Opening remarks by Angel Gurría, OECD Secretary-General, at the Global Forum on International Investment (GFI-7)
27 March 2008, OECD Conference Centre (Paris)
Dr. Supachai, Ministers, ladies and gentlemen,
I am delighted to welcome you to the 7th OECD Global Forum on International Investment. With over 400 participants from 80 countries, and many high level representatives from a wide range of stakeholders, this event is positioning itself as the reference for investment discussions at international level.
The theme of this global forum (“Best practices in promoting investment for development: Pursuing a common agenda”) responds to the call in last year’s G8 Summit Declaration for the OECD and UNCTAD to work together with developing countries “in defining a shared understanding of healthy investment climates”.
This event is also very timely. The US is experiencing one of its worst economic downturns and the European Union is struggling to cope under the burden of a heavy euro. Oil, gold, metals and food prices are hitting record levels and we are experiencing a global crisis of confidence. Although some emerging economies are still growing strongly, there is no “decoupling” and the impact of the US situation is still to be felt. In this context, it is easy to be captured by a protectionist trend, above all in the area of investment.
Investment is key to development. Investment expands the economy’s productive capacity, drives job creation and economic growth, promotes innovation and trade, and ensures essential infrastructure. It is the main force of innovation, economic transformation and growth. Having sound and open investment regimes has contributed to the global expansion of the world economy in the last decades.
The role of investment, and that of private investment, was recognised as a powerful force in the Millennium Development Goals in 2000 and later in the Monterrey Consensus which outlines the financing needed to achieve the MDGs. It shows that, to meet the development objectives, the involvement of private capital and investment is imperative.
Let me give you just two examples: water and electricity. The MDGs aim to reduce by half the proportion of people without sustainable access to safe drinking water and sanitation. To meet this goal, the level of investment in water supply and sanitation needs to be doubled.
But the current funding shortfall amounts to up to $25 billion per year.
As for electricity, an investment in infrastructure of approximately $700 billion is needed to provide the service to the 1.4 billion people who today live without. Private flows to these sectors are lagging behind. This is all the more dramatic as overall investment in the rest of the economy is discouraged when basic infrastructure is lacking.
In the broader energy sector, three investment-related challenges converge. The first one is increasing the level of funding in supply infrastructure, to meet projected global energy demand, which goes into the trillions. Second, the need to simultaneously address climate change considerations calls for cleaner and more energy-efficient investment. This will only happen if more resources are allocated to research and development in this field. Moreover, these two challenges are magnified by the need to incorporate the development dimension. Our work on climate change shows that poorer countries will be the most affected, but their capacity to pay for the necessary measures to counter climate change is weak. Thus, beyond the question of who pays for what, someone will have to finance these necessary investments.
How can we tackle these development challenges? The international investment policy community has clearly recognised the need for action, and we are hoping that the upcoming UNCTAD XII; the work of the Heiligendamm Dialogue, in its investment pillar, and the follow-up International Conference on Financing for Development, next november, will provide the answers to these global concerns.
At the OECD we are also looking at investment from different angles, continuing our long tradition of standard setting in this area. Let me share with you some of them.
First, the Policy Framework for Investment was developed specifically to help countries respond to the challenges outlined in the Monterrey Consensus, and we have gained rich insights through its implementation. The PFI represents the most comprehensive and systematic approach for improving investment conditions ever developed. Today, less than two years after its completion, the PFI is the basis for programmes involving dozens of countries around the world and it has broadened the number of countries directly involved in the investment work of the OECD.
For example, Egypt recently became the 40th adherent to the OECD Declaration on Investment after a positive examination of its framework in this area using the PFI. The PFI has also been driving regional peer dialogues in MENA, sub-Saharan Africa, South East Europe, and among APEC Members. This enables countries facing similar challenges to discuss how best to work together in improving investment climates.
A second stream of work relates to the OECD Freedom for Investment Initiative launched in 2006. Public concerns in some OECD countries about security issues have been used as an excuse for the emergence of unjustified protectionist meassures against some foreign investment transactions. This is a dangerous, threatening trend, which could set us back in our efforts of many decades to build an open International Investment regime. We must fight it. The OECD Investment Committee has been working on this Freedom of Investment Initiative to define disciplines and principles that will allow host countries to protect legitimate national security interests, while minimising restrictions on international investment flows.
A new, more recent modality of these protectionist trends concerns the well-publicised and much discussed Sovereign Wealth Funds. The size of these funds, and the fact that they are owned by governments have raised many questions regarding their operation and purpose. Potential host countries fear that SWF investment decisions could be motivated more by political objectives than by profit considerations, and that the funds could target security-sensitive and other “strategic” assets.
Last year, at a meeting where the G8 Finance Minister and the Authorities of the Sovereign Wealth Funds countries were present, and given its unique experience at developing best practices in the field of investment, the OECD was asked to develop voluntary guidelines and best practices for recipient countries’ policies towards investments by these Funds. The IMF was requested to develop such voluntary best practices for the Sovereign Wealth Funds themselves.
Here, the operative words are voluntary guidelines or best practices; we don’t need a legally binding code, which would constrain these operations unnecessarily.
We will be reporting back during the spring meetings of the WB-IMF on this work. However, it is our clear commitment to keep the investment regime open, and to recommend the necessary actions to take the best possible advantage of these funds, while addressing issues of transparency and professional management. I am sure that a positive balance can be achieved. On the other hand, if these Sovereign Wealth Funds invest part of their assets in developing countries, they could become a formidable force for development.
Our work on the PFI, this Global Forum, and “Freedom for Investment”, all contribute to building a common agenda. Today’s opening high-level roundtable on the “Political Economy of Investment Policy Reform” reflects the fact that the challenges we face are as much about the political process as they are about determining the right policy measures. In fact, the political economy of reform has been identified as one of the priorities for work in the OECD. It is not only important to decide the “what” about reforms but also the “how” to make them happen.
We have made good progress in recent years on many challenging issues associated with investment for development, but clearly a lot remains to be done. With your active participation and support, I am confident that we will not only find innovative solutions but also the shared understanding that necessarily underpins collective action.
On this note, I would like to extend my particular gratitude to Dr. Supachai and UNCTAD as a key partner in this Global Forum and in the OECD’s work on investment for development. Just as you have enriched this event today through your strong support and personal involvement, the OECD likewise aims to make a substantial contribution next month on the occasion of the high-level investment roundtable taking place during UNCTAD XII in Accra, and beyond.
It is now my pleasure to invite Dr. Supachai to take the floor.