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FDI creates few jobs in developing countries

 A new UNCTAD report on the status of foreign direct investment (FDI) in the world´s 48 poorest countries urges a changed approach that would focus such investment on creating jobs, as well as on enhancing those countries´ productive capacities – that is, their abilities to produce wider varieties of goods and more sophisticated goods.

The report is entitled Foreign Direct Investment in Least Developed Countries: Lessons Learned from the Decade 2001-2010 and the Way Forward and notes that while FDI to these nations grew rapidly over the decade to reach an estimated $24 billion in 2010 and their share of global foreign investment flows has effectively doubled to 2%, most in terms of value was dedicated to natural-resource extraction. That sector has tended to create relatively few jobs, the study says.

Foreign direct investment has brought few jobs to developing countries

Such investment also has not tended to “fertilize” LDC economies by leading to greater links between foreign businesses and local firms that can spread know-how and technology and help spur broad-based, long-term economic growth. Although FDI has recently enabled some LDCs to connect with the global value chain in which products are upgraded and reap higher profits, the majority of LDCs remain marginalized from the world economy, the report says.

Among other things, the study recommends the establishment of an “LDC infrastructure development fund” that would improve these countries´ abilities to attract investment by upgrading such factors as electricity supply, roads, railroads and computer or Internet connections. Such a fund would seek to provide “innovative” solutions to infrastructure weaknesses by establishing public-private partnerships between LDCs and foreign investors.

It also calls for an aid-for-productive-capacities programme that would support technical and vocational training, education and entrepreneurship in LDCs. The intent is to provide LDC populations with skills that can attract foreign investment and spur sustainable economic progress.

The report recommends that LDC governments and overseas development partners boost efforts to attract small- and medium-scale international investors – a group that often finds and exploits hidden business opportunities.

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Posted in Development, Foreign Direct Investment

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