Global FDI Movements: Myths

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Global FDI Movements Myths Facts Trends in
Global FDI Movements Conference, Istanbul,
24/03/06 Presentation by Declan Murphy Director,
XMI Consult Advisor to the OECD
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KEY THEMES

• GLOBAL FDI TRENDS
• DRIVERS OF CHANGE
• PROSPECTS FOR FDI
• COMPETITION FOR FDI
• TURKEY MOVING TO BUILD FDI
• TURKEYS VISION, STRATEGY AND STRUCTURE

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FDI - SOME MYTHS?

• FDI mostly in manufacturing
• Mostly large multinational groups
• Mainly about acquiring domestic market share
• Focused on acquisition of national
  assets/resources
• Puts domestic companies out of business
• Transient..comes only for a period and then
  moves on
• Repatriates profits and benefit lost to host
  country
• Seeks to avoid labour/environmental standards
• Needs special controls/regulations

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GLOBAL FDI MOVEMENTS

• 1990s Continuous growth through decade to
  annual record levels
• 2000 An unprecedented peak ? 1,400 billion
• 2001 FDI plummeted with economic recession,
  2003 600 billion
• 2004 Growth resumed, 648 billion inflows, 2
  higher than 2003
• 2005 FDI levels increased 29 on 2004 to ca.
  780 billion
• 2006 General expectations for continued growth

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MAJOR DRIVERS OF FDI

• Global GDP grew at an average of 4.7 over past
  two years
• Fastest pace in any two consecutive years since
  1970s EIU
• Corporate profits up in G7 countries 14 of
  GDP V 12 in 2000
• Global interests expected to remain low
• Regulatory regimes more liberalised in many
  countries
• Intense competition, market seeking and search
  for lower costs
• Intensified policy and promotion efforts by
  countries
• Opening of major new markets e.g. China
• Corporate restructuring (e.g. offshoring,
  outsourcing, business functions split)

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SOURCES OF FDI

• Almost half of all FDI originated from USA, UK,
  and Luxembourg
• Leading sources continue to be US, UK, Germany,
  China, Japan, France, Netherlands, Koreasbut
  many smaller countries investing
• Major investing countries tend to be major host
  countries as well
• Stock of FDI at end 2004 estimated at 9
  trillion invested by ca. 70,000 transnational
  companies with 690,000 affiliates abroad
• 1970s predominantly manufacturing
• 1990s on predominantly services

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TYPES OF FDI

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PROSPECTS FOR FDI

• Mergers and acquisitions will drive levels
• MA up 30 this year (680 deals) compared to
  same period 2005
• Value of MAs up 64 to 2,714 billion Source
  Bloomberg, Mar 2006
• European stocks at 5 year high (3/2006)
• Companies are flush with cash for takeovers
  David Stix, CEO, Dexia
• 75 of European expect higher operating margins
  in 2006
• Source IBES estimates
• Restructuring, tighter cost controls,
  outsourcing have helped profit growth

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COMPETITION FOR FDI

• Global competition increasing all the time
• World Association of Investment Promotion
  Agencies (WAIPA)
• (191 members - up 18 in 2005 - from 149
  countries)
• Very nature of FDI is evolving
  rapidly.developing and emerging countries
  increasing their sharealso moving up value
  chainnext wave will have new sectors, new
  players, new methods governments and IPAs must
  be state of the art in their approach adapt
  permanently to changing conditions focus more on
  concrete business and investment opportunities
  staying competitive will require constant flow of
  new ideas and smart work
• China, India new centres of gravity in
  addition to major developed countries Asia and
  Central East Europe remain highly competitive.

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CHINA, INDIA, POLAND

• China most attractive FDI destination
  ATKearney FDI Confidence Index
• Dell Computer plans to double its workforce in
  India to 20,000
• 10,000 in call centres/business support roles
  plans new factory
• There is a fantastic opportunity to attract
  talent Michael Dell, 03/2006
• Polands similarity to Western Europe makes it
  well positioned to become a business processing
  centre for Europe. If this happens, 200,000 new
  jobs could be created by 2008 McKinsey
  Company

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WORKING WITH EXISTING INVESTORS

• Existing investors are the source of over 50 of
  new investment for many EU and OECD countries
• Crucial that strategy recognises this and
  ensures partnership
• Case Examples Ireland
• Abbott Laboratories is a global healthcare
  company with 60,000 people. On 21/03/06 it
  announced a new diabetes care product factory in
  Ireland. It has six manufacturing plants in
  Ireland. The success of our operations in
  Ireland was an important factor in our decision
  to locate in Donegal Ed Fiorentino, President,
  Abbott Diabetes Care
• Vistakon, a subsidiary of Johnson Johnson
  announced 15/03/06 an investment of EUR 100
  million in its Limerick facility, one of its
  seven plants in Ireland, manufacturing various
  healthcare products

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IRELAND PRIORITY SECTORS
ICT SOFTWARE e BUSINESS
PHARMA
AGRI/FOOD
SECTORS
TOURISM
HEALTHCARE
FINANCIAL/ SHARED SERVICES
ENGINEERING
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TURKEY MOVING TO BUILD FDI

• New levels of FDI achieved in 2005but
• Relative to EU and OECD countries Turkey is not
  a major player
• Huge opportunity for Turkey to build FDI levels
• Matching Romanias levels, for example, implies
  10-20 billion FDI
• Moving forward in competitive global environment
  demands
• STRATEGY STRUCTURES
• SHARED VISION 2006 2010 AND TARGETS
• ADEQUATE RESOURCES (PEOPLE AND MONEY) TO COMPETE
• GOVERNMENT ENDORSEMENT AND SUPPORT

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TURKEY STRATEGY AND STRUCTURES

• National Economic Development Plan FDI strategy
  an inherent part
• Investment Promotion Strategy 2006-2010 Debate
  and consensus
• VISION 2006-2010 Shapes strategy and structures
• Investment environment continue reform
• Structures move to build in line with world
  successful practice

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TURKEY STRATEGY NEEDED

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STRENGTHEN EXISTING CAPACITIES

• Existing opportunities need to be
  seizedimmediately
• Strengthen existing promotion efforts in the
  Treasury
• Communicate openly and widely the progress being
  achieved
• Enable Treasury staff to work more effectively
  with investors
• (priority of FDI, skills, budget, no. of
  people, admin procedures, etc.)
• Ensure good partnerships with SPO and MFAplus
  others
• Such action does not prejudice any future
  decisions about structures and should help to
  prepare ground for new strategy and new
  institutional structures

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VITAL ELEMENTS OF NEW STRATEGY

• Private sector partnership in building strategy,
  contribution to impact assessment, linkage with
  domestic companies, supporting promotion efforts,
  developing sectoral strategies
• EU candidate status articulating benefits to
  international investors
• Turkey as a Regional Centre building the
  concept
• Measuring the benefits of FDI and building wide
  understanding
• Existing investors working with them, make it a
  priority
• Greenfield investment make it a priority