Executives of sovereign wealth funds (SWFs) and government ministers from developing countries said today that there are significant opportunities for investing in the world’s 48 poorest nations in sectors such as infrastructure, agriculture, and agricultural processing.
Their remarks came at a World Investment Forum meeting dedicated to SWFs and chaired by Hussain Al Abdulla, Executive Board Member of the Qatar Investment Authority.
Sovereign wealth funds, including those managed by the governments of major oil-exporting developing countries and by emerging economic powers such as China, have in total nearly US$5 trillion in assets, and the sum grows by about 10 per cent each year. Only a small percentage of that total – currently about $110 billion – is foreign direct investment. That has raised the question of how such vast quantities of money might be channeled to LDCs in ways that would help them to broaden and fortify their economies, create jobs, and raise living standards.
Ministers from Colombia, Djibouti, Namibia, Rwanda, and Uganda called for a continued dialogue among UNCTAD and its member States on how to surmount barriers to investment by SWFs. They especially urged investment that spurs durable, long-term economic growth in the globe’s 48 least developed countries (LDCs). Possible policy initiatives should be considered that could reduce obstacles to SWF investment flows, including through international cooperation, these officials said.
Participants from international organizations, including the International Finance Corporation and the International Fund for Agricultural Development, revealed the scale of LDC investment needs in the infrastructure and agricultural sectors. The Food and Agriculture Organization estimates more than $80 billion in investment is needed in agriculture alone – and the current level is less than $10 billion. Speakers said the opportunity to deploy SWF resources to cover part of the gap is too important to forego.
Officials of SWFs from such nations as China, Kuwait, and Qatar – as well as a representative of the public sector pension fund of the Netherlands – pointed out that astute policy steps are vital for increasing SWF investment in developing countries; stable policy frameworks for investment and strong institutions are prerequisites. They also suggested that the opportunity is real, as investments in unstable stock markets are becoming less attractive to SWFs, and as their long-term investment outlook is in line with the characteristics of development-enhancing investment projects.
However, these officials said that well-structured project proposals by developing countries – or by developing regions in order to scale up the proposals – are highly useful for attracting those SWFs which do not have the capacity to identify and pursue small-scale projects in difficult investment environments without such helpful planning and strategizing. They also identified a need to look at regulatory frameworks or mandates governing such investments – for example, changes in rules to allow pension funds to invest more in development-oriented projects.
Participants suggested a clear role for international organizations, including UNCTAD, in strengthening the policy environment for investment and in strengthening local institutions in developing countries. Such efforts would help LDCs and regional organizations to structure project proposals, and would serve to raise awareness on investment opportunities, especially in Africa. They also saw a clear role for partnerships between SWFs and development banks to channel funds to investment projects conducive to sustainable development in LDCs.