Foreign direct investment promotes sustainable economic growth


Cross-border direct investment is not only a driver of growth, prosperity and employment. The United Nations Sustainable Development Goals (SDGs) could not be achieved without private investment. According to the United Nations Conference on Trade and Development (UNCTAD) (2019), this is only possible if private investors fill a gap of 2.5 trillion US dollars - every year. The annual capital requirements are particularly high in the areas of climate change (US $ 380 to 680 billion), energy supply (US $ 370 to 690 billion), securing water supply and hygiene (US $ 260 billion) and the supply of food ( $ 260 billion).

Important topic for multilateral cooperation

It is not for nothing that “Investment Facilitation” has become an important topic in the international development policy discussion in recent years. Investment Facilitation aims to encourage investment by creating an investment-friendly legal and business environment. In this way, developing countries in particular should become more attractive for sustainable investments. In 2017, UNCTAD developed a policy guide entitled “Global Action Menu for Investment Facilitation”, which contains valuable advice for states. The topic has also been promoted in recent years in the G20, the OECD and the WTO.

From an investor's point of view, investing abroad is always a risky business. Foreign direct investment in new locations in particular creates many difficulties for management. This is particularly true for small and medium-sized enterprises (SMEs), which make up around 95 percent of German industry. The greatest obstacle for German SMEs to invest abroad is the lack of legal certainty in the target country. Second is the challenge of not finding a suitable business partner. Third is the problem of bureaucracy.

German companies are often only part of such value and supply chains. Nevertheless, German companies advocate respect for human rights as well as social and environmental standards worldwide. Wanting to hold companies accountable worldwide by going it alone nationally - such as through a supply chain law that is currently being planned - not only worsens the level playing field of German companies. Such measures reduce the willingness to go abroad, but without triggering a pull effect for other countries and companies. Such measures cannot solve problems in developing and emerging countries. Rather, tackling global challenges in the areas of environment, social affairs and human rights requires a coordinated approach with European partners and in multilateral institutions. It is necessary to strengthen a globally effective regulatory framework for the sustainable design of global value chains.

Removing barriers, avoiding protectionism and the role of investment agencies

An important role in promoting investment is removing legal barriers for foreign investors and preventing new ones from being built. Unfortunately, restrictive investment policy measures are currently gaining in importance worldwide. According to UNCTAD, at the beginning of 2019 the proportion of investment policy measures that restrict investments rose by 50 percent compared to the previous period. The reason is the endeavor of many countries to better protect national security through investment controls (investment screening). There is no doubt that states must protect national security. However, this should not damage the investment climate and discourage investors. The concept of national security should therefore be precisely defined and investment reviews should be carried out in a transparent, non-discriminatory manner.

Investment Promotion Agencies (IPAs) play an important role in promoting investments worldwide. They fulfill important functions in the areas of moderation through image building, generation of investments and their services for foreign investors. To achieve their goal, governments should ensure that IPAs provide more comprehensive information on business conditions in the host country, connect investors with potential suppliers and service providers, and provide practical business start-up support. In addition, governments should also involve the advice of their investment promotion agencies in shaping the political framework, since the IPAs are well aware of the interests and needs of foreign investors through their daily work.

Setting the course for sustainable globalization

In the next few years it will be important that the talks on investment facilitation are continued in international forums and that the states open their markets even more to foreign investors. Only through a good investment climate, transparent and non-discriminatory dealings with investors and legal certainty can investors contribute to the extent necessary to ensure that the development goals of the United Nations are achieved.