São Paulo 15 June 2004

Concerted efforts should be made to extract more benefits from foreign direct investment (FDI) and not simply endeavour to attract more and more of it. This was the broad consensus that emerged out of the high-level interactive thematic session “Leveraging Foreign Direct Investment for Export Competitiveness” at UNCTAD XI. The session included eminent panellists representing international and national business chambers, inter-governmental organisations, and academia.

In his brief appearance during the session, UNCTAD Secretary-General Rubens Ricupero emphasised that FDI can be a powerful contributor to the economic development of any economy subject to making its best use in employment generation and export promotion. “The quality of domestic policies does play an important role in attracting FDI,” he said.

FDI provides the missing elements of export competitiveness. Export-oriented FDI brings benefits but cannot substitute domestic capital formation. FDI, however, has remained a scarce resource for the majority of countries. So far, besides developed nations, only large developing countries with big domestic markets and countries having rich reservoir of natural resources have been able to attract a major share of global investment.

Issues relating to business process outsourcing (BPO) were also discussed. Amit Mitra, one of the panellists and Secretary-General of Federation of Indian Chambers of Commerce and Industry (FICCI) said that BPO is not a new phenomenon. In the past, developed countries had practiced it extensively among themselves. He quoted from a study done by McKinsey, a US-based consultancy firm, saying that outsourcing of jobs brings gains for both parties, resulting in a win-win situation.

The renowned development economist Prof. Sanjay Lall from Oxford University emphasised that one does not need to be defensive on outsourcing. The next wave of FDI will create massive employment opportunities and nothing in the world can stop outsourcing except the misguided policy on the part of developed countries.

He strongly underlined the need of building domestic capacity, as without a strong domestic industrial base and institutions, it is often very difficult to attract quality FDI and to reap benefits out of it. FDI should be looked at in the broader context of industrial policy of an economy. Reacting to a submission by a Ugandan delegate, who said that his country did everything what the ‘doctors’ advised to attract FDI but without much success, Prof. Lall suggested that the AGOA (African Growth and Opportunity Act of the US) like initiatives should be further extended. Equally important is to relax the rules of the game such as WTO agreements, which are hampering the domestic industrialisation process of several African countries.

In his intervention, the Secretary-General of CUTS International, Pradeep Mehta, shared the findings of the multi-country “Investment for Development” project carried out by CUTS in seven developing countries. The study came out with three critical factors, which stand in the way of harnessing fruits from FDI. They are: lack of market openness, poor marketing network, and inequality in the international trading system.

On the third day of UNCTAD XI, another panel discussion titled “Commodities, Poverty Alleviation and Sustainable Development” reviewed the trends, prospects and actionable measures regarding the commodities markets. It attracted representatives and experts of governments, inter-governmental organisations, the private sector, producer groups and NGOs. UNCTAD Secretary-General Rubens Ricupero and one of the Deputy Director-Generals of the WTO Francisco Thompson-Flores attended this meeting.

In his speech, Ricupero said that there is nothing wrong in being a commodity producer and exporter. The problem is not of being a producer but over-dependent on one commodity or two without diversification, especially when prices are extremely volatile. He suggested that the road ahead is diversification. He said that there is no ready recipe to address the problem of commodity-price volatility. He called for a partnership approach to address this issue.

Earlier in the day, Brazilian President Luiz Inàcio Lula da Silva took part in a debate organised by the Civil Society Forum, an event being organised simultaneously with the UNCTAD Conference. The debate revolved around how to guarantee fairer and more humanitarian international policies.

According to him, Brazil is making important progress in the search of a more balanced international policy. He emphasised alliance building and said: “In order to have better trading conditions with rich countries, we have to create a united block. This is the way we will be heard and will be able to change political foundations”.

UNCTAD also released a report titled “Competition, Competitiveness and Development: Lessons from Developing Countries” in another event. It carried papers, with many quotes from CUTS’ work on competition policy, in particular the 7-Up, which was a comparative analyses of competition regimes of seven developing countries of the Commonwealth.