Putting it to Work in Developing Countries - Nathan Associates

Table 4-3
Estimated FDI Flows to 35 Developing Countries, by Source, 1995–2003(US$ billion)
High-income OECD countries
High-income non-OECD
Developing countries (South-South FDI)
Total inflows in developing economies
South-South FDI (percent of total)
1995 1999 2000 2001 2002 2003
48.1 95.4 93.7 84.8 55.1 59.4
28.2 35.0 22.7 24.8 27.2 22.8
14.0 33.1 38.3 49.7 53.0 47.4
90.3 163.5 154.7 159.3 135.3 129.6
15.5 20.2 24.8 31.2 39.2 36.6
Notes: Based on 35 countries that account for 85 percent of FDI flows to developing countries (economies classified as
low or middle income by the World Bank).
SOURCE: World Bank, Global Development Finance 2006, Volume 1, p. 111.
account for well over one-third of FDI capital
received by developing economies (Table 4-3).
Though estimates of the annual amount vary
considerably, South-South flows have been
growing. World Bank data suggest that the share
of FDI sourced from developing economies
within total FDI received by developing countries
has more than doubled since 1995, from
16 percent to 37 percent. 21
SOURCES AND DESTINATIONS
On the basis of estimated total global FDI outflows,
the key sources of South–South FDI may
be Russia, China, Brazil, Mexico, Indonesia, and
India. 22 Most of this FDI is intraregional; FDI
flows within Asia may account for 80 percent of
all South–South FDI. Intraregional FDI flows
are often directed from a larger, relatively
stronger economy to smaller, weaker neighbors.
In Africa, for example, intraregional flows are
mostly a function of South African multinationals
investing throughout the continent. In many
countries (e.g., Democratic Republic of the
Congo, Botswana, Lesotho, Swaziland) South
African FDI represents 50 percent of the total.
In Asia, FDI from China and ASEAN probably
plays a similarly dominant role in Cambodia,
Myanmar, and Laos.
Interregional flows—FDI transactions among
Asia, Africa, and Latin America—appear modest,
about 6 percent of South–South FDI. Flows
from Asia to Africa are estimated to be the
largest, well over $1 billion per annum, and
from Latin America to Asia the next most
important ($0.7 billion).
MOTIVES
Market-seeking may be the most important
motivation for South–South FDI. 23 These flows
target the manufacture of consumer goods for
local or regional sale, or provision of telecommunications,
construction, or financial services
for host country markets and regions. The
Chinese white goods manufacturer Haier, with
manufacturing investments in Asia and the
Middle East, and the Orascom Group, based in
Egypt with foreign affiliates in telecoms and
construction in the Middle East and Africa, are
examples.
Efficiency-seeking is also an important motivation,
particularly among source economies
whose labor costs have begun to rise. Textiles
and apparel and electrical and electronics industries
are frequently associated with this efficiency
seeking. In the 1990s, much Chinese investment
was driven by the desire to use “quota-rich”
African countries as production platforms for
apparel destined for the U.S. and EU markets.
Finally, in recent years, natural resource seeking
has become an increasingly prominent FDI
motive. Chinese and Indian FDI flowing into
Africa is now often associated with oil and gas
or other extractive industries. 24 And Russia is
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