is the way forward? Do you feel there is more intervention needed from a policy perspective to really drive that to create connectivity and give access to everyone so no one is left behind?
>> STEPHEN GROFF: It is important. It is not only important at the individual national level, it is at a Global level. You will find that oftentimes the divide is rural, urban in an individual country.
Increasingly you look at disconnected Regions of the world or far less connected Regions of the world which create and exacerbate preexisting economic conditions or poor economic conditions and exacerbate other security issues over time. So there is a global interest in making sure we reduce the divide. The other part of it is investments that are future proofing us on the huge amounts of change that we're going to be seeing, you know, occurring in the next decade or two decades or three decades.
So I think that you think about the way that Saudi Arabia is approaching this, the investments that Saudi Arabia is making in digital, in infrastructure, around digital. Supporting digital are critical to future proofing this economy, this society and I think that we're, through our infrastructure fund, we have the capability of investing in the infrastructure side of all of that.
I think that is a recognition of how important that future proofing is and making investment now, not that are going to service demand today, but that are going to service demand in the coming decade.
>> MOHAMMED SEAR: Absolutely. It is one of the things incumbent on policymakers to think about what does the future look like? Rather than building for today, how do we create a future and invest in that, that can create a long term benefit for the nation and for it to be progressing?
>> STEPHEN GROFF: And to focus on that more. It is also looking at, you know, thinking creatively about existing approaches to development.
We touched on this too. Even infrastructure, when you are laying down one thing, when I was working at the Asian Development Bank before coming here. One technology is think built, laying out a road and two years later you dig up the same road to lay a fiber optic cable, even if the cable isn't needed at the time when the road is being constructed, it is necessary. It is a little extra cost associated with doing that, you know, four or five, 10 years before it is needed, it is not as expensive as having to dig it up, you know, in five year's time and lay the cable then. Thinking about how do we use or develop our, you know, our technology such that we're again, future proofing and reducing the cost of investments in the long run.
>> MOHAMMED SEAR: We need to stop thinking in silos how do we re imagine and recreate infrastructure to enable us to work, live, play in this digital world. The physical form will always remain there as well.
What about innovative models of financing of funding? In your experience, previously or now, what are you seeing in terms of that direction? Are they new models evolving or stay with the conventional style of funding and financing.
>> STEPHEN GROFF: There are new models, if you look at particularly international development finance and blended finance and taking concessional and grant resources blending in what are historically traditionally thought of Private Sector investment. Just to bring down cost of access and increase of availability, these are sort of it sounds basic, but it is still something that is being developed.
But a lot of it is actually using, you know, existing financial tools in areas where we just haven't used them previously. So if I mention earlier our objective at the National Development Fund of exposing our balance sheet to the capital markets and leveraging the balance sheet, judiciously, carefully with a great deal of prudence.
You know, again, you just can use the financial markets to expand the size of the pie. And to expand the amount of investment that you are making in a single economy or a Sector of an economy, and that is just sort of thinking about how do I do that over and over and over again across many, many different Sectors of the economy.
>> MOHAMMED SEAR: What about especially in developing Nations where they have a huge untapped opportunity?
Big population sizes, maybe they're very low in maturity when it comes to certain Sectors from a digital perspective, not leveraging it to the point of where they could be today. Especially in agriculture, for example, do you see more PPP models evolving or something, you know, more from the Government intervention side?
>> STEPHEN GROFF: For sure. Using agriculture as an example. You see even in the poorest countries, you see agriculture technology moving pretty quickly.
Whether that be just going, you know, over the last, you know, several decades, the adoption of new farming techniques, new varieties of new fertilizers that are increasing yield markedly in the economies. Also increasingly, even in poor countries, seeing the mechanization of it broadly growing.
There is the impact when it comes to labour and jobs, if you make sure this is the way most economies are structured. They go from agrarian to industrial economy to services economy.
With each step you have to have education, investment, training, things to allow individuals to climb that to where you get to the point either in the industrial economy or in the services economy, where people have much higher wages and much better, you know, easier lives if they did back in the agrarian economy. It is happening and at a quickening pace.
It is again enabled by new technologies, enabled by digitalization, enabled by all of the new technologies.
>> MOHAMMED SEAR: At the core is the new financial models or funding models that can drive that.
Conscious that we are at the end of our time, it went very fast. I wish we had more time, what would be your kind of final one, two, three points or remarks you want our audience to takeaway in this space? Any advice?
>> STEPHEN GROFF: I think that, you know, largely, you know, I think we have sometimes focus too much on what's the next new best thing or the next new best way of doing things, rather than examining history and figuring out what lessons can we draw from history? What tools can we draw from history and apply them to modern challenges or problems we have?
A lot of the financial tools that we're using now are the same financial tools that we have been using for the last 50 years, it is just increasing access to the tools, increasing the availability of the tools and applying those tools more broadly.
>> MOHAMMED SEAR: I think that is a nice way to end our conversation. Saying okay, look to the event and look at innovative ways of doing things and also leverage the best one we have today and see how to expand the Region's spread of the technologies or models that we have.
Stephen Groff, thank you for your time. Appreciate you coming here and sharing with us your experience and wonderful insights.
I want to thank everyone for listening. It has been a pleasure for you guys to be here. I want to thank IGF and DGA for organizing this wonderful event and inviting us to come and share the thoughts with you guys.
I hope you have enjoyed it as much as I have. Thank you very much.
>> STEPHEN GROFF: Thank you, Mohammed. Thank you.
(Music)