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OECD GLOBAL FORUM ONINTERNATIONAL INVESTMENT
NEW HORIZONS AND POLICY CHALLENGES FOR FOREIGNDIRECT INVESTMENT IN THE 21ST CENTURY
Mexico City, 26-27 November 2001
Recent FDI Trends, Implications for Developing Countries andPolicy Challenges
Karl P. SauvantDirector
UNCTAD-DITE
Recent FDI Trends, Implications forDeveloping Countries and Policy Challenges
Karl P. Sauvant
DirectorUNCTAD-DITE
Phone: +41 22 907 5707; Fax: +41 22 907 04 98
OECD Global Forum on International Investment
New Horizons and Policy Challenges for FDI in the 21st Century
Mexico, 26-27 November 2001United Nations
Source: UNCTAD, World Investment Report 2001
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Global inflows of FDI1993-2001, USD billions, by group of countries
0
200
400
600
800
1000
1200
1400
1993 1994 1995 1996 1997 1998 1999 2000 2001*
World
D evelopedcountries
D evelopingcountries
Central and Eastern Europe
* Preliminary data based on information available before the September 11 events.
Source: UNCTAD, World Investment Report 2001
4
0
50
100
150
200
250
300
1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 *
D eveloping countries
Asia and the Pacific
Latin America
Africa
Inflows of FDI to developing countries1993-2001, USD billions, by group of countries
* Preliminary data based on information available before the September 11 events.
Source: UNCTAD, World Investment Report 2001
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Expected decline in 2001
• From $1.3 trillion to $760 billion (-40%)– developed countries: -49%
– developing countries: -6%
– Central and Eastern Europe: +/-0%
• Reasons:– slowdown in the world economy
– sharp drop in M&A activity
Source: UNCTAD, World Investment Report 2001
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• Increased uncertainty
• Accentuated (but uneven) economic slowdown (?)
• Impact on M&A activity (?)
• Fiercer competition (?)
• Effect on regulatory regimes?
• Short-term (below $700 bn ?) vs. long-term impact?
Key policy challenge:
restore confidence among consumers and investors
The 11 September events: impact on FDI
Source: UNCTAD, World Investment Report 2001
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First response to decline in FDIInvestment promotion
• 1st generation:
– liberalization of FDI flows
– opening up of sectors to foreign investors
• 2nd generation:
– marketing of countries as locations for FDI
– setting up of national investment promotion agencies
• 3rd generation:
– targeting of foreign investors at the level of industries and clusters
– marketing of regions and clusters
– aim: to match the locational advantages of countries with the needs of theforeign investor.
Source: UNCTAD, World Investment Report 2001
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Second response to decline in FDIOptimize the benefits from FDI
• Potential benefits from FDI are acknowledged
– capital inflows
– employment
– information, technology and knowledge transfers
– access to international markets
– competition
• However, these benefits cannot be taken for granted
• Linkage promotion - key policy area to benefit more from FDI
Source: UNCTAD, World Investment Report 2001
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Why promote backward linkages?
• Potential benefits to foreign affiliates, local firms and host countries.
• Foreign affiliates: using suppliers in a host country way to reduce costs,
increase flexibility and expand sales. Outsourcing and sub-contracting
raise the need for inter-firm linkages.
• Local firms: become part of global production networks of TNCs, can
increase sales and benefit from productivity-enhancing information and
knowledge transmitted from foreign affiliates.
• Host countries: can benefit when linkages contribute to the upgrading of
domestic enterprises and as foreign affiliates become more firmly
embedded in the host economy.
Source: UNCTAD, World Investment Report 2001
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Policy matters!
• Firms have self-interest in forging linkages…
• …and many firms make considerable efforts to strengthen
their suppliers...
• … but policy still matters!
Source: UNCTAD, World Investment Report 2001
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Best practice in linkage promotionsome lessons learned
• Part of development strategy, political commitment
• Collaborate with private sector
• Be selective!
• Focus on measures to upgrade local supply capacity
• Areas of intervention (matchmaking, information,
technology, training and financial assistance)