Private investment crucial for emerging economies
Private sector investment in important sectors such as infrastructure, food security and climate change mitigation has seldom been on a desirable scale and scope in developing and emerging economies as they are classified as public goods to be taken care of by the government. This thinking needs to be altered in the context of the ascendancy and sway of market forces for more than two decades in most of the world, though whether any re-thinking has taken place on this score remains a moot point. With country after country failing to fund capital-intensive public works encompassing physical and social infrastructure for want of resources, the private sector has also not galvanised itself to fill the gap as it has been finding the going tough in a milieu of meager returns on massive investments so laboriously and meticulously marshaled against inadequate flow of credit from formal banking channels.
It is against this bleak reality that the United Nations Conference on Trade and Development (UNCTAD), the Geneva-based world trade monitoring body with a self-imposed remit in favour of the developing and emerging economies, has found a credibly ingenious way out. In its latest World Investment Report (WIR), released worldwide on June 24, the UN body has called for a bold ‘step-change in both public and private investment’ in developing countries, if an estimated annual $2.5 trillion ($2,500 billion) funding gap is to be filled. The flagship annual publication of UNCTAD said that as the world is today faced with common global economic, social and environmental challenges, the global community is currently defining a set of Sustainable Development Goals (SDGs). These enlightened development goals which are being formulated by the UN together with the widest possible range of stakeholders are primarily designed to galvanise action globally through concrete targets for the 2015-2030 period for poverty reduction, food security, human health and education, climate change mitigation and a range of other objectives across the economic, social and environmental pillars.
Stating that the role of the public sector is fundamental and pivotal for such investments, the private sector contribution is indispensable especially when most of the governments had their resources stretched thin for a welter of welfare schemes to tackle fundamental maladies with no discernible outcome. For the private sector investment to flow into these important domains they can take two main forms, the report said adding that these encompass ‘good governance in business practices and investment in sustainable development’. It urged the authorities of the developing world to ensure policy coherence as being crucial in promoting the private sector’s contribution to the SDGs, particularly in the light of the relatively low participation of the private sector in investment in SDG-related sector such as roads, rails and ports, power stations, water sanitation and rural development.
The report deplored that only a fraction of the globally invested assets of banks, pension funds, insurers, foundations and endowments, as well as transnational corporations (TNCs) is in SDG sectors, with the participation being even lower in developing countries, particularly the poorest ones. Hence the UN Secretary General Mr. Ban Ki-Moon remarked in his preface to the report plainly but passionately that ‘transnational corporations can support this effort by creating decent jobs, generating exports, promoting rights, respecting the environment, encouraging local content, paying fair taxes and transferring capital, technology and business contacts to spur development’.
No doubt, increasing the involvement of private sectors in SDG-related sectors, many of which are sensitive or of a public service nature, leads to policy dilemmas, as is being noticed in emerging economies such as India. Though policymakers should exert to find the right balance between fostering a climate suitable to investment and stamping out stumbling blocks to investment on the one hand and protecting public interests through regulation on the other, the latter exercise of unbiased umpires in the form of regulators remain a desultory work in snail’s pace traction. In this regard, the UNCTAD report calls upon the emerging and developing countries to ferret out mechanisms to provide sufficiently attractive returns to private investors while guaranteeing accessibility and affordability of services for all. Without mincing words, the UNCTAD emphatically contends that ‘the push for more private investment must be complementary to the parallel push for more public investment’. This is easier said than done because in most of the emerging economies including India, policy analysts wryly say, the government found its avenues for revenue circumscribed while its open-ended subsidies even to unmerited classes and categories for either coalition compulsion or to keep the vote bank interest uppermost had exacted a heavy and unsustainable outgo.
UNCTAD unveils a slew of action plan for private investment in the SDGs involving a new generation of investment promotion and facilitation, SDG-oriented investment incentives, regional SDG investment compacts, new forms of partnership for SDG investments and changing the business mindset and developing SDG investment expertise. It also singled out innovative financial instruments to raise funds for investment in SDGs to achieve scales. In this context, it spells out options that include innovative tradable financial instruments and dedicated SDG funds, seed funding mechanisms and new ‘go-to-market’ channels for SDG projects. Once mobilized, funds need to be channeled to SDG sectors, which present a different set of challenges. Key constraints to channeling funds into SDG sectors include entry barriers, inadequate risk-return ratios for SDG investments, a lack of information and effective packaging and promotion of projects and a lack of investor expertise. Pointing out that reorientation of financial markets also calls for integrated reporting, UNCTAD said this is a fundamental tool for investors to make informed decisions on responsible allocation of capital and it is at the heart of Sustainable Stock Exchanges. Considering the fact that how the bourses behave on the stocks they trade, a plea for responsible allocation of capital by sustainable stock exchanges seems to be a cry in the wilderness. Still the logjam can be lifted if the world statesmen seize the present moment of uncertain global economic growth to toy with innovative ideas to bring growth impulses back across the world, besides contributing to bridging the bewildering deficit of resources needed for sustainable development goals the UN Conference on Trade and Development has flagged off with greater fervour.
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