World Investment Report 2001 Promoting Linkages 18 September 2001 [ADD VENUE] UNCTAD Preliminary version EMBARGO 18 SEPTEMBER :00 hrs GMT

World Investment Report 2001: Promoting Linkages 2 Global inflows of FDI , USD billions, by group of countries Source: UNCTAD

World Investment Report 2001: Promoting Linkages 3 The 10 largest FDI destinations 2000, USD billions Source: UNCTAD

World Investment Report 2001: Promoting Linkages 4 The 10 largest sources of FDI 2000, USD billions Source: UNCTAD

World Investment Report 2001: Promoting Linkages 5 FDI inflows and outflows by region and economy USD billions, 2000 Source: UNCTAD Note: Africa includes South Africa; Central and Eastern Europe includes Developing Europe

World Investment Report 2001: Promoting Linkages 6 Number of cross-border “mega deals”* Source: UNCTAD * Deals with transaction values of more than USD 1 billion

World Investment Report 2001: Promoting Linkages 7 FDI flows relative to the value of gross fixed capital formation, per cent, , developed countries Source: UNCTAD

World Investment Report 2001: Promoting Linkages 8 FDI flows relative to the value of gross fixed capital formation, per cent, , Africa, top 20 countries Source: UNCTAD

World Investment Report 2001: Promoting Linkages 9 FDI flows relative to the value of gross fixed capital formation, %, , Dev. Asia-Pacific, top 20 countries Source: UNCTAD

World Investment Report 2001: Promoting Linkages 10 FDI flows relative to the value of gross fixed capital formation, per cent, , Latin Am./Carribbean, top 20 Source: UNCTAD

World Investment Report 2001: Promoting Linkages 11 FDI flows relative to the value of gross fixed capital formation, per cent, , Central and Eastern Europe Source: UNCTAD

World Investment Report 2001: Promoting Linkages 12 Share of developing countries in world FDI , per cent Source: UNCTAD

World Investment Report 2001: Promoting Linkages 13 Outward FDI from some developing countries , FDI outflows as a percentage of gross fixed capital formation Source: UNCTAD

World Investment Report 2001: Promoting Linkages 14 The Geography of International Production

World Investment Report 2001: Promoting Linkages 15 TNC activities continue to expand 62,000 TNCs 820,000 foreign affiliates Affiliate sales now almost twice the value of global exports FDI most important external capital source in developing countries FDI flows highly concentrated: 10 countries receive 75 % of total inflows Source: UNCTAD

World Investment Report 2001: Promoting Linkages 16 Changing geography of international production 1985: 17 countries received more than $1 billion of FDI 2000: 51 countries received more than $1 billion of FDI 1985: 13 countries had outflows of more than $1 billion 2000: 33 countries had outflows of more than $1 billion In 2000: top 30 countries accounted for 99% of world outflows In 2000: top 30 countries accounted for 95% of world inflows Source: UNCTAD

World Investment Report 2001: Promoting Linkages 17 Some key characteristics Source: UNCTAD Services are growing in importance Technologically more advanced activities tend to be more concentrated – Biotechnology among the most concentrated activities – Food and beverages among the most dispersed Specialization and internationalization go hand in hand. Even critical functions such as design, R&D and financial management are becoming more internationalized Innovative clusters attract FDI, e.g.: – Silicon Valley, California – Silicon Fen, Cambridge – Wireless Valley, Stockholm

World Investment Report 2001: Promoting Linkages 18 Generations of investment promotion policies 1st generation: –liberalization of FDI flows –opening up of sectors to foreign investors 2nd generation: –marketing of countries as locations for FDI –setting up of national investment promotion agencies 3rd generation: –targeting of foreign investors at the level of industries and clusters –marketing of regions and clusters –aim: to match the locational advantages of countries with the needs of the foreign investor. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 19 An increasingly enabling framework for FDI number of national regulatory changes in, Source: UNCTAD

World Investment Report 2001: Promoting Linkages 20 The World’s Top 100 TNCs

World Investment Report 2001: Promoting Linkages 21 The world’s top 100 TNCs some facts 91 are based in the “Triad” 3 firms from developing countries made the list Half of the largest 100 firms are in three industries  electrical and electronic equipment  motor vehicle  petroleum exploration and distribution industries  The top 100 accounted for  12 per cent of the foreign assets;  16 per cent of the sales; and  15 per cent of the employment......in all TNCs. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 22 The top 10 largest TNCs in the world, by foreign assets, USD billions, 1999 Source: UNCTAD

World Investment Report 2001: Promoting Linkages 23 The top 10 largest TNCs in developing countries, by foreign assets, USD millions, 1999 Source: UNCTAD

World Investment Report 2001: Promoting Linkages 24 The top 10 largest TNCs in Central and Eastern Europe, by foreign assets, USD millions, 1999 Source: UNCTAD

World Investment Report 2001: Promoting Linkages 25 Promoting Linkages

World Investment Report 2001: Promoting Linkages 26 Why promote backward linkages? Potential benefits to foreign affiliates, local firms and host countries. Foreign affiliates: using suppliers in a host country way to reduce costs, increase flexibility and expand sales. Outsourcing and sub-contracting raise the need for inter-firm linkages. Local firms: become part of global production networks of TNCs, can increase sales and benefit from productivity-enhancing information and knowledge transmitted from foreign affiliates. Host countries: can benefit when linkages contribute to the upgrading of domestic enterprises and as foreign affiliates become more firmly embedded in the host economy. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 27 Strategic options for obtaining inputs Source: UNCTAD

World Investment Report 2001: Promoting Linkages 28 Many factors affect the linkage creation process Industry-specific determinants TNC-specific determinants –investment motives and strategies; –technology and market position of the TNC; –role assigned to a foreign affiliates; –age of foreign affiliate; –mode of establishment –size of affiliate Host-country-specific determinants –level of economic development –availability of competitive suppliers –availability of support institutions –legal and economic policy framework Source: UNCTAD

World Investment Report 2001: Promoting Linkages 29 Supplier development efforts by TNCs Supply chain management more important. Some TNCs have established special linkage development programmes. Objective: expand the number of efficient suppliers, and/or to help existing suppliers improve their capabilities. Efforts have been made to e.g.: –find new suppliers; –provide technology and technical assistance; –give training; –share information; and/or –extend financial support. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 30 Policy framework for promoting backward linkages Source: UNCTAD

World Investment Report 2001: Promoting Linkages 31 The linkages policy environment Source: UNCTAD

World Investment Report 2001: Promoting Linkages 32 Various performance requirements –local content (not permissible under the WTO TRIMs Agreement) –joint venture –export performance FDI and trade liberalization, and more intense competition for FDI, have reduced the reliance by countries on many performance requirements. Incentives –incentives linked to local content are not permissible under the TRIMs Agreement; –the use of incentives must also be compatible with the Agreement on Subsidies and Countervailing Measures; –Well targeted incentives to promote the strengthening of linkages can be important. Maybe such development-related subsidies should be rendered non-actionable. The role of trade and investment measures Source: UNCTAD

World Investment Report 2001: Promoting Linkages 33 Best practice in linkage promotion The need for public-private partnerships Role of foreign affiliates –indicate scope for local sourcing –help identify suppliers with greatest potential –specify requirements –participate in training, provide information and knowledge Role of government –formulate and adopt adequate laws and incentives –set up an appropriate institutional framework –make sure that support required is provided (by public or private service providers) to the firms targeted –policy coherence Source: UNCTAD

World Investment Report 2001: Promoting Linkages 34 Best practice in linkage promotion some key lessons Matchmaking needs to be complemented by measure to upgrade local supply capacity Supplier development efforts should be selective and target SMEs that show the greatest potential for growth Cooperation and coordination among the various government agencies involved is important. Efforts need to tally with SME development and FDI policies Identify the best service providers of business support -- whether they be private or public. Efforts must be adapted to the specific circumstances of each country or sub-national location. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 35 The National Linkage Programme in Ireland basic facts Run by Enterprise Ireland Dates back to the mid-1980s Two main tasks: –to support Irish enterprises to build capacity, innovate and create new partnerships –to assist international investors to source and identify key suppliers in Ireland Key industries: electronics, engineering and pharamceuticals Has focused on Irish firms and involved some 250 foreign affiliates. Rapid growth of local purchases of raw materials and services Several SMEs have become successful international subcontractors. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 36 The Local Industry Upgrading Programme (LIUP) in Singapore Run by the Economic Development Board (EDB) Started in 1986 Aim: to upgrade, strengthen and expand the pool of local suppliers to foreign affiliates by enhancing their efficiency, reliability and international competitiveness. Close collaboration with foreign affiliates. In 1999, some 30 foreign affiliates and 11 large domestic companies were partnering some 670 vendors under the LIUP. Several local firms under the programme have managed to become preferred global first-tier suppliers to their customers and TNCs in their own right. Source: UNCTAD

World Investment Report 2001: Promoting Linkages 37 A Linkage Promotion Programme - key elements 1. Setting the policy objectives 2. Identifying the targets of the programme - selection of industries, foreign affiliates and domestic firms 3. Identifying specific measures to be adopted: - information and matchmaking - technology and technical assistance - training - provision of finance 4. Setting up institutional and administrative framework to implement and monitor the programme Source: UNCTAD