Ismail Ersahin, Executive Director of the World Association of Investment Promotion Agencies (WAIPA), spoke to the Oxford Business Group about adapting investment strategies to the current global environment.
What are your expectations for global investment flows in the coming year and what more can investment agencies do to accelerate economic recovery from the COVID-19 pandemic?
It is clear that the pandemic has had a significant impact on global investment flows, especially new investments. As a result, the vast majority of investment agencies around the world have had to adapt and modify their plans and strategies, and in some cases cancel projects. In 2021, we have seen a recovery in foreign direct investment (FDI) levels globally, although the pace of recovery has been slower in developing markets. We believe this situation will gradually improve over the next six to twelve months, as increased investment activity supports sustainable growth in emerging economies.
It is important to note that most investment agencies did not sit idle during the peak of the pandemic. They understood that investment promotion had stopped, so they adapted and worked closely with their local business communities to facilitate operations and get through these difficult months. This has notably resulted in the creation of online platforms that allow local entities to access all information relating to government incentives and financial aid.
In the future, the types and quality of investments will become increasingly sophisticated. As such, investment agencies around the world are reviewing their strategies to improve their services. Likewise, there will be more opportunities for regional and international cooperation between different investment agencies and between government entities, policy makers and market regulators. Increasing global levels of FDI is a goal we all share, and we must work together to improve the international investment climateincrease investor confidence and exceed the record investment levels of 2007.
How are blockchain and cryptocurrencies affecting global investment flows and to what extent do these technologies represent an area of opportunity for investment agencies in the future?
Blockchain and cryptocurrencies are game changers, and implementing them correctly can help promote sustainable investing. They represent a significant opportunity to improve the overall ecosystem, and we have seen examples of this in recent years. For example, 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 exchange-traded crypto product was launched on SIX Swiss Exchange. This has created a thriving ecosystem for investments.
In this context, the financial regulators of the various countries play a crucial role. The implementation of blockchain technology and cryptocurrencies naturally varies from country to country, but it nevertheless changes the way we operate in the financial market. Consequently, agencies around the world are adapting to these developments and providing more sophisticated financial services and more accurate information. This is how investor confidence grows.
How do environmental, social and governance (ESG) principles affect global investment levels and investor confidence?
ESG is an absolute priority in the decision-making process. It has become imperative for investors to understand and learn how to improve the impact of their investments in order to address some of the most pressing environmental and social challenges.
Investors are increasingly looking for responsible business practices, promoting diversity in the workplace and on company boards, improving the social well-being of staff and surrounding communities, and protecting of the environment. At the same time, they realize that ESG is an important mechanism to reduce risk and increase return on investment.
Going forward, we have identified the need to standardize concepts and definitions around ESG practices. Different rating agencies use different indicators. This is another area where greater collaboration within the international community is needed to achieve a consistent understanding of ESG standards.
Where do you see opportunities for investment agencies to further improve their services in a global macroeconomic environment characterized by rising interest rates and rising inflation?
In these difficult times, the most important asset for any institution is its human capital. This is even more true for investment agencies, as the need to provide high quality services has become more relevant. In the same spirit, many companies collaborate, directly or indirectly, with their local investment agency, thus sharing a broad knowledge of the daily challenges that companies face and the best ways 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 bring the work of our members to the world, bridging the gap between investors and governments, building trust and building investor confidence.