(EU) and the Common Market of the South (MERCOSUR)? - FDCL

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32 2.1 Foreign direct investment: An opportunity for development and human rights? Foreign investment by definition can be split up into portfolio-investment and direct investment. Foreign portfolio-investment is defined as capital investment like bonds, stocks, investment-fund shares, etc., made from abroad, such that due to its minority share (less than 10% of the total value) it has no substantial influence on the management or the company as a whole. Foreign Direct Investment (FDI) is defined by the United Nations Conference on Trade and Development (UNCTAD) as: “[...] an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. [...] FDI may be undertaken by individuals as well as business entities.” 57 Foreign Direct Investment Flows, 58 are defined by the UNCTAD as: “Flows of FDI comprises capital provided (either directly or through other related enterprises) by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. FDI has three components: equity capital, reinvested earnings and intra-company loans.” 59 Foreign Direct Investment Stock 60 is defined as: “FDI stock is the value of the share of their capital and reserves (including retained profits) attributable to the parent enterprise, plus the net indebtedness of affiliates to the parent enterprise.” 61 Furthermore, a distinction can be made between a so-called Greenfield-Investment, i.e., the realization of a new investment, and the area of Mergers and Acquisitions (M&A), which refers to take-overs of already existing investments. According to KPMG Corporate Finance, the value of global company transactions fell by almost 57 United Nations Conference on Trade and Development (UNCTAD): World Investment Report 2003 - FDI Policies for Development: National and International Prespectives, New York/Geneva 2003, p. 231. 58 Abbreviation: FDI-Flows. 59 United Nations Conference on Trade and Development (UNCTAD): World Investment Report 2003 - FDI Policies for Development: National and International Prespectives, New York/Geneva 2003, p. 231. 60 Abbreviation: FDI-Stock. 61 United Nations Conference on Trade and Development (UNCTAD): World Investment Report 2003 - FDI Policies for Development: National and International Prespectives, New York/Geneva 2003, p. 232.
50% in 2002 as compared to the previous year, reaching 996 billion US-dollars, while in 2000 the value of worldwide Mergers and Acquisitions had been substantially more than 3 trillion US-dollars, thereby accounting for by far the largest share of FDI-Flows. 62 The “World Investment Report 2003 - FDI Policies for Development: National and International Perspectives” of the UNCTAD 63 also complained about the worldwide decrease in FDI-Flows from “$1.4 trillion in 2000 to $650 billion in 2002, raising considerable concerns about prospects for achieving the Millenium Development Goals,” 64 in numbers: from 1,400,000,000,000 in 2000 to 650,000,000,000 in 2002. Latin America, according to the World Investment Report 2003, accounted for 56 billion US-dollars of FDI-Flows in 2002. This corresponds to the lowest level since 1996. The decrease of investment flows occurred especially in the services area (telecommunications and banking sector) in Argentina, Brazil and Chile. 65 The years 1996 to 2000 recorded a worldwide boom in cross-border investment flows. A large part of these FDI flows, however, were Mergers & Acquisitions and not Greenfield-Investment, so that the exploding capital flows between 1996 and 2000 can be explained by the hysterical wave of M&A at the end of the nineties, which in Latin America also coincided with privatization and neoliberal market-opening policies in entire economic sectors, which were pushed forward by the IMF and the World Bank and were accompanied by serious social problems for the population of the respective countries. These developments, however, did not stop the authors of the UNCTAD’s World Investment Report from complaining about the decrease between 2000 and 2002, nor from creating a central measure out of the boom, which turned out to be a bubble and was unproductive in terms of solemn development objectives: They [the authors of the UNCTAD’s World Investment Report] affirm that the decrease of these investment-flows would be “raising considerable concerns about prospects for achieving the Millenium Development Goals” 66 - as if flourishing international capital transaction would constitute a condition and especially a guarantee for development. These Millenium Development Goals, passed by the General Assembly of the 62 See Financial Times Deutschland, http://www.ftd.de/ub/fi/1039964401475.html?nv=rs. 63 United Nations Conference on Trade and Development (UNCTAD): World Investment Report 2003 - FDI Policies for Development: National and International Prespectives, New York/Geneva 2003. 64 ibid., p. iii. 65 ibid., pp. 52. 66 ibid., p. iii. 33
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(EU) and the Common Market of the South (MERCOSUR)? - FDCL

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