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Navigating Global Investment Challenges: UNCTAD’s Call for Equitable Development Strategies

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Navigating Global Investment Challenges: UNCTAD’s Call for Equitable Development Strategies

Amidst evolving global economic landscapes, the United Nations Conference on Trade and Development (UNCTAD) has unveiled a comprehensive report titled “Global economic fracturing and shifting investment patterns.” This report delves into the intricate dynamics of global foreign direct investment (FDI) and underscores the imperative for innovative investment strategies that prioritize inclusivity and sustainability.

The report delineates ten transformative shifts in investment priorities across industries and regions, elucidating how trends in global value chains and geopolitical dynamics have reshaped investment patterns. Moreover, it emphasizes the critical need to integrate sustainability and development goals into investment strategies to foster inclusive and sustainable economic growth.

Diverging Trends in Global Foreign Investments

UNCTAD identifies three diverging trends in global foreign investments that have emerged over the past two decades:

1. Disjunction Between FDI Growth and Traditional Economic Indicators: While global GDP and trade have experienced consistent growth, FDI growth has stagnated amidst rising protectionism and geopolitical tensions. This disjunction signals a significant shift in the global economic landscape.

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2. Growing Emphasis on Services Sector: There is a notable shift in investment preferences towards the services sector, with cross-border greenfield projects increasingly favoring services over manufacturing. This trend has implications for global production dynamics and technology adoption.

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3. China’s Evolving Role in Global FDI: China’s reduced role as a recipient country for FDI has reshaped the geography of global investment. Despite diminished enthusiasm for new investments in China, the country remains a dominant player in global manufacturing and trade.

Transition from Divergence to Fracturing

Recent global conflicts and crises have catalyzed a transition from divergence to fracturing in global investment patterns. Geopolitical factors now exert a greater influence on investment decisions, complicating traditional approaches to investment promotion and hindering FDI-based development.

Sustainability Push and Implications for Developing Nations

While there has been progress towards sustainability, the impacts on developing nations are nuanced. The expansion of FDI into environmental technologies presents new opportunities but exacerbates disparities, particularly for smaller and less developed countries. The narrowing focus of FDI exacerbates economic fragility and underscores the need for equitable development strategies.

Call to Bridge Investment Gaps

UNCTAD advocates for immediate action to bridge investment disparities across sectors and regions. Policy recommendations include revising economic development strategies, promoting investment in Sustainable Development Goals, and fostering collaboration among global stakeholders to create a more open and equitable global investment environment.

In conclusion, UNCTAD’s report underscores the urgency of addressing global investment challenges and calls for concerted efforts to ensure that the benefits of investment are distributed equitably and aligned with sustainable development objectives.

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Navigating Global Economic Challenges: UN Report Highlights Concerns and Calls for Multilateral Action

Amidst ongoing economic uncertainties, the latest report from the United Nations Trade and Development (UNCTAD) warns of potential further deceleration in global economic growth and trade disruptions in 2024. Secretary-General Rebeca Grynspan emphasizes the need for coordinated multilateral action to address shifting trade patterns, escalating debt, and the mounting costs of climate change, particularly impacting developing countries.

While expectations for lower interest rates offer some hope for alleviating pressure on private and public budgets worldwide, the report underscores that monetary policy alone cannot solve key global challenges. It emphasizes the necessity of balanced policy approaches, including fiscal, monetary, demand-side, and investment-boosting measures, to achieve financial sustainability, job creation, and improved income distribution.

Highlighting rising protectionism, disrupted maritime routes due to geopolitical tensions, and climate change, the report identifies threats to global trade and economic stability. Challenges such as attacks on ships in the Red Sea and disruptions in the Black Sea exacerbate existing trade disruptions, while rising protectionism and trade tensions further hinder economic growth.

The report also delves into the pressing issue of global debt architecture reform, particularly impacting developing countries facing significant debt and development challenges. It calls for the establishment of efficient multilateral frameworks to address sovereign debt issues and strengthen the global financial safety net.

Additionally, the report addresses the rising food prices affecting low-income households in developing countries, exacerbated by factors such as global commodity cycles, supply chain concentration, and stricter standards imposed by importing nations. Food insecurity remains a critical concern, with projections indicating a potential increase in chronically undernourished individuals if current market trends persist.

In conclusion, the report emphasizes the urgent need for concerted multilateral efforts to navigate the complex economic landscape, mitigate risks, and ensure sustainable development and prosperity for all.

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How Will the Russia-Ukraine War Reshape the World? (Part 2)

A double cold war

Peace talks between Russia and Ukraine have been deadlocked for several months, as the Ukrainians held out hope that new Western military supplies would tip the balance of the conflict in their favor. But with several Ukrainian cities turned into rubble, it becomes clear that no one can truly win the war.

France and Germany make new efforts to get both sides to consent to a peace deal in which Ukraine would become a neutral country akin to nonaligned Austria, agreeing to excise the goal of NATO membership from its constitution contingent on the total pullout of Russian troops from the country. The harder issues, such as a permanent status for Russian-annexed Crimea and the two breakaway regions of Donetsk and Luhansk, are tabled for the moment. After several unsuccessful attempts, Zelenskyy and Putin strike a ceasefire deal under pressure from not just Paris and Berlin but also Washington. The European Union (EU) offers increased humanitarian and development assistance to Ukraine and some reduction in sanctions against Russia so long as the Kremlin removes all its troops from Ukraine except those in contested areas of the country. The EU also helps with the resettlement of refugees in their homes in Ukraine.

With the ceasefire holding and Russia beginning to withdraw its forces, French President Emmanuel Macron and German Chancellor Olaf Scholz propose a broader peace conference that would jumpstart arms-control talks between NATO and Russia. Their intent is to avoid a new cold war in Europe. Washington, however, is opposed to the idea of the conference, with many US foreign-policy elites believing that Putin has not paid enough for his unjustified invasion of Ukraine. Leading members of Congress from both parties urge the president to not lift even some of the stiffest financial sanctions on Russia—a step Macron and Scholz believe is needed to strengthen the tenuous peace. The US position is bolstered by opposition to the Franco-German initiative among several of the EU’s eastern members.

While the US administration refuses to bow to congressional pressure to revoke the New START nuclear arms-reduction treaty with Moscow, it does not feel in this climate that it can back Franco-German efforts to launch NATO-Russian negotiations on placing restrictions on conventional weapons. Heeding growing calls by Eastern European allies for reinforced support against Russia, the United States and its Western European allies begin adding new forces along the new East-West divide at the borders of Poland and the Baltic states. Russia and Belarus mirror these moves.

Having followed through on his plans for fortifying Germany’s armed forces, Scholz urges stronger EU defense. Macron reiterates his proposal to extend France’s nuclear weapons as a European deterrent against any aggressors.

Oil prices come down but remain in the range of seventy-five to ninety-five dollars per barrel. Europe accelerates its efforts to bolster renewable-energy sources, including nuclear energy. EU economic growth, after a recession in 2022-23, amounts to less than 1 percent on an annual basis following the war, while the United States experiences higher growth at 2 percent and China drops below 5 percent. As global growth plunges below 4 percent, there is a growing realization that the world may be mired in an extended period of slow economic development. Price spikes and riots escalate in parts of Africa and the Middle East that were dependent on Ukrainian wheat exports.

Russia, meanwhile, becomes increasingly dependent on Chinese and other Asian markets for its sluggish economic recovery, and speeds up the export of its energy eastward. China expands its Cross-Border Interbank Payment System to allow the two neighboring powers to increasingly bypass the Belgium-based SWIFT international payment system. Russia and China settle more trade in digital yuan, reducing the need for dollars. China also launders Russian gold reserves, which are believed to be worth some one hundred billion dollars, by converting them into yuan that Russia can use to buy Chinese goods.

In light of China’s support for Russia, Washington widens the new cold war that’s emerging to Beijing in addition to Moscow. The United States sanctions some Chinese banks and calls on its allies to blacklist an expanding list of Chinese technology firms. European leaders, for their part, are reluctant to take on China but don’t feel they are well-positioned to resist US demands. The United States cuts off exports of semiconductor chips to China as well, causing distress to its own industry and accelerating China’s efforts to build technological self-reliance. The US government also ends its posture of “strategic ambiguity” on Taiwan, declaring that it would intervene militarily in response to any Chinese aggression against the island, while the Taiwanese debate declaring independence from China. Moscow and Beijing, in turn, deepen their political cooperation.

Xi sees advantages to the expanding cold war with the United States. He revs up his nationalistic rhetoric, rallying support for the regime’s fight with the West and suppressing growing unease with his rule among those in the Communist Party who want to introduce market reforms to boost the country’s shaky economy and find an accommodation with the United States.

In this environment, an informal bloc of nonaligned nations emerges that includes India, Saudi Arabia, the United Arab Emirates, Vietnam, Turkey, and Brazil. Most of these countries maintained good relations with Russia during the Ukraine war despite Western pressure to isolate Moscow. Dependent economically on their trade with China, they also want good relations with Beijing.

International cooperation on everything from climate change to common economic challenges, global tech standards, and development assistance for poorer countries becomes harder. The internet further splinters, as the increasing US-China rivalry leads each power to recruit as many countries as possible to its side on digital matters. Global economic growth continues its downward trend and de-globalization advances. International multilateral institutions, from the United Nations to the World Trade Organization and World Health Organization, go into decline.

The conflict is tightening global liquidity, especially for developing countries, as investors flock to assets perceived as less risky.

Ukraine War Risks Further Cuts to Finance Development

The financial fallout from the war in Ukraine could widen the already huge gap in financing needed to achieve sustainable development goals (SDGs) and lead to cascading credit downgrades and debt defaults in developing countries, UNCTAD said.

The gap in financing needed to achieve SDGs, such as ending poverty and halting climate change, now sits at $17.9 trillion for the 2020-2025 period, new UNCTAD estimates show. This puts the current annual gap at $3.6 trillion – more than $1 trillion wider than before the COVID-19 pandemic – without even factoring in the effects of the Ukraine conflict.

“We risk going from having a gap to achieve the SDGs to having an abyss,” UNCTAD Secretary-General Rebeca Grynspan said on 21 March as she opened a meeting on financing for development convened by the organization.

Calling for emergency measures and efforts to support sustainable growth, she said climate change and other non-stop crises are hitting developing countries hardest and making it harder for them to achieve the SDGs.

“Shock after shock, their debt burdens rise, their poor become more numerous, their fiscal space shrinks and their sustainable development goals fall increasingly out of reach,” Ms. Grynspan said.

Tightening global liquidity

The $17.9 trillion figure is likely an underestimate, Ms. Grynspan said, because the calculations were done before the start of the war in Ukraine in late February.

The conflict is tightening global liquidity, especially for developing countries, as investors flock to assets perceived as less risky. The cost of credit has already increased since the start of the conflict, with bond yields rising an average of 36 basis points.

The war’s impact on government spending around the globe will put further pressure on aid budgets, which were already low.

“External financial resources for development continue to decrease, which has been especially detrimental to low-income and middle-income countries,” said Abdulla Shahid, president of the 76th session of the UN General Assembly.

In 2020, official development assistance from advanced economies was on average just 0.32% of their gross national income – less than half of the 0.7% commitment.

Cascading effects on debt

Capital flight and less development assistance would create acute stress for many developing countries already struggling with high debt levels. Cascading credit downgrades and debt defaults could be on the horizon.

More than half of African countries were already downgraded by at least one credit rating agency in 2020, said Vera Songwe, executive secretary of the UN Economic Commission for Africa.

“The Ukraine crisis will likely lead to more downgrades as possible contagion spreads across emerging markets,” Ms. Songwe said.

In 2020, debt-to-GDP ratios in developing countries rose to 69% from 57%. For these nations, about 16% of export earnings are spent on debt payments. The share reaches 34% in small island developing states.

The debt burden undermines their abilities to provide essential services. In 62 developing countries, for example, the share of government spending on debt service was higher than health spending in 2020.

Emergency financial measures needed

To keep the gap from becoming an abyss, Ms. Grynspan called for emergency financial measures to help developing countries cope with the impacts of the war in Ukraine – including soaring prices of food, fuel and fertilizer.

According to an UNCTAD assessment, more than 5% of the poorest countries’ import baskets is made up of products that are likely to face a price hike due to the war. The share is below 1% for richer countries.

Such emergency measures would be similar to those provided by the global financial system when the COVID-19 crisis started.

One suggestion was to reconvene the Group of 20 major economies’ debt service suspension initiative (DSSI), which froze debt repayments for low-income countries until December 2021.

“But we also need to restart the DSSI in way that doesn’t just keep kicking the can down the road,” Ms. Grynspan said. “A permanent and comprehensive debt restructuring mechanism is needed.”

Strengthen productive capacities

In addition to emergency measures to reduce costs, Ms. Grynspan called for collective efforts to promote sustainable growth in developing countries.

The efforts should be underpinned by a sustained and structural push to help the countries strengthen productive capacities so they can make more goods and services and add more value to them.

Ms. Grynspan also called for more long-term strategic investments involving the private sector and local, regional and multilateral development banks.

“We urgently need to capitalize our development banks, something that didn’t happen with the pandemic,” she said.

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U.S. Seeks Snapback of U.N. Sanctions on Iran Despite Departure from Nuclear Deal

The United States is formally demanding that the United Nations (U.N.) reimpose sanctions on Iran for its failure to meet commitments to limit its nuclear program set forth under the Joint Comprehensive Plan of Action (JCPOA). U.N. sanctions on Iran were lifted in 2015 as part of the terms of the JCPOA, which included the United States, European Union, France, Germany, the United Kingdom, Russia, and China as signatories. The U.S. formally withdrew from the JCPOA in 2018 and reinstated sanctions on Iran.

According to President Trump, the U.S. intends to restore “virtually all of the previously suspended U.N. sanctions on Iran. It’s a snapback.” Secretary of State Mike Pompeo is scheduled to go before the United Nations this week to officially notify the Security Council that the U.S. intends to restore U.N. sanctions on Iran. According to the Department of State’s press release, a range of U.N. sanctions will be restored within thirty (30) days, including the requirement to end all nuclear enrichment activities and the extension of the arms embargo on Iran, which is currently set to lapse in October.

The decision to request a snapback of U.N. sanctions on Iran follows the failure of an effort to extend a five-year U.N. arms embargo on Iran. The legality of the requested snapback by the U.S. has been questioned by other members of the JCPOA and the U.N. Security Council because the U.S. is no longer a party to the agreement. The Administration, however, maintains that as a permanent member of the Security Council, it has the authority under U.N. Security Council Resolution 2231 to push for a snapback of sanctions.

As a “participant state” in the JCPOA under the resolution, the U.S. claims it can assert “significant non-performance of commitments” by Iran to force a snapback within 30 days. It is not clear how the U.S. without support from Europe would enforce the U.N. sanctions. Without support from the rest of the Security Council, the U.S. will need to enforce sanctions unilaterally.


Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.