Investment: policies and trends University of the West Indies Study Tour, 5 May 2008 Kálmán Kalotay Division on Investment and Enterprise Development

Outline On DIAE FDI trends –A snapshot on the Caribbean TNCs, Extractive Industries and Development: an industry case study Some words about policies

On DIAE

Why are we dealing with investment and enterprise? The mandate UNCTAD is: “ the focal point within the United Nations for the integrated treatment of trade and development, and related issues in the areas of investment, finance, technology, enterprise-development and sustainable development.”

How do we carry out our work? (1)  Forum for consensus building (meetings)  Research and analysis Data collection and analysis of new trends (World Investment Reports) Policy research on development questions (e.g. ensuring technology transfer) Publications (Transnational Corporations journal, UNCTAD Current Studies on FDI and Development etc.)

How do we carry out our work? (2)  Technical cooperation and capacity building Assistance in negotiating bilateral investment treaties Assisting in drafting investment laws Investment Policy Reviews Publishing investment guides Help in setting up Investment Promotion Agencies Assistance in enterprise development and business linkages  Preconditions of technical assistance Availability of funding (mostly extra-budgetary) Government request

World Investment Reports: main source of data and analysis (also in this presentation)  2008: Infrastructure (17 September 2008)  2007: Extractive Industries  2006: FDI from Developing and Transition Economies  2005: TNCs and the Internationalization of R&D  2004: The Shift Towards Services  2003: FDI Policies for Development  2002: TNCs and Export Competitiveness  2001: Promoting Linkages  2000: Cross-border M&As  1999: FDI and the Challenge of Development  1998: Trends and Determinants  1997: Competition Policy  1996: Investment and Trade  1995: TNCs and Competitiveness  1994: TNCs and Employment  1993: Integrated International Production  1992: TNCs as Engines of Growth  1991: The Triad in FDI

The way forward for our work  World Investment Reports: Improved outreach to academic networks and policy makers  Other publication: better dissemination of information  Investment Policy Reviews: Institutionalization of a peer review mechanism within UNCTAD  Corporate social responsibility: Blue Book on corporate best practices  Enterprise development: Africa Forum  The Investment Summit in Accra 2008: Connect knowledge and networks  Talk Investment: Online discussion forum

World Investment Report 2007: FDI trends

Recovery and widespread growth of FDI in 2006 Up 38%, to US$1.3 trillion

Top 10 recipients 2006 United States back to top; China No 1 among developing countries

A record year for developing economies… Asia received close to 70% of all FDI to developing countries Africa: $36 billion – record LAC: $84 billion LDCs: $9.4 billion ( 2 nd highest ) East Asia: $126 billion – record South-East Asia: $51 billion – record South Asia: $22 billion – record West Asia: $60 billion – record

FDI remains largest source of capital to developing countries …but ODA still larger than FDI in LDCs. Note: chart includes only capital flows; excludes remittances

Share of the Caribbean in global FDI inflows,

FDI inflows of selected Caribbean economies ($ million)

FDI per gross fixed capital formation (%)

World Investment Report 2007: TNCs, Extractive Industries and Development

Why extractive industries matter Minerals (oil gas, metals) essential to all economies Mineral resources unevenly distributed Many low-income countries depend on mineral resources Current price boom –Window of opportunity –Development challenges TNCs key players for both host and home countries Oil and gas reserves, consumption and production, 2005

Share of extractive industries in world FDI stock: rebound after 2000 Per cent

Some countries receive much FDI into extractive industries Developed countries: Australia, Canada, Norway Africa: many Asia/Oceania: Syrian Arab Rep., Papua New Guinea, Oman, Mongolia Latin America: Bolivia, Chile, Venezuela CIS: Kazakhstan, Russian Federation Share of extractive industries in inward FDI stock, 2005 or latest year, % %

Universe of largest extractive industry firms: more State-owned in oil and gas than in mining

Oil & gas TNCs from the South are expanding abroad but from low level Oil and gas production of selected TNCs outside their home country, 2005, million barrels of oil equivalent Source: UNCTAD, based on data from IHS

Key development challenges Economic challenge –To create value from the mineral deposits; –To capture that value locally; –To manage and use revenues efficiently and equitably. Environmental challenge –How to minimize the environment footprint. Social challenge –How to protect human rights, compensate for resettlement and loss of traditional livelihoods; –How to address health concerns and workers’ safety. Political challenge –How to avoid corruption and the apparition of “rentier States”, unaccountable to their citizens and authoritarian.

World Investment Report 2007: Policies

Main policy trend still favourable to FDI …but FDI in Latin America less welcome National regulatory changes affecting FDI, 2006, by region

Implications of involving TNCs in natural resources TNC participation may help or hamper the goal of sustainable development Potential economic impacts:  Capital, technology, management skills. Government revenue often the most important  Share of rent, repatriation of profits, few linkages, few jobs Environmental, social and political impacts implies need for appropriate policies as well as corporate social responsibility Net outcome depends on: global market conditions; host country’s policies and institutions; TNC behaviour Challenge: –Take advantage of TNCs as a catalysts for economic development while minimizing the costs –Balance social and environmental concerns against economic considerations.

Addressing development challenges requires concerted effort from all stakeholders Host-country gov’t Governance, institutions Sectoral policies and institutions TNC-specific policies o Entry and operations o Contracts, taxation o International agreements Making FDI work for sustainable development Extractive activities TNCs Abide by local laws Uphold high standards when local governance is weak Home-country gov’t Promote responsible TNC behaviour Assist host countries Int. community Guidelines Pressure, sanctions Assist host countries Civil society Monitor TNCs and governments Provide expertise

Thank You Visit the World Investment Report 2007 web page at: