International Development Law Organization

Supporting LDCs on their path towards graduation

The Italian government and the International Development Law Organization (IDLO) marked the launch of a new initiative of investment advisory support to the least developed countries (LDCs) with an event organized on the sidelines of the Midterm Review conference for the Istanbul Programme of Action for the Least Developed Countries, which explored the potential of foreign direct investment (FDI) to significantly help LDC economies to diversify, reduce their dependence on commodities, and promote new activities in the manufacturing and services sectors.  

In his statement at the event Italian Vice Minister for Foreign Affairs Mario Giro said: “Poorly negotiated contracts may lead to loss of public revenues, corruption, natural resources and environmental degradation, as well as protests by local communities. This may prompt the host country to renegotiate the contract or take other measures, including sometimes expropriation, with serious negative consequences both for the investor and the host country. Hence, well-crafted and fair contracts are to the advantage of all parties involved, and also contribute to uphold the rule of law. Fair contracts are also less likely to lead to conflict and costly litigation in court.”

Participants discussed why LDC governments may need capacity support to effectively negotiate investment contracts; similarly, the implementation, enforcement and monitoring of investment contracts were explored, as well as dispute settlement (especially arbitration) as complex activities where LDCs require assistance to ensure that FDI truly works towards their sustainable development.  

IDLO Director-General Irene Khan concluded by saying: “The Istanbul Program of Action states: ‘equity at all levels is indispensable for the pursuit of long-term prosperity.’ Let us start by creating greater equity in access to legal advice and legal support services.''

Statement delivered by Irene Khan, Director-General, IDLOat the event

As the head of the world’s only inter-governmental organization exclusively devoted to advancing the rule of law and development, I am very pleased to see the interest this side event – co-sponsored by Italy and my institution, the International Development Law Organization (IDLO) – has generated.

I am grateful to Under Secretary General Chandra Acharya for placing the theme of this event in the overall context of the international community’s effort to support LDCs on their path towards sustainable development, in line with the policies and commitments set out in the Istanbul Plan of Action.

I am also grateful to the honorable Ministers of Liberia and Mozambique – two African countries with which IDLO has the honor to work closely – for sharing with us their experiences and the changes they are facing in attracting and managing foreign direct investments for the benefit of their countries and people.

Vice Minister Giro has outlined for us, with his usual eloquence, the broad elements of a new initiative to provide legal support to the least developed countries in their contract negotiations and in investment-related dispute settlement proceedings. Ten days ago I had the honor of participating in the very successful Africa-Italia conference in Rome hosted by the Italian government, which the Vice Minister helped to steer, and appreciated the spirit of solidarity and shared interest in a better future that guided the conference. The same spirit underlies the initiative outlined by Italy today. 

IDLO is pleased to lend its full support to the initiative, and to the demand-driven strategy on which it is based. We are ready to bring to this initiative our distinct approach as a rule of law organization, our expertise and technical capacity as well as our long and varied experience in supporting developing countries with tailored multidisciplinary responses on law and development issues.

There is an unfortunate paradox in development that investment does not flow to where it is most needed. As Vice Minister Giro noted, the least developed countries receive only 2% of global foreign direct investment. Moreover, as Under-Secretary General Chandra Acharya pointed out, more than half of that 2% of global investment goes to only 7 least developed countries (LDC).

At the same time, we all know that the financial and economic returns of investment are high. The social returns are even higher, if we take into account the potential benefits of jobs and improvements in human development that flow from the economic growth. Yet, the least developed countries receive very little global investment.

The standard explanation is that the risks and the costs of doing business in many LDCs are too high. However, the experience of countries that do receive foreign investment shows that such risks and costs can be largely mitigated. The experience of these countries shows that on the one hand, investors need to have confidence in the state’s capacity to manage commercial disputes, and on the other, the state itself needs to have the knowledge and skills to negotiate contracts and settle disputes that are in the best interest of their own people.

That is precisely what this initiative, launched by Italy and IDLO, seeks to promote.

By marshaling existing legal knowledge, expertise and best practices, and making it available to countries upon request, the advisory support can make a meaningful contribution to the successful management of FDI and related contract negotiation and dispute settlement processes.

There is need to equalize the power differentials between investors and state actors in contract negotiations and dispute resolution. That is what legal advisory support can help to do.

The need for legal advice on investments is clear. Infrastructure, privatization and natural resource extraction enterprises often involve complex negotiations that state officials from LDCs may not always be well equipped to manage. They may lack knowledge of international standards of due diligence, compliance requirements and accounting to truly appreciate the risks embedded in the contracts. Even after contracts are signed, support may be needed to enforce and monitor them properly.

Well-negotiated, well-crafted contracts can help to avoid subsequent disputes and costly litigation with investors.

For LDCs that have only recently emerged from conflict, the costs of poorly negotiated contracts and related disputes can be particularly high. Contracts that lead to the loss of public revenue or land degradation or poor natural resource management or are perceived to be unfair can contribute to tensions and prolong political volatility.

Given IDLO’s history, the values that guide our work, the approaches on which our programs are based, and the vast network of legal experts with whom we collaborate, I believe IDLO is especially well placed to assist in supporting and coordinating the investment advisory initiative that has been presented to you today.

Over thirty years of operations, we have built up an extensive regional and sub-regional, as well as global network of experts, with a deep understanding of the challenges confronting LDCs.

We were born three decades ago to meet the needs of developing countries for capacity development and technical legal assistance. Over the years we have provided support to many countries to improve their business and regulatory environment on a wide range of economic and commercial law issues, ranging from contracts and procurement law to intellectual property and technology transfer. As the global economy has become more complex, our program portfolio has broadened to include such areas as competition law, commercial dispute resolution, enforcement of judicial decisions, and legal and judicial capacity development to fight financial crimes and corruption.

In addition to our technical expertise, IDLO hopes to bring to this initiative certain values and principles. I call it our “development bias”. It may be summed up in three points:

Firstly, an understanding of the rule of law as an instrument to advance justice and combat inequalities among countries as well as within societies.

Secondly, a commitment to national ownership and respect for legal pluralism. We tailor our advice and operations to the needs and demands of national actors. Each country has its distinct development challenges, its own distinct legal system, rooted in its specific history, politics, jurisprudence, values, customs and traditions. We see all legal systems as inherently equal in their potential to further development in their specific national context.

Thirdly, we seek to strengthen local capacity, not supplant it. Having worked extensively in developing countries, including many LDCs, we actively seek to advance South-South as well as North-South cooperation.

Ensuring that the law contributes to creating a level playing field internationally as well as nationally, so that all actors are empowered to play their full part in engendering and sustaining progress is what IDLO is all about. As I see it, this is fundamentally what the initiative being presented to you today is also about.

For these reasons, the International Development Law Organization is pleased join the United Nations and the Government of Italy in launching this important initiative of investment advisory support to the least developed countries. We hope that other development partners will add their political and financial support to this initiative.

The Istanbul Program of Action states: “equity at all levels is indispensable for the pursuit of long-term prosperity.” Let us start by creating greater equity in access to legal advice and legal support services.''