Investment Facilitation for Sustainable Development
The implementation of the Sustainable Development Goals requires enormous investments across the globe, particularly in developing countries. Investment Facilitation may help host countries to attract more Foreign Direct Investment and enhance its contribution to sustainable development. Recently, the WTO has launched Structured Discussions on a - potentially multilateral - Investment Facilitation Agreement (IFA). We aim to quantify countries' current level of practice and the impact of an IFA by conceptualizing an Investment Facilitation Index.
Edward J. Balistreri
Federal Ministry for Economic Cooperation and Development (BMZ)
2018 - 2020 / completed
Global investment needs are enormous. In developing countries alone, the implementation of the Sustainable Development Goals (SDGs) requires $4 trillion of investments per year (UNCTAD, 2014). Local governments may not have the public resources to finance the investments necessary in areas such as infrastructure, health, and education. There is growing recognition that the private sector is needed to help fill this investment gap. Investment facilitation may help host countries to attract more FDI and enhance its contribution to sustainable development. It refers to actions to make legal and administrative rules and procedures more transparent, predictable and efficient.
For the past 60 years, International Investment Agreements (IIAs), predominantly in the form of Bilateral Investment Treaties (BITs), have been the backbone of the international investment regime providing rules on market access and investment protection backed up by investor-state dispute settlement. These instruments form the “hardware” of the international investment regime. IIAs are frequently seen as unbalanced, as they impose binding and enforceable rules on host states while demanding little to no responsibilities from foreign investors.
Investment facilitation, on the other hand, can be described as the “software” that makes FDI flow more smoothly. It covers a wide range of areas, all with the ultimate focus on allowing investments to flow efficiently and for the greatest benefit of host countries. At the same time, many observers emphasise that investment facilitation does not cover the core issues of IIAs such as market access, investor protection or investor-state dispute settlement.
After the successful adoption of the Trade Facilitation Agreement by the WTO, investment facilitation has been gaining in popularity in recent years. The idea of an Investment Facilitation Agreement (IFA) was first proposed by a group of experts in 2015. Since then, it has been pursued in the G20, discussed among members of the World Trade Organization (WTO), and finally been endorsed in the Joint Ministerial Statement on Investment Facilitation for Development at the Ministerial Conference of the WTO in Buenos Aires (December 2017). The Statement called for the start of “structured discussions with the aim of developing a multilateral framework on investment facilitation”. Subsequently, at the beginning of 2018, Brazil circulated a draft text for a possible WTO agreement, the “Model Agreement”. The notable feature of the recent discussions on investment facilitation in the WTO is that they are driven mainly by developing and emerging countries.
Given very little research on investment facilitation in general and no empirical attempts to quantify the current level of practice, the project aims to address three important research gaps:
- Conceptualising investment facilitation: Discussions on investment facilitation are still in an early stage and different stakeholders have put forward different definitions about which measures investment facilitation should entail.
- Measuring impact: To the best of our knowledge, there exists no empirical research quantifying the impact of such a possible IFA on countries’ investment regimes and economic development.
- Sustainability orientation: the proponents of an international agreement on investment facilitation expect that such an agreement would lead to higher FDI flows. In light of the Agenda 2030 on Sustainable Development, this focus is necessary but not sufficient: it is also important to focus on the qualitative contribution of FDI to sustainable development.
This project aims at generating research findings and policy advise for the stakeholders involved in rules-making on investment facilitation (mainly in the context of the WTO’s structured discussions). By conceptualising policy areas, quantifying the impact of a potential IFA and by suggesting reforms in light of sustainable development we contribute to the DIE Project “Fair Globalisation”.
Under the umbrella of this project, we develop an Investment Facilitation Index (IFI) which will contribute to the conceptualisation of investment facilitation and provide the relevant data in order to measure the impact of an IFA. Based on academic research with appropriately developed methodology and data, we will inform policy makers about potential changes in the national regulatory framework and the economic impact of a potential IFA. In addition, our results provide a basis for governments to prioritise investment facilitation actions and mobilise technical assistance as well as capacity-building efforts for developing countries in a more targeted way.
Furthermore, this project aims at better conceptualising the contribution of investment facilitation to sustainable development. What are the necessary reforms on the international level (e.g. rule-making in the WTO) and what kind of support measures are needed for developing and least developed countries?
What’s next for the investment facilitation agenda?
Berger, Axel (2018)
published on Columbia Center on Sustainable Investment (Columbia FDI Perspectives: Perspectives on topical foreign direct investment 224)
Moving the G20’s investment agenda forward
Berger, Axel / Karl P. Sauvant / Silvia Karina Fiezzoni / Rodrigo Polanco / Matthew Stephenson / Akihiko Tamura / Pavel Trunin (2018)
published on T20 Argentina 2018