UN World Investment Report 2010 - Office of Trade Negotiations

CHAPTER II Regional Trends in FDI 65
The 31 landlocked developing countries
(LLDCs) 44 have not been attractive
destinations for FDI inflows, as their
economic performance continues to
be hampered by inherent geographical
disadvantages compounded by poor
infrastructure, inefficient logistics systems and
weak institutions (section b). Nevertheless,
economic reforms, investment liberalization
and favourable global economic conditions
over the past few years had translated into
a steady and significant increase in FDI
inflows during 2000–2008, interrupted only
once, in 2005 (fig. A). Although FDI flows
to LLDCs declined by 17 per cent to $22
billion in 2009 (table B), this contraction
was less pronounced than that in the world
as a whole, pushing the LLDCs’ share of
global FDI inflows to 2 per cent, from 1.5
per cent in 2008.
The majority of inward investments in
2009 were greenfield projects (326), while
the contribution of cross-border M&As
remained limited (table D). Given the lack
of diversification of productive capacities,
FDI inflows have remained concentrated in
the primary sector in spite of the financial
crisis and lower commodity prices. However,
FDI in other industries, in particular
telecommunications, has recently been rising
in African LLDCs. 45
The geographic distribution of FDI remains
uneven. Investment has been heavily concentrated
in a few resource-rich transition
economies (Kazakhstan alone accounted for
58 per cent of the total in 2009), while 15
African LLDCs only received $4 billion.
Developing-country TNCs – mainly from
Asia, but also Africa – were the main sources
of FDI in the LLDCs in 2009. China has
intensified its investment in the LLDCs,
especially in resource-rich countries such
as Afghanistan (mainly metals), Kazakhstan
(mainly oil), 46 Turkmenistan (mainly gas)
and Zambia (mainly copper). South Africa
invests in neighbouring LLDCs.
Prospects for FDI inflows to LLDCs suggest
a slow recovery. Inward FDI is expected to
increase especially in resource-rich countries
due to the rebound in commodity prices and
improving economic and financial conditions.
For example, FDI inflows to Kazakhstan in
the first quarter of 2010 reached $3 billion
or 16 per cent higher than the same period
in 2009. Firms from developing and transition
economies will continue their search
for natural resources.
b. Overcoming barriers to FDI
in LLDCs
LLDCs perform poor- For LLDCs to
ly as FDI destinations. succeed in attracting
Judging by FDI flow FDI they must shift
and stock data, their their strategic focus
poor performance from distance to
seems connected to
markets.
their lack of territorial
access to the sea, remoteness and isolation, in
addition to a low level of income (UNCTAD,
2003). Studies have highlighted the key role
that geography plays in economic development
and growth in general (MacKellar et
al., 2002; and Hausmann, 2001). Yet the
impact of geography should not be exaggerated
when considering options for FDI
policy making, and alternatives other than
securing access to sea ports offer promising
avenues for development.
The curse of geography? To a certain degree,
the geographic position of LLDCs
constrains their ability to expand their
economies through trade and to take part
in the international production systems of
TNCs. Access to the sea is critical because
land transport costs are much higher than
those of shipping by sea. Shipping is also
particularly suitable for the bulky, low value
added goods in which most economic activity
of LLDCs is concentrated. High transport
costs, particularly so during periods of high
oil prices, often render the shipping of such
goods to more distant locations entirely
unprofitable.