UN calls for more FDI flows into world's least-developed countries

Global co-operation is needed to help the world's 46 least-developed countries attract more foreign direct investment inflows in order to support their economic progress, the United Nations Conference on Trade and Development has said.

FDI into these economies dropped in 2022 due to geopolitical and economic crises, with more declines expected this year that would maintain the wide gap between them and more developed nations, the Geneva-based UN agency said on Friday. 

 Unctad said it will “make a strong call to accelerate economic development in LDCs in the next decade” at the fifth UN conference on LDCs, which begins in Doha on Sunday. Among the factors that have hit LDCs are the effects of the Covid-19 pandemic, Russia's military offensive in Ukraine, and economic challenges including high interest rates and soaring inflation.

The trend continues the modest FDI growth LDCs have experienced in the past decade: their share of global FDI hovered below only 2 per cent between 2011 and 2019, according to Unctad data.

LDCs also face the challenge of high debt costs while having inadequate liquidity to provide essential services. Debt service costs in LDCs have jumped from about 5 per cent in 2011 to more than 20 per cent at present, Unctad said. “The world’s most vulnerable economies need urgent global action as current crises threaten to reverse decades of development gains,” the agency warned.

“Unctad is calling for effective debt relief and international support to build stronger productive capacities as the basis for economic and export diversification and a just, balanced and sustainable low-carbon transition in these nations.”

LDCs are the most vulnerable economies in the world, accounting for only 1.3 per cent of global gross domestic product and trading just under 1 per cent of world merchandise exports — despite representing 14 per cent of the world population, according to Unctad data.

Even with the growth in sustainable finance, LDCs have largely been bypassed, as these investments have been largely concentrated on developing and emerging nations, Unctad said. LDCs received only 15 per cent, or roughly $56 billion, of investments for sustainable development goals (SDGs) into all developing countries in 2021, further down from the 19 per cent they got in 2020, the agency said.

Investments into the food, agriculture, health and education sectors have notably fallen, which are critical in trying to achieve the SDGs, Unctad said. “LDCs need more investment … to improve their capacity to attract investment in sustainable development-related sectors such as agribusiness, tourism, manufacturing, energy, infrastructure, ICT and technology-enabled services,” it said.

In terms of SDG investments into sectors beyond climate change mitigation and adaptation, the recovery after the 2020 slump remains fragile, Unctad said, referring to the aftermath of the Covid-19 pandemic. In developing countries, international investment in the agriculture and agribusiness sectors remained stagnant and at low levels, it said.

The number of projects across all SDG sectors — including sustainable infrastructure, food security, water and sanitation, and health — rose by just 3 per cent while values shrank slightly, the agency said.

Globally, Unctad said the outlook for global FDI in 2023 appears weak. “Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing debt-related risks will put significant downward pressure on FDI,” it said.

“Unctad supports LDCs to access the benefits of the global economy, promoting structural transformation, fostering economic and export diversification, building links to global and regional value chains and supporting a new development strategy for these countries to be able to graduate from LDC status,” it said. The agency will also hold its World Investment Forum this October in Abu Dhabi.