JICA commits $1 billion to IDB Invest for Latin America’s growth

Japan’s JICA launches its largest private sector fund with IDB Invest to support sustainable projects in Latin America.

Inter-American Development Bank President Ilan Goldfajn speaks at a press conference ahead of the G20 Summit in Rio de Janeiro, Brazil, on November 16, 2024. Photo by Aline Massuca/Reuters

By Alana Salsabila and Widya Putri

Japan’s International Cooperation Agency (JICA) has pledged $1 billion to a new investment fund aimed at strengthening the private sector across Latin America and the Caribbean. Announced on Tuesday, this initiative represents JICA’s largest private sector commitment in the region and marks its first collaboration with IDB Invest, the private sector branch of the Inter-American Development Bank (IDB).

The fund is part of a broader effort to bridge the estimated $99 billion annual financing gap for sustainable development in Latin America and the Caribbean. The investment will be structured using IDB Invest’s "originate-to-share" strategy, which seeks to maximize capital efficiency by syndicating portions of investments to third-party investors rather than holding them to maturity.

JICA and IDB Invest partnership aims for economic growth

JICA’s $1 billion investment is designed to accelerate the flow of private capital into key sectors that drive economic development, including infrastructure, renewable energy, and social impact projects. The partnership between JICA and IDB Invest reflects a growing recognition of the need for innovative financing solutions to sustain economic growth and environmental resilience in the region.

In a joint statement, JICA and IDB Invest confirmed that, subject to mutual agreement, the fund could expand to $1.5 billion over the next three years. This expansion would further amplify its impact by unlocking additional private sector investments and supporting a greater number of sustainable projects.

"This initiative will not only catalyze private investment but also foster sustainable development, innovation, and economic growth in the region," said IDB President Ilan Goldfajn.

The originate-to-share strategy and its impact

The "originate-to-share" strategy employed by IDB Invest plays a crucial role in optimizing investment efficiency. Unlike traditional lending models where institutions retain loans until maturity, this approach allows IDB Invest to start investment projects, secure initial funding, and then syndicate portions of the investment to external investors. By doing so, it frees up capital for reinvestment into new projects, thereby increasing the overall financial capacity of IDB Invest and enabling more rapid development initiatives.

The use of this strategy is particularly critical for Latin America and the Caribbean, where funding shortfalls have hindered economic and infrastructure growth. By sharing risks with investors and expanding financing pools, IDB Invest and JICA aim to create a more sustainable investment ecosystem that continuously supports new projects.

Latin America’s $99 billion annual financing gap

The financing needs of Latin America and the Caribbean remain substantial. According to the Organization for Economic Co-operation and Development (OECD), the region faces an annual financing gap of approximately $99 billion for sustainable development. This shortfall impacts sectors ranging from renewable energy and transportation to healthcare and education, limiting long-term economic stability.

The collaboration between JICA and IDB Invest seeks to address this challenge by mobilizing private investment, creating scalable funding models, and ensuring that capital is allocated to projects with long-term economic and environmental benefits.

JICA’s expanding role in Latin American development

JICA has historically played a significant role in international development, particularly in Asia and Africa. However, its growing involvement in Latin America signals a strategic shift towards global investment diversification. With a strong focus on infrastructure, climate resilience, and economic inclusion, JICA’s engagement in Latin America aligns with Japan’s broader foreign investment strategy.

This latest initiative builds on previous collaborations between Japan and IDB, which have included co-financing agreements and technical assistance programs. By committing $1 billion to IDB Invest, JICA is reinforcing its commitment to supporting economic resilience and private sector expansion in Latin America and the Caribbean.

Potential expansion and long-term impact

While the initial investment stands at $1 billion, the fund has the potential to grow to $1.5 billion within three years. This expansion would enable a wider range of projects to receive funding, further boosting the region’s economic and social development. The increased capital would allow IDB Invest to continue leveraging private investments and scaling up its financing initiatives.

By fostering private sector participation and providing financial mechanisms for sustainable growth, JICA and IDB Invest are positioning Latin America for long-term economic transformation. The success of this initiative could serve as a model for future international collaborations aimed at closing financing gaps in developing economies.

JICA’s $1 billion commitment to IDB Invest marks a significant milestone in Latin America’s development landscape. By leveraging the "originate-to-share" strategy, the initiative aims to maximize investment efficiency and drive sustainable economic growth. With the potential to expand to $1.5 billion, this partnership underscores Japan’s commitment to supporting private sector development in Latin America and the Caribbean.

As the region continues to face economic challenges, strategic investments like this will play a crucial role in fostering innovation, sustainability, and long-term prosperity.