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Development Account Projects

Attracting and benefiting from foreign direct investment: Ensuring the realization of benefits through institutional capacity building and deepening linkages between small and medium-sized enterprises and foreign affiliates

Background:

For an economy to realize the benefits of FDI and to disseminate them to the broader economy at large requires a functioning and vibrant small enterprises sector, a critical mass of foreign enterprises active in the country and linkages between foreign and domestic companies. IPAs within a country or region is the office dealing with inward investment promotion, commonly closely linked to the national or local/regional government thus giving them the possibility to influence investment policies and to play a key role in the preparation of new investment legislation and regulations. As has been successfully applied in a number of countries, a private sector forum can provide an avenue by which it can communicate with officials of the government, which are not directly accountable to investors, on important policy issues that affect the private sector. A private sector forum can in particular look at the efficiency and transparency in investment facilitation, international investment agreements and TNC-SME linkages.

Governments of developing countries have requested UNCTAD's assistance in developing their SME sector through the Empretec programme, which contributes to the development of a local entrepreneurial culture, the creation of new business ventures, and the growth and expansion of existing SMEs, which in turn leads to the diversification of the national economy and the creation of employment opportunities.

Objective:

Help developing countries to increase their ability to maximize the benefits of foreign direct investment (FDI). The project seeks to build and strengthen developing countries’ national institutional capacity to evaluate the implications of closer multilateral cooperation on development policies and objectives. The project also aims at improving competitiveness of small and medium sized enterprises (SMEs) through deepening SME's linkages with foreign affiliates of transnational corporations (TNCs) and with country institutions involved in attracting FDI. The project will seek to institutionalise the public-private sector dialogue by creating a field-based, permanent private sector forum, linked to Investment Promotion Agencies (IPAs) and SME development institutions, comprised of several thematic working groups in which private sector stakeholders will participate. The project intends to help countries meet the goal of the Millennium Declaration through encouraging transparency in the financial, monetary and trading systems by ensuring that they are open, equitable, rule-based and predictable. The project is also designed to support target 12 and 13 of the MDGs.

Expected accomplishments:

  • Cooperation of developing country investment protection agencies both among themselves and with its private sector partners established and/or strengthened, with a view to contributing to the formulation of sound policies for investment and investment promotion strategies
  • Public-private sector dialogues on best practices and experience at both the regional and national levels harnessed to improve the investment environment and in elaborating investment promotion strategies
  • Regional online networks established on expertise in harnessing public-private sector dialogue for investment promotion to meet development objectives
  • Leadership capacity of developing country investment protection agencies strengthened in policy advocacy, and through this, investor-friendly policies and strategies that meet the country’s development objectives
  • National forums established for private-public dialogue in at least three least developed countries that do not yet have them

Implementation status:

In 2006, a comprehensive training programme for IPA policy advocacy was continued on the basis of training materials developed in 2005 and further updated in 2006. In July 2006, a regional training workshop for Latin American investment promotion agencies on policy advocacy was held in Peru, at which 26 investment promotion experts were trained. In November 2006, UNCTAD organized an Ad Hoc Expert Meeting on Advocacy for Investment Policies, which gave a unique opportunity to investment promotion professionals from all parts of the world to share best practices and experiences in policy advocacy. Six country cases for policy study concerning the effects of the elimination of trade-related investment measures under the WTO Agreement on Trade-Related Investment Measures (TRIMs) were completed in 2006. A number of important activities were implemented with a view to supporting business linkage programmes and integrating them into the work programmes of IPAs, as a means of buttressing the sustainability and improving the quality of FDI made possible through improvements in investment policies.