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Development Account Projects

Enhancing the capacities of landlocked developing countries to attract FDI for the development and modernization of productive capacities

Background:

Most landlocked developing countries (LLDCs) have underperformed in terms of economic growth and development since the 1990s. This underperformance resulted in a declining GDP per capita for this group of countries during the period 2003-2010. The impact of the current global financial and economic crisis has further worsened the development prospects of most LLDCs through, inter alia, a steep fall in international trade, a rise in protectionism, a substantive decline in remittances, a noticeable contraction in foreign direct investment (FDI) (down 17 percent between 2008 and 2009) and a heightened risk of a reduction in official development assistance (ODA). As a consequence, LLDCs have to cope with slower economic growth which will translate into rising poverty levels and an increasing risk of missing critical MDG targets, particularly with regard to eradicating poverty and achieving full and productive employment and decent work for all.

Efficient transit transport systems are key to the integration of LLDCs in the global economy, as is the need to develop, restructure and diversify economies, so as to produce goods and services that are internationally competitive. In particular the building of supply capacities for tradables that are less sensitive to distance are critical for structural change and economic development of LLDCs.

However, the current level of productive capacities in LLDCs, i.e. existing productive resources, entrepreneurial capabilities and production linkages, is insufficient and lacks the capability to generate the momentum for sustained economic change on its own.

Foreign direct investment (FDI) can compensate for insufficient local factor dynamism. In LLDC where access to financing, technology or human capital is lacking, FDI can make a difference in terms of accelerated development and poverty reduction through transfers of technology and business processes, knowledge of export markets and non-debt creating transfers of capital. FDI can also play a key role in providing the infrastructure (transport, utilities, and telecommunications) that underpins most economic activities, freeing scarce government resources for investment in education, health and other basic infrastructure.

Many LLDCs have taken great strides in stabilizing and liberalizing their economies, simplifying rules on entry, installing protection mechanisms and facilitating investment. However, in the highly competitive international investment environment, policy-makers, investment promotion agencies and other relevant institutions of most LLDCs often lack the capacity and tools to overcome their negative image, to draw the attention of investors to these changes and attract larger and more diversified FDI for national and regional investment opportunities that take into account the developmental needs and the specific geographical situation of LLDCs, particularly outside the commodities sectors.

In addition to weak institutional capacity and inadequate skilled human capital, locational disadvantages and economic constraints such as geographical isolation and distance from the sea, as well as diseconomies of scale due to small domestic markets and distance from global markets have marginalized LLDCs in international FDI flows.

A way to overcome such barriers to FDI, as emphasized in the Almaty Programme of Action, consists in the better integration of LLDCs in regional cooperation and integration schemes, which addresses market size and other constraints to FDI. Moreover, common market areas including both landlocked and transit neighbors create "win-win" situations which also would help to convert landlocked countries to land-linked economies, thus minimizing landlocked-related geographical and economic disadvantages. Therefore, with a view to supporting ongoing integration efforts, the project will cooperate with Regional Economic Communities (RECs), such as ECOWAS, the East African Community and the Mekong River Commission and help LLDCs to place their investment case in a regional context.

This project responds to needs expressed by LLDCs at UNCTAD XI in the Paragraph 150 of the Accra Accord, namely that "UNCTAD should develop pragmatic tools and investment guides and identify best practices… Investment guides should be produced for all landlocked developing countries requesting one, subject to the availability of extra-budgetary resources."

This project concentrates on enhancing national capacities of LLDCs in the three regions East Africa, West Africa and Asia (i.e. LLDCs at low per capita-income levels) for FDI attraction through the transfer of relevant know-how and the production of regional investment guides. The selection of individual project LLDCs mirrors proportionally the geographical composition of the Group of LLDCs, with African LLDCs counting for about one-half and Asian LLDCs for about one-third of the 31 member states.

Objective:

The project aims at enhancing the national capacities of landlocked developing countries to attract larger and more diversified FDI inflows, including through enhanced awareness and sharing of best practices.

Expected accomplishments:

  • Improved capacity of LLDC policy-makers and investment practitioners, as well as relevant institutions, to design policies and practical measures to attract FDI needed for the development and modernization of productive capacities in LLDCs in line with national development priorities.
  • Improved availability of practical, credible, neutral and user-friendly information on investment opportunities in LLDCs, both at the national and regional levels.

Implementation status:

Project implementation has made steady progress. Stakeholder workshops held in Rwanda, Burkina Faso and Bhutan proved to be highly effective in terms of disseminating best practices, upgrading local capacity and receiving feedback on draft investment guides.
Investment Guides for Burkina Faso and Rwanda were published, investment guide for Bhutan is available in draft form.

Ca. 15 to 20 LLDC policy-makers in the area of FDI and LLDC investment practitioners benefited from capacity-building activities.