Trade and Development Board, 72nd executive session - Item 4: Investment for development: International tax reforms and sustainable investment
19 October 2022
Excellencies,
Distinguished delegates,
Ladies and Gentlemen,
This TDB session on Investment for Development could not come at a more pertinent time.
The world is in the middle of what SG Guterres calls the perfect storm – a world of cascading crises. We have climate change, which is hitting harder every year. We have the pandemic, which has left huge scars in developing countries. And now we have the war in Ukraine, which has accelerated a cost-of-living crisis of global proportions, marked by rising food and energy prices, and rapidly deteriorating financial conditions.
This perfect storm is producing dramatic changes to the global environment for international investment. Risks and uncertainty are rising rapidly and as a result global investment flows are declining
Furthermore, interest rate hikes in the advanced economies are greatly reducing liquidity in developing countries, increasing the costs of capital, leading to capital flight, and reducing future incomes. Recent UNCTAD research suggest that this year’s interest rate hikes in the United States alone could cut over three hundred and fifty
(350) billion dollars of future income in the Global South, excluding China.
So, despite the massive urgency, investment flows are going the wrong way. As a result, gaps are widening. The $2.5 trillion SDG investment gap in developing countries we forecasted when the 2030 agenda was approved, has now grown to $4 trillion today.
Furthermore, as we reveal in this year’s edition of the World Investment Report, current investment trends are still highly concentrated by sector and by region.
Almost three quarters of FDI growth last year was concentrated in developed countries, and mostly in mergers and acquisition and in the retained earnings of the largest multinationals – as opposed to in productivity-enhancing greenfield projects, which remained one fifth below their pre-pandemic level.
And while international investment in sectors relevant for the SDGs increased substantially in 2021, the growth mostly went to renewable energy projects.
Investment activity in other SDG-related sectors in developing economies - for example, on infrastructure, health, food, and agriculture - saw only a partial recovery, remaining well below pre-pandemic levels.
To give you two examples – investment in climate change adaptation, which is critical for developing countries, only represented five per cent of climate change investment in 2021.
And investments in food and agriculture only represented one percent of all global foreign direct investments last year. Only one percent. And now the world is in the middle of a food crisis.
Distinguished Delegates, Ladies and Gentlemen,
To achieve the SDGs, it is imperative that more funds are channelled to where they are most needed, on the ground, in developing countries. But also, an important effort will have to come from domestic resource mobilization – that is, from taxation.
The ongoing international tax reforms led by the G20 and the OECD, which we study extensively in our World Investment Report, are a major game-changer.
These reforms aim to ensure that multinationals pay their fair share and have therefore the potential to give a significant boost to tax revenues in developing countries. At the same time, these reforms will have a profound effect on the international investment landscape, including on how countries have traditionally promoted – and often competed – for international investment, through their tax and industrial policy.
These tax reforms can be an opportunity for developing countries, who will need to invest in their technical capacity to use these reforms to their advantage. UNCTAD as always, is eager to help in this regard. In today’s session, you will have the opportunity to deliberate on this important topic of the recent tax reforms, a discussion which I hope will be very beneficial to us all.
Ladies and Gentlemen, Dear Friends,
It is crucial that we act now. Even though the world is facing massive headwinds today, we must not lose our vision and perspective of the long-term. As I always say, the short-term and the long-term start at the same time. And that time is now.
Thank you.
