Promoting foreign direct investment to LLDCs: Luncheon at the World Investment Forum 2018
On 25 October 2018, on the sidelines of the World Investment Forum in Geneva, the UN Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) and UNCTAD co-organised a high-level event for Ministers and Ambassadors from LLDCs to share success stories as well as measures and priorities to boost foreign investment.
The meeting provided an opportunity for different stakeholders, including LLDCs, development partners, business executives, and the United Nations system to take stock of progress and share successful experiences in promoting and facilitating FDI to LLDCs, identify constraints, and suggest recommendations to help LLDCs to attract and optimally utilize FDI to support efforts towards achieving the SDGs.
The 32 LLDCs, with a population of over 500 million, share some common problems due to their geographical location, which affect their economic engagement with the rest of the world. Many LLDCs find themselves marginalized from the world economy, cut-off from the global flows of knowledge, technology, capital and innovations, and unable to benefit substantially from external trade. This situation results in narrow production and export bases, leading to limited economic growth and persistent poverty in the LLDCs.
As a result, the LLDCs have numerous special needs financing requirements including: investment in the development and maintenance of hard infrastructure; investment into soft infrastructure/trade facilitation; enhanced trade –productive capacities, value addition, diversification, and global value chains; enhanced trade in services; enhanced human and institutional capacity building; enhanced regional integration; and mitigation and resilience building to economic shocks, climate change, desertification, and others.
In countries with low domestic capital formation like LLDCs, foreign direct investment (FDI) is an important means of financing development. After five consecutive years of decline (2011-2016), FDI flows to the LLDCs rose by 3 per cent in 2017, to $23 billion. This modest increase still left total flows to LLDCs almost 40 per cent below the peak of 2011.
LLDCs have traditionally been marginal destinations because of the small size of their economies and the inherent geographical disadvantages compounded by poor infrastructure, high transportation costs, inefficient logistics systems and weak institutional capacities. Most FDI to LLDCs goes into extractive sectors, such as mining, quarrying and petroleum.
A key objective for LLDCs is therefore to attract and effectively target FDI in non-extractive sectors, particularly agriculture, so as to encourage job creation, infrastructure development, export diversification and structural transformation. Technical and capacity building assistance need to be increased, for areas such as negotiating contracts, developing bankable projects, and investment facilitation.
As the LLDCs and their partners prepare to undertake the Comprehensive Midterm review of the Vienna Programme of Action (VPoA) for the LLDCs for the Decade 2014-2024 (VPoA) in 2019, it is important to identify ways of encouraging FDI flows to LLDCs.
Statement by Zimbabwe Minister of Finance and Economic Development, Hon. Prof Mthuli Ncube
I am delighted to take the floor and contribute my national perspective to this very important discussion on Promoting Foreign Investment to Landlocked Developing Countries (LLDCs) focusing on our experiences, challenges and strategies that can help attract quality investment.
In light of time limitations, I shall try to zero in more on Zimbabwe’s experiences, and the strategies we are employing to make the country more land-linked and attractive to investment.
Zimbabwe’s National Development blueprints have largely reflected much of the fundamental priorities identified in the Vienna Programme of Action (VPoA) for Landlocked Developing Countries for the Decade 2014-2024. Here I am specifically referring to the issues of transit policy, infrastructure development and maintenance, international trade and trade facilitation, regional integration, cooperation and structural economic transformation.
Zimbabwe is located at a very strategic position as a transit country within the Southern Africa subregion. In recognition of this, the country has harmonised transit policies in compliance with the COMESA and SADC protocols on transit trade, transit facilities, and third-party motor vehicle insurance schemes.
Aside form that, Zimbabwe is also establishing one-stop-boarder-posts to facilitate smooth transit of both people and goods across the country’s borders. A study of one of the completed border posts, the Chirundu One-Stop Border-Post (OSBP) has shown that its establishment induced between US$2.2 and US$3.1 million of Zimbabwe’s annual exports to Zambia.
In the area of infrastructure development and maintenance, Zimbabwe is currently in the process of upgrading and modernising its road infrastructure along major trade corridors that serve East and Southern Africa, linking the North-South transport Corridor. For those road projects already completed, a Costs-Time-Distance study government has shown that the average speed of heavy trucks has increased from 33km/hr prior to the rehabilitation exercise to the current 48km/hr. This does not only reduce transit time and costs, but also improves competitiveness.
In the area of energy. The country has taken the initiative to promote the use of renewable energy in the form of solar generators, apart from the expansion of the current thermal and hydroelectric generation capacity. Great effort is being made to balance the need for climate sustainability and quality affordable investment.
Being a landlocked country, Zimbabwe has undertaken a number of reforms to promote and facilitate investment. The country has signed 35 Bilateral Investment Treaties (BITs) and 10 of these are in force. These provides for pre-and-post investment facilitation and protection. Zimbabwe has also signed 9 Treaties with Investment Provisions (TIPs) and 7 of these are in force. The country has embarked on Ease of Doing Business reforms aimed at boosting the competitive advantage of the economy in attracting foreign direct investment. Measures undertaken under this process include, but are not limited to the following:
Establishment of the Zimbabwe Investment and Development Authority (ZIDA): A One-Stop-Investment Services Centre.
Promulgation of a Special Economic Zones (SEZ) law which designate areas to be SEZ and the sectors of investment in these areas. The law also provides a number of fiscal and non-fiscal incentives.
The Ease of Doing Business Reforms have also been aimed at reducing the cost of trading through trade facilitation in order to attract FDI.
In the agriculture sector, Zimbabwe is a huge producer of tobacco and the bulk of the product is exported unprocessed. The average prices are $3/kg for unprocessed and $6/kg for crushed tobacco as compared to between $30 and $60 for tobacco cigarettes. Therefore, by exporting unprocessed tobacco we are also giving away value of at least $27 per kilogram that could be accruing to the country.
Beneficiation also helps in triggering the emergency of vertical and horizontally integrated industries – a strategy for luring both local and foreign direct investment.
As we go towards the review of the VPoA, we call upon partners to put in place a tracking mechanism that would assist us in reviewing the progress that both ourselves, the LLDCs and the development partners have managed to achieve in the implementation of VPoA priorities. It is essential that cooperation between the public and private sectors be strengthened to turn our statuses to land-linked developing countries.
I thank you.