Before I was elected Chairman of CIPE, I had the pleasure of taking part in CIPE's NIS Regional Conference in Moscow in mid-September, just days after the Russian economy plummeted into its most recent - and most serious - financial crisis. As former President of Moody's Investors Service, I was asked to provide some perspective on conditions for investment from the viewpoint of a hard-nosed rating analyst and investor who is considering where in the world to invest.
The successor states of the Soviet Union are pursuing an unprecedented transition that seeks to move them from command to market economies, from Communist Party rule to democratic governance, and from an empire to nation states. These countries are following myriad reform strategies, but each reform plan incorporates the need for foreign investment as a key factor in their prospects for success.
Investment capital - the long term kind that benefits growth and development - flows most readily where there is opportunity for profit commensurate with risk. The single most important precondition for investment, therefore, is a clear set of "rules of the game." Those rules must include restrictions on government intervention into private economic decisions that are articulate, enforceable, and of equal applicability to all participants, foreign as well as domestic.
All investment decisions of any consequence today are choices among alternatives. Investors have the ability to keep money in a country or remove it to one where the investment climate is more hospitable. Countries are in competition with other countries for investment capital and the creativity, management, and skills that it brings with it.
The crisis in Asia has several lessons to teach. The first is that non-economic allocation of resources, through "crony capitalism" or other state directed means, coupled with lack of publicly available information, will eventually implode an economy and wreak havoc on its financial system and its people. The second is that today's economic reality makes it impossible to insulate one economy from the operations, conduct and, I would argue, the mistakes of other countries, including inadequate institutions. No national economic or reform policy can operate for long independent of the disciplines imposed by the international financial and economic system.
The good news is that successful business enterprises are no longer thinking only in domestic terms. This means that there are an increasing number of potential investors who are actively scouting the world for opportunity. Governments, too, must now think globally. Governments that are betting their futures on long term foreign investment must create open economies, directed by clear sets of rules and regulated in the interest of creating a level playing field. And they need to be quick about it.
John A. Bohn, Chairman