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Facilitating New Investment in Difficult Market Circumstances

Facilitating New Investment in Difficult Market Circumstances. Robert Whyte Sydney, Australia December 2010. FDI in the current market. GIPB Results. Implications for IPIs. FDI in the Current Economic Recession. Recession Most severe recession since 1929

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Facilitating New Investment in Difficult Market Circumstances

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  1. Facilitating New Investment in Difficult Market Circumstances Robert WhyteSydney, Australia December 2010

  2. FDI in the current market GIPB Results Implications for IPIs

  3. FDI in the Current Economic Recession • Recession • Most severe recession since 1929 • Global FDI flows fell 47% between 2007 and 2009 • Recovery • After four quarters of low-level recovery, Q2 2010 saw a substantial decline • Q2 decline due primarily to drops in reinvested earnings and intra-company loans • Total FDI in 2010 is forecast to stay flat at 2009 levels • Business Response • Significant decrease in access to credit • Re-capitalization of banks is taking place in many countries • Lower corporate profits • Leading site selection firms report slowdown and postponement of investment projects • Companies restructuring to deal with the crisis; cautious about recovery • Investment plans frozen or discarded • De-locations and outright plant closures Source: World Investment Report 2010, United Nations Conference on Trade and Development UNCTAD Global Investment Trends Monitor, Issue No. 4, 2010

  4. Investment flows – Global • Global FDI in 2009 at $1.11 trillion (Greenfield and M&A) • 2nd consecutive year of decline after 4 years of growth • Still 5th highest year in history • Share of developing countries rose to 43%, the highest since 1982 Source: World Investment Report 2010, United Nations Conference on Trade and Development

  5. Investment flows – Developing economies • Developing economies • $630 billion in 2008 was the highest level ever, while developed economies saw a decline of 16%1 • $478 billion in 2009 was a 24% decrease, but was much more modest than the 44% decrease in developed countries • East Asia • $154.8 billion in 2009 was the second highest ever, but a decline of 17% from the 2008 peak of $185.5 billion • The Pacific 2 • $892 million in 2009 was the highest ever, up nearly 15-fold since 2002 1China and Russia represent 1/3 of the $630 billion 2 Includes Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tokelau, Tonga, Tuvalu and Vanuatu Source: UNCTAD World Investment Report 2010 Source: WIR2008

  6. Investment flows (by value) – The Pacific • Since 2002 FDI inflows have trended upward with periodic setbacks • Largely to Papua New Guinea (44% of 2009 total), Fiji (27%) and, over the last 5 years, increasingly the Solomon Islands (19%) FDI Inflows to the Pacific, 1990-2009 Millions of USD Source: UNCTAD FDI Database

  7. Investment flows (by value) – The Pacific FDI Announcements: • 42 investment projects from 32 companies(Jan. 2003-Oct. 2010) • Average number of jobs created per project was 299 • Leading sector: Coal, Oil and Natural Gas with 33% of projects • Leading activity: Manufacturing, with 38% of projects Source: fDi Markets The pacific 2003 -2010

  8. Investment flows (by project) – The Pacific • Top 10 companies accounted for 48% of projects, including: • Kulim (Malaysia), • InterOil (Australia) and • ExxonMobil (United States) • Top 5 destinations for FDI projects in the Pacific (total from 2003-2010) Source: 1fDi Markets the Pacific 2003 -2010 2UNCTAD World Investment Report 2010

  9. Prospects for FDI Recovery: 2009-2012 • Depends on financial sector liquidity and willingness to fund new projects • Depends on government response policies – e.g. extent of protectionism • As of mid-October, FDI flows appear to be on the “pessimistic” track, with a forecast increase of half a percent. Global FDI flows, 2002-2009, and projections for 2010-2012 Source: World Investment Report 2010, UNCTAD

  10. How can governments react quickly and effectively? Longer term: • Better infrastructure and skills ..... Expensive investments • Market size/growth and factor costs are functions of the market - difficult to influence. • Proximity to markets, climate, resource endowments, and other natural characteristics are what they are.

  11. How can governments react quickly and effectively? Short term: • A better investment climate: • Can be achieved with greater simplicity, transparency, and predictability • Comes in great part from better organization, streamlining, coordination, and communication with the private sector • Reduces costs and risk to investors, instantly improving the expected return on investment for your location • Good facilitation - compensates (at least to an extent) for weaknesses in the investment climate, giving investors clarity and security where there is none, through the provision of information and assistance.

  12. Why IPIs Should Bridge the Corporate Information Gap? • Information markets do not work perfectly. As a result, companies often limit options to those locations they are familiar with. • IPIs’ effective marketing can encourage companies to look at new countries and open new opportunities. • Current financial instability may make companies more cautious about their medium-term foreign expansions. • Making investment-relevant information easily available lessens investors’ risk perceptions. • Provision of relevant, accurate and up-to-date information diminishescompanies’ transaction costs during the site selection process. • Thereby making destinations more competitive.

  13. FDI in the Current market GIPB Results Implications for IPIs

  14. GIPB Mirrors Companies’ Site Selection Process • Stepping in the shoes of two companies (manufacturing and software) a site location consultant assessed: • IPI Websites-- The extent to which IPIs offer country and sector information suitable to assist potential investors in their location search. • Inquiry handling -- A mystery shopper approach tested each IPI’s ability to interact with and manage two distinct investment inquiries, provide relevant information and make a business case for investment. A recent survey of 3,600 US large companies ($25m+) conducted by DCI Consulting reveals that: • 64% of respondents would use the IPI website in their next location search. • Only 8% of respondents say they would not contact the IPI during the investment decision process • Site location consultants are more likely to use the IPI services for information in the screening process.

  15. Countries Are Missing Investment Projects and Jobs When foreign companies knock on the door, IPIs often do not respond… GIPB 2009 Regional Scores: Web Site & Inquiry Handling 37% The Pacific1

  16. 2006-2008 Trends • IPIs have improved since 2006 but this is down to the ‘shop window’- the websites. There is no real change in the investor assistance on the’ shop floor’- improvements in inquiry handling have been moderate at best and in most cases the levels of service remain very low. • Improvements are recorded for most regions. However, in the Pacific it seems that investors can expect less help from the IPIs to navigate the system. Regional Comparison 2006 and 2008 The Pacific1 1Note: due to limited data availability average based on 5 of the invited countries

  17. The world’s top improvers between 2006 and 2009 • Three of the top 8 improvers are from the Pacific region • Biggest regional improvements were: • Fiji (+26%) • Papua New Guinea (+14%) • Solomon Islands (+16%) Fiji Solomon Islands Papua New Guinea

  18. The Pacific Performance (by tier) BEST PRACTICE: 81-100% GOOD: 61-80% AVERAGE: 41-60% WEAK: 21-40% VERY WEAK: 0-20%

  19. Top Performers in the Pacific Average Good • Approaching global competitiveness • Fiji rated “good” • Consistency is a weakness. If both inquiry responses had been stronger, a few other weaker performers would have attained “average”

  20. The Pacific: Details Website • As a group, the Pacific was “best practice” in terms of Design (82%) and “good” in terms of Information Architecture (74%) • Content was weakest with an average of 40% • 1 countries scored within the very weak range as a result of no website • 8 of the 11 countries achieved “good or average”. Top 3: • Fiji • Vanuatu • Papua New Guinea • Inquiry Handling • Of 11 IPIs surveyed: • 9 IPIs did not respond to investors’ manufacturing inquiry • 8 did not respond to the software inquiry • 2 IPIs responded to only 1 inquiry type • 7 IPIs (more than half) failed to respond in both cases • Fiji had the highest average response at 47%; responding to both inquiry types

  21. FDI in the Current Market GIPB Results Implications for IPIs

  22. Get the Basics Right …… Facilitation, Facilitation, Facilitation • IPIs underestimate what’s needed • Without proper Facilitation no investment promotion effort will pay off • The smaller the IPI budget the more sense Facilitation makes • Focus on the basics: Walk before you run • Countries where doing business is more challenging • Bigger role for the IPI to inform and facilitate foreign investors • Lesser known countries • Bridge the information gap through the work of the IPI to attract investment • The Web allows all IPIs to promote cost-effectively …... but there must also be a capacity to directly interact with investors

  23. Thank you. Questions

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