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This conference will focus on two core elements of any strategy aimed at ending the crisis and achieving sustainable, long-term economic growth. These are, first, the need to improve investment environments around the world and second, the need to maintain markets open for international investment.
The crisis will result in severe declines in global FDI flows. Global FDI flows declined by almost 50% during the relatively mild downturn in 2001. A similar decline in 2009 would reduce global FDI flows by about $900 billion. Unfortunately, there is a good chance that the situation will be worse.
What can governments do in response to this potential FDI collapse?
Governments are constantly looking for ways to improve the business environment and to encourage investment. These improvements to investment policy frameworks are always important but have become even more so under the current conditions. During the good times, weaknesses in a country’s policy framework for investment are easier to ignore because businesses are better able to absorb these costs when markets are strong and margins fat. However, during a crisis, such weaknesses in the policy framework can make the difference between survival and failure for investors.
Therefore, governments need to continue to work to improve their investment environments. The danger lies in losing sight of the importance of such fundamental long-term investment policy reforms when so much of the focus is on “emergency measures”. Yet, keeping a focus on fundamental investment policy issues will not only help investors survive the crisis, but will also lay the groundwork for recovery and more attractive investment environments tomorrow.
The second strategic investment issue originates in the intense pressure on governments to respond rapidly and massively to this crisis. This pressure sometimes causes governments to adopt protectionist measures, which can create a temporary illusion of relief. However, as was learned in the early 1930s, the misguided hope that an economic crisis can just be passed on to one’s neighbours invariably leads to even more desperate economic conditions.
The most effective armour against protectionism is multilateral co-operation. The OECD has actively supported open markets. It hosts the Freedom of Investment process which aims at helping governments reconcile the need to preserve and expand an open international investment environment with their duty to safeguard the essential security interests of their people and take action to recover from the current crisis.
If governments are able to continue to strengthen the economic foundations of their countries by improving their investment environments, while resisting self-defeating investment protectionism, international investment will be an integral part of the solution to the crisis. International investment creates jobs, it boosts productivity, and it is the key driver of international economic integration and trade. Conversely, if they fail in these efforts, international investment risks becoming yet another economic casualty of the crisis.
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