SG's Ad Hoc Expert Group Meeting
UNLDC IV: Key Development Challenges facing the LDCs
18-19 February 2010
State of Investment Promotion
by
Mr. William Van der Geest
Officer-in-Charge, Division of Market Development, ITC
The view expressed are those of the author and do not necessarily reflect the views of UNCTAD
UNLDC IV: “Key Development
Challenges Facing the LDCs”
Presentation 4: State of Investment Promotion to Least
Developed Countries
Comments on Mr Masataka Fujita, UNCTAD
by Mr Willem van der Geest, ITC
Performance of FDI inflows to LDCs
•
During 2009 a strong decline of FDI inflows to the LDCs - a one-year lag may
be observed, because during 2008 FDI inflows were (still) increasing to $ 39.3
billion, largely to Africa, but now:
– cancellation of M&A deals
– postponement of international expansion programmes
•
African LDCs: agriculture/manufacturing FDI very low with focus mainly in the
extractive natural resources industry and related-services
•
Asian LDCs: more in manufacturing and value added services (telecom,
environmental, energy and business services), but much smaller volume
•
Reports from LDCs Central Banks often classify FDI as in the tertiary sector,
whether it is construction-services for logistics (e.g. ports), or for the mining,
minerals, oil and other extractive industries
•
Paucity of good research on FDI for LDCs, partly because of data-inadequacies,
also lack of attention within the LDC expert community
Issues in FDI inflows to LDCs
•
What is the relationship between the foreign, domestic investment
and GDP growth - crowding in or crowding out?
•
WIDER research supports the hypothesis of virtuous growth cycles, but
does not support a simplified ‘FDI causes growth’ perspective:
•
"GDP causes FDI in Chile, not vice-versa, while there is a feedback between
these two variables in both Malaysia and Thailand". (Chowdhury & Mavrotas,
2005) using 1969-2000 data
– Simultaneity of GDP growth episodes and FDI-increases do not imply
causality
– Authors replace Granger causality tests with Toda-Yamamoto tests to
address estimation problems arising from non-stationary time series
Determinants of FDI inflows in African LDCs
•
What is the relationship between the foreign investment and
domestic resources, market size and institutional and policy
variables in Africa?
•
WIDER research supports the hypothesis that natural resources and
large markets promote FDI, but rejects ‘defeatism’ – policy and
institutional variables have a similar weight in cross-country panel
regressions for 22 African countries of which 13 are LDCs.
•
“Main result is that natural resources and large markets promote FDI.
However, lower inflation, good infrastructure, educated population, openness
to FDI, less corruption, political stability and a reliable legal system have a
similar effect.” (Elizabeth Asiedu, 2005)
•
Hence: “countries that have small markets or lack natural resources can attract
FDI” (Ibid).
FDI inflows to African LDCs 2008
FDI inflows to Asian LDCs 2008
FDI company networks in African LDCs
FDI company networks in Asian LDCs
Towards Research Agenda on FDI inflows in LDCs
•
East Asian experience esp. China’s re-emergence offers
overwhelming evidence that major structural change in
productive capacity can be facilitated and accelerated by FDI
inflows – ‘learning by doing’ but also ‘learning by looking’
•
It is not happening in African LDCs – FDI has contributed to
export development but neither to export diversification nor to
value addition
•
The picture for Asian LDCs is mixed, with export success usually
identified with domestic entrepreneurship
•
FDI inherently risk-averse and seek legal certainty – nevertheless
key players are found across LDCs
•
Need to understand investors actions, in particular examine
company networks and the regional strategies of major FDI
players – Invite them to Round Table at UN LDC IV!