Case for a Multilateral Investment Agreement?

Despite the importance of FDI, its governance is fragmented and is found in multilateral agreements, RTAs and in BITs. There is however no single, comprehensive multilateral treaty or institution to oversee investment activity. Previous attempts to bring FDI under multilateral purview have failed. The result is a complex and confusing overlay of disciplines at different levels. To address this issue, a recent study on Investment under the auspices of the World Economic Forum makes a case for multilateral rules on investment and six reasons are stressed. 

First, the rise of Global Value Chains (GVCs) sharpens the need for global and holistic regulations; GVCs need global rules. Second, there is a proven appetite for international investment regulation; nations are “voting with their pens” for more discipline – signing hundreds of BITs and RTAs. But the result lacks coherence in terms of rules and application. Third, the North-South divide is disappearing on the investment-governance issue. Emerging markets’ role in FDI has grown tremendously in recent years –both as home and host nations. Fourth, the stigma that has been historically attached to FDI has sharply abated in recent years. Many countries are pursuing economic liberalization for the recognized benefits it brings. Fifth, and by contrast, the fragile and slow recovery of the world economy has led some countries to adopt protectionist measures against trade and investment. This regression heightens the need for multilateral rules. Sixth, increased FDI by State Owned Enterprises (SOEs) and Sovereign Wealth Funds (SWFs) presents new challenges to ensuring that competition conditions in the global marketplace remain equitable and do not give rise to national security concerns.

The report further argues that if an International Investment Agreement (IIA) is to emerge in the future, the WTO is the logical home for it. The WTO has the potential to yield more equitable outcomes and ensure non-discrimination, and it provides access to a dispute settlement mechanism that has worked well. This IIA may entail provisions in different areas, including the protection of investors, establishing investor-state dispute settlement and subjecting the agreement to the WTO state-state system, and providing post establishment national treatment. Pre-establishment or access provisions on investment are also important, as are notions of corporate social responsibility. In any case, there is a sense that the balance of rights and obligations needs to be revisited.

However another Study by Econstor states that the case for a WTO agreement on investment is weak. Four main reasons are given. 

• The absence of such an agreement has not prevented the recent boom of FDI in developing countries through RTAs, BITs and unilaterally.
• Likewise, substantial unilateral liberalization of FDI regulations was undertaken in the past even though multilateral obligations to do so did not exist. 
• The coverage of protections provided for investors in various BITs (and RTAs) goes beyond what can be expected from the Doha Round. Nevertheless, BITs do not appear to have had a significant impact on FDI flows to signatory countries. 
• It is also questionable whether RTAs such as NAFTA as well as MERCOSUR had a strong and lasting effect on FDI flows to developing member countries. 

The WEF 12 Pillars of Competitiveness

The World Economic Forum  (WEF)  Global Competitiveness Report 2009-2010 ranks Switzerland as the most competitive economy in the World, Tunisia as the most competitive in Africa and South Africa as the most competitive in Sub Saharan Africa. The Report provides benchmarking tools for business leaders and policymakers to identify obstacles to improved competitiveness, thus stimulating discussion on strategies to overcome them.

WEF defines competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country”. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy.  In other words, more-competitive economies tend to be able to produce higher levels of income for their citizens. The productivity levels also determine the rates of return obtained by investments in an economy. Because the rates of return are the fundamental drivers of the growth rates in an economy, a more-competitive economy is one that is likely to grow faster in the medium to long run.

Since the determinants of competitiveness and the wealth of nations are many and complex, the WEF groups these determinants into 12 pillars which contribute to a nations competitiveness. These are:

Factor Driven 

1. Institutions

2. Infrastructure

3. Macroeconomic Stability

4. Health and Primary Education

Efficiency Enhancers

5. Higher Education and Training

6. Goods Market Efficiency

7. Labor Markets Efficiency

8. Financial market sophistication

9. Technological Readiness

10 Market Size

Innovation and Sophistication Factors

11. Business Sophistication

12. Innovation

The 12 pillars as shown above are then used to group economies into the 3 stages of competitive advancement which are: 1).  factor driven basic economies; 2).  efficiency driven economies and 3). innovation driven economies.

According to the Report, most Sub Saharan African countries are factor driven and still in the basic stage of development.  The challenges facing these countries include quality of institutions, infrastructure, macroeconomic stability, health and education.

Botswana, Egypt, Libya and Morocco are in transition from the factor driven stage to that of efficiency driven. 

Meanwhile, the Report finds that efficiency enhancers are Namibia, Mauritius, Tunisia and South Africa and the 4 countries are the most competitive African economies. The challenges facing these economies include Higher Education and Training; Goods Market Efficiency; Labour Market Efficiency; Financial Market Sophistication; Technological Readiness and Market Size.

For country by country analysis, the Africa Competitiveness Report 2009-2010 can be accessed here.

World Economic Forum on Africa: Dar es Salaam, Tanzania 5-7 May 2010

Tanzania will host the 20th World Economic Forum on Africa May 5-7 2010, which will be held for the first time in East Africa.  President Kikwete will host the meeting, which this year explores the theme “Rethinking Africa’s Growth Strategy”. President Kikwete said: “Africa is a continent full of potential; Africa has been growing despite the economic instability that is facing the world today. We will have the opportunity to examine the strategy of Africa for today to ensure that there is a better tomorrow.”  

The World Economic Forum has announced that nearly 1,000 participants from 85 countries will participate in the 20th World Economic Forum on Africa and the Forum’s Seventh Summit of Young Global Leaders will take place on 2-7 May in conjunction with the main event, whereby over 265 Young Global Leaders from over 70 countries representing business, government, civil society, arts and culture, academia, media and social entrepreneurs will participate. One day of the Summit will be devoted to “Learning Journeys”, which will give YGLs the opportunity to work with the Tanzanian government, civil society and private sector organizations on their challenges, innovations and models for social change.

2010 is a special year for both the World Economic Forum, which is celebrating the 20th anniversary of its Africa meeting, and Africa, which is marking 50 years since the start of the independence movement that transformed the continent’s geopolitical landscape.  Discussions will address how African nations are managing relations with key economic partners, with an increasing trend towards greater South-South cooperation. As Africa joins India and China in crossing the billion person mark, its young population, natural resources and market potential are catalysts for significant future growth and development. However, underlying blockages to social and economic progress must be addressed to harness this potential. Key issues include access to education, healthcare and affordable capital.

Debate will focus on new models of governance and a unified approach to ensuring peace and security in troubled areas and address how a more conducive business climate and regulatory reforms can encourage both local and international investment. In addition, the meeting is expected to discuss how can low-carbon, sustainable development plans can be designed for Africa’s economic drivers including its natural resources, agriculture and tourism.


The meeting continues a long-standing tradition of uniting African and global leaders to shape the agenda for the continent and in fact, the Forum’s Global Redesign Initiative, which allows business, political and civil society leaders to examine gaps in international cooperation and develop proposals to overcome some of these short-comings, will play a prominent role in this debate.

More information on this annual meeting can be obtained on the WEF website.