All that's pledged isn't investment

Last month, during Mohammed bin Salman's Washington visit, Donald Trump said Saudi Arabia had pledged $1 tn in US investments. With no details of any timeframe, it would be wise to take this claim with an oil drum of salt. The cleverness of such an announcement is that this is something that the Saudis needn't deny even if it is an exaggeration or plain untrue. And if MbS, indeed, has held out a promise he can't fulfil, there's little that the Trump regime - or its successor(s) - can do about it.

The problem with investment commitments is the lack of enforceability. Indian states routinely trot out giant numbers of promised investments, a big chunk of which never materialises. Take West Bengal. Almost none of the much-touted MoUs materialise, despite the annual jamborees and photo-ops. Real investment is typically pledged conditionally, with specific and general expectations about ease of doing business. If these issues stay unaddressed, 'understandings' fail to turn into horses that beggars plan to ride. Chronic under-delivery on investment signals progressive weakness in the business environment when competing states improve their investment prospects.

Greenfield investment is driven by a definite set of economic parameters, such as proximity to resources and markets. If a political establishment wants to speed up the process, it must offer another set of governance deliverables. Besides, governments may need to commit additional investment to fill gaps in physical and social infra. These steps improve the investment climate, but don't ensure enforceability of pledges. Business conditions may alter, affecting planned investments. The business cycle could alter, affecting capital timelines for capital infusion. The idea would be to reduce governance risks to a point where businesses feel comfortable to commit. But in most cases, announcing romantic intent itself is trotted out as fixing a wedding date. As anyone on their first date knows all too well, that's merely political, not financial.