EFTA00913370.pdf

From: To: Jeffrey Epstein -4 Subject: FW: Why and how least developed countries can receive more FDI to meet their development goals (Columbia FDI Perspective No 40) Date: Wed, 22 Jun 2011 12:52:45 +0000 Importance: low Just fyi, not sure if of interest or containing any new info for you From: Vccsll [mallto: On Behalf Of Karl Sauvant Sent: Monday, June 20, 2011 8:36 AM To: Vale Columbia Center on Sustainable International Investment Subject: Why and how least developed countries can receive more FDI to meet their development goals (Columbia FDI Perspective No 40) Columbia FDI Perspectives Perspectives on topical foreign direct investment issues by the Vale Columbia Center on Sustainable International Investment No. 40, June 20, 2011 Editor-in-Chief: Karl P. Sauvant Editor: Ken Davies Managing Editor: Alma Zadic ( Why and how least developed countries can receive more FDI to meet their development goals by Ken Davies* The 48 least-developed countriesW[1] (LDCs), most of them in sub-Saharan Africa and a few in Asia, need foreign direct investment (FDI) to help meet their development targets. The FDI they now receive, although inadequate, is enough to demonstrate that investors see potential in them. It is therefore realistic for LDCs to seek more FDI, but they need to enhance their investment environments to attract it in the much greater quantities required. Donors can help by targeting official development assistance (ODA) on investment in human capital and supporting governance improvements. Meanwhile, LDCs should establish effective investment promotion agencies (IPAs). Have multinational enterprises (MNEs) shown any interest in investing in LDCs? Perhaps surprisingly, LDCs have recently been punching above their weight in bringing in FDI, despite their reputation for inadequate infrastructure and governance. In 2006-2009, average FDI inflows to LDCs were 1.7% of the global total — over twice these countries' share of world GDP and capital formation.[2][2] The LDCs' share in the world's FDI stocks was 0.6%. FDI inflows to LDCs have increased sharply, averaging US$ 27 billion per year in 2006-2009 compared to US$ 10 billion in 2000-2005, US$ 2.5 billion in the 1990s, and US$ 506 million in the 1980s. FDI inflows to LDCs in 2001-2010 exceeded portfolio and other private capital inflows and also exceeded bilateral aid inflows.[3][3] FDI flows for the world as a whole in 2006-2009 averaged 2.9% of GDP, while they were 6.3% of GDP in LDCs (compared to 2.6% in developed economies, 4.6% in transition economies and 3.6% in developing economies). FDI flows were 13% of gross fixed capital formation globally in 2006-2009 but 48.5% in LDCs; world FDI stocks were 131.7% of gross fixed capital formation, LDC FDI stocks 117.7%, not far behind, similarly indicating an upward trend. EFTA00913370 A major example of this trend is Africa, where most LDCs are situated. Africa is becoming increasingly attractive to international investors, particularly from emerging markets. FDI from emerging markets into Africa grew at a compound annual rate of 13% a year from 2003 to 2010. While investors from developed countries tend to be more cautious in their African investments, they still account for the largest share of FDI in the continent and are investing in a diverse range of sectors — not just mineral resources — including telecommunications, food, beverages and tobacco, transport, storage and hotels. But the most rapid FDI growth in Africa (a 21% compound growth rate from 2003 to 2010) is being achieved by Africans investing in other African countries. [4][4] While the picture is improving, current FDI inflows to LDCs are still nowhere near enough to meet Africa's needs. Total fixed investment in LDCs is now approximately 20% of GDP, insufficient to support the sustained growth needed to meet the Millennium Development Goal (MDG) of halving the proportion of the world's population with incomes below a dollar a day and other MDGs such as universal primary education and basic health targets.[][5] FDI is also distributed unevenly among LDCs: in recent years, over 80% has gone to resource-rich countries in Africa like Angola and Sudan, while inflows have stagnated or declined in some other LDCs, including Burkina Faso, Djibouti and Mauretania. Those LDCs that received FDI inflows in their extractive sectors tend not to have benefited from similar levels of FDI in services and manufacturing, where job creation, linkages and skills transfers are greatera][6] What can LDCs do to promote stronger FDI inflows to all sectors of their economies, especially those that have a strong positive impact on development, such as manufacturing and services? In the short term, LDCs should establish effective investment promotion agencies at national and subnational levels to ensure their visibility as investment destinations. Long-term actions, which should be initiated as soon as possible because of the long gestation period, include building physical infrastructure and investing heavily in human capital. Necessary governance improvements, which also take time, include building a transparent and rules-based regulatory framework to provide predictability in areas such as property rights, competition and anti-corruption. ODA still exceeds FDI inflows to LDCs, but is not easy to expand when there are other demands on the funds of donor countries and international bodies. On the other hand, MNEs have investment funds looking for a good home, so FDI is well placed to fill the gap between domestic savings and LDCs' investment requirements and also find opportunities for investment in activities that might not attract less-experienced domestic LDC investors. It can also bring benefits like increased employment and improvements in technology, including via spillovers to local industry. LDC governments' limited development funds can be supplemented by well-targeted ODA and by FDI, for example through public-private partnerships in infrastructure. If effectively and efficiently utilized to build a business environment that will attract and promote sustainable FDI, such funding will eventually facilitate self-sustaining growth. The material in this Perspective may be reprinted f accompanied by thefollowing acknowledgment: "Ken Davies, 'Why and how least developed cowUries can receive more FDI to meet their development goals,' Columbia FDIPerspectives, No. 40, June 20, 2011. Reprinted with permissionfrom the Vale Columbia Center on Sustainable International Investment (wwwvcc.columbia.edu)." A copy shouldkindly be sent to the Vale Columbia Center at Karl P. Sauvant, Ph.D. Executive Director Vale Columbia Center on Sustainable International Investment Columbia Law School - Earth Institute Columbia University 435 West 116th Street, Rm. 3GH 638 New York, NY 10027 EFTA00913371 Please visit our website - http://www.vcc.columbia.edu • Ken Davies ) is Senior Economist at the Vale Columbia Center on Sustainable International Investment. The author wishes to thank Lam Kekic, Michael Lalor and Padma Mallampally for their helpful comments on this Perspective. The views expressed by the author of this Perspective do not necessarily reflect the opinions of Columbia University or its partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series. [ ][1] LDCs are defined by three criteria: low GNI per capita, weak human assets and economic vulnerability. [2][2] Unless otherwise cited, the statistics in this Perspective are taken, or calculated, from the online UNCTAD statistical database, UNCTADstat, at http://unctadstat.unctad.org/. [3][3] UNCTAD, Foreign Direct Investment in LDCs: Lessons Learnedfrom the Decade 2001-2010 and the Way Forward (New York and Geneva: United Nations, 2011). [4][4] Ernst & Young, "It's time for Africa: Ernst & Young's 2011 Africa Attractiveness Survey," (Johannesburg and London: Ernst & Young, 2011). [5][5] UNCTAD, op.cit. [6][6] Ibid. For further information please contact: Vale Columbia Center on Sustainable International Investment, Ken Davies, The Vale Columbia Center on Sustainable International Investment (VCC), led by Dr. Karl P. Sauvant, is a joint center of Columbia Law School and The Earth Institute at Columbia University. It seeks to be a leader on issues related to foreign direct investment (FDI) in the global economy. VCC focuses on the analysis and teaching of the implications ofFDI for public policy and international investment law. Most recent Columbia FDI Perspectives • No. 39, Terutomo Ozawa, "The role of multinationals in sparking industrialization: From `infant industry protection' to `FDI-led industrial take-off," June 6, 2011. • No. 38, Nicolas Marcelo Perrone, "Responsible agricultural investment: is there a significant role for the law to promote sustainability?," May 23, 2011 • No. 37, Daniel M. Firger, "The coming harmonization of climate change policy and international investment law," May 9, 2011. • No. 36, Nilgfin Gagilr, "Are resurging state-owned enterprises impeding competition overseas?," April 25, 2011. • No. 35, Giorgio Sacerdoti, "Is the party-appointed arbitrator a "pernicious institution"? A reply to Professor Hans Smit," December 14, 2010. • No. 34, Harry G. Broadman, "The bacicstory of China and India's growing investment and trade with Africa: Separating the wheat from the chaff," February 17, 2011. • No. 33, Hans Smit, "The pernicious institution of the party-appointed arbitrator," December 14, 2010. • No. 32, Michael D. Nolan and Frederic G. Sourgens, "State-controlled entities as claimants in international investment arbitration: an early assessment," December 2, 2010. • No. 31, Jason Yackee, "How much do U.S. corporations know (and care) about bilateral investment treaties? Some hints from new survey evidence," November 23, 2010. • No. 30, Karl P. Sauvant and Ken Davies, "What will an appreciation of China's currency do to inward and outward FDI?" October 18, 2010. • No. 29, Alexandre de Gramont, "Mining for facts: PacRim Cayman LLC v. El Salvador," September 8, 2010. All previous FDI Perspectives are available at http:Thvww.vcc.columbia.edukontent/fdi-perspectives EFTA00913372