The Quest for Investment

The Hong Kong meeting of the Doha Round of trade negotiations has left a palpable sense of frustration in the developing world over the slow pace of agricultural liberalization agreed to by the rich countries. It may thus appear naive and counterproductive to raise the bar and suggest that we need to go beyond trade and move investment to the top of our priority list. Yet can any “development round” worthy of its name ignore this challenge?

It had originally been intended that the Doha Round would address investment, but the developing countries chose to downgrade the issue and concentrate on agriculture instead. This tactic has proven to be a two-edged sword.

In China, Brazil, Malaysia, and Mexico, foreign direct investment (FDI) accounts for 8% to 12% of gross fixed capital formation – without generating debt. Although the least developed countries attract less than 3% of north-south investments, these flows account for more than 3% of their GDP, a level higher than the average for developing countries.

In hopes of stimulating FDI, bilateral agreements have multiplied, but they rarely lead to balanced commitments. Competition among countries to attract investors is intense, and only a few, such as China or India, are able to negotiate on equal terms with the industrialized world. The developing countries, therefore, have an interest in calling for multilateral dialogue on investment conditions in order to obtain certain collective guarantees.