Putting it to Work in Developing Countries - Nathan Associates

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FDI to South Asia 2001–2005 FDI Inflows ($mn) FDI % GDP 2005 2001–2005 2001–2005 Region Total 9,765 36,193 0.9 India 6,598 27,756 0.9 Pakistan 2,183 5,041 1.2 Bangladesh 692 2,185 0.8 Other (5 countries) 292 1,211 0.8 Developing Countries 285,144 1,034,754 2.8 SOURCE: UNCTAD, WIR 2006;World Bank regional groupings. ing mechanisms. India’s economic liberalization program, first begun in 1991 and reinforced in 1995 by the opening of 111 sectors to FDI, continues to unfold. In the last few years, restrictions on FDI have been progressively lifted in several sectors, including energy, telecommunications, air transport, banking, and insurance. FDI is nevertheless still excluded from multibrand retailing, an important sector for multinationals. India has also undertaken FDI institutional reform, creating in 2004 an Indian Investment Commission. India has become a source of FDI, with growing outflows to developing and developed country destinations. In Pakistan, FDI has been directed to privatization programs in telecommunications, energy, and banking. India holds the key to nearly all future FDI inflows to South Asia. With its achievements in the IT sector and massive domestic markets, it consistently scores high as a favored future destination of multinationals’ investment dollars. 12 IT-enabled services, telecommunications, automobiles, petroleum, insurance, and transportation are all likely investment targets. Given the size of its economy and population, current FDI flows lag well below potential: India’s per capita FDI inflows amounted to $6 in 2005 and its FDI flows were only 0.9 percent of GDP vs. $56 and 3.7 percent for China. Growth in FDI will depend on the pace of liberalization, including streamlining labor regulations and government bureaucracy, and the upgrading of infrastructure. Pakistan will likely add modestly to regional FDI inflows in the medium term, particularly through privatizations in the oil and gas and telecommunications industries, as well as electricity and other public utilities. SUB-SAHARAN AFRICA—THE OIL FACTOR In 2005, the 47 countries of this region attracted $20.2 billion in FDI, a record for the region and about 7 percent of the developing country total. Over the past five years, six countries— South Africa, Nigeria, Sudan, Angola, Equatorial Guinea and Chad—accounted for more than 70 percent of regional FDI inflows (see text box). FDI has been largely resourceseeking, particularly in oil and gas, but also minerals. Heavily influenced by petroleum and other commodity prices, inflows have been erratic over the past decade. FDI activity has involved greenfield projects and cross-border FDI to Sub-Saharan Africa 2001–2005 FDI Inflows ($mn) FDI % GDP 2005 2001–2005 2001–2005 Region Total 20,216 72,278 3.2 South Africa 6,379 15,458 1.8 Nigeria 3,403 11,019 3.3 Angola -24 8,748 10.7 Sudan 2,305 6,452 7.0 Equatorial Guinea 1,860 6,223 36.2 Chad 705 3,280 21.6 Other (41 countries) 5,588 21,098 2.5 Developing Countries 285,144 1,034,754 2.8 SOURCE: UNCTAD, WIR 2006;World Bank regional groupings. M&As. This oil and gas-oriented FDI has mostly resulted in enclave investments, weakly tied to the host economy. With a relatively developed and diversified economy, South Africa has been the main exception to the oil-gas foundation of the region’s FDI. The region’s single largest FDI host ($6.4 billion in 2005), South Africa has absorbed 21 percent of regional FDI since 2000. Inflows have been directed at mining, manufacturing, and services. Over the past decade South Africa has built an automotive production hub of vehicles and components for export, drawing on FDI by several global auto multinationals. It has also attracted significant M&A in telecommunica 36
tions and finance, including recent investments by Vodafone in Vodacom (mobile telephony) and Barclays in ABSA (bank), the latter valued at $5 billion. FDI inflows to the rest of the region have been directed at resource-based projects, infrastructure privatizations, banking, and some manufacturing, including textile and apparel (though this has declined since the end of the Multifibre Arrangement or MFA. See “Future FDI Directions—Other Drivers” in Chapter 4). Few other countries have averaged as much as $250 million in annual inflows since 2001, and most have hosted inflows of less than $25 million. In the medium term, regional FDI receipts will continue to be a function of the oil and gas sector and South Africa’s economic performance. Future FDI inflows elsewhere are uncertain because of low labor productivity, poor infrastructure, small markets and weak regional integration, political instability, AIDS, and an urgent need for investment climate reform. There are exceptions—Mozambique, Ghana, Tanzania, Botswana—where economic liberalization and opportunities in natural resources, light manufacturing, tourism and privatization 37
Page 1: FOREIGN DIRECT INVESTMENT PUTTING I
Page 4 and 5: Sponsored by USAID’s Bureau of Ec
Page 6 and 7: 5. Attracting FDI 55 What Foreign I
Page 9: PREFACE Trade and foreign direct in
Page 12 and 13: • Strengthening competition and e
Page 14 and 15: 15 years is mixed at the industry l
Page 16 and 17: asis of careful country-by-country
Page 18 and 19: esources, including Internet addres
Page 20 and 21: Figure 1-1 Net Total Resource Flows
Page 22 and 23: Singapore’s Rise and FDI Througho
Page 24 and 25: FDI BY FINANCIAL COMPONENT A foreig
Page 27 and 28: 2. THE CASE FOR FDI International b
Page 29 and 30: The Global Factory—Catalyst for E
Page 31 and 32: countries through mergers and acqui
Page 33 and 34: conditions and policies in host cou
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Page 39 and 40: 3. TRENDS AND PATTERNS IN FDI FLOW
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Page 45 and 46: Table 3-2 Top Developing Country Re
Page 47 and 48: Three Global Variables in FDI Flows
Page 49 and 50: help maintain and perhaps even add
Page 51: shot up to almost $16 billion in 20
Page 56 and 57: Table 4-1 Sector Distribution of Es
Page 58 and 59: Table 4-2 Estimated Developing Coun
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Page 62 and 63: traditional clients more cost-effec
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Page 66 and 67: countries or the Morocco-U.S. FTA w
Page 68 and 69: PRIVATE INFRASTRUCTURE DEMAND Robus
Page 70 and 71: eported to be a source of FDI throu
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Page 80 and 81: expedite approvals. Otherwise the a
Page 82 and 83: Where governments deem incentives n
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Page 89 and 90: FREE TRADE AND REGIONAL INTEGRATION
Page 91 and 92: 1998. 11 But many advocates, partic
Page 93 and 94: Encouraging Local Supply Links: Car
Page 95 and 96: International Finance Corporation.
Page 97: specific decisions to invest but do
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following priorities recognize thos
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on creating regulatory systems that
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ENDNOTES CHAPTER 1 1 United Nations
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in Empirical FDI Studies,” in Doe
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25 See Koji Miyamoto, “Human Capi
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5 WIR 2004, p. 150, for a descripti
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Countries—The Importance of ICT a
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equirement to export a certain prop
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APPENDIX A Data on FDI Flows and St
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Table A-2 Estimated Value of Inward
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Table A-3 Estimated Distribution of
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Table A-4 Developing Countries' Sha
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Resource and Availability UNCTAD. 2
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Resource and Availability Descripti
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Resource and Availability UNCTAD. 2
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Resource and Availability Moran, Th
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Resource and Availability World Ban
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Business linkages. Supplier-produce
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Investment promotion agency (IPA).
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Subnational investment promotion. A
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Putting it to Work in Developing Countries - Nathan Associates

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