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The investment climate

The Monterrey Consensus and Doha Declaration tasked Member States with building transparent, stable and predictable investment climates, and many countries have made great strides in this area, though gaps still remain. In the Addis Agenda, countries resolved to continue this work, with the aim of attracting long-term sustainable private investment. 

Elements of the investment climate

Many factors influence the quality of a country’s investment climate and overall competitiveness. While the appropriate set of policies are country specific, a number of global surveys and studies have been undertaken that can be helpful in understanding trends in the business and investment climates in countries, such as the  Enterprise Surveys and the Doing Business project of the World Bank. However, it is important to examine the elements of the business environment individually and view them within the broader context of sustainable development. For example, environmental rules, which may be aligned with the SDGs can also be viewed as impeding business.

The Doing Business project of the World Bank Group uses questionnaires, administered primarily to legal professionals, to measure business regulations and their enforcement across 190 economies. Improvements in strengthening the enabling environment for private sector business and investment are reflected in the cost of starting a business, which  includes official fees, as well as additional private fees, such as for legal or professional services if such services are required by law or commonly used in practice. 

Strengthening the enabling environment entails a range of actions, such as reforms to the legal framework, promoting transparency, reducing red tape, and, importantly, promoting access to finance. Among the top five obstacles identified by enterprises, access to finance is consistently ranked in the top 3 biggest obstacles.

Before 2015, there were downward longer-term trends for all country groupings with regards to financial market development, most likely due to troubles faced by the financial sector in the wake of the world economic and financial crisis. However, the trends reversed in 2015. The gap between developed economies and the other country groupings has been decreasing over time but remains large. The World Economic Forum (WEF) measures financial market development through their Global Competitiveness survey, a dataset that combines executive opinion survey results and quantitative data. Financial market development is measured by 8 indicators, namely: availability of financial services, affordability of financial services, financing through local equity market, ease of access to loans, venture capital availability, soundness of banks, regulation of securities exchanges, legal rights index. The WEF’s database covers 152 economies.

Creating an enabling environment

Over 2,800 reforms in the listed areas have been implemented in measured countries since 2006. Most reforms have been undertaken in the areas of easing restrictions on starting a business, paying taxes, and getting credit.

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