Image by Gerhard Bögner on Pixabay
The Fourth International Conference on Financing for Development (FfD4), scheduled for 30 June – 3 July 2025, presents a pivotal opportunity to address the large financing gap hindering sustainable development. The recent first draft of the outcome document of FfD4 underscores the urgency of mobilising additional and innovative financing from all sources, both public and private, to achieve the Sustainable Development Goals (SDGs). It emphasises the importance of creating enabling environments for investment, including enhanced transparency, good governance, anti-corruption measures, the rule of law and fair competition. Notably, it explicitly calls for World Trade Organization (WTO) members to swiftly proceed with the integration of the newly negotiated Investment Facilitation for Development Agreement (IFDA) into the WTO legal architecture. This is an important demand since the integration of the IFDA into the WTO – as a plurilateral agreement under Annex 4 of the WTO Agreement – is blocked by a few countries, mainly India, South Africa and Türkiye, often for reasons that are not directly related to the facilitation of investment to developing countries. The determination by the FfD4 negotiation draft, that the IFDA is an important instrument to foster sustainable investment in low and middle-income countries, can have an impact on the bogged down negotiations at the WTO. However, the FfD4 draft does not mention the IFDA under the set of actions to scale-up foreign direct investment (FDI), hereby undermining the utilisation of the agreement’s full potential.
The Importance of Investment Facilitation
Investment facilitation encompasses a spectrum of policies and practices aimed at reducing obstacles faced by investors through all stages of the investment cycle. Key elements include enhancing transparency and foreign investors’ access to information related to investment laws and regulations, streamlining administrative procedures, ensuring predictable policy-making, and promoting accountability and efficiency within governmental agencies. Moreover, it involves a whole-of-government and multi-stakeholder approach, engaging multiple governmental agencies, investors, local firms, and societal actors. In contrast, investment facilitation does not incorporate investment liberalisation and protection, or investor-state dispute settlement.
According to UNCTAD’s World Investment Report for 2024, 30% of investment policy measures worldwide were related to facilitation mechanisms. The Investment Facilitation Index (IFI), developed at the German Institute of Development and Sustainability (IDOS), highlights that the overall level of adoption of 101 investment facilitation measures across 142 examined WTO members equals to 49%, which occurs with a wide variation. High-income countries have already adopted over 62% of all analysed measures, while low-income countries have adopted only 29%. A successful implementation of the newly negotiated IFDA by its signatories would significantly increase these numbers and potentially generate global welfare gains of 1.73%, which corresponds to $811 billion. Hereby, low and middle-income countries would benefit most given the high reform gap with respect to the IFDA’s provisions. The global benefits would further increase if more countries joined the deal. Especially non-participating low and middle-income countries have a lot to gain, e.g. India’s welfare gains would be 2.5 times higher than pure spillover effects as an outsider.
Given the non-discriminatory nature of investment facilitation, such tools support not only foreign investments but also domestic investment and business development. Thus, investment facilitation reforms, and the IFDA in particular, can play a pivotal role not just in attracting investment but also in supporting the attainment of the SDGs. For instance, by creating a more transparent and digitally accessible business environment, it can help small firms to move from informal to formal sectors, enhancing domestic revenue mobilisation. Moreover, by reducing investment barriers and providing equal opportunities for all, investment facilitation contributes to more inclusive economic growth, enhancing the access of women and rural populations to economic activity. The IFDA also promotes guidelines and standards for responsible business conduct and measures against corruption.
Strengthening FfD4’s Support for Investment Facilitation
To maximise the benefits of the IFDA, the final FfD4 outcome document should go beyond the important call for integration into the WTO legal architecture and actively support the agreement’s implementation through concrete commitments:
- Fostering investment facilitation needs assessments: Country-level needs assessments aim at helping developing and least-developed countries to prepare for on-the-ground implementation of investment facilitation measures. FfD4 should call for support for the ongoing needs assessment process at the WTO and clearly define the role of international organisations, multilateral development banks (MDBs), as well as bilateral development agencies and donors.
- Commitment to financing investment climate improvements: Developing countries require financial and technical assistance to implement the IFDA effectively. FfD4 should include commitments for donor support (including by MDBs), capacity-building programmes, and investment-related cooperation initiatives to enhance investment governance and infrastructure.
- Promotion of digital government initiatives: Investment facilitation is associated with the introduction of multiple digital government initiatives, including information portals and online single windows. Such initiatives represent a significant share of national investment policy measures monitored by UNCTAD and are instrumental in reducing information asymmetries and procedural hurdles. FfD4 should advocate for the adoption and financing of digital tools to enhance investment facilitation efforts.
- Stronger public-private collaboration for sustainable investment: FfD4 should call for enhanced partnerships between governments, investors, and international organisations, following the multi-stakeholder approach, to ensure that investment facilitation leads to sustainable and responsible investment.
- Harmonising investment facilitation in domestic and global policies: The FfD4 outcome document should encourage governments to align national investment policies with international best practices, using the IFDA as a benchmark. Harmonising investment facilitation frameworks worldwide would further reduce barriers and inefficiencies that deter sustainable investment.
The IFDA represents a milestone in global trade and investment governance, offering a framework to enhance investment climates worldwide. However, its success depends on adequate financial and policy backing. Given that the FfD4 first draft aligns with many principles of the IFDA, the final FfD4 outcome document must explicitly recognise investment facilitation as a significant instrument of scaling-up investment and, therefore, a crucial driver of sustainable development. FfD4 should provide clear commitments to support the IFDA implementation and its speedy integration into the WTO legal architecture as a plurilateral agreement under Annex 4. By doing so, the conference can ensure that investment facilitation is not merely an agreement that exists on paper, but a powerful policy mechanism to effectively reduce the financing gap for sustainable development.
This blog post is part of a series on the 4th FfD conference by the German Institute of Development and Sustainability (IDOS). Please also read the previous contributions to this series:
- Frozen in time: How to rethink the role of foreign aid in FFD4, Heiner Janus
- The Group of 77 in the FfD negotiations, by Anna Novoselova
- How Seville Can Sow the Seeds for a New Spring: Financing (Sustainable) Development Must Turn Universal!, by Adolf Kloke-Lesch
- Trump and FfD4 – the Elephant in the Room Starts to Speak (and Destroy), by Sören Hilbrich, Yabibal Walle, and Clara Brandi
- Rationalising Tax Expenditures – a Core Element of Financing for Development, by Christian von Haldenwang and Agustín Redonda
- Forging Consensus: Navigating Trade Controversies in the FfD4 Zero Draft, by Clara Brandi
- Cumbersome but Essential – The United Nations Financing for Development Process Ahead of its 4th Conference, by Kathrin Berensmann, Clara Brandi, Sören Hilbrich, and Yabibal Walle
All blogs express the views of the author(s).
