From Now to New, Seizing Future Opportunities
Your Excellency, Faisal Al-Ibrahim, Minister of Economy and Planning, Saudi Arabia,
Dear Anthony Scaramucci, Founder and Managing Partner, SkyBridge Capital,
Ladies and gentlemen,
Just before the war in Ukraine, FDI was recovering from the COVID-19 pandemic.
After a steep decline in FDI of more than 35% in 2020, FDI recovered to higher than pre-pandemic levels in 2021.
This was thanks to economic stimulus packages and continued efforts by countries to attract and retain investment.
Investment in infrastructure was particularly strong owing to favorable long-term financing conditions.
So, although the recovery has been uneven across countries and sectors and concerns of diverging recovery paths between developed and developing countries were raised. There were reasons for optimism and an agenda that if implemented could benefit all, given how crucial Investment is for inclusive and sustainable development.
During Covid 19 Countries have mobilized USD 3.5 trillion of public recovery funds to respond to the COVID crisis. This, together with the private funds it could draw in, could total an “investment firepower” of recovery funds up to USD 10 trillion.
So, even though much of this was being invested in advanced countries and that we needed to ensure that this investment firepower does not bypass the developing world, we knew the spillovers could be invested in the new economy, the new sector, the new ideas, the new capabilities needed to face the challenges of this new era.
Investment we said, will be driven by how we expect the future global economy to be more technological, more digital, more environmentally concerned and more regionally driven especially with respect to trade. This push towards regionalization, near shoring and reshoring of trade, is explained by the severe disruption in Global supply chains by the COVID-19 pandemic and the corresponding increase in regional poles and regional trade agreements and the appetite to diversify risks (shorten the global supply chains and diversification of the suppliers).
All these forces were transforming industries across the world. Many countries were promoting the adoption of Industry 4.0 to facilitate innovation, improve manufacturing efficiency, increase productivity, close the digital divide. The revolution called for large investments into digital infrastructure, new skills and adapted regulatory frameworks.
Climate change was also the other defining force. Probably the most defining feature of the future. On the investment side, there were positives signs over the past five to ten years as we observed increasing investments into renewables and investments into the blue and green economy.
But the energy price shock triggered by the war in Ukraine is likely to shift investment back into extractive industries. This is of great concern for the future we need to build.
The war and the related measures and sanctions create further disruptions. For instance, trade costs are increasing on the back of the implications of airspace closure over Russia and the diversion of transport routes.
Unfortunately, the war in Ukraine has fueled macroeconomic instability, currency fluctuations and interest rate movements, trade costs are increasing on the back of an already stretch maritime transport due to the disruptions on airspace closures and the diversion of transport routes.
The increase in investor uncertainty hampers investment decisions. And it may put further stress on the international investment agreement regime as investors affected by the restrictions could resort to dispute settlement.
And the war is likely to divert publics funds to defense and humanitarian responses. This will affect ODA and the planed post-COVID infrastructure and SDG project finance packages that were expected to boost global investment in sustainable recovery over the coming years.
I want to conclude with two final reflections:
We need to continue to push for investment to go to the new economy. We need investment to go for the innovation, creativity, and opportunities that we all can see in
the future despite the very challenging times we are leaving, but we need to also understand that if capital will continue to fly to safety, the world won’t become more stable and more resilient to future shocks. We need the developing countries and the emerging markets to succeed.
So first, it is essential that we continue to support countries in their capacities to continue attracting and facilitating investment for sustainable and inclusive growth.
This requires building an efficient physical and digital infrastructure. And for that public- private partnerships are needed.
To build a competitive Industry 4.0 environment, countries need to promote investment in 5G networks, upgrade telecommunication facilities and connectivity, and attract technology solution providers, manufacturers of Industry 4.0 equipment, or centers of excellences and start-ups, among other actions.
As growing and ageing populations are increasing pressure on fragile health care services in most developing countries, digital health offers valuable solutions. Investment in digital health can boost efficiency of the healthcare industry and increase access to health care in remote areas. Investment in new financial solutions for inclusion and expansion of financial services are also key.
The sustainability imperative and the energy transition will require investment in climate proof infrastructure and renewable energy, and building the skills and capacities needed for sustainable industries.
The war in Ukraine will also push for diversification and investment in food security, requiring more science and technology.
But also let me be clear, developing countries won’t be able to do all this without international help. The mounting crisis of climate change, covid 19 and the impacts of the war in the prices of food, energy and finance, can be devastating and destabilizing for many countries in the world (104 net importers, growth 1% point down from previous estimates,)
The world has enough food, enough oil, enough money to face this crisis, but a collective effort will be needed, a lot of coordination between the international organizations and the public and private sector will be needed, so I appeal to the business community to be a voice for responsible behavior, for the application of the ESG principles and to promote not only a more prosperous world but also one that will be more inclusive, more sustainable and more resilient.
Thank you for your attention.