World Investment Report 2003 FDI Policies for Development: National and International Perspectives UNCTAD EMBARGO 4 SEPTEMBER 2003 17:00 hrs GMT Zbigniew

World Investment Report 2003FDI Policies for Development:

National and International Perspectives

UNCTAD

EMBARGO 4 SEPTEMBER 200317:00 hrs GMT

Zbigniew Zimny, HeadInvestment Issues Analysis Branch

UNCTAD, Division on Investment, Technology and Enterprise Development

Phone: 4122 907 4643; Fax: 4122 907 0197E-mail: [email protected]

Presentation in Warsaw, 4 September 2003

2Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:


Largest FDI Downturn in 30 YearsDeveloped countries most affected

Global inflows of FDI, 1993-2002, by groups of countries$ billions

Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:National and International Perspectives

-

200

400

600

800

1 000

1 200

1 400

1 600

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

World

Developed countries

Developing countries

Central and Eastern Europe



Uneven Downturn in Developing Countries

Largest declines in Latin America and Africa

0

50

100

150

200

250

1995 1996 1997 1998 1999 2000 2001 2002

Developing countries

Asia and the Pacific

Latin America/Caribbean

China

AfricaLDCs

Inflows of FDI to developing countries, 1995-2002, by region

$ billions




Declines in FDI inflows, 2002 $ billions

The 10 Destinations Most AffectedInflows to the US down by more than $100 billion


6

6

6

7

8

10

12

22

37

114

0 20 40 60 80 100 120

Denmark

Brazil

South Africa

Spain

Canada

Hong Kong, China

Mexico

Netherlands

United Kingdom

United States



Top 10 Economies Defying the Downturn

0 10 20 30 40 50 60 70

Slovakia

Malaysia

Japan

Ireland

Czech Republic

Germany

Finland

China

Australia

Belgium and Luxembourg

Increases in FDI inflows, 2002 $ billions




Top 10 Destinations for FDI in 2002China in first place leaving aside special case of

Luxembourg

19

21

21

25

29

30

38

52

53

126

0 20 40 60 80 100 120 140

Ireland

Canada

Spain

United Kingdom

Netherlands

United States

Germany

France

China

Luxembourg

$ billions



Top 10 Developing Economy Recipients in 2002

3

3

3

3

8

9

14

14

17

53

0 10 20 30 40 50 60

Kazakhstan

Cayman Islands

Malaysia

India

Singapore

Bermuda

Mexico

Hong Kong, China

Brazil

China

$ billions



10 Largest Sources of FDI 2002

18

18

25

26

29

31

40

63

120

154

0 20 40 60 80 100 120

Hong Kong, China

Spain

Germany

Netherlands

Canada

Japan

United Kingdom

France

United States

Luxembourg

$ billions



Why the Downturn

• Macroeconomic factors. Slow growth, decline in stock market valuations (which led to the dramatic decline in cross-border M&As)

• Microeconomic factors. Low corporate profits, divestment, repayment of intra-company loans

• Institutional factors. Winding down of privatization



Plummeting Cross-Border M&As Key Factor

Between 2000 and 2002:

Value of cross-border M&As fell from $1.1 trillion to $370 billions

Number of deals dropped from 7,900 to 4,500 The average value of deals shrunk from $145

millions to $82 millions Number of mega-deals (value >$1 billion)

more than halved from 175 to 81




FDI Largest Source of External Finance to Developing Countries

-50

0

50

100

150

200

250

300

350

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

Total resource flowsOfficial flows

FDI inflows

Portfolio flows

Commercial bank loans

20

02

Total resource flows to developing countries, by type of flow, 1990-2002, $ billions



Indicators of FDI and international production 1982-2002, $ billions, current prices

Item 1982 1990 2000 2001 2002

FDI inflow s 59 203 1 393 824 651

FDI outflow s 28 233 1 201 711 647

FDI inw ard stock 734 1 874 6 147 6 607 7 123

FDI outw ard stock 552 1 721 5 992 6 319 6 866

Cross border M&As .. 151 1 144 594 370

Sales of foreign affiliates 2 541 5 479 15 087 16 472 17 685

Gross product of foreign affiliates 594 1 423 2 807 3 220 3 437

Total assets of foreign affiliates 1 959 8 759 23 460 24 517 26 543

Ex ports of foreign affiliates 670 1 169 2 594 2 509 2 613

Employ ment by foreign aff's (thousands) 17 987 23 858 51 013 50 254 53 094

International Production Growing, at Slower Pace



Group of economies 1980 1990 1995 2000 2001 2002

World 699 1 954 3 002 6 147 6 607 7 123

Developed countries 392 1 400 2 041 3 988 4 277 4 595

Developing countries 307 551 921 2 030 2 174 2 340

Africa 32 51 78 145 158 171Latin America and Caribbean 50 117 202 609 706 762Developing Asia 225 381 638 1276 1310 1407

Central and Eastern Europe .. 3 40 129 156 188

Memorandum:.

Least developed countries 3 8 16 36 41 46

Source : UNCTAD, FDI/TNC database.

Inward FDI stock, by group of economies, 1980, 1990, 1995, 2000, 2001 and 2002

(Billions of dollars)



Group of economies 1980 1990 1995 2000 2001 2002

World 564 1763 2901 5992 6319 6866

Developed countries 499 1629 2584 5155 5488 5988

Developing countries 65 133 311 817 807 849

Africa 7 21 33 49 43 44Latin America and Caribbean 52 63 91 160 168 173Developing Asia 6 49 187 609 596 633

Central and Eastern Europe .. 1 6 19 25 29

Memorandum:.

Least developed countries .. 1 2 3 3 3

Source : UNCTAD, FDI/TNC database.

Outward FDI stock, by group of economies, 1980, 1990, 1995, 2000,

2001 and 2002 (Billions of dollars)



United States

Canada

Mexico

Argentina

BrazilOther

South America

West Asia

India

Africa

Australia

New Zealand

Central Asia

South Africa

Russian Federation

CEE(excluding Russia)

China Hong Kong (China)

Japan

Republic of Korea

Taiwan Province of China

United

Kingdom

Germany

France

Italy

European Union

South East Asia

Inward FDI stock, 2002

Note: The size of the region/country's box reflects the size of the FDI stock.



Top 15 Ranks in the FDI Performance Index

1999-2001, index value

0 2 4 6 8 10 12

Kazakhstan

Bolivia

Nicaragua

Gambia

Czech Republic

Brunei Darussalam

Denmark

Netherlands

Sweden

Singapore

Malta

Ireland

Hong Kong, China

Angola

Belgium/Luxembourg



Top 15 Ranks in the FDI Potential Index1999-2001, index value

0.40 0.45 0.50 0.55 0.60 0.65 0.70

Switzerland

France

Hong Kong, China

Japan

Ireland

Finland

Netherlands

Belgium/Luxembourg

Sweden

Germany

Canada

United Kingdom

Norway

Singapore

United States



Countries Increasingly Welcome FDI

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002No. of countriesthat introduced changes in investment regimes 43 57 49 64 65 76 60 63 69 71 70No. of changes 79 102 110 112 114 151 145 140 150 208 248 of which:

More favourable to FDI a) 79 101 108 106 98 135 136 131 147 194 236

Less favourable to FDI b) - 1 2 6 16 16 9 9 3 14 12

Source : UNCTAD, based on national sources.a Including liberalizing changes or changes aimed at strengthening market functioning, as well as increased incentives.b Including changes aimed at increasing control as well as reducing incentives.

National regulatory changes, 1992-2002



Future Prospects for FDI Vary by Regiona 2003/04 and 2004/05

a The survey question was: How do you perceive the prospects for FDI inflows to your country in the short- and medium-term, as compared to the last two years (2001-2002)?

0102030405060708090

100

Worsen Improved Remain thesame

Worsen Improved Remain thesame

Per

cen

t o

f re

spo

nse

s

Africa AsiaLatin America and the Caribbean Central and Eastern EuropeDeveloped economies

2003-2004 2004-2005



Enhancing The Development

Dimension of International

Investment Agreements

Part Two



Objectives of National FDI Policies

Maximizingbenefits of FDI

Minimizingnegative

effects of FDI

Attracting FDI

Development concerns



Proliferation of IIAs – at All Levels

Bilateral levelo BITs: from 385 (1989) to some 2,200 (2002)o FTAs now often contain investment provisions

Regional levelo FTAs covering investment (NAFTA, MERCOSUR)

o Investment agreements (ASEAN Investment Area, Andean Community’s Decision 291)

Multilateral level: instruments affecting FDIo GATS, TRIMs Agreement, MIGA, etc.

And many IIAs are in the making…



Number of BITs and DTTs Continues to Rise

0

50

100

150

200

250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

0

500

1000

1500

2000

2500

BITs (total per year: left scale)DTTs (total per year: left scale)Total BITs (cumulative: right scale)Total DTTs (cumulative: right scale)

BITs and DTTs concluded, 1990-2002



Density Mapping of BITs Worldwide Number of BITs per country, January 2003

0 1 to 30 31 to 60 61 to 90 > 91



BITs – Increasing Coverage

176 countries have signed BITs 45% of BITs do not involve developed countries Share of outward FDI stock covered by BITs

o 7% of global FDIo 22% of FDI in developing countrieso 57% of FDI in CEE

Main aim: investor protection… …but some now include provisions for the right

of establishment, performance requirements and employment of key foreign personnel.



Implications?

Shows: national FDI policies increasingly take place in the context of IIAs

Various approaches to international rule-making all have their benefits and costs

What is desirable for a country depends on what it seeks from an agreement—investor protection, liberalization, international cooperation

The desirability, from a development perspective, of any future IIAs — at whatever level — depends on the objectives, structure, substantive provisions and implementation of IIAs



Key IIA Issues Examined in WIR03

The definition of investment: determines the scope and reach of the substantive provisions of an agreement

National treatment (especially with regard to the right of establishment): determines how much and in what ways preferences can be given to domestic enterprises

Circumstances under which government policies should be regarded as regulatory takings: testing the line between the right of governments to regulate and the rights of private property owners



Key IIA Issues Examined in WIR03 (cont.)

Dispute settlement: question of the involvement of non-

State actors and the extent to which the settlement of

investment disputes is self-contained

The interaction of IIAs with national policies in the area of

o Performance requirements

o Incentives

o Transfer-of-technology policies and

o Competition policy



Balancing Host and Home Country Intereststo enhance the development dimension of IIAs

Traditional IIAs: focus on host countries

Developed countries already use various home country

measures (HCMs) to encourage FDI to developing

countries

Some bilateral and regional agreements contain HCM

commitments

Future IIAs: greater emphasis on HCMs

Developing countries would benefit from making HCMs

more transparent, stable and predictable in future IIAs



The Role of TNCs also Deserves Attention

TNCs can do more to advance the development dimension of their investments, as part of good corporate citizenship

So far voluntary actions and corporate codes prevailed Focus so far is on social and environmental issues, less on

economic ones Key areas from development perspective:

o contributing fully to public revenues of host countrieso creating and upgrading linkages with local enterpriseso creating employment opportunitieso raising local skill levelso transferring technology

Further attention in IIAs is desirable



Conclusions

FDI flows are primarily determined by economic fundamentals

IIAs can only complement what is done at the national level in terms of creating a more conducive environment.

Challenge: to make the development dimension an integral part of IIAs at all levels…

…in support of national policies to attract FDI and benefit more from it.

World Investment Report 2003

FDI Policies for Development: National and International Perspectives

Thank You!

Visit the website of the World Investment Report at: www.unctad.org/wir.

Documents

World Investment Report 2003 FDI Policies for Development: National and International Perspectives UNCTAD EMBARGO 4 SEPTEMBER 2003 17:00 hrs GMT Zbigniew