G20 Finance Ministers and Central Bank Governors’ Meeting

Session 3: Investment and Infrastructure

Remarks by Angel Gurría, Secretary-General, OECD

10 February 2015, Istanbul, Turkey

(As prepared for delivery)

Deputy Prime Minister Babacan,

Ministers and Governors,

Ladies and gentlemen,

The Crisis started more than seven years ago, and yet a robust recovery still seems distant in many countries. One traditional cylinder of the global growth engine has been specifically weak: this is investment, the second of the 3 “I”s of the Turkish Presidency’s triptych, and in particular cross-border investment. 

Global flows of foreign direct investment (FDI) remain 40% below their pre-crisis levels. Global FDI stocks have declined, possibly pointing to a worrying process of “de-globalization”.

Unlocking investment: What’s the problem?

There are many reasons behind the weakness of investment, some of which are well known – such as the impact of a long phase of balance-sheet deleveraging following the crisis, in public, corporate and household sectors.

Traditional sources of investment - i.e. the banking sector - now face stronger regulations that can impede their ability to channel capital into long-term investment destinations. Small and medium-sized enterprises (SMEs) are particularly affected, since they are more dependent on bank finance than large firms.

The 2015 issue of the OECD SME finance Scoreboard - that I will release in the margin of your next meeting in April - will show that bank lending to SMEs has still not recovered to pre-crisis levels in many countries. In such circumstances, SMEs need to find alternative sources of financing. This is precisely the objective of our new analysis “New approaches to SME and entrepreneurship finance: Broadening the range of instruments”, which maps the impressive range of available alternative instruments (including asset based, alternative debt instruments and hybrid products) and identifies actions governments, going beyond supply-side measures to promote further the financial literacy and skills of existing and would-be entrepreneurs.

But financing issues go beyond SME and concern the whole corporate sector. In our past discussions, I have often referred to what I dub the “investment paradox”: the world economy (big corporations, institutional investors) is awash with liquidities, but the latter are not finding their way towards long-term productive investment.

This puzzle or paradox is merely apparent however. In fact, various policy impediments - to cross border investment, – such as limits to foreign ownership, complexity and fragmentation of regulatory frameworks, to mention just a few - remain salient in G20 countries.

These obstacles must be removed because the needs for investment, notably in infrastructure, are huge. Take for instance the investment required for the transition towards a low-carbon economy: it is estimated that the investment gap in sustainable energy is around 1 trillion every year.[1]

How can we unlock this type of investment? We have dig into this question and identified the various instruments and channels to mobilise institutionally held capital. Let me name 3 promising ones:

1. First, green bonds: 40 billion dollars of them were issued in 2014 – this is growing, bit still a drop in the ocean of the USD100 trillion global bond market!
2. Second, direct investment in project, which has surged over the last few years,
3. And third listed funds, such as “YieldCos[2]”, which in the last 2 years have raised more than 6 billion dollars in clean energy investment.

So how can the G20 and OECD help?

We fully concur with the G20 presidency on the importance for country to elaborate country specific investment strategies.

The OECD, together with colleagues form other organisations, stands ready to assist the G20 in analysing the multiyear programmes put in place by numerous countries and identify good practices and a figure reflecting the current collective G20 investment ambition.

Thank you.