World Investment Report 2003 FDI Policies for Development: National and International Perspectives UNCTAD EMBARGO 4 SEPTEMBER :00 hrs GMT Zbigniew Zimny, Head Investment Issues Analysis Branch UNCTAD, Division on Investment, Technology and Enterprise Development Phone: ; Fax: Presentation in Warsaw, 4 September 2003

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 2 Largest FDI Downturn in 30 Years Developed countries most affected Global inflows of FDI, , by groups of countries $ billions Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 3 Uneven Downturn in Developing Countries Largest declines in Latin America and Africa Developing countries Asia and the Pacific Latin America/Caribbean China Africa LDCs Inflows of FDI to developing countries, , by region $ billions Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 4 Declines in FDI inflows, 2002 $ billions The 10 Destinations Most Affected Inflows to the US down by more than $100 billion Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 5 Top 10 Economies Defying the Downturn Increases in FDI inflows, 2002 $ billions Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 6 Top 10 Destinations for FDI in 2002 China in first place leaving aside special case of Luxembourg $ billions

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 7 Top 10 Developing Economy Recipients in 2002 $ billions

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 8 10 Largest Sources of FDI 2002 $ billions

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 9 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

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 10 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 FDI Policies for Development: National and International Perspectives

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 11 FDI Largest Source of External Finance to Developing Countries Total resource flows to developing countries, by type of flow, , $ billions

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 12 Indicators of FDI and international production , $ billions, current prices International Production Growing, at Slower Pace

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 13 Inward FDI stock, by group of economies, 1980, 1990, 1995, 2000, 2001 and 2002 (Billions of dollars)

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 14 Outward FDI stock, by group of economies, 1980, 1990, 1995, 2000, 2001 and 2002 (Billions of dollars)

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 15 Inward FDI stock, 2002 Note: The size of the region/country's box reflects the size of the FDI stock.

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 16 Top 15 Ranks in the FDI Performance Index , index value

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 17 Top 15 Ranks in the FDI Potential Index , index value

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 18 Countries Increasingly Welcome FDI

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 19 Future Prospects for FDI Vary by Region a 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 ( )?

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 20 Enhancing The Development Dimension of International Investment Agreements Part Two

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 21 Objectives of National FDI Policies Maximizing benefits of FDI Minimizing negative effects of FDI Attracting FDI Development concerns

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 22 Proliferation of IIAs – at All Levels  Bilateral level oBITs: from 385 (1989) to some 2,200 (2002) oFTAs now often contain investment provisions  Regional level oFTAs covering investment (NAFTA, MERCOSUR) oInvestment agreements (ASEAN Investment Area, Andean Community’s Decision 291)  Multilateral level: instruments affecting FDI oGATS, TRIMs Agreement, MIGA, etc. And many IIAs are in the making…

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 23 Number of BITs and DTTs Continues to Rise BITs and DTTs concluded,

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 24 Density Mapping of BITs Worldwide Number of BITs per country, January 2003

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 25 BITs – Increasing Coverage  176 countries have signed BITs  45% of BITs do not involve developed countries  Share of outward FDI stock covered by BITs o7% of global FDI o22% of FDI in developing countries o57% 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.

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 26 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

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 27 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

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 28 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 oPerformance requirements oIncentives oTransfer-of-technology policies and oCompetition policy

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 29 Balancing Host and Home Country Interests to 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

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 30 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: ocontributing fully to public revenues of host countries ocreating and upgrading linkages with local enterprises ocreating employment opportunities oraising local skill levels otransferring technology  Further attention in IIAs is desirable

Source: UNCTAD, World Investment Report FDI Policies for Development: National and International Perspectives 31 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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