Foreign direct investment (FDI) can be an important contributor to enhance economic growth and innovation, create quality jobs and develop human capital, including for women, and raise living standards and environmental sustainability in host economies. Recent geopolitical and economic tensions combined with the economic drawbacks caused by the COVID-19 pandemic – which themselves follow a longer period of stagnant or even declining global FDI flows which began with the Global Financial Crisis of 2008/2009 – have nevertheless significantly disrupted global trade and investment flows.

To harness investment for inclusive and sustainable economic growth and allow a resilient post-crisis recovery, a comprehensive investment facilitation framework is necessary to guide government action and improve local investment climates to create favourable conditions for FDI to contribute positively to host economies. In this context, negotiations between the EU and Angola for a new Sustainable Investment Facilitation Agreement (SIFA), concluded in November 2023. This template SIFA (the EU-Angola SIFA) aims to create such favourable conditions to attract more and better investments and promote mutually beneficial investments.

Southern Neighbourhood countries could constitute strategic partners for SIFA negotiations, in light of the European Union’s (EU) priorities to deepen its cooperation with its regional partners. The EU’s new Agenda for the Mediterranean of 2021 called for the strengthening of the Union’s ties with its southern neighbours as being a strategic imperative, especially in areas of investment facilitation and sustainable development, such priorities having not been sufficiently addressed in their trade and investment agreements concluded in the 1990s and the 2000s. As such SIFAs with the Southern Neighbourhood countries – namely, Algeria, Egypt, Jordan, Morocco and Tunisia – considered in the context of this Report – could help create favourable conditions to attract more and better investments.

Over the last years, all five selected Southern Neighbourhood countries have directed important resources towards enhancing their legal and regulatory frameworks for investment, including by introducing reforms designed to bring about further transparency and predictability in their respective frameworks, and to further streamline investment-related authorisation processes with a view to ease administrative procedures and reduce discretionary application of rules. Despite these recent improvements, investment conditions in the five selected Southern Neighbourhood countries in some respects remain somewhat challenging. For one, the outsized role of privileged firms – such as some state-owned enterprises or politically-connected private-sector firms – benefitting from special regulatory treatment and selective enforcement of rules has often been pointed out as a key challenge hampering competitive markets in many Southern Neighbourhood countries. Along with other cross-cutting factors, such practices have limited the potential for higher levels of growth and investment, and more inclusive development in the region. Continued policymaking aimed at improving the overall transparency and predictability of investment-related rules and procedures in the selected Southern Neighbourhood countries would allow them to bolster the development of their private sectors and create favourable conditions for investment to contribute to more inclusive and sustainable development.

The present Report provides a stocktaking of the current investment climates of the five selected Southern Neighbourhood countries, benchmarked against investment facilitation standards reflected in the EU-Angola SIFA, with a view to ultimately inform the EU and those countries of the potential capacity for future negotiations. To achieve this, the Report reviews the state of readiness of each of the selected Southern Neighbourhood countries in light of the SIFA’s key facilitation standards, based on a – principally desk-based – assessment of their respective domestic legal and regulatory frameworks and institutional arrangements for investment. More specifically, the report outlines and describes the key facilitation standards enshrined in the EU-Angola SIFA, relating specifically to the transparency and predictability of domestic regulatory frameworks and the streamlining of investment authorisation procedures, and how these standards are reflected in each of the selected countries, by way of legal, regulatory and institutional channels.

The approach adopted is transversal and thematic: it provides a functional description of how transparency, predictability and streamlining-related standards and provisions are incorporated and operationalised across the selected countries’ domestic frameworks for investment. This includes but is not limited to how each of the countries’ adopt and deploy the legal and regulatory measures and institutional arrangements that seek to enhance the transparency and predictability of the domestic framework for investment, by what means the domestic frameworks intend to promote the transparency of relevant investment incentives, and the architecture of administrative and authorisation procedures processes. Finally, the report also provides an overview of the EU-Angola SIFA’s approach to investment and sustainable development, as reflected in its Chapter 5, against the key policy orientations of the OECD FDI Qualities Policy Toolkit. In a self-standing Annex B, the Report specifically addresses the framework conditions for investment in renewable energy and green hydrogen in the selected Southern Neighbourhood countries.

The OECD Secretariat has reached out to competent authorities and other relevant stakeholders in the selected Southern Neighbourhood countries. Input has been received from a number of these countries (Egypt, Morocco) and private sectors stakeholders in other countries (Algeria). Comparative business surveys have also been relied on – and cited – to shed light on practical considerations linked to facilitation standards considered in this Report. While an opportunity to review Annex A’s country sections and comment on these has been provided to competent authorities and stakeholders in the five selected Southern Neighbourhood countries, the Report is however principally desk-based and as such outlines investment facilitation measures and initiatives in place rather than hose these have been effectively implemented, or shortcomings in their effective implementation.

An ongoing parallel project is being carried out by the OECD in collaboration the EU Commission’s DG TRADE, which intends to specifically map out comprehensively the EU-Angola SIFA’s Chapter 5 provisions to support the incorporation of a wider spectrum and more ambitious sustainability considerations into future SIFA iterations as well as to offer guidance to governments for the implementation of domestic reforms and measures to maximise the impact of such treaty provisions on the quality of FDI.