Recent Trends in Global and Regional Foreign Direct Investment

1
Recent Trends in Global and Regional Foreign
Direct Investment

• Khalil Hamdani
• Director
• UNCTAD-DITE
• Khalil.hamdani_at_unctad.org
• International Investment Promotion Forum
• Xian, China
• 26 July 2007

2
2006 was a third year of FDI growth

• World FDI inflows over 1.2 trillion (
  34)
• Developed countries over 800 billion (
  48)
• Developing economies over 367 billion (
  10)
• Africa over 38 billion ( 27)
• Latin America 99 billion (- 5)
• Asia over 230 billion ( 15)
• South East Europe, CIS over 62 billion
  ( 56)

3
Top recipients of FDI inflows

• United States
• United Kingdom
• France
• China
• Hong Kong, China

4
The drivers of FDI growth

• World economic growth, with nearly every country
  recording positive growth.
• Cross-border Mergers Acquisitions
• Close to the previous boom (2000), many mega
  deals
• 60 of the value of mergers and acquisitions in
  services
• The rise in FDI by collective investment funds
• mainly private equity and hedge funds
• The rise in FDI from developing and transition
  economies
• The revival of FDI in natural resources

Source UNCTAD.
5
The revival of FDI in natural resources

• The primary sector gained in importance
• Services still remain dominant
• Main target industries are
• Petroleum (oil and gas) share of 14 of all
  industries
• Telecommunications 14
• Finance 13

primary
services
6
The rise in FDI from developing and transition
economies

• An acceleration in the 1990s
• FDI outflows 17 of world total
• FDI Outward stock 13 of world total
• Cross-border MAs their share in global
  purchases rose from 4 in 1987 to 13 in 2005
• South-North deals rapid rise in past three years

7
FDI from developing and transition economiesAn
acceleration in the 1990s 1980-2005 (Millions of
dollars)
8
The largest investors
Stock of OFDI from developing and transition
economies, 2005 (Billions of dollars)
9
Main features of FDI from Developing and
Transition Economies

• Concentrated (top 10 sources 83 of FDI stock)
  but a number of countries are joining in
• Indias outward investments doubled in 2005-2006
• Asia has grown in importance
• Services sector dominate
• Developing countries invest primarily in other
  developing countries (the bulk of their flows)

10
Asia has grown in importance 1980-2005 (Outward
FDI stock)
Millions of dollars
11
Mapping South-South FDIKey role of Asia
South-South FDI flows, excl. offshore financial
centres, 2002-2004, millions of dollars
12
Industrial distribution

• Three clusters of activities
• Primary sector and resource-based manufacturing
  (in all developing regions and in Russian
  Federation)
• Financial services, infrastructure services and
  goods that are difficult to export (in most
  developing regions)
• Global industries, e.g. electronics, garments and
  IT services (primarily in Asia)

13
TNCs from developing economies

• Five are now among the world's largest 100 TNCs
• 77 from Asia 12 from LAC 11 from Africa
• 25 from Hong Kong (China), 15 from Taiwan prov.
  of China, 10 from China

14
New regional and global TNCs

• Emerging economies account for about 25 of all
  TNCs
• In 1990, there were 19 such companies among the
  Fortune 500 by 2005, the number had risen to 47.
• Most global players based in Asia
• State ownership relatively common compared with
  developed-country counterparts

15
Competitive advantages

• TNCs from developing countries are comparable to
  those of developed country TNCs, but their
  relative importance varies. For example,
• developing country TNCs commonly derive their
  competitive advantages from
• production process expertise
• networks and relationships
• Developed country TNCs rely more on technological
  know how

16
Main drivers and motives

• Overall driver Globalization
• Major push factors (home country drivers)
• Limited size of home markets
• Rising costs of production in the home economy
• Rising competition in the home and foreign
  markets, which intensifies the impact of the
  above two drivers.
• Main pull factors (host country drivers)
• Markets, natural resources, labour
• Opportunities arising from liberalization

17
Impacts of outward FDI

• On home economies
• In most cases observed, there appears to have
  been a net positive impact, by improving
  competitiveness
• market expansion efficiency gains access to
  resources, etc.
• linkages and spillovers to local firms
• reverse transfer of technology
• Mostly in South-East and East Asia, outward FDI
  has been a factor of successful industrial
  restructuring.

18
Impacts of outward FDI

• On host economies
• FDI from developing countries is an additional
  and alternative source of investment.
• New bargaining position for host countries.
• South-South cooperation opportunities.
• Particularly important for Africa and various
  LDCs.

19
Alternative FDI more greenfield

• Preferred mode of establishment of overseas
  affiliates by developing-country TNCs, 2006
  percentage of responses from TNCs in the UNCTAD
  survey.

20
Alternative FDI more training
21
Policies on outward FDI

• More and more countries are dismantling barriers
  to outward FDI
• Remaining restrictions mostly seek to limit
  capital flows other than FDI
• Bilateral investment double tax avoidance
  treaties
• Some developing countries actively encourage
  outward FDI
• Policy statements
• Provision of information and match-making
  services
• Training services and technical services
• Financial or fiscal incentives
• China-Africa Development Fund to assist Chinese
  enterprises investing in Africa.
• Investment insurance

22
South-North takeovers raise concerns

• National security concerns
• Perceived loss of control over strategic assets
  or sensitive industries
• Particular concern when bidding companies have
  ties with State, e.g
• CNOOC (China) Unocal (United States)
• Minmetals (China) Noranda (Canada)
• Dubai Port World (UAE) PA (UK)
• Gazprom (Russian Fed.) Centrica (UK)
• Employment concerns
• Fears that jobs will be relocated to lower-cost
  locations
• Haier Group (China) takeover bid on Maytag (US)

23
Observed policy responses

• Proposals to block deals on the basis of national
  security considerations (e.g. United States,
  India)
• Proposals to block deals to protect national
  champions (e.g. Europe)
• Proposed changes in legislation to give more
  importance to national security (e.g. Canada)
• Proposals for strengthening review mechanisms
  when state-owned companies are involved (e.g.
  United States)

Challenge to avoid protectionism while
mitigating valid security concerns requires
prudent use of national security policies.
24
Implications for international rule-making

• South-South investment cooperation more important
• More developing and transition economies become
  both home and host economies
• Increased demand from business community in new
  home economies for protection of outward FDI
• May influence content of future International
  Agreements
• South-South investment disputes observed

25
Explosion of BITs and DTTs
26
Top ten signatories of BITs
27
In conclusion

• Prospects are bright, particularly for regional
  FDI.
• TNCs from developing and transition economies are
  here to stay - a new landscape is emerging.
• Their emergence is part of a profound shift in
  the world economy.
• With broad international economic and political
  implications.

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Thank You!

• Khalil Hamdani
• Khalil.hamdani_at_unctad.org
• THE WORLD INVESTMENT REPORT 2007
• Worldwide launch 16 October 2007
• can be downloaded free of charge at
• www.unctad.org/wir