Fdi-all

Foreign Dir ect In vestment By

Amo s W ang'omb e Hu W ei Li X ia o Mar cel Gw angw aá

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Def inati on of FDI Foreign direct investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country ( the host country) wi th the inte nt to manage the asset. 2

Types of FDI • Equity C apit al ( the value of the MNC‘s share investment in shares of an enterprise in a foreign country) • Reinvested e arnin g (Profit reinvested e.g represent up to 60% of outward FDI in USA &UK) • Oth er c apital (short and Longterm borrowing & lending of funds between the MNC and the affiliate)

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Ori gin of Stat istical Data • From the ministries and agencies which administer the country‘s law and regulations on FDI • Government and other surveys which evaluate financial and operating data of Companies. • National balance - of-payments statistics 4

Average annual Inf lows of FDI to top 10 Developi ng Countri es 1984/1989 1993

Host Mexico China Singapore Hong Kong Brazil

2436 2282 2239 1422 1416

1144 Bermuda Egypt 1085 Saudi Arabia 1084 Malaysi 798 a 691 Taiwan % share

66%

Host China Argentina Singapore Malaysia Mexico Bermuda Indonesia

27515 6305 5016 5006 4389

2960 2004 Thailand 1726 HONG.H 1667 Saudi. A % Share

1369 79%

Host 1995 China 37500 Mexico 6984 Malaysia 5800 Singapore 5302

Brazil Indonesia

4859

Argentina Chlie Bermuda Thailand

4500 3900 3021 2900 2300

% Share

77%

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Outf low of FDI of s elected devel opi ng c oun tri es( 1980 -1995) Hong Kong

1980 148

1985 2345 204

1990 13242

1995 85156

12888 2489

24344

Taiwan China

97 ---

Singapore Nigeria

652 ---

1320 5334

4741

17268 13842

9652

11582

South Korea Malaysia

142

526

11079

414 568 652 811

749 930 1361 2204

2095 2283 3663 2397 4188

Kuwait Brazil Panama

131

8903 7655 6460 4487

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Co mparin g Inflow/ Ou tflow Inflow 1995 Outflow1995 China

6984

Hong Kong Singapore

5302 5800

85156 13842

Brazil

4859

6460

Saudi Aarabia

3021

11079

2900

8903

24344

24344

Malaysia Taiwan

17268

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Questi on!

Wh y FDI a nd not fi nancial Loans ??? ?? ? 8

Th e determin ants o f FDI Micr o theor ies

• Ow ner ship advantages

• Arise from economies of scale with respect to intangible assets such a skilled management and know-how by

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Th e determ in ants o f FDI Micr o theor ies • Locati onal advantages Pr oduct c ycl e ( ne w tec hn ol ogy pr od uc e a nd u se i n Hom e co unt ry)

Standardi zed ( shi fted abroad) • Low Tax, Low la bou r cost,

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Th e determ in ants o f FDI Inte rnal ization advantages - Engaging in forei gn producti on rather than licens ing it to a for ei gn f irm

- „ Transact ions costs“ thoery of Wi lliamson 1975 (cost of using the market ) It says t hat i t i s more to concentrat e cer tain

advantageous act ivi ti es

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Macro-level explanations • „ Rate of Prof it“ thoeri es

- ( Neo- liberal framew ork that sust ain the idea of unf ettered flows of Capi tl on a Global lev el )

• Vent for surpl uss“

Ne ed fo r m ore (M aste r & S lave) 12

Macro-level explanations • present si tuati on „Monopol isst ic & Oligopol ist ic Market“ ( They

have som e uni que pr oducti on knowledge or manager ial ski ll that coul d be eas ily and prof itabl y be uti lized abroad and ov er which the corporati on wants to rem ai n contr ol) . 13

Macro-level explanations Hori zon tal & Vert ical intergr ation Horizontal

Vertical

•Production of diffrentiated products that are also produced at home Ex-IBM

•To obtain control of needed raw-materials and does ensure uninterrupted supply at the lowest cost 14

Pr actic al Dif ficultie s in Meaurement . • Lack of n ec ess ary mach inery • Di ffer ent accounti ng conventi ons • Do not ke ep to the I MF gui del ine s • Inter nat ional FDI measurement • Use adopted way to measure company asset

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Which facto rs encourages F DI? • Financial incentives (Funds from local Government)

• Fiscal incentives (Exemption from import duties)

• Indirect incentives (Provides land and infrastructures at less commercial prices)

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Which facto rs encourages F DI? •Political stability •Market potential & accessibility •Repatriation of Profits •Large economy •Market size •External debt discourages FDI

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The Impetus f or a Mul ti lateral Regi me for FDI • the Uruguay Round of trade negotiations • the negotiation on MAI within OECD • 1996 WTO Singapore Ministerial meeting-----to establish a 18 working group

Uruguay Round (UR) • The general idea of the industrial countries : • Framing global rules to achieve the liberalization of FDI • Negotiating or discussing a multilateral investment agreement

• However,it‘s strongly contested by many developing countries. • WHY?

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Neg ot iatin g re su lt • TRIMs(trade-related investment matters) • GATS (General Agreement on Trade in Services) • TRIPs( Trade-Related Intellectual Property Rights ) • ASCM (Agreement on Subsidies and Countervailing Measures)

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Pr ob lems • They deal with particular areas or particular aspects of investment.

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Mu ltilater al Agre eme nt on Inves tment Background There is currently no comprehensive multilateral legal framework that provides investment disciplines. The MAI is to remedy the supposed weaknesses of the World Trade Organization (WTO) agreement with respect to investment issues. 22

Mu ltilater al Agre ement on In vest ment TRIMs are used mainly by developing countries to promote dvelopment objectives. The MAI agreement as proposed by the OECD Ministerial Council in 1995

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Mu ltilater al Agre eme nt on Inves tment

provide a broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment protection and with effective dispute settlement procedures." "

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Mu ltilater al Agre ement on Invest ment Overview

contents of the current draft of MAI

1. Renew the definition of FDI(broad definiton

„beyond the traditional notion of FDI to cover virtually all tangible and intangible assets,and which applies to both pre-establishment and post-establishment.“(OECD,1997a.) 25

Mu ltilater al Agre ement on Invest ment •

Countries that sign the MAI will be required to: 

Open all economic sectors, including real estate, broadcasting and natural resources to foreign ownership.



Treat foreign investors no less favorably than domestic firms.



Treat all contracting Parties no less favorably



Remove performance requirements



Remove restrictions on the movement of capital.

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Mu ltilater al Agre ement on Invest ment 

Compensate investors in full when their assets are expropriated, either through seizure or "unreasonable" regulation.



Ensure that states and localities comply with the MAI.



Accept a dispute-resolution process allowing investors to sue governments for damages before international panels when they believe a country's laws are in violation of MAI rules. 27

Mu ltilater al Agre ement on Invest ment Criticism •

unrestricted freedoms for foreign investors and transnational corporations.

•

Unequal responsibilities between Investor and Investment receiver.

•

Inability to reach a compromise on liberalization commitments, general exceptions and considerations to the environment and labor.

•

the level of commitments to be included in the agreement was too high for developing countries 28

Mu ltilater al Agre ement on Invest ment Potential contents of MAI •

Whether to allow exceptions to the “standstill” clause for certain specific areas.

•

Whether exceptions to most-favour-nation treatment should be allowed for regional economic integration organizations.

•

Whether to allow a general exception for cultural reasons

•

Whether to include provisions covering environment and labour issues

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concrete exceptions

results

regarding

country-specific 29

1996 WTO S ingapor e Minis ter ial meeting Establish a working group: -to examine the relationship between trade and investment -to study issues raised by Members relating to the interaction between trade and competition policy 30

1996 WTO S ingapor e Mi nis ter ial meeting Study three issues: - implications of the relationship between Trade and Investment for development and economic growth - the economic relationship between trade and investment - stock-taking and analysis of existing 31 international instruments

Adva nta ge s of FDI • Infrastructure and technology trasfer • Increased Productive efficiency due to competition from multinational subsidiaries 32

Adva nta ge s of FDI • Improvement in the quality of the factors of production • Inflow in Investment funds (Benefits to the balance of payments) 33

Adva nta ge s of FDI • Faster growth of output and employment • Consumer Benefits Price Quality Varieties

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Adva nta ge s of FDI • Increase in Exports • Increase in savings and Investment

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Cost s of F DI • Negative effects on the balance of payments. • Crowding out effect-Credit Constraits • Discourage the development of technical know-how

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Cost s of F DI • Detr iment of the growth o f domesti c producer and the nati onal econ omy • Transf er pricing • Soc ial costs- Net loss of jobs

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Costs o f F DI • Envir oment and natural resourc e cos ts • Abus e of and tradi FDI

lo ca l cul ture ti ons Ex Tourism

Abuse 38

Costs of FDI • Facilita te hegemony by th e dominant US a nd t he we ster n cultur es.

Print

TV

Entertainments

• Political Influence (News) 39

Cost s of F DI • Poli ti co- Strategi c Interests

& •Count ry‘ s Soverei gnty is at stake.

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How can FDI be better applied to sustainable developments? 41

Rec omme nda tio ns •Com pa re th e P ro and t he Co ns •Dev el op str at eg ies th at tar ge ts th e rig ht

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Rec omme nda tio ns • Cons inder the long term effects to the enti re econom y and the s oci al wel l bei ng of the comm uni ty

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Rec omme nda tio ns • Access abi lity and Stab ility

– Political s tabilit y – Market P ot ential and acces ability – Inf rast ract ure – Priv atis ation and der egulations o f mark ets – Fair competit io n a nd 44

Rec omme nda tio ns • Soci al responsi bl e Investment

– Thro ugh n atio nal, b il ate ral and In ternational in vestm ents Poverty es. and gender inequality guidelin

eradication Information Provision Consumer rights Labour standards Corporate culture

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Rec omme nda tio ns • Envir omental protect ion

– Appl ication of Envi romental Ma na gement systems (EMS) • Inspection,Monitoring,Regulation and enforcement. – Use of Envirome nt al

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Wish u a merry x-mas and a happy new year!!!

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