Regional investment: Time to cooperate

FfD_Logo-140Carole Biau, Investment Division, OECD Directorate for Financial and Enterprise Affairs

One of Aesop’s fables tells of an old man on the point of death, who summoned his sons around him to give them some parting advice. He gave the eldest son a bundle of sticks and asked him to break it. The son was unable to, and his two brothers did no better. The old man then took the bundle apart and gave each of them a stick, which was easily broken.

The moral of this tale – that there is strength in unity – is very straightforward and more or less universal. Similarly, a Kenyan proverb holds that “sticks in a bundle are unbreakable”. However we often seem to lose sight of this basic truth – not only as individuals but also as countries.

Regional economic co-operation has been on the international development agenda for decades. But it requires strong coordination, including in the field of investment policy, and that does not come automatically. On the contrary, countries have often used “beggar-thy-neighbour” policies and seen geographic proximity as a threat rather than an opportunity for investment attraction. Governments have for instance competed to offer investors overly generous tax breaks and incentives, depriving each host country of much needed tax revenues. We have seen similar “races to the bottom” in terms of labour or environmental standards.

Regional collaboration on investment policies can also open up economies of scale. Infrastructure investment in Africa is a case in point: many countries are land-locked and cannot reach ports without cross-border road and rail connections; others are too small to develop cost-effective power or ICT networks; and some potential infrastructure resources (such as lakes and dams) cut across borders and cannot be developed by countries in isolation. In all of these cases, aligning policy frameworks – so that investors face the same ‘rules of the game’ across neighbouring countries – can make a big difference for unlocking investment in cross-border infrastructure projects.

Clearly, whether it is to overcome co-ordination failures or to tap economies of scale in investment policy, regional collaboration – or “bundling of sticks” – is needed. This can help countries move away from a zero-sum game and towards win-win situations.

What are countries doing to strengthen regional co-operation? To take one example: since 2012 the 15 Member States of the Southern African Development Community (SADC) have partnered with the OECD to design the SADC Investment Policy Framework. This framework will be discussed and finalised when SADC Member States come together in Johannesburg on 21-22 July 2015. The framework will help SADC countries to collectively enhance their investment policies, so as to attract investment that can work for the development of the region as a whole. It provides concrete options for: improving coherence and transparency of the investment environment; enhancing market access and healthy competition; reinforcing protection of investors’ rights; and, promoting responsible and inclusive investment.

The Association of Southeast Asian Nations (ASEAN) provides another example of a win-win regional collaboration on investment policy. The ASEAN-OECD Investment Programme allows for experience sharing on investment policy design, implementation and harmonisation across ASEAN Member States. It offers a platform for individual economies to disseminate the results of Investment Policy Reviews undertaken by governments in partnership with the OECD, while benchmarking investment policies and to contributing to identifying good practices. Aesop would be happy with this strengthening of the SADC and ASEAN “bundling of sticks”.

In both regions, these efforts build on the OECD’s main tool to promote investment policy reform and co-ordination: the Policy Framework for Investment (PFI). After having been used by over 25 developing and emerging countries undertaking OECD Investment Policy Reviews since 2006, the PFI has just been updated to ensure its continuing role as a global reference for investment policy reforms and development co-operation. 2015 therefore marks an exciting juncture: the OECD, regional groupings such as SADC and ASEAN, and individual countries, are all embarking on joint work towards implementation of the updated PFI.

Other international organisations, bilateral and multilateral development partners, and the business community, will not be left on the sidelines. In fact when the updated PFI was endorsed in June 2015, they encouraged countries and donors to use the tool as a reference for development co-operation, and particularly as a path towards the new Sustainable Development Goals (SDGs). As the resources needed every year to achieve the SDGs are at least ten times greater than the current levels of aid (ODA), it goes without saying that mobilising private investment flows through instruments such as the PFI will be crucial.

Exactly how different countries and regions can make the most use of the PFI is being discussed this week in Addis Ababa, at the third international conference on Financing for Development. This is a valuable opportunity not only for individual countries to take part, but also for regional groupings such as SADC and ASEAN to share their efforts towards making their bundle of sticks unbreakable and investment for development a “positive sum game”.

Useful links

The Policy Framework for Investment

Southern African Development Community (SADC) Investment Policy Framework

ASEAN-OECD Investment Programme

OECD work on international investment

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2 comments to “Regional investment: Time to cooperate”

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  1. tony botsman - 16/07/2015 Reply

    Well done OECD and all concerned ; using analogies like the bundle of sticks helps to achieve the wide comprehension which will not arrive through complicated jargon from economists! A simple proposition to help counter the often unworkable conditionality that international finance often seeks to impose.

    Tony Botsman, C4C, The Checklist for Change.

  2. Julie B - 16/07/2015 Reply

    Excellent and very timely blog! Private investment, particularly in infrastructure, is likely to be a key component of development finance going forward, just as investment policies (as well as financial regulation, macroeconomic policies, environmental protection, trade policies, and other elements of the ‘beyond ODA’ toolkit) will be a central means through which countries can affect their economic development and that of their neighbours. Given the potential for cross-border spillover effects, both good and bad, regional collaboration in investment policies is not only the smart thing to do, but it is also very much in line with the notion of shared responsibility promoted by the post-2015 sustainable development agenda.

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