Raising global growth to deliver better living standards and quality jobs has been the G20's highest priority over the past year. So it was no surprise that boosting investment – which could help prop up the economy and unemployment – was a hot topic at its recent meeting in Ankara, Turkey.
As a long-term investor, we at Swiss Re are particularly interested in infrastructure investment. The funding gap of around USD 15 to 20 trillion over the next 15 years is far beyond the capacity of individual governments. Allowing the private sector to play a bigger role could contribute to the solution.
Although the G20* endorsed the "Global Infrastructure Initiative" last year, barriers to unlocking institutional funding remain. They include regulatory constraints, high costs of transactions and project development, inadequate financing mechanisms, and a lack of transparent projects tied to national strategic visions.
Part of my role, as a member of the B20 – a group of representatives from the international business community – is to put forward actionable recommendations to overcome the barriers to growth where G20 intervention is required. Amid other recommendations, we therefore put forward three proposals to help revive the
investment environment during the recent G20 meeting: 1) Develop a common set of international investment principles. 2) Develop country-specific infrastructure strategies linked to G20 growth aspirations. 3) Improve the infrastructure investment ecosystem to facilitate the development of infrastructure as an asset class.
G20 members' support remains strong. Christine Lagarde, Managing Director of the International Monetary Fund, spoke about the benefits of infrastructure investment – both short and long-term. She agreed that we need structural reforms to make it happen. In Europe, we also need to diversify our financial market structure so that we are less dependent on bank financing, she said.
Central banks should act as the lubricant – not the engine – for growth
Central banks' unconventional policy actions may well have played a role in the current unimpressive investment environment. During the G20 meeting, Banque de France Governor Christian Noyer questioned the role of central banks in doing "all the heavy lifting" for the economy. Reserve Bank of India Governor Raghuram Rajan went a step further, saying that in addition to aggressive actions no longer being helpful, they may actually be harmful. Central banks should act as the lubricant – and not the engine – of growth, he said.
I couldn't agree more. In fact, we outline some of the potential unintended consequences in our study "Financial repression: The unintended consequences".
It's time for central banks to plan their exits from unconventional policies. But removing central bank support is only part of the solution. In order to enhance growth in the long-term, policymakers should enforce investor rights and allow the emergence of tradable long-term asset classes flowing into productive areas in the real economy through infrastructure investments.
We, in the business community, believe that by implementing our B20 recommendations, the G20 will boost confidence in line with its objectives to strengthen the global economic recovery. At the same time, the private sector will be encouraged to invest more, thereby creating more jobs. So while the G20's support is the first step, needless to say, taking action is what matters.
Read the full set of policy recommendations and actions in the "B20 policy proposals for the G20".Read more about the importance of infrastructure investing in "Infrastructure Investing. It matters".
*The G20 is an international forum for governments and central bank governors from 20 major economies.
Location: Zurich, Switzerland