The Struggle for Investment: How Landlocked Developing Countries Navigate Economic Challenges

This article, based on the UNCTAD Investment Policy Monitor Report titled “Investment Policy Trends in Landlocked Developing Countries since the Vienna Programme of Action,” explores the investment landscape in Landlocked Developing Countries (LLDCs) from 2014 to 2024. It highlights how policy shifts aimed at attracting foreign investments have had mixed success, with many countries still struggling to sustain FDI. Despite progress in public-private partnerships and regional integration, overall FDI inflows have decreased by 2% annually, and investments remain concentrated in a few countries. The article recommends enhancing investment strategies, promoting quality investments, and strengthening regional integration to address the challenges.

Landlocked developing countries (LLDCs) face unique hurdles in attracting foreign investments due to their geographic constraints, remoteness, and limited access to global markets. To tackle these issues, the Vienna Programme of Action (VPoA) was implemented for the decade 2014-2024, focusing on six key priorities to enhance sustainable development in these countries. The UNCTAD Investment Policy Monitor’s Report, titled “Investment Policy Trends in Landlocked Developing Countries since the Vienna Programme of Action”, evaluates how these nations have aligned their investment policies with the goals of the VPoA over the past ten years.

Policy Shifts to Encourage Foreign Direct Investment (FDI)

Since the launch of the VPoA, LLDCs have made significant policy adjustments to draw more foreign direct investments (FDI). The report highlights that 135 policy measures were introduced across these nations, with nearly 90% aimed at making investment climates more favorable. These policy efforts have primarily revolved around three core priorities:

Infrastructure Development (Priority 2): About a third of the policy measures targeted infrastructure improvements, focusing on privatizing state-owned assets, implementing public-private partnerships (PPPs), and offering attractive tax incentives. Such initiatives were designed to draw FDI into vital sectors such as transport, energy, and communications.

Regional Integration (Priority 4): To bolster connectivity and economic cooperation, LLDCs signed 100 new International Investment Agreements (IIAs) over the decade, including prominent regional initiatives like the African Continental Free Trade Area and the Eurasian Economic Union. These agreements aimed to harmonize investment frameworks and promote smoother trade and investment flows across borders.

Economic Diversification (Priority 5): Nearly 44% of the policy measures focused on broadening the range of FDI beyond traditional extractive industries to more diverse sectors such as services, technology, and tourism. This was achieved through special economic zones (SEZs) and various financial incentives to attract investments in higher-value industries.

Outcomes: Promising but Uneven Progress

Despite these ambitious policy measures, the investment climate in LLDCs remains challenging. According to the report, total FDI inflows have decreased by an average of 2% annually since 2014. Several factors, including global geopolitical tensions and the COVID-19 pandemic, have further exacerbated the situation. As a result, the share of FDI directed toward LLDCs fell from 4.3% in 2014 to just 2.8% in 2023.

FDI also remains highly concentrated in just five LLDCs—Kazakhstan, Ethiopia, Turkmenistan, Uzbekistan, and Uganda—which together account for almost 60% of total FDI inflows to these countries. This concentration indicates that smaller and less economically dynamic LLDCs are struggling to attract significant investment, leaving them vulnerable to economic stagnation.

However, some bright spots exist. Public-private partnerships (PPPs) have seen substantial growth, particularly in the power and transport sectors, with the number of PPP projects rising by nearly 40% compared to the previous decade. Additionally, greenfield projects—a key indicator of economic diversification—show a positive trend in sectors like renewable energy and infrastructure services.

Addressing the Gaps: Recommendations for Future Growth

The upcoming Third United Nations Conference on LLDCs in late 2024 presents a critical opportunity to revisit and strengthen the strategies under the VPoA. As the report suggests, LLDCs must focus on creating a more robust and transparent investment climate, exploring innovative financing mechanisms, and leveraging new regional agreements to attract high-quality, sustainable investments.

Adapting Investment Strategies: LLDCs need to recalibrate their FDI strategies to better align with the rapidly changing global investment landscape, marked by shifting geopolitical alliances, technological advancements, and sustainability priorities.

Promoting Quality Investments: Efforts should be geared toward investments that foster long-term growth, enhance productive capacities, and promote technology transfer, rather than just short-term capital inflows.

Expanding Support from International Partners: The international community must step up support, particularly in terms of capacity-building and providing de-risking instruments like investment guarantees, to make these countries more attractive to foreign investors.

Leveraging Regional Integration: The expansion of regional trade and investment frameworks can play a pivotal role in connecting LLDCs to larger markets and reducing trade costs, thereby enhancing their global competitiveness.

A Roadmap for the Future

The UNCTAD report underscores that while LLDCs have made progress in aligning their policies with the Vienna Programme of Action, significant challenges remain in achieving the level of foreign investment needed for sustainable growth. The path forward requires not only strategic policy shifts by LLDCs but also a concerted effort from the global community to support these countries in overcoming their inherent disadvantages. As the decade-long VPoA comes to a close, the upcoming UN conference will be a defining moment in setting the trajectory for LLDCs’ investment policies for the years ahead.