Presentation on theme: "Facilitating New Investment in Difficult Market Circumstances"— Presentation transcript:
1 Facilitating New Investment in Difficult Market Circumstances Robert Whyte Sydney, AustraliaDecember 2010
2 FDI in the current market GIPB ResultsImplications for IPIs
3 FDI in the Current Economic Recession Most severe recession since 1929Global FDI flows fell 47% between 2007 and 2009RecoveryAfter four quarters of low-level recovery, Q saw a substantial declineQ2 decline due primarily to drops in reinvested earnings and intra-company loansTotal FDI in 2010 is forecast to stay flat at levelsBusiness ResponseSignificant decrease in access to creditRe-capitalization of banks is taking place in many countriesLower corporate profitsLeading site selection firms report slowdown and postponement of investment projectsCompanies restructuring to deal with the crisis; cautious about recoveryInvestment plans frozen or discardedDe-locations and outright plant closuresSource: World Investment Report 2010, United Nations Conference on Trade and DevelopmentUNCTAD Global Investment Trends Monitor, Issue No. 4, 2010
4 Investment flows – Global Global FDI in 2009 at $1.11 trillion (Greenfield and M&A)2nd consecutive year of decline after 4 years of growthStill 5th highest year in historyShare of developing countries rose to 43%, the highest since 1982NOTE TO THE INSTRUCTOR: The following slides need to be updated from latest UNCTAD’s World Investment Report.Source: World Investment Report 2010, United Nations Conference on Trade and Development
5 Investment flows – Developing economies $630 billion in 2008 was the highest level ever, while developed economies saw a decline of 16%1$478 billion in 2009 was a 24% decrease, but was much more modest than the 44% decrease in developed countriesEast Asia$154.8 billion in 2009 was the second highest ever, but a decline of 17% from the 2008 peak of $185.5 billionThe Pacific 2$892 million in 2009 was the highest ever, up nearly 15-fold since 2002While inflows into developing economies and less developed countries reached records during 2007, there has been a relative decline since 2004.1China and Russia represent 1/3 of the $630 billion2 Includes Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tokelau, Tonga, Tuvalu and VanuatuSource: UNCTAD World Investment Report 2010Source: WIR2008
6 Investment flows (by value) – The Pacific Since 2002 FDI inflows have trended upward with periodic setbacksLargely to Papua New Guinea (44% of 2009 total), Fiji (27%) and, over the last 5 years, increasingly the Solomon Islands (19%)FDI Inflows to the Pacific,Millions of USDSource: UNCTAD FDI Database
7 Investment flows (by value) – The Pacific FDI Announcements:42 investment projects from 32 companies (Jan Oct )Average number of jobs created per project was 299Leading sector: Coal, Oil and Natural Gas with 33% of projectsLeading activity: Manufacturing, with 38% of projectsSource: fDi Markets The pacific
8 Investment flows (by project) – The Pacific Top 10 companies accounted for 48% of projects, including:Kulim (Malaysia),InterOil (Australia) andExxonMobil (United States)Top 5 destinations for FDI projects in the Pacific (total from )Share of Projects1FDI per Capita2Papua New Guinea60%$58Fiji24%$280Timor-Leste7%$16Solomon Islands5%$331Samoa2%$8Source: 1fDi Markets the Pacific2UNCTAD World Investment Report 2010
9 Prospects for FDI Recovery: 2009-2012 Depends on financial sector liquidity and willingness to fund new projectsDepends on government response policies – e.g. extent of protectionismAs of mid-October, FDI flows appear to be on the “pessimistic” track, with a forecast increase of half a percent.Global FDI flows, , and projections forSource: World Investment Report 2010, UNCTAD
10 How can governments react quickly and effectively? Longer term:Better infrastructure and skills Expensive investmentsMarket size/growth and factor costs are functions of the market - difficult to influence.Proximity to markets, climate, resource endowments, and other natural characteristics are what they are.
11 How can governments react quickly and effectively? Short term:A better investment climate:Can be achieved with greater simplicity, transparency, and predictabilityComes in great part from better organization, streamlining, coordination, and communication with the private sectorReduces costs and risk to investors, instantly improving the expected return on investment for your locationGood facilitation - compensates (at least to an extent) for weaknesses in the investment climate, giving investors clarity and security where there is none, through the provision of information and assistance.
12 Why IPIs Should Bridge the Corporate Information Gap? Information markets do not work perfectly. As a result, companies often limit options to those locations they are familiar with.IPIs’ effective marketing can encourage companies to look at new countries and open new opportunities.Current financial instability may make companies more cautious about their medium-term foreign expansions.Making investment-relevant information easily available lessens investors’ risk perceptions.Provision of relevant, accurate and up-to-date information diminishes companies’ transaction costs during the site selection process.Thereby making destinations more competitive.
13 FDI in the Current market GIPB ResultsImplications for IPIs
14 GIPB Mirrors Companies’ Site Selection Process Stepping in the shoes of two companies (manufacturing and software) a site location consultant assessed:IPI Websites-- The extent to which IPIs offer country and sector information suitable to assist potential investors in their location search.Inquiry handling -- A mystery shopper approach tested each IPI’s ability to interact with and manage two distinct investment inquiries, provide relevant information and make a business case for investment.A recent survey of 3,600 US large companies ($25m+) conducted by DCI Consulting reveals that:64% of respondents would use the IPI website in their next location search.Only 8% of respondents say they would not contact the IPI during the investment decision processSite location consultants are more likely to use the IPI services for information in the screening process.
15 Countries Are Missing Investment Projects and Jobs When foreign companies knock on the door, IPIs often do not respond…GIPB 2009 Regional Scores: Web Site & Inquiry HandlingThe Pacific137%
16 Regional Comparison 2006 and 2008 TrendsIPIs have improved since 2006 but this is down to the ‘shop window’- the websites. There is no real change in the investor assistance on the’ shop floor’- improvements in inquiry handling have been moderate at best and in most cases the levels of service remain very low.Improvements are recorded for most regions. However, in the Pacific it seems that investors can expect less help from the IPIs to navigate the system.Regional Comparison and 2008FijiKiribatiPalauPapua New GuineaSolomon IslandsThe Pacific11Note: due to limited data availability average based on 5 of the invited countries
17 The world’s top improvers between 2006 and 2009 Three of the top 8 improvers are from the Pacific regionBiggest regional improvements were:Fiji (+26%)Papua New Guinea (+14%)Solomon Islands (+16%)FijiSolomon IslandsPapua New Guinea
18 The Pacific Performance (by tier) -FijiVanuatuTonga PalauPapua New Guinea Solomon IslandsMicronesia Marshall IslandsSamoaTimor-LesteBEST PRACTICE: %GOOD: 61-80%AVERAGE: 41-60%WEAK: 21-40%VERY WEAK: 0-20%Libya was not rated in GIPB 2009.
19 Top Performers in the Pacific AverageGoodApproaching global competitivenessFiji rated “good”Consistency is a weakness. If both inquiry responses had been stronger, a few other weaker performers would have attained “average”
20 The Pacific: Details Website Inquiry Handling Of 11 IPIs surveyed: As a group, the Pacific was “best practice” in terms of Design (82%) and “good” in terms of Information Architecture (74%)Content was weakest with an average of 40%1 countries scored within the very weak range as a result of no website8 of the 11 countries achieved “good or average”. Top 3:FijiVanuatuPapua New GuineaInquiry HandlingOf 11 IPIs surveyed:9 IPIs did not respond to investors’ manufacturing inquiry8 did not respond to the software inquiry2 IPIs responded to only 1 inquiry type7 IPIs (more than half) failed to respond in both casesFiji had the highest average response at 47%; responding to both inquiry types
21 FDI in the Current Market GIPB ResultsImplications for IPIs
22 Get the Basics Right …… Facilitation, Facilitation, Facilitation IPIs underestimate what’s neededWithout proper Facilitation no investment promotion effort will pay offThe smaller the IPI budget the more sense Facilitation makesFocus on the basics: Walk before you runCountries where doing business is more challengingBigger role for the IPI to inform and facilitate foreign investorsLesser known countriesBridge the information gap through the work of the IPI to attract investmentThe Web allows all IPIs to promote cost-effectively…... but there must also be a capacity to directly interact with investors