FDI in landlocked developing countries at a glance

Thirty countries are currently designated by the United Nations as landlocked developing countries (LLDCs), and the Millennium Declaration called for a global partnership to address the special needs of these countries. This study focuses on foreign direct investment (FDI) in LLDCs, with a view to examining the unique challenges and opportunities that their particular geographic position raises as hosts for FDI.

The paper demonstrates that:

• for purposes of formulating policy on FDI, the approach of LLDCs cannot be the same as that of other LDCs or other developing countries
• indeed, geography certainly imposes constraints on the type of FDI that countries are likely to attract, but it need not result in a failure to attract FDI
• rather, the unique geographic position of LLDCs should be used as a stimulus for the development of compensating mechanisms

Conclusions are that:

• geographical considerations should be explicitly acknowledged in the policy agenda relating to FDI in LLDCs
• investment policies that target specific types of FDI, coupled with policies aimed at strengthening human-resource advantages and ICT infrastructure can partially offset the adverse effects of geography
• yet, the development of adequate land-transport infrastructure is not necessarily the optimal way to address LLDCs geographical difficulties in terms of attracting FDI
• in fact, a promising approach could be to overcome the geographical disadvantage by encouraging the development of industries and skills that are not sensitive to distance and transport costs
• similarly, facilitating regional integration that reduces the need for long-distance transport could be a fruitful strategy
• moreover, investing heavily in further development of existing industries (e.g. tourism) can be also a useful alternative