Opportunity to Advance a Development Dimension to Investment Facilitation

The Joint Ministerial Statement on Investment Facilitation for Development adopted on the last day of the 11th World Trade Organization (WTO) Ministerial Conference (for our discussion on the Ministerial click here), signals an opportunity to advance a development dimension to investment facilitation. The Joint Ministerial Statement called for the start of structured discussions with the aim of developing a multilateral framework for facilitating foreign direct investments (FDI).

The 70 WTO Member States that endorsed the Joint Ministerial Statement agreed to begin discussions early in 2018 to develop the elements of the framework to:

  • improve the transparency and predictability of investment measures;
  • streamline and speed up administrative procedures and requirements;
  • enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention; and
  • seek to clarify the framework’s relationship and interaction with existing WTO provisions, with current investment commitments among Members, and with the investment facilitation work of other international organizations.

The overall goal is to create a more “transparent, efficient, and predictable environment” for facilitating cross-border investment. These outlined elements appear to focus on creating a platform that will address the “resource curse” – the high levels of poverty and inequality present in many oil-rich countries and other developing/emerging economies with the “greatest natural resource endowments”.

The underlying assumption is that the framework is needed to provide greater accountability and transparency. We believe this is only a partial solution to the challenges that developing countries face with regards to FDI. These discussions provide an opportunity to advance a development dimension to investment facilitation by also providing rules of engagement to enhance development-oriented and sustainable outcomes for FDI.

FDI & Developing Countries

The majority of developing countries need foreign direct investment to foster economic growth and development. FDI can be a valuable tool to exploit resources and build production facilities while creating jobs and infrastructure in these countries. At the same time, because for the most part this investment is introduced and controlled by private companies, there is a tension that can, and often does, arise between the goals of private international capital and a country’s development needs.

In an earlier post, we discussed the PBS documentary, The Big Men, which tells the story of the discovery of the first commercial oil field in Ghana’s history. As events unfold, the Texan-based venture capitalists who bore all the financial risk butt heads with a newly-elected government whose officials refuse to endorse the initial agreement allocating to the investors the overwhelming majority of the profits. Juxtaposed with these events is the story and images from Nigeria’s Niger Delta where the “resource curse” is plain for all to see. The dire poverty, environmental degradation and the violence in that oil-rich region add poignancy to the position of the Ghanian officials, even as one wonders about their real motives.

For the Texan-based investors (which included a Ghanian who had initially discovered the resource but lacked the capital to fully exploit it) the issue was couched in the language of risk, adequate return on their investment, as well as respect for the initial contract signed with the Ghanian government. For the Ghanians, the issue was discussed in terms of their need to be able to use the resources located on their sovereign land to properly house, feed, and educate the populace.

The events that unfold in Ghana illustrate the tensions that can exist between the goals of private international capital and a country’s development needs. On the one hand, we have the private venture capitalists who invested where no one else would probably have. Ghana was not known for its oil resources. In return, however, they demanded a hefty return on their investment. But, does any government have the right to sell a country’s birthright to these investors? Yet, of what use to the country is the oil, or the diamond, or the gold left unmined?

How does the framework provide an opportunity to advance a development dimension to investment facilitation?

The Framework’s Development Dimension

The Joint Ministerial Statement recognizes the “dynamic links between investment, trade and development”. The Members also agreed that “facilitating greater developing and least-developed Members’ participation in global investment flows should constitute a core objective of the framework”.

To this end, the Members will seek to assess the needs of developing and least developed country Members to implement the multilateral framework so that technical assistance and capacity building support can be made available to address these identified needs. An integral part of the framework will be the right of Members to meet their policy objectives.

The policy objectives of responsible governments include helping their citizens gain access to jobs, decent housing, roads, education and other social services. Rich-oil countries with energy-deprived citizens is an untenable outcome. So are hotels built with foreign capital and by workers who live in shacks across the street.

Rules are needed to provide guidelines to help honest governments and fair-minded investors determine an equitable distribution of profits derived from exploitation of a country’s resources. These rules should provide tools to help countries negotiate fair deals. These rules should provide a pathway towards more development-oriented and sustainable outcomes for FDI.

These rules can and should be incorporated within the elements of the multilateral framework for facilitating foreign direct investments.

(Cross-posted from DevelopTradeLaw blog)

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