Mazdak Rafaty

The UN Sustainable Development Goals put pressure on poorer countries in an era of lower global FDI flows. But investors' preference for stable environments with low corruption could drive a transformation in host countries, writes Mazdak Rafaty

There is no doubt: being able to reach the UN's Sustainable Development Goals (SDGs) needs a global and holistic approach. Unfortunately, just three years after the UN General Assembly set the goals, the world is dominated by trade wars, protectionism, political uncertainty and populism. 

The result of this trend is a 23% decline of global FDI flows, with Africa being the biggest loser in FDI inflows at -21%. According to Unctad, developing countries were already facing a deficit of $1000bn in basic infrastructure in 2017 and the future trends are not positive. With FDI their largest external source of finance, these countries have to find a suitable strategy to attract the $2500bn they need each year to stay on track with the SDGs. 

While it appears that committing to SDGs puts developing countries under additional pressure, there is an interesting trend in the FDI sector that could be a game changer for future FDI attraction, specifically in developing countries. Guided by sustainable characteristics defined in recent global research and studies related to the economic, social, environmental and governance dimensions of FDI, policymakers in the host countries are focusing their efforts to attract investments that are in line with the host countries' SDGs.

Given the fact that foreign investors favour destinations with high levels of political stability and transparency and low rates of corruption, host countries have to adjust their socioeconomic environment accordingly to attract ‘sustainable FDI’. Ideally, this trend will lead both to a sustainable transformation of host countries and the attraction of sustainable FDI that is customised for SDGs of the host country. 

In 2012 I contributed an article in African Business Review on the role of SMEs in the context of sustainable development and FDI. Having limited financial and human resources capacity, higher environmental awareness, smaller and more transparent corporate structures, SMEs comply with many sustainability characteristics related to FDI. 

A shift from the quantity to the quality of the FDI must also put SMEs in the spotlight of investment promotion and address their specific needs while getting involved in the high-risk business of foreign investment. The Middle East and Africa region especially has a lot of catching up to do in this field of FDI to be able to benefit from this sustainable trend.

Mazdak Rafaty is managing partner of Ludwar International Consultancy and SME adviser to the joint Emirati-German Chamber of Commerce.

This article is sourced from fDi Magazine
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