Speech by Angel Gurría,
Investment Congress: Policy Options to Encourage Higher Investment in Germany and Europe
21 April 2015
(As prepared for delivery)
Vice Chancellor Gabriel, Madam Vice-President, Ministers, Ladies and Gentlemen,
Let me start by thanking you, Minister Gabriel and your team, for organising this Investment Congress.
21 April 2015 - OECD Secretary-General Angel Gurría speaking in Berlin.
Photo: Ministry of Foreign Affairs of Germany
We, in the OECD, share the conviction that investment is one of the key cylinders of the global economy – but it needs new fuel and probably another kick-start to function again properly, in order to support a stronger and more inclusive recovery in Europe and on a global scale.
That is the reason why we have just discussed, at the G20 in Washington, “Investment” as one of the three “I” priorities for Turkey’s G20 presidency. And that is why we will discuss investment as a key topic at our OECD Ministerial meeting in a couple of weeks – as our Chair the Dutch Prime Minister Mark Rutte says, “Our priorities are three 'I's: Investment, Investment and Investment!”
Kick-starting the engine: Investment as a driver of growth in Germany and in Europe
Growth prospects in Europe have improved in recent months. In Germany, we expect growth to reach close to 2% this year. At 4.8%, the unemployment rate is the lowest in the European Union.
But in many European countries, especially in the euro area, the recovery is not strong enough to reduce the still very high unemployment substantially. Bank lending is still low; and there remains a lack of companies’ confidence to re-invest their revenues.
Europe needs to re-invent itself again like during the “Renaissance” of 500 years ago, Europe needs to address the current weaknesses and challenges with significant reforms in certain countries and Europe needs to resolve the situation in Greece in a substantial manner to rebuild trust and confidence, not only of investors and business, but also of European citizens!
In these reform efforts we need to address the fact that investment – a key cylinder for growth – is not working properly. In several European economies, the ratios of fixed investment on GDP are now at historically low levels. While global FDI flows are still 40% below their pre-crisis level, Europe is one the worst affected regions. Since the beginning of the crisis EU inflows are down 75% and outflows are down 80% from their pre-crisis levels. Even in Germany, non-residential investment spending remains subdued, despite favourable funding conditions. Germany’s public investment-to-national income ratio remains the second lowest in the OECD.
More investment throughout the euro area would strengthen demand in the near term, helping to limit deflationary risks. This in turn would help to rebalance competitiveness in the euro area economies at a lower cost in terms of foregone output and employment. Therefore, increasing investment is key to the cyclical recovery in Europe.
In this context, we welcome the Juncker Plan. It provides an important opportunity to boost investment within the current fiscal constraints, inter alia by engaging large scale private sector investment. Acting together, EU countries can have a greater demand impact and take forward investment projects with high returns. But of course, the current European crisis needs to be overcome by a new European “growth, innovation and investment narrative”.
Decisive action to overcome fragmentation of EU internal markets would boost activity and investment. Such action would also boost the impact of the Juncker plan. Steps should be taken to strengthen co-operation between national regulators, with a view to moving towards cross-border regulation. Investment to integrate electricity transmission networks would also support the development of renewable energy. Fragmentation also needs to be overcome in financial markets. Progress has been made with building a banking union in the euro area. This has made the euro area more robust to shocks, reducing contagion across member economies. But a stronger common governance would further reduce uncertainty, thereby strengthening confidence and investment.
As Prof. Fratzscher and his expert commission’s report – Strengthening Investment in Germany – rightly stresses: investment is key to raising productivity and potential growth in the medium term. Since the outbreak of the global financial and economic crisis, lower fixed investment has detracted from potential growth in many OECD economies.
Investment in knowledge-based capital, which includes R&D, organisational know-how, databases, design and various forms of intellectual property, will also be a key driver of total factor productivity in the next 50 years. Scope remains in Germany to increase investment in such capital, which is essential to seize the benefits of the “next production revolution,” or as it is called in Germany, “Industrie 4.0.”
Supporting this transition will be a complex challenge, in which investment will be one of the driving forces, and it is good to see that the German government and German industry have taken their driving seats to make this happen.
We need comprehensive policy packages to raise investment and translate it into jobs and prosperity
Monetary easing alone has failed to spur strong growth in investment. Instead we have seen booms in the prices of financial assets, which entail risks. Therefore, we need balanced policy packages, including fiscal and structural as well as monetary policies, to support investment and job creation.
As I started this intervention with three “I”s let me conclude it with four:
The first “I” is investment in infrastructure. In Germany, additional annual investment of 0.5-1 % of GDP will be needed over the coming years, in order to maintain and modernise existing networks. Supporting Germany’s transition to a lower-carbon dependent energy infrastructure will require annual investment of between EUR 31 billion and EUR 38 billion to 2020. And in the year of COP 21 in Paris, it is more important than ever that we support this transition to a greener growth model and low carbon economies.
Germany also needs to strengthen its efforts to maintain its transport infrastructure, while improving priority setting and cost-benefit analysis of infrastructure projects. Investing in digital infrastructure, such as broadband, is also essential for the transition to “Industrie 4.0.”
Germany could also make more use of innovative models of private financing of infrastructure investment, beyond the use of public-private partnerships. Successful infrastructure programmes depend on good governance. It is essential to develop an integrated approach to infrastructure governance to deliver the right strategic infrastructure on time, within budget and in a manner that commands the confidence of all stakeholders. We stand ready to cooperate with you and the German government to render infrastructure markets more attractive for private investors, thus promoting high impact investment with limited public resources. Our G20/OECD Principles on Long-Term Investment could offer support to that end.
The second “I” is investment in innovation and productivity. There is much scope for structural reforms that stimulate innovation and create a business environment that is conducive to more investment. Reforms to optimize the allocation of resources are key to fostering investment in knowledge-based capital. Removing barriers to competition and entry in the services, in particular, can unlock a large growth and innovation potential. A regulatory framework for the digital economy could help unlock investment in knowledge-based capital by establishing technical and legal security and privacy standards and preventing abuse of market power.
The third “I” to kick-start the engine is investment in inclusive growth and the skills of our people. Yet in many countries, spending on knowledge-based capital is expanding little, including in Germany. Unlike Sweden, the Netherlands and the United States, Germany still invests less in knowledge-based-capital than in physical capital. Across the G20 countries, skills shortages and mismatches are widespread. For example, in 2014, more than 2 in 5 employers on average claimed to have difficulties filling jobs, even in the context of high unemployment in many countries. Education and skills can raise not only the quantity but also the quality of jobs. This is relevant for Germany, which scores below the OECD average in terms of quality of the working environment. Investing in education and skills also helps to improve economic opportunities for the less-well off.
Finally, the fourth “I” is about institutions and rules. OECD members are increasingly becoming involved in bilateral and regional trade and investment liberalization initiatives. Initiatives such as the Transatlantic Trade and Investment Partnership (TTIP) strive to go beyond eliminating tariffs to tackle costly “behind the border” barriers that impede the flow of trade and investment. TTIP plans to derestrict several services sectors and network industries. Such investment and trade liberalization can significantly reduce the cost of doing business internationally, by promoting greater competition in key backbone services which, in the end, is generating more and better jobs. We are pretty much aware of the sensitivities in this discussion, but we believe that promoting further and more dialogue on investment could reduce risk perception, and the OECD stands ready to work with Germany towards that end.
Ladies and Gentlemen,
Let me conclude by reiterating: now is the time to kick-start the engine. We have many policy levers to boost investment, to create more and better jobs and raise prosperity for all. Let us develop and use them.
 European Commission (2014), “Investing in Europe's Future: Germany”. Available at:
 OECD (2014), Annual Survey of Large Pension Funds and Public Pension Reserve Funds: Report on Pension Fund’s Long-Term Investments, OECD Publishing, Paris.