World Investment Report 2003

1. EMBARGO 4 SEPTEMBER 2003 17:00 hrs GMT UNCTAD World Investment Report 2003 Zbigniew Zimny, Head Investment Issues Analysis Branch UNCTAD, Division on Investment, Technology and Enterprise Development Phone: 4122 907 4643; Fax: 4122 907 0197 E-mail: zbig.zimny@unctad.org Presentation in Warsaw, 4 September 2003 FDI Policies for Development: National and International Perspectives

2. Global inflows of FDI, 1993-2002, by groups of countries $ billions Largest FDI Downturn in 30 YearsDeveloped countries most affected Source: UNCTAD, World Investment Report 2003. FDI Policies for Development: National and International Perspectives

3. Inflows of FDI to developing countries, 1995-2002, by region $ billions Uneven Downturn in Developing CountriesLargest declines in Latin America and Africa 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

4. 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

5. Increases in FDI inflows, 2002 $ billions Top 10 Economies Defying the Downturn Source: UNCTAD, World Investment Report 2003. FDI Policies for Development: National and International Perspectives

6. Top 10 Destinations for FDI in 2002China in first place leaving aside special case of Luxembourg $ billions

7. Top 10 Developing Economy Recipients in 2002 $ billions

8. 10 Largest Sources of FDI 2002 $ billions

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

10. 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 Plummeting Cross-Border M&As Key Factor Source: UNCTAD, World Investment Report 2003. FDI Policies for Development: National and International Perspectives

11. Total resource flows to developing countries, by type of flow,1990-2002,$ billions FDI Largest Source of External Finance to Developing Countries

12. International Production Growing, at Slower Pace Indicators of FDI and international production1982-2002, $ billions, current prices

13. Inward FDI stock, by group of economies, 1980, 1990, 1995, 2000, 2001 and 2002 (Billions of dollars)

14. Outward FDI stock, by group of economies, 1980, 1990, 1995, 2000, 2001 and 2002 (Billions of dollars)

15. Inward FDI stock, 2002 Note: The size of the region/country's box reflects the size of the FDI stock.

16. Top 15 Ranks in the FDI Performance Index1999-2001, index value

17. Top 15 Ranks in the FDI Potential Index1999-2001, index value

18. Countries Increasingly Welcome FDI

19. Future Prospects for FDI Vary by Regiona2003/04 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)?

20. Part Two Enhancing The Development Dimension of International Investment Agreements

21. Attracting FDI Development concerns Maximizing benefits of FDI Minimizing negative effects of FDI Objectives of National FDI Policies

22. 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 Community’s Decision 291) • Multilateral level: instruments affecting FDI • GATS, TRIMs Agreement, MIGA, etc. Proliferation of IIAs – at All Levels And many IIAs are in the making…

23. Number of BITs and DTTs Continues to Rise BITs and DTTs concluded, 1990-2002

24. Density Mapping of BITs Worldwide Number of BITs per country, January 2003

25. 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. BITs – Increasing Coverage

26. 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 Implications?

27. 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 Key IIA Issues Examined in WIR03

28. 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 Key IIA Issues Examined in WIR03 (cont.)

29. 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 Balancing Host and Home Country Intereststo enhance the development dimension of IIAs

30. 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 The Role of TNCs also Deserves Attention

31. 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. Conclusions

32. 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.