Investment: policies and trendsUniversity of the West Indies Study

Tour, 5 May 2008

Kálmán KalotayDivision on Investment and Enterprise

Development

Outline

• On DIAE

• FDI trends– A snapshot on the Caribbean

• TNCs, Extractive Industries and Development: an industry case study

• Some words about policies

On DIAE

Why are we dealing with investment and enterprise? The mandate

UNCTAD is:

“ the focal point within the United Nations for the integrated treatment of trade and development, and related issues in the areas of investment, finance, technology, enterprise-development and sustainable development.”

How do we carry out our work? (1)

Forum for consensus building (meetings) Research and analysis

Data collection and analysis of new trends (World Investment Reports)Policy research on development questions (e.g. ensuring technology transfer)Publications (Transnational Corporations journal, UNCTAD Current Studies on FDI and Development etc.)

How do we carry out our work? (2) Technical cooperation and capacity building

Assistance in negotiating bilateral investment treatiesAssisting in drafting investment lawsInvestment Policy ReviewsPublishing investment guidesHelp in setting up Investment Promotion AgenciesAssistance in enterprise development and business linkages

Preconditions of technical assistance Availability of funding (mostly extra-budgetary)Government request

World Investment Reports: main source of data and analysis (also in this presentation)

2008: Infrastructure (17 September 2008) 2007: Extractive Industries 2006: FDI from Developing and Transition Economies 2005: TNCs and the Internationalization of R&D 2004: The Shift Towards Services 2003: FDI Policies for Development 2002: TNCs and Export Competitiveness 2001: Promoting Linkages 2000: Cross-border M&As 1999: FDI and the Challenge of Development 1998: Trends and Determinants 1997: Competition Policy 1996: Investment and Trade 1995: TNCs and Competitiveness 1994: TNCs and Employment 1993: Integrated International Production 1992: TNCs as Engines of Growth 1991: The Triad in FDI

The way forward for our work World Investment Reports: Improved outreach to academic

networks and policy makers Other publication: better dissemination of information Investment Policy Reviews: Institutionalization of a peer

review mechanism within UNCTAD Corporate social responsibility: Blue Book on corporate

best practices Enterprise development: Africa Forum The Investment Summit in Accra 2008: Connect

knowledge and networks Talk Investment: Online discussion forum

World Investment Report 2007:FDI trends

Recovery and widespread growth of FDI in 2006Up 38%, to US$1.3 trillion

0

200

400

600

800

1000

1200

1400

1600

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

US$

bill

ions

Developed economies Developing economies South-East Europe and the CIS

Top 10 recipients 2006United States back to top; China No 1 among developing

countries

29

39

43

43

69

69

72

81

140

175

0 50 100 150 200

Luxembourg

Italy

Hong Kong (China)

Germany

China

Canada

Belgium

France

United Kingdom

United States

US$ billion

A record year for developing economies…Asia received close to 70% of all FDI to developing

countries

0

50

100

150

200

250

300

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

US$

bill

ions

Asia and Oceania

Latin America and the Caribbean

AfricaLDCs

Africa: $36 billion – recordLAC: $84 billionLDCs: $9.4 billion (2nd highest)

East Asia: $126 billion – recordSouth-East Asia: $51 billion – recordSouth Asia: $22 billion – record West Asia: $60 billion – record

FDI remains largest source of capital to developing countries

…but ODA still larger than FDI in LDCs. Note: chart includes only capital flows; excludes remittances

Share of the Caribbean in global FDI inflows, 1991-2006

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

FDI inflows of selected Caribbean economies($ million)

- 10 000

- 5 000

-

5 000

10 000

15 000

20 000

25 000

30 000

35 000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Caribbean British Virgin Islands Dominican Republic

Trinidad and Tobago Jamaica Barbados

FDI per gross fixed capital formation (%)

0

10

20

30

40

50

60

70

80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

World average British Virgin Islands Trinidad and Tobago

Dominican Republic Jamaica Barbados

World Investment Report 2007: TNCs, Extractive Industries and

Development

Why extractive industries matter

• Minerals (oil gas, metals) essential to all economies

• Mineral resources unevenly distributed

• Many low-income countries depend on mineral resources

• Current price boom – Window of opportunity– Development challenges

• TNCs key players for both host and home countries

Oil and gas reserves, consumption and production, 2005

0

10

20

30

40

50

60

70

80

Developedcountries

Developingcountries

South-EastEurope and the

CIS

%

Reserves

Production

Consumption

Share of extractive industries in world FDI stock: rebound after 2000

Per cent

0 25 50 75

Russian Fed.

Mongolia

Bangladesh

Argentina

Chile

South Africa

United Rep. of Tanzania

Venezuela

Kazakhstan

Oman

Botswana

Bolivia

Nigeria

Papua New Guinea

Syrian Arab Rep. 90.3

79.5

Some countries receive much FDI into extractive industries

• Developed countries: Australia, Canada, Norway

• Africa: many• Asia/Oceania: Syrian

Arab Rep., Papua New Guinea, Oman, Mongolia

• Latin America: Bolivia, Chile, Venezuela

• CIS: Kazakhstan, Russian Federation

Share of extractive industries in inward FDI stock, 2005 or latest

year, %

%

Universe of largest extractive industry firms: more State-owned in oil and gas than in mining

Rank 2005 Company name Home country

State ownership (%)

Share in world production (%)

Number of host economies with

production

1 BHP Billiton Australia - 4.8 73 Rio Tinto United Kingdom - 4.6 102 CVRD Brazil 12 4.4 -4 Anglo American United Kingdom - 4.3 95 Codelco Chile 100 3.2 -6 Norilsk Nickel Russian Federation - 2.2 17 Phelps Dodge United States - 2.0 28 Grupo México Mexico - 1.6 29 Newmont Mining United States - 1.3 710 Freeport McMoran United States - 1.3 1

Top 10 29.7

1 Saudi Aramco Saudi Arabia 100 8.8 -2 Gazprom Russian Federation 51 7.7 23 NIOC Iran, Islamic Rep. 100 3.9 -4 ExxonMobil United States - 3.7 235 Pemex Mexico 100 3.5 -6 BP United Kingdom - 3.3 197 Royal Dutch Shell United Kingdom /

Netherlands- 3.2 25

8 CNPC China 100 2.4 129 Total France - 2.1 2710 Sonatrach Algeria 100 1.9 1

Top 10 40.5

The world's 10 largest metal mining and oil and gas companies, ranked by total production, 2005

Oil and gas

Metal mining

Oil & gas TNCs from the South are expanding abroad but from low level

35

35

46

46

49

53

66

98

114

129

188

366

512

550

584

1 291

1 045

749

1 427

0 200 400 600 800 1 000 1 200 1 400

ONGC

Norsk Hydro

Lukoil

CNOOC

Sinopec

Statoil

Petrobras

Petronas

BG

Inpex

CNPC/ Petro China

Repsol-YPF

ConocoPhillips

Chevron

ENI

Total

Royal Dutch Shell

BP

ExxonMobil

Oil and gas production of selected TNCs outside their home country, 2005, million

barrels of oil equivalent

Source: UNCTAD, based on data from IHS

Key development challenges• Economic challenge

– To create value from the mineral deposits; – To capture that value locally; – To manage and use revenues efficiently and equitably.

• Environmental challenge– How to minimize the environment footprint.

• Social challenge – How to protect human rights, compensate for resettlement and loss

of traditional livelihoods;– How to address health concerns and workers’ safety.

• Political challenge – How to avoid corruption and the apparition of “rentier States”,

unaccountable to their citizens and authoritarian.

World Investment Report 2007: Policies

Main policy trend still favourable to FDI…but FDI in Latin America less welcome

0

20

40

60

80

100

World Developedcountries

Africa LAC DevelopingAsia

Transitioneconomies

Per c

ent

More favourable to FDI Less favourable to FDI

National regulatory changes affecting FDI, 2006, by region

Implications of involving TNCs in natural resources

• TNC participation may help or hamper the goal of sustainable development

• Potential economic impacts: Capital, technology, management skills. Government revenue often the most importantShare of rent, repatriation of profits, few linkages, few jobs

• Environmental, social and political impacts implies need for appropriate policies as well as corporate social responsibility

• Net outcome depends on: global market conditions; host country’s

policies and institutions; TNC behaviour

• Challenge: – Take advantage of TNCs as a catalysts for economic development

while minimizing the costs – Balance social and environmental concerns against economic

considerations.

Addressing development challenges requires concerted effort from all stakeholders

Host-country gov’t•Governance, institutions•Sectoral policies and

institutions•TNC-specific policies

o Entry and operationso Contracts, taxationo International agreements

Making FDI work for sustainable development

Extractive activities

TNCs• Abide by local

laws• Uphold high

standards when local governance is weak

Home-country

gov’t• Promote

responsible TNC behaviour

• Assist host countries

Int. communit

y• Guidelines• Pressure,

sanctions• Assist host

countries

Civil society

• Monitor TNCs and governments

• Provide expertise

Thank YouVisit the World Investment Report

2007 web page at:http://www.unctad.org/wir