WorldInvestmentReportUNITED NATIONS CONFERENCE ON TRADE AND
DEVELOPMENTWORLDINVESTMENTREPORT2008Transnational Corporationsand
the Infrastructure ChallengeEMBARGOThe contents of this Report must
not be quotedorsummarizedinthepress,on radio, or on television,
before 24 September 2008 - 17:00 hours GMTUNITED NATIONSUNITED
NATIONS CONFERENCE ON TRADE AND
DEVELOPMENTWORLDINVESTMENTREPORT2008Transnational Corporations,and
the Infrastructure ChallengeNew York and Geneva, 2007UNITED
NATIONSNew York and Geneva, 2008NOTEAs the focal point in the
United Nations system for investment and technology, and building
on 30 years of experience in these areas, UNCTAD, through DIAE,
promotes understanding of key issues, particularly
mattersrelatedtoforeigndirectinvestmentandtransferoftechnology.DIAEalsoassistsdeveloping
countries in attracting and benefiting from FDI and in building
their productive capacities and international
competitiveness.Theemphasisisonanintegratedpolicyapproachtoinvestment,technologicalcapacity
building and enterprise
development.Thetermscountry/economyasusedinthisReportalsorefer,asappropriate,toterritoriesorareas;
the designations employed and the presentation of the material do
not imply the expression of any opinion whatsoever on the part of
the Secretariat of the United Nations concerning the legal status
of any country,
territory,cityorareaorofitsauthorities,orconcerningthedelimitationofitsfrontiersorboundaries.In
addition, the designations of country groups are intended solely
for statistical or analytical convenience and do not necessarily
express a judgement about the stage of development reached by a
particular country or area in the development process.The major
country groupings used in this Report follow the classification of
the United Nations Statistical Office. These are: Developed
countries: the members countries of the OECD (other than Mexico,
the Republic of Korea
andTurkey),plusthenewEuropeanUnionmembercountrieswhicharenotOECDmembers(Bulgaria,
Cyprus,Estonia,Latvia,Lithuania,Malta,RomaniaandSlovenia),plusAndorra,Israel,Liechtenstein,
Monaco and San Marino.Transition economies: South-East Europe and
the Commonwealth of Independent States.Developing economies: in
general all economies not specified above. For statistical
purposes, the data forChinadonotincludethoseforHongKongSpecial
AdministrativeRegion(HongKongSAR),Macao Special Administrative
Region (Macao SAR) and Taiwan Province of China.Reference to
companies and their activities should not be construed as an
endorsement by UNCTAD of those companies or their activities.The
boundaries and names shown and designations used on the maps
presented in this publication do not imply official endorsement or
acceptance by the United Nations.The following symbols have been
used in the tables:Two dots (..) indicate that data are not
available or are not separately reported. Rows in tables have been
omitted in those cases where no data are available for any of the
elements in the row;A dash () indicates that the item is equal to
zero or its value is negligible;A blank in a table indicates that
the item is not applicable, unless otherwise indicated;A slash (/)
between dates representing years, e.g., 1994/95, indicates a
financial
year;Useofanendash()betweendatesrepresentingyears,e.g.,19941995,signifiesthefullperiod
involved, including the beginning and end years;Reference to
dollars ($) means United States dollars, unless otherwise
indicated;Annual rates of growth or change, unless otherwise
stated, refer to annual compound rates;Details and percentages in
tables do not necessarily add to totals because of rounding.The
material contained in this study may be freely quoted with
appropriate acknowledgement.UNITED NATIONS PUBLICATIONSales No.
E.08.II.D.23ISBN 978-92-1-112755-3Copyright United Nations, 2008All
rights reservedPrinted in Switzerlandii World Investment Report
2008:Transnational Corporations and the Infrastructure
ChallengePREFACEWorld foreign direct investment inflows rose last
year to a record level of $1.8 trillion.Developing and transition
economies attracted more flows than ever before, reaching nearly
$600 billion a 25 per cent increase over 2006, and a third of the
global total.While global foreign direct investment flows are
projected
todeclinethisyear,thosetodevelopingandtransitioneconomiesareexpectedtosufferless,despitethe
current financial and credit crisis.One of the main challenges for
the international community is to mobilize greater financial flows
for investment conducive to poverty reduction and the achievement
of the Millennium Development Goals.In
particular,developingcountriesrequireinvestmentsthatwillstrengthentheinfrastructureindustriesand
services that are so essential for future growth and for the social
well-being of the poor.The World Investment Report 2008 examines
the ways, extent and conditions under which transnational
corporations can contribute to meeting the infrastructure
challenge.The Report argues that while the participation of
transnational corporations in the infrastructure sector
ofdevelopingcountrieshasrisensignificantly,ahugegapremainsbetweencurrentinvestmentlevelsand
whatisstillneeded.Fillingtheinvestmentgapisparticularlyurgentinthecaseofessentialinfrastructure
industries, such as water and electricity; and is critically
important in sectors such as telecommunications and transport. The
Report cautions against unrealistic expectations about the
contribution of transnational corporations.
Companieswillonlyinvestininfrastructureprojectsthatcanassureadequatereturnsforcommensurate
risks.Ithasprovendifficultforcountrieswithsmalleconomiesandweakgovernancesystemstoattract
transnational corporations into infrastructure. The policy
challenge is to create the appropriate conditions to facilitate
investments that can contribute to poverty alleviation and
accelerated development.There is a need to encourage greater
involvement by transnational corporations and to maximize
host-country benefits from their technological and other
assets.This implies improved governance and capacity-building in
host countries, the provision of greater financial and technical
support from development partners, and responsible infrastructure
investors.A concerted effort by all parties is required.Toward that
end, this Report offers valuable information and analysis, and I
commend it to a wide global readership.Ban Ki-moonNew York, July
2008Secretary-General of the United NationsiiiACKNOWLEDGEMENTSThe
World Investment Report 2008 (WIR08) was prepared by a team led by
Anne Miroux, comprising Kumi Endo, Torbjrn Fredriksson, Masataka
Fujita, Klmn Kalotay, Guoyong Liang, Padma Mallampally, Hafiz
Mirza, Nicole Moussa, Abraham Negash, Hilary Nwokeabia, Jean
Franois Outreville, Thomas Pollan, Yunsung Tark, Astrit Sulstarova,
Thomas van Giffen and Kee Hwee Wee. Amare Bekele, Hamed El-Kady,
Joachim Karl and Shin Ohinata also contributed to the Report. John
H. Dunning was the senior economic adviser and Peter Buckley served
as principal
consultant.ResearchassistancewasprovidedbyMohamedChirazBaly,BradleyBoicourt,JovanLicina,
LizanneMartinezand Tadelle Taye.
AureliaFigueroa,JuliaKubnyandDagmarvandenBruleassistedas interns at
various stages. Production of the WIR08 was carried out by Severine
Excoffier, Rosalina Goyena, Chantal Rakotondrainibe and Katia Vieu.
It was edited by Praveen Bhalla and desktop published by Teresita
Ventura. WIR08 benefited from inputs provided by participants at a
global seminar in Geneva in May 2008,
andtworegionalseminarsonTNCsininfrastructureindustriesheldin
April2008:oneinSantiago,
Chile(incooperationwiththeEconomicCommissionforLatin
AmericaandtheCaribbean),andthe other in Johannesburg, South Africa
(in cooperation with the Development Bank of Southern Africa).
InputswerealsoreceivedfromEmin Akcaoglu,Maria
Argiri,naClifford,JudithClifton,Zureka Davids, Georgina Dellacha,
Yves de Rose, Daniel Diaz-Fuentes, Quentin Dupriez, Fabrice Hatem,
Hayley Herman, Thomas Jost, Cline Kauffmann, Michael Likosky,
Michael Minges, El Iza Mohamedou, Bishakha
Mukherjee,SamMuradzikwa,BarbaraMyloni,SanushaNaidu,PremilaNazareth,FedericoOrtino,David
Lloyd Owen, Terutomo Ozawa, Robert Pearce, Edouard Prard, Ravi
Ramamurti, Mannsoo Shin, Satwinder Singh, Lalita Som, Vincent
Valentine, Mira Wilkins and Zbigniew Zimny.
CommentsandsuggestionswerereceivedduringvariousstagesofpreparationfromJoeAmadi-Echendu,
Philippa Biggs, Elin Bjerkebo, Doug Brooks, Joel Buarte, Barry
Cable, Karine Campanelli, Fanny
Cheung,GeorginaCipoletta,RudolfDolzer,ChantalDupasquier,SeanFahnhorst,MasondoFikile,Bongi
Gasa,StephenGelb, AxleGiroud,DavidHall,GeoffreyHamilton,
ToruHomma,GaborHunya,Prakash Hurry, AnnaJoubin-Bret,
AndreiJouravlev,DetlefKotte,ThithiKuhlase, AimableMapendanoUwizeye,
ShirleyMasemola,DavidMatsheketsheke,
ArvindMayaram,PatricioMillan,ReatileMochebelele,Seeraj Mohamed,
Juan Carlos Moreno-Brid, Tladinyane Moronngoe, Thiery Mutombo
Kalonji, Peter Muchlinski,
JuliusMucunguzi,JudithNwako,SheilaPage,AntonioPedro,WilsonPhiri,HelderPinto,JayaPrakash
Pradhan, Carlos Razo, Alex Roehrl, Fikile Rouget, Patricio Rozas,
Alex Rugamba, Winifred Rwebeyanga, Ricardo Sanchez, Fernando
Sanchez Albavera, Miguel Santillana, Christoph Schreuer, Njabulo
Sithebe, Miguel Solanes, Admassu Tedesse, Hong Song, Xuekun Sun,
Marcia Tavares, Khwezi Tiya, Ignacio Torterola, Peter Utting, Jrg
Weber, Paul Wessendorp, Thomas Westcott, Mrcio Wohlers, Lulu Zhang
and Xuan Zengpei.
Numerousofficialsofcentralbanks,statisticaloffices,investmentpromotionandothergovernment
agencies,andofficialsofinternationalorganizationsandnon-governmentalorganizations,aswellas
executives of a number of companies also contributed to WIR08,
especially with the provision of data and other information. The
Report also benefited from collaboration with Erasmus University,
Rotterdam, in the collection of data on, and analysis of, the
largest
TNCs.ThefinancialsupportoftheGovernmentsofFrance,NorwayandSwedenisgratefully
acknowledged.iv World Investment Report 2008:Transnational
Corporations and the Infrastructure ChallengeTABLE OF
CONTENTSPagePREFACE
...............................................................................................................................................
iiiACKNOWLEDGEMENTS
....................................................................................................................ivOVERVIEW..........................................................................................................................................xviiPART
ONERECORD FLOWS IN 2007, BUT SET TO DECLINECHAPTER I. GLOBAL
TRENDS......................................................................
3A. FDI AND INTERNATIONAL
PRODUCTION...............................................................................31.
Recent trends in FDI
..........................................................................................................................3a.
Overall
trends..............................................................................................................................3b.
Geographical
patterns...................................................................................................................7(i)
Developed
countries.....................................................................................................................7(ii)
Developing
countries....................................................................................................................8(iii)
South-East Europe and
CIS..........................................................................................................9c.
Sectoral patterns
.............................................................................................................................92.
International
production.....................................................................................................................93.
Indices of FDI performance and potential
.......................................................................................104.
New developments in FDI policies
..................................................................................................
11a. Developments at the national level
..............................................................................................
11b. Developments at the international level
.......................................................................................14(i)
Bilateral investment treaties
..........................................................................................................14(ii)
Double taxation
treaties................................................................................................................16(iii)
International investment agreements other than BITs and DTTs
................................................16(iv)
Investor-State dispute
settlement.................................................................................................16(v)
Implications of recent
developments............................................................................................17B.
CURRENT FINANCIAL AND MONETARY DEVELOPMENTS AND FDI
...........................181.The current fnancial crisis and FDI
fows
.......................................................................................182.Infuence
oI the Ialling dollar on FDI
decisions...............................................................................19C.
FDI BY SOVEREIGN WEALTH
FUNDS.....................................................................................201.
Characteristics of
SWFs...................................................................................................................202.
Investment patterns
..........................................................................................................................203.
Growing concerns about
SWFs........................................................................................................25D.
THE LARGEST
TNCs.....................................................................................................................261.
The worlds top 100
TNCs...............................................................................................................262.
The top 100 TNCs from developing economies
..............................................................................293.Proftability
oI the largest TNCs
......................................................................................................304.
The world`s top 50 fnancial TNCs
..................................................................................................31E.
PROSPECTS
....................................................................................................................................32CHAPTER
II.REGIONAL TRENDS
............................................................
37INTRODUCTION...................................................................................................................................37A.
DEVELOPING COUNTRIES
........................................................................................................381.
Africa................................................................................................................................................38a.
Geographical
trends....................................................................................................................38(i)Inward
FDI: increased fows, not iust to oil producers
..............................................................38(ii)
Outward FDI: mainly driven by South
Africa............................................................................42vb.
Sectoral trends: a rise of inflows to services
..............................................................................42c.
Policy
developments...................................................................................................................43d.
Prospects: commodity prices boost
FDI.....................................................................................462.
South, East, South-East Asia and
Oceania.......................................................................................46a.
Geographical
trends....................................................................................................................47(i)
Inward FDI: widespread increases
.............................................................................................47(ii)
Outward FDI: growth led by services and extractive industries
................................................49b. Sectoral
trends: rising flows to all
sectors..................................................................................50c.
Policy
developments...................................................................................................................51d.
Prospects: remaining promising
.................................................................................................533.
West
Asia..........................................................................................................................................53a.
Geographical
trends....................................................................................................................53(i)
Inward FDI: a sustained increase
...............................................................................................53(ii)
Outward FDI
soared...................................................................................................................55b.
Sectoral trends: strong focus on
services....................................................................................56c.
Policy
developments...................................................................................................................57d.
Prospects: FDI set to remain stable
............................................................................................584.
Latin America and the
Caribbean.....................................................................................................58a.
Geographical
trends......................................................................................................................58(i)
Inward FDI surged mainly in South America
............................................................................58(ii)Outward
FDI Iell in 2007 aIter a signifcant increase in
2006...................................................60b.
Sectoral trends: growth led by primary and natural-resource-based
activities...........................60c. Policy
developments...................................................................................................................63d.
Prospects: growth of inflows and outflows
................................................................................65B.
SOUTH-EAST EUROPE AND THE COMMONWEALTH OF INDEPENDENT STATES
...661. Geographical trends
.........................................................................................................................66a.
Inward FDI: growing market-seeking
FDI.................................................................................66b.
Outward FDI: Russian TNCs expanding
abroad........................................................................682.
Sectoral trends: services dominate.
..................................................................................................693.
Policy developments
........................................................................................................................704.
Prospects: natural resources will continue to attract
FDI.................................................................71C.
DEVELOPED COUNTRIES
..........................................................................................................721.
Geographical trends
.........................................................................................................................72a.
Inward FDI: more vibrant in the
EU..........................................................................................72b.
Outward FDI: strong net outward investments
..........................................................................752.Sectoral
trends: signifcant increase in
manuIacturing.....................................................................763.
Policy developments
........................................................................................................................774.
Prospects:FDI growth likely to decline in the short
term..............................................................78PART
TWOTRANSNATIONAL CORPORATIONS AND THE INFRASTRUCTURE
CHALLENGEINTRODUCTION...............................................................................................85CHAPTER
III.TNCs IN INFRASTRUCTURE INDUSTRIES...........................
87A. MAIN FEATURES OF INFRASTRUCTURE INDUSTRIES AND EMERGING
ISSUES.............................................................................................................871.
Characteristics of infrastructure industries
......................................................................................872.
The infrastructure investment gap in developing countries
.............................................................923.
The role of the State and other players in infrastructure
industries .................................................94B.
TNC INVOLVEMENT IN INFRASTRUCTURE
INDUSTRIES...............................................971.
Global trends
....................................................................................................................................99Pagevi
World Investment Report 2008:Transnational Corporations and the
Infrastructure Challenge2. TNC involvement in developing countries
....................................................................................102C.
THE UNIVERSE OF INFRASTRUCTURE TNCs
....................................................................1071.
Major infrastructure
TNCs.............................................................................................................1072.
Major infrastructure investors in developing countries by industry
.............................................. 1103. South-South
investors in developing
countries..............................................................................
112D. COMPETITIVE ADVANTAGES, DRIVERS AND STRATEGIES OF
INFRASTRUCTURE TNCs
...................................................................................................
1131. Sources of competitive advantages
................................................................................................
1132. Drivers, motives and modalities of infrastructure TNCs
...............................................................
116a. Drivers and
motives..................................................................................................................
116b. Modalities of TNC
involvement...............................................................................................
1173. Internationalization strategies of infrastructure
TNCs...................................................................
118E.
CONCLUSIONS.............................................................................................................................
119CHAPTER IV.IMPACT OF TNC PARTICIPATION ON HOST DEVELOPING
COUNTRIES...........................................................................
125A. TNCs ROLE IN MOBILIZING FINANCIAL RESOURCES AND THE IMPACT ON
INVESTMENT IN INFRASTRUCTURE
INDUSTRIES.........................126B. IMPACT ON INDUSTRY
PERFORMANCE AND THE PROVISION OF INFRASTRUCTURE SERVICES
.........................................................................................1291.
Technology transfer and
diffusion..................................................................................................1302.EIIects
on competition and
eIfciency............................................................................................1313.
Impact on provision of services and implications for universal
access .........................................134a. Electricity
.................................................................................................................................136b.
Telecommunications.................................................................................................................137c.
Transport...................................................................................................................................138d.
Water and sanitation
.................................................................................................................139C.
BROADER DEVELOPMENT IMPACTS AND
ISSUES.........................................................1401.
Wider economic
impacts................................................................................................................1412.
Bargaining power and regulatory
concerns....................................................................................143D.CONCLUSIONS............................................................................................................................144CHAPTER
V.POLICY CHALLENGES AND OPTIONS................................
149A. A COMPLEX
CHALLENGE.......................................................................................................149B.
HOST-COUNTRY POLICIES TO ATTRACT AND BENEFIT FROM TNC
PARTICIPATION....................................................................................................1501.
Building the institutional and regulatory
framework.....................................................................1502.
Openness to TNC involvement varies by industry and
country.....................................................152a.
In electricity, openness is the greatest in the generation segment
............................................153b. Almost all
countries allow TNCs to invest in telecommunications
.........................................154c. Water remains highly
restricted................................................................................................154d.
Road transport the most open, rail transport the least
..............................................................155e.
Rising concerns related to the strategic nature of infrastructure
..............................................1553. Investment
promotion agencies attach growing importance to
infrastructure...............................1574. Managing
different forms of TNC
participation............................................................................1595.
Factoring in social
objectives.........................................................................................................161PageviiC.
INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTMENT DISPUTES
.....1621. The role of international investment agreements
...........................................................................1622.
Infrastructure-related investment disputes
.....................................................................................164a.
Many investment disputes are related to
infrastructure............................................................164b.
Recent arbitral decisions on core IIA
provisions......................................................................165(i)
Fair and equitable treatment
.....................................................................................................166(ii)
Expropriation............................................................................................................................166(iii)
Umbrella
clause........................................................................................................................1673.
Conclusions and
implications.......................................................................................................168D.
THE ROLE OF HOME COUNTRIES AND INTERNATIONAL INSTITUTIONS
..............1691.Making better use oI oIfcial development
assistance....................................................................1692.
Risk-mitigating measures
..............................................................................................................171a.
Coverage for political
risk........................................................................................................172b.
Coverage for credit
risk............................................................................................................174c.
Coverage for currency
risk.......................................................................................................1743.
Capacity-building measures
...........................................................................................................1754.
Promoting regional infrastructure
projects.....................................................................................176E.
CONCLUSIONS.............................................................................................................................176REFERENCES................................................................................................183ANNEXES.......................................................................................................197SELECTED
UNCTAD PUBLICATIONS ON TNCs AND FDI .........................
289QUESTIONNAIRE...........................................................................................293BoxesI.1.
Revision of UNCTAD database on cross-border M&As
................................................................................................
7I.2. FDI and national security: the Report of the United States
Government Accountability Office ..................................
14I.3. Dollar depreciation FDI flows to the United States: recent
empirical findings
............................................................ 21I.4
What are
SWFs?..........................................................................................................................................................
22I.5. How are SWFs different from private equity
funds?...................................................................................................
22I.6. Norwegian Government Pension Fund: a gold standard for
governance of SWFs
................................................... 26I.7.
Infrastructure TNCs in the top 100 largest TNCs
.........................................................................................................
27I.8. Banking in the
Balkans.................................................................................................................................................
32II.1. FDI in African LDCs: resource exploitation leads to a
second year of growth in inflows
........................................... 41II.2. Some measures
to shift FDI towards greater value added activities: the case of
diamonds in Botswana..................... 43II.3. Changes in
national laws and regulations in Africa relating to inward FDI in
2007 .................................................... 44II.4
COMESA Agreement for a Common Investment Area
................................................................................................
45II.5 Liberalization commitments by Viet Nam under its WTO
accession agreement,
2007................................................ 52II.6.
Turkish outward FDI in
textiles....................................................................................................................................
57II.7. The Strategic Industry Law of the Russian
Federation.................................................................................................
71III.1. Main features of electricity
infrastructure.....................................................................................................................
90III.2. Main features of telecommunications infrastructure
....................................................................................................
90III.3. Main features of transport infrastructure
......................................................................................................................
91III.4. Main features of the water industry
..............................................................................................................................
91III.5. Estimating investment needs and financing gaps
.........................................................................................................
92III.6. India: Financing
infrastructure......................................................................................................................................
93III.7. Private sector participation in water infrastructure in
developing
countries.................................................................
95III.8. City Power Johannesburg a successful SOE in
infrastructure..................................................................................
95III.9. Stages of industrial development and infrastructure
industries...................................................................................
96III.10. TNCs and the early globalization of the electricity
industry.......................................................................................
97III.11. Selected forms of TNC participation in infrastructure
projects
....................................................................................
98III.12. Sources of data on TNC involvement in infrastructure
................................................................................................
99III.13. Interpreting data from the World Banks PPI Database
..............................................................................................
100III.14. The largest cross-border M&A deals in
infrastructure................................................................................................
103III.15. Divestment by TNCs of infrastructure operations in
developing
countries...............................................................
103III.16. The entry of TNCs in the mobile telephony market in
Africa
....................................................................................
111Pageviii World Investment Report 2008:Transnational Corporations
and the Infrastructure ChallengeIII.17. UNCTAD survey of
infrastructure TNCs
...................................................................................................................
114IV.1 The Angola-China partnership in infrastructure investment
.......................................................................................
127 IV.2. The potential for independent domestic power producers:
the case of Mauritius
...................................................... 132IV.3.
Risks, renegotiations and TNC withdrawals: implications for
performance
..............................................................
135IV.4.The impact of TNC entry on telecommunications coverage in
Uganda: how government policies can influence the outcome of TNC
participation........................................................................................................
138IV.5. Universal access to water and the debate on public versus
private
provision.............................................................
140V.1. The OECD Principles for Private Sector Participation in
Infrastructure
....................................................................
152V.2. The ECE Guidebook on public-private partnerships
..................................................................................................
153V.3. Recent re-nationalizations in
infrastructure................................................................................................................
155V.4. UNCTAD survey on openness to TNCs in infrastructure: some
preliminary findings...............................................
157V.5. The UNCTAD-WAIPA survey of IPAs
.......................................................................................................................
158V.6. Establishment rights in IIAs
.......................................................................................................................................
163V.7. Vivendi v. Argentina
...................................................................................................................................................
165V.8. Telenor v. Hungary
.....................................................................................................................................................
166V.9. Fraport v. the
Philippines............................................................................................................................................
167V.10. The Infrastructure Consortium for
Africa...................................................................................................................
170V.11. The Global Partnership on Output-Based Aid
............................................................................................................
171V.12. Enhancing rural electrification in Lesotho through the
Energy Poverty
Action........................................................
172V.13. Investment guarantees by the Multilateral Investment
Guarantee
Agency.................................................................
173V.14. The Grand Inga Hydropower
Project..........................................................................................................................
177V.15. The EU-Africa Infrastructure Trust Fund
...................................................................................................................
178Box figuresII.1.1. African LDCs: FDI inflows in value and as a
percentage of gross fixed capital formation,
19952007...................... 41V.6.1.Infrastructure-related
sectoral patterns of commitments in the
GATS........................................................................
163Box tablesI.3.1. Regression of changes in foreign assets in the
United States on the value of the dollar, quarterly data,
19992007... 21I.4.1. Comparison between SWFs and private equity
funds, 2007
........................................................................................
22I.7.1. Largest TNCs in infrastructure industries: ranks in 2006
and in the year of entry
....................................................... 27I.8.1.
Largest cross-border M&A deals in the financial sector in the
Balkans, 20062007
....................................................................................................................................................................
32II.5.1. Viet Nam: Summary of WTO liberalization commitments on
FDI entry in services
................................................... 52III.5.1. Asia
and Oceania: Varying estimates of infrastructure financing needs
for 20062010
....................................................................................................................................................................
92III.6.1. India: estimated annual infrastructure investment needs,
financing gaps and FDI flows, various years......................
93III.9.1. Stages of development and related infrastructure
industries.........................................................................................
96III.11.1. Equity and non-equity forms of TNC involvement in
infrastructure............................................................................
98III.15.1. Examples of divestment of TNCs in the water industry in
Latin America and the Caribbean, 20022007................
103III.16.1. Top 10 mobile operators in Africa, ranked by number of
local subscribers,
2006......................................................
111V.4.1. Share of countries that legally permit private and
foreign companies, respectively, to be involved in selected
infrastructure industries,
2008...........................................................................................
157FiguresI.1. FDI inflows, global and by groups of economies,
19802007
.......................................................................................
3I.2. Profitability and profit levels of TNCs,
19972007........................................................................................................
4I.3. Worldwide income on FDI and reinvested earnings, 19902007
...................................................................................
5I.4. Reinvested earnings of TNCs: value and share in total FDI
inflows, 19902007
.......................................................... 5I.5.
Value of cross-border M&As,
19982008.....................................................................................................................
5I.6. FDI flows, by region,
20052007...................................................................................................................................
8I.7. Transnationality index for host economies, 2005
.........................................................................................................
12I.8. Matrix of inward FDI performance and potential,
2006...............................................................................................
13I.9. Regulatory changes, by nature and region,
2007..........................................................................................................
15I.10. Number of BITs and DTTs concluded, annual and cumulative,
19982007
................................................................
15I.11. Top 10 signatories of BITs by end 2007
.......................................................................................................................
15I.12. Total number of BITs concluded, by country group, by end of
2007
...........................................................................
16I.13. Total number of DTTs concluded by country group, by end of
2007...........................................................................
16I.14. Number of known investor-State arbitrations, annual and
cumulative, 19922007
..................................................... 17I.15.
Impact of financial instability on FDI flows for 20082010
........................................................................................
18I.16. Nominal bilateral exchange rate changes of selected
currencies, 20002008
..............................................................
19I.17. Impact of depreciation of the United States dollar on
global FDI flows for
20082010.............................................. 19I.18. FDI
inflows to the United States and the real effective exchange rate,
19902007 .....................................................
20I.19. Major FDI locations of sovereign wealth funds,
2007..................................................................................................
23PageixI.20. FDI flows by sovereign wealth funds, 19872007
.......................................................................................................
23I.21. FDI by SWFs, by main host groups and top five host
economies, end
2007................................................................
23I.22. FDI by SWFs, by main target sectors and top five target
industries, end 2007
............................................................
24I.23. Location intensity of the 20 most preferred host economies,
2007
..............................................................................
28I.24. TNI values of the top 100 TNCs,
19932006...............................................................................................................
29I.25. Location intensity of the 20 most preferred host countries
for financial TNCs,
2007.................................................. 33I.26.
Prospects for global FDI flows over the next three years
.............................................................................................
33II.1. Africa: FDI inflows in value and as a percentage of gross
fixed capital formation, 19952007..................................
38II.2. FDI inflows to Africa, by component, 19952007
.......................................................................................................
39II.3. Africa: top 10 recipients of FDI inflows,
20062007...................................................................................................
40II.4. Rates of return on inward FDI by developing regions,
19952007..............................................................................
41II.5. Africa: FDI outflows,
19952007.................................................................................................................................
42II.6. FDI prospects in Africa,
20082010.............................................................................................................................
46II.7. South, East and South-East Asia: FDI inflows in value and
as a percentage of gross fixed capital formation, 19952007
...................................................................................................................
47II.8. South, East and South-East Asia: top 10 recipients of FDI
inflows,
20062007..........................................................
48II.9. South, East and South-East Asia: FDI outflows, 19952007
.......................................................................................
49II.10. South, East and South-East Asia: top 10 sources of FDI
outflows, 20062007
...........................................................
49II.11. FDI prospects in South, East and South-East Asia, 20082010
..................................................................................
53II.12. West Asia: FDI inflows in value and as a percentage of
gross fixed capital formation, 19952007 ...........................
54II.13. West Asia: top five recipients of FDI inflows,
20062007...........................................................................................
54II.14. West Asia: FDI outflows,
19952007...........................................................................................................................
55II.15. West Asia: top five sources of FDI outflows, 20062007
............................................................................................
56II.16. FDI prospects in West Asia, 20082010
......................................................................................................................
58II.17. Latin America and the Caribbean: FDI inflows in value and
as percentage of gross fixed capital formation, 19952007
....................................................................................................................
59II.18. Latin America and the Caribbean: top 10 recipients of FDI
inflows, 20062007
........................................................ 59II.19.
Latin America and the Caribbean: rate of return on inward FDI by
subregion, 19952007 ........................................
60II.20. Latin America and the Caribbean: FDI outflows, 19952007
......................................................................................
61II.21. Latin America and the Caribbean: top 10 sources of FDI
outflows,
20062007..........................................................
62II.22. FDI prospects in Latin America and the Caribbean,
20082010..................................................................................
65II.23. South-East Europe and CIS: FDI inflows in value and as a
percentage of gross fixed capital formation, 19952007
....................................................................................................................
66II.24. South-East Europe and CIS: top 10 recipients of FDI
inflows, 20062007
.................................................................
67II.25. Inward FDI Performance and Potential indices rankings of
selected countries,
2006.................................................. 67II.26.
South-East Europe and CIS: FDI outflows, 19952007
...............................................................................................
68II.27. Distribution of shares among energy companies involved in
the Kashagan project, Kazakhstan, 2007 and 2008....... 70II.28. FDI
prospects in South-East Europe and CIS,
20082010...........................................................................................
71II.29. Developed countries: FDI inflows in value and as a
percentage of gross fixed capital formation, 19952007 ...........
72II.30. Developed countries: top 10 recipients of FDI inflows,
20062007
............................................................................
73II.31. Developed countries: FDI outflows, 20062007
.........................................................................................................
75II.32. Developed countries: top 10 sources of FDI outflows,
20062007..............................................................................
76II.33. FDI prospects in developed countries, 20082010
......................................................................................................
78III.1. Share of foreign and domestic private and public investors
in the investment commitments of the infrastructure industries of
developing and transition economies, by industry and region,
19962006........... 101III.2. FDI inflows in electricity, gas and
water, and in telecommunications,
19912006....................................................
102III.3. Cross-border M&As in infrastructure by target region,
19912007...........................................................................
102III.4. Cross-border M&A sales in infrastructure by
developing target region,
19912007.........................................................
104III.5. Foreign investment commitments in the infrastructure
industries of developing and transition economies, by industry,
19962006............................................................................................................
104III.6. Main legal forms of foreign investment commitments in the
infrastructure industries of developing and transition economies,
by industry,
19962006..............................................................................
107III.7. Significant Chinese and Indian investments in
infrastructure in Africa, up to April
2008..................................................119IV.1.
Electricity prices for household users, selected Latin American
countries, 19902002.............................................
136V.1.Degree of IPA attention to infrastructure industries,
2008..........................................................................................
158V.2.Promotion instruments, by infrastructure industry or
service,
2008..........................................................................
159V.3. Number of known infrastructure-related investment disputes,
19962007
................................................................
164Tables I.1. Growth rates of FDI inflows denominated in (United
States) dollars and in local currencies,
20062007.................... 4I.2. Cross-border M&As valued at
over $1 billion,
19872008............................................................................................
6I.3. Cross-border M&As by private equity firms and hedge
funds, 19872008
...................................................................
6I.4. Selected indicators of FDI and international production,
19822007
..........................................................................
10I.5. Sales and value added of foreign affiliates and inward FDI
stock in host developing and former transition economies, most
recent available
year..............................................................................................
11I.6. Top 20 rankings by Inward and Outward FDI Performance
Indices, 2006 and 2007 Pagex World Investment Report
2008:Transnational Corporations and the Infrastructure
ChallengeI.7. National regulatory changes, 19922007
.....................................................................................................................
13I.8. Countries with a flat tax rate, 2007
..............................................................................................................................
14I.9. Twenty selected large FDI cases by sovereign wealth funds,
19872007
....................................................................
24I.10. Snapshot of the worlds 100 largest TNCs, 2005,
2006................................................................................................
27I.11. Top 15 TNCs, ranked by number of host economies of their
affiliates
........................................................................
28I.12. Comparison of TNI values by region,
20052006........................................................................................................
28I.13. II values by industries,
20052006...............................................................................................................................
29I.14. Snapshot of the worlds 100 largest TNCs from developing
economies, 2005
2006.................................................. 29I.15. Top
15 largest TNCs from developing economies ranked by the number of
host economies of their affiliates, 2007. 30I.16. Transnationality
of the largest TNCs from developing economies: TNI and II, by
regions, 2006.............................. 30I.17.
Transnationality of the largest TNCs from developing economies: TNI
and II, by major industries, 2006 ................. 31I.18. Average
return on sales of selected industries, 20052006
..........................................................................................
31I.19. M&A deals of over $1.5 billion in the financial sector,
20012007.............................................................................
31I.20. UNCTAD Survey 20082010: the most attractive locations for
FDI in the next three years.......................................
34II.1. FDI flows, by economic group and region,
20052007................................................................................................
37II.2. Cross-border M&A sales, by sector and by group of
economies,
20052007..............................................................
38II.3. Africa: cross-border M&As, by region/economy, 20052007
.....................................................................................
39II.4. Africa: distribution of FDI flows among economies, by
range,
2007...........................................................................
40II.5. Africa: cross-border M&As, by sector/industry,
20052007........................................................................................
43II.6 South, East and South-East Asia: distribution of FDI flows
among economies, by range, 2007 .................................
47II.7 South, East and South-East Asia: cross-border M&As, by
region/economy,
20052007............................................. 48II.8 South,
East and South-East Asia: cross-border M&As, by
sector/industry,
20052007............................................... 51II.9 FDI
inflows by sector/industry in ASEAN, 20032007
...............................................................................................
51II.10. West Asia: cross-border M&As, by region/economy,
20052007................................................................................
55II.11. West Asia: distribution of FDI flows among economies, by
range,
2007.....................................................................
55II.12. West Asia: cross-border M&As, by sector/industry,
20052007
..................................................................................
57II.13. Latin America and the Caribbean: cross-border M&As, by
region/economy, 20052007
........................................... 60II.14. Latin America
and the Caribbean: distribution of FDI flows among economies, by
range, 2007................................ 61II.15. Latin America
and the Caribbean: cross-border M&As, by sector/industry,
20052007 ............................................. 63II.16.
Latin America and the Caribbean: 10 largest cross-border M&A
deals in electricity, 2007.........................................
64II.17. South-East Europe and CIS: distribution of FDI flows among
economies, by range, 2007.........................................
67II.18. South-East Europe and CIS: cross-border M&As, by
region/economy,
20052007....................................................
68II.19. South-East Europe and CIS: cross-border M&As, by
sector/industry, 20052007
...................................................... 69II.20.
Production of cars by foreign manufacturers in the Russian
Federation, actual and announced, 2007........................
69II.21. Developed countries: distribution of FDI flows among
economies, by range,
2007.................................................... 73II.22.
Developed countries: cross-border M&As, by region/economy,
20052007
...............................................................
75II.23. Developed countries: cross-border M&As, by
sector/industry, 20052007
.................................................................
76III.1. Infrastructure industries and related activities
..............................................................................................................
89III.2. Non-competitive and competitive segments of modern
infrastructure
industries.........................................................
92III.3. Sub-Saharan Africa: estimated annual infrastructure
investment needs in selected industries, 20062015.................
93III.4. Inward FDI stock in electricity, gas and water, and in
transport, storage and communications, by region, 1990, 1995, 2000
and
2006..........................................................................................................................
99III.5. Largest outward FDI stocks in infrastructure industries,
latest year available
...........................................................
100III.6. Cross-border M&As in infrastructure by target
industry, 19912007
........................................................................
102III.7. Foreign investment commitments in the infrastructure
industries of developing economies, by industry and host region,
19962006.....................................................................................................................
105III.8. Industry composition of foreign investment commitments in
the infrastructure industries of developing and transition
economies,
19962006..................................................................................................
105III.9. Industry composition of foreign investment commitments in
the infrastructure industries of LDCs, 19962006..... 106III.10.
Sources of foreign investment commitments for the infrastructure
industries of LDCs, and of developing and transition economies,
19962006...........................................................................................
106III.11. Largest TNCs in infrastructure industries, ranked by
foreign assets,
2006.................................................................
108III.12. Foreign and total assets of the worlds 100 largest
infrastructure TNCs, by home economy and region, 2006 .........
108III.13. The worlds 100 largest infrastructure TNCs, and the 50
largest infrastructure TNCs of developing and transition economies:
industry breakdown,
2006..........................................................................
109III.14. Foreign and total assets of the 50 largest
infrastructure TNCs of developing and transition economies, by home
country and region, 2006
.............................................................................................................................
109III.15. Major port operators, ranked by their share in world
container port throughput,
2006.............................................. 112III.16. Share
of the top 5 and top 10 investors in total foreign investment
commitments in infrastructure industries in developing and
transition economies,
19962006...........................................................
112III.17. Origin of foreign investment commitments in the
infrastructure industries of Africa, Asia and Oceania and Latin
America and the Caribbean,
19962006............................................................
112IV.1. TNCs share of private sector investment commitments in
developing economies, all infrastructure industries, 19962006
.....................................................................................................................
129IV.2. Estimated market share ranges of mobile telecommunications
operators with TNC participation in selected countries, end
2007...................................................................................................................................
133IV.3. Indicators of performance improvements in electricity by
distributors in Latin America: Pagexichanges in selected indicators
from the year of privatization to
1998........................................................................
133IV.4. Top 10 countries by change in UNCTAD ICT Diffusion Index,
19972005..............................................................
138V.1.Foreign ownership restrictions in telecommunications,
selected developing countries, latest year
........................... 154V.2.Private sector and TNC
involvement in water projects, selected developing economies,
December 2007................ 156V.3.Share of IPAs that promote FDI
into specific infrastructure industries, by region, 2008
........................................... 158V.4.
Capacity-building facilities for infrastructure projects in Africa,
2006
......................................................................
175Annex AA.I.1. Number of greenfield FDI projects, by
source/destination, 2003-2008
.....................................................................
199A.I.2. Number of greenfield FDI projects, by sector/industry,
2003-2008
...........................................................................
203A.I.3. Cross-border M&A deals worth over $3 billion
completed in
2007...........................................................................
204A.I.4. Various types of cross-border M&A cases in the UNCTAD
database
........................................................................
206A.I.5. Estimated world inward FDI stock, by sector and industry,
1990 and
2006...............................................................
207A.I.6. Estimated world outward FDI stock, by sector and
industry, 1990 and
2006.............................................................
208A.I.7. Estimated world inward FDI flows, by sector and industry,
19891991 and 20042006 ..........................................
209A.I.8. Estimated world outward FDI flows, by sector and
industry, 19891991 and 20042006
........................................ 210A.I.9. Number of parent
corporations and foreign affiliates, by region and economy, latest
available year ........................ 211A.I.10. Country rankings
by Inward FDI Performance Index, Inward FDI Potential Index and
Outward FDI Performance Index,
20052007............................................................................................................
214A.I.11. List of major sovereign wealth funds,
2007................................................................................................................
216A.I.12. Largest cross-border M&A deals by sovereign wealth
funds ranked 21st50th, 19872007
....................................... 217A.I.13. Selected
cross-border M&A deals by sovereign wealth funds, by target
region/economy, 19872007 ..................... 218A.I.14. Selected
cross-border M&A deals by sovereign wealth funds, by industry
of the target country, 19872007.......... 219A.I.15. The worlds top
100 non-financial TNCs, ranked by foreign assets,
2006.................................................................
220A.I.16. The top 100 non-financial TNCs from developing
countries, ranked by foreign assets,
2006.................................. 223A.I.17. The top 50
financial TNCs ranked by Geographic Spread Index (GSI), 2006
...........................................................
226A.II.1. List of strategic industries in the Strategic Industry
Law of the Russian Federation of May 2008
............................ 227A.III.1. Inward FDI stock of
selected economies in infrastructure, 1990, 1995, 2000 and 2006
............................................ 229A.III.2. Outward
FDI stock from selected economies in infrastructure, 1990, 1995,
2000 and 2006..................................... 235A.III.3. The
25 largest cross-border M&A deals in infrastructure,
19912007.......................................................................
238A.III.4. The worlds 100 largest infrastructure TNCs, ranked by
foreign assets, 2006
...........................................................
239A.III.5. The 50 largest infrastructure TNCs of developing and
transition economies, ranked by foreign assets, 2006...........
241A.III.6. The 50 largest foreign investors in infrastructure
commitments in Africa,
19962006.............................................. 242A.III.7.
The 50 largest foreign investors in infrastructure commitments in
Asia, 19962006.................................................
243A.III.8. The 50 largest foreign investors in infrastructure
commitments in Latin America and the Caribbean, 19962006...
244A.V.1.Arbitral awards in known infrastructure investment
disputes,
19972007.................................................................
245A.V.2.Bilateral and multilateral donor commitments to selected
infrastructure industries, 19952006...............................
247DEFINITIONS AND SOURCES
......................................................................
249Annex BB.1. FDI flows, by region and economy,
20052007.........................................................................................................
253B.2. FDI stock, by region and economy, 1990, 2000, 2007
...............................................................................................
257B.3. FDI flows as a percentage of gross fixed capital formation,
20052007, and FDI stocks as a percentage of gross domestic product,
1990, 2000, 2007, by region and economy
..........................................................................
261B.4. Value of cross-border M&As, by region/economy of
seller/purchaser,
20052008................................................... 272B.5.
Number of cross-border M&As, by region/economy of
seller/purchaser,
20052008............................................... 275B.6.
Value of cross-border M&As, by sector/industry,
20052008....................................................................................
278B.7. Number of cross-border M&As, by sector/industry,
20052008................................................................................
279B.8. Number of foreign affiliates in the host economy and of
foreign affiliates of home-based TNCs, 20032005 ......... 280B.9.
Employment in foreign affiliates in the host economy and in foreign
affiliates of home-based TNCs, 20032005 .. 281B.10. Assets of
foreign affiliates in the host economy and of foreign affiliates of
home-based TNCs, 20032005............ 282B.11.Wages and salaries in
foreign affiliates in the host economy and in foreign affiliates of
home-based TNCs,
20032005...................................................................................................................................
282B.12. Sales of foreign affiliates in the host economy and of
foreign affiliates of home-based TNCs, 20032005..............
283B.13. Value added of foreign affiliates in the host economy and
of foreign affiliates of home-based TNCs, 20032005... 284B.14.
Profits of foreign affiliates in the host economy and of foreign
affiliates ofhome-based TNCs, 20032005........... 284B.15. Exports
of foreign affiliates in the host economy and of foreign affiliates
of home-based TNCs, 20032005........ 285B.16. Imports of foreign
affiliates in the host economy and of foreign affiliates
ofhome-based TNCs, 20032005......... 286B.17.R&D expenditures
of foreign affiliates in the host economy and of foreign affiliates
of home-based TNCs,
20032005...................................................................................................................................
286B.18. Royalty receipts and payments of foreign affiliates in the
host economy and of foreign affiliates of home-based TNCs,
20032005.............................................................................................................................
287Pagexii World Investment Report 2008:Transnational Corporations
and the Infrastructure ChallengeABBREVIATIONSADB Asian Development
BankAfDB African Development BankASEAN Association of Southeast
Asian NationsBIT bilateral investment treatyBLO build, lease and
ownBOO build, own and operateBOOT build, own, operate and
transferBOT build, operate, transfer BROT build, rehabilitate,
operate and transfer CDO collateralized debt obligationCIS
Commonwealth of Independent StatesCOMESACommon Market for Eastern
and Southern AfricaDTT double taxation treatyDR-CAFTA Dominican
Republic-Central American Free Trade Agreement (with the United
States EFTA European Free Trade AssociationEMU European Monetary
UnionEPA Energy Poverty Action AllianceESCAPEconomic and Social
Commission for Asia and the PacificEU European UnionFDI foreign
direct investmentFSA firm-specific advantageFTA free trade area (or
agreement)GATSGeneral Agreement on Trade in Services (of WTO)GCC
Gulf Cooperation CouncilGDP gross domestic productGSI Geographical
Spread Index ICAInfrastructure Consortium for Africa ICSID
International Centre for Settlement of Investment Disputes ICT
information and communications technologyIFC International Finance
Corporation II Internationalization Index (of UNCTAD)IIA
international investment agreementIMF International Monetary
FundIPA investment promotion agencyIPP independent power
producerJBIC Japan Bank for International Cooperation LAC Latin
America and the CaribbeanLBO leveraged buyout transaction LDC least
developed countryM&Amerger and acquisitionMBS mortgage-backed
securityMDG Millennium Development GoalMERCOSUR Southern Common
Market (Mercado Comn del Sur)MFN most-favoured nationMIGA
Multilateral Investment Guarantee AgencyNEPAD New Partnership for
Africas DevelopmentOBA Output-Based AidODAofficial development
assistanceOECD Organisation for Economic Co-operation and
DevelopmentPCG partial credit guaranteePPI private participation in
infrastructure (also PPI Database of the World Bank)PPP
public-private partnershipPRG partial risk guaranteePRI political
risk insuranceROS return on salesxiiiROT rehabilitate-own-transfer
SADCSouthern African Development CommunitySEESouth-East
EuropeSEZspecial economic zoneSICStandard Industrial
ClassificationSOEState-owned enterpriseSWFsovereign wealth
fundTEU20-foot equivalent unitTNCtransnational
corporationTNITransnationality Index (of UNCTAD)UNCITRAL United
Nations Commission on International Trade LawUNCTAD United Nations
Conference on Trade and DevelopmentUNDP United Nations Development
ProgrammeWAIPAWorld Association of Investment Promotion
AgenciesWEFWorld Economic ForumWIRWorld Investment Reportxiv World
Investment Report 2008:Transnational Corporations and the
Infrastructure ChallengeOVERVIEWRECORD FLOWS IN 2007, BUT SET TO
DECLINEGlobal FDI flows surpassed the peak of
2000Afterfourconsecutiveyearsof growth, global FDI inflows rose in
2007 by 30% to reach $1,833 billion, well above the previous
all-time high set in 2000. Despitethe financial and credit crises,
which began
inthesecondhalfof2007,allthethreemajoreconomicgroupingsdeveloped
countries,developingcountriesandthetransition economies of
South-East EuropeandtheCommonwealthofIndependent States (CIS) saw
continued growth in their inflows. The increase in FDI largely
reflected relatively high economic growth and strongcorporate
performance in many parts of
theworld.Reinvestedearningsaccountedfor
about30%oftotalFDIinflowsasaresult
ofincreasedprofitsofforeignaffiliates,
notablyindevelopingcountries.Tosome extent, the record FDI levels
in dollar terms also reflected the significant depreciation of
thedollaragainstothermajorcurrencies. However, even measured in
local currencies, the average growth rate of global FDI flows was
still 23% in 2007.FDI inflows into developed
countriesreached$1,248billion.TheUnitedStates maintained its
position as the largest recipient
country,followedbytheUnitedKingdom,
France,CanadaandtheNetherlands.The
EuropeanUnion(EU)wasthelargesthost region, attracting almost two
thirds of totalFDI inflows into developed countries.In developing
countries FDI inflows reachedtheirhighestlevelever($500
billion)a21%increaseover2006.The least developed countries (LDCs)
attracted $13billionworthofFDIin2007alsoa recordhigh.
Atthesametime,developing countriescontinuedtogaininimportance
assourcesofFDI,withoutflowsrisingto
anewrecordlevelof$253billion,mainly asaresultofoutwardexpansionby
Asian TNCs. FDI inflows into South-East Europe and the CIS also
surged, increasing by 50%, toreach$86billionin2007.Theregion
hasthusseensevenyearsofuninterrupted growth. Outflows from this
region similarly soared,to$51billion,morethantwice
the2006level.Amongdevelopingand transitioneconomies,thethreelargest
recipients were China, Hong Kong (China) and the Russian
Federation....driven by record values of cross-border
M&As.Continuedconsolidationthrough
cross-bordermergersandacquisitions
(M&As)contributedsubstantiallytothe
globalsurgeinFDI.In2007,thevalue ofsuchtransactionsamountedto$1,637
billion,21%higherthantheprevious record in 2000. Thus, overall, the
financial crisis, starting with the sub-prime mortgage
crisisintheUnitedStates,didnothaveavisibledampeningeffectonglobalcross-borderM&Asin2007.Onthecontrary,
2008in the latter half of 2007 some very large deals took place,
including the $98 billion acquisition of
ABN-AMROHoldingNVbytheconsortiumofRoyal Bank of Scotland, Fortis
and Santander the largest deal in banking history and the
acquisition of Alcan (Canada) by Rio Tinto (United Kingdom). The
largest TNCs pursued further expansion
abroadTheproductionofgoodsandservicesbyan
estimated79,000TNCsandtheir790,000foreign
affiliatescontinuestoexpand,andtheirFDIstock
exceeded$15trillionin2007.UNCTADestimates
thattotalsalesofTNCsamountedto$31trillion
a21%increaseover2006.Thevalueadded(gross
product)offoreignaffiliatesworldwiderepresented
anestimated11%ofglobalGDPin2007,andthe number of employees rose to
some 82 million.TheuniverseofTNCsisexpanding.
Manufacturingandpetroleumcompanies,suchas
GeneralElectric,BritishPetroleum,Shell,Toyota
andFordMotor,retainsomeofthetoppositionsin
UNCTADsrankingofthe25largestnon-financial
TNCsintheworld.However,TNCsinservices, including in infrastructure,
have become increasingly prominent during the past decade: 20 of
them featured among the top 100 in 2006, compared with only 7 in
1997.Theactivitiesofthe100largestTNCs increased significantly in
2006, with foreign sales and
foreignemploymentalmost9%and7%higherthan
in2005,respectively.Growthwasparticularlyhigh for the 100 largest
TNCs from developing countries:
in2006,theirforeignassetswereestimatedat$570 billion a 21% increase
over 2005. Their countries of origin have changed little over the
past 10 years, with companies from East and South-East Asia
dominating the list of the top 25 such TNCs..while sovereign wealth
funds are emerging as new actors on the FDI scene.A new feature of
global FDI is the emergence of sovereign wealth funds (SWFs) as
direct investors. Benefitingfromarapidaccumulationofreservesin
recent years, these funds (with $5 trillion assets under
management)tendtohaveahigherrisktolerance
andhigherexpectedreturnsthantraditionalofficial reserves managed by
monetary authorities. Although
thehistoryofSWFsdatesbacktothe1950s,they
haveattractedglobalattentiononlyinrecentyears
followingtheirinvolvementinsomelarge-scale
cross-borderM&Aactivitiesandtheirmajorcapital injections into
some troubled financial institutions in developed countries.
WhiletheamountsinvestedbySWFsinthe form of FDI remain relatively
small, they have been growinginrecentyears. Only0.2%oftheirtotal
assetsin2007wererelatedtoFDI.However,ofthe $39 billion investments
abroad by SWFs over the past two decades, as much as $31 billion
was committed in the past three years. Their recent activities have
been drivenbytherapidbuildupofreservesgenerated
byexportsurpluses,changesinglobaleconomic
fundamentalsandnewinvestmentopportunitiesin structurally weakened
financial firms.Almost 75% of the FDI by SWFs has been in
developedcountries,withinvestmentsin Africaand Latin America very
limited so far. Their investments
havebeenconcentratedinservices,mainlybusiness services.Investments
by SWFs in the banking industry in 2006-2007 were generally
welcomed, owing to their stabilizing effect on financial markets.
However, they also prompted some negative public sentiment, with
calls to impose regulatory restrictions on investments by these
funds, notably on national security grounds.
Internationalinstitutions,suchastheInternational
MonetaryFund(IMF)andtheOrganisationfor
EconomicCo-operationandDevelopment(OECD),
areintheprocessofestablishingprinciplesand guidelines relating to
FDI by SWFs. Most national policy changes continued to encourage
FDI, though less favourable measures becamemore
frequent.Despitegrowingconcernsandpolitical
debateoverrisingprotectionism,theoverallpolicy
trendremainsoneofgreateropennesstoFDI.
UNCTADsannualsurveyofchangesinnational
lawsandregulationsthatmayinfluencetheentry
andoperationsofTNCssuggeststhatpolicymakers are continuing in their
efforts to make the investment
climatemoreattractive.In2007,ofthealmost100
policychangesidentifiedbyUNCTADashavinga
potentialbearingonFDI,74aimedatmakingthe
hostcountryenvironmentmorefavourabletoFDI.
However,theproportionofchangesthatwereless
favourabletoFDIhasbeenincreasingoverthepast few
years.Asin2006,mostofthenewrestrictions
introducedwereconcentratedintheextractive industries, particularly
in Latin America (e.g. Bolivia, Ecuador and the Bolivarian Republic
of Venezuela), but they were also apparent in other countries as
well. Severalgovernments,includingthoseoftheUnited xvi World
Investment Report 2008:Transnational Corporations and the
Infrastructure
ChallengeStatesandtheRussianFederation,adoptedstricter
regulationswithregardtoinvestmentsinprojects that have potential
implications for national security.
Governmentconcernsalsoappeartobedirected
towardsinvestmentsincertaininfrastructureareas and those undertaken
by State-owned entities. Thenumberofinternationalinvestment
agreements (IIAs) continued to grow, reaching a total of almost
5,600 at the end of 2007. There were 2,608
bilateralinvestmenttreaties(BITs),2,730double taxation treaties
(DTTs) and 254 free trade agreements
(FTAs)andeconomiccooperationarrangements containing investment
provisions. The shift in treaty-making activity from BITs towards
FTAs continued, asdidthetrendtowardsrenegotiationofexisting BITs.
The global financial crisis had a limited impact on FDI flows in
2007, but will begin to bite in
2008.Thesub-primemortgagecrisisthaterupted
intheUnitedStatesin2007hasaffectedfinancial
marketsandcreatedliquidityproblemsinmany countries, leading to
higher costs of credit. However, both micro- and macroeconomic
impacts affecting the capacity of firms to invest abroad appear to
have been relatively limited so far. As TNCs in most industries
hadampleliquiditytofinancetheirinvestments,
reflectedinhighcorporateprofits,theimpactwas smallerthanexpected.
Atthemacroeconomiclevel, developed-country economies could be
affected both bytheslowdownoftheUnitedStateseconomyas
wellasbytheimpactoftheturmoilinthefinancial markets on liquidity.
As a result, both inflows to and
outflowsfromthesecountriesmaydecline.Onthe
otherhand,therelativelyresilienteconomicgrowth of developing
economies may counteract this risk.
InadditiontothecreditcrunchintheUnited
States,theglobaleconomywasalsoaffectedbythe
significantdepreciationofthedollar.Whileitis difficult to isolate
the effects of exchange rate changes
fromotherdeterminantsofFDIflows,thesharp weakening of the dollar
helped to stimulate FDI to the United States. European FDI to the
United States was spurred by the increased relative wealth of
European investors and reduced investment costs in the United
States. Moreover, companies exporting to the United States have
suffered from the exchange rate changes, which have induced them to
expand local production in the United States. This is illustrated
by changes in thestrategyofseveralEuropeanTNCs,particularly
carmakers, that plan to build new or expand existing production
facilities in that country. Theslowdownintheworldeconomyand
thefinancialturmoilhaveledtoaliquiditycrisisin money and debt
markets in many developed countries.
Asaresult,M&Aactivityhasbeguntoslowdown markedly. In the first
half of 2008, the value of such
transactionswas29%lowerthanthatinthesecond
halfof2007.Corporateprofitsandsyndicatedbank
loansarealsodeclining.Basedonavailabledata, estimated annualized
FDI flows for the whole of 2008 are expected to be about $1,600
billion, representing a 10% decline from 2007. Meanwhile, FDI flows
to developingcountriesarelikelytobelessaffected.
UNCTADsWorldInvestmentProspectsSurvey, 20082010,
whilealsosuggestingarisingtrendin the medium term, points to a
lower level of optimism thanwasexpressedintheprevioussurvey,andto
more caution in TNCs investment expenditure plans than in 2007. In
Africa, high commodity prices and rising profitability attracted
FDI.In Africa,FDIinflowsgrewto$53billionin 2007 a new record.
Booming commodity markets, rising profitability of investments the
highest among developingregionsin2006-2007andimproved policy
environments fuelled inflows. LDCs in Africa
alsoregisteredanotheryearofgrowthintheirFDI
inflows.AlargeproportionoftheFDIprojects
launchedintheregionin2007werelinkedtothe extraction of natural
resources. The commodity price boom also help Africa to maintain
the relatively high level of outward FDI, which amounted to $6
billion in 2007.Despitehigherinflows,Africassharein
globalFDIremainedatabout3%.TNCsfromthe United States and Europe
were the main investors in the region, followed by African
investors, particularly fromSouthAfrica.TNCsfromAsiaconcentrated
mainlyonoilandgasextractionandinfrastructure.
ProspectsforincreasedFDIinflowsin2008are
promisinginlightofthecontinuinghighpricesof
commodities,largeprojectsalreadyannouncedfor that year and
forthcoming payments from previously
concludedcross-borderM&As.Thiswillsignifya fourth consecutive
year of FDI growth. The UNCTAD survey shows that almost all TNCs
have maintained orevenincreasedtheircurrentlevelsofinvestment in
Africa. OVERVIEW xviiIn South, East and South-East Asia and
Oceania, both inward and outward FDI flows rose to their highest
levels ever.FDIflowstoSouth,EastandSouth-East Asia and Oceania were
also higher than ever before,
reaching$249billionin2007.Mostsubregionsand economies, except
Oceania, received higher inflows.
Acombinationoffavourablebusinessperceptions,
progresstowardsfurtherregionaleconomic
integration,improvedinvestmentenvironmentsand
country-specificfactorscontributedtotheregions performance. China
and Hong Kong (China) remained the two top destinations within the
region as well as among all developing economies. Meanwhile, India
the largest recipient in South Asia and most member
countriesoftheAssociationofSoutheastAsian
Nations(ASEAN)alsoattractedlargerinflows,as did post-conflict
countries and Asian LDCs, such as Afghanistan, Cambodia, Sri Lanka
and Timor-Leste.Overall,prospectsfornewFDItotheregion
remainverypromising.Sustainedeconomic
growth,demographicchanges,favourablebusiness
sentimentsandnewinvestmentopportunitieswere
amongthemainfactorscontributingtotheregions good performance in
2007, and they should continue to attract FDI in the near future.
FDIoutflowsfromSouth,EastandSouth-EastAsiaalsoreachedanewhigh,amountingto
$150billion,reflectingthegrowingimportanceof
developingcountriesasoutwardinvestors.Intra-
andinter-regionalflowsareaparticularlyimportant feature. But firms
are investing in developed countries as well, not least through
cross-border M&As. SWFs from the region have emerged as
significant investors, contributing to the regions rapidly growing
outward FDI stock: this jumped from $1.1 trillion in 2006 to $1.6
trillion in 2007. West Asia also saw record flows in both
directionsFDI in West Asia rose by 12% to $71 billion,
markinganewrecordandafifthconsecutiveyear
ofgrowth.Morethanfourfifthsoftheinflows
wereconcentratedinthreecountries:SaudiArabia, Turkey and the United
Arab Emirates, in that order. A growing number of energy and
construction projects, aswellasanotableimprovementinthebusiness
environment in 2007, attracted FDI into members of
theGulfCooperationCouncil(GCC).Forexample, Qatar experienced a
significant rise in inflows more than seven times higher than in
2006.FDI outflows from the region in 2007 increased
forthefourthconsecutiveyear,to$44billion nearly six times its level
in 2004. The GCC countries
(Kuwait,SaudiArabia,theUnitedArabEmirates,
Qatar,BahrainandOman,inthatorder)accounted
for94%oftheseoutflows,reflectinginparttheir desire to diversify
away from oil and gas production through investments by SWFs.
Intraregional FDI was
significant,particularlyfromoil-richcountries,as confirmed by a
growing number of greenfield projects and the increasing value of
cross-border M&As. FDIinflowsintoWestAsiaareexpectedto rise in
2008, as countries in the region have remained largely unaffected
by the sub-prime mortgage crisis, and a significant number of
intraregional investment projects are in the pipeline. while the
surge of FDI into Latin America and the Caribbean was mainly driven
by the demand for natural resources.Latin America and the Caribbean
saw inflows riseby36%toahistorichighof$126billion.The
increasewasthehighestinSouthAmerica(66%),
wheremostofthe$72billionworthofinflows targeted the extractive
industries and natural-resource-based manufacturing. Inflows to
countries in Central AmericaandtheCaribbean(excludingoffshore
financialcentres)increasedby30%to$34billion, despite the economic
slowdown in the United States. This resilience was partly explained
by the dynamism ofFDIinmining,steelandbanking,whicharenot oriented
primarily towards the United States market.
FDIoutflowsfromtheregionfellby17%
to$52billion,mainlyreflectingareturntomore
normallevelsofoutwardinvestmentfromBrazil.
LatinAmericanTNCs,mainlyfromMexicoand
Brazil,continuedtointernationalize,competingfor
leadershipinsuchindustriesasoilandgas,metal
mining,cement,steel,andfoodandbeverages.In
addition,manynewLatinAmericancompanies
beganemerginginnewsectorssuchassoftware, petrochemicals and
biofuels.Intheextractiveindustries,inwhichFDI
increasedasaresultofthehighcommodityprices,
thepicturedifferedbetweenoilandgasandmetal mining. In metal mining,
the scope for inward FDI is greater, as there are no major
State-owned companies in the region, except Codelco in Chile. In
oil and gas, by contrast, the dominant position, or even exclusive
presence,ofState-ownedoilandgascompanies
limitstheopportunitiesforforeigninvestors.This
situationwasaccentuatedin2007,asanumberof countries, including
Bolivia, the Bolivarian Republic
ofVenezuelaandEcuador,adoptedpolicychanges
toincreasetaxationandfurtherrestrictorprohibit foreign investment
in oil and gas. xviii World Investment Report 2008:Transnational
Corporations and the Infrastructure
ChallengeFDItoandfromLatinAmericaandthe
Caribbeanisexpectedtoincreasefurtherin2008.
InflowswouldbedrivenmainlybySouth America, where high commodity
prices and strong subregional
economicgrowthshouldcontinuetoboostTNCs
profits.However,theleveloffutureinflowsinto Central America and the
Caribbean is uncertain, as the slowdown of the United States
economy and a weak dollarcouldadverselyaffecttheirexport-oriented
manufacturing activities. Outflows are expected to be boosted by
TNCs in Brazil and Mexico, which have
alreadyannouncedambitiousinvestmentplansfor 2008.FDI to and from
South-East Europe and the Commonwealth of Independent States
maintained an upward trend and set new
records.Asinmostotherregions,inflowstoand
fromSouth-EastEuropeandtheCISreached
unprecedentedlyhighlevels.InwardFDIrosefora seventh consecutive
year, to reach $86 billion 50%
morethanin2006.IntheCIS,theseinflowswere
mainlyattractedtofastgrowingconsumermarkets
andnaturalresources,whilethosetoSouth-East
Europewereassociatedwithprivatizations.Inward FDI in the Russian
Federation increased by 62%, to $52 billion. Outward FDI from
South-East Europe and the CIS amounted to $51 billion, more than
double its 2006 level.FDIfromtheRussianFederationthemain
sourcecountryintheregionsoaredto$46billion in 2007. Russian TNCs
have exten