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

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

3. 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. 4 Participation in Global FDI Flows is Impeded by Geographic Isolation

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

6. 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. 7 A High Growth Rate and Share of GFCF Bode Well for FDI in LLDCs FDI Stock as percentage of GDP FDI inflows as share of gross fixed capital formation (per cent) FDI inflows per capita (dollars) FDI inflow s (Millions of dollars) Annual average of FDI inflows (Millions of dollars) Annual average growth rate of FDI inflows (per cent) 2007 2000-2007 World 28152771 833 3241 041 1983.5 Developed economies 271612481 247 635717 7831.2 Developing economies 301394499 7472918718.7 LDCs 24151713 3758 98916.2 LLDCs 30173614 0269 13717.5 Landlocked LDCs 2419154 1462 25023.0 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

8. 8 Developments in LLDC Investment 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. 9 LLDCs Strive for a Stable and Transparent Investment Environment through Treaties Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

10. 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. 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. 12 The Way Forward A Two-Pronged Strategy: 1.Mitigate LLDC disadvantages through national and regional measures to improve infrastructure, the investment climate, and access to markets 2.Economic refocus to specialize in goods and services that are of higher value, lower bulk, and more tradable irrespective of location

13. 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. 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. 15 UNCTAD Investment Policy Reviews & Investment Guides

16. 16 Thank you. For more information, please visit www.unctad.orgwww.unctad.org