World Investment Report 2008 Transnational Corporations and the Infrastructure Challenge

World Investment Report 2008

Transnational Corporations and the

Infrastructure Challenge Kalman Kalotay

UNCTAD Investment Issues Analysis Branch 26 November 2008

2

PART ONE

Record FDI flows in 2007, but set to decline

3

Key messages

Global FDI flows rose for the 4th consecutive year, surpassing the peak of 2000

Sovereign wealth funds (SWFs) are emerging as new actors on the FDI scene

Global financial crises had a limited impact on FDI flows in 2007, but will begin to bite in 2008.

FDI flows set to decline in 2008

4

Global FDI flows surpassed the peak of 2000, …

($ billion)FDI inflows, global and by group of economies,

1980-2007

5

… including record flows to all developing regions

0

50

100

150

200

250

300

350

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

US$

bill

ions

Asia and Oceania

Latin America and the Caribbean

Africa

Africa: $53 billion – recordLAC: $126 billion – recordLDCs: $13 billion – record

East Asia: $157 billion – recordSouth-East Asia: $61 billion – recordSouth Asia: $31 billion – record West Asia: $71 billion – record

6

Sovereign wealth funds (SWFs) are emerging as

new actors on the FDI sceneFDI flows by sovereign wealth funds, 1987–2007

• The amount invested by SWFs in FDI was 0.2% their total assets (US$ 5 trillion) in 2007

• 79% of total amount invested in FDI took place in the last three years

• Three quarters of FDI by SWFs has been in developed countries

• Investments were concentrated mainly in business services

• Due to negative public perceptions, international organizations are establishing principles and guidelines relating to FDI by SWFs

0

2 000

4 000

6 000

8 000

10 000

12 000

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

$ million

0

5

10

15

20

25

30

35

Number

Value of FDI by SWFs based in the UAE only Value of FDI by other SWFs Number of FDI deals by SWFs

7

Most policy changes continue to favour FDI, but restrictions also

come to play

0

20

40

60

80

100

World Developedcountries

Africa LAC DevelopingAsia

Transitioneconomies

Per c

ent

More favourable to FDI Less favourable to FDI

8

FDI flows set to decline in 2008

Value of cross-border M&As, 2006-2008, by quarter

• A slowdown in economic growth as a result of financial and credit crises

• Corporate profits are declining• Global FDI flows for 2008 are estimated to be $ 1.6

trillion, 10% lower than in 2007• Cross-border M&As for the first half of 2008 fell 29%

compared to the second half of 2007• However, FDI flows to developing countries in 2008 are

resilient

Impact of financial instability on FDI flows 2008-2010: Result from the

UNCTAD survey

9

South-East Europe and the CIS:FDI inflows reached a new record level

in 2007

Foreign investors were eager to access the fast growing consumer markets and the natural resources of CIS

Privatization-linked projects remained the main drivers of FDI flows to South-East Europe.

FDI inflows in value and as a percentage ofgross fixed capital formation, 1995-2007

(Billions of dollars)

Source: UNCTAD, World Investment Report 2008, Transnational Corporations and the Infrastructure Challenge.

10

Patterns of FDI inflows by country

FDI flows to the Russian Federation rose to more than $50 billion due to: fast growing local

consumer market; liberalization of

electricity generation; and

natural-resource related projects.

The FDI potential of South-East Europe and the CIS remains higher than its performance

Inward FDI Performance and Potential indices rankings of selected countries,

2006


11

Patterns of FDI inflows by country (cont’)

Top 10 recipients of FDI inflows, 2006–2007

(Billions of dollars)


12

FDI outflows more than doubled in 2007

Russian TNCs invested abroad to acquire strategic assets or increase their global market share

Russian firms are increasing:

their downstream presence abroad in the energy industry, and

their value-added production activities in the metals industry

FDI outflows, 1995-2007(Billions of dollars)


13

Policy developments

In some CIS countries new natural- resource related laws were approved: In the Russian Federation, the strategic sector law was

promulgated to clarify rules on foreign ownership limitations

In Kazakhstan, the law allows the government to change existing natural-resource contracts unilaterally

South-East European countries: accelerating privatization

14

Prospects

Buoyant FDI inflows in larger economies (Russian Federation,

Kazakhstan, Ukraine)

Privatizations expected (Uzbekistan, Ukraine, Albania)

FDI prospects in South-East Europe and CIS, 2008-2010

(Per cent of respondents)

Source: UNCTAD, World Investment Report 2008,Transnational Corporations and the Infrastructure Challenge.

15

PART TWO

Transnational Corporations and the

Infrastructure Challenge

16

Key messages

Investment in infrastructure is essential for development

TNCs, among others, can help bridge the infrastructure gap of developing countries

Since 1990 TNC investment in infrastructure has risen both globally and in developing countries

The universe of infrastructure TNCs now includes significant number of developing country TNCs

The impact of TNC participation on infrastructure industries in developing countries is mixed

Leveraging TNC participation in infrastructure in host countries is a huge challenge for national policies and institutions

17

Why investment in infrastructure is important

Efficient infrastructure services are crucial for competitiveness and economic growth Good quality infrastructure is essential for international

trade and integration into the world economy

Access to affordable infrastructure services, such as electricity and drinking water, is an important determinant of living standards The development of infrastructure helps to eliminate

poverty and attain the UN Millennium Development Goals

Low-income countries have huge infrastructure investment needs but lack the necessary capacity domestically to meet them

18

Rise of FDI in infrastructure industries, with a peak in 2000

0

10

20

30

40

50

60

70

80

90

100

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

Total Electricity, gas and water Telecommunications

Global FDI stock in infrastructure rose 30-fold to $786 billion between 1990 and 2006 In developing countries, it rose 29-fold to $199 billion There was a peak in FDI flows in infrastructure industries around 2000, largely due to M&As in infrastructure

FDI inflows in electricity, gas and water, and in telecommunications, 1991-2006, $ billion, three-year moving averages

Global infrastructure FDI flows, 1991-2006

($ billion)

19

Share of foreign investors in infrastructure industries of developing and transition economies varies

Commitments in 1996–2006, %

Energy

32.021.1

37.830.0

47.3

11.9 29.3

16.521.4

15.3

56.049.6 45.7 48.5

37.4

0

20

40

60

80

100

Africa Asia Latin America andthe Caribbean

All developingcountries

South-East Europeand CIS

Foreign Domestic private Domestic public

Telecommunications

40.3

19.6

42.835.2

41.2

11.6

31.0

20.0

21.2 5.8

48.1 49.537.1

43.653.0

0

20

40

60

80

100





Transport

28.417.4 18.8 19.3

29.2

16.5 39.321.8

27.816.7

55.143.3

59.452.9 54.1

0

20

40

60

80

100





Water and sewage

41.9

21.128.8 25.2

41.4

2.834.1 22.1 27.7

22.8

55.344.8 49.2 47.1

35.7

0

20

40

60

80

100





20

Forms of TNC involvement vary by industry in commitments in developing and transition economies in 1996–2006

FDI in telecoms, concessions in others

Energy

Privatization FDI26%

Greenfield FDI10%Concession

62%

Management and lease

2%

Telecommunications


1%Privatization

FDI16%

Greenfield FDI67%

Concession16%

Transport


6%

Greenfield FDI1%

Privatization FDI7%

Concession86%

Water


25%

Concession70%

Greenfield FDI0%

Privatization FDI5%

21

Largest TNCs in Infrastructure 2006*

Companies from developing economies (in green) now key players

Rank Electricity Natural gas Telecommunications Transport Water and sewageMore than one infrastructure industry

1 Electricité de France Gaz de France Vodafone Group Grupo Ferrovial Veolia Environnement Suez2 E.On Spectra Energy Corp. Telefónica Abertis Grupo Agbar Hutchison Whampoa

3 Endesa Centrica Deutsche Telekom AP Moller-Maersk Waste Management Inc RWE Group4 Vattenfall Gas Natural France Télécom DP World Shanks Group Bouygues5 National Grid Transcanada Corp. Vivendi Inc China Ocean Shipping Waste Services Inc YTL Power

6 AES Corp. Enbridge Inc Liberty Global Inc Canadian National Railways Co.

Stericycle Inc Babcock & Brown Infrastructure

7 Fortum Sempra Energy TeliaSonera Skanska Hyflux Limited Enka Insaat ve Sanayi

8 Duke Energy Corp. El Paso Corp. SingTel PSA International Clean Harbors Inc NWS Holdings

9 EDP Energias de Portugal Hunting Plc Telenor Hochtief .. ..

10 International Power Plc Williams Companies Nortel Networks Vinci .. ..11 CLP Holdings Hong Kong & China Gas

Co. KPN Macquarie Airports .. ..

12 Iberdrola Distrigaz 'D' BT Group Deutsche Bahn .. ..13 Unión Fenosa Canadian Utilities Ltd. Verizon Communications Orient Overseas

International .. ..

14 PPL Corp. Iwatani International Corp. SES Grupo ACS .. ..15 Atel - Aare Tessin .. Telecom Italia Obrascon Huarte Lain .. ..16 Public Service Enterprise

Group.. América Móvil Kansas City Southern .. ..

17 Keppel Corp. .. Mobile Telecommunications Co.

Canadian Pacific Railway .. ..

18 Cofide-CIR Group .. TDC A/S First Group .. ..19 Edison International .. Portugal Telecom BBA Aviation .. ..20 Enel .. Tele2 China Communications

Construction Co... ..

* Ranked by foreign assets

22

The universe of infrastructure TNCs is changing

Chinese and Indian investments in infrastructure in Africa, up to April 2008

Increasing number of private and state-owned TNCs

Important role for TNCs from the South Especially in ports and

telecommunications Significant in LDCs Sometimes investment in

infrastructure and extractive industries is complementary

Rise of new financiers in infrastructure industries Private equity firms Sovereign wealth funds

23

Impact on infrastructure services

TNCs have made a difference in the quantity and quality of infrastructure services in developing countries • but there can be both benefits (e.g. extension of

services to more customers) and costs (e.g. TNCs might drive local firms out of the industry.

• The overall effect depends on industry characteristics, host country regulation and the behaviour of foreign affiliates

Overall improvements are most common in telecommunications and transportation (e.g. ports)

TNCs recover their investment costs by price increases, which particularly affects access for the poor and universal access

24

Leveraging TNC participationPolicy challenges and options

Host country Host country national policies national policies and institutionsand institutions

Development Development partner policiespartner policies

Creating strong, transparent and accountable institutional and regulatory frameworks

Sequencing of reform

Assessing options and negotiating with TNCs

Building necessary capabilities to deal with public-private partnerships

Involving TNCs in Involving TNCs in infrastructure places infrastructure places more, rather than less, more, rather than less, responsibility on public responsibility on public officials.officials.

ODA to infrastructure– Better use of available funds– Readiness to take risk

More capacity-building– Evaluating options– Negotiations with TNCs– Role for the UN?

Risk-mitigation targeted to low-income countries

Support to regional projects

Keep all options open

Thank You!

Visit UNCTAD websites:

www.unctad.org/diae

and

www.unctad.org/wir

www.unctad.org/fdistatistics

http://www.unctad.org/diae

http://www.unctad.org/wir

http://www.unctad.org/fdistatistics

Documents

World Investment Report 2008 Transnational Corporations and the Infrastructure Challenge