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FDI in LLDCs: Challenges and Opportunities

FDI in LLDCs: Challenges and Opportunities. High-level Investment Forum New Y ork, 1 October 2008. James Zhan, Officer-in-Charge Division on Investment and Enterprise UNCTAD. FDI Booms and the Developing Country Share Growth. Global FDI Inflows, 1990-2007 (Billions of dollars).

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FDI in LLDCs: Challenges and Opportunities

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  1. FDI in LLDCs: Challenges and Opportunities High-level Investment Forum New York, 1 October 2008 James Zhan, Officer-in-Charge Division on Investment and Enterprise UNCTAD

  2. FDI Booms and the Developing Country Share Growth Global FDI Inflows, 1990-2007 (Billions of dollars) Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

  3. Characteristics of Global FDI Stock • 62% concentrated in services • Mostly trade, financial services and business activities • Manufacturing accounted for 28% • International production chains depend on cost-effective transport and proximity to large markets • Primary sector accounted for 8% • But high commodity prices lift the share of the inflows to 13% in 2004-2006

  4. Participation in Global FDI Flows isImpeded by Geographic Isolation

  5. A "Boom" in FDI to LLDCsHides a Different Story FDI Inflows to LLDCs, 1990-2007 (Billions of dollars) Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

  6. Characteristics of LLDC Inflows • Share of global 2007 inflows was only 0.8% • Concentrated in the oil and natural gas sectors • Of $14 billion in 2007, 73% went to Kazakhstan alone • $3.8 billion of FDI inflows to the other 30 LLDCs combined in 2007

  7. A High Growth Rate and Share of GFCF Bode Well for FDI in LLDCs Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

  8. Developments in LLDCInvestment Policy • Increasing recognition of FDI as a critical source of jobs, capital, skills, technology, access to international markets • More national treatment, simplified procedures, fiscal incentives, investment guarantees, profit repatriation, openness to public-private partnerships • 100 regulatory reforms since the year of the Almaty PoA* • 87% of LLDCs have averaged nearly 4 changes • 72% of changes have been more favourable to FDI • Sectoral liberalization, e.g. telecommunications (Botswana, Burkina Faso, Burundi), railroad (Ethiopia), insurance (Swaziland) * Figures are from 2003 to 2007 inclusive.

  9. LLDCs Strive for a Stable and Transparent Investment Environment through Treaties Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

  10. Challenges • Long distances to seaports and international markets • Diseconomies of scale and small domestic markets • Poor endowment of natural resources • Lack of skilled labour, managerial resources and technical expertise • Weak institutions and unfavourable regulatory frameworks • Inadequate transport, transit and telecom infrastructure • Weak integration with regional markets and institutions • Lagging liberalization in services

  11. Opportunities • Geography cannot be changed, but institutions and economic focus can. • The incentive of an attractive investment climate may outweigh other disincentives. • Strategic policy choices may build skills for and attract FDI to knowledge-based services. • There is room to liberalize certain sectors in LLDCs, including telecommunications, and attract corresponding capital inflows. • Regional economic integration and cooperation, for example through BITs, DTTs and FTAs, can improve effective market size and proximity.

  12. The Way Forward A Two-Pronged Strategy: • Mitigate LLDC disadvantages through national and regional measures to improve infrastructure, the investment climate, and access to markets • Economic refocus to specialize in goods and services that are of higher value, lower bulk, and more tradable irrespective of location

  13. Mitigating LLDC Disadvantages • Upgrading transport and communication infrastructure, possibly with the help of FDI • Conducive policies and institutions for FDI entry, establishment and retention • "Land-linking" through regional cooperation and integration schemes • Public-private partnerships for transport and transit, with financial and technical assistance from the international community

  14. Economic Refocusing and Specialization • Facilitate FDI entry, establishment and protection for producers of high-value, low-bulk, distantly tradable goods and services • Targeted incentives, including tax breaks/ holidays, R&D partnerships, grants for job creation, help obtaining production facilities • Strengthen labour skills, innovative capacity • Concerted, targeted investment promotion, facilitation and aftercare in line with development objectives

  15. UNCTAD Investment Policy Reviews & Investment Guides

  16. Thank you. For more information, please visitwww.unctad.org

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