Towards a new global agreement to facilitate investment for development

Foreign direct investment (FDI) can play an important role in delivering the 2030 Agenda for Sustainable Development. Investment flows help advance a nation’s development by bringing capital, employment, export opportunities, greater consumer choice, advanced technologies, managerial experience and overall economic growth.

In 2017, 70 economies started a process at the World Trade Organization (WTO) with the goal to develop a new agreement on Investment Facilitation for Development. Three years later, negotiations were launched during the World Economic Forum Annual Meeting 2020 in Davos, with 98 economies supporting the process. As of January 2023, there are over 110 economies that have reached a new draft agreement cutting red tape and making investment easier across all sectors of the economy.

The Forum has helped drive impact by convening an advisory body with the International Trade Centre (ITC) and the German Institute of Development and Sustainability (IDOS) that has provided input from investors, investment promotion officials and experts on investment facilitation measures. The group has shared practical insights on what was needed to increase investment flows and their development benefits in practice.

With this support and that of other international organizations, business and civil society, countries have produced a high-quality agreement that includes commitments, among others, on:

This agreement is needed to unlock pent-up capital, which is available but not reaching the communities and projects that need it. In 2021, sustainable capital surged despite unpredictable markets shaken by the COVID-19 crisis.

The value of sustainability themed investment products increased by 63%, reaching $5.2 trillion in 2021. Yet over 95% of this capital remains in developed markets, demonstrating that more is needed to facilitate sustainable capital flows to emerging markets and developing countries.

At the same time, FDI fell by 35% globally in 2020 – as lockdowns slowed existing investment projects – before bouncing back in 2021. However, Foreign direct investment flows in the second quarter of 2022 were down 31% from the first quarter due to challenges in food, fuel and finance, highlighting the pressing need to scale investment facilitation efforts as a tool to counter these trends.

The Forum has been piloting sustainable investment facilitation in several countries. These projects have informed development of the WTO agreement and shown that public-private collaboration can both identify and help support implementation of measures needed to facilitate investment for development.

In Cambodia, the Forum, in collaboration with the Council for the Development of Cambodia, created the first domestic supplier database with sustainability dimensions. This tool allows foreign firms to work with local firms that operate sustainably and helps match environment, society and governance (ESG) capital to ESG investments. At the same time, the database incentivizes other domestic firms to shift to sustainable operations to attract and qualify for these funds. The country also adopted in late 2021 a new investment law, which includes the use of smart incentives for investments linked to development goals. Supplier databases are part of the new WTO agreement.

In Ghana, the Forum, together with the Ghana Investment Promotion Centre, is working with investors to adopt sustainable investment standards. Through tax legislation, Ghana also created a new category of recognized sustainable investor, or investors that make a commitment to follow principles of responsible business conduct and invest sustainably. These investors are then eligible to receive additional support, including shorter timeframes for approvals, a “green channel” for imports and exports, or “red carpet” treatment for aftercare. Responsible business conduct and transparency on incentives are part of the new WTO agreement.

In Kenya, the Forum partnered with the Kenya Investment Authority to showcase and measure sustainable businesses. Leading organizations from both the public and private sectors are working together to create two new mechanisms to grow sustainable investments. These are:

Cooperation on investment facilitation and monitoring of implementation are part of the new WTO agreement, expected to be finalized soon.

Building on this country-level work, the Forum, together with partners, also organized virtual, high-level roundtables for the Caribbean, Latin America, Asia Pacific, Africa and Middle East and North Africa to build awareness, facilitate input, and grow support for the new WTO agreement on Investment Facilitation for Development.

Additionally, the Forum supported the development of the new agreement by hosting public webinars, together with the ITC, IDOS, and World Association of Investment Promotion Agencies (WAIPA). These sessions helped inform various stakeholders on the potential benefits of the new agreement, with specific information, for example, on:

Through deep collaboration with others, the Forum also helped launch the World Investment for Development Alliance at the World Economic Forum Annual Meeting 2022 in Davos as a mechanism to grow cooperation on investment.

WIDA brings together 11 leading organizations to formally collaborate on investment for the first time, including through coordinating disparate investment facilitation efforts to improve development assistance effectiveness and technical assistance efforts.

The Centre for Regions, Trade and Geopolitics works to modernize international rules, national policies and business processes, with the aim of delivering more sustainable investment and trade flows globally, in a rules-based system for the benefit of all. Companies and economic state agencies are invited to join the platform as partners, contribute their resources and expertise to projects and get engaged.

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