CHAPTER I Global Investment Trends

36
World Investment Report 2011: Non-Equity Modes of International Production and Development
Table I.11. Cumulative value of FDI projects a
by State-owned TNCs b , by source and target
economy, 2003–2010
(Millions of dollars and per cent)
Source economy Host economy
(a) By value (millions of dollars)
Developed Developing Transition
economies economies economies
Total
Developed economies 292 109 180 641 45 748 518 498
Developing economies 176 314 394 935 18 826 590 076
Transition economies 28 556 16 916 26 987 72 460
Total 496 979 592 493 91 562 1 181 034
(b) By destination of source economy (per cent)
Developed Developing Transition
economies economies economies
Total
Developed economies 56 35 9 100
Developing economies 30 67 3 100
Transition economies 39 23 37 100
Total 42 50 8 100
Source: UNCTAD.
a Comprises cross-border M&As and greenfield investments.
The latter refers to the estimated amounts of capital
investment.
b Cross-border M&A data refers only to TNCs in which the
State has a stake of 50 per cent or more.
Note: The value may be overestimated as the value of
greenfield FDI refers to estimated amount of capital
investment of the entire project.
of State intervention can be good for SOEs’
performance, including international diversification,
too much State intervention might be detrimental.
The level and mode of FDI by SOEs is also
influenced by host country policies that regulate
inward FDI. State-owned TNCs might be perceived
either favourably or unfavourably, depending on
conditions and the attitude of the host country.
For example, there are persistent claims of
“unfair” competition by State-owned TNCs, as
well as concerns about State-owned TNCs as
instruments of foreign policy (e.g. Mazzolini, 1980;
Mascarenhas, 1989; Anusha and Nandini, 2008;
Athreye and Kapur, 2009). Partly in response, host
countries – particularly in the developed world –
have over the past few years focused attention
on developing legal frameworks and processes to
provide the necessary instruments for identifying
and preventing deemed adverse consequences
arising from State-owned TNC investments (e.g.
Australia, Canada).
However, there are also countries with more
favourable attitudes concerning FDI by foreign SOEs.
For instance there are cases in which two States,
because they do not yet have established political
ties, perceive FDI by their SOEs as a step – among
others – towards establishing a closer relationship
between them. Examples include the case of
Malaysian State-owned TNCs such as Petronas
and some African countries, in which investments
were often fostered by the Government of Malaysia
(WIR06). There are also cases in which, because
of the already existing strong ties between States,
FDI by SOEs is perceived as further strengthening
these ties. Their international business operations
became part of ODA packages.
Typical potential corporate governance concerns
regarding State-owned TNCs are related to their
objectives arising from State ownership (which may
diverge from the commercial norms), a perceived
lower level of transparency, potentially inexperienced
boards of directors, and poor relationships with
other shareholders and stakeholders. 30 As many
SOEs may have no public reporting requirements,
and relevant information may only be available
to the State, this hinders monitoring, limits
accountability and, under some conditions, may
create opportunities for corruption.
In light of this situation, the future policy agenda that
host governments may wish to deal with revolves
around the core differences between State-owned
and private TNCs, and focuses on alleviating these
concerns:
• National security concerns were particularly
prominent when State-owned TNC activity increased
in the mid-2000s. It was argued that
sometimes their investments would endanger
the national security position of any host country.
For instance, an acquisition of port management
businesses in six major United States
seaports in the United States by DP World
(UAE) in 2006 came under close scrutiny, because
of fears of compromising port security.
Political resistance ultimately forced DP World
to divest these assets. Explicitly defining and
reaching an agreement (between the State and
SOE governance) on SOE objectives can help
reduce concerns in both host and home countries,
clarify management goals, improve performance
monitoring, and reduce opportunism.
• Competition concerns may be voiced where
foreign investment is deemed a threat to national
core industries and “national champi-