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FDI Trends in LDCs &FDI Trends in LDCs &the Increased Importance ofthe Increased Importance of

Good Governance in Investment PromotionGood Governance in Investment Promotion

FDI Trends and Policy Options in LDCsFDI Trends and Policy Options in LDCs25 September 200725 September 2007Geneva, SwitzerlandGeneva, Switzerland

By: Paul Wessendorp UNCTAD

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FDI inflows continued to grow in 2005 … but remained below the 2000 peak

-

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Mill

ions

of d

olla

r

Developed economies

Developing economies

South-East Europe and the CIS

Source: World Investment Report 2006

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FDI growth trend in LDCs

FDI Inflows to LDCs

10.9

8.7

9.7

6.67.1

4.1

6.0

4.9

3.8

2.11.71.1

1.91.61.6

0

2

4

6

8

10

12

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Bil

lio

ns

of

do

llar

s

Source: UNCTAD, FDI database

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…but global share is very smallLDC Share of World FDI

0

200

400

600

800

1000

1200

1400

1600

Mil

lio

ns

of

do

llar

s

World

LDCs

Source: UNCTAD, FDI database

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…and the distribution is uneven

• High concentration in a few LDCs

• Bulk of FDI is aimed at resource extraction, esp. in Africa

• In Asia, some FDI is in services (telecom, electricity)

(Millions of dollars)

Source: UNCTAD, FDI database

FDI inflows, top 10 LDCs, 2004-2005 a

0.0 0.5 1.0 1.5 2.0 2.5

Uganda

Zambia

Myanmar

Cambodia

United Republic of Tanzania

Bangladesh

Chad

Congo, Democratic Republic of

Equatorial Guinea

Sudan

2005

2004

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Policy developments

Improving investment climate in many LDCs

More transparent and liberalized FDI legal frameworks

Bilateral, regional and multilateral agreements National and sub-national IPAs

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Prospects for inward FDI in LDCs

• Picture is cautiously bright due to high natural resources demand

• However, appropriate policies and institutions are needed to attract non-oil FDI to solve underlying problems that LDCs face,

including governance related issues

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for Ease of Doing Business

Singapore 1 Benin 137

USA 3 Haiti 139

Ireland 10 Mauritania 148

Thailand 18 Madagascar 149

Samoa 41 Lao PDR 159

Maldives 53 Afghanistan 162

Ethiopia 97 Burundi 166

Uganda 107 Sierra Leone 168

Source: World Bank Report, 2007

II. The Importance of GoodGovernance in Investment Promotion

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Source: Transparency International Global Corruption Report 2007

for Investor Perceptions

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Public sector service standards:“We need a long term change in civil service culture”

Access to information:“Information can be obtained when one seeks it, but the public sector is not proactive in providing it”

Dispute resolution:“The law courts take forever”

Policy dialogue:“Government at the top level does not understand the day-to-day problems of the private sector”

Areas of concern*

* Quotes from foreign investors operating in LDCs

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UNCTAD Programme on Good Governance in Investment Promotion

• Predictability clear policies and a legal framework for investment, as well as predictable rules and regulations

• Transparency timely and accessible information disclosure and openness to the media

• Accountability performance standards and monitoring, as well as impartial grievance procedures

• Participation continuous dialogue with stakeholders that feeds into policy making

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Predictability

Examples of how to improve governance

Mechanisms/ Instruments/ Practices

• Clear policies and a legal framework for investment

• Streamlined and simple rules and regulations governing investments

• Effective investment facilitation services

• Policy advocacy by IPAs

• On-line road maps for investors

• IPA investment implementation support services and aftercare

• Client charters

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Ethiopia – EIA Client Charter (extract)

Services Time Cost (Birr)

Investment Permit for foreign business organisation 9 days 205-705

Issuance of a business licence 2 days 206

Issuance of work permits to expatriate staff 2 days 100

Approval and registration of technology transfer agreements related to investment

25 days Free

Response to complaints 10 days Free

MISSION

To enhance investment, both foreign and local, in the country by promoting its resource potentials and investment opportunities, initiating policy and implementation measures to create a conducive investment climate, andproviding efficient services to investors so as to bring fast and sustainable economic development in the country.

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Accountability

Examples of how to improve governance

Mechanisms/ Instruments/ Practices

• Introduction of ethical

standards for civil servants

• Anti-corruption instruments and measures

• Dispute resolution

mechanisms for investors

• Code of conduct

• Client charters

• Anti-corruption legislation

and enforcement (Anticorruption Board)

• Investment Ombudsman and alternative dispute resolution institutions

• Investment regime data on the Web

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• Appointed by the President• Member of Foreign Investment &

Regulatory Reform Committees• Cooperates with government

agencies to resolve problems• 21 “Home Doctors” to process complaints on

taxation, labour, construction, finance, etc.• 2400+ grievances filed since 2000• Over 70% of 351 grievances filed in 2005 were

settled directly by “Home Doctors”

Foreign Investment Ombudsman, Korea

Source: Office of the Foreign Investment Ombudsman, Korea, www.i-ombudsman.or.kr

Dr. Choong Yong Ahn

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Transparency

Examples of how to improve governance

Mechanisms/ Instruments/ Practices

• Easy availability of information for investors

• Timely disclosure of information on changes in the investment regime

• Information collection and sharing of national data on FDI and the impact of international investment on the economy

• Investment regime data on the Web

• Investment guides for LDCs

• On-line application and tracking system for permits and licences

• Client charters

• Analysis of FDI data by IPA and frequent publications on FDI trends and impact

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Investment Guides for LDCs

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Participation

Examples of how to improve governance

Mechanisms/ Instruments/ Practices

• Regular public/private sector dialogue on efforts to improve the investment environment

• Consultations with civil society on legislative and regulatory changes that will influence businesses

• National Business Council

• Private Sector Forum

• Involvement of NGOs and labour organizations in consultations on policy decisions

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Tanzania National Business Council

• Policy dialogue and consensus building forum between the Government and the private sector

• Chaired by the President

• Investors' Roundtable with international and local business leaders and eminent persons to discuss making Tanzania an FDI leader

• Includes a broad consultative mechanism with small and informal sector players, as well as labour, academia, media, and civil society

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How important do IPAs consider GGIP instruments for improvement of their investment location?

0

20

40

60

80

100

Policy advocacy Advanced ITapplications

Ombudsmansystem

Client charters

Very important

Not so important

Source: UNCTAD, based on GGIP survey among IPAs (2005)

Percentage of respondentsPercentage of respondents

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Thank you

UNCTAD

http://www.unctad.org