1. Facilitating New Investment in Difficult Market Circumstances
Robert Whyte Sydney, Australia
December 2010

2. FDI in the current market
GIPB Results
Implications for IPIs

3. FDI in the Current Economic Recession
Most severe recession since 1929
Global FDI flows fell 47% between 2007 and 2009
Recovery
After four quarters of low-level recovery, Q saw a substantial decline
Q2 decline due primarily to drops in reinvested earnings and intra-company loans
Total FDI in 2010 is forecast to stay flat at levels
Business Response
Significant decrease in access to credit
Re-capitalization of banks is taking place in many countries
Lower corporate profits
Leading site selection firms report slowdown and postponement of investment projects
Companies restructuring to deal with the crisis; cautious about recovery
Investment plans frozen or discarded
De-locations and outright plant closures
Source: World Investment Report 2010, United Nations Conference on Trade and Development
UNCTAD 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 growth
Still 5th highest year in history
Share of developing countries rose to 43%, the highest since 1982
NOTE 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 countries
East Asia
$154.8 billion in 2009 was the second highest ever, but a decline of 17% from the 2008 peak of $185.5 billion
The Pacific 2
$892 million in 2009 was the highest ever, up nearly 15-fold since 2002
While 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 billion
2 Includes Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tokelau, Tonga, Tuvalu and Vanuatu
Source: UNCTAD World Investment Report 2010
Source: WIR2008

6. Investment flows (by value) – The Pacific
Since 2002 FDI inflows have trended upward with periodic setbacks
Largely 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 USD
Source: 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 299
Leading sector: Coal, Oil and Natural Gas with 33% of projects
Leading activity: Manufacturing, with 38% of projects
Source: fDi Markets The pacific

8. Investment flows (by project) – The Pacific
Top 10 companies accounted for 48% of projects, including:
Kulim (Malaysia),
InterOil (Australia) and
ExxonMobil (United States)
Top 5 destinations for FDI projects in the Pacific (total from )
Share of Projects1
FDI per Capita2
Papua New Guinea
60%
$58
Fiji
24%
$280
Timor-Leste 7%
$16
Solomon Islands 5%
$331
Samoa 2% $8
Source: 1fDi Markets the Pacific
2UNCTAD World Investment Report 2010

9. Prospects for FDI Recovery: 2009-2012
Depends on financial sector liquidity and willingness to fund new projects
Depends on government response policies – e.g. extent of protectionism
As 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 for
Source: World Investment Report 2010, UNCTAD

10. How can governments react quickly and effectively?
Longer term:
Better infrastructure and skills Expensive investments
Market 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 predictability
Comes in great part from better organization, streamlining, coordination, and communication with the private sector
Reduces costs and risk to investors, instantly improving the expected return on investment for your location
Good 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 Results
Implications 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 process
Site 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 Handling
The Pacific1
37%

16. Regional Comparison 2006 and 2008
Trends
IPIs 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 2008
Fiji
Kiribati
Palau
Papua New Guinea
Solomon Islands
The Pacific1
1Note: 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 region
Biggest regional improvements were:
Fiji (+26%)
Papua New Guinea (+14%)
Solomon Islands (+16%)
Fiji
Solomon Islands
Papua New Guinea

18. The Pacific Performance (by tier)-
Fiji
Vanuatu
Tonga Palau
Papua New Guinea Solomon Islands
Micronesia Marshall Islands
Samoa
Timor-Leste
BEST 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
Average
Good
Approaching global competitiveness
Fiji 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 website
8 of the 11 countries achieved “good or average”. Top 3:
Fiji
Vanuatu
Papua New Guinea
Inquiry Handling
Of 11 IPIs surveyed:
9 IPIs did not respond to investors’ manufacturing inquiry
8 did not respond to the software inquiry
2 IPIs responded to only 1 inquiry type
7 IPIs (more than half) failed to respond in both cases
Fiji had the highest average response at 47%; responding to both inquiry types

21. FDI in the Current Market
GIPB Results
Implications for IPIs

22. Get the Basics Right …… Facilitation, Facilitation, Facilitation
IPIs underestimate what’s needed
Without proper Facilitation no investment promotion effort will pay off
The smaller the IPI budget the more sense Facilitation makes
Focus on the basics: Walk before you run
Countries where doing business is more challenging
Bigger role for the IPI to inform and facilitate foreign investors
Lesser known countries
Bridge the information gap through the work of the IPI to attract investment
The Web allows all IPIs to promote cost-effectively
…... but there must also be a capacity to directly interact with investors

23. Thank you.
Questions