World Investment Forum 2023: Global Leaders Investment Summit I
16 October 2023
Excellencies,
Distinguished delegates and speakers,
Ladies and gentlemen,
Allow me now to elaborate on the issue of investment, and in particular the big elephant in the room: the $4 trillion SDG investment gap. If we want to save the SDGs, it is of first-order importance that we close this gap. For that, we need you. But above all, we need to know what works, and what doesn’t.
At UNCTAD, we have asked ourselves why is the investment gap growing? Our answer can be summarized in four words: risk, capacity, policy and architecture. Allow me to say a few things about each.
Risk, as you know, is perhaps the single most important metric for investment, as it drives interest rates and therefore capital costs. Risk perception is what made African interest rates be eight times those of Germany last year, and three to four times now as the hiking cycle continues. Most importantly, risk is what blocks most of the private wealth in the world, which is under custody in pension plans and investment funds, from flowing southwards. All of you here have fiduciary duties you are responsible for, and this all boils down to risk. But to deal with risk we do not only need to mitigate it – and there are many ways we can do this, be it through onshore or offshore foreign exchanges guarantees, or be it at the project level where several de/risking instruments have been developed including by bringing government and MDBs in. But to deal with risk we also need to change our perception. Research by the UN has shown that African debts in the last three decades have been overpriced relative to their real level of risk as inferred through actual default rates. To change our perception, we need to be more evidence based, have more understanding of the local context and ask the credit rating agencies to look at their methodologies.
The second factor is capacity. The absorption capacity and the capacity to prepare concrete investment projects. The fact of the matter is that part of the problem is that there is a scarcity of so-called ‘shovel-ready’ projects at the supply side. This relates to institutional capacity, to investment promotion, and to the ease of doing business.
There is much we can do here to help, and we at UNCTAD work very hard with many governments around the world to address this issue, which is particularly important in the most vulnerable economies. But it is important to note that as climate and ESG-related standards and regulations keep growing, and with good reason, we must also consider what this means for the countries that need investments the most. A spaghetti bowl of regulation especially on trade will only benefit those who can afford the most expensive lawyers. And ESG money needs to flow exactly to those who are at the frontlines of development, those who are least able to afford them.
The third factor is policy: An enabling policy framework, a clear investment facilitation strategy, together with a long-term vision and a capable public sector are still important ingredients for success
And lastly, we have the architectural issue with respect to the International Financial Architecture. The truth is that the development finance system is currently too small to deal with the challenges at hand. I just came back from Marrakech, where we had the IMF and World Bank Annual meetings. The World Bank is a fifth of the size it was in the 60s relative to world GDP. The IMF can provide in crisis liquidity in a year what Central Banks can make available through QE in a day. The quota-based system is outdated and too often blames the victim in a world of global systemic shocks. And there is a broken pipe when it relates to debt, as we simply lack a multilateral mechanism to deal with it. And yet, we desperately need one – as interest rates rise and COVID-era debts mount, 3.3 billion people now live in countries that spend more on debt servicing than on either health or education.
All of these issues are connected. As MDBs underinvest, there is no private capital to crowd in into the big infrastructure projects the energy transition requires, and not enough project preparation at the supply side. As emergency liquidity is too often lacking, countries are forced into ever more expensive debts. As debts mount, they crowd out development spending and investment. And so the gap gets wider, and the money that is indeed available does not flow where it needs to flow.
According to our latest calculations, the sustainable finance market (including ESG, green bonds, and so on) is now worth over 6 trillion dollars. So, there clearly is a will, what we need to find now is a way.
Your excellencies, ladies and gentlemen, dear friends:
Throughout this Forum, we will address each of these issues in detail, and alongside the biggest experts, and most relevant stakeholders. I look forward to working alongside you and hearing your opinions and solutions to these critical questions.
In closing, let me be clear about something: inaction is a choice. There is more than enough wealth in this world to meet the Sustainable Development Goals. It is not about lacking resources; it's about priorities. The clock is ticking. And what we cannot afford is to hesitate. Thank you.
