Commission on Investment, Technology and Related Financial Issues

GROUP OF 77
GENEVA

STATEMENT OF H.E. MR. DELMER URBIZO, AMBASSADOR AND PERMANENT REPRESENTATIVE OF HONDURAS, CHAIRMAN OF THE G-77 AND CHINA, AT THE COMMISSION ON INVESTMENT, TECHNOLOGY AND RELATED FINANCIAL ISSUES, 11TH SESSION (Geneva, 8-14 March 2007)

Item 3: Policy Issues Related to Investment and Development

Global foreign direct investment (FDI) flows continued to grew substantially in 2005 and 2006. According to UNCTAD's recent estimates, FDI flows to developing countries rose by 10 per cent in 2006, to an estimated $368 billion in total. Of this, Africa’s share saw a further significant increase in 2006 to reach $38 billion. Meanwhile, inbound FDI to the Asia-Pacific region in 2006 was an estimated $230 billion, a 15 per cent increase. FDI inflows to Latin America and the Caribbean remained stable in 2006 about $ 100 billion. Developing countries’ share of global FDI inflows is estimated to have been 30% in 2006, down from 35% in 2005.
A particularly important and salient trend in FDI, as highlighted in the World Investment Report 2006 prepared by the secretariat, is the increasing role developing countries play as sources of FDI. Over the past decade and half, TNCs from a growing number of developing countries have emerged as significant players in the world stage, resulting in a rise in South-South FDI flows. Their foreign expansion is motivated by factors similar to those that motivate FDI by developed country, even if the combination of these factors and drivers differ by region and country.
It is worth noting, as does the Report, that firms from developing countries invest predominantly in other developing countries, and that for a number of them, especially LDCs, investment from developing countries accounts for a sizable amount of total FDI flows. FDI from the South mean additional sources of finance that can be tapped for development purposes. At the same time, the expansion of such FDI gives rise to questions concerning the potential development impact on the home and host economies involved. There is a need to further explore the development impact of this recent phenomenon. More analytical research is needed. It would also be helpful for developing countries to exchange their experience in this matter to help them get maximum benefit from this new source of FDI. The Group of 77 encourages UNCTAD to facilitate such exchanges through the organization of forums or seminars and to continue its analysis of FDI form developing countries and of its role in strengthening South-South cooperation. In this respect, the forthcoming publication on Asian FDI in Africa is very useful and we wish UNCTAD to consider studies on other regions.
Extractive industries are of utmost importance for many developing economies (where they account for a sizable share of export revenues for instance). At a time of high prices and rising interest from investors- especially TNCs – for oil, gas and many mining commodities, it is particularly timely to examine the role of FDI and TNCs activities in extractive industries and their impact on development. The Group of 77 and China welcomes the fact that UNCTAD intends to investigate this issue in the next World Investment Report. For this purpose, UNCTAD's forum to discuss the drafts at the regional level prior to publication is in that respect very useful. The Group also encourages UNCTAD to disseminate as much as possible the findings of the Report, including through regional seminars involving policy makers, to contribute to policy formulation and capacity building in developing countries.
UNCTAD has repeatedly stressed in its flagship publication, World Investment Report, that policy matters not only for attracting FDI, but also for benefiting from it. Efficient policy making has to be based on correct and timely data. Inappropriate, insufficient and inaccurate data can lead to deficient policies. The work of the Commission and the analytical work of UNCTAD rely heavily on the quality of FDI data collected by governments. Although progress has been made in this respect during past years, the situation is still far from perfect. Data reported by countries often differ in terms of coverage, detail and even the definitions of FDI used. In many cases, sectoral or geographical breakdown is not available. As a result, the comparability of FDI statistics across countries and regions, and the quality of analyses of FDI issues, based on these data, may be limited. Therefore, the Group of 77 and China, recognizing the importance of collecting comprehensive and comparable FDI statistics, request UNCTAD to enhance its assistance to developing countries and regions, particularly least developed countries, to help them improve their FDI data collection and reporting systems. We wish to remind the Secretariat of the agreed conclusion of the last year's commission in the area of FDI statistics.

Item 4: Issues Related to International Arrangements

Almost 50 years have passed since the first bilateral investment agreement was signed. Many things have happened since then. From rather simplistic, easy-to-understand agreements, IIAs have gradually become more complicated, and we see no end to this process. We do not complain about this development, because we continue to believe that IIAs can be a useful instrument to promote foreign investment that can significantly contribute to growth and development. We recognize that the greater sophistication and the broader scope of some recent IIAs give us more options to design them in a way that furthers our own development goals. In fact, it is encouraging to note in this regard that recent model investment agreements of some developed countries have begun to pay more attention to safeguarding related public interests -- in light of the experience of these developed countries as host countries to FDI. At the same time, the fast pace and increasing complexity of IIAs pose challenges related to the consistency and coherence of our IIA networks.
Of course, one cannot expect that all IIAs that a developing country has concluded include identical provisions. An agreement is the result of negotiations, and the interests, dynamics and bargaining powers shaping its content are different in each case. However – and this is something that needs to be stressed – the risk of an inconsistent IIA network is much higher for developing countries than for developed countries. One only has to take a brief look into the IIAs of developing countries to see this confirmed. Agreements concluded by one and the same country often differ considerably concerning core issues, such as whether they include liberalization obligations, whether they provide for national treatment, or whether they allow investor-State dispute settlement. And as a result of the more recent developments just mentioned, there is a real risk that these inconsistencies spread even further to issues, such as the degree of precision of key obligations and the use of exception clauses.
A related concern in this connection has to do with the potential financial consequences of maintaining an inconsistent and often non-transparent IIA network. This means that developing countries run an increased risk of violating at least some of their IIAs when adopting new legislation or amend existing one. Because of the great diversity of existing IIAs, they can never be really sure that their laws and regulations are in conformity with all of them. And since developing countries are in need to fill up gaps in their domestic legislation and to modernize it, there are more occasions where a conflict with IIA obligations might arise. As the statistics show, investment disputes are constantly on the rise and they can be a serious financial burden for many developing countries.
The increasing complexity of the IIA network and the difficulties to properly manage it threaten to undermine – sooner or later – the stability and credibility of the entire investment system. If developing countries become unable to fully understand the content and implications of IIAs and the interaction between them, they will hesitate to enter into more complex or broader agreements. As a result, many of them risk of being even more marginalized and left behind in the integration of the global economy.
What can be done to prevent this from happening? We appreciate the capacity building efforts of the UNCTAD Secretariat that help us considerably to better understand IIA-related issues, to keep track of new developments, and to assist us in treaty making and in managing investment disputes. We call upon the Secretariat to continue with its activities and to have a special look at whether there are possibilities to streamline the existing IIA patchwork and how to address the systemic issue of policy coherence. In this context, we have read with great interest the suggestion in the Secretariat's Note to establish an UNCTAD Standing Expert Group on International Investment Agreements and Development. We welcome this proposal, which reflects the Agreed Conclusions of the Mid-Term Review that called for consideration of such bodies as a new element to UNCTAD’s intergovernmental method of work, because we see a need to go beyond the current level of assistance provided to us. Notwithstanding the undisputable value of the Secretariat's activities, we really lack a discussion forum where investment experts meet from time to time to exchange views on IIA-related issues and to try to advance international consensus building on IIAs and development.

Item 5: Investment Policy Reviews

Group 77 appreciates UNCTAD’s work on investment policy reviews to help developing countries improve their framework and enabling environment for investment. Notes that 20 IPRs have been carried out.
Group 77 welcomes the opportunities that the review process provides for the participatory approach which helps to enhance policy dialogue.
Appreciates the high level participation by governments. Honoured that that the Prime Minister of Morocco, H.E. Mr. Driss Jettou, and H.E.. Mr. Kenneth Konga, Minister for Trade and Industry of Zambia will familiarize participants with their countries investment policies.
Welcomes also a second report on the implementation of the investment policy reviews. The implementation report on Uganda at this Commission is the second following from the first for Egypt in 2005. Honoured that Ms. Maggie Kigozi, the Executive Director of the Uganda Investment Authority who takes a lead in promoting investment into Uganda will share with us the Government's efforts in implementing the recommendations of the IPR of Uganda.
Group 77 supports the work on Investment Policy Reviews which are undertaken at the national level and tailored to individual country's needs in line with their stated development goals. Recognizes that in an increasing liberalized environment, effective policies on investments are important to successfully attract FDI. FDI can help to propel economic growth, generate employment, expand export capacity and enhance domestic capabilities.
The objective evaluation of the legal and regulatory framework on investment,as benchmarked against competitors is a useful measure for countries to know where their investment promotion efforts stand. IPRs also provide the strategic perspective and policy recommendations for developing countries to attract quality FDI which will contribute to sustainable economic and human development. It aims at fine tuning national policies to maximizing the positive impact of FDI.
Attaches great importance to the IPR review process, especially dialogue among stakeholders at the national level, and exchange of country experiences in FDI attraction at the international level.
Recommend the Secretariat to continue the preparation of IPRs and to undertake more IPRs for countries. There are still many countries' requests which are in the pipeline because funding is not available.
Group 77 would like to underline that to create impact for the countries, follow up technical assistance to countries to implement the recommendations of the IPRs is vital. Many countries do not have the capacity to implement the recommendations by themselves, even if the political commitment for reforms is present. Group 77 therefore calls on UNCTAD to further strengthen its follow-up initiatives to IPRs and for donor countries to provide financial support for follow-up technical assistance.

Item 6: ISAR

ISAR work on corporate governance culminated in 2006 with the publication of its "Guidance on Good Practices in Corporate Governance Disclosure". This guidance document also serves as the basis for ISAR's annual surveys of corporate governance disclosure. During its 23rd session, ISAR's deliberations on this subject featured a panel experts, including a representative of the Egyptian Institute of Directors (EIoD), a representative from NEPAD (the APRM Coordinator for Corporate Governance), and a representative of the China Life Insurance company (one of the largest institutional shareholders in China). Interviews with the EIoD and NEPAD representatives were featured on the ISAR Video Overview, which is available on the UNCTAD website. (www.unctad.org/isar)
ISAR's work on corporate responsibility reporting resulted in a draft guidance on corporate responsibility reporting in annual reports. This work emphasizes the development dimension of corporate responsibility and calls for nationally consolidated reports (as opposed to globally consolidated reports) in order to improve transparency for government regulators, investors, civil society groups and other stakeholders. The draft guidance has also served as a basis for surveys of global corporate responsibility reporting practices. During its 23rd session, ISAR's deliberations on this subject featured a panel experts, including a representative from the Responsible Business Initiative of Pakistan, and a representative from the PKS Foundation of Bangladesh.
The twenty-third session of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) reviewed country case studies of practical implementation issues of International Financial Reporting Standards (IFRS). These included Brazil, India, Jamaica and Kenya.
At the end of September 2006, the UNCTAD secretariat co-organized an Africa-wide learning event that brought together over 200 participants from close to 40 African countries. The event contributed by raising awareness of the accountancy profession for the economic development of Africa.
Our Group would like to recall that during the Expert Group Meeting on Building Productive Capacities, experts stressed that the Aid for Trade initiative should seek to integrate the investment important component. It should embrace policies promoting technology transfer, enterprise development and the consolidation of productive chains.