1. MIBE The economics of emerging economies The role of Finance in economic development and the emerging economies development and the emerging economies Gianni Vaggi, April 2014 Finance 1-2 4-Foreign Direct Investments

2. Foreign Direct Investment Investment involving a LONG TERM relationship and reflecting a LASTING interest and control by a FOREIGN direct INVESTOR in an enterprise resident in an economy other than that of the foreign investor.

3. FDI inflows, global and by group of economies, 1995–2012 (Billions of Dollars)

4. FDI flows, by region, 2010-2012 (billions of Dollars and per cent)

5. FDI flows by region, 2005-2010 (Billions of Dollars)

6. Top 20 host economies, 2012 (billion of dollars)

7. SECTOR of investment Tendency towards SERVICES…Tendency towards SERVICES… SERVICES are important becauseSERVICES are important because increase competitiveness affect living standards (health, education, water, electricity)

8. Sectoral Distribution of FDI Projects, 2011- 2012 (Billions of Dollars and per cent)

9. Modes of Entry Mergers & Acquisitions (M&A)Mergers & Acquisitions (M&A) Transfer of ownership - asset stripping No productive capacity added May reduce competition Threaten national sovereignty Greenfield InvestmentsGreenfield Investments New production facilities Stimulate domestic entrepreneurship Bring in capital slower than M&A Crowding out

10. Value and Number of M&A and Greenfield FDI Projects, 2003-2012

11. Distribution of the value of greenfield FDI project by sector, 2012 (per cent)

12. FDI in Africa, 2002-2012

13. FDI inflows and their share in World Total, 2006-2012

14. AFRICA FDI inflows, top 5 economies, 2010-2011 (Billions of Dollars)

15. East and South-East Asia FDI inflows and their share in World Total, 2006-2012

16. Distribution of FDI flows among economies, by range, 2012

17. EAP- FDI flows, top 5, host and home economies, 2011-2012

18. South Asia FDI inflows and their share in World Total, 2006-2012

19. SA-FDI flows, top 5, host and home economies, 2011-2012

20. Latin America and the Caribbean FDI inflows (billions of Dollars) and their share in world total, 2006-2012

21. Distribution of FDI flows among economies, by range, 2012

22. LAC-FDI flows, top 5, host and home economies, 2011-2012

23. FDIs; PROs and Cons

24. The Foreign Investor TNC conducts and controls productive activities in a specific sector (primary, manufacturing, services) in more than one country. N.B. TNC not in development business MAX RETURNS ON CAPITAL

25. FDI source for DEVELOPMENT? Filling in gaps: CAPITAL flowCAPITAL flow TECHNOLOGY flowTECHNOLOGY flow Gvt. Revenue (tax)Gvt. Revenue (tax) Human capital skills (spillovers)Human capital skills (spillovers) Non debt creatingNon debt creating

26. FDI threat for DEVELOPMENT? Crowding out of local firmsCrowding out of local firms Influence gvt. policies badlyInfluence gvt. policies badly Local resources allocated for socially undesirable projectsLocal resources allocated for socially undesirable projects Modes of entryModes of entry Sector of investment (value added)Sector of investment (value added)

27. Let’s consider… Type of investmentType of investment Situation of the host country enterpriseSituation of the host country enterprise The sectorThe sector The time-frameThe time-frame

28. SERVICES POTENTIAL RISKS:POTENTIAL RISKS: SISTEMIC SISTEMIC STRUCTURAL STRUCTURAL CONTINGENT CONTINGENT

29. SISTEMIC RISKS Lack of regulation Economic Instability Es. loose control over capital movements in and out of the country, volatility of the exchange rate, contagion effect in case of crises

30. STRUCTURAL RISKS Monopoly sectors (Natural Monopoly, State Monopoly, public goods) Privatization (private monopoly) increase in prices

31. CONTINGENT RISKS FDI in social or cultural relevant sectors (media, strategic sectors i.e financial) FDI in social or cultural relevant sectors (media, strategic sectors i.e financial) FDI in sectors with high environmental impact (Tourism) FDI in sectors with high environmental impact (Tourism)

32. Scope for Governmental Policies Active policies to directly affect FDI (sectors, local capabilities, upgrading skills, technological capabilities, infrastructure)Active policies to directly affect FDI (sectors, local capabilities, upgrading skills, technological capabilities, infrastructure) International Investment Agreements (IIA) – Multilateral, Regional & Bilateral levelsInternational Investment Agreements (IIA) – Multilateral, Regional & Bilateral levels

33. References Global Development Finance (WB) World Investment Report (UNCTAD) Trade & Development Report (UNCTAD) Mold Andrew, December 2008, “The Fallout from the Financial Crisis: Implications for FDI to Developing Countries”, OECD Development Centre, Policy Insight, no.86 Nunnenkamp Peter, 2002, “Foreign Direct Investment in Developing Countries: What Economists (Don’t) Know and What Policymakers Should (Not) Do!”, Cuts international press OECD press release, 24 June 2008, “FDI from OECD Countries Jumps 50% in 2007 but Set to Fall in 2008”, www.oecd.orgwww.oecd.org UN, 2009, “World Economic Situation and Prospects 2009”, UN Publication UNCTAD, 1999, “Foreign Direct Investment and Development”, UNCTAD Series - on issues in International Investment Agreements 'Financing Development in a Post-Crisis World: The Need for a Fresh Look‘, Global Development NetworkFinancing Development in a Post-Crisis World: The Need for a Fresh Look World Bank database available on the webWorld Bank database available on the web