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Foreign Direct Investment –Trends and Determinants

Ralf KrügerDivision on Investment and Enterprise, UNCTAD

Workshop on FDI in Advanced Fossil Fuel Technologie sDushanbe, Tajikistan13 September 2011

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Agenda

1. Why look for foreign investors?

2. How to measure foreign investment?

3. What makes investors invest in a location?

4. Global FDI trends

5. FDI in selected countries

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FDI is a package with a lot of development potential

• FDI is more than just money, it embodies many elements needed for economic development

• Some important elements of the package are:– Finance/capital– Technology– Market contacts– Managerial know-how

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Agenda

1. Why look for foreign investors?

2. How to measure foreign investment?

3. What makes investors invest in a location?

4. Global FDI trends

5. FDI in selected countries

Counting FDI, Greenfield and M&A projects

FDI in the balance of payments:• Investment in another economy• A long-term relationship • With a lasting interest and control

The modes of entry of FDI projects are:

Greenfield InvestmentsCross Border Mergers and

Acquisitions (M&As)

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Agenda

1. Why look for foreign investors?

2. How to measure foreign investment?

3. What makes investors invest in a location?

4. Global FDI trends

5. FDI in selected countries

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FDI: Locational Determinants

Decision for a specific location

General policy framework(Good governance, property rights, economic/political/social stability)

…

Natural resource-seeking motives(Access to raw materials)

Efficiency-seeking motives(Different comparative advantages of countries)

Strategic asset-seeking motives(Access to technology; participation in clusters)

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2

3

4

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6Business facilitation measures(Investment promotion, aftercare, incentives)

Market-seeking motives(Market size/growth, per capita income)

Economic Determinants(by motive of

TNC)

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Agenda

1. Why look for foreign investors?

2. How to measure foreign investment?

3. What makes investors invest in a location?

4. Global FDI trends

5. FDI in selected countries

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FDI inflows, global and by group of economies, 1980 –2010 (Billions of dollars)

Figure I.3, WIR11, p. 3.

Developing countries lead the way out of the crisis

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Agenda

1. Why look for foreign investors?

2. How to measure foreign investment?

3. What makes investors invest in a location?

4. Global FDI trends

5. FDI in selected countries

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Trends in project countries

• All 9 countries saw strong GDP growth over 2000-2010 period

• All countries have some peaks in greenfield projects

• Electricity does not capture a large share of foreign investment

• Some deals in Kazakhstan, Tajikistan and Ukraine; China & India with low shares

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Thank you

Ralf KrügerUNCTADTel: +41-22 917 57 92Email: ralf.krueger@unctad.org

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Annex

Foreign investment over GDP, 1993-2010 for:Afghanistan MongoliaChina TajikistanIndia UkraineKazakhstan UzbekistanKyrgyz Republic

Data sources:FDI UNCTAD, FDI/TNC databaseGreenfield UNCTAD, based on information from the Financial

Times Ltd, fDi Markets (www.fDimarkets.com)M&As UNCTAD cross-border M&A database.GDP United Nations Statistics Division and UNCTAD

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Afghanistan

-5%

0%

5%

10%

15%

20%

25%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

Greenfield(values) /GDP

Foreign investment over GDP, 1993-2010

15

China

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

M&A sales / GDP

Greenfield (values) /GDP

FDI in electricity /GDP

M&A sales (value) inelectricity / GDP

Greenfield (value) inelectricity (coal, oil &natural gas) / GDP

Foreign investment over GDP, 1993-2010

16

IndiaForeign investment over GDP, 1993-2010

17

Kazakhstan

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

M&A sales /GDP

Greenfield(values) /GDP

FDI inelectricity /GDP

M&A sales(value) inelectricity /GDP

Foreign investment over GDP, 1993-2010

18

Kyrgyz Republic

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

M&A sales /GDP

Greenfield(values) /

Foreign investment over GDP, 1993-2010

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MongoliaForeign investment over GDP, 1993-2010

0%

10%

20%

30%

40%

50%

60%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

M&A sales / GDP

Greenfield(values) / GDP

20

TajikistanForeign investment over GDP, 1993-2010

0%

10%

20%

30%

40%

50%

60%

70%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

Greenfield (values)/ GDP

Greenfield (value)in electricity (coal,oil & natural gas) /GDP

21

UkraineForeign investment over GDP, 1993-2010

-2%

0%

2%

4%

6%

8%

10%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

M&Asales /GDP

Greenfield(values) /GDP

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UzbekistanForeign investment over GDP, 1993-2010

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1993

1995

1997

1999

2001

2003

2005

2007

2009

FDI/GDP

M&A sales /GDP

Greenfield(values) /GDP

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FDI inflows to developing and transition economies, by region, average of 2005-2007 and 2008-2010 (Billions of dollars)

Figure I.6, WIR11, p. 5.

Trends diverge by host region