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:
National and International Perspectives
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
3Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:National and International Perspectives
4Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
Declines in FDI inflows, 2002 $ billions
The 10 Destinations Most AffectedInflows to the US down by more than $100 billion
Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:National and International Perspectives
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
5Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:National and International Perspectives
6Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
7Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
8Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
9Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
10Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:National and International Perspectives
11Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
12Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
13Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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)
14Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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)
15Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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.
16Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
17Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
18Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
19Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
20Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
Enhancing The Development
Dimension of International
Investment Agreements
Part Two
21Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
Objectives of National FDI Policies
Maximizingbenefits of FDI
Minimizingnegative
effects of FDI
Attracting FDI
Development concerns
22Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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…
23Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
24Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
Density Mapping of BITs Worldwide Number of BITs per country, January 2003
0 1 to 30 31 to 60 61 to 90 > 91
25Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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.
26Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
27Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
28Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
29Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
30Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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
31Source: UNCTAD, World Investment Report 2003. FDI Policies for Development:
National and International Perspectives
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.