Post on 29-Dec-2015
Foreign Direct Investment
World Services Group 2008 Annual Meeting
Karin C. Millett, Head FIAS Investment Generation-ViennaWorld Bank Group
Munich, September 13, 2008
World Bank Group—Who we are
• World Bank (IBRD/IDA), IFC, MIGA• World Bank—lending to governments for
development priorities• IFC – advisory services, investment in private
sector, both equity participation and loans• MIGA – providing guarantees (insurance) to
private sector against: breach of contract by government, expropriation, war and civil disturbance, currency transfer restrictions
• FIAS – the Investment Climate Advisory Service (joint facility of WB, IFC, MIGA)
FIAS: 20 years of experience in investment climate
FIAS total program spending
• Multi-donor advisory service on investment climate• 105 staff in 8 locations • Mission: increase private investments in developing countries• Business model: require client requests and 50% co-funding • 219 projects in 82 countries (last 3 years)
WBG - Stimulating Reform through Benchmarking
• Doing Business - annual review of around 180 countries - and selected cities - to assess objective measures of business regulations and their enforcement – Doing Businees in SEE - covers 22 cities in seven
economies: Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYROM, Montenegro, and Serbia
• FDI Indicators - new FIAS instrument to review specific conditions for cross-border investment
DB and FDI Indicators: what they measure
Starting a businessDealing with licensesEmploying workers
Registering propertyGetting credit
Protecting investorsPaying taxes
Trading across bordersEnforcing contractsClosing a business
Foreign ownership restrictions
Investment promotion
Pre-establishment procedures
Access to land
Currency convertibility and repatriation
Expropriation and int’l arbitration
DB vs. FDI INDICATORS
- - - - - - - - - - - - - - - - - - - - - - - - -
Top 30 on the Ease of Doing Business —
1. Singapore 16. Switzerland
2. New Zealand 17. Estonia
3. United States 18. Georgia
4. Hong Kong, China 19. Belgium
5. Denmark 20. Germany
6. United Kingdom 21. Netherlands
7. Canada 22. Latvia
8. Ireland 23. Saudi Arabia
9. Australia 24. Malaysia
10. Iceland 25. Austria
11. Norway 26. Lithuania
12. Japan 27. Mauritius
13. Finland 28. Puerto Rico
14. Sweden 29. Israel
15. Thailand 30. Korea
Doing Business Report 2008
www.doingbusiness.org
FDI Indicators: Benchmarking Investment Climate for FDI
• Objectives - Extend thematic coverage of DB indicators to areas of FDI regulation in order to:– Stimulate appetite for investment climate reforms (as effectively
demonstrated by DB)– Respond to needs of public policy makers, business,TA
providers, and academics• Coverage - Six topical indicators measuring FDI
regulation and administrative processes. • Methodology consistent with DB and anchored in
standardized surveys administered primarily to investment lawyers, accountants and consultants.
• Timing - 22 pilot countries tested in 4 successive phases (Nov ’07 – Oct ’08). Rollout in 80 countries, planned for Jan’09.
How are the FDI Indicators constructed
…We follow the Doing Business approach and methodology
• Focus on objective and verifiable data, rather than opinion and perception based information
• Survey of laws/regulations and their application in practice
• Respondents are private sector intermediaries (i.e. Investment lawyers, consultants, accountants, etc.)
• Survey filled out by governments for validation/cross-checking purposes
FDI Indicators: Examples of preliminary results from pilot tests
Types of land occupancy rights available for a foreign firm:
Right to Buy (Freehold)
Right to Lease (Leasehold)
Private State Private State
Cameroon
Ethiopia
Ghana
Mozambique
Nigeria
(1) Many countries continue to have sector- specific restrictions on FDI:
(2) Several countries in Sub-Saharan Africa require an additional approval for foreign investors:
(3) The quality of land rights for foreign investors varies considerably across the world:
(4) Sub-Saharan African countries vary significantly in the type of land occupancy rights they offer:
Can a foreign company establish a subsidiary without an investment approval?
Yes/No Median # Days(if ‘No’)
Cameroon 14
Ethiopia 10
Ghana N/A
Mozambique 60
Nigeria N/A
- Yes
- No
23
35
38
38
50
61
65
67
71
81
85
90
Mozambique
Ethiopia
Ghana
China
Nigeria
Nicaragua
Cameroon
Russia
Peru
Argentina
Colombia
Chile
strongweak
sectoral openness index (0-100)
quality of land use rights index (0-100)
60
62
72
88
88
89
90
95
97
100
100
100
Ethiopia
Russia
China
Argentina
Nicaragua
Cameroon
Chile
Peru
Ghana
Colombia
Nigeria
Mozambique
openclosedsectoral openness index (0-100)
Why has FIAS Developed Indicators to benchmark ease of cross-border investment?
• FDI important to developing countries –they benefit from productive cross-border investment, bringing new technology, management know-how and, of course, jobs.
• Benchmarking countries against each other creates awareness of deficiencies in investment climate and stimulates appetite for reform.
• Together with DB indicators, provide a robust view of business conditions for entry, operation and exit by both domestic and non-national firms.
Factors influencing location decision
Factors attracting investment by region(per cent of total number of responses for all factors in the region)
North
America EU15NewEU12 SEE and CIS
South, East and South-East Asia
World average
Follow the leader 2 3 3 6 6 4
Skilled labor 11 11 12 4 4 9
Low-cost labor - - 12 8 8 9
Size of local market 24 20 12 25 25 21
Access to capital market 7 6 2 1 1 2
Access to natural resources 6 4 8 5 5 6
Access to regional market 10 11 13 12 12 10
Growth of local market 12 12 19 31 31 20
Government effectiveness, incentives 7 11 6 1 1 5
Stable investment environment 20 19 12 4 3 10
Source: UNCTAD, WIPS 2007-2009
Location criteria by sector
Primary sector Manufacturing sector Services sector
Access to natural resources Size of local market Size of local market
Stable investment environment Growth of local market Growth of local market
Government effectiveness,
incentivesGovernment effectiveness,
incentivesStable investment
environment
Access to international/regional markets Cheap labor
Access to international/regional markets
UNCTAD World Investment Prospects Survey 2007-09
Growth in overall FDI flow has accelerated
0
50
100
150
200
250
300
350
400
450
500
1991 1993 1995 1997 1999 2001 2003 2005 2007p
0
0.5
1
1.5
2
2.5
3
3.5
Middle Income Countries
Low-Income Countries
$ billions percent
Forecast was $456 billion (3.2 percent of GDP) in 2007
Percent of GDP
FDI is highly concentrated
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007p
China
Russia
TurkeyMexico Brazil
FDI inflows to developing countries
$ billions
* 2007 data World Bank staff projection
Services have been an important driver of growth
0
10
20
30
40
50
60
70
DevelopingCountries
AFRICA LAC ECA EAP
Share in FDI Stock in 2005
Primary
Manufacturing
Services
percent
Trends are expected to continue…
• Total FDI in 2007 (including reinvested earnings) estimated at $1.34 trillion
• Cross-border mergers and acquisition (vs. Greenfield investments) are the major drivers of global FDI
• US and the EU15 continue to dominate as recipients of world FDI
• Among emerging markets, China remains by far the main recipient of FDI
• Liberalization of trade and investment policies expected to continue
• Developing countries increasingly outward investors
*Source: World Investment Prospects to 2011; The Economist Intelligence Unit
However…
• Survey of investors about intentions up to 2011 by EIU and UNCTAD indicates investors concerned about:– More threatening Geopolitical climate – Signs of emerging protectionism against
FDI, particularly among developed countries
– Apparent weakening of appetite for globalization
– Financial market woes making financing tighter
ImprovedInvestmentclimate
ImprovedInvestor
Servicing
FDI friendly policies
Incr
ease
d in
vest
men
t fl
ow
s
Investment
Jobs
FeedbackLoop
FIAS Investment Generation Goals
Potential Involvement of WSG Members
As noted, for the FDI Indicators we seek input within the target country from lawyers, accountants, and providers of other services to businesses. Targeting 80 countries this year, starting November. Profile of WSG members makes them potentially good sources of input.
THANK YOU!
Karin Millett
kmillett@worldbank.org
www.fias.net