Third UN Conference on LDCs

15^th Meeting (AM)

NINE OF WORLD’S POOREST COUNTRIES SIGN BILATERAL INVESTMENT TREATIES

AT LEAST DEVELOPED COUNTRIES CONFERENCE IN BRUSSELS

(Received from a UN Information Officer.)

BRUSSELS, 18 May -- At the Third United Nations Conference on Least Developed Countries this morning, nine of the world’s poorest countries signed -– at the ministerial level -- 29 bilateral investment treaties, paving the way for increased foreign investment and future economic cooperation.

The treaties, designed to provide foreign investors with international standards of treatment and legal guarantees on such issues as the transfer of funds and expropriation, were concluded during a round of negotiations for francophone least developed countries (LDCs) organized earlier this year by the United Nations Conference on Trade and Development (UNCTAD).  Signing today were: Benin; Burkina Faso; Comoros; Cambodia; Burundi; Chad; Mali; Guinea; and Mauritania.

The Secretary-General of UNCTAD, Rubens Ricupero, and Boutros Boutros-Gali, Secretary-General of the Organisation internationale de la francophonie, presided over the signing ceremony, which took place at the conclusion of the morning thematic session devoted to “Enhancing Productive Capacities:  The Role of Investment and Enterprise Development.” 

Mr. Boutros-Ghali said the signing ceremony was one way in which countries and governments could demonstrate their willingness to open up their nations to foreign investment.  While development took more than simply opening up, the treaties took steps to strengthen future foreign investment and design rules for the establishment of markets that were fair, balanced and more democratic.

During the thematic segment, high-level government representatives, international agency officials, corporate executives and entrepreneurs discussed ways in which the potential for enterprise development in the LDCs could be realized and how direct foreign investment (FDI) could be increased.  Speakers focused on the need to attract foreign investment, but warned against giving such investments preference over national participation.  To strengthen the productive capacity of the LDCs, developing small- and medium-sized enterprises were just as important as attracting foreign investment, they said.  It was also important to encourage public/private partnerships in the LDCs, strengthen infrastructure and regulatory frameworks, ensure transparency and the rule of law and take measures against corruption.

In his concluding remarks, Mr. Ricupero, who is also the Secretary-General of the Brussels Conference, stressed the need to take action, instead of “just giving advice”.  In that regard, he emphasized the importance of the international investment advisory body, which was being established today within a multi-agency technical assistance programme by UNCTAD, the Multilateral Investment Guarantee Agency (MIGA) and the Foreign Investment Advisory Service (FIAS) of the World Bank Group, and the United Nations Industrial Development Organization (UNIDO).  The programme will include investment policy reviews, investment promotion and guides, and investment aid and advisory facilities. 

Co-Chairs for the session were the Minister of Commerce of Cambodia, Cham Prasidh, and the Federal Minister for Economic Cooperation and Development of Germany, Heidemarie Wieczorek-Zeul.

The panellists in the discussion included:  Alan Kyerematen, Director of Enterprise Africa, Ghana; Sonia Pasqua, General Manager of Pasqua Giuseppe Pvt Ltd Company, Ethiopia; Hanns-Eberhard Schleyer, Secretary General of the German Confederation of Small Business and Skilled Crafts; Maria Livanos Cattaui, Secretary-General, International Chamber of Commerce; Earl Cairns, Chairperson of the Commonwealth Development Corporation; François de Laage de Meux, Président du Conseil, Société du Louvre, France; Frans Tummers, Chairperson of the Federation of Dutch Food Industries and a member of the Executive Board of the Association of Dutch Business Enterprises; France Tadesse Haile, General Manager, Ethiopian Investment Authority; and Baron Paul de Meester, President and CEO of Société Belge de Bétons, Belguim. 

Commentators were Pradeep S. Mehta, Secretary General, Consumer Unity and Trust Society (CUTS), India; and Jabu Ngcobo, General Secretary, Africa Region, International Textile, Garment and Leather Workers Federation, South Africa.

An interactive session on will be held at 3 p.m. on human resources development and employment.

Thematic Session:  Enhancing Productive Capacities

Background Publication

A booklet issued on 10 May by the United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment in LDCs at a Glance (UNCTAD/ITE/IIA/3), provides an overview of recent trends, development in the regulatory framework and includes country profiles for each of the 49 least developed countries (LDCs).

Separate boxes throughout the booklet highlight such topics as:  examples  of successful investment opportunities in Bangladesh, Ethiopia, Mali and Uganda; Fortune 500 investors in LDCs; and an investment policy review.  Tables describe, among others:  Foreign direct investment (FDI) growth rates (1986-1999); growth trends (1990-1999); flows (1986-1999); and the largest 50 cross-border mergers and acquisitions (1987-1999).

Among the trends highlighted:  FDI flows as a group increased from an annual average of $0.6 billion during 1986-1990 to an annual average of $3.6 billion during the latter half of the 1990s.  In 1999, FDI flows increased to $5 billion, representing an annual growth rate for the LDCs as a whole of 20 per cent.  Still, the performance differed greatly, from a decline in Burundi of 33 per cent, to a growth of 474 per cent in Cambodia. 

The booklet points out that, while the absolute amounts LDCs receive are low -- for example, FDI inflows to the LDCs as a group were of the same magnitude as those to the Czech Republic alone -- what LDCs receive is of importance for their economies.  It also points out that the current investors include some of the world’s largest transnational corporations.  As of 1999, 44 out of the Fortune

500 firms had invested in 31 LDCs.

Opening Statements

One of the session’s co-Chairs, CHAM PRASIDH, Minister of Commerce of Cambodia, said that by definition the LDCs were marked by underdevelopment, poor infrastructure and low social welfare standards.  Prosperity could come to those countries only if they could attract new investment.  While official development assistance (ODA) still dominated capital flows to the LDCs, it was on the decline.  Foreign direct investment had been assuming a more prominent role lately.  In some countries, it even exceeded the level of ODA.  The share of LDCs in FDI flows still remained under 0.5 per cent, however. 

Currently, the LDCs’ economies were at the mercy of market fluctuation, he continued, for they depended on the export of raw commodities.  The information highway had barely touched the LDCs, but it held high promise for those countries.  The LDCs needed to maximize the net benefit from FDI, which could help improve their infrastructure and productivity.  Better FDI performance would require improvement of the general investment climate, and that could take a long time. The governments did not have full control over that situation, but they should create a favourable environment for attracting FDI.  Supportive macroeconomic policies, stable and productive institutional help, transparency and policy coherence in enterprise development were needed.  A vibrant private sector would also be helpful.

Turning to his country’s experience, he said that among other achievements, increased macro- and micro-stability had been secured in Cambodia, but the country had not been able to attract many FDIs.  Enhancing the country’s productive capacity was a key factor in that respect.  Regional arrangements could help to reduce transaction costs and create stable markets.  Protectionism should not extend beyond an industry’s infancy stage.  Businesses, large and small, could benefit from market, trade and investment deregulation and liberalization.  Management skills needed to be developed.  An effective government/private sector dialogue was also needed to strengthen investments. 

Heidemarie Wieczorek-Zeul, Federal Minister for Economic Cooperation and Development of Germany, said it was evident that increased investment was a key element of accelerated growth, development and poverty-reduction strategies.  The international community must protect the world from the ongoing divisions of rich and poor.  That thrust must become the integral focus of the global community. Also, behaviour must change across the board -- the behaviour of donors, LDCs, the international community, and international organizations.

She said a German development programme in support of the initiative to halve world poverty by 2015 emphasized the fact that an environment that was conducive to private sector investment was the key to growth-induced poverty reduction.  The German Government was offering two deliverables:  support for the special training of women to help them establish women’s enterprises; and support for national investment promotion agencies.  She pointed out that the concept of development cooperation based on private/public sector partnership was an integral part of German development mobilization.

The task of reducing poverty was so huge that there had to be cooperation between the private sector and official development aid organizations, she said. Her Government was active, with 500 enterprises in 41 countries.  This Conference should send out signals for greater social justice, particularly in the area of trade policy.  Also, the European Union should reform agricultural policies, eliminating protectionism and achieving greater development policy coherence.

Importance of National Enterprise Development

ALAN KYEREMATEN, Director, Enterprise Africa, Ghana, said that he represented a small- and medium-business encouragement programme supported by UNCTAD and the United Nations Development Programme (UNDP).  The problem in the LDCs was the absence of a medium-scale enterprise sector, with little interaction between major companies and small-scale businesses.  Enterprise Africa aimed to address that problem.  The business development centre was providing a package of services, including entrepreneurship training, management advisory services, business plan preparation, access to credit, subcontracting and export development.

He said, in order to provide such services, one needed a clear focus on the target groups, selectivity, a one-stop business support concept, and a network of local consultants.  Business sustainability should become a priority.  A critical mass of successful entrepreneurs could make a significant contribution to the situation in the country, but there were issues of resource availability and recovering the cost of services provided.  So far, interventions in 11 countries had been prepared by the programme, and measures were being planned for others.

Sonia Pasqua, General Manager, Pasqua Giuseppe Pvt. Ltd. Company, Ethiopia, said in 1992 she and her brother took over her father’s steelwork company.  Around that time, even though the Government had just started to improve macroeconomic policies, the demand for her product was low.  She decided to introduce aluminium-building products and diversified into other types of structural material.  The invested capital of the company increased to $1 million, with 105 employees.  The company also moved from single ownership to a private limited company. 

She said the UNDP Enterprise Ethiopia Programme gave her entrepreneurial training that helped her to organize her company in more businesslike way.  The Programme also provided her with training in financial management.  She had also created the Ethiopian Women Exporters Forum, which now had 35 members.

HANNS-EBERHARD SCHLEYER, Secretary-General, German Confederation of Small Business and Skilled Crafts, and Chairperson of the Advisory Board of the German Investment and Development Corporation (DEG), said that he wanted to address the role of business organizations in the public/private sector dialogue.  Lately, there was greater reliance on market forces and growing recognition of the need for more small business involvement.  Small- and medium-sized enterprise accounted for 46 per cent of all investments and created 69 per cent of jobs in his country. 

The Government and businesses were working in close cooperation, he continued, and chambers and trade associations played a major role in that respect.  They provided many services, ranging from training to legal matters.  Employers’ organizations negotiated working conditions with trade unions.  Activities formerly exclusively within the government domain were being delegated to business associations.  Partnership projects at the international level were also being carried out, aiming at the promotion of small and medium businesses.  There was a close relation between small and medium business promotion and the promotion of women.

PRADEEP S. MEHTA, Secretary-General, Consumer Unity and Trust Society, India, and commentator, said one challenge was maintaining the growth of small- and medium-sized enterprises in enabling environments.  Another question was figuring out how large enterprises could create backward linkages.

Jabu Ngcobo, General Secretary, Africa Region, International Textile, Garment and Leather Workers Federation, South Africa, and commentator, said skills had to be transferred and more entrepreneurs, particularly those from indigenous areas, needed to be involved.  When one looked at the investments being discussed, one needed to ask whether they were creating jobs.  Also, was a balance being struck between investments and respect for human and workers’ rights?  Unless that happened, poverty would never disappear, he added.

In the interactive dialogue that followed, a speaker said that many United Nations printed and computer-based materials were available to small- and medium-sized businesses, which contained useful information about how to improve their chances.  Also mentioned in the discussion was the need to establish small businesses run by women.  Training should be provided to women, especially to illiterate ones, in LDCs. 

The private and public sectors were two sides of the same coin, another speaker said.  Both needed to ensure sustainable development in the LDCs.  Several speakers also shared information about successful recent initiatives, which addressed the concerns of the private sector in the context of globalization.  For instance, a seminar was held in January in Oslo, and the outcome of that meeting was available to the delegates.  Several programmes were also being implemented to develop entrepreneurship in various parts of the world.

Potential for FDI in LDCs

MARIA LIVANOS CATTAUI, Secretary-General, International Chamber of Commerce (ICC), said work with UNCTAD had shown that, while there was definite potential for FDI in LDCs, it was hidden.  The ICC was committed to working with UNCTAD to produce investment guides for LDCs.  The evaluation of a related project, which had taken place in a number of countries, had been completed by a panel, which recommended its continuation.  The ICC was also interested in building up the productive capacities of LDCs.  She announced the launch of the ICC/UNCTAD Investment Advisory for LDCs.  It was hoped that this would improve the quality of FDI in LDCs.

EARL CAIRNS, Chairperson of Commonwealth Development Corporation, the Commonwealth Business Council and Overseas Development Institute, United Kingdom, said the Corporation was a development finance institution, which invested large amounts in developing countries, including least developed ones.  His Government required the Corporation to introduce private sector capital, and the institution was now in transition into a venture capital operation.  The other institution he represented brought together governments and private sector participants. 

Continuing, he said that it was important to define the respective roles of governments and the business sector, for partnerships without rules were dangerous.  When subsidies sought to interfere with the level of business risk, the whole concept of business development could go astray.  It was important for governments to see that work permits were available when needed skills were not available domestically.  The private sector had a role to play, and governments had a right to expect contributions from it.  There were opportunities for investment in the areas of energy, communications and transport.  Intellectual capital was every bit as important as financial investment. 

François de Laage de Meux, Président du Conseil, Société du Louvre, France, said speeding up development in poorer countries was beneficial to both LDCs and developed countries.  Now was the time for African countries to switch from State control of the economy to economies that relied on private sector involvement.

He asked whether it was legitimate for foreign investors to insist on the majority share in a business venture.  The answer was yes –- initially.  The party that had the most industrial experience should keep the larger share of the venture during the launch period.  The availability of quality local labour, both as workers and as managers, was a matter of concern.  Stepping up FDI also called for determined national efforts to improve the investment climate, as national infrastructures were frequently obsolete.  With the explosion of e-commerce, it was critical for LDCs to be connected with the most advanced information.  If not, they would be exposed to a new kind of exclusion. 

Responding to comments about the need for information, Ms CATTAUI said that one of the tools available was a “global gateway” project developed by the World Bank.  It would be also used by other United Nations agencies to distribute information, which LDCs needed.

FRANS TUMMERS, Chairman of the Federation of Dutch Food Industries; Member of Executive Board, VNO-NCW, Association of Dutch Business Enterprises, shared his company’s experiences in Indonesia and Viet Nam and said that international companies should work on the basis of their own ethical principles, rather the ones imposed from outside.  Transnational companies must demonstrate cultural sensitivity and have their eyes on the long-term horizon.  There should be a give-and-take balance in what they were doing. 

For their part, small- and medium-sized enterprises should seek to upgrade their activities, seeking help from governments and international organizations, he continued.  Job creation, expansion and energetic marketing were among the outcomes of cooperation between large and small companies.  His company had many local raw material suppliers and distributors, who employed a large number of people.  Respect lay at the heart of a sound relationship between large and small companies.  While it was realistic to expect that some differences were irreconcilable, good will could overcome many of them.  Transnational companies brought new opportunities to local economies, creating jobs and allowing them to diversify.  They also brought technical know-how and provided training.  With mutual understanding, it was possible to create “win-win” situations and achieve significant progress.

Commentaries

Mr. NGCOBO cautioned against LDCs accepting everything that was dictated to them by investors.

Mr. MEHTA said FDI and infrastructure were as important as any other sector of manufacturing.  One also had to look at increased market access against trade barriers and FDI.

In the following dialogue, a question of complementarity between ODA and FDI was addressed.  It was important to bridge the gap between the private and the public investments, a speaker said.  While increasing private investment in the LDCs, it was necessary to take a critical view of ODA in its current state.  Also, how do we engage the private sector and encourage its members to invest in least developed countries? he asked.  New tools were needed towards that end.  The situation was not desperate, however, for lately there was a huge increase of FDI to the LDCs.

Another speaker presented his country’s experiences in privatization, saying that to acquire much-needed capital, the country was passing on much of its industry to foreigners.  That presented some very serious problems to the authorities, as the local population was showing discontent and resentment.  Such a situation was socially and economically destabilizing.  It was also contradictory, as for several days now delegates had been talking about LDCs owning to their economies.  There was a sluggish growth of the private sector in the LDCs, and that was the sector that needed to receive help from the international community.

Linking the discussion with the debate on debt, a speaker said that converging development strategies should be developed for local businesses, which were needed for achieving real economic independence.  Additional measures needed to be taken to reduce the debt burden, giving priority to national investment instead of promoting foreign investment.  It was necessary to be selective about the kind of exports that received support, shifting the accent to encouraging local capacity.  In the framework of public aid, that would require a lot of change.  Local guarantee mechanisms needed to be created, and additional financial support needed to be provided to local small and medium business. 

Regulatory and Institutional Framework for FDI

FRANCE TADESSE HAILE, General Manager, Ethiopian Investment Authority,   said that good governance resulted in the absence of conflict, the rule of law  and the reduced level of corruption.  It also helped to introduce an attractive environment for foreign investments.  Also, an institutional framework was needed for proper functioning of an FDI system.

He went on to describe his country’s good governance and investment promotion efforts, which included legal and institutional measures and economic reforms.  Among the steps taken by the Government were liberalization measures and tariff reforms.  The economy had been growing at an annual rate of 5 per cent, and inflation had fallen.  Regional arrangements were also being established to promote investments and avoid bureaucratic barriers.  With regard to guarantees to private investment, he said that the Constitution of the country protected private property.

The challenges facing FDI in LDCs included HIV/AIDS, a low level of investment in social areas, poor infrastructure, small market size, image problems and a low level of democratization.  Despite those constrains, many developing countries were taking steps to improve the investment climate.  The international community should provide the LDCs with sufficient assistance to overcome their difficulties and attract foreign capital.

Paul de Meester, President and CEO, Société Belge des Bétons, Belgium, said that in Asia, Latin America and Africa, cooperation between industrialized and developing countries had resulted in quality upgrading.  One aspect to be tackled vis-à-vis projects in the developing world was the return of profits for foreign investors.  He felt 50 per cent should go back, and 50 per cent should stay locally for reinvestment.  Operating in other countries meant acquainting oneself with the culture of the other nation.  Patience was also a required aspect of the multicultural approach.  Yet, when everything was taken into account, the goal was to bring welfare and happiness and bridge the poverty gap.

Commenting on the debate, Ms. CATTAUI said that everybody applauded the concrete nature of the initiatives mentioned this morning.  She supported a beneficial private sector involvement.

In his comments, Mr. NGCOBO stressed the importance of strategic planning and capacity-building.  He also spoke about the role of education, which was an investment in the long-term development of countries.  Capacity-building would be a service not only to the present-day population of the developing countries, but also to the future generations of workers.

Mr. MEHTA commented on the pragmatic nature of statements, adding that there was a need for continued debate.  Mentioned in today’s discussion was the need to promote not only international but also local investment.  Education and health- care projects were a good example of how foreign companies could discharge their social responsibilities and help the poor communities.

In the following dialogue, a speaker gave an example of infrastructure projects that favoured foreign investors over local ones.  Such conditions were detrimental to the development of national economies.  Many companies were also involved in labour cost minimization, which had a negative effect on the vulnerable sectors of population.  There should be accountability and transparency in the functioning of foreign corporations.

As an investment promotion tool, tax exemptions had been introduced in her country, a speaker said, but FDI had not improved either the employment level or the economic situation.  The negative impacts of the tax exemptions were at the expense of the national budgets of LDCs and the achievement of priority objectives. 

Much progress had been made in creating an attractive environment for foreign investment in the LDCs, another speaker said.  To attract additional investments, market intelligence and analysis were important.  It would be also useful to create investment intermediaries.  Development partners must ensure that investment was carried out in a responsible way. 

Also mentioned in the debate were the policy measures addressing land use, immigration and language.  Investments were much more attractive in countries with access to wide regional markets, it was said.  Market-based measures could attract and retain FDI, while, at the same time, alleviating poverty.

In her concluding remarks, Ms. WIECZOREC-ZEUL said that various aspects of the problem should be interlinked, including capacity-building, trade partner participation and regional cooperation.  The general result of the discussion was that investors were looking forward to an enabling environment, which should include the building of infrastructure and a regulatory framework.  Also mentioned was the need to respect human and workers’ rights.  Without respect, liberalization of the economy would not result in benefits for the local economy.  Development of the national private sector was as important as attracting foreign investment, and private-public partnerships should be further pursued to mobilize additional resources for development.

Mr. PRASIDH emphasized the importance of a domestic effort to create an enabling investment environment.  Good governance, transparency and a predictable framework needed to be ensured by national authorities.  There were many opportunities for investment in the LDCs, which were undergoing structural reforms and trying to liberalize their economies.  In the efforts to stop the “race to the bottom” among the LDCs, he proposed launching a campaign under the name “Buy LDC”, encouraging consumers to purchase products from those countries.

In his concluding remarks, RUBENS RICUPERO, Secretary-General of UNCTAD, who is also Secretary-General of the Brussels Conference, said that two points had struck him in the debate:  the need for enterprise development; and the equally central need for foreign investment.  It was important to emphasize the central role of the private sector in market development.  In that respect, he noted that the Conference was not the third but the first of its kind, for it involved all stakeholders in the development process.

He went on to stress the important role of the international investment advisory body, which was being established today.  Enterprise development in the LDCs could be enormously helped by foreign companies, which could set a standard of excellence and bring new technology to the LDCs, uniting a network of suppliers.  A multi-agency technical assistance programme -- involving UNCTAD, the Multilateral Investment Guarantee Agency (MIGA) and the Foreign Investment Advisory Service (FIAS) of the World Bank Group, and the United Nations Industrial Development Organization (UNIDO) -- would include investment policy reviews, investment promotion, investment guides and investment aid and advisory facilities.  Under the initiative, for the first time, the international agencies involved would put to a test their capacity to attract foreign investment to

selected LDCs.  “We have to try something, and not just give good advice”, he said.

In conclusion, he said that today’s session represented a good example of an interactive debate.  It was a combination of efficiency with graciousness and disciplined management.

Signing Ceremony

            Mr. RICUPERO said promoting LDCs meant facilitating their negotiations for bilateral agreements.  It was those agreements that created the necessary framework to allow a certain amount of security of investment.  What was needed was a certain amount of technical assistance to facilitate those negotiations, as they tended to become more complex each time and as investments now included an incredible range of subjects not envisaged in the past.

He said that UNCTAD, with the assistance of the Organisation internationale de la francophonie and Japan, had promoted initiatives, leading to this symbolic moment showing that something could be done.  While he did not wish to claim that what was being offered today was an enormous contribution, it was specific and partial things such as these that would lead to change in the LDC investment climates.

Boutros Boutros-Gali, Secretary-General, Organisation internationale de la francophonie, said that after two decades of international efforts, investment coupled with the activities of public development agencies constituted the main way financial resources could be mobilized to help LDCs.  Yet, major commitments could not be implemented without funds to boost and develop production and trade.  The 22 bilateral investment treaties would protect LDCs in the French-speaking world.

He said the signing ceremony today demonstrated how important the investments were to LDCs in terms of better involvement in world.  A proper balance between trade and development, which was UNCTAD’s mandate, was one of the principle variables that had to be taken into account.  Least developed countries had remained on the sidelines of a procession of worldwide investments over the last decade.  Today’s ceremony was one way in which countries and governments could show their will to open up their nations to foreign investment.

He said while it was not enough to simply open up a county for it to develop, through the treaties socio-economic steps were taken to strengthen future foreign investment and design rules for establishing markets that were fair, balanced and more democratic.  By opening themselves up to the outside world, the French-speaking States would play an active role internationally.

* *** *