World Investment Report 2003

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World Investment Report 2003
UNCTAD

• FDI Policies for Development
• National and International Perspectives

Zbigniew Zimny, Head Investment Issues Analysis
Branch UNCTAD, Division on Investment, Technology
and Enterprise Development Phone [phone]
Fax [phone] E-mail zbig.zimny_at_unctad.org
Presentation in Warsaw, 4 September 2003
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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
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Uneven Downturn in Developing CountriesLargest
declines in Latin America and Africa
Inflows of FDI to developing countries,
1995-2002, by region
billions
250
Developing countries
200
Asia and the Pacific
150
100
Latin America/Caribbean
50
China
LDCs
Africa
0
1995
1996
1997
1998
1999
2000
2001
2002
Source UNCTAD, World Investment Report 2003.
FDI Policies for Development National and
International Perspectives
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The 10 Destinations Most Affected Inflows to the
US down by more than 100 billion
Declines in FDI inflows, 2002
billions
Source UNCTAD, World Investment Report 2003.
FDI Policies for Development National and
International Perspectives
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Top 10 Economies Defying the Downturn
Increases in FDI inflows, 2002
billions
Source UNCTAD, World Investment Report 2003.
FDI Policies for Development National and
International Perspectives
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Top 10 Destinations for FDI in 2002China in
first place leaving aside special case of
Luxembourg
billions
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Top 10 Developing Economy Recipients in 2002
billions
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10 Largest Sources of FDI 2002
billions
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Why the Downturn

• Macroeconomic factors. Slow growth, decline in
  stock market valuations (which led to the
  dramatic decline in cross-border MAs)
• Microeconomic factors. Low corporate profits,
  divestment, repayment of intra-company loans
• Institutional factors. Winding down of
  privatization

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Plummeting Cross-Border MAs Key Factor

• Between 2000 and 2002
• Value of cross-border MAs 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
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FDI Largest Source of External Finance to
Developing Countries
Total resource flows to developing countries, by
type of flow, 1990-2002, billions
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International Production Growing, at Slower Pace
Indicators of FDI and international production
1982-2002, billions, current prices
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Inward FDI stock, by group of economies, 1980,
1990, 1995, 2000, 2001 and 2002
(Billions of dollars)
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Outward FDI stock, by group of economies, 1980,
1990, 1995, 2000, 2001 and 2002
(Billions of dollars)
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Inward FDI stock, 2002
Note The size of the region/country's box
reflects the size of the FDI stock.
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Top 15 Ranks in the FDI Performance
Index1999-2001, index value
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Top 15 Ranks in the FDI Potential
Index1999-2001, index value
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Countries Increasingly Welcome FDI
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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)?
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Part Two
Enhancing The Development Dimension of
International Investment Agreements
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Objectives of National FDI Policies
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Proliferation of IIAs at All Levels

• Bilateral level
• BITs from 385 (1989) to some 2,200 (2002)
• FTAs now often contain investment provisions
• Regional level
• FTAs covering investment (NAFTA, MERCOSUR)
• Investment agreements (ASEAN Investment Area,
  Andean Communitys Decision 291)
• Multilateral level instruments affecting FDI
• GATS, TRIMs Agreement, MIGA, etc.

And many IIAs are in the making
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Number of BITs and DTTs Continues to Rise
BITs and DTTs concluded, 1990-2002
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Density Mapping of BITs Worldwide Number of BITs
per country, January 2003
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BITs Increasing Coverage

• 176 countries have signed BITs
• 45 of BITs do not involve developed countries
• Share of outward FDI stock covered by BITs
• 7 of global FDI
• 22 of FDI in developing countries
• 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.

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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 agreementinvestor 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

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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

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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
• Performance requirements
• Incentives
• Transfer-of-technology policies and
• Competition policy

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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

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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
• contributing fully to public revenues of host
  countries
• creating and upgrading linkages with local
  enterprises
• creating employment opportunities
• raising local skill levels
• transferring technology
• Further attention in IIAs is desirable

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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.

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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.