1. Foreign Direct Investment World Services Group 2008 Annual Meeting Karin C. Millett, Head FIAS Investment Generation-Vienna World Bank Group Munich, September 13, 2008

2. World Bank Group—Who we are World Bank (IBRD/IDA), IFC, MIGA World Bank—lending to governments for development priorities IFC – advisory services, investment in private sector, both equity participation and loans MIGA – providing guarantees (insurance) to private sector against: breach of contract by government, expropriation, war and civil disturbance, currency transfer restrictions FIAS – the Investment Climate Advisory Service (joint facility of WB, IFC, MIGA)

3. FIAS: 20 years of experience in investment climate FIAS total program spending Multi-donor advisory service on investment climate 105 staff in 8 locations Mission: increase private investments in developing countries Business model: require client requests and 50% co-funding 219 projects in 82 countries (last 3 years)

4. WBG - Stimulating Reform through Benchmarking Doing Business - annual review of around 180 countries - and selected cities - to assess objective measures of business regulations and their enforcement –Doing Businees in SEE - covers 22 cities in seven economies: Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYROM, Montenegro, and Serbia FDI Indicators - new FIAS instrument to review specific conditions for cross-border investment

5. DB and FDI Indicators: what they measure Starting a business Dealing with licenses Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business Foreign ownership restrictions Investment promotion Pre-establishment procedures Access to land Currency convertibility and repatriation Expropriation and int’l arbitration DB vs. FDI INDICATORS - - - - - - - - - - - - - - - - - - - - - - - - -

6. Top 30 on the Ease of Doing Business — 1. Singapore16. Switzerland 2. New Zealand17. Estonia 3. United States18. Georgia 4. Hong Kong, China19. Belgium 5. Denmark20. Germany 6. United Kingdom21. Netherlands 7. Canada22. Latvia 8. Ireland23. Saudi Arabia 9. Australia24. Malaysia 10. Iceland25. Austria 11. Norway26. Lithuania 12. Japan27. Mauritius 13. Finland28. Puerto Rico 14. Sweden29. Israel 15. Thailand30. Korea 75. Macedonia, FYR81. Montenegro86. Serbia97. roatia105. Bosnia and Herzegovina136. Albania75. Macedonia, FYR81. Montenegro86. Serbia97. roatia105. Bosnia and Herzegovina136. Albania Doing Business Report 2008 www.doingbusiness.org

7. FDI Indicators: Benchmarking Investment Climate for FDI Objectives - Extend thematic coverage of DB indicators to areas of FDI regulation in order to: –Stimulate appetite for investment climate reforms (as effectively demonstrated by DB) –Respond to needs of public policy makers, business,TA providers, and academics Coverage - Six topical indicators measuring FDI regulation and administrative processes. Methodology consistent with DB and anchored in standardized surveys administered primarily to investment lawyers, accountants and consultants. Timing - 22 pilot countries tested in 4 successive phases (Nov ’07 – Oct ’08). Rollout in 80 countries, planned for Jan’09.

8. How are the FDI Indicators constructed …We follow the Doing Business approach and methodology Focus on objective and verifiable data, rather than opinion and perception based information Survey of laws/regulations and their application in practice Respondents are private sector intermediaries (i.e. Investment lawyers, consultants, accountants, etc.) Survey filled out by governments for validation/cross-checking purposes

9. FDI Indicators: Examples of preliminary results from pilot tests Types of land occupancy rights available for a foreign firm: Right to Buy (Freehold) Right to Lease (Leasehold) PrivateStatePrivateState Cameroon Ethiopia Ghana Mozambique Nigeria (1) Many countries continue to have sector- specific restrictions on FDI: (2) Several countries in Sub-Saharan Africa require an additional approval for foreign investors: (3) The quality of land rights for foreign investors varies considerably across the world: (4) Sub-Saharan African countries vary significantly in the type of land occupancy rights they offer: Can a foreign company establish a subsidiary without an investment approval? Yes/NoMedian # Days (if ‘No’) Cameroon14 Ethiopia10 GhanaN/A Mozambique60 NigeriaN/A - Yes - No sectoral openness index (0-100) quality of land use rights index (0-100) sectoral openness index (0-100)

10. Why has FIAS Developed Indicators to benchmark ease of cross-border investment? FDI important to developing countries –they benefit from productive cross-border investment, bringing new technology, management know- how and, of course, jobs. Benchmarking countries against each other creates awareness of deficiencies in investment climate and stimulates appetite for reform. Together with DB indicators, provide a robust view of business conditions for entry, operation and exit by both domestic and non-national firms.

11. Factors influencing location decision Factors attracting investment by region (per cent of total number of responses for all factors in the region) North AmericaEU15 New EU12SEE and CIS South, East and South-East Asia World average Follow the leader233664 Skilled labor11 12449 Low-cost labor- -12889 Size of local market24201225 21 Access to capital market762112 Access to natural resources648556 Access to regional market10111312 10 Growth of local market12 1931 20 Government effectiveness, incentives7116115 Stable investment environment2019124310 Source: UNCTAD, WIPS 2007-2009

12. Location criteria by sector Primary sectorManufacturing sectorServices sector Access to natural resourcesSize of local market Stable investment environmentGrowth of local market Government effectiveness, incentives Government effectiveness, incentives Stable investment environment Access to international/ regional marketsCheap labor Access to international/ regional markets UNCTAD World Investment Prospects Survey 2007-09

13. Growth in overall FDI flow has accelerated Middle Income Countries Low-Income Countries $ billions percent Forecast was $456 billion (3.2 percent of GDP) in 2007 Percent of GDP

14. FDI is highly concentrated China Russia Turkey Mexico Brazil FDI inflows to developing countries $ billions * 2007 data World Bank staff projection

15. Services have been an important driver of growth Share in FDI Stock in 2005 Primary Manufacturing Services percent

16. Trends are expected to continue… Total FDI in 2007 (including reinvested earnings) estimated at $1.34 trillion Cross-border mergers and acquisition (vs. Greenfield investments) are the major drivers of global FDI US and the EU15 continue to dominate as recipients of world FDI Among emerging markets, China remains by far the main recipient of FDI Liberalization of trade and investment policies expected to continue Developing countries increasingly outward investors *Source: World Investment Prospects to 2011; The Economist Intelligence Unit

17. However… Survey of investors about intentions up to 2011 by EIU and UNCTAD indicates investors concerned about: –More threatening Geopolitical climate –Signs of emerging protectionism against FDI, particularly among developed countries –Apparent weakening of appetite for globalization –Financial market woes making financing tighter

18. Improved Investment climate Improved Investor Servicing FDI friendly policies Increased investment flows Investment Jobs Feedback Loop FIAS Investment Generation Goals

19. Potential Involvement of WSG Members As noted, for the FDI Indicators we seek input within the target country from lawyers, accountants, and providers of other services to businesses. Targeting 80 countries this year, starting November. Profile of WSG members makes them potentially good sources of input.

20. THANK YOU! Karin Millett kmillett@worldbank.org www.fias.net