President of the Trade and Development Board Ambassador Hasans of Latvia,
Director of the Division on Investment and Enterprise Mr. James Zhan,
Excellencies,
Distinguished delegates,
Ladies and gentlemen,

1. At the outset, the Group of 77 and China would like to thank UNCTAD and particularly Director James Zhan and his team, for another insightful World Investment Report (WIR) 2022: this time on international tax reforms and sustainable investment. In the current scenario of growing fiscal demands, we consider this iteration of the Report to be a particularly valuable and forward-looking contribution.

2. Our Group would like to take special note of the thematic chapter on “The effects of a global minimum tax on FDI”, among the first studies – if not the first -to fully recognize and comprehensively embrace investment implications in the policy analysis of the historical changes that are taking place in the area of international taxation, particularly with the introduction of a global minimum tax of 15% on foreign profits of multinational enterprises.

3. This report clearly builds on UNCTAD’s expertise and credibility on policy issues at the intersection of international investment and international taxation. We believe it also strengthens UNCTAD positioning as a focal institution to advise investment policymakers, especially from developing countries, on the most effective strategies to optimize the investment response to the ongoing tax reforms – based on countries’ investment and industrial priorities. This positioning underscores UNCTAD role as a global centre of excellence on issues related to investment and fully responds to the Bridgetown Covenant mandate for UNCTAD “to continue its work on taxation as it relates to investment policy”.

4. Our Group would also wish to welcome the iteration for the second year of a dedicated chapter on “Capital markets and sustainable finance” in line with UN General Assembly resolutions 74/199 and 75/207 on “Promoting investment for sustainable development”, which requested UNCTAD to provide “concrete recommendations for the advancement of investment for the implementation of the 2030 Agenda. In this manner, UNCTAD has responded to the call of member States to integrate sustainable development into the entire investment value chain, both upstream and downstream.

5. UNCTAD analysis shows a strong rebound of international investment in 2021 – an increase in global FDI flows by two thirds from very low level reached in 2020 due to the pandemic. Overall, the global production system has proved more resilient and responsive than many had anticipated at the outbreak of the pandemic. Yet, this is not the time to be complacent and self-congratulatory. As the global economy is still reeling from the impact of the pandemic, the geopolitical situation is opening new dramatic scenarios in the global environment for international investment. The effects on investment flows in 2022 and beyond are difficult to anticipate. They will mainly depend on the development of the triple crisis – in food, fuel and finance – caused by the ongoing conflict and their consequent economic and political instability, which are in turn some of the key determinants of international private investment. Overall, our Group takes note that UNCTAD expects investor uncertainty to put significant pressure on global FDI in 2022.

6. In this challenging context, and given the massive financing needs to achieve the Sustainable Development Goals, it is imperative that all sources of development financing, whether private or public, domestic or external, are fully mobilized and made to work towards the SDGs. The current World Investment Report lies at the core of this financing imperative, due to the double role of foreign direct investment both as the largest source of external financing for developing countries, and as a major contributor to their government revenues.

7. The Base Erosion and Profit Shifting (BEPS) reform, and in particular the introduction of a global minimum tax, is expected to reshape the key policy trade-off between mobilizing domestic revenues and preserving international investment. A minimum tax of 15 per cent on the foreign profits of the largest multinational enterprises, as proposed by the Base Erosion and Profit Shifting (BEPS) project and already signed by over 140 jurisdictions, will change significantly the way such enterprises invest internationally. Shifting profits to low-tax countries should be discouraged and a reduction of tax competition between countries can be expected. This should significantly increase corporate tax revenues – a significant source of financing for the SDGs. However, this comes at a cost. UNCTAD estimates the potential effect on global FDI due to the increase in corporate income taxation to be about 2 a per cent reduction. For developing countries this negative effect can be compensated by a diversion of investment from low tax countries to high tax countries. This will however depend on the right policy mixture to remain attractive FDI destinations in a new competitive landscape with tighter scope for fiscal competition.

8. Investment policymakers and other FDI actors in developing countries, such as investment promotion agencies and special economic zones have been historically faced with the policy dilemma between engaging in tax competition to attract investment and preserve domestic revenues. The WIR 2022 will be a contribution to solving this dilemma, for instance through the guidelines it contains. Our Group thus calls on investment policymakers to use the WIR 2022 to be prepared for the major transformations ahead.

9. The Group of 77 and China believes that the international community must step in to ensure an effective and smooth transition to the new tax regime, in the interest and to the benefit of developing countries. UNCTAD’s three policy recommendations point in this direction: through technical assistance; through the adoption of a multilateral solution to address issues of consistency of the tax and investment international framework; and through a mechanism to compensate developing countries for un-collected top-up revenues so as to secure due revenue collection for developing countries in the transition and adjustment phase.

10. Our Group supports these measures and recognizes the relevance of their policy objectives. We request UNCTAD to continue its work towards their timely implementation, through further policy analysis, consensus building and technical assistance, in the context of the Inclusive Framework, and beyond.

I thank you, Mr. President.