Opening remarks by Angel Gurría,
5 October 2015
(As prepared for delivery)
Minister Zeybekci, Ministers, Ladies and Gentlemen,
It is my pleasure to welcome you to the 2015 G20-OECD Global Forum on International Investment. The forum provides an important opportunity for dynamic, frank and constructive dialogue on measures to catalyse investment and develop a more coherent and cohesive global trade and investment regime.
The OECD’s September 2015 Interim Economic Outlook shows that global growth prospects have again weakened. In per capita terms, we are experiencing the fifth consecutive year of declining global growth rates.
Much of this decline can be attributed to lacklustre investment. Despite a short-lived rebound in 2014, global flows of foreign direct investment (FDI) remain 40% below their pre‑crisis levels.
Certainly, the economic geography of investment is evolving and diversifying, which is a positive development. Around half of all global investment is now absorbed by economies in Asia, Africa, Eastern Europe, and Latin America. Major emerging market economies have generated record levels of investment outflows in recent years. For example, our host Turkey is one of the largest investors in Central Asia and the Middle East.
But this does not – yet – fully make up for sluggish cross-border investment from and to advanced economies: FDI inflows in the European Union fell particularly sharply from USD 857 billion in 2007 to USD 208 billion in 2013. In many countries, investment-to-GDP ratios have not fully recovered, notwithstanding historically low interest rates and high stock exchange gains. For example, in the Euro area this ratio has fallen by almost one-fifth relative to its 2008 level.
Evidence at the firm level reinforces this troubling picture. Data from 10,000 listed companies in 75 countries – that collectively account for 43% of global GDP – show that corporate investment is not constrained by cash flow. In other words, firms have the means to invest. But for a variety of complex reasons, they are choosing not to.
Given investment is a precondition for effective integration in global value chains (GVCs), these are worrying trends.
The dynamics of international trade are changing. Global trade flows are increasingly organized around GVCs. Participation in GVCs can fuel rapid growth, as evidenced in China, the Czech Republic and Mexico, among others.
However, countries wishing to replicate these examples and fast-track their development through GVCs must remember one important fact: openness to trade is not enough. Investment matters. Investment to improve connectivity. Investment to build production capacities, create jobs and develop skills. Investment to add value and support the functioning and expansion of GVCs. Investment to benefit investors and societies alike.
High quality infrastructure investment – airports, harbours, railways and roads – is critical to facilitate the movement of goods, services and people across borders and along GVCs. Well‑functioning services sectors, such as logistics, finance, and other business and professional services, are important complements to infrastructure investment.
To maximise the return from these investments, technical and vocational education and training programs must be agile and responsive to changing skills requirements. ICT systems should deliver seamless and uninterrupted information flows across companies and countries. These systems will become increasingly important as industrialised countries move into Industry 4.0.
Today’s discussions will be framed around a series of questions that are geared towards boosting investment and supporting trade. I’d like to briefly address three of these.
The OECD’s latest Business and Finance Outlook shows the returns on equity and investment are too low, notably in Europe and in emerging market economies, compared to the cost of capital. Given current economic uncertainties, financial markets reward companies that return dividends to stockholders and favour buybacks, and punish those that undertake more investment – thereby creating higher hurdle rates for real productive investment. In this context, policy reforms that provide clarity and certainty, and make investment projects more bankable, are critical for boosting private sector investment.
The OECD’s updated Policy Framework for Investment (PFI) – a comprehensive and systematic framework welcomed by G20 Finance Ministers in Ankara – builds on tried and tested policy options to support investment and fuel growth and development. The framework positions countries to develop a fair, transparent, clear and predictable regulatory environment for investment, engage in effective investment promotion and facilitation, stimulate green investment, and ensure competition, tax and trade policies are calibrated to support investment policy.
It is equally important to improve the functioning of capital markets and enhance corporate governance regimes to make them more conducive to real, patient, productive investment – which is pivotal for growth over the long-term. We welcome, therefore, last month’s endorsement by G20 Finance Ministers of the G20/OECD Principles of Corporate Governance.
These tools and instruments are complemented by the OECD Guidelines for Multinational Enterprises, which provide the most comprehensive set of government-backed recommendations in existence to promote responsible business conduct and socially-sustainable investment.
The importance of easing restrictions on foreign investment and competition to attract private sector investors should also not be understated. While the OECD’s FDI Regulatory Restrictiveness Index, which measures statutory restrictions on FDI across 22 sectors in 58 economies, shows that we are improving in this area, much more remains to be done. Progress across countries is uneven and the pace of investment liberalisation has slowed significantly since the crisis.
There are no overarching rules governing international investment: presently, the rules are spread across more than 3,000 bilateral and regional investment agreements that often contain overlapping or contradictory provisions. While the ‘mega-regional’ agreements under negotiation may clarify international investment rules across large economic areas, significant complexity is likely to remain. This is an area where, we think, the G20 could take bold action – and we stand ready to support you.
I have alluded to this already: clear and consistent linkages between trade and investment policies grease the links of GVCs. The OECD report on Overcoming Barriers to International Investment in Clean Energy, recently annexed in the Communiqué of G20 Finance Ministers, highlights the potential consequences of misaligned trade and investment policies. The report shows that the increasing use of local-content requirements in solar photovoltaic and wind energy products by at least 21 countries since the financial crisis has severely hindered trade and investment in clean energy in the context of GVCs.
Ladies and gentlemen, there is one aspect of investment I have not touched upon today, but which is equally important. Investment in relationships.
The questions we will tackle today are complex. Finding the right answers will fuel the global recovery. I urge each of you to contribute actively in all sessions and reach out to your counterparts. Exchange ideas. Share good practices. Cultivate trust. Invest in new partnerships.
I wish you all the best for an open, interactive and productive exchange.