World Investment Report 2012

Key Messages

FDI trends and prospects
Global FDI flows exceeded the pre-crisis average in 2011

Global foreign direct investment (FDI) flows exceeded the pre-crisis average in 2011, reaching $1.5 trillion despite turmoil in the global economy. However, they still remained some 23 per cent below their 2007 peak.

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UNCTAD predicts slower FDI growth in 2012, with flows levelling off at about $1.6 trillion

Leading indicators – the value of cross-border mergers and acquisitions (M&As) and greenfield investments – retreated in the first five months of 2012 but fundamentals, high earnings and cash holdings support moderate growth. Longer-term projections show a moderate but steady rise, with global FDI reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, barring any macroeconomic shocks

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Sovereign wealth funds (SWFs) show significant potential for investment in development

FDI by SWFs is still relatively small. Their cumulative FDI reached an estimated $125 billion in 2011, with about a quarter in developing countries. SWFs can work in partnership with host-country governments, development finance institutions or other private sector investors to invest in infrastructure, agriculture and industrial development, including the build-up of green growth industries.

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The international production of transnational corporations (TNCs) advanced, but they are still holding back from investing their record cash holdings

In 2011, foreign affiliates of TNCs employed an estimated 69 million workers, who generated $28 trillion in sales and $7 trillion in value added, some 9 per cent up from 2010. TNCs are holding record levels of cash, which so far have not translated into sustained growth in investment. The current cash “overhang” may fuel a future surge in FDI.

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UNCTAD’s new FDI Contribution Index shows relatively higher contributions by foreign affiliates to host economies in developing countries

Especially Africa, in terms of value added, employment and wage generation, tax revenues, export generation and capital formation. The rankings also show countries with less than expected FDI contributions, confirming that policy matters for maximizing positive and minimizing negative effects of FDI.

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Region investment trends
FDI inflows increased across all major economic groupings in 2011

Flows to developed countries increased by 21 per cent, to $748 billion. In developing countries FDI increased by 11 per cent, reaching a record $684 billion. FDI in the transition economies increased by 25 per cent to $92 billion. Developing and transition economies respectively accounted for 45 per cent and 6 per cent of global FDI. UNCTAD’s projections show these countries maintaining their high levels of investment over the next three years.

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Africa and the least developed countries (LDCs) saw a third year of declining FDI inflows

But prospects in Africa are brightening. The 2011 decline in flows to the continent was due largely to divestments from North Africa. In contrast, inflows to sub-Saharan Africa recovered to $37 billion, close to their historic peak.

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Investment policy trends
Many countries continued to liberalize and promote foreign investment in various industries to stimulate growth in 2011

At the same time, new regulatory and restrictive measures continued to be introduced, including for industrial policy reasons. They became manifest primarily in the adjustment of entry policies for foreign investors (in e.g. agriculture, pharmaceuticals); in extractive industries, including through nationalization and divestment requirements; and in a more critical approach towards outward FDI.

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International investment policymaking is in flux

The annual number of new bilateral investment treaties (BITs) continues to decline, while regional investment policymaking is intensifying. Sustainable development is gaining prominence in international investment policymaking. Numerous ideas for reform of investor–State dispute settlement have emerged, but few have been put into action.

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Suppliers need support for compliance with corporate social responsibility (CSR) codes

The CSR codes of TNCs often pose challenges for suppliers in developing countries (particularly small and medium-sized enterprises), which have to comply with and report under multiple, fragmented standards. Policymakers can alleviate these challenges and create new opportunities for suppliers by incorporating CSR into enterprise development and capacitybuilding programmes. TNCs can also harmonize standards and reporting requirements at the industry level.

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UNCTAD’s Investment Policy Framework for Sustainable Development
Mobilizing investment and ensuring that it contributes to sustainable development is a priority for all countries

A new generation of investment policies is emerging, as governments pursue a broader and more intricate development policy agenda, while building or maintaining a generally favourable investment climate.

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“New generation” investment policies place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment

This leads to specific investment policy challenges at the national and international levels. At the national level, these include integrating investment policy into development strategy, incorporating sustainable development objectives in investment policy and ensuring investment policy relevance and effectiveness. At the international level, there is a need to strengthen the development dimension of international investment agreements (IIAs), balance the rights and obligations of States and investors, and manage the systemic complexity of the IIA regime.

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To address these challenges, UNCTAD has formulated a comprehensive Investment Policy Framework for Sustainable Development (IPFSD)

Consisting of (i) Core Principles for investment policymaking, (ii) guidelines for national investment policies, and (iii) options for the design and use of IIAs.

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UNCTAD’s IPFSD can serve as a point of reference for policymakers in formulating national investment policies and in negotiating or reviewing IIAs

It provides a common language for discussion and cooperation on national and international investment policies. It has been designed as a “living document” and incorporates an online version that aims to establish an interactive, open-source platform, inviting the investment community to exchange views, suggestions and experiences related to the IPFSD for the inclusive and participative development of future investment policies.

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