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Newsroom & speeches
26 June 2008
1. Thank you, Gregor, for that introduction - and thank you also to you, Dr Kaul, for the invitation to be here today to speak to you all.
2. And of course thank you also for all the work that you, and everyone else at the Commonwealth Business Council, are doing to promote the benefits of global trade and investment - and to realise those benefits for developing countries in particular.
3. Today, I'd like to talk about some of those benefits - and to touch on some of the financing tools that you've been discussing both yesterday afternoon and today.
4. But I want to start by talking about the increasing globalisation that is taking place, particularly in our financial markets, and which is creating opportunities across the world.
5. There's no doubt that the global economy is in the middle of a radical transformation.
6. Faster information flows and falling transport costs are breaking down geographical barriers to economic activity. And the global market is encompassing ever-greater numbers of goods and services.
7. And in financial markets and transactions in particular, we are seeing ever-greater integration.
8. Back in the 1970s, the value of international trade in goods and services and international finance were almost the same.
9. But now, the level of international finance is 7 times that of international trade. The value of banks' assets and liabilities held abroad, for example, quadrupled from around $5 trillion to more than $20 trillion between 1990 and 2006.
10. This is a dramatic development - and it does present challenges, particularly the potential for financial instability to spread across the world far more quickly than it could have in the past, as we have seen since last summer.
11. But financial globalisation presents huge opportunities, too - for the world as a whole, for Britain, and for developing countries too.
12. At a global level, the fact that financial markets are increasingly interconnected creates three main opportunities.
13. Firstly, by allowing international capital to be allocated to where it is most efficient; by increasing competition; and by spreading technology and expertise, it can enhance economic growth - and so make us all better off.
14. Secondly, by spreading risk throughout the financial system, it should help to promote macroeconomic stability.
15. And thirdly, it can help us to tackle some of the wider challenges that we face as a world - like climate change, and the need to support development, which I will come on to in a moment.
16. Financial globalisation also brings specific opportunities and benefits for us here in the UK. The City is the world's leading international financial centre - and so much of the global financial flows will pass through London, providing business for the financial services sector that supports a million jobs here in Britain, and provides a tenth of our GDP.
17. But the benefits of financial globalisation aren't confined to developed countries like the UK - there are very real opportunities here for developing countries too.
18. Some of these benefits can be seen at a macroeconomic level - the growth and stability that I talked about a moment ago will apply to developing countries as well as more established economies.
19. But there are also benefits that it's easiest to think of at the individual level - like the increasing ease with which people can transfer money across the globe.
20. In many developing countries, these remittance flows are far higher than either official aid or foreign investment - and they're often more stable, and more evenly distributed, too.
21. And they are, literally, changing people's lives. For the families that receive them, remittances can make up between a fifth and a half of their income, paying for food, housing or education.
22. And we know that households that receive them have better nutrition and are healthier, and that they are more likely to have money available to cope with emergencies.
23. Here in the UK, we are working to facilitate these flows of money.
24. In January this year, the UK Remittance Task Force, a private sector-led body, funded by our Department for International Development, DfID, launched a new voluntary charter for money transfer organisations.
25. That charter commits participating firms to giving customers clear, transparent information in a standard format about things like the total fees that are going to be charged; how the money will be received; and the exchange rate that will apply.
26. And this builds on the existing website, www.sendmoneyhome.org, which DfID launched in 2005 - and the 900,000 leaflets that they have distributed among migrant communities, in English and in national languages.
27. These initiatives are helping to give people more confidence in sending money abroad, and so helping the sector to develop - and costs are coming down.
28. Since 2005, the cost of sending £100 to countries covered by the website has fallen by an average of 5.6%, and for remittance payments to India, costs are down by over 20%.
29. So, there are things that can be done at a national level to support the sector.
30. But we have to realise that the rapid development that we've seen in the money transfer sector over recent years - with global migrant remittances in 2006 reaching an estimated $221 billion - wouldn't have been possible without the increasing financial globalisation that I've been talking about.
31. Increasing globalisation is also, along with technological progress, allowing more and more people to access financial services.
32. Here in Britain, we're well aware of the importance of ensuring that people can engage with the financial system, and of tackling financial exclusion.
33. We know that it creates extra costs, and that it makes it harder to deal with unexpected or sudden financial pressures - and we know that this most affects those who can afford it least.
34. And of course the same is true whatever country you're in.
35. Across the world, over 2 billion people don't have access to formal financial services - and that is limiting their opportunities.
36. The UK is committed to the goal of halving that number by 2015 - and I know that the Commonwealth Business Council held a major conference here in London a year ago, at which my predecessor spoke, about how Governments, international institutions, the private sector and the third sector, from across the world, can make it a reality.
37. Achieving that target is clearly going to be a huge challenge. But my point is that the increasing globalisation of the financial system is going to make a huge contribution to the progress that we can make.
38. Already, new services are bringing people into the financial system. Mobile phone banking, for example, has particularly taken off in Asia and in sub-Saharan Africa.
39. In the Philippines, over 5 million people are using mobile banking services. And companies like Safaricom, in Kenya, now allow consumers to send and receive cash through their mobile phone handset.
40. And the development of microfinance is making a real difference - one study showed that it has helped to reduce village-level poverty in Bangladesh by 1% every year, 40% of the total poverty reduction in these villages.
41. So, there are real advantages from financial globalisation for developing countries - in terms of growth and stability, and in terms of allowing people to benefit from transferring money, and coming into the financial system.
42. But to get the greatest possible benefit from these changes, developing countries will need to respond in the right way.
43. In particular, they will need to develop their financial sectors; reform and enhance the transparency of their political and regulatory institutions; and pursue economic policies that promote stability, liberalisation of financial services and openness to trade.
44. Here in the UK, we want to help developing countries to do that - and we are providing support, particularly through DfID, which I'm pleased to say has also provided funding for today's conference.
45. On tackling financial exclusion, for example, DfID launched a £4 million fund to improve financial education earlier this year - to help people understand their options.
46. And that is part of around £30 million a year that DfID contribute to financial sector development.
47. DfID also support the Partnership For Making Finance Work in Africa, which held its first Forum just last week - and which aims to facilitate better co-ordination in Africa's financial sector, on issues from microfinance, to regulation and regional capital market development.
48. So, along with our international partners, we are working to help developing countries to see the greatest possible benefits of financial globalisation.
49. And we are also making the case for globalisation with other Governments and institutions - because we know that while globalisation is driven by economics, business and technology, it is made possible by politics.
50. As I've said today, there are real benefits to be gained from globalisation for developing countries - just as there are for the rest of the world, including Britain.
51. I've talked particularly about financial globalisation, but there are huge potential benefits from greater trade, too.
52. Here, the priority is of course the conclusion of the Doha Development Agenda negotiations - where a successful deal could boost the global economy by as much as $150 billion, each and every year, benefiting businesses and consumers in both developing and developed countries; as well as being an important part of the long-term solution to the global food crisis, by removing trade barriers and subsidies.
53. We are in danger of running out of time to reach a deal this year - which is why we are doing everything that we can, in the UK Government, to move our partners towards a deal in 2008.
54. Because we do want to ensure that we realise the full benefits of globalisation - of trade as well as of finance.
55. And that is why today's conference is so important, and why I'm so pleased to be here today.
56. This is a chance to come together and learn from each other about the ways that the opportunities of financial globalisation - and particularly the new financing tools that you're discussing - can be made the most of.
57. And in a world that's increasingly interconnected, we do need to work together.
58. So, I'm delighted that the Commonwealth Business Council are holding today's event - and I'm delighted that you're all here in London for it.
59. I'm also very pleased to have had the chance to speak to you all - thank you very much for listening.
