What is the Role of Investment in Development?
This entry originally ran on DipNote, the U.S. Department of State’s Official Blog.
When you hear the phrase “development finance,” what do you think of? For many people, the first thing that comes to mind might be foreign aid — also known as official development assistance (ODA). To be sure, ODA plays an important role, particularly in the least developed and fragile states. But there is growing recognition of the significant role private financial flows will play in achieving international sustainable development goals.
This is especially true this year. Last week, I was at a joint meeting between the World Bank and the OECD to discuss robust updates to the Policy Framework for Investment (PFI) — a diagnostic tool that governments can use to assess and improve their investment climates. We held a lively discussion about how the updated PFI, which emphasizes investment climates that support sustainable development, could be used alongside other complementary tools and initiatives, such as the World Bank’s Doing Business guides and a new investment policy program of the World Bank’s Trade and Competitiveness Global Practice.
And this was only the latest action in this area. Over the past several months, the United Nations has been holding meetings on the post-2015 Sustainable Development process, an ambitious project that will continue throughout the summer and take center stage at United Nations Summit to adopt the post-2015 development agenda. In advance of the Summit, Ministers and heads of State will convene for the Financing for Development Conference in Addis Ababa, Ethiopia in July.
At the Addis Ababa conference, we’ll be talking about different ways of financing development, and why investment is so important to that process. Investment helps make development more sustainable by creating local jobs, stimulating competition, spurring innovation, introducing new technologies and elevating the skills of workers and managers. And private investment as a share of development finance continues to grow: in a recent article on the Huffington Post, Overseas Private Investment Corporation President and CEO Elizabeth Littlefield wrote, “Today, every $1 in aid to developing nationsis dwarfed by nearly $7 in private investment.”
My team in the International Finance and Development unit works to help countries create an attractive investment climate and reap its rewards. For example, we’ve negotiated a number of high-quality bilateral investment treaties that support transparency, predictability, and openness to investment, and strike a balance in investment agreements between investor interests and governments’ regulatory ones. Additionally, we’ve worked closely with the OECD to coordinate with other countries on the best practices embodied in the PFI.
Investment will continue to grow as a share of development finance. For that reason, it’s more important than ever for countries to work on improving their investment climate: investors are more likely to invest in places where they can do so with confidence.