02 May 11 - UNCTAD Report Calls for a Shift in Foreign Investment Towards Job Growth and Diversification in Poor Countries
The concentration of FDI in enclaves of export-oriented primary production with limited employment, technological and productivity linkages remains the main challenge in most LDCs.
A new UNCTAD report on the status of foreign direct investment (FDI) in the world's 48 poorest countries urges for shifting the focus of such investment towards job creation and enhancing these countries' productive capacities - that is, their abilities to produce wider varieties of goods, and more sophisticated goods.
The report, titled Foreign Direct Investment in Least Developed Countries: Lessons Learned from the Decade 2001-2010 and the Way Forward, is intended to contribute to debate at the Fourth United Nations Conference on Least Developed Countries (LDCs) that starts on 9 May in Istanbul.
The study notes that while FDI to LDCs grew rapidly over the decade with their share of global foreign investment flows having effectively doubled, most of it was dedicated to natural-resource extraction, with relatively few jobs created. Such investment has not tended to "fertilize" LDCs' economies by forging greater links between foreign businesses and local firms. In addition, it has not succeeded in facilitating the spreading of know-how and technology and helping spur broad-based and sustained economic growth. Although FDI has recently enabled some LDCs to connect with the global "value chain", in which products are upgraded and reap higher profits, the majority of LDCs have remained marginalized from the world economy.
The report recommends the establishment of an "LDC infrastructure development fund" that would improve these countries' abilities to attract investment by upgrading such factors as electricity supply, roads, railroads, and computer/Internet connections. Such a fund would seek to provide "innovative" solutions to infrastructure weaknesses through establishing public-private partnerships between LDCs and foreign investors.
Another proposition is for the creation of an "aid-for-productive-capacities fund" that would support technical and vocational training, education, and entrepreneurship in LDCs. The intent would be to provide LDC populations with skills that can attract foreign investment and spur sustainable economic progress.
The report further advises LDC governments and overseas development partners to boost efforts to attract small- and medium-scale international investors - a group that often finds and exploits hidden business opportunities. LDC governments are urged to develop strategies and provide incentives to target opportunities where investors can use technology and innovation to "leapfrog", as is already happening in telecommunications sector. Governments need to take steps to link into growing levels of investment between developing countries, taking advantage of the increasingly important South-South cooperation. There is a potential for "impact investors" to undertake profit-oriented projects that aim to solve social and environmental challenges, the study says.
The report features detailed FDI-related data on all 48 LDCs and contains annexes with informative aggregate data on FDI trends.