Trade and Development Board, 61st session (Item 9: Investment for development)
17 September 2014
Excellencies,
Distinguished Delegates and Experts,
Ladies and Gentlemen
I would like to welcome you to this session focusing a very timely theme - the Sustainable Development Goals (SDGs), and more specifically how to mobilize and channel the finance and investment that will be required to achieve them. Our research and analysis on the issue, which includes policy implications, a strategic framework and a set of guiding principles, is contained in UNCTAD's World Investment Report 2014 - Investing in the SDGs: An Action Plan. My remarks today are largely based on this report.
This year's report shows cautious optimism regarding global FDI, which returned to growth in 2013 following its slump in 2012. Furthermore, FDI flows are expected to rise over the next three years, driven mainly by developed countries, although flows to developing countries will remain high. The increase is expected to reflect investments in developed economies, as their recovery takes hold. There is need for caution, however, because the fragility in some emerging markets and risks related to policy uncertainty and regional conflict could still derail the expected upturn in FDI flows.
FDI flows to all major regions grew in 2013. Developing countries and transition economies now constitute a half of the top 20 economies ranked by FDI inflows. In fact 5 of the top 6 largest recipients of FDI were from the developing or transition economies; and Mexico moved into tenth place.
Inflows to structurally weak economies remained stable in 2013 compared with 2012, although there were variations among these countries. Inflows to LDCs increased, but overall there was a decline in FDI to LLDCs and SIDs.
FDI outflows from developing countries reached a record level. Transnational corporations (TNCs) from developing economies are increasingly acquiring foreign affiliates from developed countries located in their regions. Six developing and transition economies ranked among the 20 largest investors in the world in 2013. The rise of TNCs from developing and transition economies is reflected in the ranking of their home economies. In 2013 China, the Russian Federation, Hong Kong (China), Republic of Korea, Singapore and Taiwan Province of China were all among the top 20 investors.
Looking at national investment policymaking, we can see that governments continued to liberalize and promote foreign investment in 2013. The majority of investment liberalizations were reported for countries in Asia; and most were related to the telecommunications industry and the energy sector.
Recently, however, some governments have also raised concerns over divestments by foreign investors. Affected by economic crises and persistently high domestic unemployment, some countries have introduced new approval requirements for relocations and lay-offs. In addition, some home countries have started to promote re-shoring of overseas investment by their transnational corporations.
In this year's Report, UNCTAD specifically considered the use of investment incentives. UNCTAD's survey of investment promotion agencies found that investment incentives focus mainly on economic growth objectives rather than social and environmental goals. UNCTAD suggests that linking investment incentives schemes to the sustainable development goals could make them a more effective policy tool. Governments should carefully assess their incentives strategies and strengthen their monitoring and evaluation practices, as also stipulated in UNCTAD's Investment Policy Framework for Sustainable Development.
Now this year's special topic of the WIR: Investing in the SDGs - An Action Plan for promoting private sector contributions.
The SDGs, which United Nations member States plan to adopt next year, are intended to galvanize action worldwide through specific targets for the period up to 2030. These goals are expected to encompass a wide range of economic, social and environmental objective in addition to climate change mitigation.
The SDGs will have very significant resource implications across the developed and developing world. UNCTAD estimates that globally, the level of investment needed to realize the prospective SDGs will be $5 trillion to $7 trillion per year, on average, over the period 2015 to 2030. Estimates for investment needs in developing countries alone range from $3.3 trillion to $4.5 trillion per year. At current levels of investment in sectors related to sustainable development, that translates into an annual gap for developing countries of $2.5 trillion.
In developing countries, especially the LDCs and other vulnerable economies, public finances are central and fundamental to investment in sustainability. However, they cannot meet all resource demands implied by the Sustainable Development Goals. The role of private sector investment therefore will be indispensable. The SDG's will require a step-change in the levels of both public and private investment in all countries.
UNCTAD's analysis shows that, at first glance, private investors - and other corporates, such as sovereign funds and State-owned firms - appear to have funds available to cover some of those investment needs. In general terms, there appears to be greater willingness on the part of the private sector to invest in sustainable development. The value of investments explicitly linked to sustainability objectives is growing. Various "innovative financing" initiatives have sprung up, many of which are collaborative efforts between the private sector and international organizations, foundations and NGOs. Signatories of the Principles for Responsible Investment (PRI) have assets under management of almost $35 trillion, an indication that sustainability principles do not necessarily impede the raising of private finance.
Nonetheless, not many of private sector funds are finding their way to sustainable-development-oriented projects, especially in developing countries, and most particularly LDCs. Only about 2 per cent of assets of pension funds and insurers are invested in infrastructure; less than 2 per cent of sovereign wealth fund assets is FDI; and FDI to LDCs still stands at a meagre 2 per cent of global flows.
To get more money flowing into SDG-related projects, strategies are needed to meet policy challenges and overcome existing constraints. These need to be elaborated at international and national level. To this end, the UNCTAD World Investment Report 2014 proposes a Strategic Framework for Private Investment in the SDGs. This contains four main elements.
First, leadership at the global level, as well as from national policymakers, is needed to increase private investment in sustainable development - and inclusive development overall.
Second, challenges to mobilizing funds in financial markets must be overcome if we are to build a more SDG-friendly financial system. Third, once mobilized, funds need to be channeled to relevant sectors and projects. Finally, private investment must maximize its positive impact on sustainable development, while minimizing the associated risks.
Broadly speaking, what is needed is a "Big Push" for private investment in sustainable development. To this end, UNCTAD has proposed an Action Plan made up of 6 packages. First, a new generation of investment promotion strategies and institutions; secondly, a reorientation of investment incentives; thirdly a push for regional SDG investment compacts; fourthly, new forms of partnerships for SDG investment; fifthly a programme for enabling innovative financing and a re-orientation of markets; and, finally, changing the global business mindset.
The action plan should be seen firmly as a basis for stakeholder engagement. UNCTAD aims to provide the platform for such engagement through its biennial World Investment Forum, and online through the Investment Policy Hub.
James Zhan will delve more deeply into the Investment Division's analysis and proposals for investment in the SDGs, and our distinguished expert panelists will provide further salient insight. In this context, I look forward to this afternoon's deliberations by everyone in this room on a crucial topic in our continuing search for a better world.
Finally, I would like to remind you that we will return to this theme again in the forthcoming World Investment Forum from 13th to 16th October. I look forward to welcoming you all to the World Investment Forum.
