IED 2005-2008

8/4/2019 IED 2005-2008

1/74

Prospects for

Foreign Direct Investmentand the Strategies ofTransnational Corporations

Prospects for

Foreign Direct Investmentand the Strategies of

Transnational Corporations

2005-2008

8/4/2019 IED 2005-2008

2/74

Prospects forForeign Direct Investm

and the Strategies oTransnational Corpora

2005-2008

8/4/2019 IED 2005-2008

3/74

Prospects for Foreign Direct Investmii Strategies of Transnational Corporations

AcknowledgementsThe Global Investment Prospects Assessment

conducted by a team comprising: James X. Zhan (Team LeaOdenthal (Deputy Team Leader), Persephone EconomouMallampally (Senior Advisors), Helge Mueller and Alex D(Experts), Karen Suyi Lee, Pia Buller and Matteo Carrozz

Assistants).

Comments on the study were received from HarnikEndo, Torbjorn Fredriksson, Masataka Fujita, Mongi HamIshikawa, Kalman Kalotay, Guoyoung Liang, Ann MirouxMoussa. Amanda Weber provided outreach support. Chris Medited the report. Josephine Ayiku provided administrativThe cover was designed by Diego Oyarzun-Reyes, the desktowas done by Teresita Sabico and Jean-Marc Humblot provto the publication.

UNCTAD would like to thank all transnational c(TNCs) and national investment promotion agencies (IPAs)in the global surveys.

We would also like to give special thanks to the g

experts including: Daniele Antonucci, Helena Arlander, AykhDilek Aykut, James Beatty, Hans Bethge, Soren BjerregaBlank, Darien Bradshaw, Mario Carini, Massimiliano DaDavis, Gino De Reuwe, Eduardo Del Puedo, Dennis J. DonoEvans, Roberto A Fortunati, Michael Gestrin, John HannHelmenstein, David R M Henderson, David J Stewart HowiIhsan, Bjorn Jakobsen, Amita Jhangiani, Thomas E John

Kafkaris, Marianne E Kager, Jukka Kero, Stuart King, KathSteve Lanier, Alberto Lasheras Shine, Daniel Liew, Hank Lindholm, Andrew Lipman, Pradeep K.Mathur, Daniel RRebecca McCaughrin, Mila Korugic Milosevic, Holger MoeMusat, Clemens Muth, Roger M Nellist, Paul Nunn, DDominic O'Kane, Hiromi Oki, Gbenga Oyebode, Philip Patt

8/4/2019 IED 2005-2008

4/74

Executive summary

Prospects for global foreign direct investm

promising in both the short term (2005-2006) and th

(2007-2008). The overall positive outlook, indicated

Investment Prospects Assessment (GIPA) 2005 s

business environment depicted by various leadingFDI, all point to increased investment in the futu

The stage for the expected FDI growth

foreseeable macroeconomic climate, which is larg

to FDI, and growing corporate profits that increase

of investible funds for corporate future expansion

investment liberalisation continues apace at bot

international levels. Competition to attract FDI th

promotion and facilitation measures has also escAll this has set the scene for increased FDI flow

few years. At the same time, there are also risk f

be potentially detrimental to future FDI growth rates

is a summary of the findings by UNCTAD's glo

transnational corporations (TNCs), international F

investment promotion agencies (IPAs):

Overall short- and medium-term FDI prospemessage from the 2005 survey is positive. Mo

TNCs and expert respondents, and 81% of Ishort-term (2005-2006) growth in FDI flows, w

other respondents expected flows to remain

small fraction of respondents thought that FDI

in the immediate future. Opinions on mediu

8/4/2019 IED 2005-2008

5/74

Prospects for Foreign Direct Investmiv Strategies of Transnational Corporations

instability in major source economies, global terthe volatility of petroleum and other raw material

all regarded as potential risk factors.

Regional pattern of FDI flows. Investors' attentiobe shifting away from traditionally important l

developed countries in favour of certain emergi

Asia and South-eastern Europe are the two regio

most favourable FDI prospects. FDI in Latin Amer

to continue its recovery. FDI flows to Africa are

remain stable at recent levels. Developed countrieare expected to see some recovery in FDI but

modest in the short run. The United States is e

remain the most attractive destination for FDI in thworld, but expectations are less positive for

European economies.

The most attractive global locations for FDI. Haten countries ranked by both experts and TNCs a

to the developing world. China is considered alocation by 87% of TNCs and 85% of experts -

percentage points above the ranking of the

performer. The other countries in the top five ti

United States, India, the Russian Federation and

FDI prospects by industry . Prospects for significantly by industry. The outlook for the ser

will continue to be more positive than for the ma

or primary sectors. The industries expected t

forefront of FDI growth are computing and I

8/4/2019 IED 2005-2008

6/74

Africa, India, Brazil, Malaysia and the RepuSome of these countries are important sources

their immediate neighbours. Overall, these fi

the current trend towards developing country T

global players through outward investment.

Prospects for TNCs' mode of entry . Morerespondents expected mergers and acquisit

primary vehicle for FDI in 2005-2006. In contr

the majority of which are from developing

concentrate on non-M&A FDI, expecteinvestment to be the most important mode

equity investment, such as through strateg

licensing, is also expected to remain significa

Prospects for the relocation of corporaProduction in goods and services is the corprated most likely to be relocated. Well over

surveyed expected to see such activity transf

Next in line, logistics and support services armost likely to relocate offshore, followed by d

sales.

Future policy developments. As competition forcountries worldwide are becoming more pro

investment promotion efforts. The majority ofcontinue increasing the number and range of

initiatives over the next two years. In particula

resources, most IPAs signaled their intention to

targeted approach to investment promotion.

8/4/2019 IED 2005-2008

7/74

Prospects for Foreign Direct Investmvi Strategies of Transnational Corporations

Table

1.

Summary

ofsurvey

results

Regionalprospects

Developed

Asiaand

LatinAmerica

SoutheastEurope

countries

Africa

thePacific

andtheCaribbean

andCIS

(30%/55%/15%)

(37%/49%/14%)

(85%/13%/2%)

(41%/48%/11%)

(86%/12%/2%)

(72%/28%/0%)

(88%/4%/8%)

(96%/4%/0%)

(63%/29%/8%)

(91%/0%/9%)

(27%/59%/14%)

(24%/55%/21%)

(89%/8%/3%)

(36%/58%/5%)

(88%/12%/0%)

1.

UnitedStates

1.

SouthAfrica

1.

China

1.

Brazil

1.

RussianFederation

2.

Canada

2.

Egypt

2.

India

2.

Mexico

2.

Romania

3.

UnitedKingdom

3.

Morocco

3.

Thailand

3.

Argentina

3.

Ukraine

4.

Germany

4.

Nigeria

4.

RepublicofKor

ea

4.

Chile

4.

Kazakhstan

5.

France

5.

Tunisia

5.

Malaysia

5.

Venezuela

5.

Croatia

1.

UnitedStates

1.

SouthAfrica

1.

UnitedStates

1.

UnitedStates

1.

UnitedStates

2.

Germany

2.

China

2.

China

2.

Spain

2.

Netherlands

3.

UnitedKingdom

3.

UnitedKingdom

3.

Japan

3.

Brazil

3.

UnitedKingdom

-ComputingandICT

-Tourism,

hotels

and

-Construction

-Tourism,

hotelsa

nd

-Construction

restaurants

restaurants

-Tourism,

hotelsand

-Computingand

ICT

-ComputingandICT

-Construction

-ComputingandICT

restaurants

-Transport

-Miningandpetroleum

-Tourism,

hotelsa

nd

-ComputingandICT

-Foodandbeverages

8/4/2019 IED 2005-2008

8/74

able1.

Su

mmary

ofsurvey

results(co

ncluded)

Regionalprospe

cts

Developed

Asiaand

LatinAmerica

SoutheastEurope

countries

Africa

thePacific

andtheCaribbea

n

andCIS

-R&D(84%)

-Production(92%

)

-Production(91%)

-Production(71%)

-Production(100%)

-Production,

log

istics

-Distributionand

-Logisticsand

-Regionalheadqua

rters,-Distributionand

andsupporting

sales(79%)

supportingservice

s

logisticsandsupp

ortingsales(64%)

services(76%)

(87%)

services(50%)

M&A

Greenfield

Greenfield

Greenfield

Greenfield

1.

Greatertarge

ting

1.

Greatertargeting

1.

Greatertargetin

g

1.

Greatertargetin

g

1.

Greatertargeting

2.

Additionalinc

entives

2.

Additionalince

ntives

2.

Furtherliberalis

ation

2.

Otherpromotion

2.

Additionalincentives

measures

3.

Furtherlibera

lisation

3.

Furtherliberalisation

3.A

dditionalincen

tives

3.

Additionalincen

tives

3.

Furtherliberalisation

IPAs

TNCs

1.

Financialinstabilityofmajoreconomies(92%)

1.

Protectionism(100%)

eat(81%)

2.

Pricevolatilityofpetroleum

andotherraw

2.

Slowgrowthini

ndustrialisedcountries(89%)

strialisedcountries

(80%)

materials(81%)

3.

Financialinstabilityofmajor

8/4/2019 IED 2005-2008

9/74

8/4/2019 IED 2005-2008

10/74

Table of Contents

Executive Summary ...............................................

I. Introduction .....................................................

II. Investment environment for future FDI ....

A. Economic determinants for future FDI ....

B. Policy determinants for future FDI ..........

III. Global FDI prospects and TNC strategies

A. Global FDI prospects .................................B. Most attractive global FDI locations .......

C. FDI prospects by industry .........................

D. Predicted sources of FDI ...........................

E. Prospects for TNC strategies: mode of en

F. Prospects for TNC strategies: relocation

of corporate functions ................................G. Risks to global FDI flows ..........................

IV. Regional prospects ..........................................

A. Developed countries ...................................

B. Africa ...........................................................

C. Asia and the Pacific ...................................D. Latin America and the Caribbean .............

V. Concluding remarks .......................................

8/4/2019 IED 2005-2008

11/74

Prospects for Foreign Direct Investmx Strategies of Transnational Corporations

Figures

I.1. Trends in global FDI flows, 1990-2004 .......

II.A.1. Global GDP growth rates, 2002-2006 ..........

II.B.1. Policy measures to attract FDI, 2004-2006 .

II.B.2. Number of BITs and DTTs concluded, 1990

III.A.1a. Global prospects for FDI, 2005-2006 ........III.A.1b. Global prospects for FDI, 2007-2008 ........III.B.1. Most attractive global business locations,

2005-2006 ......................................................

III.C.1. Global FDI prospects in services sector,

2005-2006 ......................................................

III.C.2. Global FDI prospects in manufacturing se2005-2006 ......................................................

III.C.3. Global FDI prospects in primary sector,

2005-2006 ......................................................

III.D.1. Expected leading sources of FDI, 2005-20

III.E.1. Expected modes of global investment,

2005-2006 ......................................................III.F.1. Most expected corporate functions

to be relocated, 2005-2006 .........................

III.G.1. Major risks to FDI flows, 2005-2006........

IV.A.1. Developed countries: prospects for FDI f2005-2006 ......................................................

IV.A.2. Developed countries: most attractive busilocations, 2005-2006 ....................................

IV.A.3. Developed countries: expected leading

sources of FDI, 2005-2006 .........................

IV.A.4. Developed countries: FDI prospects by in

8/4/2019 IED 2005-2008

12/74

IV.B.3. Africa: expected leading sources of FD

2005-2006 ................................................

IV.B.4. Africa: FDI prospects by industry, 200

IV.B.5. Africa: expected relocation of

corporate functions, 2005-2006 ...........IV.B.6. Africa: expected modes of investment,

2005-2006 ................................................

IV.B.7. Africa: trends in policy measures to

attract FDI, 2004-2006 ..........................

IV.C.1. Asia and the Pacific: prospects for FD

flows, 2005-2006 .....................................IV.C.2. Asia and the Pacific: most attractive

business locations, 2005-2006 ..............

IV.C.3. Asia and the Pacific: expected leadingsources of FDI, 2005-2006 ...................

IV.C.4. Asia and the Pacific: FDI prospects

by industry, 2005-2006 ..........................

IV.C.5. Asia and the Pacific: expected relocati

of various corporate functions, 2005-2

IV.C.6. Asia and the Pacific: expected modes oinvestment of FDI, 2005-2006 .............

IV.C.7. Asia and the Pacific: trends in policy

measures to attract FDI, 2004-2006 ....

IV.D.1. Latin America and the Caribbean: pros

for FDI flows, 2005-2006 .....................

IV.D.2. Latin America and the Caribbean: mosattractive business locations, 2005-200

IV.D.3. Latin America and the Caribbean: expe

leading sources of FDI, 2005-2006 .....

IV.D.4. Latin America and the Caribbean: FDI

8/4/2019 IED 2005-2008

13/74

Prospects for Foreign Direct Investmxii Strategies of Transnational Corporations

IV.E.2. South-east Europe and the CIS: most attra

business locations, 2005-2006 ....................

IV.E.3. South-east Europe and the CIS: expected

leading sources of FDI, 2005-2006 ...........

IV.E.4. South-east Europe and the CIS: FDI prospby industry, 2005-2006 ................................

IV.E.5. South-east Europe and the CIS: expected

relocation of corporate functions, 2005-20IV.E.6 South-east Europe and the CIS: expected

modes of investment, 2005-2006 ...............

IV.E.7. South-east Europe and the CIS: trends inpolicy measures to attract FDI, 2004-2006

8/4/2019 IED 2005-2008

14/74

I. Introduction

The Global Investment Prospects Assessmdesigned to present short- and medium-term prospedirect investment (FDI) at the global, regional and iIt also analyses the evolving trends in the strategies o

corporations (TNCs), as well as national FDI po

GIPA is designed to equip governments andwith an instrument for proactive development ostrategies, as opposed to a post facto assessminvestment facts.

This study, the third in the GIPA series, asse2008 prospects for FDI trends, TNC activitiedevelopments using a methodology similar to lastGIPA is a comprehensive analysis based on the finparallel global surveys of TNCs, FDI experts andas on relevant macroeconomic and microeconomic

policy initiatives that shape the future global FDThe GIPA 2005 survey was conducted agains

of the end of a three-year downturn in global recovery, which began in 2004, being led by a developing countries as flows to developed counmodest (figure I.1).1

Figure I.1. Trends in global FDI flows,

(US$billion per year)

1600

8/4/2019 IED 2005-2008

15/74

8/4/2019 IED 2005-2008

16/74

II. Investment environment for fu

A. Economic determinants for fut

Recent growth forecasts suggest tha

macroeconomic climate will be largely favourablshort and medium term (figure II.A.1). Most regionto maintain robust gross domestic product (GDPAsia at the forefront. Important threats to growth aare ongoing increases in interest rates and spiralland commodity prices.

Figure.II.A.1. Global GDP growth rates,

Source: World Bank, Global Economic Prospects 200

Note: The figures for the years 2005 and 2006 are

1.7%

2.7%

4.0%

3.2%3.2%3.4%

5.2%

6.1%

5.4%5.1%

1.3%

2.1%

3.5%

2.7%2.7%

2002 2003 2004 2005 2006

Year

Rea

lG

DPgr

ow

th

8/4/2019 IED 2005-2008

17/74

Prospects for Foreign Direct Investm4 Strategies of Transnational Corporations

The United States economy is expected to growmore than 3% in both 2005 and 2006, while Western Japan are expected to be less dynamic. Growth in this forecast at 2.6% per year, dragged down by the slof its three largest economies, France, Germany and Ithree are all expected to see annual growth of just 1-2next two years (Eurostat 2005). On the other hand,

smaller European Union (EU) countries, particularCentral and Eastern European members, are expectehealthy growth of at least 4%. Japans economy is likby only 1.8% in 2005 and 1.6% in 2006.

South Asia, East Asia, and Eastern Europe and Care all expected to experience growth of over 5.5% i2006 (World Bank 2005a). Every other developinexpected to expand by between 3.5% and 5% per year. countries are, therefore, becoming increasingly the primof global economic growth.

Since there is generally a stable and positive r

between GDP growth and global FDI flows, thmacroeconomic performance bodes well for national FDOn the supply side, FDI is affected by the availability ofcapital, generated by corporate profits or loans, whichaffected by domestic economic conditions, including the demand side, growing overseas markets lead TNC

more, while depressed markets inhibit them.Over the past two decades, booms in globa

followed periods of high economic growth, while defollowed recessions or periods of slow growth. The decflows in 2001 and 2002 followed rapid increases in F

8/4/2019 IED 2005-2008

18/74

Chapter II

(OECD). The OECD average is expected to drop2004 to 2.65% in 2005 and 0.8% in 2006. Secondly,is expected to remain under control in most regionare expected to increase. This is particularly trueStates, where rates for 6-month dollar denominexpected to increase from 1.6% in 2004 to 3.5% in in 2006 (World Bank 2005a). Such a surge may

expectations over the next two years. Thirdlyindications of an imminent drop in petroleum prifor 2005-2006 suggest the price of crude oil will bStates Energy Information Administration 2005). Theto have an adverse effect on a variety of manufacturiindustries, although the higher prices are likel

additional FDI in natural resources.

Another issue that has to be considmacroeconomic framework is the fluctuation in thdollar vis--vis other currencies, which is likely toon cross-border investment flows between the Unthe rest of the world, be it in the form of equity, earcompany. For foreign-based TNCs, United States ascheaper in recent years. For foreign affiliates of Tthe United States, it also means that this is a good timintra-firm dollar denominated debt or foreign earimpact on FDI flows will depend of course on the these two effects.

Firm-level indicators suggest the menvironment will be largely favourable to FDI expanext few years. Firstly, robust economic growth andhas raised corporate profits in a range of industries. T

8/4/2019 IED 2005-2008

19/74


in 2004, according to Fortune Magazine. Of the forty-twanalyzed by Fortune, thirty-eight registered profit grow(Fortune Magazine, April 2005). The average net prthousand largest Asian companies (mainly TNCs from JaHong Kong (China), Malaysia, the Republic of Korea aProvince of China), also rose, at a high rate of 52% 2005).

The positive profit outlook is also reflected in of microeconomic indicators business confidence levsurveys of CEOs and investment experts from various rportrayed cautious optimism about future investment. ThGlobal Survey of Business Executives Confidence Index

2005), for example, revealed a positive attitude amonbusiness executives surveyed, though their forecasts weless upbeat than a year ago. The PriceWaterhouseCAnnual Global CEO Survey (PwC 2005) found risingin future levels of revenue growth over the next twelThe proportion of CEOs who were very confident orconfident rose from 72% in 2002 to 84% in 2003 a2004. In response to growing competition, nearly 40% oare engaging in offshoring or planning to do so.

B. Policy determinants for future

Investment liberalisation continues apace, andintensified at both national and international levels. Tto contribute to increased FDI flows in years to come. Cto attract FDI through various promotion and facilitatiohas also escalated further.

8/4/2019 IED 2005-2008

20/74

Chapter II

countries did not introduce any additional investmmeasures over the past year.

A total of 269 FDI-related regulatory introduced in 102 countries in 2004. The vast majordesigned to make host countries more attracticompanies (UNCTAD 2005a). A clear example

reduction in corporate tax rates, which fell on averagfrom 29.7% to 26.5% (UNCTAD 2005a). The larwas made by Romania, from 26% to 16%, followeand Bulgaria.

Figure II.B.1. Policy measures to attract FD

(Per cent of response by IPAs)

Source: UNCTAD prospects assessment 2005, w

fdiprospects.

0 20 40 60 80

No new measures

Further liberalization

Additional incentives

Other promotion

measures

Greater targeting

2005-2006 2004

8/4/2019 IED 2005-2008

21/74


International level

International investment agreements continue toat the bilateral, regional and interregional levels. Thliberalisation, protection and promotion provisions, thesan international enabling framework for investment. Oin 2004, more than three agreements were signed ea

As part of this trend, the number of bilateral treaties (BITs) continued to expand. During 2004, 7were concluded, bringing the total number in force to 2II.B.2). Several countries, including Germany, China, and the United Kingdom, have now signed overagreements. 84 double taxation treaties (DTTs) incountries were also concluded in 2004, bringing the toin existence to 2,559.

Figure II.B.2. Number of BITs and DTTs concluded,

(Cumulative and year by year)

Number of BITs and DTTs concluded, 1990 - end 200

50

100

150

200

250

AnnualBITs

&

DTTs

8/4/2019 IED 2005-2008

22/74

Chapter II

Investment rules are also increasingly bein

into free trade agreements (FTAs), regional integrat(RIAs) and economic partnership agreements (EPAscontain commitments to liberalise, protect and/or boarder investment flows in addition to a raliberalisation and promotion provisions.3 The numbewith investment components has been growing st

June 2005, more than 215 had been concluded.

A number of other agreements are likely toFDI, especially to developing countries. Prefarrangements, for example, can encourage trade-relahopping investment. Market access measures for Afsuch as the African Growth and Opportunity ActEverything But Arms initiative (EBA) and Japansrule4 can help attract foreign investors seeking tomarkets in the United States, EU and Japan. EquaProtocols Clean Development Mechanism (CDMin increased FDI to developing countries. It createfor firms to make environmentally friendly in

developing countries. The CDM covers a wide rangand the first projects have already come to fruiti

In summary, developments at both national anlevel point towards continued long-term growtexpanding body of agreements will increasin

international investment and present new oppdeveloping countries. At the same time, competigrowing as countries are introducing more policy meFDI.

8/4/2019 IED 2005-2008

23/74

8/4/2019 IED 2005-2008

24/74

III. Global FDI prospects anstrategies

A. Global FDI prospects

The principal findings of the GIPA 2005 sur

for FDI prospects. After its rebound in 2004, globto continue rising in the coming years. Indeed, t

the FDI experts, TNCs, and IPAs surveyed predicted

continue to grow in both the short and medium

forecasts remain positive, however, they are not a

those in the GIPA 2004 survey.

More than half of the TNCs and expert res

four-fifths of IPAs, expected short-term (2005-20

FDI flows, while almost all remaining respondents

to remain steady (figure III.A.1a). Only a sma

respondents thought that FDI would decrease in future. The survey results represent a vote of con

prospects for short-term FDI flows.

Figure III.A.1a. Global prospects for FDI

(Per cent of responses)

70%

80%

90%

100%

P f F i Di I

8/4/2019 IED 2005-2008

25/74


Opinions on medium-term (2007-2008) FDI pr

even more optimistic (figure III.A.1b). Some 57% of eof TNCs and 83% of IPAs expected FDI to increase thr

2008. Again, most of the remaining respondents expecte

to remain the same, and only a few foresaw a declin

Figure III.A.1b. Global prospects for FDI, 2


Source: UNCTAD prospects assessment 2005, www

fdiprospects.

These results are broadly in line with those of the

survey, though a greater proportion, but still a mino

years respondents predict that FDI will remain stable

grow This caution is due in part to the slowdown i

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

100%

TNCs Experts IPAs

Increase Remain the same Decrea

8/4/2019 IED 2005-2008

26/74

Chapter III

(figure III.B.1). China is considered an attractive lo

of TNCs, by a margin of 36 from the next countris impressive, even for a country which has been on

largest FDI recipients for quite some time. India

is even more remarkable, given that FDI flows to thbeen modest until recently. The United States is the

country in the top five locations. Germany, Canada

Kingdom made it into the top ten, but traditionallydestinations, such as France, the Netherlands and

included. This implies that TNCs expect investors

from established FDI locations, which often have saand high production costs, towards emerging econ

often more dynamic. This finding is also supported b

in FDI flows in 2004, which saw developing counlead in the global FDI recovery (UNCTAD 2005

Figure III.B.1. Most attractive global business locat


Responses from

1. China (87%)

2. India (51%)3. USA (51%)

4. Russia (33%)

5. Brazil (20%)

6. Mexico (16%)

Responses from TNCs

1. China (87%)

2. India (51%)3. United States (51%)

4. Russian Federation (33%)5. Brazil (20%)6. Mexico (16%)7 Germany (13%)

Prospects for Foreign Direct Investm

8/4/2019 IED 2005-2008

27/74


C. FDI prospects by industry

Prospects for FDI vary significantly by industry

to the 2005 survey.5 The outlook for the services sec

positive than that for the manufacturing or primary se

and experts shared gross modo the views in regard to th

of specific industries. IPAs were at times more optiexperts in their assessment across sectors.

FDI growth is expected to be led by services in

and ICT, public utilities (such as the generation and

of electricity, water and gas), transportation, followed

hotels and restaurants, construction, banking and insu

and wholesale and business services, all of which wemore than 40% of both IPAs and experts (figure III

In manufacturing, the greatest FDI growth is electrical and electronic products, machinery and equ

metals and metal products (figure III.C.2). There is le

regarding FDI in textiles and clothing, rubber and plast

non-metallic minerals and media and publishing. It is

to note that in contrast to the 2004 survey, the optim

concentrated in a few industries in the manufacturin

In the primary sector, FDI in mining and pe

expected to increase in response to higher prices and str

for natural resources (figure III.C.3). Higher oil and prices induce TNCs to take up new exploration project

up production in existing ones. Downbeat predicti

agriculture industry might be due to ongoing trade d

slow liberalisation in this area

8/4/2019 IED 2005-2008

28/74

Chapter III

Figure III.C.1. Global FDI prospects in services sec


0% 20% 40% 60% 80

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

E t

Electricity,

g

asand

water

Construction

Retail&

wholesale

Tourism,

hotels&

restaurants

Tran

sport

Banking&

insurance

Comp

uter

/IC

T

usiness

ervices


8/4/2019 IED 2005-2008

29/74


Figure III.C.2. Global FDI prospects in manufacturing secto


0% 20% 40% 60% 80%

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

IPAs

Experts

bFood&

everages

&

Textiles

clothing

Publishing

&

media

Chemicals

Rubber&

plastic

products

Non-

metallic

mineral

products

Metal

Machinery

l c s

8/4/2019 IED 2005-2008

30/74

Chapter III

Figure III.C.3. Global FDI prospects in primary se



fdiprospects.

D. Predicted sources of FD

In the short term, the IPAs surveyed expect th

to be by far the most important source of global FDI

by the United Kingdom, Germany and China. The

is interesting because along with China, several ot

countries feature in the top 15 (figure III.D.1). ThesAfrica, India, Brazil, Malaysia and the Republic

important to note that this is not a ranking of the

FDI outflows. Instead, the survey asks IPAs fro

0% 20% 40% 60% 8

IPAs

Experts

IPAs

Experts

Ag

riculture&

other

Mining&

petroleum

Improve Remain the same W


8/4/2019 IED 2005-2008

31/74

ospects o o e g ect est18 Strategies of Transnational Corporations

Figure III.D.1. Expected leading sources of FDI,



fdiprospects.

E. Prospects for TNC strategies: mo

entry

0% 10% 20% 30% 40% 50% 6

Republic of Korea

Netherlands

Canada

Malaysia

Brazil

Australia

Spain

Italy

India

South Africa

Japan

France

China

Germany

United Kingdom

United States

8/4/2019 IED 2005-2008

32/74

Chapter III

activity contrasts with the GIPA 2004 findings, acco

TNCs expected equal use of each mode of inves

Figure III.E.1. Expected modes of global investm



fdiprospects.

F. Prospects for TNC strategies: rel

corporate functions

There was a broad consensus among IPAs, TN

that production would be the corporate function

60%

0%

10%

20%

30%

40%

50%

70%

80%

90%

100%

Mergers and

acquisitions

Greenfield FDI Oth

strateg

l

IPAs Experts TNCs


8/4/2019 IED 2005-2008

33/74

20 Strategies of Transnational Corporations

almost 60% of IPAs. This finding is particularly intere

the recent trend towards the globalization of R&D, anthe notion that since R&D involves knowledge vital

competitiveness, it is in need of maximum protectio

therefore less likely to be transferred overseas. A separasurvey of the worlds largest R&D spenders shows th

of R&D funded by foreign companies will increase by

China, the United States and India as the top three rFDI in R&D (UNCTAD 2005a).

Figure III.F.1. Most expected corporate functions to be relocate



fdiprospects.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Production Distribution/sales Research and

development

Regional

headquarters

L

IPAs Experts TNC

Ch t III

8/4/2019 IED 2005-2008

34/74

Chapter III

Figure III.G.1. Major risks to FDI flows,

(Per cent of respones)


fdiprospects.

Note: Percentage of respondents that considered

0% 20% 40% 60%

Protectionism

Exchange rate volatilities

Global terrorism threat

Slow growth inindustrialized countries

Political instabilities andcivil wars

Volatility of petroleum and

other raw materials prices

Financial instability ofmajor economies

IPAs Experts TNC

8/4/2019 IED 2005-2008

35/74

8/4/2019 IED 2005-2008

36/74

IV. Regional prospects

The focus of investors attention appears to bfrom traditionally important investment locations inworld towards a handful of emerging markets. Thifact that developing countries were at the forefron

FDI recovery in 2004 (UNCTAD 2005a).Overall, developed countries are expecte

recovery in FDI, but this will be relatively moderun. The United States is expected to remain the mdestination for FDI in the developed world. Of the meconomies, only the United Kingdom and Germany

the ten most attractive investment locations. Proin new European Union (EU) member countriespositive.

Asia and Eastern Europe are the two regionspositive FDI prospects. China, India and the Russare likely to be the main beneficiaries, while Thailanof Korea, Ukraine and Romania are also expected toFDI flows to Africa are generally expected to remaiAfrica is considered to be by far the most attractilocation on the continent, although Egypt, Nigeriaare also expected to see healthy FDI growth. Latin Amaintain its recent FDI recovery, with Brazil atfollowed by Mexico, Argentina and Chile.

A. Developed countries


8/4/2019 IED 2005-2008

37/74


IPAs from EU accession countries, which are current

high growth and offer access to EU markets, low laboulow corporate tax rates (UNCTAD 2005a).

Figure IV.A.1. Developed countries: prospects for FDI flow



fdiprospects.

The United States remains the most attractive dand largest source, for FDI among developed countIV.A.2). Other top FDI destinations include the UnitedCanada, Germany and France.

Figure IV.A.2. Developed countries: most attractive busine2005-2006


0%

10%

20%

30%

40%

50%

60%

70%

80%90%

100%

Experts TNCs IPAs

Increase Remain the same Decrease

Chapter IV

8/4/2019 IED 2005-2008

38/74

Chapter IV

Most FDI flows are likely to take place betw

countries. The expected leading sources of FDI tdeveloped countries are the United States, followeand the United Kingdom (figure IV.A.3). Indeevariation in FDI flows between developed countriein 2004 (UNCTAD 2005a), due to, among other tlevels of economic growth, business confidence, an

M&As. On the other hand, EU-15 countries,Switzerland generally performed worse owing to logrowth rates and corporate restructuring. Meanwhto those new EU accession countries are expectegrowing.

Figure IV.A.3. Developed countries: expected leading sources (Per cent of responses from IPAs)

0% 20% 40% 60%

Switzerland

Sweden

France

The Netherlands

United Kingdom

Germany

United States


8/4/2019 IED 2005-2008

39/74


Figure IV.A.4. Developed countries: FDI prospects by industr

(Per cent of responses from IPAs)

0% 20% 40% 60%

Agriculture & other

Mining & petroleum

Food & beverages

Textiles & clothing

Publishing& media

Chemicals

Rubber & plastic products

Non-metallic mineral products

Metal

Machinery

Electrical & electronic products

Motor vehicles

Electricity, gas and water

Construction

Retail & wholesale

Tourism

Hotels & restaurants

Transport

Banking & insurance

Primary

Sector

Manufactu

ring

Services

Chapter IV

8/4/2019 IED 2005-2008

40/74

p

The largest growth areas for foreign inve

manufacturing sector are likely to be electrical equipment, motor vehicles and other transpomachinery and chemicals. Investment in textiles aexpected to fall because of competition from developarticularly those from Asia.

The corporate functions that IPAs from devel

most expect to see relocated include R&D, logistics services, and production (figure IV.A.5). Most of thby firms from developed countries continues to be ddeveloped countries.

Figure IV.A.5. Developed countries: expecte

of corporate functions, 2005-200(Per cent of responses from IPAs)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Production Distribution/Sales

Research anddevelopment

Regionalheadquarter


8/4/2019 IED 2005-2008

41/74

g p

Figure IV.A.6. Developed countries: expecte

of investment, 2005-2006(Response by TNCs and IPAs from developed coun


fdiprospects.

In 2004, around half of developed countries bo

investment promotion efforts by introducing more sotargeting techniques. In addition, 20% offered extra incentives, and 17% further liberalised their investm(figure IV.A.7).

Figure IV.A.7. Developed countries: trends imeasures to attract FDI, 2004-2006


Other promotion measures

0%

20%

40%

60%

80%

100%

Mergers andacquisitions

Greenfield FDI Others such asstrategic alliances

or licensing

IPAs TNCs

Chapter IV

8/4/2019 IED 2005-2008

42/74

In 2005-2006, developed countries will contin

their investment promotion efforts, particularly thtargeting and additional incentives. However, they plfewer new liberalization measures than countriregions. This is not surprising given that most develalready have highly liberalised markets and relativinvestment environments.

B. Africa

After a downturn in 2002, FDI flows to Afin 2003 and remained relatively stable in 2004. InFDI expectations for the continent remain fairly po

the three survey groups gave widely differing assesIV.B.1). The consensus among TNCs is that FDI fwill remain stable, with the same proportion opredicting an increase in FDI as predicting a falexperts and, especially, IPAs7 are more optimisticformer and 90% of the latter believe that FDI inflow

to increase. Both experts and TNCs believe that countries have greater FDI potential than those fro

Figure IV.B.1. Africa: prospects for FDI flow


50%

60%

70%

80%

90%

100%


8/4/2019 IED 2005-2008

43/74

Africa. The overall mood of optimism is due in large

petroleum and commodity prices. In the case of the IPAhigh level of confidence, it should be noted that theiis partly rooted in their professional role.

In the short term, South Africa appears to be by attractive business location in Africa (figure IV.B.2of ten experts and TNCs believed it will be among the

top five business locations in 2005-2006. Around half ofalso placed Egypt in their top five most attractivlocations, while North African countries in generprominently in the top ten.

Figure IV.B.2. Africa: most attractive business locations



fdiprospects.

South Africa and China were the most frequen

1. South Africa (92%)2. Egypt (44%)3. Nigeria (33%)

4. Morocco (28%)5. Libya (23%)6. Algeria (21%)7. Botswana (21%)8. Tunisia (18%)9. Ghana (15%)10. Kenya (15%)

1. South Africa (82. Egypt (53%)3. Morocco (40%

4. Nigeria (38%)5. Tunisia (35%)6. Algeria (29%)7. Libya (16%)8. Botswana (11%9. Ghana (7%)10. Angola (7%)

Responses from experts

1. South Africa (92%)2. Egypt (44%)3. Nigeria (33%)

4. Morocco (28%)5. Libya (23%)6. Algeria (21%)7. Botswana (21%)8. Tunisia (18%)9. Ghana (15%)10. Kenya (15%)

1. South Africa (82. Egypt (53%)3. Morocco (40%

4. Nigeria (38%)5. Tunisia (35%)6. Algeria (29%)7. Libya (16%)8. Botswana (11%9. Ghana (7%)10. Angola (7%)

Responses from T

Chapter IV

8/4/2019 IED 2005-2008

44/74

Figure IV.B.3. Africa: expected leading sources of F


Source: UNCTAD prospects assessment 2005, wfdiprospects.

The majority of African IPAs continue to expin the services sector to remain strong (figure IV.particularly positive about prospects for compu

services, the hotel and restaurant sector and constrestate. This is in line with most other developing cois less optimism about FDI in the manufacturing ssome exceptions, such as electrical and electronic p

0% 10% 20% 30% 40% 50%

Germany

Italy

Malaysia

United States

France

India

United Kingdom

China

South Africa


8/4/2019 IED 2005-2008

45/74

Figure IV.B.4. Africa: FDI prospects by industry,

(Per cent of responses from IPAs)0% 20% 40% 60%

Agriculture & other

Mining & petroleum

Food & beverages

Textiles & clothing

Publishing& media

Chemicals



Metal

Machinery


Motor vehicles


Construction

Retail & wholesale

Tourism


Transport

Banking & insuranceComputer/ICT

Business services

Education & health

Primary

Sector

M

anufacturing

Services

Chapter IV

8/4/2019 IED 2005-2008

46/74

by the end of 2006. The low expectation for o

investment is largely a result of the under-develoAfrican economies and companies, which makes TNCs to find appropriate targets for M&As.

Figure IV.B.5. Africa: expected reloca

corporate functions, 2005-2006



fdiprospects.

Figure IV.B.6. Africa: expected modes of investm


60%

70%

80%

90%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Production Distribution/sales

Research anddevelopment

Regionalheadquarters


8/4/2019 IED 2005-2008

47/74

Over two thirds of IPAs indicated that their co

intensify investment promotion efforts through greateadditional incentives and further liberalisation (figuInvestor targeting, which was employed by more tAfrican IPAs in 2004, is expected to become even moras promotion efforts become more focused. Investmenis still at its infancy for most countries, since many

region are still young. It is not surprising, thereforeare experimenting with different investment promotionOnly one out of five African IPAs did not introduce newpromotion methods in 2004, and just one in ten have napplying new methods in 2005-2006.

Figure IV.B.7. Africa: trends in policy measattract FDI, 2004-2006


0% 20% 40% 60% 80

No new measures

Other promotion measures



Greater targeting

2004 2005-2006

Chapter IV

8/4/2019 IED 2005-2008

48/74

C. Asia and the Pacific

FDI prospects for Asia and the Pacific arepositive, with over 85% of each survey group expeFDI flows to the region (figure IV.C.1). This is signoptimistic than in previous years. FDI inflows su

reaching $148 billion, an increase of $46 billion oRapid economic growth, an improving policy enTNCs increasing strategic commitment to the regionsustained FDI growth in the years to come.

Figure IV.C.1. Asia and the Pacific: prospects for FDI f



fdiprospects

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Experts TNCs

Increase Remain the same De


8/4/2019 IED 2005-2008

49/74

Figure IV.C.2. Asia and the Pacific: most at

business locations, 2005-2006(Per cent of responses)


fdiprospects.

The United States is expected to be the most impoof FDI for more than half of Asias economies in 2

according to IPAs in the region.8

Other major sourcinclude China, Japan, Australia and India, as well asKingdom (figure IV.C.3).

Figure IV.C.3. Asia and the Pacific: expectedsources of FDI, 2005-2006

(Response rate of IPAs)

China

United States

1. China (92%)

2. India (66%)3. Thailand (50%)

4. Rep. of Korea (34%)

5. Malaysia (32%)

6. Indonesia (28%)

7. Viet Nam (22%)

8. Singapore (16%)

1. China (94%)


4. Rep. of Korea (3

5. Malaysia (32%)

6. Indonesia (29%)

8. Singapore (16%


1. China (92%)


4. Rep. of Korea (34%)

5. Malaysia (32%)

6. Indonesia (28%)

8. Singapore (16%)

Responses from

1. China (94%)


4. Rep. of Korea (3

5. Malaysia (32%)

6. Indonesia (29%)

7. Viet Nam (23%)

8. Singapore (16%

Chapter IV

8/4/2019 IED 2005-2008

50/74

In the short term, FDI to Asia is expected to b

in the services and manufacturing sectors as coadvantage of low production costs and the availablabour (figure IV.C.4).

Figure IV.C.4. Asia and the Pacific: FDI

by industry, 2005-2006

(Per cent of responses from IPAs)0% 20% 40% 60%

Agriculture & other

Mining & petroleum

Food & beverages

Textiles & clothing

Publishing& media

Chemicals



Metal

Machinery


Motor vehicles


Construction

Retail & wholesale

Tourism


Primary

Sector

Manufacturing

es


8/4/2019 IED 2005-2008

51/74

Asian IPAs expect FDI growth in the services

concentrated in construction, tourism, computing and ICservices, and education and health. In the manufactumetal and metal products, electronics, motor vehicles anare expected to attract the most investment. The food anand machinery and equipment industries are also eperform relatively well.

One striking aspect of these forecasts is that mindustries predicted to attract substantial investmentcapital-intensive. This reflects an increasing effort take advantage of the abundance of skilled labouInvestment in construction, meanwhile, is driven by rapigrowth in the region as well as post-tsunami reco

Business services and computing and ICT-related aclikely to continue to benefit from the current wave of oIn contrast, prospects for agriculture are gloomy,unsurprising given that FDI in that industry is traditi

Asian IPAs believed they would benefit from thof numerous corporate activities in 2004-2005. 90%

receive investment in production, while 87% anticiplogistics and supporting services. The figures for distribution and sales are 78% and 70% respectively (fig

Figure IV.C.5. Asia and the Pacific: expected relocatio

corporate functions, 2005-2006


80%

90%

100%

Chapter IV

8/4/2019 IED 2005-2008

52/74

The largest change from last years results is in R&D

responses more than doubling since 2004, reflectrend towards growing FDI in research (UNCTA

In the short term, greenfield investment is the most important form of FDI in Asia. It is intethat 67% of Asian IPAs also expect to benefit froof investment, up from 23% in 2004 (figure IV.C

reflect the efforts of countries in the region to upgradof local firms, thus facilitating greater cooperatiocorporations through strategic alliances anarrangements. TNCs continue to regard greenfield iM&As as equally important modes of FDI.

Figure IV.C.6. Asia and the Pacific: expected modeof FDI, 2005-2006


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Greenfield FDI Otherstrategic

lice


8/4/2019 IED 2005-2008

53/74

Figure IV.C.7. Asia and the Pacific: trends in polic

to attract FDI, 2004-2006(Per cent of responses from IPAs)


fdiprospects.

D. Latin America and the Caribb

After four consecutive years of FDI decline, Laand the Caribbean registered a significant upsurge in

2004, albeit to a level still significantly below that 1997. The consensus among TNCs, experts and IPAregion9 is that this recovery will continue, though Latis not expected to perform as well as other develop(fi IV D 1) Th j it f L ti A i d

0% 20% 40% 60% 80

No new measures



Greater targeting

Other promotionmeasures

2004 2005-2006

Chapter IV

8/4/2019 IED 2005-2008

54/74

Figure IV.D.1. Latin America and the Caribbe

for FDI flows, 2005-2006(Per cent of responses)


fdiprospects.

Brazil is expected to be the most attractive loAmerica for FDI in 2005-2006 (figure IV.D.2). Mof TNCs and 90% of FDI experts believe that thbe one of the regions five most attractive investmin the short term. This may be due to a recent up

Figure IV.D.2. Latin America and the Caribbean:

business locations, 2005-2006


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Experts TNCs

Increase Remain the same


8/4/2019 IED 2005-2008

55/74

economy, led by the dynamically expanding export secto

high ranking is unsurprising given that it has beenrecipient of investment over the last four years. ArgChile are also considered to have positive prospects for

The United States is expected to remain the leaof FDI in Latin America and the Caribbean. Spain, Band Canada are also expected to provide investment

a significantly smaller scale (figure IV.D.3). Latin AmCaribbean IPAs expect growth in investment from Asisuch as China, the Republic of Korea and Japan.

Figure IV.D.3. Latin America and the Caribbean: expe

sources of FDI, 2005-2006


0% 20% 40% 60% 80%

Canada

China

Brazil

Spain

United States

Chapter IV

8/4/2019 IED 2005-2008

56/74

In the manufacturing sector, the majority of L

IPAs expect no significant change in FDI flows. Theto this is the food and beverage sector, for whichmore promising. This suggests that the regions industries are still in the process of restructuring

Figure IV.D.4. Latin America and the Caribbean:

by industry, 2005-2006(Per cent of responses)0% 20% 40% 60%

Agriculture & other

Mining & petroleum

Food & beverages

Textiles & clothing

Publishing& media

Chemicals



Metal

Machinery


Motor vehicles


Construction

Retail & wholesale

Tourism

&

Primary

Sector

M

anufacturing

s


8/4/2019 IED 2005-2008

57/74

Only one in three IPAs expect FDI in agricultu

in 2005-2006. This is a dramatic change from last yewhere the figure was closer to four out of five. On the prospects for the mining and petroleum industries remabuoyed by high raw material prices. It is not yet cleto what extent the most recent changes in the fisccovering the sector will affect FDI prospects for m

petroleum in the region.The IPA survey suggests that the activity mo

receive foreign investment in Latin American and theis production (figure IV.D.5). 71% of IPAs believe thsee increased FDI in this area. The expectation iscorporate functions are equally likely to be relocated to

in 2005-2006. Less FDI is anticipated in logistics andservices than last year. In contrast, more investment iin R&D. Remarkably, half of the respondents also expefrom more regional headquarters projects.

Figure IV.D.5. Latin America and the Caribbean: expecte

of corporate functions, 2005-2006(Per cent of responses from IPAs)

30%

40%

50%

60%

70%

80%

90%

100%

Chapter IV

8/4/2019 IED 2005-2008

58/74

Both TNCs and IPAs predict that greenfield i

be an important mode of FDI delivery in Latin ACaribbean in 2005-2006 (figure IV.D.6). Other typehave also gained in importance since last year. Mof IPAs expect M&As, strategic alliances and lican important role in the expansion of foreign cregional markets. FDI to the region is also expected t

public partnerships).

Figure IV.D.6. Latin America and the Caribbean: e

of investment, 2005-2006



fdiprospects.

0%

10%

20%

30%

40%

50%

60%

70%

80%90%

100%


Greenfield FDI Others sualliance

IPAs TNCs


8/4/2019 IED 2005-2008

59/74

Figure IV.D.7. Latin America and the Caribbean

policy measures to attract FDI, 2004-20(Per cent of responses from IPAs)


fdiprospects.

E. South-east Europe and the Commo

of Independent States

Short-term FDI prospects are very positive for

Europe and the Commonwealth of Independent States (CIV.E.1). Nine out of ten respondents believe that FDI win 2005-2006. This makes it the second most promisingdestination after Asia. After the FDI boom in 2003 andi fl h i d i f h i h

0% 20% 40% 60% 80

No new measures




Greater targeting

2004 2005-2006

Chapter IV

8/4/2019 IED 2005-2008

60/74

Ukraine, Kazakhstan and Romania also feature p

the list of top regional FDI locations .10

Figure IV.E.1. South-east Europe and the C

for FDI flows, 2005-2006



fdiprospects.

Figure IV.E.2. South-east Europe and the CIS: m

business locations, 2005-2006

( Per cent of responses)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Experts TNCs

Increase Remain the same D

1 Russia (57%) 1 Russia (56%)


1 Russia (57%) 1 Russia (56%)

Responses from TN


8/4/2019 IED 2005-2008

61/74

States as one of the countries from which they expec

the most investment (figure IV.E.3). One third of the reexpect investment from the Netherlands and one quartUnited Kingdom, Germany and Austria. Despite headthe United States is not anticipated to dominate invSouth-east Europe and the CIS as much as in othEuropean countries are expected to become a more impo

of FDI in the short run, due in part to their geographica

Figure IV.E.3. South-east Europe and the CIS: expec

sources of FDI, 2005-2006



fdiprospects.

0% 20% 40% 60% 80% 100

Netherlands

France

Italy

Russia

Austria

Germany

United Kingdom

United States

Chapter IV

8/4/2019 IED 2005-2008

62/74

Figure IV.E.4. South-east Europe and the CIS:

by industry, 2005-2006(Per cent of responses from IPAs)

0% 20% 40% 60%

Agriculture & other

Mining & petroleum

Food & beverages

Textiles & clothing

Publishing& media

Chemicals



Metal

Machinery


Motor vehicles


Construction

Retail & wholesale

Tourism


Transport

Banking & insurance

Primary

Sector

Manufacturing

Service

s


IPA b li h S h E

8/4/2019 IED 2005-2008

63/74

IPAs seem to believe that South-east Europe a

could have a competitive advantage in the primary seout of four IPAs surveyed expect FDI growth in agricultuand fishing, as well as in the mining, quarrying andindustries. This contrasts markedly with feedback regions, and especially the developed countries. TwiIPAs in South-east Europe and the CIS expect to see in mining, quarrying and petroleum and three times mincreased FDI in agriculture, compared to IPAs incountries.

In the manufacturing sector, the food and beveragseems to have the brightest prospects, followed by chelectrical and electronic equipment. This expectatio

largely based on anticipated outsourcing of productiofrom the European Union.

IPAs from South-east Europe and the CIS bproduction is the corporate activity most likely to bto the region. Every IPA respondent expected to relocation of production in 2005-2006 (figure IV.E.5). C

fewer IPAs expect to benefit from the relocation of othefunctions, with three out of five anticipating invdistribution and sales and R&D.

Figure IV.E.5. South-east Europe and the CIS: expecte

of corporate functions, 2005-2006


70%

80%

90%

100%

Chapter IV

D h i i i i i

8/4/2019 IED 2005-2008

64/74

Due to their positive investment environment,

market, and lower labour costs, South-east Europhave benefited from the outsourcing of productionin the developed world, particularly Western Europoutsourcing uses greenfield investment as its main It is not, therefore, surprising that all of the regimost TNCs believe that greenfield investment willmode of entry into the region (figure IV.E.6). ThIPAs also expect M&As to be a major means of inv2005-2006. TNCs, however, predict less use of M&30% anticipating short-term M&A growth in the regfuture. This is significantly lower than for other

Figure IV.E.6 South-east Europe and the CIS: ex

of investment, 2005-2006


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Greenfield FDI Others sallianc

IPAs TNCs


I li ith l b l t d 80% f th i IPA b

8/4/2019 IED 2005-2008

65/74

In line with global trends, 80% of the regions IPAs b

more focussed investor targeting is a useful tool for promotion. However, only one in four intends to introdliberalisation during 2005-2006 (less than in other r

Figure IV.E.7. South-east Europe and the CIS: trend

measures to attract FDI, 2004-2006



fdiprospects.

0% 20% 40% 60% 80%

No new measures




Greater targeting

2004 2005-2006

V C l di k

8/4/2019 IED 2005-2008

66/74

V. Concluding remarks

The GIPA survey results, global leading econand recent FDI policy developments all show thatlikely to recover further from the recession that early years of this decade. That recovery will be increby FDI flows to selected developing countries andin services sectors and selected manufacturing in

Overall, expectations for short- and medprospects are best described as cautiously optidepends, as it always has, on economic growth. Togrowth does not falter, FDI will be strong in de

developed countries alike, further reinforced in resurgence of cross-border M&As.

It is clear that competition for FDI is intensifywill continue to put in place attractive investmentthrough more liberal regulatory regimes and incenand through increased bilateral and regional investm

(Hamdani 2005). It is now common for countries FDI entry and ownership requirements, as well admission procedures, and to offer standard gprotection to foreign investors (in such areas as natiexpropriation, dispute settlement, arbitration and tof funds). Investment agencies are shifting their fo

authorisation and regulation to facilitation (one-sand aftercare) and promotion (greater targeting, inceconomic zones and the development of industri

The winners will not necessarily be those


for innovative partnerships between public and priv

8/4/2019 IED 2005-2008

67/74

for innovative partnerships between public and priv

to develop investment opportunities in infrastructudeveloped sub-regions, as well as in socially focused seducation and medical services. There will also beeffective public-private dialogue and multi-stakeholderto promote good governance and also inculcate a grof corporate responsibility among resident investor co

Notes

1 For an analysis of these trends, see the World Investm2000-2005.

2 Calculations based on information from the Thomsdatabase for 247 of the largest global TNCs.

3 For detailed analysis, including a definition of these agrUNCTAD, Economic Integration Investment Agreemwww.unctad.org/iia).

4 Japan established duty-free and quota-free preferences almost all (99%) industrial and agricultural proddocsonline.wto.org/DDFDocuments/t/WT/COMTD/N2

5 The question on prospects for FDI by industry was poseFDI experts only, since TNCs are generally not weprovide forecasts for industries other than their own.

6 In this section, IPA respondents refers to IPAs fromcountries that took part in the survey.

7 IPAs in this section refers to those IPAs from Africa tin the survey.

8

IPAs in this section refers to those Asian IPAs that tooGIPA 2005 survey.

9 IPAs in this section refers to those IPAs from Latin AmCaribbean taking part in the survey.

10 Th f h P l d l b b i

Annex : Methodology

8/4/2019 IED 2005-2008

68/74

Annex : Methodology

UNCTADs Global Investment Prospects Asse2005 is based on the results of three large-scale largest TNCs, international FDI experts and IPAsthe analysis of various macroeconomic and mindicators and investment policy developments at thinternational level.

A. Survey of investment promotion

Between January and April 2005, UNCTADsurvey of investment promotion agencies (IPAs) fromThe overall response rate was 71%, with 75% developed countries and 70% of those from develoresponding.

As the key agencies for disseminating infacilitating investment in their countries, IPAs have a

into investors attitudes and activities in their countheir daily contact with foreign investors and investmactivities, IPAs gain a valuable knowledge of likFDI, investor strategies and key policies and risk

B. Survey of transnational corpo

The survey of 325 of the largest TNCs wasFebruary 2005. This group represents 92% of toflows. These companies, representing the worlds


The TNCs surveyed gave perspectives on

8/4/2019 IED 2005-2008

69/74

The TNCs surveyed gave perspectives on

investment outlook as well as on wider trends. In formuown strategies, TNCs closely track the future investof other TNCs and factors affecting their industry. Tare therefore significant, and often indicative of broaderand the investment plans of TNCs.

C. Survey of international FDI expUNCTAD conducted its survey of 76 interna

experts in April 2005. Members of the GIPA experprofessionals selected for their investment knowleindividuals include consultants, advisers and/or analywith FDI issues.

The respondents mixture of expertise ensuresbias towards any particular industry or region. Expertstheir opinions concerning FDI prospects, expected patteof industry and region, the expected strategies of TNCs iof their corporate functions and mode of investment

to give an indication of expected trends in terms of policand governments.

This study uses the United Nations regional clsystem. Regions were divided into two sets. Thdeveloping economies, which included four regions: Aand the Pacific, Southeast Europe and the Commo

Independent States, and Latin America and the Carisecond group was developed economies, which consiAmerica, the 25 EU Member States, and other developed(i e Australia Iceland Israel Japan New Zealand N

References

References

8/4/2019 IED 2005-2008

70/74

References

Asia Week (YaZhou ZhouKan) (2005) 1000 Asian Buwww.asiaweek.com/asiaweek/features/asiaweek

A.T. Kearney (2004)A.T. Kearneys 2004 FDI ConfidenceA.T. Kearney) (http://www.atkearney.com/FDICIOct_2004_S.pdf)

________(2005)Emerging Market Priorities For Globa2005 Global Retail Development Index (Virginia(http://www.atkearney.com/shared_res/pdf/GRD

China Academy of International Trade and Econom(CAITEC) (2005)A Study of Chinese Enterprises

European and North American Markets (Feb)(BeEuropean Commission (2005)Business Climate Indica

/europa.eu.int/comm/economy_finance/indicators/b2005/bci0505_en.pdf)

Economist Intelligence Unit (EIU) (2005) CEO Briefi/www.dimensiondata.com/NR/rdonlyres/66CB62

B35F-176A161A4417/998/EIUCEOBriefing200Eurostat (2005) Real GDP Growth rate at constan

(European Commission, EUROSTAT Online daepp.eurostat.cec.int)

Finfacts business news (2005) US CEO business conimproves (3 Aug)(http://www.finfacts.com/irelan

publish/article_10002781.shtml)

Fortune Magazine (April, 2005) The 2005 Fortune 500

Hamdani, Khalil (2005). Going for the crown in


McKinsey (2005) The McKinsey Global Survey of Busines

8/4/2019 IED 2005-2008

71/74

y ( ) y y fConfidence Index (April 2005) (http://www.mckinseyq

article_abstract.aspx?ar=1609&L2=7&L3=10)

Organization for Economic Co-operation and Developm(2004) Economic Outlook No.77- Statistical An(December) (http://www.oecd.org/do0,2340,en_2649_34109_2483901_1_1_1_1,00.html)

PriceWaterhouseCoopers (2005) 8th Annual Global CEO S/ w w w . p w c . c o m / E x t w e b / i n s i g h t s . n s4 8 C 4 4 D A 8 9 C B 0 C C 4 1 8 5 2 5 6 F 7 F 0 0 6 1 C 68thAnnualGlobalCEOSurvey.pdf)

United Nations Conference on Trade and Development (2005a) World Investment Report 2005 (New York United Nations)

_______(2005b) Economic Integration Investment (forthcoming) (New York and Geneva: United Nati

_______(2005b) Recent Developments in InternationaAgreements (Aug) (http://www.unctad.org/iia)

_______(2005c) Global Investment Prospects Assesment 200

York and Geneva: United Nations)

United States Energy Information Administration (2005a),AnOutlook 2005 with Projections to 2025 (Jan)(WasDepartment of Energy) (http://www.eia.doe.gov/oi

United States Energy Information Administration (2005b)Intermediate Crude Oil Prices (Jan)(Washington: US

of Energy) (http://www.eia.doe.gov/).

World Bank (2005a) Global Economic Prospects 2005 (WashWorld Bank)

Questionnaire

8/4/2019 IED 2005-2008

72/74

Q

Prospects for Foreign Direct Investmen

Strategies of Transnational Corportions,

In order to improve the quality and relevanof the UNCTAD Division on Investment, Technology

Development, it would be useful to receive the viewthis and other similar publications. It would thereappreciated if you could complete the following qureturn it to:

Readership SurveyUNCTAD, Division on Investment,

Technology and Enterprise DevelopmentPalais des NationsRoom E-10054CH-1211 Geneva 10SwitzerlandOr by Fax to: (+41 22) 907.04.98

1. Name and professional address of respondent

2. Which of the following best describes your arGovernment Public enterprise

Private enterprise institution Academic or research

International organization Media

Th is q u e s t i oa va i la b le to blin e at: www.u


6. Please indicate the three things you liked bestbli i d h h f l f k

8/4/2019 IED 2005-2008

73/74

publication and how are they useful for your work

7. Please indicate the three things you liked leastpublication:

8. On the average, how useful are these publications towork?

Very useful Of some use Irrel

9. Are you a regular recipient of Transnational C(formerly The CTC Reporter), the Divisions tri-ann

journal?

Yes No

If not, please check here if you would like to recei

copy sent to the name and address you have given atitle you would like to receive instead (see list of pu

10. How or where did you obtain this publication:

I bought it In a seminar/worksho

I requested a courtesy copy Direct mailing

Other

8/4/2019 IED 2005-2008

74/74

UNCTAD's Global Investment ProspectsAssesment (GIPA)

The Global Investment Prospects Assesment (GIPA)is designed to present short-term and medium-termprospects for foreign direct investment (FDI) at theglobal, regional and industry levels. It also analysesthe evolving trends in the strategies of transnational

corporations (TNCs) as well as national FDI policies.

GIPA is designed to equip governments andbusinesses alike with an instrument for proactivedevelopment of policies and strategies, as opposed topost facto assessment of foreign investment facts.

The GIPA 2005-2008 was based on the findings of

three worldwide surveys (i.e. the surveys of the world'slargest TNCs, national investment promotionagencies (IPAs) and international investmentexperts). GIPA also analyses relevant leadingeconomic indicators, and policy developments thatwould shape future FDI patterns.

For more information, please visit

or contact Mr James X. Zhan (+41 22 907 5795)

http://www.unctad.org/fdiprospects; email: [email protected]

Printed at United Nations, GenevaGE.05- - December2005- 3,450

UNCTAD/ITE/IIT/2005/7

United Nations publicationSales No. E.05.II.D.32

ISBN 92-1-112691-6