Efraim Chalamish's Economic Development and Security Blog

Investing in a G20 World

G20 leaders concluded their meeting this week in Los Cabos, Mexico, with yet another broad declaration on the future of the world economy and the role of G20 members in promoting growth and jobs.

Supporting economic stabilization, fostering employment and social protection, strengthening the international financial architecture, and reforming the financial sector are some of the messages from G20 leaders that came out of the meeting in Mexico. Yet, many aspects of the declaration lack a concrete timeline and benchmarks. Is this the nature of the institutions or should policy makers be accountable, ‘corporate style’, and deliver results we can measure and evaluate?

In a world where most people tend to be cynical about the ability of global forums to achieve consensus around global strategic affairs and deliver significant results, the importance of measuring results of the policy making process is a critical component of the credibility and prominence of the institution. And this can be achieved.

One example is the G20 forum’s efforts on investment measures. At various summits, G20 leaders committed to foregoing protectionism and asked the leading international economic institutions, the WTO, OECD, and UNCTAD, to monitor their adherence to this commitment. The most recent report just came out and the results can teach us a lot about soft power and global investment trends.

It is interesting to see that, according to the report, most investment measures by G20 countries (mainly emerging markets) had the effect of opening markets and increasing policy transparency for investors. Indeed, while most financial news covers currency and trade wars and investment disputes between investors and states, the empirical data shows that despite the uncertain economic times and the sovereign debt crisis, G20 member countries in the last couple of months have followed their commitments in prior G20 summits to keep market-based policies. It is important to note that despite the global economic shockwaves, the foreign direct investment inflows rose by 17% in 2011 to US$1.5 trillion, even higher than the average pre-crisis levels.

The G20 monitoring system can also provide us with some meaningful information about exceptions to the trends as well. In the last couple of months, according to recent reports, investors experienced significant challenges in several G20 member countries. India required that investments in existing pharmaceutical companies be authorized by the government, while in the past it was part of the “automatic route”. Argentina introduced several investment measures, including new regulations on foreign exchange assets of residents and a limitation of foreigners’ rights to invest in farmland, among others. Indonesia, one of the potential ‘new BRICs’ announced that foreign-owned mining companies operating in coal, minerals and metals should progressively sell their holdings to Indonesians to reach the maximum authorized ceiling of 49% by the 10th year of operation.

These examples clearly demonstrate that despite the strong trends identified by the G20 group, there are areas of concern that the group should continue and monitor moving forward to make sure that consensual decisions are enforced. Moreover, this analysis is extremely valuable to investors around the globe who make critical investment location decisions, too many times under unclear economic policies and political risk conditions.Monitoring investment and investment-related measures is just one example where the G20 forum can provide the investment community with clear and detailed ways to measure the execution and effectiveness of the policies and declarations adopted by this forum. This should not be the only area. G20 leaders should continue to find ways to show their credibility and the relevance of their institution.

2 Responses to “Investing in a G20 World”

barfJune 23rd, 2012 at 12:50 pm

We've been living in a G 2 world for sometime now actually. That would be the USA and China…"Chimerica" is the name of the book and it is "anything but chimerical." Currently this bilateral relationship is financing EVERYTHING on the planet. PERIOD. Unlike theoretical approaches to economics this is "hard nosed finance" or "where the rubber hits the road" in the form of massive trading programs being run out of Wall Street, HUGELY ambitious financing schemes for say the build out of the natural gas energy grid, SPECULATIVE plans for the creation of a "cloud computing space" and MASSIVE outlays for the creation of a "solar powered final solution to the energy vortex" that routinely destroys economy in an almost whimsical fashion. This is REAL money that HAS ALREADY BEEN DEPLOYED…"Capital" if you will"…though of the "sweaty palm type" or perhaps more accurately "barf in the garbage can" variety. Obviously a 'G-20" world confab has nothing to do with any of it save for "how are Zee Americans doing it?" The answer of course is "We are doing it well" of course…and are "continuing to do it" as they say as "the rise of the Digital Domain" is still just in its infancy. Policy makers STILL haven't stepped in to regulate "mind martian space" amazingly enough…and yet the riches to be had have only just begun. "More Johnny Law" and less "John Law" would seem in order….especially since entire Cities if not States are being used as the collateral to finance all of the ONGOING and ACTIVE schemes.

Guy ManninghamJune 28th, 2012 at 7:11 pm

I went to the G20 summit meetings when they came to Pittsburgh. I can assure you there was no job creation going on there, unless it was to increase public sector jobs and the size of government.