Investment Facilitation – Crucial to Reaching the Sustainable Development Goals
Cross-border direct investment is not only a driver of growth, prosperity, and employment. The United Nations’ Sustainable Development Goals (SDGs) cannot be reached without private investment. According to the United Nations Conference on Trade and Development (UNCTAD) (2019), this is only possible if private investors fill a 2.5 trillion U.S. dollar gap – every year. The annual capital requirements are particularly high in the areas of climate change (380 to 680 billion U.S. dollars), energy supply (370 to 690 billion U.S. dollars), securing water supply and sanitation (260 billion U.S. dollars), and food supply (260 billion U.S. dollars).
The aim of investment facilitation is to promote investment by creating an investment-friendly legal and business environment. In this way, developing countries, in particular, are to become more attractive for sustainable investments. In 2017, UNCTAD developed a policy guide titled “Global Action Menu for Investment Facilitation”, which contains many valuable best practices. The issue has also been promoted in the G20, OECD, and WTO in recent years.
From an investor’s point of view, foreign investment is always a risky business. This is particularly true for small and medium-sized enterprises (SMEs), which account for around 95 percent of German industry. The biggest obstacle for German SMEs is the lack of legal certainty in the destination country. Another challenge is not finding a suitable business partner. A third problem are bureaucratic burdens.
German companies are committed worldwide to respecting human rights and social and environmental standards. Unilaterally making companies legally liable on a national level – such as through the proposed supply chain law – not only worsens the level playing field for German companies. Such measures also reduce the willingness to go abroad. Furthermore, such measures will not solve any problems in developing and emerging countries. In fact, coping with global challenges in the fields of environment, social policy, and human rights requires a coordinated approach with European partners and in multilateral institutions. Rather, the global regulatory framework for the sustainable design of global value chains needs to be strengthened.
A prerequisite to facilitating investment is to remove legal barriers for foreign investors and prevent the establishment of new ones. Unfortunately, restrictive investment policy measures are currently gaining in importance worldwide. According to UNCTAD, the proportion of investment policy measures restricting investment rose by 50 percent in the reporting period from November 2018 to February 2019 in relation to the previous reporting period (May – October 2018). This is due to the efforts of many states to better protect national security through investment screening instruments. There is no doubt that states must protect national security. But this should not damage the investment climate and discourage investors. The concept of national security should therefore be defined more precisely, and investment screening should be carried out in a transparent, non-discriminatory manner.
Investment Promotion Agencies (IPAs) play an important role in promoting investment worldwide. IPAs provide comprehensive information on business conditions in the host country, bring investors into contact with potential suppliers and service providers, and provide practical assistance in setting up businesses. Governments should take into account the advice of their investment promotion agencies when designing policies, as IPAs are familiar with the interests and needs of foreign investors through their daily work.
Only through a favourable investment climate, transparent and non-discriminatory treatment of investors, as well as legal certainty can investors make the necessary contributions towards achieving the United Nations’ development goals.