Investing Across Borders 2010

1. Investing Across Borders 2010 Indicators of foreign direct investment regulation in 87 economies Investment Climate Advisory Services World Bank Group Embargoed: Not for news wire transmission, posting on Web sites, or any other media use until Wednesday, July 7, 2010, 09.00 Vienna time (Wednesday, July 7, 07.00 GMT)

2. Overview • Findings • Implications

3. Overview Investing Across Borders (IAB)is a new World Bank Group initiative comparing regulation of foreign direct investment (FDI) around the world. It presents indicators on countries’ laws, regulations, and practices affecting how foreign companies invest across sectors, start businesses, access industrial land, and arbitrate commercial disputes. IAB’s objectives are to: • Respond to information requests for benchmarks on FDI regulations by client governments, development partners and academics • Facilitate policy dialogue by identifying good practices (building on the experience of existing diagnostics such as Doing Business, Enterprise Surveys, etc.) • Facilitate sharing of reform experiences • Inform reform advisory work • Enable research and analysis on links between reforms in measured areas and desired outcomes

4. Country coverage: 87 economies across 7 regions • Sub-Saharan Africa (SSA – 21 economies): Angola, Burkina Faso, Cameroon, Côte d'Ivoire, Ethiopia, Ghana, Kenya, Liberia, Madagascar, Mali, Mauritius, Mozambique, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Sudan, Tanzania, Uganda, Zambia • East Asia and the Pacific (EAP – 10 economies):Cambodia, China, Indonesia, Malaysia, Philippines, Papua New Guinea, Singapore, Solomon Islands, Thailand, Vietnam • Eastern Europe and Central Asia (ECA – 20 economies): Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyzstan, Macedonia, FYR, Moldova, Montenegro, Poland, Romania, Russian Federation, Serbia, Turkey, Ukraine • Latin America and the Caribbean (LAC – 14 economies): Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Peru, Venezuela R.B. • Middle East and North Africa (MNA – 5 economies): Egypt Arab Rep., Morocco, Saudi Arabia, Tunisia, Yemen Rep. • South Asia (SAR - 5 economies): Afghanistan, Bangladesh, India, Pakistan, Sri Lanka • High-incomeOECD (12 economies): Austria, Canada, Czech Rep., France, Greece, Ireland, Japan, Korea Rep., Slovak Rep., Spain, United Kingdom, United States

5. Methodology

6. IAB indicators focus on four areas of FDI regulation IAB 2010 report does not include rankings or aggregation of indicators at topic level.

7. Resources

8. Overview • Findings • Implications

9. Global Result HighlightsInvesting Across Sectors indicators • Countries in Eastern Europe and Central Asia and Latin America and the Caribbean have on average fewer sector restrictions to FDI entry than economies in the other regions. • East Asia and the Pacific region is, on average, most restrictive, with many economies limiting or completely prohibiting foreign investment in media, transport, energy, telecommunications, and financial services. • There are hardly any restrictions on FDI entry in light manufacturing, construction, tourism and retail. • In contrast, many economies still restrict FDI in other services industries.

10. Global Result HighlightsStarting a Foreign Business indicators • In all regions, starting a foreign company takes longer and requires more steps than starting a domestic company. It takes longest in LAC -- 75 days. • In Sub-Saharan Africa, on average, starting a foreign business takes nearly twice as long (40 days) as starting a domestic business (21 days). • Of the additional procedures required of foreign companies, the most common one is the investment approval. • In Europe and Central Asia and Latin America and the Caribbean, none of the economies covered in the IAB survey require an investment approval.

11. Global Result HighlightsAccessing Industrial Land indicators • Average time to lease industrial land from the government is more than double the time required to lease land from a private holder. • Middle East and North Africa and OECD high income economies have the most efficient systems for leasing industrial land. In contrast, it can take over a half a year to lease government-owned land in the South Asian economies. • All 87 economies surveys allow foreign owned companies to lease land. • However, most economies in East Asia and the Pacific and Sub-Saharan Africa regions do not allow land ownership by foreign-owned companies. Economies in these regions instead commonly offer long term leases from the government.

12. Global Result HighlightsArbitrating Commercial Disputes indicators • Countries with well developed or modern arbitration laws give parties in dispute greater freedom to choose a flexible and effective arbitration process. • Some middle income economies restrict party autonomy by requiring that arbitrators speak the local language (e.g. LAC), or that arbitrators are domestically licensed lawyers (e.g. ECA). • Only seven economies, mainly in Europe and Central Asia and Sub-Saharan Africa, do not have a law on commercial arbitration. • The majority of economies have not yet enacted a law on mediation.

13. Overview • Findings • Implications

14. ImplicationsRestrictive and obsolete laws and regulations impede FDI • Most of the 87 economies measured by IAB have FDI-specific restrictions that hinder foreign investment • A fifth of the countries surveyed require foreign companies to go through a foreign investment approval process. This adds, on average, nearly 1 month to the establishment process and in some countries up to 6 months. • Almost 90%of countries limit foreign companies’ ability to participate in some sectors of their economies. Service sectors - such as media, transportation, and electricity - have stricter limits on foreign participation than other sectors. • In international commercial arbitration, 1 in 4 measuredcountries has not ratified the New York Convention, the ICSID Convention, or both. Adherence to and implementation of international and regional conventions signal a government’s commitment to the rule of law and its investment treaty obligations.

15. ImplicationsRed tape and poor implementation of laws create further barriers to FDI Administrative processes and interactions with public institutions matter • In Angola and Haiti establishing a subsidiary of a foreign company can take more than 6 months. In Canada, Georgia, and Rwanda it can be done in less than a week. • Leasing industrial land in Nicaragua and Sierra Leone typically requires half a year as opposed to less than two weeks in Armenia, Republic of Korea, and Sudan. • In Pakistan, Philippines, and Sri Lanka it can take up to two years to enforce an arbitration award. In high-income OECD countries such as France and the United Kingdom enforcement can be completed in less than 2 months.

16. ImplicationsGood regulations and efficient processes matter for FDI Countries with poor regulations and inefficient processes for foreign companies receive less FDI and have smaller accumulated stocks of FDI • Countries tend to attract more FDI if they allow foreign ownership of companies in a variety of sectors, make start-up, land acquisition, and commercial arbitration procedures efficient and transparent, and have strong laws protecting investor interests. But this correlation does not imply existence or direction of a causal relationship. Many other variables such as market size, political stability, infrastructure quality, or level of economic development are • likely to better explain the relationship. • IAB also finds that countries with smaller populations and markets tend to have fewer restrictions on FDI. And countries that have done particularly well in attracting FDI (before the recent economic crisis) such as Ireland, Singapore, the United Kingdom, and the United States also score well on the IAB indicators.

17. ImplicationsEffective institutions help foster FDI Easily accessible and reliable information, and efficient and predictable actions by public institutions help create a business environment conducive to investment IAB shows that effective institutions that provide easily accessible and reliable information matter for creating an enabling investment climate. Furthermore, countries that provide their citizens with good public services, have good institutions, enjoy political stability, and do not suffer from corruption tend to score well on the IAB indicators.

18. ImplicationsCountries can improve their FDI competitiveness IAB indicators are designed to identify good practices that offer governments specific tools for improving their investment climates in the 4 measured indicator areas • Investing Across Sectors • Allowing foreign ownership in the primary, manufacturing, and service sectors. • Starting a Foreign Business • Equal treatment of foreign and domestic investors. • Simple and transparent establishment process. • Arbitrating Commercial Disputes • Strong arbitration laws in line with arbitration practice. • Autonomy to tailor arbitration proceedings. • Supportive local courts. • Adherence to international conventions. • Accessing Industrial Land • Clear laws which provide fair and equal treatment for foreign and domestic companies. • Accessible land information. • Efficient land acquisition procedures.

19. More information is available at www.investingacrossborders.org Global launch July 7, 2010 09.00 Vienna time (07.00 GMT) Vienna , Austria