联合国贸易发展委员会-对最不发达国家的外国直接投资（英）-2022.3-16页_3mb

Summary of FOREIGN DIRECT INVESTMENT IN LDCs: Investment Trends and Policies Since LDC IV and the Way Forward

Core Content

This report provides an analysis of foreign direct investment (FDI) trends and investment policy reforms in Least Developed Countries (LDCs) since the Fourth United Nations Conference on LDCs (LDC IV) in 2011. It highlights the challenges LDCs face in attracting FDI, despite their commitment to improving investment conditions and promoting private sector development as part of the Istanbul Programme of Action (IPoA). The report also outlines key policy measures and recommendations to revitalize FDI flows and align them with the Sustainable Development Goals (SDGs).

Main Points

A. FDI Trends

• Overall Growth: FDI inflows to LDCs increased modestly from $20 billion in 2011 to an estimated $28 billion in 2021, with an annual growth rate of 3%, remaining below 2% of global FDI and 4% of developing country FDI.
• Sectoral Composition:
  • Extractive Industries: Dominated FDI inflows, particularly in Africa, with a significant share in project finance deals.
  • Manufacturing and Services: Grew in some LDCs, especially in Asia, with a rise in non-resource-based manufacturing and services like utilities, ICT, and finance.
• SDG-Relevant Investment:
  • Investment in sectors such as infrastructure, renewable energy, water and sanitation, health, and education was substantial (totaling $148 billion from 2011–2019).
  • The pandemic severely impacted these investments, with a 30% drop in 2020 and a further 17% decline in 2021, along with a 2/3 drop in value.
• Regional Variations:
  • Asia: FDI inflows increased steadily, with a shift from extractive industries to manufacturing and other sectors.
  • Africa and Haiti: Experienced declining FDI inflows, especially in extractive industries.
  • Island LDCs: FDI inflows dropped by 8% over the decade.
• Greenfield Investment:
  • Greenfield investment projects saw a 3% annual increase before the pandemic, but declined sharply in 2020 and 2021.
  • Portfolio investment flows to LDCs were smaller and even turned negative in some years.

B. Policy Trends

• Policy Reforms:
  • Two-thirds of LDCs implemented at least one investment policy reform between 2011 and 2021.
  • African LDCs were the most active in reforming investment policies, with 75% adopting reforms, followed by Asian LDCs (67%) and island LDCs (25%).
• Nature of Reforms:
  • Most policy measures were more favourable to investment (83% for LDCs, 80% for other developing countries).
  • Asian LDCs and island LDCs had the highest proportion of pro-investment measures (94% and 100%, respectively).
• Investor Entry and Establishment:
  • Over one-third of policy measures were related to investor entry.
  • LDCs frequently removed entry barriers, such as minimum capital requirements and joint venture mandates.
• Sectoral Measures:
  • Extractive industries accounted for the largest share of sectoral measures (39%).
  • Services (30%) and manufacturing (15%) were also prominent, with a more balanced distribution in agriculture (15%).
• International Investment Agreements (IIAs):
  • LDCs concluded 92 BITs and joined 10 regional agreements since 2011.
  • The trend shifted from bilateral to regional agreements, with participation in megaregional IIAs like RCEP and AfCFTA.
• Investor-State Dispute Settlement (ISDS):
  • At least 48 ISDS cases were filed against LDCs, mostly by developed countries.
  • Most cases were based on IIAs signed before 2010, with some damages awarded up to $18.8 million.

C. Assessment and Recommendations

• Challenges:
  • Despite policy reforms, LDCs have not significantly increased FDI inflows.
  • Structural weaknesses in infrastructure, human capital, and economic diversification persist.
  • The pandemic has further exacerbated these challenges.
• Recommendations:
  • Modernize Investment Promotion and Facilitation: Improve processes, promote e-government tools, and align policies with international tax reforms.
  • Foster Local Productive Capacities: Support entrepreneurship, local value chain development, and SME access to finance.
  • Promote SDG-Relevant Investment: Focus on sectors like infrastructure, renewable energy, and healthcare, and improve SDG-impact indicators.
  • Enhance International and Multilateral Cooperation: Development partners and investors should provide financial and technical support to LDCs.
  • Strengthen Institutional and Regulatory Frameworks: To attract and support sustainable investment and ensure alignment with public goals.

Key Information

• The IPoA emphasizes FDI as a tool for development and SDG achievement.
• FDI remains a vital but insufficient source of external finance for LDCs.
• Investment in extractive industries is still prevalent, though diversification is occurring.
• The pandemic significantly disrupted FDI flows and SDG-related investment.
• LDCs are increasingly engaging in regional investment agreements.
• ISDS cases against LDCs are mainly from developed countries, highlighting the need for better legal frameworks.
• A new programme of action (2021–2030) is needed to address the challenges and enhance FDI flows to LDCs.

Table of Priority Investment Measures

Conclusion

LDCs have made progress in investment policy reform but continue to struggle with attracting sufficient FDI for sustainable development. The report underscores the need for stronger international cooperation, institutional support, and alignment of investment flows with SDG goals to overcome structural challenges and ensure long-term development.