In this interview, the executive director of the non-governmental international investment promotion organisation shares his thoughts on the expectations for global investment flows in 2023, and how ESG principles are affecting investment levels and investor confidence worldwide.
What are your expectations for global investment flows in the next year, and what more can investment agencies do to accelerate economic recovery in the wake of the Covid-19 pandemic?
ISMAIL ERSAHIN: It is clear that the pandemic had a significant impact on global investment flows, particularly in greenfield investments. Consequently, the vast majority of investment agencies around the world had to adapt and change their plans and strategies, and in some cases cancel projects. In 2021 we saw a recovery in global foreign direct investment (FDI) levels, although the recovery rate was slower in developing markets. We expect this to gradually improve over the next six to 12 months, with growing investment activity promoting sustainable growth in emerging economies.
It is important to note that most investment agencies did not remain idle during the peak of the pandemic. They understood that investment promotion had halted, so they adapted and worked closely with their local business communities to facilitate operations and navigate those challenging months. One way in which this happened was with the creation of online platforms granting local entities access to all information related to government incentives and financial support.
Moving forwards, the types and quality of investments are becoming more sophisticated. As such, investment agencies around the world are revising their strategies to enhance services. Similarly, there will be more opportunities for regional and international cooperation among different investment agencies and between government entities, policymakers and market regulators. Increasing global FDI levels is a goal we all share, and we need to work together to enhance the international investment climate, boost investor confidence and surpass the peak investment levels of 2007.
In what ways are blockchain and cryptocurrencies impacting global investment flows, and to what extent do such technologies represent an area of opportunity for investment agencies moving forwards?
ERSAHIN: Blockchain and cryptocurrencies are game-changers, and implementing them correctly can help promote sustainable investment. They represent a significant opportunity to improve the overall ecosystem, and we have seen examples of this in recent years. For instance, in 2016 Zug became the first city in the world to accept bitcoin payments for tax purposes, and in the same year the world’s first crypto exchange-traded product was launched on the SIX Swiss Exchange. This created a flourishing ecosystem for investment.
In this context, the financial regulators in different countries play a crucial role. The implementation of blockchain technology and cryptocurrencies naturally varies from one country to another, but it is nonetheless changing how we operate in the financial market. Therefore, agencies worldwide are adapting to these developments and providing more sophisticated financial services and accurate information. This is how investor confidence grows.
How are environmental, social and governance (ESG) principles affecting global investment levels and investor confidence?
ERSAHIN: ESG is one of the top priorities in the decision-making process. It has become imperative for investors to understand and learn how to improve the impact of their investments in tackling some of the most pressing environmental and social challenges.
Investors increasingly look for responsible business practices, the promotion of diversity in the workplace and on company boards, social welfare improvements for staff and surrounding communities, and environmental protection. At the same time, they realise that ESG is an important mechanism to reduce risks and boost return on investment.
Moving forwards, we have identified a need to standardise concepts and definitions around ESG practices. Different rating agencies utilise different indicators. This is another area in which greater collaboration throughout the international community is necessary to reach a homogeneous understanding of ESG standards.
Where do you identify opportunities for investment agencies to further enhance services in a global macroeconomic environment characterised by rising interest rates and inflation?
ERSAHIN: In these challenging times, the most important asset for any institution is its human capital. This is even more so the case for investment agencies, as the need to provide high-quality services has become more relevant. In the same spirit, many businesses are collaborating, directly or indirectly, with their local investment agency, sharing extensive knowledge of the daily challenges that companies face and the best means to overcome them.
More needs to be done to promote the services and activities of investment agencies, and this is part of our efforts at WAIPA. We want to raise awareness of the work being done by our members globally, bridging the gap between investors and governments, generating trust and boosting investor confidence.