United Nations Conference on Trade and Development

WorldInvestmentReport

United NationsNew York and Geneva, 2004

2004 The Shift TowardsServices

ii

NOTE

UNCTAD serves as the focal point within the United Nations Secretariat for all matters relatedto foreign direct investment and transnational corporations. In the past, the Programme on TransnationalCorporations was carried out by the United Nations Centre on Transnational Corporations (1975-1992)and the Transnational Corporations and Management Division of the United Nations Department of Economicand Social Development (1992-1993). In 1993, the Programme was transferred to the United NationsConference on Trade and Development. UNCTAD seeks to further the understanding of the nature oftransnational corporations and their contribution to development and to create an enabling environmentfor international investment and enterprise development. UNCTAD’s work is carried out throughintergovernmental deliberations, technical assistance activities, seminars, workshops and conferences.

The term “country” as used in this study also refers, as appropriate, to territories or areas; thedesignations employed and the presentation of the material do not imply the expression of any opinionwhatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country,territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.In addition, the designations of country groups are intended solely for statistical or analytical convenienceand do not necessarily express a judgement about the stage of development reached by a particular countryor area in the development process. The reference to a company and its activities should not be construedas an endorsement by UNCTAD of the company or its activities.

The boundaries and names shown and designations used on the maps presented in this publicationdo 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 beenomitted 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;

Use of a hyphen (-) between dates representing years, e.g., 1994-1995, signifies the full period 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 PUBLICATION

Sales No. E.04.II.D.33

ISBN 92-1-112644-4

Copyright © United Nations, 2004All rights reserved

Manufactured in Switzerland

iii

PREFACE

Kofi A. AnnanNew York, July 2004 Secretary-General of the United Nations

After three years of decline in global investment flows, there are signs of revival. With globaleconomic growth improving in 2004, prospects for global investment look bright. This is particularlythe case in services, which make up the largest economic sector in many countries, and which dominateforeign direct investment. The World Investment Report 2004 looks at the shift towards services andexamines the challenges and opportunities that arise for development.

In the knowledge-based economy, services are critical to the competitiveness of firms in allsectors. Foreign direct investment is a key source of financing for telecommunications, energy andfinancial services, as well as for other important industries. New information and communicationtechnologies make it possible to trade in services, making their production increasingly subject tothe international division of labour. The offshoring that results can lead to new opportunities fordeveloping countries to become better integrated into global markets. The importance of services istherefore increasingly reflected in the policy agenda – ranging from liberalization to promotionalefforts to regulation at national and international levels.

Foreign direct investment in services can offer important benefits. It can provide the capital,skills and technology required to make services more efficient, and thus improve the competitivenessof host countries. But there are risks, too – and these must be addressed through appropriate policies.Since many services are embedded in the social, cultural and political fabric of societies, the rightbalance must be struck between economic efficiency and broader developmental objectives. Theoverriding challenge is to create an environment that will help countries strike such a balance, sothat the benefits of the new international division of labour in services can be reaped by all.

iv

ACKNOWLEDGEMENTS

The World Investment Report 2004 (WIR04) was prepared – under the overall direction ofKarl P. Sauvant – by a team comprising Persephone Economou, Kumi Endo, Torbjörn Fredriksson,Masataka Fujita, Kálmán Kalotay, Michael Lim, Padma Mallampally, Anne Miroux, Abraham Negash,Hilary Nwokeabia, Shin Ohinata, Jean François Outreville, Kee Hwee Wee, James Xiaoning Zhanand Zbigniew Zimny. Specific inputs were prepared by Diana Barrowclough, Sirn Byung Kim, NicoleMoussa, Ludger Odenthal, Satwinder Singh, Elisabeth Tuerk and Katja Weigl.

Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourt, JohnBolmer, Lizanne Martinez and Tadelle Taye. Samantha Dolet, Cristina Gueco, Erik-Hans Kok, MoritzHunsmann, Nargiza Kuldashova, Bart Orr, Domenika Praxmarer, Anne Riijntjes and Chen Zhang assistedas interns at various stages. The production of the WIR04 was carried out by Christopher Corbet,Lilian Mercado, Lynda Piscopo, Chantal Rakotondrainibe and Esther Valdivia-Fyfe. Graphics weredone by Diego Oyarzun-Reyes. WIR04 was desktop published by Teresita Sabico. It was edited byPraveen Bhalla.

Sanjaya Lall was the principal consultant. John H. Dunning was the senior economic adviser.

WIR04 benefited from inputs provided by participants in a Global Seminar in Geneva in May2004, two regional seminars on FDI in services in March 2004 held in Kyoto and Budapest, a seminaron international investment agreements covering services held in Geneva in May 2004 and an informalmeeting with non-governmental organizations held in Geneva in October 2003.

Inputs were also received from Dilek Aykut, Frank Barry, Maria Giovanna Bosco, John Cassidy,Harnik Deol, Christoph Dörrenbächer, Lorraine Eden, Thomas Eichelmann, Asim Erdilek, Jörg Esser,Marion Frenz, Vishwas Govitrikar, Grazia Ietto-Gillies, Masayo Ishikawa, Robert Lipsey, CatherineL. Mann, William L. Megginson, Dorothea Meyer, Julia Mikerova, Peter Muchlinski, Victor Murinde,Deborah Musinger, Lilach Nachum, Peter Nunnenkamp, Lincoln Price, Eric D. Ramstetter, SergeyRipinsky, Maryse Roberts, Frank Roger, Pierre Sauvé, Fred Schneidereit, Jörg Simon, Dirk Willemte Velde and Nadia Yousfi Charif.

Comments were received during various stages of preparation from Luis Abugattas, ErfriedAdam, Zoltan Adam, Yair Aharoni, Rohit Arora, Minoru Asahi, Yuko Asuyama, Zainal Aznam, MarinoBaldi, Christian Bellak, Johannes Bernabe, Luisa Bernal, Trineesh Biswas, David Boys, JolitaButkevicienne, Carlos A. Primo Braga, Sumanta Chaudhuri, Sok Chenda, Daniel Chudnovsky, NeilM. Coe, Dietrich Domanski, Sebastian Dullien, Audo Faleiro, Deepali Fernandes, Kyoji Fukao, PhilipGarlett, Murray Gibbs, Peter Grey, Bob Haywood, Oussama Himani, Dickson Ho, Yao-Su Hu, ClareJoy, Dwight Justice, Milanka Kostadinova, Martin Kenney, Harpreet Khurana, Mark Koulen, EvanKraft, Nagesh Kumar, Yoshiko Kurisaki, Sam Laird, Henry Loewendahl, Mario Marconini, MarwaneMansouri, Maria Soledad Martinez Peria, Mina Mashayekhi, Riad Meddeb, Katalin Mero, Peter Mihalyi,Hafiz Mirza, Michael Mortimore, Andrea Nestor, Richard Newfarmer, Pedro Ortega, Federico Ortino,Sheila Page, Eva Palocz, Daniela Perez, Rudy Pesik, Danny Po, Tatiana Prazeres, Slavo Radosevic,Julie Raynal, Patrick Robinson, Frank Sader, Laurent Schwabb, Marinus Sikkel, Farouk Soussa, MetkaStare, Dezider Stefunko, Alexandra Strickner, Mahesh Sugatan, Marjan Svetlicic, Tay Kah Chye, ShigekiTejima, Taffere Tesfachew, Lee Tuthill, Ken Vandevelde, Fernando Gonzalez Vigil, Thomas Wälde,Alex Werth, Obie Whichard, Christopher Wilkie, Claudia Woermann, John Wong, Houyuan Xing, VicenteYu, Simonetta Zarilli and Yong Zhang.

Numerous officials of central banks, statistical offices, investment promotion and othergovernment agencies, and officials of international organizations and non-governmental organizations,as well as executives of a number of companies, also contributed to WIR04, especially through theprovision of data and other information.

The financial support of the Governments of Germany, Ireland, Norway, Sweden and the UnitedKingdom is gratefully acknowledged.

TABLE OF CONTENTSPage

PREFACE .................................................................................................................................. iii

ACKNOWLEDGEMENTS..................................................................................................... iv

ABBREVIATIONS .................................................................................................................. xv

OVERVIEW ........................................................................................................................... xvii

PPPPPARARARARART ONET ONET ONET ONET ONEFDI SET TFDI SET TFDI SET TFDI SET TFDI SET TO RECOO RECOO RECOO RECOO RECOVERVERVERVERVER

CHAPTER I. GLOBAL FDI GROWTH SET TO RESUME ........................................ 3

A. FDI inflows down again - but recovery is on its way .......................................................... 31. An uneven picture ...................................................................................................................................... 32. International production continues to grow ........................................................................................ 83. Many countries have not realized their potential ............................................................................ 12

a. Indices of Inward FDI Performance and Potential .................................................................... 12b. The Outward FDI Performance Index ......................................................................................... 16

B. Outward FDI from developing countries is becoming important ................................. 19

C. Changing sectoral distribution ................................................................................................. 29

D. Prospects: growth set to resume ............................................................................................... 31

Annex to chapter I. How transnational are TNCs? ................................................................... 37

CHAPTER II. REGIONAL FDI TRENDS: A MIXED PICTURE ............................ 39

A. Developing countries .................................................................................................................... 391. Africa: a turnaround ................................................................................................................................ 39

a. Inflows regain momentum ............................................................................................................. 40b. Policies increasingly liberal .......................................................................................................... 42c. Natural resources and services dominate .................................................................................... 45d. Prospects are positive .................................................................................................................... 46

2. Asia and the Pacific: a rebound ........................................................................................................... 49a. A mild upturn .................................................................................................................................. 49b. Policies improved further .............................................................................................................. 52c. Services FDI on the rise ................................................................................................................ 52d. Promising prospects ....................................................................................................................... 56

3. Latin America and the Caribbean: another disappointing year .................................................... 58a. A continuous decline ...................................................................................................................... 58b. Policy developments: continued liberalization .......................................................................... 64c. Sectoral patterns ............................................................................................................................. 64d. Better prospects ahead ................................................................................................................... 67

B. Central and Eastern Europe: awaiting the boom ............................................................... 691. Inward FDI sharply down, outward FDI sharply up ....................................................................... 70

a. Inward FDI: new EU members performed less well than other CEE countries ................... 70b. FDI outflows: robust increase ...................................................................................................... 72

2. Implications of EU membership for national policy ....................................................................... 753. A shift towards services brings about structural change................................................................ 784. Prospects: again sunny ........................................................................................................................... 79

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C. Developed countries: the decline continues, but prospects are good ........................... 801. Uneven trends ........................................................................................................................................... 802. Policy responses ....................................................................................................................................... 853. Services dominate .................................................................................................................................... 884. Prospects: FDI will pick up again, but not everywhere ................................................................. 89

PPPPPARARARARART TWT TWT TWT TWT TWOOOOOTHE SHIFT TTHE SHIFT TTHE SHIFT TTHE SHIFT TTHE SHIFT TOOOOOWARDS SERWARDS SERWARDS SERWARDS SERWARDS SERVICESVICESVICESVICESVICES

INTRODUCTION.................................................................................................................... 95

CHAPTER III. THE GROWTH OF FDI IN SERVICESAND ITS IMPLICATIONS................................................................................................... 97

A. Changing patterns of FDI in services ..................................................................................... 971. The growth of services FDI and its changing mix .......................................................................... 972. Changing distribution among home and host countries ................................................................. 99

a. Outward FDI .................................................................................................................................... 99b. Inward FDI ..................................................................................................................................... 101

3. Transnationalization is lower in the services sector and differs by industry and country .. 1014. Non-equity forms of investment are common in services ............................................................ 104

B. Players and driving forces ........................................................................................................ 1051. Goods TNCs invest in services .......................................................................................................... 1072. Service TNCs are expanding rapidly ................................................................................................ 107

a. The players .................................................................................................................................... 107b. M&As take the lead in entry patterns ....................................................................................... 111c. Catching up with manufacturing TNCs? ................................................................................... 114

3. Drivers and determinants ..................................................................................................................... 1154. Most services FDI is still market-seeking – but this is changing .............................................. 118

C. Impact on host countries ........................................................................................................... 1231. Financial resources and balance of payments ................................................................................. 1262. Services provision, competition and crowding out ....................................................................... 1283. Technology, knowledge and skills ..................................................................................................... 1324. Export competitiveness ........................................................................................................................ 1355. Employment ............................................................................................................................................ 1376. An assessment ......................................................................................................................................... 137

Annex to chapter III. What are services? Classifying invisibles ........................................ 145

CHAPTER IV. THE OFFSHORING OF CORPORATESERVICE FUNCTIONS: THE NEXT GLOBAL SHIFT?.........................................147

A. The tradability revolution ........................................................................................................ 1481. The tradability of services ................................................................................................................... 1482. Limitations to offshoring ..................................................................................................................... 1493. Is the globalization of IT-enabled services different from that of manufacturing?............... 152

B. Future prospects for the offshoring of services ................................................................ 153

C. Outsourcing vs. captive business models ............................................................................. 1561. What determines how offshoring is undertaken? ........................................................................... 1562. A new breed of TNCs provides services globally .......................................................................... 157

D. Search for competitiveness drives corporate offshoring ................................................ 1591. FDI related to the offshoring of services is still concentrated ................................................... 159

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2. Cost reduction and improved quality are key drivers ................................................................... 1643. European TNCs offshore less than their United States rivals ..................................................... 168

E. Impact on host countries ........................................................................................................... 1691. India .................................................................................................................................................. 1692. Other Asian locations ........................................................................................................................... 1743. Latin America and the Caribbean ...................................................................................................... 1744. Africa .................................................................................................................................................. 1745. Central and Eastern Europe ................................................................................................................. 175

F. Implications for home countries ............................................................................................. 176

PPPPPARARARARART THREET THREET THREET THREET THREENNNNNAAAAATIONTIONTIONTIONTIONAL AND INTERNAL AND INTERNAL AND INTERNAL AND INTERNAL AND INTERNAAAAATIONTIONTIONTIONTIONAL POLICYAL POLICYAL POLICYAL POLICYAL POLICY

CHALLENGESCHALLENGESCHALLENGESCHALLENGESCHALLENGES

INTRODUCTION..................................................................................................................183

CHAPTER V. NATIONAL POLICIES............................................................................185

A. Host-country policies on services are key to development gains................................. 1851. Countries are opening up to FDI in services .................................................................................. 1852. Benefits from FDI in infrastructure-related services: the case of privatization .................... 1873. Promotion of FDI in services ............................................................................................................. 194

a. Investment promotion agencies increasingly target services ................................................ 194b. The role of incentives .................................................................................................................. 196c. EPZs in developing countries see potential in services ......................................................... 201d. Infrastructure and skills development ....................................................................................... 203e. Regulatory issues related to data protection and intellectual property ............................... 207

4. Benefiting more from services FDI: upgrading and linkages ..................................................... 207

B. Home countries: the challenge of adapting ........................................................................ 2081. The reaction to offshoring in the United States ............................................................................. 2092. The European response ......................................................................................................................... 210

a. The United Kingdom .................................................................................................................... 210b. Other European responses ........................................................................................................... 211

3. Reactions in other developed countries ........................................................................................... 2124. Meeting the challenge of adapting .................................................................................................... 212

C. Conclusions .................................................................................................................................... 212

CHAPTER VI. NATIONAL AND INTERNATIONAL POLICIES:A COMPLEX AND DYNAMIC INTERACTION ........................................................221

A. The growing multifaceted network of services IIAs ........................................................ 2211. The evolving nature of approaches covering FDI in services .................................................... 2212. Salient features ....................................................................................................................................... 225

B. Complexities and challenges .................................................................................................... 231

C. National and international policies: a complex and dynamic interaction ................ 233

D. Conclusion: striking a development-oriented balance .................................................... 235

REFERENCES ..................................................................................................................................... 243

SELECTED UNCTAD PUBLICATIONS ON TNCs AND FDI ............................................. 423

QUESTIONNAIRE ............................................................................................................................. 437

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Boxes

I.1. Developments in the world’s 100 largest TNCs in 2002 ...................................................................... 11I.2. South-South FDI flows rose in the 1990s ............................................................................................... 20I.3. The top 50 TNCs from developing economies ....................................................................................... 21I.4. FDI flows from Hong Kong (China) ........................................................................................................ 26I.5. FDI prospects: reports paint a rosy picture ............................................................................................ 34I.6. Global Investment Prospects Assessment by UNCTAD ....................................................................... 35II.1. Africa: examples of FDI-related policy changes in selected countries, 2003-2004 ........................ 43II.2 Algeria: policy reforms may keep FDI high ........................................................................................... 43II.3. Mauritania: better opportunities set to boost FDI ................................................................................. 44II.4. Private mobile operators in Africa ........................................................................................................... 46II.5. The Libyan Arab Jamahiriya: the end of sanctions and the resumption of FDI ............................... 48II.6. Asia and the Pacific: examples of efforts to improve the investment climate, 2003-2004 ............ 53II.7. Cambodia and Nepal: investment guides highlight opportunities ...................................................... 53II.8. The Closer Economic Partnership Arrangement between China and Hong Kong (China) ............. 54II.9. Liberalization of services in the ASEAN subregion: implications for FDI flows ........................... 55II.10. Liberalization of services in China: implications for FDI flows ........................................................ 56II.11. Promising FDI prospects for Turkey ........................................................................................................ 57II.12. Is the FDI relocation from Mexico’s maquila industries ending? ...................................................... 61II.13. Why privatization is losing popularity in LAC ..................................................................................... 63II.14. Two major players in the telecom industry ............................................................................................. 66II.15. Privatization in the electric power market: the case of Endesa .......................................................... 67II.16. Slovakia: a new hub for European automobile production .................................................................. 70II.17. EU enlargement has not led to large-scale FDI diversion .................................................................... 72II.18. The 25 largest TNCs of CEE ..................................................................................................................... 73II.19. Norilsk Nickel: the fourth largest Russian TNC .................................................................................... 74II.20. BITs between the United States and the new EU member States and candidate countries ............ 76II.21. Can Japan double its inward FDI stock by the end of 2006? .............................................................. 82II.22. France adopts new measures to attract FDI and skills .......................................................................... 87II.23. Free Trade Area of the Americas .............................................................................................................. 88III.1. International delivery modes in goods and services ............................................................................. 98III.2 Transnational hotels: non-equity participation on the rise ................................................................. 106III.3. Airlines: little FDI, many alliances ........................................................................................................ 108III.4. Accountants network led by the Big Four ............................................................................................ 110III.5. Legal partners ............................................................................................................................................ 112III.6. Tax havens – no longer tax heavens? .................................................................................................... 115III.7. Telecoms: the emergence of a global industry ..................................................................................... 117III.8. An electrifying rise ................................................................................................................................... 119III.9. Water services: falling in developing countries and rising in developed ones? ............................. 121III.10. Postal services go transnational .............................................................................................................. 125III.11. Insuring and reinsuring the world .......................................................................................................... 129III.12. Consumer goods anyone? The rise and spread of retail TNCs .......................................................... 131III.13. FDI by sogo sosha: shifting from manufacturing to services ............................................................ 133III.14. The world’s bankers .................................................................................................................................. 136III.15. FDI in telecommunications: effects on supply and costs in host economies .................................. 138III.16. The pluses and minuses of TNB participation ..................................................................................... 140IV.1. Developing countries are exporting a bewildering array of services ............................................... 150IV.2. Skills categorization of traded services ................................................................................................. 151IV.3. Smaller TNCs are offshoring too ............................................................................................................ 155IV.4. Outsourcing at the national level ........................................................................................................... 156IV.5. Nortel Networks’ offshoring to India .................................................................................................... 171IV.6. Upgrading offshored service operations in India: the case of GECIS ............................................. 173IV.7. Procter & Gamble’s shared service operations for the Americas ...................................................... 175V.1. Prudential regulation of the entry of foreign banks ............................................................................ 188V.2. Check-list for privatizing services through FDI .................................................................................. 190V.3. Policies to promote universal access to services in telecommunications ........................................ 192V.4. FDI-related privatization and electricity reform in Bolivia ............................................................... 194V.5. New Brunswick: an early mover attracting call centres ..................................................................... 197V.6. Singapore: going for headquarters ......................................................................................................... 198V.7. The Republic of Korea: a regional business services hub for North-East Asia? ............................ 199V.8. Investment subsidies in the Gambia ....................................................................................................... 200

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V.9. Services sought by Kenya’s EPZs .......................................................................................................... 203V.10. Jamaica’s teleports .................................................................................................................................... 204V.11. Digital networks in Ireland: a locational advantage ........................................................................... 205V.12. Social dialogues in the finance industry ............................................................................................... 211V.13. ILO Action Programme on Financial Services Restructuring: promoting best practices in

outsourcing and work relocation ............................................................................................................ 213V.14. The debate on offshoring – a case of déjà vu? ..................................................................................... 215VI.1. What difference do services IIAs make? ............................................................................................... 222VI.2. The GATS and FDI in services ............................................................................................................... 223VI.3. Approaches to BITs and FDI in services ............................................................................................... 224VI.4. The GATS and subsidies .......................................................................................................................... 227VI.5. Individual service industries in the WTO ............................................................................................. 230VI.6. IIAs and public services ........................................................................................................................... 233

Figures

I.1. FDI inflows, global and by group of countries, 1980-2003 ................................................................... 3I.2. FDI flows and gross fixed capital formation, by group of countries, 1990-2003 .............................. 4I.3. Total resource flows to developing countries, by type of flow, 1990-2003 ........................................ 5I.4. Growth trends in FDI and total ODA flows to LDCs, 1990-2002 ........................................................ 5I.5. FDI inflows, by type of financing, 1990-2003......................................................................................... 7I.6. Number of BITs and DTTs concluded, cumulative and year to year, 1990-2003 .............................. 8I.7. Transnationality index of host economies, 2001 ................................................................................... 10I.8. Inward FDI Performance Index, by developing region, 1988-1990, 1993-1995,

2000-2002, 2001-2003 ............................................................................................................................... 13I.9. Main winners and losers in the Inward FDI Performance ranking, 1996-1998 to

2001-2003 ..................................................................................................................................................... 15I.10. FDI outflows from developing countries, by region, 1980-2003 ........................................................ 19I.11. Africa: FDI outflows and their share in total developing-country outflows, 1980-2003 ............... 24I.12. South Africa: outward FDI stock and its share in GDP, 1990-2003 ................................................... 25I.13. Asia and the Pacific: FDI outflows and their share in total developing-country outflows,

1980-2003 ..................................................................................................................................................... 25I.14. China: outward FDI stock and its share in GDP, 1990-2003 ............................................................... 27I.15. India: outward FDI stock and its share in GDP, 1990-2003 ................................................................ 27I.16. Latin America and the Caribbean: FDI outflows and their share in total developing-

country outflows, 1980-2003 .................................................................................................................... 28I.17. Brazil: outward FDI stock and its share in GDP, 1990-2003 .............................................................. 28I.18. Sectoral distribution of FDI stock in the world, developed and developing countries and

CEE, 1990, 2002 ......................................................................................................................................... 30I.19. Overall FDI prospects, 2004-2007, as reported by TNCs, location experts and IPAs .................... 32I.20. FDI prospects by industry, 2004-2005, as reported by location experts ........................................... 33I.21. Corporate functions expected to be relocated, 2004-2005, as reported by TNCs and

location experts ........................................................................................................................................... 33I.22. Policy responses, 2004-2005, as reported by IPAs ................................................................................ 34II.1. LDCs: FDI inflows and their share in gross fixed capital formation, 1985-2003 ........................... 40II.2. Africa: FDI inflows and their share in gross fixed capital formation, 1985-2003 .......................... 40II.3. Africa: top 10 recipients of FDI inflows, 2002, 2003 .......................................................................... 41II.4. Africa: total external resource flows, by type of flow, 1990-2002 .................................................... 42II.5. Africa: number of BITs and DTTs concluded, 1990-2003 ................................................................... 45II.6. Africa: cellular mobile phone subscribers, 1996-2003 ......................................................................... 45II.7. Africa: prospects for FDI inflows, 2004-2005, as reported by TNCs ................................................ 49II.8. Africa: expected policy measures to attract FDI, 2004-2005, as reported by IPAs ......................... 49II.9. Asia and the Pacific: FDI inflows and their share in gross fixed capital formation,

1985-2003 ..................................................................................................................................................... 50II.10. Asia and the Pacific: top 10 recipients of FDI inflows, 2002, 2003 .................................................. 51II.11. Asia and the Pacific: number of BITs and DTTs concluded, 1990-2003 ........................................... 54II.12. Asia and the Pacific: prospects for FDI inflows, 2004-2005, as reported by TNCs and

location experts ........................................................................................................................................... 58

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II.13. Asia and the Pacific: expected policy measures to attract FDI, 2004-2005, as reported byIPAs ............................................................................................................................................................... 58

II.14. LAC: FDI inflows and their share in gross fixed capital formation, 1985-2003 ............................. 59II.15. LAC: top 10 recipients of FDI inflows, 2002, 2003 ............................................................................. 60II.16. LAC: FDI inflows from major home countries as a percentage of world total,

1995-2002 ..................................................................................................................................................... 60II.17. LAC: trends in FDI inflows and gross fixed capital formation in selected economies,

1990-2003 ..................................................................................................................................................... 62II.18. LAC: number of BITs and DTTs concluded, 1990-2003 ...................................................................... 64II.19. LAC: sectoral distribution of inward FDI stock, selected countries, 1986, 1996, 2002................. 65II.20. Brazil and Mexico: changes in the sectoral structure of FDI inflows, 1996-2003 .......................... 65II.21. LAC: prospects for FDI inflows, 2004-2005, as reported by TNCs................................................... 68II.22. LAC: expected policy measures to attract FDI, 2004-2005, as reported by IPAs ........................... 68II.23. CEE: FDI inflows and their share in gross fixed capital formation, 1990-2003 .............................. 69II.24. CEE: top 10 recipients of FDI inflows, 2002, 2003 ............................................................................. 69II.25. CEE: FDI flows as a percentage of gross fixed capital formation, top 10 countries,

2001-2003 ..................................................................................................................................................... 73II.26. CEE: number of BITs and DTTs concluded, 1990-2003 ...................................................................... 75II.27. CEE: prospects for FDI inflows, 2004-2005, as reported by TNCs and location experts .............. 79II.28. CEE: expected policy measures to attract FDI, 2004-2005, as reported by IPAs ............................ 79II.29. Developed countries: FDI flows, top 10 countries, 2002, 2003 .......................................................... 81II.30. United States: balance of trade and net flows of FDI and portfolio investment,

1986-2003 ..................................................................................................................................................... 82II.31. Developed countries: FDI inflows and their share in gross fixed capital formation,

1985-2003 ..................................................................................................................................................... 84II.32. Developed countries: FDI flows as a percentage of gross fixed capital formation,

top 10 countries, 2001-2003 ...................................................................................................................... 85II.33. Developed countries: number of BITs and DTTs concluded, 1990-2003 .......................................... 87II.34. Profits of the United States’ Fortune 500 firms, 2000-2003 ............................................................... 90II.35. Developed countries: prospects for FDI inflows, 2004-2005, as reported by TNCs and

location experts ........................................................................................................................................... 90II.36. Developed countries: expected policy measures to attract FDI, 2004-2005, as reported

by IPAs .......................................................................................................................................................... 91III.1. Share of foreign affiliates in the total services and manufacturing sales, value added and

employment of selected host economies, various years ..................................................................... 102IV.1. Low costs lead the location determinants of call centre-FDI projects in developing

countries and economies in transition, 2002-2003 .............................................................................. 166IV.2. Low costs lead the location determinants of FDI projects in shared service centres in

developing countries and economies in transition, 2002-2003 ......................................................... 166IV.3. Market growth leads the location determinants of IT services FDI projects in developing

countries and economies in transition, 2002-2003 .............................................................................. 166IV.4. Market growth leads the location determinants of regional headquarters FDI projects in

developing countries and economies in transition, 2002-2003 ......................................................... 166V.1. Reservations by sector in selected IIAs ................................................................................................ 186V.2. Reservations on investment in services, by industry, selected IIAs ................................................. 186V.3. Interregional submarine cable capacity, March 2004 .......................................................................... 206

Tables

I.1. Cross-border M&As with values of over $1 billion, 1987-2003 .......................................................... 6I.2. Changes in national regulations on FDI, 1991-2003 .............................................................................. 8I.3. Selected indicators of FDI and international production, 1982-2003 .................................................. 9I.4. Inward FDI Performance Index, by region, 1988-2003 ........................................................................ 12I.5. Rankings by Inward FDI Performance Index, 2001-2003 .................................................................... 14I.6. Inward FDI Potential Index, by group of economies, average scores, 1988-2002 .......................... 15I.7. Top 25 rankings by the Inward FDI Potential Index, 1988-2002 ....................................................... 15I.8. Matrix of inward FDI performance and potential, 1988-1990, 1993-1995, 2000-2002 .................. 17I.9. Outward FDI Performance Index for the 20 leading investor economies, 1988-2003 .................... 18I.10. FDI outflows as a percentage of gross fixed capital formation in selected

developing economies, 2001-2003 ........................................................................................................... 19I.11. FDI from developing economies, by region and major economy, 1980-2003 .................................. 24

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II.1. Africa: frequency distribution of host countries, by range of FDI inflows, 1999-2003 ................. 41II.2. Africa: country distribution of FDI inflows, by range, 2003 .............................................................. 41II.3. Asia and the Pacific: frequency distribution of host economies,

by range of FDI inflows, 1999-2003 ....................................................................................................... 50II.4. Asia and the Pacific: economy distribution of FDI inflows, by range, 2003 ................................... 51II.5. Asia and the Pacific: distribution of FDI stock, by industry, selected

Asian economies, 1995, 2002 ................................................................................................................... 55II.6. LAC: frequency distribution of host economies, by range of FDI inflows, 1999-2003 ................. 59II.7. LAC: economy distribution of FDI inflows, by range, 2003 ............................................................... 59II.8. CEE: frequency distribution of host countries, by range of FDI inflows, 1999-2003 .................... 70II.9. CEE: country distribution of FDI inflows, by range, 2003 ................................................................. 72II.10. The top 10 destinations of FDI projects from the Russian Federation, 2002-2003 ......................... 74II.11. Gross monthly average salary, selected economies, adjusted to productivity, 1998-2002 ............. 77II.12. Corporate tax rates in selected economies, 2003 and 2004: the highest and the lowest ................ 78II.13. CEE: foreign affiliates dominate banking assets, 2001 ........................................................................ 78II.14. Largest CEE recipients of services FDI projects, 2002-2003 .............................................................. 79II.15. Developed countries: frequency distribution of host countries,

by range of FDI inflows, 1999-2003 ....................................................................................................... 84II.16. Developed countries: country distribution of FDI inflows, by range, 2003 ..................................... 84II.17. Examples of policy changes in developed countries, 2003-2004 ....................................................... 86III.1. Distribution of FDI stock in services, by industry, 1990, 2002 .......................................................... 99III.2. Distribution of FDI stock in services, by group of economies, 1990, 2002 ................................... 100III.3. Shares of value added, employment and sales of foreign affiliates of home-based TNCs

in home-economy totals, by sector of parent firm, selected countries and years .......................... 102III.4. Host economies with penetration ratio of foreign banks exceeding 70%, 2001 ............................ 104III.5. Royalty receipts of TNCs in Austria, Germany, Japan and the United States, 1989-2002 ........... 113III.6. Foreign affiliates, by sector of foreign affiliates and parent firms,

Germany, Japan and the United States, selected data, various years ............................................... 114III.7. Shares of selected industries in cross-border M&A sales in services, 1988-2003 ......................... 118III.8. The geographic composition of global cross-border M&A deals in services, 1987-2003 ............ 120III.9. The degree of transnationalization of United States non-bank TNCs,

by sector, 1986, 1992, 2000 .................................................................................................................... 124III.10. The top TNCs, by sector: indicators of transnationality, 1995, 2002 .............................................. 127III.11. Trade in selected services and the share of intra-firm trade, United States, 1997-2002 .............. 128III.12. The relative importance of intra-firm trade in services of

United States non-bank TNCs, selected years ...................................................................................... 130III.13. Average compensation of employees in United States parent firms and their affiliates ............... 132IV.1. Offshoring and outsourcing – some definitions ................................................................................... 148IV.2. Growth in imports by the United States of selected services within the category of

business, professional and technical services, 1992-2002 ................................................................. 151IV.3. Plans of TNCs in the ICT industry for offshoring of services to India,

based on information available at the end of 2003 ............................................................................ 154IV.4. Contract service provider TNCs offering call/contact centre services, 2003 ................................. 158IV.5. Definitions of export-oriented FDI projects related to offshored services ..................................... 159IV.6. Selected acquisitions of Indian firms by foreign firms, 2003-2004 ................................................. 160IV.7. Export-oriented FDI projects in call centres, shared service centres, IT services and

regional headquarters, by destination, 2002-2003 ............................................................................... 162IV.8. Export-oriented FDI projects in services, by industry, 2002-2003................................................... 164IV.9. Selected offshoring cases, United Kingdom, 2003-2004 .................................................................... 168IV.10. Leading foreign affiliates in India’s IT-enabled service industry, 2003-2004 ................................ 172IV.11. Service lines in IT-enabled services in India, 2001-2004 .................................................................. 172IV.12. Export intensity of foreign and local firms in India’s software industry, by state, 2002/03 ....... 173V.1. Service industries targeted by IPAs, 2004 ............................................................................................ 195V.2. Services functions targeted by IPAs, 2004 ........................................................................................... 196V.3. Subsidies used in different service industries ...................................................................................... 200V.4. Specific conditions of the Czech incentives scheme for business-support services and

technology centres, 2004 ......................................................................................................................... 201V.5. Types of service activities attracted by an EPZ in India, 2004 ......................................................... 202V.6. Regional distribution of EPZs targeting services, 2004 ..................................................................... 202V.7. Summary list of United States states with proposed legislation restricting offshoring, 2004 ..... 210VI.1. Examples of services IIAs prohibiting various types of performance

requirements pertaining to services, 2004 ............................................................................................ 228

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Box figures

II.12.1. FDI inflows into Mexico’s maquila industry, 1996-2003 ................................................................. 61II.14.1. Geographical presence and expansion of foreign affiliates of Telefónica in LAC, 2004 ............ 66II.15.1. Geographical presence and expansion of foreign affiliates of Endesa in LAC, 2004 .................. 67III.7.1. Private investment in the telecom industry in the developing

countries and CEE, 1990-2002 ............................................................................................................ 117III.8.1. Private investment in the electricity industry of developing economies, 1984-2002 ................ 119III.9.1. Concessions dominate annual private investment in water and sewerage

in developing countries, 1987-2002 ................................................................................................... 121III.13.1. The share of the eight sogo shosha in Japan’s external trade, 1981-2002 ................................... 133

Box tables

I.1.1. Snapshot of the world’s 100 largest TNCs, 2001, 2002 .................................................................... 11I.3.1. The top 50 non-financial TNCs from developing economies,

ranked by foreign assets, 2002 .............................................................................................................. 22I.3.2. Snapshot of the top 50 TNCs from developing economies, 2002 ................................................... 21I.4.1. Hong Kong (China): outward FDI stock at market value, 2000-2002 ............................................ 26II.4.1. Africa’s largest mobile operators, ranked by the number of subscribers in the region, 2003 .... 47II.10.1. China: selected schedules for the liberalization of services and ownership control .................... 56II.14.1. Telefónica’s market position for mobile phones, including acquisition of

BellSouth Mobile Assets ........................................................................................................................ 66II.15.1. Endesa’s presence in LAC, 2004 ........................................................................................................... 67II.17.1. FDI inflows into CEE countries acceding to the EU in 2004,

compared with the EU-15, 1995-2003 ................................................................................................. 72II.18.1. Snapshot of the top 25 non-financial TNCs from CEE, 2001, 2002 ............................................... 73II.20.1. Specific BITs of new EU members and candidate countries with the United States ................... 76III.2.1. Selected leading hotel chains: modes of operation, 2003 ............................................................... 106III.3.1. FDI by, and in, airlines, by region, 2004 ........................................................................................... 108III.3.2. Alliances among airlines, 2001 ........................................................................................................... 108III.4.1. The top ten accounting firms, ranked by total revenue, 2003 ........................................................ 110III.4.1. United States outward FDI in legal services, 1988-2002 ............................................................... 112III.9.1. The three largest TNCs in the water service industry, 1988-2003 ................................................ 122III.10.1. The big four of the postal courier industry, selected indicators, 1990, 2003 .............................. 125III.10.2. Selected large cross-border M&As by European postal operators, 1995-2003 ........................... 125V.6.1. Industry breakdown of the Singapore EDB cluster HQs, January 2004....................................... 198V.9.1. Selected companies engaged in EPZ export services, April 2004 ................................................. 203

Annex A. Additional text figures

A.I.1. FDI flows, by sector, 1989-1991 and 2001-2002 ............................................................................. 263A.I.2. FDI inflows as a percentage of GDP in selected developed, developing and

CEE economies, by sector, 1992-2002 ............................................................................................... 264A.III.1. Services FDI inflows as a percentage of GDP in selected host developing

and CEE economies, by individual service industry, 1992-2002 .................................................. 268

Annex A. Additional text tables

A.I.1. Cross-border M&A deals with values of over $1 billion completed in 2003 .............................. 271A.I.2. Number of parent corporations and foreign affiliates, by region and economy,

latest available year ............................................................................................................................... 273A.I.3. The world’s top 100 non-financial TNCs, ranked by foreign assets, 2002 .................................. 276A.I.4. The world’s 100 largest non-financial TNCs by country of origin and industry: number of

host countries, Network Spread Index (NSI) and Internationalization Index (II), 2002 ........... 279A.I.5. Inward FDI Performance Index rankings, 1988-2003 ..................................................................... 281A.I.6. Raw data and scores for the variables included in the UNCTAD Inward

FDI Potential Index, 2000-2002 .......................................................................................................... 285

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A.I.7. Inward FDI Potential Index rankings, 1988-2002 ........................................................................ 289A.I.8. Outward FDI Performance Index rankings, 1988-2003 ............................................................... 291A.I.9. Outward FDI Performance Index of the top 20 economies, 1988-2003 .................................... 295A.I.10. South Africa: outward FDI stock, by geographical destination, 1990-2002 ............................ 296A.I.11. South Africa: some large investments in Africa by South African companies,

2000-2003 ............................................................................................................................................ 297A.I.12. China’s approved FDI outflows, top 30 destinations, 1979-2002 .............................................. 298A.I.13. Geographical distribution of approved Indian outward FDI, fiscal years 1996-2003 ............ 299A.I.14. Industry distribution of approved Indian outward FDI, fiscal years 1999-2003 ..................... 300A.I.15. Top 15 IT software and service exporters from India, fiscal year 2002-2003 ......................... 300A.I.16. Outward FDI stock of Brazil, by sector and industry, 2002 ....................................................... 301A.I.17. Principal location targets of Brazilian firms planning to invest abroad, 2001 ........................ 301A.I.18. Estimated world inward FDI stock, by sector and industry, 1990 and 2002 ............................ 302A.I.19. Estimated world outward FDI stock, by sector and industry, 1990 and 2002 ......................... 303A.I.20. Inward FDI in services, 1990-2002 ................................................................................................. 304A.I.21. Outward FDI in services, 1990-2002 .............................................................................................. 306A.I.22. Share of services in total inward FDI, 1990-2002 ........................................................................ 307A.I.23. Share of services in total outward FDI, 1990-2002 ..................................................................... 309A.I.24. Network Spread Index (NSI) and Internationalization Index (II) of the world’s 100

largest non-financial TNCs, by home economy, 2002 ................................................................. 310A.I.25. Network Spread Index (NSI) and Internationalization Index (II) of the world’s 100

largest non-financial TNCs, by industry, 2002 .............................................................................. 310A.I.26. The world’s largest non-financial TNCs: percentage share of foreign affiliates in each

region, by home economy, 2002 ...................................................................................................... 311A.I.27. The world’s 100 largest non-financial TNCs: percentage share of foreign affiliates

in each region, by industry, 2002 .................................................................................................... 312A.I.28. Regional composition of directors on the boards of 42 of the largest 100 TNCs,

grouped by home region/economy, 2003 ........................................................................................ 313A.II.1. Selected bilateral, regional and inter-regional agreements containing FDI provisions

concluded or under negotiation, 2003-2004 .................................................................................. 314A.II.2. The top 25 non-financial TNCs from Central and Eastern Europe,

ranked by foreign assets, 2002 ......................................................................................................... 317A.III.1. Estimated world inward FDI, average annual flows,

by sector and industry, 1989-1991 and 2001-2002 ....................................................................... 318A.III.2. Estimated world outward FDI, average annual flows,

by sector and industry, 1989-1991 and 2001-2002 ....................................................................... 319A.III.3. Comparison of values of services delivered by foreign affiliates

and by trade in selected countries, various years ......................................................................... 320A.III.4. Penetration ratios of majority-owned foreign bank affiliates in

banking, by host economy, 2001 ..................................................................................................... 321A.III.5. The world’s selected 15 largest services TNCs in eight industries, 2003 ................................ 322A.III.6. The 20 largest legal TNCs, ranked by number of lawyers, 2002 ............................................... 326A.III.7. The 30 largest telecom TNCs in the world, ranked by the number

of host economies, 2002 .................................................................................................................... 327A.III.8. The world’s largest electricity TNCs, ranked by foreign assets, 2002 ...................................... 328A.III.9. The world’s 10 largest insurance and reinsurance TNCs, ranked by foreign income, 2003.. 329A.III.10. The world’s 20 largest retail TNCs, ranked by foreign sales, 2002 .......................................... 330A.III.11. Trading for Japan: the seven sogo shosha, ranked by foreign sales, 2003 ............................... 331A.III.12. The world’s 20 largest TNBs, ranked by number of host countries, 2002 ............................... 332A.III.13. Cross-border M&A sales and purchases in the services sector and

their share in totals, by group of economies, 1987-2003 ............................................................ 333A.III.14. The top 100 M&A deals, by home and host country or region, 1987-2003 ............................. 334A.III.15. Cross-border M&A sales in services, by industry, 1988-2003 ................................................... 335A.III.16. Cross-border M&A sales/purchases in services, by region, 1987-2003 .................................... 336A.III.17. Profit remittances to parent firms by Japanese and United States

foreign affiliates, by sector, 1994-2002 .......................................................................................... 337A.III.18. Profit remittances as a percentage of total income of foreign affiliates of

Japanese and United States TNCs, by sector ................................................................................. 338A.IV.1. Sources of export-oriented FDI projects in services in 2002-2003 ........................................... 339A.IV.2. Top investors in export-oriented FDI projects in services,

by number of projects, 2002-2003 ................................................................................................... 340A.V.1. Service activities in EPZs ................................................................................................................. 341

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Annex B: Statistical annex

DEFINITIONS AND SOURCES ..................................................................................................... 345

A. General definitions ...................................................................................................................... 3451. Transnational corporations .................................................................................................................. 3452. Foreign direct investment .................................................................................................................... 3453. Non-equity forms of investment ........................................................................................................ 346

B. Availability, limitations and estimates of FDI data presented in WIR ...................... 3461. FDI flows ................................................................................................................................................. 346

a. FDI inflows .................................................................................................................................... 348b. FDI outflows .................................................................................................................................. 354c. Notes of FDI flows ....................................................................................................................... 360

2. FDI stock ................................................................................................................................................. 360

C. Data revisions and updates ...................................................................................................... 363

D. Data verification .......................................................................................................................... 363

E. Definitions and sources of the data in annex tables B.5 and B.6 ................................ 364

F. Definitions and sources of the data oncross-border M&As in annex tables B.7-B.10 .................................................................... 365

Annex tables

B.1. FDI inflows, by host region and economy, 1992-2003 ....................................................................... 367B.2. FDI outflows, by home region and economy, 1992-2003 .................................................................. 372B.3. FDI inward stock, by host region and economy, 1980, 1985, 1990, 1995,

2000, 2002, 2003 ..................................................................................................................................... 376B.4. FDI outward stock, by home region and economy, 1980, 1985, 1990, 1995,

2000, 2002, 2003 ....................................................................................................................................... 382B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,

by region and economy, 1992-2003 ....................................................................................................... 387B.6. Inward and outward FDI stocks as a percentage of gross domestic product,

by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 ............................................... 399B.7. Cross-border M&A sales, by region/economy of seller, 1988-2003 ................................................ 411B.8. Cross-border M&A purchases, by region/economy of purchaser, 1988-2003 ................................ 416B.9. Cross-border M&As, by sector and industry of seller, 1988-2003 ................................................... 420B.10. Cross-border M&As, by sector and industry of purchaser, 1988-2003 ........................................... 421

ACP African, Caribbean and Pacific (group of countries)AGOA African Growth and Opportunity Act (of the United States)ASEAN Association of South-East Asian NationsBIT bilateral investment treatyBOT build-operate and transferBTO build-transfer and operateBPO business-process outsourcingCARICOM Caribbean CommunityCEE Central and Eastern EuropeCIS Commonwealth of Independent StatesDTT double taxation treatyEFTA European Free Trade AssociationEIU Economist Intelligence UnitEPZ export processing zoneEU European UnionFDI foreign direct investmentFEZ free economic zoneFTA free trade agreementGATS General Agreement on Trade in ServicesGDP gross domestic productICC International Chamber of CommerceICSID International Centre for Settlement of Investment DisputesICT information and communications technologyIIA international investment agreementIIF Institute of International FinanceILO International Labour OrganizationIPA investment promotion agencyIPR Investment Policy ReviewIT information technologyLAC Latin America and the CaribbeanLDC least developed countryM&A merger and acquisitionMERCOSUR Mercado Común del Sur (Southern Common Market)MFN most favoured nationMIGA Multilateral Investment Guarantee AgencyNAFTA North American Free Trade AgreementNEPAD New Partnership for Africa’s DevelopmentODA official development assistanceOECD Organisation for Economic Co-operation and DevelopmentR&D research and developmentRTA regional trade agreementSACU Southern African Customs UnionSADC Southern African Development CommunitySCM Subsidies and Countervailing Measures (Uruguay Round Agreement)SME small and medium-sized enterpriseTNB transnational bankTNC transnational corporationTNI transnationality index (UNCTAD)TRIMs trade-related investment measures (also a WTO agreement)UNCTAD United Nations Conference on Trade and DevelopmentWTO World Trade Organization

ABBREVIAABBREVIAABBREVIAABBREVIAABBREVIATIONSTIONSTIONSTIONSTIONS

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Still declining in 2003, FDI flowsshow signs of recovery,…

Global inflows of foreign direct investment(FDI) declined in 2003 for the third year in a row,to $560 billion. This was prompted again by a fallin FDI flows to developed countries: at $367billion, they were 25% lower than in 2002.Worldwide, 111 countries saw a rise in flows, and82 a decline. The fall in flows to the United Statesby 53%, to $30 billion – the lowest level in thepast 12 years – was particularly dramatic. FDIflows to Central and Eastern Europe (CEE) alsoslumped, from $31 billion to $21 billion. It wasonly developing countries as a group thatexperienced a recovery, with FDI inflows risingby 9%, to $172 billion overall. But in this group,the picture was mixed: Africa and Asia and thePacific saw an increase, while Latin America andthe Caribbean experienced a continuing decline.The group of 50 least developed countries (LDCs)continued to receive little FDI ($7 billion).

Prospects for 2004, however, arepromising. Cross-border mergers and acquisitions(M&As) – still low at $297 billion in 2003 – beganto pick up. They rose by 3% in the first six monthsof 2004 over the same period in 2003. This,combined with other factors – higher economicgrowth in the main home and host countries,improved corporate profitability, higher stockvaluations – points to a recovery of FDI flows in2004. Reflecting higher profits, reinvested earnings– one of the three components of FDI flows – hadalready resumed growth in 2003, reaching a recordhigh. Other components of FDI (equity and intra-company loans) are also expected to pick up in2004.

The continuing liberalization of FDIregimes may help the recovery. There were 244changes in laws and regulations affecting FDI in2003, 220 of which were in the direction of moreliberalization. In that year, 86 bilateral investmenttreaties (BITs) and 60 double taxation treaties(DTTs) were concluded, bringing the totals to2,265 and 2,316, respectively. However, the annualnumber of new treaties concluded has beendeclining, since 2002 in the case of BITs and since2000 in the case of DTTs.

Surveys, conducted by UNCTAD duringthe first quarter of 2004, of 335 of the world’slargest transnational corporations (TNCs) (fromdeveloped, developing and transition economies)and 87 international site-selection experts,corroborate the optimistic outlook for FDI flows.Flows are expected to pick up, particularly in Asiaand the Pacific and CEE. China and India in Asiaand Poland in CEE are considered to be especiallywell positioned for an upswing. Prospects areparticularly bright for some services and forelectrical and electronic equipment, motor vehiclesand machinery, according to these experts. Therelocation of a wide range of corporate functionsis set to continue. Greenfield investment ispredicted to dominate FDI in developing countries,and cross-border M&As in the developed world.Investment promotion agencies (IPAs) (alsosurveyed by UNCTAD in early 2004) anticipatesustained competition for FDI, with incentives andtargeting viewed as key tools for investmentpromotion.

A recovery in FDI will further boostinternational production, presently carried out byat least 61,000 TNCs with over 900,000 foreignaffiliates, representing an FDI stock of about $7trillion. International production remains fairlyconcentrated: in 2002, the world’s 100 largestTNCs, representing less than 0.2% of the globaluniverse of TNCs, accounted for 14% of sales byforeign affiliates worldwide, 12% of their assetsand 13% of their employment. Following a periodof stagnation, these TNCs resumed growth in termsof their assets, sales and employment in 2002.

A recovery does not mean that all countrieswill realize their FDI potential . Indeed,UNCTAD’s Inward FDI Performance Index, ameasure of the attractiveness of a country to FDI,shows that economies such as the Czech Republic,Hong Kong (China) and Ireland continued toattract significant investment even during the FDIrecession. In contrast, countries such as Japan,South Africa and Thailand have yet to realize theirfull potential to attract FDI, according to theirranking on UNCTAD’s Inward FDI Potential Indexas compared with that on the Inward FDIPerformance Index.

OVERVIEW

xviii World Investment Report 2004: The Shift Towards Services

…driven by TNCs from developedcountries, but with increasingparticipation by developing-countryfirms.

As in the past, TNCs from developedcountries will drive the renewed growth of worldFDI flows.

But, increasingly, TNCs from developingcountries are contributing too. Their share in theglobal FDI flows rose from less than 6% in themid-1980s to some 11% during the latter half ofthe 1990s, before falling to 7% during 2001-2003(for an annual average of $46 billion). They nowaccount for about one-tenth of global outwardFDI stock, which stood at $859 billion after risingby 8% in 2003. Measured as a share of grossfixed capital formation, some developingcountries invest more abroad than somedeveloped ones: e.g. Singapore (36%, during2001-2003), Chile (7%) and Malaysia (5%),compared to the United States (7%), Germany(4%) and Japan (3%). As the economic recoverytakes hold, FDI from these and other developingcountries can be expected to resume growth. Isa new geography of FDI flows in the making,complementing the new geography of trade?

It may well be: the top 50 developing-country TNCs are becoming transnationalized (asmeasured by UNCTAD’s Transnationality Index)at a faster rate than their developed-countrycounterparts. They are led by firms fromdeveloping Asia. FDI outflows from that regionhave averaged $37 billion per year over the pastthree years (almost comparable to average annualworld FDI flows in the first half of the 1980s),or four-fifths of all outflows of developingcountries. Latin America and the Caribbeanaccounts for another $10 billion, while outflowsfrom Africa are much smaller and come mainlyfrom South Africa. A good part of investmentflows from developing countries goes to otherdeveloping countries. In developing Asia, forexample, they account for some two-fifths of totalinflows. And flows between developing countriesare growing faster than flows between developedand developing countries.

Notwithstanding rising FDI from thedeveloping world, developed countries continueto account for over 90% of total outward FDI.In fact, the ownership advantages of TNCs basedin countries with significant outward FDI, suchas the Netherlands, Sweden, Switzerland and the

United Kingdom, appear to be getting stronger.UNCTAD’s Outward FDI Performance Index,presented for the first time in WIR04, reveals howcountries vary in this regard. Ranked accordingto this Index – measured as the ratio of acountry’s share in world outward FDI flows toits share in world GDP – the leaders are Belgiumand Luxembourg (because of transshipped FDI),Panama and Singapore. But the four countriesmentioned earlier as well as other developedcountries also figure among those at the top ofthe list.

Trends and prospects vary byregion, with turnarounds in Africaand Asia and the Pacific,…

FDI inflows to Africa rose by 28%, to$15 billion, in 2003, but fell short of their 2001peak of $20 billion. Thirty-six countries saw arise in inflows, and 17 a decline. The recoverywas led by investment in natural resources anda revival of cross-border M&As, includingthrough privatizations. Morocco was the largestrecipient of inflows. Overall, natural-resource-rich countries (Angola, Chad, Equatorial Guinea,Nigeria, South Africa) continued to be theprincipal destinations, but a large number ofsmaller countries shared in the recovery. FDI inservices is increasing, particularly intelecommunications, electricity and retail trade.In South Africa, for instance, FDI intelecommunications and information technologyhas overtaken that in mining and extraction.

Africa’s outlook for FDI in 2004 andbeyond is promising, given the region’s natural-resource potential, buoyant global commoditymarkets and improving investor perceptions ofthe region. Leading TNCs surveyed by UNCTADin 2004 viewed the region’s prospects lessfavourably than those for other regions: only oneout of five respondents expected higher inflowsover the next two years, and two-thirds believedflows would remain unchanged.

Continuing improvements in regulatoryframeworks should facilitate FDI inflows intoAfrican countries. In 2003, a number of themfurther liberalized their FDI regimes, and someresumed privatization programmes. Severalcountries concluded or made progress innegotiations on free trade agreements (FTAs).The extension of the African Growth andOpportunity Act (AGOA) of the United States

xixOVERVIEW

to 2015, through the AGOA Acceleration Act of2004, should facili tate the expansion ofinternational production in Africa.

The rebound of inflows to the Asia-Pacific region, up by 14%, to $107 billion in2003, was driven by strong domestic economicgrowth in key economies, improvements in theinvestment environment, and regional integrationthat encourages intraregional investment andfacilitates the expansion of production networksby TNCs. The outbreak of the Severe AcuteRespiratory Syndrome (SARS) had only amarginal effect on FDI flows to the region.Overall, 34 economies received higher inflows,and 21 lower ones.

Within the region, there was considerableunevenness of FDI flows to different subregionsand countries, as well as industries. Overall,inflows were concentrated in North-East Asia($72 billion in 2003) and in services. Settingaside the special case of Luxembourg (owing totransshipping), China became the world’s largestFDI recipient in 2003, overtaking the UnitedStates, traditionally the largest recipient. Flowsto South-East Asia rose by 27% to $19 billion.South Asia received only $6 billion, in spite ofa 34% increase. Flows to resource-rich CentralAsia rose from $4.5 bill ion in 2002 to $6.1billion, and to West Asia from $3.6 billion to $4.1billion. Flows to the Pacific islands remained low(at $0.2 billion), despite a noticeable increasein FDI to Papua New Guinea.

The FDI stock in services climbed from43% of the region’s total inward stock in 1995to 50% in 2002, while that of manufacturing fellto 44%. In the primary sector, oil and gas, inparticular, were magnets. While manufacturingattracted the most FDI in China, the share ofservices in FDI inflows to other economies rosein absolute and relative terms. This is especiallytrue for the newly industrializing economies andthe ASEAN subregion. Regional cooperationagreements, such as the ASEAN FrameworkAgreement on Services, helped.

On the national policy front, Asia-Pacificcountries continued to liberalize their FDIpolicies and improve their investment climate.Most countries have already concluded BITs andDTTs with their principal investment partners.They have also improved cooperation amongstthemselves, with the conclusion of several FTAsin 2003, and other economic arrangements withinvestment components.

FDI prospects for the region continue tobe strong: almost three-fifths of the top TNCssurveyed by UNCTAD expected FDI to increaseover the next two years. In particular, prospectsfor China, India and Thailand were consideredbright. There is less optimism for West Asia, with13% of the respondents predicting a deterioration.

… another decline in Latin Americaand the Caribbean, a plunge inCentral and Eastern Europe…

For the fourth year in a row, FDI flowsinto Latin America and the Caribbean (LAC) fell,by 3% in 2003, to $50 billion. This is the lowestannual level of inward FDI since 1995. Of 40economies, 19 saw declining inflows. Inparticular, declines were registered in Brazil andMexico, the region’s largest recipients. Withprivatization running out of steam, weakeconomic recovery in the European Union (EU)(the region’s principal source of FDI, apart fromthe United States) and recession or slow growthin several countries in the region in the aftermathof the Argentine crisis, LAC has been hit hardby the FDI downturn. The apparent decline ofthe maquila industry added to concerns thatMexico might be losing attractiveness for FDI.Several smaller economies, such as Chile andVenezuela, registered increases in 2003, theformer recouping its losses of the previous year.As a result, the region’s share in developing-country inflows has returned to the levelspreceding the latest FDI boom. In 2003, FDIoutflows from LAC rose to $11 billion.

With economic growth in LAC expectedto pick up, there is optimism that a recovery inFDI inflows will follow. Indeed, a substantialshare of corporate executives expect an increase,according to UNCTAD’s TNCs survey. Severalcountries are putting more emphasis on furtherliberalizing their FDI regimes and streamliningadministrative procedures for investors.

The unexpected plunge in FDI flows intoCentral and Eastern Europe, from $31 to $21billion, was mainly due to the Czech Republicand Slovakia, two of the largest recipients in theregion. Overall, inflows rose in ten countries andfell in nine. Inflows to the Russian Federationalso declined, from $3.5 billion to $1 billion. Bycontrast, outflows from CEE rose from $5 billionto $7 bill ion, with the Russian Federationaccounting for three-fifths of that figure. Four

xx World Investment Report 2004: The Shift Towards Services

out of the five top TNCs in 2002 among theregion’s 25 largest TNCs were Russian. FDI byRussian firms is motivated by a desire to gaina foothold in the enlarged EU, and a desire tocontrol their value chains globally. TNCs fromother CEE countries seek to improve theircompetitiveness by focusing their investment onthe lower income CEE countries or developingcountries.

Far from diverting FDI flows from theold members of the EU, the accession eight fromCEE (the Czech Republic, Estonia, Hungary,Latvia, Lithuania, Poland, Slovakia, Slovenia)actually saw their FDI inflows shrink, from $23billion in 2002 to $11 billion in 2003. As partof their efforts to enhance their attractivenessto investors (domestic and foreign), several newEU members have lowered their corporate taxesto levels comparable to those in locations suchas Ireland. The combination of relatively lowwages, low corporate tax rates and access to EUsubsidies – enhanced by a favourable investmentclimate, a highly skilled workforce and freeaccess to the rest of the EU market – makes theaccession countries attractive locations for FDI,both from other EU countries and from thirdcountries.

Not surprisingly, therefore, prospects forFDI into CEE are promising: more than two-thirds of the top TNCs and location expertssurveyed by UNCTAD expected an upturn in FDIinflows during 2004-2005, the highest proportionof such responses among all regions. IPAs willhelp, according to survey results, especiallythrough more targeting and further FDI policyliberalization.

…and uneven performances in theindustrialized world.

The year 2003 saw a mixed FDI picturefor the developed countries: ten posted higherinflows and 16 lower ones. Overall, inflowsdeclined by 25%, to $367 billion. Intra-companyloans plunged and, to a lesser extent, equity flows(two of the three components of FDI flows).However, reinvested earnings rose, thanks toimproved profitability. The slow pace ofeconomic recovery did not help. Cross-borderM&As fell in number and value for the third yearrunning. United States FDI inflows halved, from$63 to $30 billion, which placed that countrybehind Luxembourg (because of transshipped

FDI), China and France. Flows into the EU asa whole declined by 21%, to $295 billion.

At the same time, FDI outflows fromdeveloped countries increased by 4% (to $570billion), largely owing to higher outflows fromthe United States – they rose by close to a third,to $152 billion. The United States was again thelargest source of FDI, followed by Luxembourg(because of transshipped FDI), France and theUnited Kingdom, in that order. Higher FDIoutflows and lower inflows combined for anegative net balance of $122 billion for theUnited States on these two items, the largest suchdeficit ever.

FDI prospects for developed countries for2004 and beyond are favourable. The first sixmonths of 2004 saw an upsurge in announcedM&As, suggesting a more positive scenario forthe second half of that year. The findings ofUNCTAD’s surveys of TNCs and location expertswere less optimistic regarding prospects forWestern Europe than for North America andJapan.

The composition of FDI has shiftedtowards services in all regions, …

The structure of FDI has shifted towardsservices. In the early 1970s, this sector accountedfor only one-quarter of the world FDI stock; in1990 this share was less than one-half; and by2002, it had risen to about 60% or an estimated$4 trillion. Over the same period, the share ofthe primary sector in world FDI stock declined,from 9% to 6%, and that of manufacturing felleven more, from 42% to 34%

On average, services accounted for two-thirds of total FDI inflows during 2001-2002,valued at some $500 billion. Moreover, as thetransnationalization of the services sector in homeand host countries lags behind that ofmanufacturing, there is scope for a further shifttowards services.

Outward FDI in services continues to bedominated by developed countries, but hasbecome more evenly distributed among them. Afew decades ago, almost the entire outward stockof services FDI was held by firms from theUnited States. By 2002, Japan and the EU hademerged as significant sources. Developingcountries’ outward FDI in services began to growvisibly from the 1990s. Their share in the global

xxiOVERVIEW

outward FDI services stock climbed from 1% in1990 to 10% in 2002, faster than in other sectors.Trade and trade-supporting services bymanufacturing TNCs expanded particularlyrapidly, while business services, hotels andrestaurants, and financial services also grew.

On the inward side, the distribution ofservices FDI stock has been relatively morebalanced, though developed countries sti l laccount for the largest share. The fastest growthhas taken place in Western Europe and the UnitedStates, reflecting the fact that most service FDIis market-seeking. Today, developed countriesaccount for an estimated 72% of the inward FDIstock in services, developing economies for 25%and CEE for the balance. In 2002, the UnitedStates was the largest host economy in terms ofthe size of its inward FDI stock in services. Witha few exceptions (such as China), countries thathave participated in the FDI boom in servicesalso strengthened their position among home andhost countries for all FDI. There is, however,considerable variation in the share of servicesin the FDI of individual countries.

The composition of services FDI is alsochanging. Until recently, it was concentrated intrade and finance, which together still accountedfor 47% of the inward stock of services FDI and35% of flows in 2002 (compared to 65% and59%, respectively, in 1990). However, suchindustries as electricity, water,telecommunications and business services(including IT-enabled corporate services) arebecoming more prominent. Between 1990 and2002, for example, the value of the FDI stockin electric power generation and distribution rose14-fold; in telecoms, storage and transport 16-fold; and in business services 9-fold.

… driven by various factors, …

What explains the shift of FDI towardsservices? Partly it reflects the ascendancy ofservices in economies more generally: by 2001,this sector accounted, on average, for 72% ofGDP in developed countries, 52% in developingand 57% in CEE countries. Moreover, mostservices are not tradable – they need to beproduced when and where they are consumed.Hence the principal way to bring services toforeign markets is through FDI. In addition,countries have liberalized their services FDIregimes, which has made larger inflows possible,especially in industries previously closed to

foreign entry. Of particular importance has beenthe privatization of State-owned utilities in LatinAmerica and the Caribbean, and in CEE.

Firms have reacted by expanding theirservice production abroad. Traditionally, FDI insuch services as banking, insurance andtransportation had been undertaken by firmsmoving abroad to support or complement tradeor overseas manufacturing by their manufacturingclients. This is still taking place, but the patternhas been changing: service providers more andmore invest abroad on their own account, as theyseek new clients and exploit their own ownershipadvantages. Added to that are competitivepressures. In non-tradable services, growthremains the principal location advantage forattracting FDI. In directly tradable services, themain location advantages are access to goodinformation and communication technologies, anappropriate institutional infrastructure and theavailabili ty of productive and well-trainedpersonnel at competitive costs.

… and with M&As and non-equityarrangements as the most commonentry modes.

The shift towards services is alsodiscernible in cross-border M&As. In fact, mostM&As during the second half of the 1990s tookplace in services and then became a widely usedmode of TNC entry. While, in the late 1980s,services accounted for some 40% of global cross-border M&As, their share rose to more than 60%by the end of the 1990s. Up to the 1980s, crossborder M&As were almost exclusively thedomain of United States TNCs. Since then, EUTNCs have become the dominant actors: in 2001-2003, they accounted for 61% of all M&Apurchases worldwide. Cross-border M&As havealso played a prominent role in the overseasexpansion of services by TNCs based indeveloping countries.

Overall, the propensity of TNCs to enternew markets through M&As, rather thangreenfield FDI, is much greater in such serviceindustries as banking, telecommunications andwater. Privatization programmes open to FDI,which peaked in many countries during the1990s, have added to the number of M&As.

Across a number of service industries,the growth in TNC activity and internationalproduction takes the form of non-equity

xxii World Investment Report 2004: The Shift Towards Services

arrangements – e.g. franchising, managementcontracts, partnerships – rather than FDI. Thegreater popularity of non-equity forms in servicesas compared with goods can be explained partlyby differences in the nature of the proprietaryassets of the firms involved. Soft technologiesand knowledge-based, intangible assets, ratherthan tangible ones, provide service firms withcompetitive advantages. Intangible assets, suchas organizational and managerial expertise, canbe separated from tangible and capital-intensiveones (such as real estate in the case of hotels orwater distribution networks). More importantly,because the critical knowledge transferred byTNCs and the capabilities of the local firms arefrequently codifiable (e.g. in managementcontracts), these can be equally well protectedand enhanced by non-equity arrangements – andwithout putting capital at risk. For instance,quality control, performance conditions andminimum transaction costs can often be embodiedin management contracts or franchisingagreements. Non-equity forms are common inhotels, restaurants, car rental, retailing,accounting, legal and other professional services.However, such activity is not captured in FDIstock and flow data, or in data on the economicactivities of foreign affiliates.

International production networksin services are in their infancy, andservice industries and TNCs areless transnationalized than theirmanufacturing counterparts – butthey may be catching up.

FDI in services has traditionally been,and continues to be, market-seeking, despite theincrease in the cross-border tradability of manyinformation-intensive services. While someservices (e.g. financial and, especially, businessservices) can be rationalized internationally,leading to efficiency-seeking FDI, the integratedproduction of services on the whole remains inits infancy. In 2001, for example, 84% of salesof services by foreign affiliates of United StatesTNCs were local sales in host countries, whilethe corresponding share for goods was 61%.

Nevertheless, there are signs thatinternational services production is evolving ina direction similar to that of international goodsproduction. In the United States, for instance,the share of intra-firm imports in total importsof “other private services” rose from 30% in 1986

to 47% in 2002. To the extent that integratedstrategies of TNCs are being pursued, however,they take the form of simple rather than complexstrategies, although world product mandates forforeign affiliates exist (e.g. accounting servicesfor a corporate system as a whole), as dosimultaneous international production networks(e.g. when affiliates in various countries workon a common R&D database at the same time).

Despite the growth and dominance ofservices FDI, the services sector is lesstransnationalized than the manufacturing sector.Judging from data for selected, mainly developedcountries, the degree of transnationality ofservices production, as measured by the sharesof foreign affiliates in value-added, employmentor sales of services in host and home countriesis lower than that in manufacturing, measuredin a similar manner. Although a less satisfactorymeasure, the size of FDI stock relative to GDPin the two sectors for selected developed anddeveloping countries indicates the same. Thisis because of: (i) the much larger size of theservices sector; (ii) the continued provision bydomestic enterprises of many services such aseducation, health, government services, mediaand transportation; and (iii) the relatively recentgrowth of FDI in other services (such astelecoms, electricity, gas and water and businessservices). Moreover, service TNCs have a lowerdegree of transnationality overall than theirmanufacturing counterparts (20% compared to40%), according to United States data. However,the service TNCs on UNCTAD’s lists of thelargest TNCs worldwide, and those fromdeveloping economies are catching up fast withthe manufacturing firms on the list.

FDI in services can have benefits –and costs – for host countries,…

To start with, FDI in services, like FDIin other sectors, injects financial resources intoa host economy. To the extent that funds areraised internationally, they are a net addition toresource flows into a host country. If funds areraised locally, domestic interest rates may rise,making capital more expensive for domesticenterprises, although the difference betweenlocally-raised and foreign-sourced resourcesbecomes less important as countries open up tointernational capital markets. A large part ofservices FDI is in market-seeking, non-tradableactivities, which do not contribute directly toforeign-exchange earnings. At the same time, they

xxiiiOVERVIEW

entail external payments, for example, in the formof repatriated profits. Hence, FDI could have anegative impact on the balance of payments. Andpayments associated with FDI in services (e.g.repatriated profits) can quickly outweigh theinitial capital inflow and exacerbate balance-of-payments crises.

Counterbalancing such possible negativeimpacts are the potentially positive effects onconsumers of final services, and on producersusing intermediate services in terms of betterservice provision and spillover effects. FDI inservices affects the provision of services in termsof supply, cost, quality and variety of servicesin host economies. In some industries, it can addsignificantly to the volume of services availablein a host country. The financial strength of TNCs,together with their ability to implement andmanage complex systems, enables them to expandsupply capacities rapidly in complex, capital-intensive services, such as telecommunicationsand transportation. However, in the absence ofappropriate government policies and regulations,TNC involvement in utilities and other basicservices may lead to a rise in prices, aninequitable distribution of services and limitedaccess for the poorest segments of society.

Concerns also arise about the impact ofservices FDI on competition and the possiblecrowding out of domestic firms. In banking, forinstance, foreign bank entry is sometimes foundto be associated with a deterioration of the loanportfolio of domestic banks, a situation thatpotentially undermines their viability. Domesticbanks face a challenge in competing with foreignbanks due to their lack of geographicaldiversification and experience, limited financingcapacity and higher costs of new productimplementation. In industries such as retailing,the presence of TNCs introduces new ways ofdoing business, new pricing structures, improvedinformation management processes and newmarketing and merchandising methods; all thesecan squeeze out local producers – although, forthe remaining ones, especially when they are ableto upgrade, the effect may be beneficial. FDI canspur local service providers to become morecompetitive through demonstration and skillsdiffusions, thus helping them improve efficiency.All in all, the competitive impact of FDI entryon service supply conditions, as well as thelikelihood of its crowding out domestic firms,depend considerably on initial conditions in ahost country, especially the level of economicand service-industry development, market

structure of service industries and the regulatoryframework.

One of the biggest contributions of FDIin services to development is in the transfer oftechnology. Services TNCs can bring both hardtechnology (plant, equipment, industrialprocesses) and soft technology (knowledge,information, expertise, skills in organization,management, marketing). Soft technology iscaptured in skills – which is often reflected inwages. Evidence on employee remuneration inforeign affiliates of United States-based serviceTNCs in developing countries suggests that theyare more skill-intensive than their manufacturingcounterparts. In addition, compensation in serviceaffiliates in developing countries is much closerto that of affiliates in developed countries thanin the case of manufacturing. Both reflect thestand-alone nature of many service affiliates,which requires that the skills profile of parentfirms be largely replicated in their foreignaffiliates.

What determines whether or not skillstransfer actually materializes are the intensityof competition, the quality of education andtraining in host countries, the training andpersonnel policies of TNCs, labour marketstructure and mobility, and linkages betweenforeign affiliates and domestic service suppliersand buyers. Although evidence exists thatservices FDI does provide some transfer of skills,expertise and knowledge, data on the overallextent of such transfers are scarce.

Direct exports by service TNCs havebeen relatively limited until recently, but theirindirect impact on export competitiveness canbe significant. FDI in intermediate services candirectly and indirectly improve the efficiency ofindustrial products. Such services range frombanking, insurance and business services totransport, electricity and telecommunications.International hotel chains play an important rolein promoting competitiveness in tourism byhelping to attract a critical mass of internationaltourists. Tourism is an important foreign-exchange earner for developing countries,through both equity and non-equity involvement.

FDI in services generates employment inhost countries, although less so per dollarinvested than in manufacturing. Moreover,employees in foreign service affiliates are, onaverage, better trained and better paid than thosein manufacturing. These differences again arisemainly because of the stand-alone nature of most

xxiv World Investment Report 2004: The Shift Towards Services

foreign affiliates in services and the (still) limitedability of TNCs to separate labour-intensiveactivities and locate them in countries with lowerlabour costs. However, the potential for jobcreation is growing with the rise of FDI in export-oriented services. Indirect effects are alsoimportant, with services FDI supportingproduction in upstream and downstreamindustries, thus potentially adding to employmentthere.

… and managing services FDIrequires appropriate regulatorystructures.

Both direct and indirect benefitsassociated with services FDI can boost nationaland export competitiveness. However, benefitsmay not be realized if conditions in the hosteconomy are not right. Services FDI can entailthree kinds of risk: (i) systemic risk, when theabsence of efficient regulation exposes a hosteconomy to significant economic instability; (ii)structural risk, when the institutions andinstruments needed to manage, say, privatizationof utilities, are weak and there is the risk ofturning State-owned monopolies into privateones; and (iii) contingent risk, when FDI insocially or culturally sensitive areas causesunintended harm.

These risks imply that, while servicesFDI is becoming an important element ofcompetitiveness, it has to be managed carefully.Indeed, the special nature of some services,particularly in basic utilities and socially orculturally sensitive areas, means that free-marketforces may not provide the desired outcomes.Strong, independent and competent regulatorystructures are vital if the potential benefits ofFDI are to be tapped. Considerable skills andinformation, as well as the ability to draw uponthe experiences of regulators in other parts ofthe world, are required so that developingcountries can build the appropriate structures andreap the maximum benefits from services FDI.

The offshoring of services, still arelatively new phenomenon, is onthe rise,…

Services typically need to be producedwhen and where they are consumed. In the pastdecade or so, advances in information and

communication technologies have made itpossible for more and more of these services tobe produced in one location and consumedelsewhere – they have become tradable. Theimplication of this “tradability revolution” is thatthe production of entire service products (or partsthereof) can be distributed internationally – inlocations offshore from firms’ home countries– in line with the comparative advantages ofindividual locations and the competitiveness-enhancing strategies of firms. This is a processwell known in the manufacturing sector.

Offshoring of services can be done in twoways: internally, through the establishment offoreign affiliates (sometimes called “captiveoffshoring”); or by outsourcing a service to athird-party service provider (“offshoreoutsourcing”). Indeed, an integral part of therestructuring of corporate activities to enhancetheir international competitiveness is toconcentrate on “core competencies”. For manyfirms in all sectors, this means that the productionof various services (accounting, billing, softwaredevelopment, architectural designs, testing, etc.)is outsourced, i.e. turned over to other (specialist)companies. Typically, the lion’s share of suchoutsourcing takes place in the same country, butthe international share of outsourcing is likelyto increase as services become more tradable.After all , once a decision has been taken tooutsource, it is, in principle, only a small stepto move such production abroad – to offshore it– if this enhances a firm’s internationalcompetitiveness. (See box 1 for a discussion ofbusiness models.)

While the offshoring of services is stillin i ts infancy, the tipping point may beapproaching rapidly. Offshoring represents thecutting edge of the global shift in productionactivity, giving rise to a new internationaldivision of labour in the production of services.

While the fragmentation andglobalization processes in services andmanufacturing are similar, there are importantdifferences. First, although the services sectoris much larger than the manufacturing sector, onlysome 10% of its output enters international trade,compared with over 50% for manufacturing.Second, the pace of globalization of servicesaffected by the tradability revolution is faster thanin manufacturing. Third, whereas the relocationof goods production has involved,overwhelmingly, firms in manufacturing only,service functions are offshored by companies in

xxvOVERVIEW

all sectors. Fourth, the skill intensity is generallyhigher for offshored tradable services than formanufacturing located abroad, thus affectingwhite-collar jobs in particular. And fifth, servicesthat are offshored may be more footloose thanrelocated manufacturing activities because oflower capital-intensity and sunk costs, especiallyservices that do not require high skills.

Obviously, not all corporate services andservice functions can or will relocate. For manyservices, proximity to markets, interaction withcustomers, trust and confidence outweigh thepossible benefits of an international division oflabour. Further, technological limitations cannotbe discounted. It is not possible for all servicefunctions to be digitized and/or separated fromrelated activities. Some businesses will continue

to need localized services or person-to-personcontact for exchanging highly confidentialinformation or for adapting to rapidly changingcustomer needs. Regulations and legalrequirements (e.g. regarding privacy) may alsoraise transactions costs and limit internationaltrade in services. Certain services, such asinsurance and banking, are required by law insome countries to be provided by companiesestablished locally. The lack of internationalrecognition of professional qualifications isanother obstacle, as is the lack of globally agreedprivacy rules. Some international locations alsolack the capacity to host offshored serviceactivities. These include the supply of reliabletelecom infrastructure, appropriately educatedworkers, rising wage costs and high levels ofattrition in the fastest growing destinations, allgiving rise to shortage risks, at least in the shortrun. TNCs too have different perceptions of therisks and benefits of offshoring services and someare reluctant to do so.

…driven by the search forcompetitiveness …

Cost considerations often triggeroffshoring. For example, 70-80% of companiesinterviewed in various studies mentioned lowercosts as the main reason for setting up a sharedservice centre abroad. Cost savings of 20-40%are commonly reported by companies that haveexperience in offshoring. Savings relate both tothe use of cheaper labour and the consolidationof activities in fewer locations. Hence,considerable savings can accrue from offshoringeven among developed countries – where, in fact,most of it takes place.

But cost is only the trigger. In fact, manyof the pioneers offshored to access skills and toimprove the quality of the services provided. Andthey are staying (and expanding) to takeadvantage of the entire range of benefits resultingfrom the international division of labour in theproduction of services. Once important firmshave started to reap the benefits of this newpossibility, others are likely to follow for fearof compromising their own competitive position.Hence, many more companies – large and small,from developed and developing countries – canbe expected to establish their own internationalproduction networks or otherwise offshore theproduction of certain services.

Box 1. Offshoring: captive or outsourcedproduction?

Offshoring can be either captive oroutsourced. Captive offshoring is preferred whenstrict control of an activity is crucial (as in R&D),information is sensitive, internal interaction isimportant, or when a firm seeks to capturesavings and other advantages. Back-office andfront-office work that can be easily standardizedand separated from other activities are morelikely to be outsourced (and eventuallyoffshored). Smaller scale activities are morelikely to be kept in-house, because theiroutsourcing would not generate enough savings.The availability of capable local firms alsoinfluences the choice of captive versus outsourcedoffshoring. If data for India are indicative,perhaps as much as 60% of offshored IT-enabledservices takes place within TNCs.

Sometimes, offshoring takes place througha combination of outsourcing and captive models.The expansion of international offshoring hascontributed to the emergence of a new breed ofTNCs that provides services to other companies,imitating contract manufacturers. Most such“contract service providers” hail from the UnitedStates. Some of them have become global playersby setting up their own international networksof foreign affiliates. While the main operationsof these companies remain in industrializedcountries, activities in developing countries aregrowing more rapidly, and are also expandingabroad.

Source: UNCTAD.

xxvi World Investment Report 2004: The Shift Towards Services

As a result , a wide range of newlytradable services is now entering the exports ofcountries, developed and developing alike. Thesecan be simple, low-value added activities (suchas data entry), or more sophisticated, high-valueadded activities (such as architectural designs,financial analysis, software programming, R&D).They span the full diversity of skills, and somecut across all sectors.

The size of the phenomenon is, however,difficult to establish. As noted above, mostoutsourcing at present takes place domesticallyin the home country; only 1-2% of all business-process outsourcing to date is doneinternationally. Second, about 90% of all FDIprojects during 2002-2003 in export-orientedservices originated in developed countries. Firmsfrom the United States dominated, with two-thirdsof all export-oriented information andtelecommunication service projects, 60% of call-centre projects and 55% of shared-serviceprojects. Third, a significant share of offshoringwent to developed countries – for example, morethan half of all export-oriented FDI projectsrelated to call centres in 2002-2003. Ireland andCanada are among the most attractive offshorelocations.

No one knows how big offshoring willbecome. The total market for all offshore serviceexports is estimated to have been $32 billion in2001, of which Ireland accounted for one quarter.The fastest growth is expected in the offshoringof IT-enabled services, which is forecast toexpand from $1 billion in 2002 to $24 billion in2007. Even among the 1,000 largest firms in theworld, 70% still have not offshored any servicesto low-cost locations, but many have plans to doso. While United States companies have beenrelatively active, European companies haveshown less inclination to offshore services. Butthere are signs that this is starting to change,beginning with the United Kingdom. Researchundertaken in 2004 by UNCTAD, in cooperationwith Roland Berger Strategy Consultants, foundthat 83% of large European companies withoffshoring were satisfied with the experience,only 3% were dissatisfied, and 44% of thecompanies interviewed planned further offshoringin the coming years. This is likely to compel morecompanies to consider offshoring as a potentialstrategy to increase their competitiveness.

Offshoring has a long way to go beforeit matures and settles down in pattern andlocation. A World Bank assessment of the mid-

1990s concerning the number of jobs for whichlong-distance provision is technically feasibleand for which cost savings of up to 30-40%would be plausible suggested that some 1-5% ofthe total employment in the G-7 countries couldbe affected. More recent estimates by businessresearch groups of the likely impact concludedthat 3.4 million service jobs may shift from theUnited States to low-income countries by 2015;another concluded that 2 million offshored jobscould be created in the financial services industryalone, and that the total number of jobs affectedfor all industries could be in the area of 4 million.However, this should be compared with anaverage turnover of 4 million jobs every monthin the United States.

... and offering export opportunitiesfor countries with the right mix ofcosts, skills and infrastructure,…

While offshoring is creating new FDIopportunities, not all countries are taking partin this process. As with FDI and trade in general,developed countries attract a sizeable share.Given that services generally require higher skillsthan manufacturing activities, the barriers to entrycan be high for potential host countries. Forthose that do manage to become export bases forservices, key benefits include increased exportearnings, job creation, higher wages and theupgrading of skills. Export revenues areconsiderable, as exemplified by India, whereexports of software and IT-enabled services grewfrom less than $0.5 billion a decade ago to some$12 billion in 2003-2004. Jobs created in theservices sector, including through offshoring, aretypically better paid than in the manufacturingsector. But wage increases are also more rapidthan in manufacturing, which makes offshoredservices more vulnerable to relocation to othersites. Given the short time needed to implementan offshore FDI project, attracting offshoredservices can offer fast-track job creation forsuccessful host countries.

FDI related to the offshoring of servicesmay also be desirable because of spillover effects,especially if the services provided are also soldin the domestic market. Positive spillovers interms of raising the competitiveness of humanresources and improving the ICT infrastructurebenefit all sectors of an economy, with most ofthe acquired skills being readily transferable toother parts of the economy. Negative spillovers,

xxviiOVERVIEW

such as environmental pollution and over-exploitation of natural resources are likely to belimited.

At the same time, given that export-oriented services tend to be relatively skill-intensive, they are mostly geographicallyconcentrated and require a well-developedinfrastructure. Therefore, the scope for broaderdevelopment benefits outside the most advancedregions of an economy may be constrained. Inthe case of software development, the potentialfor linkages between foreign affiliates and localfirms has also been found to be limited,particularly when production is solely export-oriented and when services are provided on anintra-firm basis. Moreover, an influx of export-oriented services FDI may attract the best skillsto certain types of service activities. Unlesscontinuously upgraded, such activities may easilymove on to another location if the competitivesituation changes.

Indeed, most offshored services are todate concentrated in a relatively small numberof countries. In 2001, Ireland, India, Canada andIsrael, in that order, accounted for over 70% ofthe total market for offshored services, mostlyin software development and other IT-enabledservices. However, the share of developingcountries and CEE in offshored projects isincreasing. For example, between 2002 and 2003,their share in the total number of related FDIprojects rose from 39% to 52% and their sharein the number of jobs created by such projectsreached 57%.

Among developing countries, South andSouth-East Asia dominate as destinations for FDIprojects related to service offshoring indeveloping countries, particularly in the area ofIT services. India is the preferred destination foroffshoring of virtually the whole range ofservices. Firms are attracted not just by its baseof low-cost and skilled labour, it also has first-mover and agglomeration advantages. There is,however, scope for more countries to benefit fromthe offshoring trend, taking into account specificneeds in terms of language skills, time zones andcultural affinity.

…but it creates concerns that needto be addressed.

The growth of services offshoring hasgiven rise to concerns mainly in developedcountries. In particular, the growth of white-

collar, export-oriented service jobs in somedeveloping countries is seen as leading toemployment losses in developed countries. (Thebenefits arising from this new internationaldivision of labour typically receive less attention.)Consequently, proposals have been made –particularly in home countries – to constrain thetrend towards offshoring.

What is the likely impact of servicesoffshoring on home countries? Offshoring isessentially a manifestation of a shift incomparative advantage, and offers all theadvantages and costs of such a shift. It is not azero sum game in which one party (the countryreceiving service work, be it developed ordeveloping) gains at the expense of another party(the country offshoring services). Rather, it offersbenefits to home countries as well . First ,offshoring allows firms to reduce costs andimprove quality and delivery, thereby enhancingtheir competitiveness, with positive effects onthe home country economy. Second, it allowshome countries to shift to more productive andhigher value activities, depending on their abilityto adapt to changing comparative advantage. Theimpact on jobs is likely to be similar to, butsmaller than, that of technical change, whichmakes some jobs redundant and creates others,generally at higher wage levels. Finally, hostcountries that gain from offshoring and earn moreforeign exchange spend more on imports of theadvanced products that industrialized countriesexport.

Indeed, there are no signs that offshoringleads to significant declines in similar servicejobs in home countries. Recent estimatesundertaken on behalf of the Department of Tradeand Industry of the United Kingdom, for example,suggest that the number of call centres in thecountry is likely to increase from 5,500 to 6,000over the next three years, and that associatedemployment will rise from below 500,000 in 2003to 650,000 by 2007. At the same time,employment in industries that are expected to bethe most affected by offshoring is showing rapidgrowth. In many cases, offshoring of services isa response to excess demand and the shortageof adequately trained people at home. Thus, everyjob created abroad as a result of offshoring doesnot necessarily equal a job lost in developedeconomies.

Nevertheless, there are short-termchallenges to consider. All shifts in comparativeadvantage entail adjustment costs at the micro

xxviii World Investment Report 2004: The Shift Towards Services

level. Some people will lose their jobs, and thereis likely to be a transition period in which theysearch for new ones. Many may have to acquirenew skills or move to new locations to becomeemployable. The challenge for home countriesis to minimize such adjustment costs and makethe transition process as smooth and efficient aspossible for those directly affected. This doesnot require measures to force service jobs to stayat home, but rather policies that encourageeducation, training and R&D.

Thus, instead of implementingprotectionist measures, white-collar workers indeveloped countries threatened with job lossescould be given assistance (say, through retrainingand with finding new jobs), similar to the tradeadjustment assistance provided to vulnerableworkers in manufacturing. Workers moving tonew careers could perhaps be offered “wageinsurance” to cover part of the difference betweentheir former wages and new wages. Public-privatepartnerships could play a role in skillsdevelopment, say through the use of fiscalincentives for employee training. Adjustment toany change in employment patterns needs greaterlabour mobility and changes in skills profiles.Preventing adjustment because of its costs wouldbe only a short-term palliative, and could wellhandicap income and employment growth in thelonger term. In the final analysis, protectionistmeasures are likely to destroy rather than savejobs in importing countries.

In principle, the challenge for developedcountries is the same as that facing developingcountries as far as the cost side of offshoring isconcerned. Given the risk of some servicesmoving to new locations, even the countries thatattract offshored services risk a relocation ofthose activities to even more competitive sites.

There is a need for an enablinginternational framework to allow all countriesto benefit from the advantages that the servicestradability revolution can bring. Developingcountries, in particular, should continue to be ableto use their comparative advantage to benefitfrom the globalization of IT and IT-enabledservices. Shifts in comparative advantage rarelyoffer immediate and visible benefits to allconcerned. However, the economies from whichservices are offshored have to ensure that theirworkers share in the gains enjoyed by enterprisesthat become more competitive, and that customersget better and cheaper services. Governmentsneed to introduce adjustment policies and

consider the longer term benefits of globalization.Holding back offshoring to avoid adjustmentcosts would strengthen the crit ics ofglobalization, who argue that the rich countriesonly support globalization when they reapimmediate gains. Hence the challenge is tomaintain an environment in which the benefitsfrom FDI in services in general, and offshoringin particular, can materialize. The WTO’s GeneralAgreement on Trade in Services may be ofrelevance in this respect.

In line with their developmentobjectives, countries are graduallyopening up to FDI in services andactively seeking to attract it,….

Returning to FDI in all services, thereis a growing recognition by governments that,on balance, they benefit from such investment.The result has been a broad-based opening upto services FDI, although, the degree of opennessvaries across countries and industries. In general,developed countries are more open thandeveloping ones. But even countries that haveliberalized most of their service industriestypically retain entry restrictions in specificservices, such as media and air transportation.The nature of restrictions and the purpose forwhich these are introduced vary by industry.Services FDI can bring economic benefits, butpolicy-makers need to strike a balance betweenpossible efficiency gains and other broaderdevelopment objectives.

Beyond that, more and more countries areseeking actively to attract FDI in services throughinvestor targeting. IPAs are particularly interestedin attracting foreign-exchange-generatingservices, such as computer and related services,tourism and hotels and restaurants. They are alsotargeting service functions of manufacturingfirms, especially call centres, shared-servicecentres and regional headquarters functions. Inthis context, many export processing zones shapetheir promotional packages to attract services-related FDI beyond commercial services andsimple data entry, to include, for example,medical diagnosis, architectural, business,engineering and financial services as well.Countries are also setting up technology parksspecifically geared to FDI in IT services, offeringhigh-quality telecommunications, stable powersupply, a highly educated workforce and atechnology-supporting infrastructure.

xxixOVERVIEW

General promotion measures, incentivesand export processing zones are the most widelyused tools for FDI promotion. Incentives, usedin the whole range of service industries, are mostcommon in tourism, transport and financialservices. As in manufacturing, there is the riskof a race in the use of incentives, especially toattract export-oriented FDI in services. This riskis accentuated by the footloose nature of manyexport-oriented service projects.

Investment promotion can be particularlysuccessful if the basic requirements are right. Forservices, skills are vital, as is a reliable, state-of-the-art international communicationsinfrastructure, especially if offshored servicesare targeted. Regulatory issues are also receivingincreasing attention, particularly in the area ofdata security, an area that needs to be improvedin a number of destination countries.

The promotion of FDI in services shouldbe complemented by policies aimed at addressingpossible concerns about such FDI, as well asmaximizing the benefits from the presence offoreign companies in this sector. The mainrewards of FDI accrue over the longer term, whenTNCs strike local roots, expand operations,improve local skills, l ink up with localinstitutions and upgrade technologies.Governments need to induce market-seekingTNCs to deepen and extend their operations, andexport-oriented ones to stay and upgrade aswages rise and cheaper competitors appear.Policies in this area should seek to improve localcapabilities, skills, institutions and infrastructurein line with the changing technological andmarket realities.

...including through privatization,which requires the implementationof complementary policies.

The opening up of various infrastructureservices to FDI in the framework of privatizationprogrammes has triggered unprecedentedincreases in such investment. While involvingforeign companies in infrastructure services canbring new capital and more and better services,it can also entail costs. FDI in services throughprivatization raises a special challenge in termsof regulation and governance.

Governments need to establish clearobjectives for involving FDI in the privatizationof services. For privatization to succeed, it is

particularly important for a government to strikea balance between budgetary and otherconsiderations, such as the efficient andcompetitive provision of services, at affordableprices for the poor and/or those living in sparselypopulated areas. Large privatizations require anappropriate institutional environment thatguarantees policy consistency, coherence andefficiency. TNCs are sophisticated institutions,and transactions and related contracts tend to betechnical in nature and involve the monitoringof numerous post-privatization obligations.Specialized privatization agencies can help byundertaking a competitive selection process,providing a one-stop shop for investors, as wellas maintaining independence from governmentsand vested interests in State-owned enterprises.

The regulation of service industries isanother challenge. While foreign investors areoften attracted to assets that enjoy monopolisticor oligopolistic rents, the interest of hostcountries is to minimize those rents, includingthrough well designed regulatory regimes. Suchregimes should address the ability of investorsto collect payment for the services they provide;they should also contain clear principles fortariff-setting and procedures for disputesettlement. In addition, they need to addressissues related to securing universal access toessential services, taking into account thesituation of poorer and remote populations.Furthermore, regulatory regimes should becomplemented by an appropriate policy toencourage competition. The restructuring of anindustry prior to privatization may be helpful;in low-income countries, this process can perhapsbe facilitated through related official developmentassistance.

Services IIAs are proliferating,creating a multilayered andmultifaceted network of rules thatpresent challenges fordevelopment.

Over the past decade, the number ofinternational investment agreements (IIAs)covering FDI in services has proliferated,resulting in a multilayered and multifacetednetwork of international rules. In many areas ofservices FDI, therefore, national policy-makingincreasingly takes place within the frameworkof these agreements. Agreements differ in theirapproach towards services FDI (investment-

xxx World Investment Report 2004: The Shift Towards Services

based, services-based, mixed) and in theirsubstantive provisions (e.g. regulating entry asopposed to protecting investment, adopting apositive- as opposed to a negative-list approachwhen making commitments). Several servicesIIAs contain follow-up procedures and separatechapters for specific service industries.

IIAs can provide a stable, predictable andtransparent framework for attracting FDI inservices and benefiting from it. At the same time,there is a complex process of interaction betweeninternational and national policies for servicesFDI. The nature of this interaction can be eitherautonomous-liberalization-led or IIA-driven, oranywhere in-between. Ultimately, this interactionis country- and context-specific, thereby creatingadditional challenges for policy-makers seekingto regulate services.

Moreover, policy-makers need to ensurethat international rules are consistent with orcomplementary to each other in order to avoidconflicts. They also need to address issues arisingat the interface of the liberalization and regulationof services. Finally, policy-makers need to strikea balance between using services IIAs forattracting FDI in services and preserving theflexibility necessary for the pursuit of nationaldevelopment objectives related to the servicessector. It is important for IIAs to allow suchflexibility. This is particularly important fordeveloping countries, as they need toaccommodate their development-oriented policyobjectives and to undertake the sort of trial-and-error processes required to identify the policyoptions best suited to their level of development.

*****

In conclusion, to benefit from anincreasingly globalized and interdependent worldeconomy, countries need to strengthen their

capabilit ies for the supply of competitiveservices. If conditions are right, FDI can helpto achieve this. Its most important contributionis in bringing the capital, skills and technologycountries need to set up competitive serviceindustries. This applies not only to the new IT-enabled services, but also to traditional servicessuch as infrastructure and tourism. Moreover,as services become more tradable, FDI can helplink developing countries to global value chainsin services. Such chains comprise internationalservice production networks that are increasinglyimportant to access international markets. At thesame time, caution is necessary when attractingFDI in services. For instance, some services(especially basic utilities and infrastructure) maybe natural monopolies and hence susceptible toabuses of market power (whether firms aredomestic or foreign). Others are of considerablesocial and cultural significance; the whole fabricof a society can be affected by FDI in thoseindustries. Hence, countries need to strike abalance between economic efficiency and broaderdevelopmental objectives.

This is why it matters to have the rightmix of policies. In light of the shift towards FDIin services, developing countries face a doublechallenge: to create the necessary conditions –domestic and international – to attract servicesFDI and, at the same time, to minimize itspotential negative effects. In each case, the keyis to pursue the right policies, within a broaderdevelopment strategy. Basic to them is theupgrading of the human resources and physicalinfrastructure (especially in information andcommunication technology) required by mostmodern services. An internationally competitiveservices sector is, in today’s world economy,essential for development.

*****

PART ONE

FDI SET TO RECOVER

A. FDI infA. FDI infA. FDI infA. FDI infA. FDI inflows downlows downlows downlows downlows downaaaaagggggain – bain – bain – bain – bain – but rut rut rut rut recoecoecoecoecovvvvvery isery isery isery isery is

on its won its won its won its won its waaaaayyyyy

Global FDI inflows fell again in 2003.But outflows increased and that, together withthe improved economic climate, suggests that arecovery is under way in 2004.

FDI inflows declined by 18% (to $560billion) in 2003, following a massive declineof 41% in 2001 (from $1.4 trillion in 2000 to$818 billion) and another 17% in 2002 (to $679billion) (figure I.1). But FDI outflows rose in2003 by 3%, to $612 billion,1 and prospectsare good for 2004 and beyond (section Dbelow). Flows to developing countries rosealready by 9%.2 Excluding Luxembourg, Chinawas the largest host country ahead of Franceand the United States. Cross-border mergersand acquisitions (M&As) – the key driver ofglobal FDI since the late 1980s – remain weak,but they started to pick up in 2004, joiningother healthy factors. Policies on FDI continueto become more liberal, and both countries andenterprises have been increasing their degreesof transnationality.

1. An uneven picture

FDI flows to developed countries fell by25%, from $490 billion in 2002 to $367 billionin 2003. This latter figure represents only two-thirds of the peak of $1.1 trillion reached in 2000.Flows to the United States declined to the lowestlevel since 1992, only one-tenth of their peak in2000-2001. Members of the European Union(EU), notably Germany and the United Kingdom,recorded much lower flows than in 2002, as didJapan.

Flows to developing countries, on theother hand, rose by 9% from $158 billion in 2002to $172 billion in 2003, but they varied by region.Africa recorded 28% higher inflows in 2003 ($15billion, up from $12 billion in 2002), drivenmainly by natural-resource projects. Inward FDIto the Asia-Pacific region reached $107 billion,up from $95 bill ion. Latin America and the

Caribbean , however, experienced a fourthconsecutive year of decline, although it wasmarginal, from $51 billion in 2002 to $50 billion.The share of developing countries in global FDIinflows rose by 8 percentage points, to 31% in2003. The top ten recipients accounted for almostthree-fourths of total flows to developingcountries – 11 percentage points less than in2000 when concentration was the highest.

After a record year in 2002, when inflowsreached $31 billion, FDI to Central and EasternEurope (CEE) fell sharply in 2003, to $21 billion.Inflows into the “accession-eight”3 shrunk from$23 bill ion to $11 bill ion. In the RussianFederation also, inward FDI plunged from $3.5billion in 2002 to $1.1 billion in 2003.

While world FDI flows have been indecline for three years in a row (from 2000 to2003), this needs to be juxtaposed with domesticinvestment. For countries to maintain high levelsof income and employment and to grow, ofimportance is the total amount of investment,regardless of i ts foreign and domestic mix.During the period 1990–2003, world FDI flowsaccounted for 8% of world domestic investment(gross fixed capital formation), which underliesthe fact that FDI only complements domesticinvestment. This ratio was slightly higher in bothdeveloping countries and CEE than in developed

CHAPTER ICHAPTER ICHAPTER ICHAPTER ICHAPTER I

GLOBAL FDI GROWTH SET TO RESUME

Figure I.1. FDI inflows, global and by group ofcountries, 1980–2003

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

4 World Investment Report 2004: The Shift Towards Services

countries, and for the least developed countries(LDCs) the ratio was close to that of developingcountries as a group. Foreign and domesticinvestors may be expected to respond in a similarway to economic fundamentals (such as economicgrowth) and structural features of countries. But,FDI and domestic investment do not always movein the same direction.4 This suggests that FDImay be influenced by factors that do notnecessarily or equally affect domestic investment.

In the period 2000-2003, the decline in FDIinflows followed the same trend as overallinvestment in most of the countries in the world(figure I.2).

FDI flows need to be seen within thecontext of all other capital flows to developingcountries. They continued to be the largestcomponent of such flows, and their share isincreasing (figure I.3). FDI Inflows accountedfor 72% of all resource flows to developing

Figure I.2. FDI flows and gross fixed capital formation, by group of countries,a 1990-2003(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Domestic investment is defined as the difference between gross fixed capital formation and FDI inflows.

World

Domestic investment

FDI inflows-

1990

1991

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Developed countries

Domestic investment

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5CHAPTER I

countries, six times higher than official flows.This contrasts with the latter half of the 1980sand the early 1990s, when official flows and FDIflows were almost the same, and with the mid-

1990s, when portfolio flows and FDI flows wereroughly equal. FDI is therefore recognized in theMonterrey Consensus as an important source offinancing for development.5 In the LDCs, officialflows were larger than FDI flows between 2000and 2002; but in six LDCs (Angola, Chad,Equatorial Guinea, Myanmar, the Sudan, Togo)FDI inflows exceeded total official developmentassistance (ODA). In 27 out of 50 LDCs, FDIflows grew between 1990 and 2002, while ODAdeclined (figure I.4).

The continued decline in inward FDIflows in 2003 reflected the impact of acombination of macro, micro and institutionalfactors (WIR03). At the macroeconomic level,growth prospects for many countries remaineduncertain. In spite of some recovery in the secondhalf of the year, major stock markets remainedwell below their historical peak of early 2000.6

At the microeconomic level, increasedprofitability starting from the latter half of 2003helped, but did not move FDI inflows upwards.7

High debt-equity ratios8 continued to force largecompanies to downsize their operations. At theinstitutional level, several new accountingscandals in 2003 may have deterred investors.Reflecting the interaction of these factors, thevalue of M&As fell from $370 billion in 2002

Figure I.3. Total resource flowsa to developingcountries,b by type of flow, 1990-2003

(Billions of dollars)

Source: UNCTAD, based on World Bank 2004a.a Defined as net liability transactions or original maturity of

greater than one year.b The World Bank’s classification of developing countries is

different from that of UNCTAD. Central and Eastern Europe isincluded in developing countries.

Figure I.4. Growth trends a in FDI and total ODA flows to LDCs, 1990-2002

Source: UNCTAD, FDI/TNC database (www.unctad.org./fdistatistics) and OECD Development Assistance Committee, InternationalDevelopment Statistics, online databases.

Note: Not including Timor-Leste, which joined the group of LDCs in 2004.a Calculated as the slope of the linear regression for FDI and ODA flows between 1990 and 2002.

6 World Investment Report 2004: The Shift Towards Services

to $297 billion in 2003 – a decline of 20% (annextables B.7 and B.8). There were only 56 megadeals (of $1 billion and over in transaction value)in 2003, a third of the peak number achieved in2000 (table I.1 and annex table A.I.1). The largestsingle deal was the acquisition of HouseholdInternational Inc. (United States) by HSBCHoldings Plc. (United Kingdom) for $15.3billion.

In 2003, over 9,300 greenfield andexpansion FDI projects worldwide wereannounced, at an estimated value of $440 billion.9

China was the leading location for such projectsworldwide, followed by the United States, India,the Russian Federation, the United Kingdom andBrazil. In terms of the announced values ofinvestment, Australia and Canada were theleading locations, due to major capital-intensive,resource-extraction projects. The United Statesretained its position as the leading source for FDIprojects (accounting for over one-fifth in termsof both number and value), followed by Japan,Germany, the United Kingdom and France.

The number of cross-border M&As in2003 was, with more than 4,500 deals, muchlower than the number of greenfield projects.Three of the six countries leading in terms of thenumber of greenfield projects also led in cross-border M&As. The United States was the largesttarget country (722 M&A deals), followed by theUnited Kingdom (459) and Germany (296). In

the developing world, China (214) ranked first(4th place in the world), followed by Hong Kong(China) (108), India (83) and Brazil (69).10 Interms of value, the top nine were all developedcountries, followed by the Russian Federationand Hong Kong (China) (annex table B.7).

An important factor in the decline of FDI,and particularly of M&As, has been a slowdownor end in privatization. The total sale of State-owned assets fell from about $50 billion in 2000to less than $20 billion in 2003 (World Bank2004a). Privatization-related FDI in developingcountries fell to one-tenth the level of 1998, froma record $33 billion that year to $3.5 billion in2003.11 Liquidity and other problems at homelowered TNCs’ interests in privatization. At thesame time, some developing countries,particularly in Latin America, became moresceptical of its benefits. Privatization-related FDIin CEE declined as well.

The pattern of FDI financing (new equityinvestment, intra-company loans, reinvestedearnings) also reflected the macro and microfactors noted above. Intra-company loans byparent firms to their foreign affiliates have fallensince 2001 and were negative in 2003 (figure I.5).They were negative for United States FDI inflowsin both 2002 and 2003 (-$21 billion and -$34billion, respectively) and fell in 2003 in countriesas diverse as Argentina, Indonesia, Sweden andSwitzerland. Equity investment remained volatile.Reinvested earnings were the single largestcomponent of FDI in developing countries,accounting for about 40% (compared to 17% indeveloped countries) of total FDI inflows to thatpart of the world (figure I.5). This underlines theimportance of policies aimed at retainingestablished foreign affiliates through appropriateaftercare services.

The continued liberalization of FDIregimes may have been another factor that helpedreverse the downturn of new TNC activity indeveloping countries in 2003. Worldwide, therewere 244 changes in laws and regulationsaffecting FDI, 220 of which were in the directionof more liberalization (table I.2). At the bilaterallevel, 86 bilateral investment treaties (BITs) and60 double taxation treaties (DTTs) wereconcluded that year, bringing the totals to 2,265and 2,316, respectively (figure I.6). However,the annual number of such treaties concluded hasbeen declining since 2002 in the case of BITsand 2000 in the case of DTTs. By contrast, thenumber of bilateral free trade agreements (FTAs)

Table I.1. Cross-border M&As with values ofover $1 billion, 1987-2003

Number Percentage Value PercentageYear of deals of total ($ billion) of total

1987 14 1.6 30.0 40.31988 22 1.5 49.6 42.91989 26 1.2 59.5 42.41990 33 1.3 60.9 40.41991 7 0.2 20.4 25.21992 10 0.4 21.3 26.81993 14 0.5 23.5 28.31994 24 0.7 50.9 40.11995 36 0.8 80.4 43.11996 43 0.9 94.0 41.41997 64 1.3 129.2 42.41998 86 1.5 329.7 62.01999 114 1.6 522.0 68.12000 175 2.2 866.2 75.72001 113 1.9 378.1 63.72002 81 1.8 213.9 57.82003 56 1.2 141.1 47.5

Source: UNCTAD, cross-border M&A database.

7CHAPTER I

Figure I.5. FDI inflows, by type of financing, 1990-2003a

(Per cent)

Source: UNCTAD, based on IMF Balance of Payments Statistics, CD-ROM, April 2004 and UNCTAD FDI/TNC database (www.unctad.org/fdistatistics).

a The left set of figures is based on full country coverage. The right set of figures is based only on those countries for which dataon all three components are available throughout the period 1999-2003.

8 World Investment Report 2004: The Shift Towards Services

and regional free trade agreements (RTAs) –which, today, typically include provisionscovering FDI – continues to increase, particularlyin Asia (chapter II).

The failure of the WTO MinisterialConference held in Cancún in September 2003meant that no decision was taken on any of theissues under negotiation or consideration in theDoha Work Programme. Intensive consultationsconducted since the Cancún meeting have focusedon subjects that had proved to be particularlycontroversial at that meeting, includinginvestment (one of the four Singapore Issues).A generally shared view emerging from theseconsultations appears to be (as of June 2004) thateach of the Singapore Issues should be treatedon its own merits. However, at the time ofwriting, no decision had been taken with regardto these Issues. The chairpersons of the Working

Groups in which the Singapore Issues had beendiscussed before Cancún had not been designated,and these Groups had not met since Cancún.

2. International productioncontinues to grow

The role of FDI and TNC activity in theglobal economy continues to grow, as reflectedin the sales, assets, value-added (gross product),employment and exports of foreign affiliates. Thedegree of transnationalization is increasing forboth TNCs and the countries in which theyoperate. Each of the above variables has resumedan upward trend since 2002 (table I.3).

UNCTAD’s data show that internationalproduction is carried out by over 900,000 foreignaffiliates of at least 61,000 TNCs worldwide(annex table A.I.2). These affiliates account for

Table I.2. Changes in national regulations on FDI, 1991-2003

Item 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Number of countries that introduced changes

in their investment regimes 35 43 57 49 64 65 76 60 63 69 71 70 82

Number of regulatory changes 82 79 102 110 112 114 151 145 140 150 208 248 244

of which:

More favourable to FDI a 80 79 101 108 106 98 135 136 131 147 194 236 220

Less favourable to FDI b 2 - 1 2 6 16 16 9 9 3 14 12 24

Source: UNCTAD, database on national laws and regulations.a Including liberalizing changes or changes aimed at strengthening market functioning, as well as increased incentives.b Including changes aimed at increasing control as well as reducing incentives.

Figure I.6. Number of BITs and DTTs concluded, cumulative and year to year, 1990–2003

Source: UNCTAD, BIT/DTT database (www.unctad.org/fdistatistics).

9CHAPTER I

an estimated one-tenth of world GDP and one-third of world exports, and their shares areincreasing.

As a result, the degree of transnationalityof host countries12 is continuing to rise. The mosttransnationalized host economy in 2001 wasHong Kong (China), followed by Ireland, andBelgium and Luxembourg (figure I.7). There are,however, large differences in the transnationalityindices of different host countries. Estonia,Ireland, The Former Yugoslav Republic ofMacedonia and Singapore saw theirtransnationality index increase by more than 10percentage points over the previous year. Amongthe three groups of economies, CEE experienced

a notable increase of 4 percentage points in thedegree of transnationality over the previous year.

The bulk of international production isundertaken by a relatively small number of TNCs:the top 100 (less than 0.2% of the total numberof TNCs worldwide) accounted for 14% of thesales of foreign affiliates worldwide, 12% of theirassets and 13% of their employment in 2002,compared with 27%, 21% and 21%, respectively,in 1990.

There have been interesting developmentsin the world’s 100 largest TNCs (box I.1; annextable A.I.3). As measured by UNCTAD’sTransnationality Index – the average of three

Table I.3. Selected indicators of FDI and international production, 1982-2003 (Billions of dollars and per cent)

Value at current prices Annual growth rate Item ($ billion) (Per cent)

1982 1990 2 003 1986-1990 1991-1995 1996-2000 2000 2001 2002 2003

FDI inflows 59 209 560 22.9 21.5 39.7 27.7 -41.1 -17.0 -17.6FDI outflows 28 242 612 25.6 16.6 35.1 8.7 -39.2 -17.3 2.6FDI inward stock 796 1 950 8 245 14.7 9.3 16.9 19.1 7.4 12.7 11.8FDI outward stock 590 1 758 8 197 18.1 10.7 17.1 18.5 5.9 13.8 13.7Cross-border M&As a .. 151 297 25.9b 24.0 51.5 49.3 -48.1 -37.7 -19.7Sales of foreign affiliates 2 717 5 660 17 580c 16.0 10.2 9.7 16.7 -3.8 23.7c 10.7c

Gross product of foreign affiliates 636 1 454 3 706d 17.4 6.8 8.2 15.1 -4.7 25.8d 10.1d

Total assets of foreign affiliates 2 076 5 883 30 362e 18.2 13.9 20.0 28.4 -5.4 19.6e 12.5e

Exports of foreign affiliates 717 1 194 3 077f 13.5 7.6 9.9 11.4 -3.3 4.7f 16.6f

Employment of foreign affiliates (thousands) 19 232 24 197 54 170g 5.6 3.9 10.8 13.3 -3.2 12.3g 8.3g

GDP (in current prices) h 11 737 22 588 36 163 10.1 5.1 1.3 2.7 -0.9 3.7 12.1Gross fixed capital formation 2 285 4 815 7 294 13.4 4.2 2.4 3.8 -3.6 -0.6 9.9Royalties and licence fee receipts 9 30 77i 21.3 14.3 7.7 9.5 -2.5 6.7 ..Exports of goods and non-factor services h 2 246 4 260 9 228 12.7 8.7 3.6 11.4 -3.3 4.7 16.6

Source: UNCTAD, based on its FDI/TNC database (www.unctad.org/fdistatistics) and UNCTAD estimates.a Data are available only from 1987 onward.b 1987-1990 only.c Based on the following regression result of sales against FDI inward stock (in $ million) for the period 1980-2001: Sales = 1

542.5036+1.945042*FDI inward stock.d Based on the following regression result of gross product against FDI inward stock (in $ million) for the period 1982-2001: Gross

product = 493.8792+0.389537*FDI inward stock.e Based on the following regression result of assets against FDI inward stock (in $ million) for the period 1980-2001: Assets = -

1 389.4785+3.850915*FDI inward stock.f For 1995-1998, based on the regression result of exports of foreign affiliates against FDI inward stock (in $ million) for the period

1982-1994: Exports = 288.4750+0.454011*FDI inward stock. For 1999-2003, the share of exports of foreign affiliates in worldexports in 1998 (33.3 per cent) was applied to obtain the values.

g Based on the following regression result of employment (in thousands) against FDI inward stock (in $ million) for the period1980-2001: Employment = 1,5162.6220+4.731003*FDI inward stock.

h Based on data from the International Monetary Fund, World Economic Outlook, April 2004.i 2002.

Note: Not included in this table are the values of worldwide sales by foreign affiliates associated with their parent firms throughnon-equity relationships and the sales of parent firms themselves. Worldwide sales, gross product, total assets, exportsand employment of foreign affiliates are estimated by extrapolating the worldwide data of foreign affiliates of TNCs fromAustria, Estonia, Finland, France, Germany, Hungary, Italy, Japan, Portugal, Sweden, Switzerland and the United States (foremployment), those from Austria, Finland, France, Germany, Hungary, Italy, Japan, Portugal and the United States (for sales),those from Japan and the United States (for exports), those from the United States (for gross product), and those fromAustria, Germany, Japan and the United States (for assets) on the basis of the shares of those countries in worldwide outwardFDI stock.

10 World Investment Report 2004: The Shift Towards Services

Figure I.7. Transnationality indexa of host economies,b 2001

Source : UNCTAD estimates.a Average of the four ratios: FDI inflows to gross fixed capital formation for 1999-2001; FDI inward stocks to GDP in 2001; value

added of foreign affiliates to GDP in 2001; and employment of foreign affiliates to total employment in 2001.b Only the economies for which data for all of these four shares are available were selected. Data on value added are available

only for Belarus, Czech Republic, Finland, France (1998), Hungary, Ireland (2000), Italy (1997), Japan (1999), Netherlands (1996),Norway (1998), Poland, Portugal, Sweden (2000), United Kingdom (1997), United States, China, India (1995), Malaysia (1995), Singapore(2000) and Taiwan Province of China (1994) . For Albania, Bosnia and Herzegovinia, Latvia, Lithuania, Republic of Moldova, Serbiaand Montenegro and Slovakia, the value added of foreign owned firms was estimated on the basis of the per capita inwardFDI stocks. The corresponding ratios for value added refer to 1999. For the other economies, data were estimated by applyingthe ratio of value added of United States affiliates to United States outward FDI stock to total inward FDI stock of the country.Data on employment are available only for Austria, Denmark (1996), Finland, France (1998), Germany, Ireland, Italy (1999), Japan,Netherlands (1996), Norway (1996), Portugal, Sweden, United Kingdom (1997), United States, Hong Kong (China) (1997), Indonesia(1996) and Singapore. For Albania and Bosnia and Herzegovina, the employment impact of foreign owned affiliates was estimatedon the basis of their per capita inward FDI stocks. The corresponding ratios for employment refer to 1999. For the remainingcountries, data were estimated by applying the ratio of employment of Finnish, German, Japanese, Swedish, Swiss and UnitedStates affiliates to Finnish, German, Japanese, Swedish, Swiss and United States outward FDI stock to total inward FDI stock ofthe economy. Data for France, Netherlands, Norway, Sweden and United Kingdom refer to majority-owned foreign affiliatesonly.

11CHAPTER I

Activities of the largest TNCs are pickingup again. Having stagnated in 2001 for the firsttime after years of expansion, the operations ofTNCs on UNCTAD’s list of the world’s 100largest TNCs resumed growth, as measured bythe rise in aggregate and foreign assets and salesin 2002, the latest year for which complete dataare available (box table I.1.1). Foreignemployment in the top 100, however, did notgrow. By contrast, total and foreign sales and totalassets of the top 50 TNCs from developingcountries declined between 2001 and 2002, whiletheir employment, both total and foreign, grew(box I.3). The 25 largest non-financial TNCs fromCEE showed positive and relatively strongergrowth in 2002 in terms of all indicators: assets,sales, employment, both domestic and foreign.

Overall, the rankings in the top 100 listremained fairly stable in 2002 as compared to2001 (annex table A.I.3; WIR03, annex tableA.I.1). In particular, the top end of the list –which was subject to major changes during thestock market boom and the subsequent burstingof the dotcom bubble – remained largelyunchanged. Motor vehicle and petroleumcompanies, along with telecom firms, dominatedthe top ten spots. Given the deflation of assets,

particularly in the telecom industry, it issomewhat surprising that so few companies atthe top end dropped from their 2001 rankings.Further down the list, fewer changes occurredthan might have been expected.

Two-thirds of the new entrants on the 2002list were from the services sector, continuing atrend that has characterized the top 100 over thepast ten years, with retailing, utilities andtelecoms notably up. The number of newcomersin services (nine) in 2002 was the same as in theprevious year. Overall, the top 100 list is moreevenly balanced, with the number of industriesincreasing over a longer period. In manufacturing,the number of pharmaceutical firms fell, possiblybecause of market consolidation; there werefewer electronics TNCs too.

By and large, the size of internationalproduction activities of the companies on the top100 list continued to expand. While there weresome companies with reduced foreign and/or totalassets and sales, aggregate values of mostindicators rose, albeit at a modest pace. Themajority of companies appear to have respondedto the challenging environment facing them in2002 by sticking to their course ofinternationalizing their operations, as indicatedby the faster growth, overall, of foreign assetsas compared to total assets. However, in manycases this internationalization drive seems to havebeen “jobless”: employment, both foreign andtotal, fell. Since aggregate foreign employmentshrank less than total employment, job cutsapparently took place more often at home thanabroad. The average Transnationality Index ofthe top 100 TNCs declined marginally in 2002.

Almost 90% of the top 100 TNCs areheadquartered in the Triad (the EU, Japan, theUnited States). The EU leads with more than halfof the top 100. The United States accounts forslightly more than a quarter, while Japan’s sharehas decreased over the years to fewer than ten.The number of TNCs from non-Triad countrieshas risen to more than ten over the years.Altogether, the top 100 TNCs now come from19 countries. Although non-Triad TNCs,including a number from smaller economies,account for a relatively small proportion of thetop 100 TNCs, their average TransnationalityIndex is higher.

Box I.1. Developments in the world’s 100 largest TNCs in 2002

Box table I.1.1. Snapshot of the world’s100 largest TNCs, 2001, 2002

(Billions of dollars, thousands of employeesand per cent)

2001 2002 Change 2002

Variable Foreign Foreign vs. 2001

Value share Value share (Per cent)

Assets Foreign 2 958 48. 9 3 317 48.1 12.1 Total 6 052 6 891 13.9Sales Foreign 2 247 50. 5 2 446 57.5 8.9 Total 4 450 4 749 6.7Employment Foreign 7 038 51. 1 7 036 49.1 -2.8 Total 13 783 14 332 4.0Average index oftransnationality 58 57 -1.7a

Source: UNCTAD/Erasmus University database.

a The change between 2001 and 2002 is expressed inpercentage points.

Source: UNCTAD.

12 World Investment Report 2004: The Shift Towards Services

ratios related to the size of TNCs’ operations:foreign sales to total sales, foreign assets to totalassets and foreign employment to totalemployment – the world’s most transnationalizedTNC among the top 100 in 2002 was NTL(United States). Naturally, the transnationalityof firms can be measured in several differentways (see annex to chapter I). If the networkspread index (annex table A.I.4) is used,reflecting the geographic spread of foreignaffiliates, the most transnationalized TNC wasDeutsche Post World Net;13 and if thecomposition of headquarters’ management boardmembers is considered, Hutchison Whampoa(Hong Kong, China) led the pack, with 11 of 14board members being foreign nationals.14

3. Many countries have not realizedtheir potential

a. Indices of Inward FDIPerformance and Potential

This is the fourth set of WIR benchmarksof inward FDI performance and potential.

The UNCTAD Inward FDIPerformance Index is a measure ofthe extent to which host countriesreceive inward FDI. The Index rankscountries by the amount of FDI theyreceive relative to their economicsize, calculated as the ratio of acountry’s share in global FDI inflowsto its share in global GDP. A valuegreater than one indicates that thecountry attracts more FDI inproportion to its economic size, avalue below one shows that i treceives less (a negative valueindicates that foreign investorsdisinvested in that period). Thus, ahigher index implies success in thecompetition, explicit or implicit, toattract FDI.15

By region. How did regionsfare in the Inward FDI PerformanceIndex in 2003? The group ofdeveloped countries suffered a slightdecline in its relative position,reflecting the large drop in FDI (onaccount of the slowdown in M&As)in these countries. Within the group,the largest declines were in the EU

and North America. “Other developed countries”– mainly Japan, Australia – improved (table I.4).

All of the developing regions improvedtheir performance index rank in 2001-2003, butremained below the peak reached in 1993-1995(except Latin America). This is in contrast to therelative stagnation of the developed regions.However, large regional variations exist (figureI.8).

The best performer in the Index wasCentral Asia, both in the index score and its riseover the previous period; the sharp rise in itsindex reflects lumpy resource-based (oil and gas)foreign investments in a few countries. Thesecond best performer in index value was Eastand South-East Asia and, in terms ofimprovement over the previous period, “otherAfrica” (i.e. sub-Saharan Africa). Over the periodas a whole, however, South America showed thelargest improvement in the index.

Two regions had indices below unity inthe last period: West Asia and South Asia. Sincethe former region saw high political instability,its low ranking may not be surprising. South Asia

Table I.4. Inward FDI Performance Index, by region,1988-2003a

Region 1988-1990 1993-1995 2000-2002 2001-2003

World 1.00 1.00 1.00 1.00Developed regions 1.03 0.76 0.99 0.92

Western Europe 1.33 1.11 1.87 1.84European Union 1.33 1.12 1.91 1.88Other Western Europe 1.31 0.95 1.10 1.12

North America 1.13 0.76 0.67 0.45Other developed countries 0.29 0.21 0.16 0.21

Developing regions 0.99 1.99 1.00 1.25Africa 0.70 1.09 0.73 1.16

North Africa 0.85 1.05 0.55 1.00Other Africa 0.59 1.12 0.89 1.28

Latin America and the Caribbean 0.90 1.60 1.18 1.42South America 0.74 1.23 1.24 1.42Other Latin America and the Caribbean 1.30 2.52 1.08 1.43Asia 1.09 2.34 0.96 1.19

West Asia 0.30 0.36 0.18 0.31Central Asia .. 3.11 2.26 4.49South, East and South-East Asia 1.31 2.74 1.11 1.33

East and South-East Asia 1.73 3.25 1.30 1.54South Asia 0.11 0.43 0.21 0.37

The Pacific 7.35 6.12 0.65 1.01 Central and Eastern Europe 1.04b 1.36 1.17 1.35

Source: UNCTAD.a Three-year averages.b 1992-1994. As most of the countries in this region did not exist in their present

form before 1992, the period for the index is adjusted.

13CHAPTER I

underperformed for other reasons, mainly ahistoric legacy of inward-lookingindustrialization, poor infrastructure and (in somecountries) political uncertainties.

By country. Belgium/Luxembourgcontinued to lead the performance index (tableI.5; annex table A.I.5 for time-series data), havingbeen the leader since 1998-2000. In part, thisreflects Luxembourg’s regime that favoursfinancial FDI and involves transshipped FDI(WIR03). Azerbaijan came third (having risenfrom 35th place in 1999-2001 and 13th in 2000-2002) as a result of large investments in its oiland gas industry. In fourth place was Ireland,which had held the same rank in 1998-2000 andthird place in the previous period; Ireland is asuccess story, with a history of steadily improvingits locational advantages and competitivenessover time (it held 50th place in the mid-1990s).The bottom place continued to be held bySuriname, with Indonesia just ahead.

Of the top 20 performers, 3 weredeveloped countries, 2 mature East Asian newlyindustrializing economies, 5 transition economiesand 10 other developing countries (including 3from sub-Saharan Africa). Many high performersin the developing and transition economies wererelatively small, with lumpy FDI inflows inresource-based activities or privatization (thethree leading developing countries, holding ranks2, 3 and 5, are all small resource-basedeconomies).

The spread of countries over the Indexreflects a mixture of economic, political andpolicy-induced factors; the ranks do not appearto reflect any consistent correlation with levelsof development. Of the highly developedcountries, Japan continued to come last, at 132nd

place, a continuing legacy of i ts small FDIreceipts, despite recent proactive FDI policies(box II.21). The United States also rankedrelatively low (112th place), a sharp deteriorationover the previous period when it came 92nd (andfrom even earlier when it was 77th). The declinereflects a sharp drop in inward M&As, with GDPremaining relatively steady. Over the long term,despite being the largest recipient of FDI, theUnited States has always ranked comparativelylow relative to i ts GDP. Other developedcountries performed better, with Sweden at 42nd

place, France 50th, the United Kingdom 83rd,Italy 98th and Germany 102nd.

Among the major developing economies,China ranked 37th, an improvement over itsprevious rank of 50th. Rather like the UnitedStates, China is a small recipient of FDI relativeto its GDP, even though it dominates thedeveloping world as an FDI host. Brazil ranked46th, a worsening over 37th the two previousyears. India ranked 114th, a gradual improvementover 121st in the previous year (and roughly thesame as the previous few years). Mexico gainedits ranking steadily from 73rd in the four earlierperiods to 61st in the most recent period. Onestriking feature of the Index calculation is the

Figure I.8. Inward FDI Performance Index, by developing region, 1988–1990, 1993–1995,2000–2002, 2001–2003

Source: UNCTAD.

14 World Investment Report 2004: The Shift Towards Services

sharp deterioration in Malaysia’s FDIperformance. From ranking among the top 10 tillthe mid-1990s, Malaysia fell in ranking everyyear in the latter part of the decade, reaching 75th

place in 2001-2003. For an economy that dependsheavily on FDI to drive its exports, this may because for concern, especially since the reasonsare not clear.

In the South-East Asian region, Indonesiacontinued to perform poorly, coming 139th in thelast two periods; however, the reason here isclearer – the persistence of political and financialuncertainty following the Asian financial crisis.The two mature Asian Tigers that have, likeJapan, been fairly restrictive towards FDI, arethe Republic of Korea and Taiwan Province ofChina; they continued to rank low on the Index,at positions 120 and 117, respectively.

There have been some unexpected“winners” and “losers” in the FDI Performance

Index over the five-year span from 1996-1998to 2001-2003 (figure I.9). Slovakia showed thelargest improvement, moving up 64 places; thencame Mongolia, The Former Yugoslav Republicof Macedonia, the Sudan and the DemocraticRepublic of the Congo, all small economies thathave only recently opened up to FDI. The largestlosers included Zimbabwe (due to politicaluncertainty), Malaysia (reasons unclear as noted)and Argentina (macroeconomic disturbances).

Given the volatility inherent in any FDIflow index, too much importance should not begiven to changes in ranking. Performance ranksare very unstable.16 It is not possible to separatethe elements causing instabili ty; nor is i tdesirable, since political or economic turbulence,policy changes, privatizations and the like arecentral to TNC location decisions. Nevertheless,as noted in listings of the Index in earlier WIRs,there is a tendency for the more advanced andlarger countries to be relatively stable in the

Table I.5. Rankings by Inward FDI Performance Index, 2001-2003

1 Belgium and Luxembourg 36 Spain 71 Portugal 106 Paraguay2 Brunei Darussalam 37 China 72 Venezuela 107 Niger3 Azerbaijan 38 Dominican Republic 73 Ukraine 108 Norway4 Ireland 39 Viet Nam 74 Congo, Democratic Republic of 109 Malawi5 Angola 40 Denmark 75 Malaysia 110 Turkey6 Singapore 41 Latvia 76 Zambia 111 Ethiopia7 Gambia 42 Sweden 77 South Africa 112 United States8 Kazakhstan 43 Finland 78 Austria 113 Uzbekistan9 Hong Kong, China 44 Albania 79 Australia 114 India

10 Estonia 45 Panama 80 Papua New Guinea 115 Kyrgyzstan11 Bolivia 46 Brazil 81 Malta 116 Libyan Arab Jamahiriya12 Slovakia 47 United Republic of Tanzania 82 Tajikistan 117 Taiwan Province of China13 Czech Republic 48 Costa Rica 83 United Kingdom 118 Argentina14 Trinidad and Tobago 49 Switzerland 84 Jordan 119 Russian Federation15 Mongolia 50 France 85 Myanmar 120 Korea, Republic of16 Netherlands 51 Bahrain 86 Uruguay 121 Syrian Arab Republic17 Nicaragua 52 Mali 87 Thailand 122 Sierra Leone18 Namibia 53 Slovenia 88 El Salvador 123 Egypt19 Croatia 54 Togo 89 Iceland 124 Yemen20 Jamaica 55 Lithuania 90 Lebanon 125 Guinea21 Bulgaria 56 Bahamas 91 Algeria 126 Oman22 Congo 57 Botswana 92 Benin 127 Greece23 Mozambique 58 Tunisia 93 Cameroon 128 Rwanda24 Cyprus 59 Honduras 94 Ghana 129 Kenya25 Moldova, Republic of 60 Israel 95 Gabon 130 Nepal26 Guyana 61 Mexico 96 Philippines 131 Burkina Faso27 Georgia 62 Romania 97 Pakistan 132 Japan28 Ecuador 63 Peru 98 Italy 133 Bangladesh29 Sudan 64 Colombia 99 Belarus 134 Haiti30 Armenia 65 New Zealand 100 Guatemala 135 Zimbabwe31 TFYR Macedonia 66 Côte d’Ivoire 101 United Arab Emirates 136 Iran, Islamic Republic of32 Morocco 67 Qatar 102 Germany 137 Kuwait33 Hungary 68 Poland 103 Senegal 138 Saudi Arabia34 Chile 69 Nigeria 104 Sri Lanka 139 Indonesia35 Uganda 70 Canada 105 Madagascar 140 Suriname

Source: UNCTAD calculations.

15CHAPTER I

Figure I.9. Main winners and losers in the InwardFDI Performance ranking, 1996-1998 to

2001-2003(Changes in ranking)

Source: UNCTAD.

Index, though their rankings shift due to thechanges in “newcomers” with more volatilepositions.

The UNCTAD Inward FDI PotentialIndex, consisting mainly of structural variables,is far more stable than the Performance Index.Of the 12 variables comprising the PotentialIndex (see annex table A.I.6 for the raw data onindividual variables),17 only country risk and,to a lesser extent, trade-related measures, tendto vary sharply from one period to the next. Thus,the correlation coefficient between the PotentialIndex values for the sample countries overprevious years is high and rises steadily over time(WIR03). This testifies to the structural natureof the measure.

This WIR presents, for the first time,Inward FDI Potential Indices averaged acrossdifferent groups of countries: the world as awhole, developed countries, developingeconomies and Central and Eastern Europe (tableI.6).

For the world as a whole, the averagepotential for attracting FDI has remained fairlystable. At the country level, the United States

Table I.6. Inward FDI Potential Index,by group of economies, average scores,

1988-2002a

Developed Developing Central and Perioda World countries countries Eastern Europe

1988-1990 0.187 0.374 0.138 ..1989-1991 0.186 0.373 0.137 ..1990-1992 0.208 0.371 0.169 ..1991-1993 0.208 0.372 0.172 ..1992-1994 0.209 0.373 0.173 0.1841993-1995 0.225 0.407 0.185 0.2011994-1996 0.221 0.395 0.184 0.1871995-1997 0.217 0.393 0.180 0.1801996-1998 0.224 0.398 0.186 0.2031997-1999 0.224 0.402 0.184 0.2041998-2000 0.221 0.403 0.179 0.2041999-2001 0.220 0.400 0.178 0.2112000-2002 0.220 0.396 0.177 0.221

Source: UNCTAD.

Note: Data for the world and the major country groupsshown above are averages of the scores for 140economies, as follows: 24 developed countries; 99developing economies; and 17 Central and EasternEurope economies. They are based on 12 economicand policy variables.

a Three-year moving averages.

Table I.7. Top 25 rankings by the Inward FDIPotential Index, 1988-2002

Economy 1988-1990 1996-1998 2000-2002

United States 1 1 1 Norway 4 3 2 United Kingdom 3 5 3 Singapore 12 2 4 Canada 2 4 5 Belgium and Luxembourg 10 8 6 Ireland 24 18 7 Qatar 22 20 8 Germany 7 6 9 Sweden 5 7 10 Netherlands 9 9 11 Hong Kong, China 17 14 12 Finland 8 13 13 France 6 10 14 Iceland 15 19 15 Japan 13 12 16 United Arab Emirates 29 11 17 Korea, Republic of 20 21 18 Denmark 16 16 19 Switzerland 11 17 20 Taiwan Province of China 21 24 21 Australia 14 15 22 Israel 27 25 23 Austria 19 22 24 Spain 25 26 25

Source: UNCTAD, based on annex table A.I.7.

16 World Investment Report 2004: The Shift Towards Services

remained in first place throughout the period1988-2002 (table I.7). Among the 25 leadingeconomies, the countries showing biggestimprovements in rank were Ireland and Qatar(annex table A.I.7 for all economies). The leadingeconomies in the Potential Index were, as before(WIR03), developed countries, the four AsianTigers and, in the period 2000-2002, two oil-richeconomies from West Asia. China, the largestrecipient of FDI in the developing world, was39th by FDI potential ranking.

A comparison between nationalperformance according to the FDI Potential andPerformance indices yields insights in terms ofthe factors that may cause a discrepancy betweenactual FDI inflows and the structural variablesthat affect FDI (table I.8). Countries can begrouped according to a matrix divided into fourquadrants:

• Front-runners: countries with high FDIpotential and performance.

• Above potential: countries with low FDIpotential but strong FDI performance.

• Below potential: countries with high FDIpotential but low FDI performance.

• Under-performers: countries with both lowFDI potential and performance.

As before, there are no real surprises forthe first and last groups. The first group includesmany developed, newly industrializing andadvanced transition economies as well as a fewdeveloping countries. The last group mainly haspoor (or unstable) economies, but it also includescountries affected by economic shocks such asArgentina and Indonesia. It too has some largeeconomies such as India and Nigeria, andresource-rich countries like Venezuela, which,for various reasons, are performing below theireconomic potential. In policy terms, the firstgroup has to ensure its continuing success andthe latter group to boost its performance in bothattracting FDI and enhancing its potential.

The other two groups are of moreinterest. The above-potential countries are“hitting above their weight” in drawing more FDIthan their potential warrants, and the belowpotential ones are doing the opposite. The firstset should be concerned about raising theirpotential if they are to sustain past FDIperformance, and the second should address theshortcomings that prevent their structural FDI

potential from being realized. The below-potential economies include the United States,Australia, Egypt, Italy, Japan, the Republic ofKorea, South Africa, Taiwan Province of Chinaand Thailand.

b. The Outward FDI PerformanceIndex

WIR04 introduces an index of OutwardFDI Performance, calculated in the same wayas the Inward FDI Performance Index: the worldshare of a country’s outward FDI as a ratio ofits share in world GDP. The Outward FDI Indexcaptures two aspects of performance:

• A high index value indicates that a country’sfirms have strong “ownership advantages”that they are exploiting abroad, or wish toaugment through foreign expansion.Ownership advantages are firm-specificcompetitive strengths of TNCs (or potentialTNCs) arising from e.g. innovation, brandnames, managerial and organizational skills,privileged access to information, financialor natural resources, historical or culturallinks and size and network advantages. Inthe case of utilities, ownership advantagesmay arise from recent privatization andfinancial strength (to buy up privatizedutilities elsewhere). Although they are firm-specific, many of these advantages areclosely related to a home country’seconomic characteristics and competitivestrengths. They may also capture strategicfactors such as the need to establish aproduction presence in a dynamic newmarket, to follow major competitors abroador to decentralize regional operations todiversify risk.

• A high index value may also indicate thata home country may be less desirable as aplace to undertake (specific) productiveactivities relative to foreign locations; hencefirms choose to deploy ownershipadvantages elsewhere. These “locationfactors” may reflect purely economic factorsin home and host economies (e.g. relativemarket size, production or transport costs,skills, supply chains, infrastructure,technology support), but they can alsoreflect policy and institutional differences(such as protection, taxes or labourregulations and FDI-related policies).

17CHAPTER I

High FDI potential

Low FDI potential

High FDI potential

Low FDI potential

High FDI potential

Low FDI potential

Source: UNCTAD.

Table I.8. Matrix of inward FDI performance and potential, 1988-1990, 1993-1995, 2000-2002

High FDI performance

2000-2002

Front-runners

Bahamas, Belgium and Luxembourg, Botswana, Brazil, BruneiDarussalam, Bulgaria, Canada, Chile, China, Costa Rica, Croatia,Cyprus, Czech Republic, Denmark, Dominican Republic, Estonia,Finland, France, Germany, Guyana, Hong Kong (China), Hungary,Ireland, Israel, Jordan, Latvia, Lithuania, Malaysia, Malta, Mexico,Mongolia, the Netherlands, New Zealand, Panama, Poland,Por tugal, Singapore, Slovakia, Slovenia, Spain, Sweden,Switzerland, Trinidad and Tobago, United Kingdom, Viet Nam.

Above potentialAlbania, Angola, Armenia, Azerbaijan, Bolivia, Colombia, Congo,Ecuador, Gambia, Georgia, Honduras, Jamaica, Kazakhstan, Mali,Morocco, Mozambique, Namibia, Nicaragua, Republic of Moldova,Sudan, TFYR Macedonia, Togo, Tunisia, Uganda, United Republicof Tanzania.

1993-1995Front-runners

Argentina, Austral ia, Bahamas, B ahrain, Belgium andLuxembourg, Brunei Darussalam, Canada, Chile, China, Costa Rica,Czech Republic, Denmark, Dominican Republic, Estonia, France,Guyana, Hong Kong (China), Hungar y, Indonesia, Ireland,Jamaica, Malaysia, Malta, Mexico, the Netherlands, New Zealand,Norway, Panama, Papua New Guinea, Poland, Qatar, Republic ofMoldova, Singapore, Slovakia, Spain, Sweden, United Kingdom.

Above potentialAlbania, Angola, Azerbaijan, Bolivia, Colombia, Congo, Côted'Ivoire, Ecuador, Egypt, Gambia, Ghana, Honduras, Kazakhstan,Kyrgyzstan, Latvia, Mali, Morocco, Mozambique, Myanmar,Namibia, Nicaragua, Nigeria, Paraguay, Peru, Phil ippines,Tajikistan, Trinidad and Tobago, Tunisia, Uganda, United Republicof Tanzania, Viet Nam, Yemen, Zambia.

1988-1990Front-runners

Australia, Bahrain, Belgium and Luxembourg, Botswana, Canada,Chile, China, Colombia, Costa Rica, Cyprus, Denmark, France,Greece, Hong Kong (China), Indonesia, Ireland, Malaysia, Malta,Mexico, the Netherlands, New Zealand, Norway, Oman, Portugal,Singapore, Spain, Sweden, Switzerland, Taiwan Province of China,Thailand, Trinidad and Tobago, United Kingdom, United States,Venezuela.

Above potentialArgentina, Benin, Bolivia, Dominican Republic, Ecuador, Egypt,Gabon, Gambia, Guatemala, Guyana, Honduras, Jamaica, Malawi,Myanmar, Niger, Nigeria, Papua New Guinea, Paraguay,Philippines, Sierra Leone, Syrian Arab Republic, Togo, Tunisia, VietNam, Zambia.

Low FDI performance

Below potential

Australia, Austria, Bahrain, Belarus, Egypt, Greece, Iceland,Islamic Republic of Iran, Italy, Japan, Kuwait, Lebanon,Libyan Arab Jamahiriya, Norway, Oman, Philippines, Qatar,Republic of Korea, Russian Federation, Saudi Arabia, SouthAfrica, Taiwan Province of China, Thailand, United ArabEmirates, United States.

Under-performersAlgeria, Argentina, Bangladesh, Benin, Burkina Faso,Cameroon, Côte d'Ivoire, Democratic Republic of theCongo, El Salvador, Ethiopia, Gabon, Ghana, Guatemala,Guinea, Hait i , India, Indonesia, Kenya, Kyrgyzstan,Madagascar, Malawi, Myanmar, Nepal, Niger, Nigeria,Pakistan, Papua New Guinea, Paraguay, Peru, Romania,Rwanda, Senegal, Sierra Leone, Sri Lanka, Suriname, SyrianArab Republic, Taj ikistan, Turkey, Ukraine, Uruguay,Uzbekistan, Venezuela, Yemen, Zambia, Zimbabwe.

Below potentialAustria, Botswana, Bulgaria, Cyprus, El Salvador, Finland,Germany, Greece, Iceland, Islamic Republic of Iran, Israel,Italy, Japan, Jordan, Kuwait, Libyan Arab Jamahiriya,Oman, Portugal, Republic of Korea, Russian Federation,S audi Arabia, Slovenia, South Africa, Suriname,Switzerland, Taiwan Province of China, Thailand, Ukraine,United Arab Emirates, United States, Uruguay, Uzbekistan,Venezuela.

Under-performersAlgeria, Armenia, Bangladesh, Belarus, Benin, Brazil,Burkina Faso, Cameroon, Croatia, Democratic Republic ofthe Congo, Ethiopia, Gabon, Georgia, Guatemala, Guinea,Haiti, India, Kenya, Lebanon, Lithuania, Madagascar,Malawi, Mongolia, Nepal, Niger, Pakistan, Romania,Rwanda, Senegal, Sierra Leone, Sri Lanka, Sudan, SyrianArab Republic, TFYR Macedonia, Togo, Turkey, Zimbabwe.

Below potentialAlgeria, Austria, Bahamas, Brazil, Brunei Darussalam,Finland, Germany, Hungary, Iceland, Islamic Republic ofIran, Israel, Italy, Japan, Kuwait, Libyan Arab Jamahiriya,Panama, Poland, Qatar, Republic of Korea, Saudi Arabia,South Africa, Suriname, United Arab Emirates, Uruguay.

Under-performersAngola, B angladesh, Burkina Faso, Cameroon, Côted'Ivoire, Congo, Democratic Republic of the Congo, ElSalvador, Ethiopia, Ghana, Guinea, Haiti, India, Jordan,Kenya, Lebanon, Madagascar, Mali, Morocco, Mozambique,Namibia, Nepal, Nicaragua, Pakistan, Peru, Rwanda,Senegal, Sri Lanka, Sudan, Turkey, Uganda, United Republicof Tanzania, Yemen, Zimbabwe.

18 World Investment Report 2004: The Shift Towards Services

The fact that some activities are no longerperformed at home by a TNC does not mean thatits home country is uncompetitive in a generalsense. On the contrary, as a country develops andwages rise, its comparative advantages move upthe skills and technology scale. The relocationof simpler activities overseas may well be anintegral part of such upgrading. TNCs rarelymove all their activities overseas; they generallyretain the highest value functions (e.g. R&D,strategic decision-making) at home. In addition,overseas investment may be part of a firm’sefforts to assemble a portfolio of locational assets(WIR95) as a source of global competitiveness.Indeed, often FDI is necessary to maintain exportcompetitiveness, regardless of production costs.Increasingly, firms also invest abroad to tapspecialized innovation and skills in othercountries. Thus, location factors are a mix of“push” and “pull” forces in home and hosteconomies.

The Outward FDI Performance Indexdoes not distinguish between ownership andlocation factors. Theory suggests that the moreindustrialized countries – whose firms havegreater ownership advantages and fewerlocational advantages in simple activities – havehigher index values than lessdeveloped ones. Given levelsof development, larger homecountries can be expected tohave less outward FDI inrelation to their size thansmaller economies. And, givendevelopment and size,historical and location factorsshould affect the ratio. Finally,special factors can affectoutward FDI: tax havens oroffshore financial centresshould have high valuesrelative to their size.

The Index can becalculated on the basis ofoutward FDI flows or stocks:flows reflect current FDIactivity, while stocks reflectaccumulated activity. Both aresubject to caveats on FDI dataand the ambiguous nature ofthe origin of some FDI flowsand stocks. “Roundtripping”,where investment is madeabroad for tax reasons and ends

up back in the home country (e.g. in China), isone such problem.

Bearing in mind these qualifications, theOutward FDI Performance Index for flows for2000-2002 is considered here (see table I.9 forthe top 20 performers and annex table A.I.8 forall countries). As expected, the list of leaderscontains several tax havens and offshore financialcentres, the outward FDI of which originateselsewhere. Apart from these, most of the leadersare high-income economies. Of 11 economieswith ratios above two, six are European; theremaining five are developing economies,including Hong Kong (China) and Singapore,both of which are rich and also act as conduitsfor investment from elsewhere. The largerdeveloped economies – Germany, the UnitedStates, Japan – have low values, suggesting thateven these major outward investors (in absoluteterms) have some way to go before they reachthe levels of outward FDI that would be expectedof them.

Most developed countries have seen anincrease in their outward FDI indices over time.The faster rise in FDI than their share of globalGDP indicates that their enterprises are buildingownership advantages more rapidly and/or are

Table I.9. Outward FDI Performance Index for the 20 leadinginvestor economies, 1988-2003a

Rank Economy 1988-1990 1993-1995 1999-2001 2000-2002 2001-2003

1 Belgium and Luxembourg 2.676 2.087 12.620 16.160 22.7412 Panama 7.243 2.671 1.254 3.049 6.5483 Singapore 2.892 4.783 3.579 3.695 5.1044 Netherlands 3.872 3.964 4.904 5.090 4.6435 Azerbaijan .. .. 0.993 1.057 3.7646 Hong Kong, China 3.370 14.911 5.760 6.813 3.4777 Sweden 4.540 2.688 3.035 3.120 2.3298 Bahrain 0.559 1.203 0.540 0.647 2.3099 Switzerland 3.442 3.562 4.040 3.541 2.303

10 France 1.844 1.292 2.996 2.914 2.20911 Spain 0.429 0.636 2.317 2.500 2.17812 Denmark 1.107 1.650 3.624 3.524 1.92113 Canada 0.905 1.402 1.459 1.865 1.86914 United Kingdom 2.963 2.927 3.559 2.791 1.60315 Portugal 0.161 0.357 1.718 2.052 1.48716 Australia 0.947 0.722 0.343 0.687 1.42117 Iceland 0.059 0.277 1.091 1.462 1.40718 Cyprus 0.036 0.181 0.649 0.966 1.38219 Botswana 0.076 0.405 0.776 1.022 1.33420 Ireland 1.895 0.778 1.579 1.397 1.251

Source: UNCTAD.

Notes: Economies are ranked in descending order of their performance index in 2001-2003. Figures were calculated based on outward flows.

a Three-year moving averages.

19CHAPTER I

choosing to exploit their advantages in foreignlocations. Some, such as Finland, are goingoverseas at a particularly fast pace, driven in thiscase by Nokia, a firm in an industry that is highlydynamic and transnationalized. The index forHong Kong (China) has risen at an exceptionallyfast pace, but this reflects in part its peculiarsituation as a staging post for FDI into China andas a recipient of roundtripping by Chineseenterprises.

The Index based on outward FDI stockshows similar patterns (annex table A.I.9): thereare nine economies with performance ratiosabove two, of which six are European; and theother three are Hong Kong (China), Panama andSingapore. Belgium-Luxembourg and Hong Kong(China) are again outliers. Germany is not belowaverage by this measure, but the United Statesand Japan are. Among developing economiesother than the three mentioned above, the highestperformance ratios are seen for Malaysia, Bahrainand Bahamas, followed by Taiwan Province ofChina, Botswana and South Africa.

BBBBB. Outw. Outw. Outw. Outw. Outwararararard FDI frd FDI frd FDI frd FDI frd FDI fromomomomomdededededevvvvveloping countries iseloping countries iseloping countries iseloping countries iseloping countries is

becoming imporbecoming imporbecoming imporbecoming imporbecoming importanttanttanttanttant

As in the past, TNCs from developedcountries will drive the recovery of world FDIflows. But those from developing countries, too,will contribute, increasingly so in manufacturingand especially in services. Some developingeconomies (e.g. Malaysia, the Republic of Korea,Singapore) already have an established trackrecord. Others – such as Chile, Mexico, SouthAfrica – have become players relativelyrecently. And again others – Brazil, China,India – are at the take-off stage. This reflectsthe recognition of firms that, in a globalizingworld economy, they need a portfolio oflocational assets to be competitiveinternationally (WIR95). Their investmentsspan all sectors and country groups andinvolve complex as well as simple industries(annex table A.I.19). If outflows are viewedin relation to gross fixed capital formation(table I .10), a number of developingeconomies (Singapore, Hong Kong (China),Taiwan Province of China) rank higher thana number of developed countries (Germany,Japan, the United States). This suggests thata number of developing countries, relatively

speaking, are already among top investors. (Whenstock is taken as the basis, this is also the case(annex table B.6).)

What is happening?

Annual FDI outflows from developingcountries have grown faster over the past 15 yearsthan those from developed countries. Negligibleuntil the beginning of the 1990s (figure I.10),outward FDI from developing countriesaccounted for over one-tenth of the world totalstock and some 6% of world total flows in 2003($0.9 trillion and $36 billion, respectively). FDI

Table I.10. FDI outflows as a percentage ofgross fixed capital formation in selected

developing economies, 2001-2003a

(Per cent)

Economy Value

Singapore 36.3Hong Kong, China 28.2Taiwan Province of China 10.5Chile 7.4Malaysia 5.3India 1.0China 0.8Brazil 0.2

Memorandum:Sweden 27.4France 22.0United Kingdom 19.0United States 6.6Germany 4.1Japan 3.2Greece 1.8

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

a Annual average.

Figure I.10. FDI outflows from developingcountries, by region, 1980–2003

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

20 World Investment Report 2004: The Shift Towards Services

from developing countries to other developingcountries seems to be growing faster than thatfrom developing countries to developed countries(box I.2). Some developing economies are nowlarge investors by global standards. In 2003, forinstance, Hong Kong (China) had a largeroutward FDI stock than Sweden, even ifroundtripping and indirect FDI is taken intoaccount.18 Its TNCs figure prominently amongthe leading TNCs from the developing world,along with those from Singapore, Mexico and,more recently, South Africa (box I.3).

There is, however, considerable regionalvariation in outward FDI performance. Asia, ledby South, East and South-East Asia, was by farthe largest outward investor in the developingworld, followed by Latin America (table I.11).In recent years, FDI from Africa and Asia hasbeen rising, while outflows from Latin Americaand the Caribbean have stagnated. Overall ,however, the share of developing countries inoutward FDI may rise as developing-countrygovernments increasingly realize its benefits andencourage it further.19 The following briefly

In the 1990s, many developing countriesemerged as significant sources of FDI to otherdeveloping countries. Due to the lack of data atthe desired level of disaggregation, indirect data(Aykut and Ratha 2004) suggest that by the endof the decade, more than one-third of the FDI indeveloping countries originated from otherdeveloping countries. According to theseestimates, South-South FDI flows appear to havegrown faster than FDI from high-income countriesto developing countries (North-South FDI) in thelate 1990s, and have remained relatively moreresilient in the post-Asian-crisis period as well.

The rise in South-South FDI flows has beenmotivated by similar push and pull factors, andsimilar structural, cyclical and policy factors, asthe surge in North-South FDI flows. Some of thepush factors include increased competition orlimited growth opportunities in their domesticmarkets (e.g. South African retailing companiesin Africa), efficiency-seeking (e.g. Malaysianmanufacturing companies in Indonesia and VietNam) and procurement of raw materials (e.g.China’s investments in iron ore and steel millsin Peru, oil in Angola and the Sudan). In additionto low labour costs and market-accessopportunities, the most important pull factors forSouth-South FDI flows appear to be geographicproximity and ethnic and cultural ties. Since thecost of acquiring reliable information about foreignmarkets can be high for relatively small companiesfrom the South, they tend to invest in neighbouringcountries, where they have established a certainfamiliarity through trade or ethnic and culturalties. For example, perhaps because of ethnic ties,companies from the Republic of Korea invest in

Kazakhstan, and ethnic Chinese companies investin the East Asia and Pacific region.a

South-South FDI also benefits from fiscaland other incentives provided by developing-country governments. For example, China ispromoting outward FDI by offering loans onpreferential terms, tax rebates and investmentinsurance (WIR01). The Government of Malaysiaencourages South-South FDI flows through specialdeals signed with such countries as India, thePhilippines, Viet Nam and the United Republicof Tanzania (Mirza 2000). Regional tradingarrangements also contribute to the growth inSouth-South FDI. Since the late 1990s, increasingwealth in some emerging-market economies hasincreased the supply of capital; and capital-accountliberalization in developing countries has enabledtheir companies to invest in other developingcountries.

The growing importance of South-South FDIindicates that developing countries are morefinancially integrated with one another than waspreviously believed. Thus, a typical developingcountry has access to more sources of investmentthan before. This is particularly important for smalleconomies, as TNCs from the South, because oftheir comparative advantages, tend to invest incountries with similar or lower levels ofdevelopment than their home countries.

South-South FDI is expected to remainsignificant for developing countries (World Bank2004). In particular, investment from China isbound to increase as the Government has decidedto relax restrictions on outward investment, partlyto ease the pressure of rising international reserveson the fixed currency regime (UNCTAD 2003).

Box I.2. South-South FDI flows rose in the 1990s

Source: Aykut and Ratha 2004.

a For a different interpretation, see Mathews 2002.

21CHAPTER I

examines outward FDI performance by regionand analyses FDI outflows from a few of themajor investors in the developing world.

In Africa, five countries – South Africa,Nigeria, the Libyan Arab Jamahiriya, Liberia,Botswana (in that order) – dominated outwardFDI in 2003. They accounted for 84 % of Africa’stotal outward stock of $39 billion (table I.11 andannex table B.4). The continent’s outward FDI,small as it is, has been rising since the late 1980s

(figure I.11), mainly because of the expansionof South African firms within and, especially,outside Africa (South Africa accounted for about60% of Africa’s FDI outflows as well as FDIoutward stock in 2003; annex tables B.2 and B.4).Outflows from the region were almost $2 billionduring the first half of the 1990s.20

South Africa is by far the most importantAfrican outward investor. It ranked ninth amongdeveloping economies in 2003 in terms of

UNCTAD has published a list of the largestTNCs from developing countries since 1995(WIR95). The average Transnationality Index valueof the top 50 increased between 1995 and 2002.The composition of the largest TNCs among thetop 50 did not change much during this period,and the ten largest accounted for almost two-thirdsof foreign assets, almost the same as between 1995and 2002. However, they now come from fewereconomies (11) than in 1995 (14).

While many enterprises from the previousyear’s list disappeared from the list in 2002 andwere replaced by newcomers, the top remainedalmost unchanged. Asia continued to dominate thetop 50, with 32 enterprises. Hutchison (HongKong, China) and Singtel (Singapore) remainedin the top positions. Telecom firms also retainedtheir strong positions in the list (box table I.3.1).

The increase in the average TransnationalityIndex value in 2002 occurred against a backdropof a decline of almost all indicators – foreign aswell as total – in their operations. The exceptionwas employment: foreign and total employmentrose significantly (box table I.3.2). The TNCs withthe largest increases in the Transnationality Indexwere from the food, steel, motor vehicle andtelecom industries, along with diversifiedcompanies.

As in previous years, the number of exitsand entries of the top 50 firms from developingeconomies was higher than for the top 100. Thenewcomers to the top 50 list were mostlycompanies entering the list for the first time. Mostnewcomers were from Asia, notably fromSingapore and Hong Kong (China). From LatinAmerica, there were only two new companies,both Mexican. There were also four new entrantsfrom South Africa.

Box table I.3.2. Snapshot of the top 50TNCs from developing economies, 2002

(Millions of dollars, number of employeesand per cent)

2001 2002 Change 2002Variable Foreign Foreign vs. 2001

Value share Value share (Per cent)

Assets Foreign 186 471 35.3 195 196 42.0 4.7 Total 527 928 464 271 -12.1Sales Foreign 145 318 40.1 139 991 45.4 -3.7 Total 362 249 308 440 -14.8Employment Foreign 541 361 42.4 713 624 47.5 31.8 Total 1 275 493 1 503 279 17.8Average TNI 44.8 49.2 4.4 a

Source: UNCTAD/Erasmus University database.a The change between 2001 and 2002 is expressed in

percentage points.

The top 50 TNCs span a wide range ofactivities. The main ones were electrical andelectronic equipment (gradually declining inimportance), food and beverages. The export-competitiveness of the electronics industry,especially in Asia, helped it maintain a dominantposition. The strength of food and beverages wasbased more on home markets, again led by Asiaand also, to a lesser extent, Latin America. Someservice industries featured prominently, inparticular transport (many Asian firms benefitedfrom the region’s rapidly expanding trade).

The degree of transnationality of the top 50is lower than that of the top 100 TNCs worldwide.Most of the former have a much shorter historyand are in the first stages of theirtransnationalization.

/...

Box I.3. The top 50 TNCs from developing economies

Source: UNCTAD.

22 World Investment Report 2004: The Shift Towards Services

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23CHAPTER I

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24 World Investment Report 2004: The Shift Towards Services

outward stock (annex table B.4), though the valueof its stock that year was lower than in 2000(figure I.12). Outward flows amounted to $720million in 2003, about 3% of gross fixed capitalformation (annex table B.5).21 While 90% of itsFDI stock is in developed countries (75% inWestern Europe alone) (annex table A.I.10), anincreasing number of large investments have beengoing to other African countries recently (annextable A.I.11). And in 2002, South Africa’s FDIstock in Africa accounted for 7% of the country’stotal outward FDI. In absolute terms, the amountsinvested in African countries may be small, but

they account for a significant share of FDIfor some African economies (e.g.Mozambique).

Several factors have driven SouthAfrica’s outward FDI in the rest of Africa:

• The liberalization of South Africa’sregulatory regime for outward FDI hasfacilitated the expansion abroad of firmsfrom that country. In addition, thecountry has signed 6 BITs and 14 DITsin the region.

• The liberalization of the country’s tradeand exchange controls has raisedcompetition in local markets andencouraged firms to look abroad. At thesame time, privatization andliberalization in other African countrieshave allowed South African companiesto acquire firms in the region.

• South African firms often havetechnological advantages over localcompetitors in Africa and greaterfamiliarity with African conditions thanTNCs from other regions.

By the end of the 1990s, South Africa hadover 900 TNCs (annex table A.I.2); seven of themwere among the top 50 non-financial TNCs fromdeveloping economies in 2002. Some TNCs –

Figure I.11. Africa: FDI outflows and their share in totaldeveloping-country outflows, 1980-2003

(Billions of dollars and per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Table I.11. FDI from developing economies, by region and major economy, 1980-2003 (Billions of dollars)

FDI outflows FDI outward stockRegion/economy (annual average)

1980-1989 1990-1994 1995-1999 2000-2003 1980 1990 1995 2000 2003

Developing economies 5.7 28.1 64.9 59.6 60.2 128.6 308.6 793.3 858.7 Africa 0.5 1.8 2.6 - 6.9 20.9 32.9 45.6 39.5 South Africa 0.2 0.7 1.9 - 0.6 5.7 15.0 23.3 32.3 24.2 Latin America and the Caribbean 0.9 4.7 18.0 10.6 46.9 58.8 86.3 155.5 183.8 Brazil 0.2 0.6 1.3 0.7 38.5 41.0 44.5 51.9 54.6 Chile - 0.4 1.5 1.8 - 0.2 2.4 11.2 13.8 Mexico 0.1 0.4 0.7 1.9 - 1.1 2.6 7.5 13.8Asia and the Pacific 4.3 21.6 44.3 49.0 6.5 48.9 189.5 592.3 635.4 South, East and South-East Asia 3.7 21.6 43.6 45.8 4.5 41.0 181.8 577.8 607.5 China 0.4 2.4 2.2 3.0 - 2.5 15.8 25.8 37.0 Hong Kong, China 1.2 10.5 22.5 23.0 0.1 11.9 78.8 388.4 336.1 India - - 0.1 1.0 - - 0.3 1.9 5.1 Korea, Republic of 0.4 1.5 4.3 3.4 0.1 2.3 10.2 26.8 34.5 Malaysia 0.2 0.8 2.2 1.4 0.2 2.7 11.0 21.3 29.7

MemorandumWorld 93.3 234.8 603.1 779.3 559.6 1 758.2 2 897.6 5 983.3 8 196.9

Source: UNCTAD, based on annex tables B.2 and B.4; FDI/TNC database (www.unctad.org/fdistatistics).

25CHAPTER I

MTN, Eskom, Sasol, Vodacom SA – have startedto expand regionally in the past few years suchas in the Democratic Republic of the Congo,Mozambique, Namibia, the United Republic ofTanzania and Zimbabwe (annex table A.I.11).Others have become major world players in theirindustries: AngloGold of South Africa becamethe world’s largest gold producer when itacquired the Ashanti gold mine of Ghana in 2003,and SABMiller (with its primary listing in theUnited Kingdom) has become one of the world’slargest breweries, controlling more than 160factories in over 40 countries.

Developing Asia is the largest and fastestgrowing outward investor in the developingworld. With an outward FDI stock amounting to$635 billion in 2003, the region accounted forthree-quarters of the total outward FDI stock ofdeveloping economies (annex table B.4). It alsoaccounted for some four-fifths of total outflowsof $46 billion, on annual average, during2000-2003 (figure I.13 and table I.11).Hong Kong (China) registered thehighest levels of outward FDI, but thosedata need to be interpreted with caution:they include significant amounts ofroundtripping and indirect FDI (box I.4).Other large investors are China, theRepublic of Korea, Malaysia, Singaporeand Taiwan Province of China. The keydrivers of Asian FDI are the growingcapabilities of Asian firms, their strongexport orientation and their need toaccess technology, brand names andstrategic assets abroad. Realizing thevalue of FDI, most governments in theregion are actively encouraging theirfirms to become transnational. The

growing number of regional FTAs,particularly involving economies in North-East and South-East Asia, is also increasinginvestor interest in the region.

The rapid rise of China as an outwardinvestor, particularly in resource extraction,is noteworthy: its average annual outwardFDI flows grew from $450 million in the1980s to $2.3 billion in the 1990s, and itsoutward FDI stock was estimated at $37billion by end 2003 (figure I.14). Its rankingin the Outward FDI Performance Index in2001-2003 was 58, almost at the middle ofthe 128 country list (annex table A.I.8).Chinese TNCs invest not only inneighbouring countries, but also in Africa,Latin America, North America and Europe.

Their main destinations, however, remain by farHong Kong (China), followed by the UnitedStates: together these two destinations accountedfor more than half of approved Chinese outwardFDI during the period 1979-2003 (annex tableA.I.12).

The expansion abroad of Chineseenterprises is driven by:

• their desire to support exports, expand theirmarket presence and acquire foreign skills;

• their desire to establish local distributionnetworks, especially in industries withexcess production capacity (such asmachinery and electronic appliances);22

• growing exposure to international businessand their increasing financial strength;

• intensified domestic competition and theneed to relocate mature industries to lower

Figure I.12. South Africa: outward FDI stock and itsshare in GDP, 1990-2003a

(Billions of dollars and per cent)

Source: UNCTAD.

Figure I.13. Asia and the Pacific: FDI outflows and theirshare in total developing-country outflows, 1980–2003

(Billions of dollars and per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

26 World Investment Report 2004: The Shift Towards Services

Indirect FDI (undertaken by foreignaffiliates in Hong Kong (China)) androundtripping characterize a good part ofinvestment from this economy. The territory isthe largest outward direct investor amongdeveloping economies and the seventh overalllargest contributor to global outward FDI stock.

Its outward FDI stock amounted to $309billion in 2002. Four tax havens – the BritishVirgin Islands, Bermuda, Panama and theCayman Islands, in that order – accounted for54% of the total Hong Kong (China) outwardFDI stock (box table I.4.1). If the channellingof funds to non-operating companies in thesefour offshore financial centres (as well as otherlocations) set up by Hong Kong (China)companies were excluded (which amount to $92billion, i.e. more than half of the amount thatcorresponds to 54%), the outward FDI stock ofthe economy would shrink to $217 billion in 2002(box table I.4.1). Mainland China accounted foranother 35%. These four economies and Chinatogether received 89% of their FDI from HongKong (China) – they also contributed 66% of thetotal inward FDI to the economy.

Foreign affiliates established in Hong Kong(China) are also important outward investors,which represents indirect FDI. The closerelationship between mainland China and HongKong (China) continues to attract such indirectFDI, as foreign affiliates (and domestic) basedin the territory can take advantage of theprivileges accorded under the Closer EconomicPartnership Arrangement for investing in themainland (box II.8).

In terms of FDI outflows, at least 14% ofthe total between 2000 and 2002 can be attributedto the channelling of funds to non-operatingcompanies in tax-havens alone (China, Censusand Statistics Department of Hong Kong 2004).Roundtripping FDI from China through HongKong (China) and back to China has beenestimated at about 25% of outward FDI flows(WIR03, p. 45). However, according to a recentestimate by the Bank of China Group,roundtripping FDI to China accounts for 10-20%of FDI outflows (China, Hong Kong Trade andDevelopment Cooperation 2003). Therefore,roundtripping involving China and tax havensprobably amounts to 25-40% of total FDIoutflows from Hong Kong (China).

Box I.4. FDI flows from Hong Kong (China)

Source: UNCTAD.

Box table I.4.1. Hong Kong (China): outward FDI stock at market value, 2000-2002(Billions of dollars)

Including outward FDI stock Excluding outward FDI stock inin non-operating companies non-operating companies inin offshore financial centres offshore financial centres

set up by Hong Kong (China) set up by Hong Kong (China)companies to channel funds companies to channel funds Difference

Economy 2000 2001 2002 2000 2001 2002 2000 2001 2002

Total 388.4 352.6 309.4 221.1 218.6 217.2 167.3 134.0 92.2

China 129.8 108.2 108.1 129.8 108.2 108.1 - - -British Virgin Islands 201.3 184.3 147.3 56.5 73.7 68.7 144.8 110.6 78.5United States 3.1 3.2 4.1 3.1 3.2 4.1 - - -Malaysia 2.6 3.7 3.6 2.6 3.7 3.6 - - -Singapore 3.3 3.1 3.3 3.3 3.1 3.3 - - -Thailand 2.0 2.6 2.7 2.0 2.6 2.7 - - -United Kingdom 3.0 2.6 2.6 3.0 2.6 2.6 - - -Bermuda 11.4 11.8 9.8 0.7 1.6 1.9 10.7 10.1 8.0Panama 3.0 4.2 5.0 0.4 0.4 1.9 2.6 3.7 3.1Cayman Islands 9.1 10.6 3.6 - - - 9.1 10.6 3.6Others 19.8 18.2 19.3 19.9 19.2 20.3 -0.1 -1.0 -1.0

Source: China, Census and Statistics Department of Hong Kong 2004.

Note: Individual figures may not add up exactly to the total due to rounding.

27CHAPTER I

wage sites (e.g. bicycle production in Ghanaand video players in South-East Asia); and

• their aspiration to build international brandsand access advanced technologies, includingthrough M&As and alliances, as well as toestablish R&D centres in developedcountries such as Germany, Japan, Swedenand the United States.23

The need to access natural resources (inoil, gas, mining) is also a powerful driving force.Today, China has investments in the oil industryin 14 countries, including Indonesia, Kazakhstan,Myanmar, the Sudan and Yemen. In May 2004alone, Chinese FDI projects worth several billiondollars in alumina, steel and coke, wereannounced in Brazil.24

The Government of China, as well assome provincial administrations such asGuangdong and Shanghai, have beenencouraging firms to invest abroad byrelaxing approval procedures and offeringthem financial support and corporateincome tax incentives. Interestingly, someinvestment promotion agencies (fromDenmark, Malaysia, Singapore, Sweden,Thailand, the United Kingdom (Scotlandand Wales)) have already responded to theincreased investment activity by Chinesefirms, and set up offices in China to courtoutward investors.

India also stands out among Asianinvestors, not so much because of itsrecent and significant increase in outwardFDI (figure I.15) and because of i tspotential to be a large outward investor,

but because of the new trend set by someof its information technology (IT) firms(chapter IV). Its total FDI outflows in 2001-200325 were comparable to those ofMalaysia. In the same period, the averageannual outflows reached $1 billion (annextable B.2). Its ranking in the Outward FDIPerformance Index has improved over theyears, placing it 61st in 2001-2003, closeto China (58th) (annex table A.I.8). The mostimportant destination for Indian FDI hasbeen the United States (annex table A.I.13),accounting for 19% of its total outwardflows over the past eight years, followedby the Russian Federation (with 18%), duemainly to acquisitions in the oil and gasindustries. Overall, however, about half oftotal Indian outward FDI has gone to other

developing countries.

Most Indian outward FDI is inmanufacturing (about 55%), but non-financialservices also account for a significant share(25%) (annex table A.I.14). FDI in IT servicesin particular has begun to grow rapidly. The top15 Indian software and related service companieshave all invested abroad, almost entirely indeveloped countries (annex table A.I.15),26 whileIndian call centres and business-processoutsourcing companies are setting up foreignaffiliates, particularly in the Philippines andMexico.27

The growing technological capabilitiesof Indian firms and their rising exports,particularly in IT services and pharmaceuticals,are driving the FDI growth. Access to markets,distribution networks, foreign technology andstrategic assets such as brand names, are the main

Figure I.14. China: outward FDI stock and its share inGDP, 1990–2003

(Billions of dollars and per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Figure I.15. India: outward FDI stock and its share inGDP, 1990–2003

(Billions of dollars and per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

28 World Investment Report 2004: The Shift Towards Services

motivations. Securing natural resources is alsobecoming an important driver for FDI in the oiland gas industries and mining.28 TheGovernment’s l iberalization of investmentpolicies has helped the expansion abroad ofIndian firms. In addition, India had signed 51BITs and 41 DTTs by end 2003.

Latin America and the Caribbean remainsthe second largest investing region in thedeveloping world, with its outward FDI stockreaching $184 billion in 2003. Although its FDIoutflows fell – even more than FDI inflows – inthe period 2000-2002 (annex table B.2 and figureI.16), they started to rise again thereafter. Apartfrom offshore financial centres (accounting for56% of regional outflows), the main investorswere Argentina, Brazil, Chile, Colombia,Mexico and Venezuela. Outflows fromsome countries such as Argentina andBrazil fluctuated significantly. InArgentina, they were negative in 2002,as companies sold foreign assets toovercome liquidity problems at home(WIR03, p. 55), but became positive againin 2003. Brazil, which registered negativeoutflows in 2001, became the largestinvestor in the region in 2002($2.5 billion); however, its flows fell backin 2003 (to $0.2 bill ion). Mexicanoutflows were stable at about $1 billionannually, except in 2001 ($4.4 billion),with most outward investors focusing onthe region.

Brazil has the largest outward FDIstock of all Latin America and theCaribbean – $55 billion in 2003 (figure I.17) –and the fourth largest outward FDI stock of the

developing world (after Hong Kong (China),Singapore and Taiwan Province of China) (annextable B.4). However, in 2002, most of the stockwas located in tax havens: the Cayman Islands,Bahamas and British Virgin Islands accountedfor about two-thirds of the country’s outward FDIstock, with the rest in the United States and afew other countries in the region. According toa 2001 survey by the Central Bank of Brazil,29

a large proportion of outward FDI was driven byfinancial rather than production motives (to avoidtaxes and to undertake currency transactions).The large share going to tax havens was reflectedin the sectoral concentration of Brazilian outwardFDI in services (95%), particularly financialservices (annex table A.I.16). FDI in the primary

sector was negligible, and in processing activitiesit was low (4% of outward stock in 2002) (annex

table A.I.16).

Compared to the size of its economy,Brazil has a relatively low level of outwardFDI. In terms of the Outward FDIPerformance Index, this country ranked 91st

in 2001-2003, well below other majorcountries in the region (Panama rankedfirst, Chile second, Trinidad and Tobagothird) (annex table A.I.8). Its FDI outflowsas a percentage of gross fixed capitalformation barely reached 1%, that is one-eighth of the average for the region andone-tenth of that for all developingcountries (annex table B.5). Hence, thereis potential for more investment abroad. Arecent survey by FUNCEX (Iglesias andVeiga 2002), indicated that 29% of the firms

Figure I.17. Brazil: outward FDI stock and its share inGDP, 1990–2003

(Billions of dollars and per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Figure I.16. Latin America and the Caribbean: FDIoutflows and their share in total developing-country

outflows, 1980–2003(Billions of dollars and per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

29CHAPTER I

surveyed had plans to invest abroad, mainly inWestern Europe, the United States and Mexico(annex table A.I.17).

Brazil has concluded (but not ratified)14 BITs, 10 of which are with developedcountries. It has also concluded 34 DTTs: 23 withdeveloped countries, 8 with developing countriesand 3 with CEE countries. None of these are withtax havens.

***************TNCs from developing countries in all

regions are acquiring ownership advantages. Theyare becoming a force in the world FDI market.With outward FDI stock of already $859 billion,they are building their own internationalproduction systems. They are driven by the samepressures as their counterparts in developedcountries to remain competitive in the globaleconomy. However, few developing countries’governments have paid much attention to thisaspect of their integration into the worldeconomy. Nonetheless, it is a challenge that moreand more of them will face.

CCCCC. Changing sector. Changing sector. Changing sector. Changing sector. Changing sectoralalalalaldistribdistribdistribdistribdistributionutionutionutionution

FDI has grown over time in all threeeconomic sectors – primary, manufacturing andservices. But the sectoral composition has shiftedtowards services. Moreover, when indicators ofFDI or TNC activity in various sectors indifferent countries are compared with the sizeof the respective countries’ markets, or othermeasures of economic size, the significance ofFDI in the various sectors and industries isdifferent from that indicated by the distributionof FDI flows, stock or shares. FDI inmanufacturing is increasingly geared to capital-and technology-intensive activities, while FDIin services has generally been growing in bothcapital-intensive and labour- or human-resource-intensive industries.

The global stock of both inward andoutward FDI in the primary sector more thandoubled between 1990 and 2002 (annex tablesA.I.18 and A.I.19). Reflecting slower FDI growththan in manufacturing and services, the primarysector ’s share in world FDI stock decreasednoticeably from 9% in 1990 to 6% in 2002 (figureI.18). In the case of FDI flows between 1989-

1991 and 2001-2002 the share of the primarysector did not decline: it rose from 7% to 9%(annex figure A.I.1). Nearly all FDI in the sectorcontinues to originate from developed countries.The main source countries in 2002 were Canada,the Netherlands and the United States. Amongthe developing economies, Brazil, Kazakhstanand the Republic of Korea were the leadingsources.

On the host-country side, however,developing countries – many of them rich innatural resources, but lacking internationallycompetitive national firms – attract considerableFDI (32% of total primary-sector FDI in 2002)(annex table A.I.18). Top host countries areCanada, the Netherlands and the United Kingdomamong developed countries, and Chile, SouthAfrica and Venezuela among developingcountries.

FDI flows relative to GDP in the primarysector show a great deal of variation amongcountries. They are particularly high in Australiaand Canada from the developed world, andBolivia, Chile, Ecuador and Kazakhstan from thedeveloping world. In these natural-resource-richcountries, the share of FDI flows in GDP in theprimary sector has fluctuated widely over the pastdecade (annex figure A.I.2).

Within the primary sector, mining,quarrying and petroleum dominate: over 90% ofinward FDI stock in the sector was in thoseindustries in both 1990 and 2002 (annex tableA.I.18). The share of agriculture, hunting,forestry and fishing in primary-sector FDI hasbeen small, but it rose noticeably (from 4% to6% of inward FDI stock) during the period 1990-2001. In 2002, developing countries attractedmore than twice as much FDI as developedcountries in these activities, but only about halfas much in mining, quarrying and petroleum(annex table A.I.18).

FDI stock in manufacturing rose nearlythreefold during the period 1990–2002 (annextables A.I.18 and I.19). Given slower growth thanin services, however, its share in global FDI stockworldwide fell from 42% in 1990 to 34% in 2002(figure I.18). Developed countries accounted formore than 95% of outward FDI in manufacturingin 2002 – a lower share than the 99% they heldin 1990. Their inward FDI stock in this sectorwas also several t imes larger than that indeveloping countries, but the gap is shrinking:in 1990, the manufacturing stock in developingcountries was one-fifth of that in developed

30 World Investment Report 2004: The Shift Towards Services

countries; in 2002, it was one half. Industries inwhich the gap narrowed considerably during thisperiod included food, beverages and tobacco,wood, machinery and equipment and, especially,coke and petroleum products. The United Statesis still the largest FDI recipient, while China’sinward stock of FDI in manufacturing was more

than $300 billion in 2002, second only to theUnited States (over $500 billion).

Within manufacturing, chemicals andelectronics accounted for one-third of the stockof inward manufacturing FDI in 1990, but theirshare fell slightly (to less than 30%) in 2002

Figure I.18. Sectoral distribution of FDI stock in the world, developed and developing countriesand CEE, 1990, 2002

Source: UNCTAD, based on annex tables A.I.18 and A.I.19.

Note: In calculating the shares of the respective sectors, amounts recorded under ”Private buying and selling of property” and“unspecified” are excluded from the totals.

a Or latest year available.

31CHAPTER I

(annex table A.I.18). As manufacturing is amature FDI sector, few of its individual industriesare as dynamic as many service industries(chapter III). Manufacturing FDI is increasinglygeared to more capital- and knowledge-intensiveactivities. For example, the shares of food,beverages and tobacco, textiles, clothing andleather, and rubber and plastic products in totalinward FDI stock in manufacturing fellsignificantly between 1990 and 2002 (annex tableA.I.18). There are two major reasons for thedeclining importance of labour-intensive FDI inmanufacturing:

• There has been a decline in labour-intensivemanufacturing in general, and the share oftraditional manufacturing employment hasalso steadily declined (ILO 2001, p. 109).30

Technological change (including advancesin telecommunications and information-processing technology) has been a keyelement in the decline of labour-intensiveFDI in manufacturing. Labour isincreasingly being replaced by capital andknowledge.

• Firms in more and more countries, especiallydeveloping countries, have developed theirown ownership-specific advantages basedon different factor endowments, particularlylow-cost labour, vis-à-vis developedcountries. Certain developing countries withlow-cost labour are increasingly attractingcapital- and technology-intensive FDI.

The industrial pattern of FDI inmanufacturing varies among different home andhost countries (annex tables A.I.18 and A.I.19).Developed countries’ outward FDI inmanufacturing shows that FDI is concentratedin technology-intensive industries, while TNCsbased in those countries having abundant low-cost labour often develop ownership advantagesin more labour-intensive industries. In the caseof inward FDI, its industrial distribution largelyreflects, on the one hand, the size of markets(reflecting GDP and per capita GDP), and on theother, the structure of the comparative advantagesof the countries, based on immobile locationadvantages.

The pattern of FDI may be differentamong countries with similar endowments andresources. The locational choices of TNCsbetween countries are increasingly related toadvantages arising from other factors thatinfluence the supply capacities of host countries,such as scale economies (particularly in the

manufacturing sector) and clustering(agglomeration economies), as well asinstitutional and policy variables. Indeed, TNCsare more and more attracted to clusters ofknowledge, and seek to upgrade ownershipadvantages by tapping into location-boundsources of collective learning and innovation;incentive structures in host countries also playa role. This is particularly so for TNCs in moretechnology-intensive activities (includinginnovative activities), as evidenced by itsconcentration in a limited number of countries(WIR01).

In the services sector, the global FDIstock more than quadrupled during the period1990-2002 (annex tables A.I.18 and A.I.19). Asa result of more rapid growth in this sector thanin the other sectors, services accounted for about60% of the global stock of inward FDI in 2002,compared to less than 50% a decade earlier(figure I.18). In terms of inflows, the increasein the share of services between 1989-1991 (54%)and 2001-2002 (67%) was even larger than thatof the stock (annex figure A.I.1 and figure I.18).Inward and outward FDI, both flows and stock,in services grew in most countries (annex tablesA.I.20 and A.I.21), as did the share of servicesin overall FDI flows and stock (annex tableA.I.22 and A.I.23). The dynamic growth of FDIin services, which is reshaping FDI, is examinedmore closely in chapter III.

DDDDD. Pr. Pr. Pr. Pr. Prospects: gospects: gospects: gospects: gospects: grrrrrowth setowth setowth setowth setowth setto rto rto rto rto resumeesumeesumeesumeesume

FDI flows are set to rebound in 2004 –by how much was difficult to say as of July 2004.A few large cross-border M&As may make allthe difference, and they are impossible to predict.The recovery of the world economy and improvedcorporate profits are the major drivers.UNCTAD’s survey results support thisexpectation. Other forecasts (box I.5) arrive ata similar conclusion. This convergence of viewslends credibility to the renewed optimism aboutthe recovery of FDI.

As examined in WIR03, FDI prospectsdepend largely on the following three factors:

Macroeconomic factors. Global growthforecasts for 2004 range between 3.5% and4.2%.31 In the developing world, growth isexpected to exceed 5%, though regionalperformance may vary.32 The revival of growth,especially in the largest source countries, augurs

32 World Investment Report 2004: The Shift Towards Services

well for FDI. Given the two-year lag observedfor flows to respond to a pick-up in growth(WIR03), the rebound in FDI is expected tocontinue in 2005.

Microeconomic factors. Share prices rosein 2003, and are expected to climb further in 2004(World Bank 2004a). During the first four monthsof 2004, the value of share trading in the worldincreased by 60% over the corresponding periodin 2003; in the United States, the volume oftrading on the New York Stock Exchange roseby 36%.33 Higher stock valuations boost thevalue of cross-border M&As, even if theirnumber remains unchanged. Corporate profits,a key driver of stock values, are also on the rise.In 2003, corporate profitabili ty increasedsignificantly in the main source countries. Inthe United States, companies posted the strongestquarterly profit growth since 1993 (United States,Department of Commerce 2004a), with technologyand financial service companies postingsignificant gains.34 Profit growth and liquidityare expected to boost FDI flows in the near future(IIF 2004). For example, Japanese plant andequipment investment expenditures abroad areexpected to rise by 12.3% in all industries infiscal year 2004, compared with a decline of 3.5%in fiscal year 2003, according to a survey of 757firms in May 2004 by Nikkei.35

Institutional factors. Cross-border M&Asare increasing. The number of deals was slightlyhigher in 2003 (4,562) than in 2002 (4,493 deals).In the first half of 2004, 27 mega deals (with avalue of more than $1 billion) were concluded.36

Some TNCs from developing countries are activeas well . For example, Singapore investorspurchased Mayne Group, a health servicescompany, for $569 million; China HuanengGroup purchased OzGen (Australia), an electricalservices company, for $227 million; and JubilantOrganosys Ltd. (India) acquired PharmaceuticalServices NV (Belgium), for $17 million. The totalvalue of cross-border M&As during the first sixmonths of 2004 was $150 billion, 3% higher thanthat of the corresponding period in 2003.

On the other hand, privatization in manydeveloping countries is winding down. In Brazil,for example, FDI in privatization all but ceasedin 2003. Even in countries that are still activeprivatizers, the number of large projects isdeclining. Bucking the declining trend, however,is China, which now allows foreign investors tobuy majority stakes in previously barred

enterprises.37 Its privatization plans includeChina Power, China Construction Bank, AirChina and Semiconductor ManufacturingInternational.38 In several other countries,privatization is at an early stage and mayaccelerate (e.g. Kyrgyzstan, the Libyan ArabJamahiriya, Turkey, Viet Nam), but the amountsinvolved are likely to be small.

Greenfield investment grew robustly in2003, and continued to grow in 2004. Data forthe first four months of 2004 showed significantgrowth compared with the same period in 2003,with associated announced investment amountingto $155 billion in some 3,500 FDI projects.39

Complementing these data are the resultsof UNCTAD’s Global Investment ProspectsAssessment, meant to gauge future FDI trends.It seeks to do this by undertaking and thencombining surveys of the largest TNCs, locationexperts advising firms where to locate FDIprojects and investment promotion agencies(IPAs) (box I.6). The results of the first roundof these surveys, undertaken in early 2004,support expectations of a recovery this year(UNCTAD 2004 a, b, c).40

More than three-quarters of thecompanies surveyed and almost four out of fivelocation experts expressed optimism for FDIprospects over the next two years (figure I.19).TNCs, however, were less optimistic thanlocation experts as regards the strength ofrecovery, with almost a fifth of the respondentsexpecting no major change in FDI prospects overthe next year. There was no change expected as

Figure I.19. Overall FDI prospects, 2004-2007, asreported by TNCs, location experts and IPAs

Source: UNCTAD, www.unctad.org/fdiprospects.

33CHAPTER I

regards the preferred mode of investing abroad:greenfield facili t ies were favoured in thedeveloping countries and M&As in the developedworld.

Both top TNCs and international locationexperts also expected important inter- and intra-regional differences (chapter II examines eachregion separately). TNCs forecast that FDI flowswill pick up, particularly in Asia and the Pacificand in CEE. For the first of these two groups,China emerged as the top destination for bothTNCs and location experts. For CEE both TNCsand location experts ranked Poland highest. InAfrica, South Africa was the most attractivecountry for both TNCs and international locationexperts. In Latin America and the Caribbean,Brazil was placed on the top list by TNCs andMexico by location experts. In the developedworld, the United States led for both TNCs andlocation experts.

Location experts indicated that therebound in FDI would be geared more towardsservices, especially transport, banking andinsurance and management (figure I.20). Selectedmanufacturing industries also did well, especiallyfood and beverages, motor vehicles and electricaland electronic products. Concerning therelocation of corporate functions abroad, locationexperts expect this will occur mainly inproduction, logistics and support services, andR&D, while TNCs expect production, distributionand sales, and logistics and support services torelocate (figure I.21).

The survey of IPAs indicates that theymore than share the optimism of TNCs andinternational location experts. More importantly,they expect to step up efforts to lure FDI byfocusing on investor targeting (figure I.22) –presumably especially of investors in the UnitedStates, Germany, the United Kingdom and France,

followed by China and Japan, asthese are viewed as the mostimportant sources of FDI. IPAsare prepared to support theirefforts through the greater use ofincentives. In fact, nearly half ofthe respondents were prepared tointroduce additional incentivesor further l iberalize theircountries’ FDI regimes. Thefindings of UNCTAD’s IPAsurvey support the view thatintense competition for FDI nolonger takes place only during anFDI recession; rather i t hasbecome embedded in IPAstrategy, even when investmentis expected to pick up.

Figure I.20. FDI prospects by industry,2004-2005, as reported by location experts

Source: UNCTAD, www.unctad.org/fdiprospects.

Figure I.21. Corporate functions expected to be relocated,2004-2005, as reported by TNCs and location experts

(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

(Per cent of respondents)

34 World Investment Report 2004: The Shift Towards Services

These various data sets combine topresent an optimistic picture for 2004 and,indeed, 2005. But prospects are uneven acrossgeographic regions – extending the mixed picturethat prevailed in 2003.

Box I.5. FDI prospects: reports paint arosy picture

Most reports published in the first half of2004 forecast an upturn in FDI for 2004 and2005. The following are findings of some ofthem:

• In April 2004, the Institute for InternationalFinance forecast an increase in FDI flows in29 emerging-market economies, to anestimated $113.8 billion in 2004 from $94.9billion in 2003 (IIF 2004).

• According to the April 2004 issue of theInternational Monetary Fund’s WorldEconomic Outlook (IMF 2004), FDI flows toemerging-market economies are expected toincrease to $134 billion in 2004 from $128.2billion in 2003. For 2005, the Fund predictsanother increase to $141 billion.

• The World Bank, in its Global DevelopmentFinance 2004 (World Bank 2004a), projectedFDI flows to developing countries in 2004 of$152 billion, compared with $135 billion in2003. For 2005, the Bank projects these flowsto reach $165 billion.

• The 7th Annual Global CEO Survey, carriedout by PricewaterhouseCoopers in the fourthquarter of 2003, found that chief executiveofficers (CEOs) worldwide are optimisticabout their companies’ growth potential; morethan 80% of the nearly 1,400 CEOs surveyedwere confident about revenue growth over thenext 12 months, as well as over the next threeyears (PricewaterhouseCoopers 2004a).

• The world survey of business sentiment bythe International Chamber of Commerce andthe IFO Research Institute found globaleconomic confidence at a ten-year high; theoverall economic climate indicator of the jointICC/IFO poll, conducted in January 2004, hit7.3 out of a possible 9. More than 1,100experts from 92 countries took part in thissurvey (ICC and IFO Research Institute 2004).

• Drawing on the results of a survey of 527senior executives worldwide, the EconomistIntelligence Unit (EIU) found much greaterbusiness confidence at the outset of 2004 thana year ago (EIU 2004).

/...

Box I.5. FDI prospects: reports paint arosy picture (concluded)

• PricewaterhouseCoopers’ latest quarterlyManufacturing Barometer (first quarter 2004)surveyed senior executives from largemanufacturing TNCs about their futurebusiness prospects (PricewaterhouseCoopers2004b). Of the executives surveyed, 79%were optimistic about the United Stateseconomy’s prospects over the next 12 months,and 65% were optimistic about prospects forthe world economy. In addition, 82% expectedpositive revenue growth in 2005.

• Business sentiment among Japanese TNCexecutives regarding 12 East Asian countriesimproved in April 2004 over the previousmonth, according to an April survey publishedby the Japan External Trade Organization, butthe overall outlook over the next 2-3 monthsremained roughly unchanged. Businesssentiment has improved in Thailand, Singaporeand Indonesia, as well as in North Asia andChina (JETRO 2004).

• The Japan Bank for International Cooperation(JBIC) published the report of a survey carriedout in the second half of 2003, of 578 Japanesemanufacturing TNCs (JBIC 2004). Three-fourths (78%) of the respondents indicatedthey would strengthen and expand theiroverseas operations in the medium term, while21% said they would maintain their currentlevel. Only 0.2% of the surveyed companiessaid they would withdraw from overseasbusiness operations. These findings representan improvement over those of the previoussurvey.

Source: UNCTAD.

Source: UNCTAD, www.unctad.org/fdiprospects.

Figure I.22. Policy responses, 2004-2005,as reported by IPAs

(Per cent)

35CHAPTER I

UNCTAD’s Global Investment ProspectsAssessment project analyses expected futurepatterns of FDI flows at the global, regional,national and industry levels as seen from theperspectives of global investors, host countriesand international FDI experts. It also analysesevolving trends in the strategies of TNCs as wellas FDI policies.

UNCTAD bases its assessments on thefindings of three large-scale surveys:

• A worldwide survey of the largest TNCs withheadquarters in developed and developingcountries and in Central and Eastern Europeregarding their strategies and investment plansin the industries that they are operating.

• A worldwide survey of international FDIexperts who typically assist TNCs in their

1 Growth rates of FDI inflows and outflows do notnecessarily move in parallel. This is because inflowsand outflows do not balance, even though they shoulddo so in principle. This imbalance is due to variousreasons, including different methods of data collectionbetween host and home countries, different datacoverage of FDI flows (i.e. treatment of reinvestedearnings), and different times used for recording FDItransactions. Growth rates of these two flows movedin opposite directions also in 1974, 1980, 1981, 1983and 1985.

2 The World Bank reported a decline of 9% in FDIinflows to developing countries in 2003 (World Bank2004). This discrepancy is partly due to differencesin coverage, as the World Bank’s classification ofdeveloping economies includes Central and EasternEurope (CEE), but excludes, among others, Hong Kong(China), Singapore and Taiwan Province of China.

3 These are the Czech Republic, Estonia, Hungary,Latvia, Lithuania, Poland, Slovenia and Slovakia, whichacceded to the EU in 2004. Cyprus and Malta are theother two accession countries.

4 The correlation coefficient between the share of FDIinflows in GDP and the share of gross fixed capitalformation in GDP during the period 1990-2003 was0.11 for the world, 0.66 for developed countries, -0.62for developing countries and -0.64 for CEE. For LDCs,these two types of investment are positively correlated(0.67).

5 “Report of the International Conference of Financingfor Development”, Monterrey, Mexico, 18-22 March2002, United Nations document, A/CONF.198/11.

6 Based on 49 markets in 47 countries, the value of stockstraded rose by 13% in 2003, but it was still 40% lower

than the peak level of 2000 (World Federation ofExchanges: www.world-exchanges.org).

7 Many large firms reported higher profits in 2003. Forexample, Japanese firms listed in stock marketsregistered record profits in 2003. Profits also rose by18%, on average, for United States companies (UnitedStates, Department of Commerce 2004a). The marketcapitalization of Asian firms rose more than twofoldin Thailand and by 50% in Hong Kong (China),Malaysia and Singapore (World Federation ofExchanges). However, the recovery in profits wasconcentrated in selected firms in certain industries suchas electronics and IT-related companies.

8 For example, the debt-equity ratio for United Statesnon-farm, non-financial companies was 49% at the endof 2003, lower than that in 2002, but still higher thanin the previous years (United States, Board ofGovernors of the Federal Reserve System 2004).

9 Based on the OCO Consulting’s LOCOmonitordatabase. Not all projects were implemented in thatyear. This does not include M&As and privatization-related FDI.

10 Data from UNCTAD cross-border M&A database(www.unctad.org/fdistatistics).

11 Ibid.12 Measured as the average of four ratios: FDI inflows

to gross fixed capital formation, inward FDI stock toGDP, value added of foreign affiliates to GDP andemployment of foreign affiliates to total employment.

13 Deutsche Post World Net has majority-owned foreignaffiliates in as many as 99 countries.

14 Based on 42 TNCs surveyed.15 In effect, the Index captures the influence of factors

other than market size on FDI flows, assuming, ceteris

Box I.6. Global Investment Prospects Assessment by UNCTAD

Source: UNCTAD.

overseas location decisions regarding theirobservations on future trends in FDI flows andpolicies.

• A worldwide survey of national IPAs regardingtheir perception of FDI prospects for andinvestment policies and promotion strategiesof their respective countries and regions.

The surveys complement each other andallow for direct comparison of the resultsobtained.

The surveys involved 335 of the largestTNCs (ranked by size of their foreign assets)from developed, developing and transitioneconomies (for a response rate of 24%), 87international location experts interviewed and158 IPAs (for a response rate of 63%).

NotesNotesNotesNotesNotes

36 World Investment Report 2004: The Shift Towards Services

paribus , that size is the “baseline” for attractinginvestment. These other factors are diverse, rangingfrom the business climate, economic and politicalstability, the presence of natural resources,infrastructure, skills and technologies, to opportunitiesfor participating in privatization or the effectivenessof FDI promotion.

16 A correlation of the changes in rank over these fiveperiods with the previous eight periods (1988-1990to 1996-1998) turns out to be negative and significant(-0.29).

17 The methodology for building the index is the sameas in WIR02. It is an unweighted average of thefollowing 12 variables, as measured on a score of 0-1: GDP per capita, the rate of growth of GDP, the shareof exports in GDP, telecom infrastructure (the averageof telephone lines per 1,000 inhabitants and mobilephones per 1,000 inhabitants), commercial energy useper capita, share of R&D expenditures in gross nationalincome, the share of tertiary students in the population,country risk, exports of natural resources as apercentage of the world total, imports of parts andcomponents of electronics and automobiles as apercentage of the world total, exports in services asa percentage of the world total and inward FDI stockas a percentage of the world total (annex table A.I.6).

18 It is assumed that roundtripping and indirect FDIaccount for 25-40% of FDI from Hong Kong (China)(box I.4).

19 For an analysis of the economic benefits of outwardFDI for home developing countries, and policiespursued by them, see WIR95.

20 The FDI outflow data for the latter half of the 1990sand early 2000s are distorted because of exceptionaltransactions related to the unbundling of cross-shareholdings or the de-listing of two firms in the UnitedKingdom and South Africa (WIR02).

21 The decline registered in 2001-2002 was largely dueto the shift of De Beers’ headquarters from South Africato the United Kingdom.

22 This is the case, for instance, of Chinese TV producerssuch as Konka Electronics, Skyworth and ChanghongElectronic Groups, and household appliancemanufacturers like Haier and Guangdong Midea Group.

23 Huawei Technologies and ZTE Corporation have donethis in Sweden, Guangdong Glanz Group in Seattle,Konka (an electronics company) in Silicon Valley inthe United States, Haier in Germany (and in a designcentre in Boston, United States), and Kelon in a designcentre in Japan.

24 Financial Times, 25 May 2004.25 Fiscal year covers April of the current year to March

of the following year.26 This trend is continuing in 2004. For example, Infosys

Technologies Ltd announced in 2004 that it wouldestablish a new affiliate in the United States (InfosysConsulting) to expand consulting businesses.

27 Daksh eServices, India’s largest business-processoutsourcing company, which was acquired by IBM in2004, had established a facility in the Philippines;MsourcE established a Spanish language centre in

Tijuana, Mexico, in 2003; and Hinduja TMT Ltdacquired a controlling interest in c3, a call centre inthe Philippines, in 2003.

28 In 2003, Hindalco acquired two copper mines inAustralia. The Oil and Natural Gas Commission(ONGC) Ltd, a State-owned company, bought a 25%stake in a Sudan oil field from Talisman Energy(Canada) for $720 million.

29 It was conducted for the first time in 2001 to obtainreliable information on the value and the forms of stockof Brazilian capital abroad. For further information,see Brazil, Central Bank of Brazil 2004.

30 Manufacturing employment worldwide fell by 11%during the period 1995-2002. This trend was notconfined to developed countries only. In China, forexample, manufacturing employment fell from 98million in 1995 to 83 million in 2002. Estimates byAlliance Capital Management, as cited in “Studyundermines charge China is stealing U.S. factory jobs”,Philadelphia Enquirer, 22 October 2003.

31 Forecasts by the IMF (2004) expect the world economyto grow by 4.6% in 2004, while the EconomistIntelligence Unit (2004) expects it to grow by 4.2%,after expanding by an estimated 3.5% in 2003.UNDESA and UNCTAD (2004) forecast world growthat 3.5% in 2004. For further discussion on growthprospects, see UNCTAD 2004j.

32 The IMF forecasts growth in developing countries torise to 6%. The Institute of International Finance(2004) expects growth in emerging markets to be 5.3%for 2004, up from an estimated 4.6% in 2003. TheEconomic Commission for Latin America and theCaribbean (2003a) forecasts the region’s economy togrow by 3.5% in 2004, having grown by an estimated1.5% in 2003. The Economic Commission for Africa(2003) had forecast the region’s growth in 2004 to be4.2%.

33 Data from the World Federation of Exchanges(www.world-exchanges.org). Data for the world basedon 49 stock exchange markets in 47 countries.

34 Business Week, 9 February 2004.35 Nihon Keizai Shimbun, 17 May 2004. The survey shows

that investment in the United States is expected todecline by 4.1% (due to drastically reduced investmentin the non-manufacturing sector), and that in Chinato increase by 22.5%.

36 The largest cross-border M&A deal concluded in thefirst six months was the acquisition of John HancockFinancial Services (United States) by ManulifeFinancial Corp. (Canada) for $11 billion.

37 Washington Post, “China accelerates privatization,continuing shift from doctrine”, 12 November 2003,http://www.globalpolicy.org/socecon/ffd/fdi/2003/1112chinaprivatization.htm.

38 International Herald Tribune, “China Power readies$1 billion share sale”, 14 January 2004, http://www.iht.com/articles/124955.html.

39 Based on data from the OCO Consulting’sLOCOmonitor database.

40 For an integrated analysis of these three surveys, seeUNCTAD (forthcoming a).

37CHAPTER I

The transnationality of TNCs can beconsidered from a number of perspectives: theiroperations, stakeholders and the spatialorganization of management. From eachperspective, various dimensions can beconsidered:

• From the operations perspective , keydimensions include the intensity or relativeimportance of a TNC’s foreign operations,as measured by various variables: thegeographical spread of its operations, themodalities of foreign operations and thedegree of integration of the productionprocess across locations.

• From the stakeholders’ perspective, keydimensions include the composition ofmanagers or board members, the nationalitycomposition of shareholders by nationality,the international mobility and internationalexperience of managers and the compositionof the labour force by nationality.

• From the perspective of the spatialorganization of management , keydimensions include: the extent and spreadof the location of regional headquarters inhost countries and the legal nationality(ies)of a TNC.

Given the range of perspectives anddimensions that can be considered for each, thedegree of transnationality of a TNC cannot befully captured by a single synthetic measure –it requires a variety of indicators. Some of thesecan be expressed as indices calculated orestimated on the basis of empirical data; othersmay consist of empirical data not expressed asindices; and still others may be expressed inqualitative rather than quantitative form.

UNCTAD’s Transnationality Index (TNI)measures the degree of transnationalization ofthe top TNCs worldwide (box I.1; annex tableA.1.3) and the top TNCs in the developingcountries (box I.3; box table I.3.1) and CEE(annex table A.II.2) from an operationsperspective. It uses three variables (sales, assets,employment) to measure the intensity of foreign,relative to total, operations. Some aspects of thetransnationalization of the top TNCs accordingto the TNI are highlighted in box I.1.

One aspect of transnationality from theoperations perspective not included inUNCTAD’s TNI is the intensity of foreignoperations according to the number of foreignaffiliates. The “internationalization index” –the ratio of the number of foreign to the totalnumber of affiliates – shows that, on average,some two-thirds of the affiliates of the top 100TNCs are located abroad (annex table A.I.4). Theinformation on foreign affiliates by TNCs’ homecountry and industry shows that theinternationalization index (like the TNI) ishighest for top TNCs from small countries(Belgium, Finland, Ireland, Switzerland) and formachinery and equipment, construction andbuilding materials, and chemicals andpharmaceuticals industries (annex tables A.I.24and A.I.25). The TNI as well as theinternationalization index give an idea of thedegree of embeddedness and interests of acompany in the home country versus abroad. Thelevel and pattern of trade can also be affectedby the intensity of foreign operations, i.e. by theshare of business activities abroad.

Another aspect of transnationality fromthe operations perspective is the extent ofgeographic spread of a company’s operations andinterests – whether spread over several countriesor concentrated in one or two. This concept oftransnationality has several aspects: the spreadof operations across many countries affects thestrategic stance of a company; it also affects itsability to develop and spread knowledge andinnovation, as well as its strategies concerninglabour or governments. The indicators used forthis concept are: the number of foreign countriesin which the TNC has affiliates and the (closelyrelated) network spread index (NSI), bothreported in annex tables A.I.4, A. I.24 and A. I.25,along with values for the internationalizationindex. The notes to table A.I.4 explain how theNSI is calculated. On average, the top TNCs haveaffiliates in 35 foreign countries and a NSI ofalmost 18%. These indicators of the spread ofTNCs’ operations have the limitation that theyare derived using the number of affiliates, andcannot be complemented, as in the case of theinternationalization index, by an indicator similarto the TNI, which takes the value or magnitudeof activities in each country into account, becauseno reliable data exist on the latter.

AnneAnneAnneAnneAnnex to cx to cx to cx to cx to chahahahahapter I. How trpter I. How trpter I. How trpter I. How trpter I. How transnaansnaansnaansnaansnational artional artional artional artional are TNCs?e TNCs?e TNCs?e TNCs?e TNCs?

38 World Investment Report 2004: The Shift Towards Services

A subsidiary perspective refers toregionality. It may be relevant to ask whetherthe operations and interests of a firm areconcentrated in a region or equally spread amongseveral regions. Annex tables A.I.26-A.I.27 giveinsights into the regional dimension oftransnationality in terms of the number of foreigncountries in which a TNC has affiliates. Thebreakdown by home country and by industry ofTNCs (annex tables A.I.26 and A.I.27) shows thatthe EU is a favourite region for the location offoreign affiliates of the top TNCs from mostcountries. Top TNCs from Japan, however, spreadtheir affiliates largely in three regions: the EU,North America and South-East Asia.

The indicators of intensity, as well as ofthe spread of TNCs’ operations concentrate onthe operations of foreign affiliates in which TNCshave an equity interest, and thereforeunderestimate the interest that companies havevia non-equity modes. For example, McDonald’sis listed as operating in only 14 foreign countries,having, therefore, a Network Spread Index of7.18 (annex table A.I.4) – well below the averagefor the entire top 100 TNCs (17.93). This isbecause the information from which the data aregathered does not include its franchisingactivities. This shows that the modalitiesperspective is also important. Does a companyoperate abroad directly (via FDI) or throughalliances or trade or franchising (as in the caseof McDonald’s)? Operations via differentmodalities have implications for the hostcountries and their firms, as well as for theintegration of production.

Information and communicationstechnologies are making a new modality ofoperations possible: the electronic delivery offinal or intermediate products. This affects thevelocity of international operations, theinternational division of labour and theintegration of the production process (Ietto-Gillies 2002). The last point has implications foranother aspect of transnationality from anoperations perspective: the internationalintegration of production processes. Suchintegration has, so far, been more common inmanufacturing than in services, but is also beingextended to the latter. It is not easy to developindicators of international integration; however,intra-firm trade might be a good proxy, if andwhen available.

In addition to assessing transnationalityfrom an operational perspective by indicatorssuch as those discussed above, one can also tryto do so from other perspectives, as alsomentioned above. For example, annex tableA.I.28 shows the regional composition ofdirectors from the boards of 42 of the top 100TNCs, thereby providing an indicator based onthe stakeholders’ perspective. It shows that topTNCs originating in Europe have a much higherrepresentation of non-home-country nationalsamong their directors than do top TNCs from theUnited States and Japan. The percentages are 33for the EU, 47 for Switzerland, 18 for the UnitedStates and 2 for Japan. Within the EU, the highestpercentage applies to TNCs from the UnitedKingdom (52%).

FDI to developed countries continued todecline in 2003, despite signs of an imminentrecovery, and flows to Central and EasternEurope (CEE) fell sharply. At the same time,developing countries as a group saw increasedinflows, reversing the trend during the previoustwo years. However, the picture differedconsiderably by region and country. In thedeveloping world, Africa and Asia and the Pacificreceived larger inflows than in 2002, while theyfell in Latin America and the Caribbean for thefourth consecutive year. In the developed world,FDI flows to “other Western Europe” increasedwhile those to the EU, the United States andJapan decreased (annex table B.1). In CEE, flowsto large host countries that have almost completedtheir privatization programmes fell, while thoseto other countries rose. In general, prospects forFDI in 2004 are promising for all regions.

A. DeA. DeA. DeA. DeA. Devvvvveloping countrieseloping countrieseloping countrieseloping countrieseloping countries

In 2003, FDI flows to the developingcountries as a group picked up, following twoyears of decline. The increase in Africa’s FDIinflows was driven mainly by natural resources,and was spread more evenly among countries aswell as industries than the previous increase in2001. Flows to Asia and the Pacific rebounded,attracted by strong domestic growth in somecountries, with an increase in efficiency-seekingFDI to competitive locations in the region. Infaster growing East and South-East Asia, it wasconcentrated in services, while FDI inmanufacturing fell and that in primary remainedstable. In Latin America and the Caribbean, onthe other hand, the downturn persisted due toseveral factors in particular, a slowdown inprivatization (a key factor behind increased FDIflows to Latin America during most of the 1990s),economic and political uncertainties in somecountries and the relocation of production fromsome Latin American countries to lower-costlocations such as China. Nonetheless, withregional and global economic conditionsimproving, the outlook for FDI flows in 2004 toall three developing regions is favourable.Moreover, developing countries have taken

additional steps to liberalize and reform theirnational and regional policy frameworks for FDI,and this too boosts prospects for increasedinflows.

FDI flows to the least developedcountries (LDCs) remained low. In the case ofAfrica’s 34 LDCs, all except three oil-producingcountries (Equatorial Guinea, Angola, the Sudan)received less than $1 billion dollars in 2003, with26 of them receiving no more than $200 million.The same applied to Asia and the Pacific, whereall but two of the region’s 15 LDCs received lessthan $100 million in flows in 2003, and 11 ofthem less than $50 million. The only LDC inLatin America and the Caribbean, Haiti ,continued to record a small amount of FDI. Whileflows to LDCs seem low, when viewed in relationto their gross fixed capital formation, they aremore significant for their host economies thanthey are for other developing countries that havereceived larger absolute amounts of FDI: as apercentage of gross fixed capital formation inLDCs, FDI inflows amounted to 21% in 2003(figure II.1), compared to 11% for otherdeveloping countries. Increasing these flows toassist the development efforts of LDCs remainsan objective not only of national governmentsbut also of the international community. This isreflected in both national policy-making in LDCsand international initiatives.

1. Africa: a turnaround

FDI inflows to Africa in 2003 grew by28%, to $15 billion, in contrast to the fall in 2002of 40%. But the volume was still below the peakrecorded in 2001 (figure II.2). The recovery wasled by investment in natural resources andfacilitated by the continued liberalization of FDIpolicies. FDI inflows as a percentage of grossfixed capital formation also grew, from 12% in2002 to 14% in 2003, the second highest levelin the past decade (figure II.2). However, thepicture varied for different countries: there wasan increase in inflows in 36 countries and adecline in 17. The value of M&A sales also grew,from $4.7 billion in 2002 to $6.4 billion in 2003(annex table B.8). The resource-rich countries

CHAPTER IICHAPTER IICHAPTER IICHAPTER IICHAPTER II

REGIONAL FDI TRENDS: A MIXED PICTURE

40 World Investment Report 2004: The Shift Towards Services

Figure II.1. LDCs: FDI inflows and their share in gross fixed capital formation, 1985-2003

were once again the main attraction for TNCs.Although Africa’s potential for obtaining FDIthrough privatization has diminished in severalcountries, the prospects for 2004 are quite good,mainly because of bullish commodity markets (indiamonds, gold, oil, platinum). As regards outwardFDI, Africa (except for South Africa) remains aminor player (chapter I).

a. Inflows regain momentum

FDI inflows to Africa increased from $12billion in 2002 to $15 bill ion in 2003. Thisperformance was noteworthy for three reasons:

• The growth rate of 28% was higher than thatof the other groups of countries, developedand developing.

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Figure II.2. Africa: FDI inflows and their share in gross fixed capital formation, 1985-2003

• Several small African economies shared inthe growth of FDI. As a result , thedistribution of inflows was more broad-basedthan in any year since 1999, with 22 countriesreceiving more than $0.1 billion comparedto 16 in 2001 (tables II.1 and II.2).

• Oil accounted for the bulk of the increase,especially in Equatorial Guinea.

A number of LDCs were among the top tencountries attracting the most FDI in 2003. Theseincluded Angola, Chad, Equatorial Guinea and theSudan (figure II.3). Petroleum exploration andextraction received the most FDI in Algeria,Angola, Chad, the Libyan Arab Jamahiriya,Nigeria and the Sudan. The highest growth ratesin inflows were registered in Djibouti, Equatorial

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

41CHAPTER II

Guinea, Kenya, the Libyan Arab Jamahiriya,Madagascar, Malawi and Morocco, where totalinflows were at least twice higher in 2003 thanin 2002 (annex table B.1).

Among the countries in the league of thetop ten recipients, Morocco was the number onerecipient (figure II.3): inflows rose from $480million in 2002 to $2.3 billion in 2003, thanksto privatizations (e.g. Altadis, the Franco-Spanishtobacco group purchased the Régie des TabacsMarocains for € 1.7 billion).

Based on UNCTAD’s Inward FDIPerformance Index in 2001-2003, the value forAfrica was 1.2 in the period 2001-2003, up from

Table II.1. Africa: frequency distribution of hostcountries, by range of FDI inflows, 1999-2003

(Number)

Range 1999 2000 2001 2002 2003

More than $6 billion – – 1 – –$2-5.9 billion 1 – 2 – 1$1-1.9 billion 3 1 2 4 4$0.5-0.9 billion 3 3 3 4 5$0.1-0.4 billion 11 17 8 14 12$0-0.09 billion 32 30 35 30 31Less than $0 billion 3 2 2 1 –

Total 53 53 53 53 53

Source: UNCTAD, based on annex table B.1.

Table II.2. Africa: country distribution of FDI inflows, by range, 2003

Range Economy

More than $2 billion Morocco

$1-1.9 billion Angola, Equatorial Guinea, Nigeria and the Sudan

$0.5-0.9 billion Algeria, Chad, Libyan Arab Jamahiriya, South Africa and Tunisia

$0.1-0.4 billion Cameroon, Congo, Democratic Republic of the Congo, Côte d’Ivoire, Egypt, Ghana, Mali,Mauritania, Mozambique, Uganda, United Republic of Tanzania and Zambia

Less than $0.1 billion Benin, Botswana, Burkina Faso, Burundi, Cape Verde, Central African Republic, Comoros,Djibouti, Eritrea, Ethiopia, Gabon, Gambia, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia,Madagascar, Malawi, Mauritius, Namibia, Niger, Rwanda, São Tomé and Principe, Senegal,Seychelles, Sierra Leone, Somalia, Swaziland, Togo and Zimbabwe

Source: UNCTAD, based on annex table B.1.

Figure II. 3. Africa: top 10 recipients of FDI inflows, 2002, 2003a

(Billions of dollar)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2003 FDI inflows.

42 World Investment Report 2004: The Shift Towards Services

0.7 in 2000-2002 (table I.4). Specifically, 24countries improved their rankings, 3 remainedthe same and 9 saw a decline. Morocco performedbest among African countries, improving itsranking from 62 in 2000-2002 to 32 in 2001-2003, an upward climb of 30 points. Most of thisimprovement can be attributed to more FDI-friendly policies in the country. On the InwardFDI Potential Index , 181 African countriesimproved their rankings, 2 achieved the samelevel2 and 16 saw a fall (annex table A.I.7).3 Thelast group included two countries (the LibyanArab Jamihiriya and Nigeria) that were amongthe top ten recipients of FDI in Africa. Africa’sinward FDI performance, however, is weakbecause key industries remain underdeveloped:the margin of under-performance is large mostlyin some natural-resource-rich, particularly oil-producing, economies. This could change as tradepreferences offered by the United States underits African Growth and Opportunity Act (AGOA)take effect and international sanctions on theLibyan Arab Jamahiriya come to an end.

From the perspective of financingAfrica’s development needs, FDI inflowscontinued to make up a large part of Africa’sexternal resource receipts (figure II.4), at 46%of total external net resource flows in 2002.Average FDI inflows during 2000-2002 werehigher than official net resource flows as wellas portfolio and commercial bank loans combined(the latter were negative). Over the period 1990-2002, FDI inflows as a proportion of overallresource flows have thus gained some ground,albeit with fluctuations (figure II.4).

b. Policies increasingly liberal

African countries continued to liberalizetheir FDI policies, increase their efforts to attractmore FDI or initiated action in these respects.Burundi, Kenya, Nigeria and Rwanda resumedeconomic reforms, privatization andliberalization, further reducing their restrictionson foreign investors. Much of the privatizationwas related to infrastructure development. TheRwanda Privatisation Secretariat, for instance,announced in November 2003 that Rwandatel,the State-owned telecom company, is to be sold,without any restriction on the participation byforeign investors. A number of other Africancountries also made changes in various aspectsof their FDI policies (boxes II.1-II.3).

National efforts were complemented bythe conclusion of BITs and DTTs. Of the 35 BITsconcluded in 2003 by African countries, 13 werebetween African countries themselves; the restwere signed mainly with European countries (inparticular, Italy, Luxembourg, the Netherlands,Switzerland). African countries also concludednine DTTs, five of these between Africancountries and the others with Belarus, Germany,Oman and Ukraine. This brought the cumulativenumbers to 567 BITs and 374 DTTs (figure II.5).

A number of negotiations were started in2003 to establish FTAs between groups of Africancountries and other countries/regions, particularlythe United States and EU (annex table A II.1).Also, the number of African countries designatedas eligible for the benefits of the AGOA initiative

Source: UNCTAD, based on World Bank 2004.a Defined as net liability transactions or original maturity of greater than one

year.

Figure II.4. Africa: total external resource flows, by type of flow, 1990-2002

$ b

illi

on

43CHAPTER II

• Algeria (box II.2), Benin, Botswana, Ghana,Kenya , Lesotho and Zambiaa undertook, or arein the process of undertaking, Investment PolicyReviews (IPRs), with a view to improving theirinvestment climate.

• Angola enacted a new law on privateinvestment allowing projects to be undertakenwith the participation of both domestic andforeign private investors.

• The Democratic Republic of the Congo adoptedan investment law reinforcing its mining codeand abolishing the previous requirement toapprove investment projects in an ad hocmanner, often by the executive, or by variousbodies acting without consultation.

• Djibouti introduced a new law on portoperations barring foreign companies from keyhandling and transit operations in itsinternational port, and limiting them only toundertake stevedoring and forwarding servicesat the port in conjunction with Djiboutianbusiness partners.

• Ethiopia amended its investment law to allowthe private sector to participate in all areasexcept electric power development anddistribution, postal service delivery and airtransport using over 20 seater planes, whichare solely reserved for the Government. Thenew law allows foreign investors to generatepower using wind, biomass and other sources- lifting earlier restrictions on them to invest

only in the hydroelectric power generation. Italso lowered the investment capital requirementfor foreign investors from $500,000 to$100,000, further lowering the capitalrequirement to $50,000 for foreign investorslaunching projects in joint ventures. The lawallows investors participating in production andservice delivery to import their capitalequipment free of tax, and spare parts with 15% tax.

• Ethiopia, Mali, Mauritania (box II.3) andUgandab published investment guides to attractforeign investors.

• The Libyan Arab Jamahiriya amended its lawto encourage foreign capital investment;cancelled investment registration requirementsin its industrial register and its registers ofimporters and exporters and established aseparate incorporation and registrationprocedure for investment (see also box II.5).

• Madagascar has earmarked a number ofoperations for privatization (or is privatizingor offering concession management), includingits fuel refining and distribution industry,Airlines (Air Madagascar), northern railwaycompany, southern railway, telecommunications,cotton, sugar and electricity and waterindustries.

• Sierra Leone issued a petroleum law offeringforeign and domestic investors generous fiscalterms: a 30% income tax and a 6.5% offshoreroyalty.

Box II.1. Africa: examples of FDI-related policy changes in selectedcountries, 2003-2004

Source: UNCTAD, based on national sources.

a See, respectively, UNCTAD 2004d, UNCTAD forthcoming b, UNCTAD 2003b, UNCTAD 2003c, UNCTAD forthcomingc, UNCTAD 2004e, and UNCTAD forthcoming d.

b See, respectively, UNCTAD-ICC 2004a, UNCTAD-ICC 2004b,UNCTAD-ICC 2004c, UNCTAD-ICC 2004d.

Algeria was the third biggest FDI recipientin Africa in 2002, and the largest in the Maghrebregion. This was mainly due to macroeconomicstabilization and economic liberalizationimplemented by the Government in the early1990s. However, its FDI inflows declined by 40%in 2003 (from $1.1 billion in 2002 to $634 millionin 2003). So far Algeria has not fully benefitedfrom the downstream effects of FDI in terms oflocal enterprises’ competitiveness, job creation,domestic capital and technology transfer.

Historically, high levels of investment went to oiland gas exploration. More recently, steel,chemicals, pharmaceuticals and telecom-munication have started to attract FDI.

An UNCTAD Investment Policy Review(IPR)a was undertaken in 2003 to help Algeriaremove impediments to more stable FDI inflows.It encouraged the Government to continue itsefforts at macroeconomic stabilization andeconomic liberalization, strengthen its regulatoryframework and implement proactive strategies for

Box II.2. Algeria: policy reforms may keep FDI high

/...

44 World Investment Report 2004: The Shift Towards Services

investment promotion, at the national and sectorallevels. In particular, whereas the Investment Codeof 1993 and the Ordonnance 2001 achievedimportant goals,b the UNCTAD IPR suggestedfurther reforms of the regulatory and institutionalframework. Algeria could benefit from additionalmeasures such as a modernized investment code,enhanced transparency in investment proceduresand more effective judicial procedures, inparticular in the area of arbitration.

The IPR also identified areas in whichAlgeria has good prospects to leverage its

Box II.2. Algeria: policy reforms may keep FDI high (concluded)

Source: UNCTAD 2004d.

a IPRs are intended to familiarize governments and the international private sector with an individual country’s investmentenvironment and policies. Apart from those mentioned in the text, IPRs have been completed for the following Africancountries: Egypt (1999a), Ethiopia (2002a), Mauritius (2001a), the United Republic of Tanzania (2002b) and Uganda(2000a).

b Restrictions on foreign ownership of capital no longer apply, the fundamental principle of freedom of investment andkey international standards of treatment and protection were introduced, the right to repatriate profits is granted toforeign investors and an “Agence nationale de développement de l’investissement” was created.

competitive advantage: ICT, electronics, mining,banking and finance, infrastructure andagribusiness. Promotional activities, includingtargeting, could help to attract high-quality FDIinto these areas.

Several recommendations of the IPR werealready implemented in 2004 in cooperation withUNCTAD. They include the use of an investortracking software at the Agence nationale dedéveloppement de l’investissement, an evaluationof the Agency’s needs in terms of proactiveinvestment promotion techniques and capacitybuilding in investor aftercare activities.

FDI inflows into Mauritania are small,although they have increased quite rapidly, from$118 million in 2002 to $214 million in 2003. FDIin the oil and telecom industries has accountedfor most of the recent surge. Mauritania is anexample of a country with potential for more FDI,where the Government is working to attractinflows into sectors that still remain unexploited.The recently completed investment guide onMauritania by UNCTAD and the InternationalChamber of Commerce (ICC)a shows that thecountry’s wealth lies primarily in seafood productsand mining. Mauritania is also rich in mineralresources, notably iron ore, copper, cobalt,diamonds, gold, gypsum and phosphates, but sofar only iron ore is being exploited industrially.Oil reserves are estimated at 140-180 millionbarrels, and production is scheduled to begin in2005. The country has implemented a plan toenhance the capacity and competitiveness of themining industry to attract FDI.

Mauritania’s exclusive economic zonecontains rich fishery resources. Current annualcatch is 600,000 tons, but the estimated potentialyield is 1.6 million tons per year. In 2001, thefishing agreement between the EU and Mauritaniawas renewed for another five years. Agriculturealso offers investment opportunities, particularlybecause Mauritania is the tropical country closestto Europe, and could provide the European marketwith fresh produce. It also has considerable touristpotential: situated on the edge of the SaharaDesert, it offers magnificent dunes, over 700kilometres of coastline, pristine beaches and richcultural diversity. In addition, the country enjoysfavourable access to international markets. Underthe Cotonou Agreement, Mauritanian products aregiven non-reciprocal preferential treatment in EUmarkets. Furthermore, because of its LDC status,Mauritania is eligible for the advantages bestowedby the EU’s Everything-but-Arms initiative andalso qualifies for AGOA preferential treatment.

Box II.3. Mauritania: better opportunities set to boost FDI

Source: UNCTAD-ICC 2004c.

a UNCTAD has published, in cooperation with the ICC, a series of investment guides on selected LDCs. Such guidesprovide information on general conditions, potential areas for investment and regulations governing investment inLDCs. Apart from those mentioned in the text, see also UNCTAD-ICC 2001, on Mozambique.

45CHAPTER II

increased from 34 in 2000 to 37 in 2003.4 Atthe end of 2003, 18 countries met the rules-of-origin required to take advantage of theprovisions of the initiative.5 Botswana andNamibia qualified for the “special provision”which permits lesser developed AGOAbeneficiary countries to util ize fabricmanufactured anywhere in the world, and a newbill, the AGOA Acceleration Act of 2004, wasenacted to extend the overall programme until2015.6

The AGOA Acceleration Act of 2004improved the likelihood of TNCs already engagedin apparel and textile production in Africa to staylonger. However, unless African exportersincrease their productivity, they still may notsurvive full global competition, in spite ofcontinuing tariff advantages (Lall 2003). The factthat no other labour-intensive activities, such asfootwear, toys, sports goods or electronics havemoved to Africa suggests that it is primarily thequota system and high tariffs for apparel appliedto other regions that are attracting FDI apparelproduction in Africa.

Additional measures were also taken tofacilitate foreign investment. In September 2003,the Multilateral Investment Guarantee Agency(MIGA) of the World Bank Group and theAfrican Trade Insurance Agency7 started to offerrisk insurance to long-term FDI in Africa forphysical damage resulting from war and terrorismand for debt-related projects and tradetransactions. As of June 2004, 46 African

countries were members of MIGA, and three(Guinea-Bissau, Liberia, Niger) were in theprocess of fulfilling membership requirements.

c. Natural resources and servicesdominate

Depending on the country, 50-80% ofFDI in Africa is in natural-resource exploitation.FDI in manufacturing and agriculture in theregion lags behind that in services, with someexceptions. In Mozambique, for example, BHP

Billiton (South Africa) is buildinga second aluminium plant for $1billion, and in South Africa, theCouncil for Scientific andIndustrial Research (CSIR) and theBoeing Company inaugurated theworld’s first Ka band telemetry,tracking and command facility.

FDI in services is increasing,particularly in telecommunications,electricity, management and trade.A large part of the increase isattributable to privatizationprogrammes. FDI intelecommunications was mainly inmobile phone services. In SouthAfrica, FDI in telecommunicationsand information technology hasovertaken that in mining andextraction. The number of Africans

subscribing to mobile phone services, mostlyoffered by TNCs (box II.4), grew from 1.2 millionin 1996 to 51 million in 2003 (figure II.6).

Non-equity relations between State-owned firms and TNCs are also increasing in theservices sector. For example, the Government of

Figure II.5. Africa: number of BITs and DTTs concluded,1990-2003

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Source: ITU (www.itu.int/ITU-D/ict/statistics).

Figure II.6. Africa: mobile phone subscribers,1996-2003

(Millions of subscribers)

46 World Investment Report 2004: The Shift Towards Services

the United Republic of Tanzania contractedEskom of South Africa to manage the TanzaniaElectricity Supply Company. The NigerianNational Electric Power Authority also signeda partnership agreement with Eskom to developits repair capabilities, execute transmission lineprojects and participate in rehabilitation,operation and transfer projects. This is part ofthe gradual effort to privatize electricity in thecountry. In Zimbabwe, the State-owned utilityhas awarded Eskom a contract to manage its mainpower station.

However, the privatization of services hasfaced problems, particularly owing to the absenceof adequate regulatory frameworks. For example,in Guinea, the electricity company was returnedto State control in 2002 following the departureof i ts foreign partners, Saur of France andHydroQuébec of Canada, due to regulatorydifficulties (EIU 2003). In Ghana, TelekomMalaysia’s management contract was not renewedafter the company apparently failed to meettargets for installing telephone lines andimproving the infrastructural and financial baseof the company in 2003. In Rwanda, the EngenCorporation (South Africa/Malaysia) left just

three years after its arrival for reasons attributedto a difficult operating environment (EIU 2003).

d. Prospects are positive

UNCTAD projects FDI inflows in Africato increase further in 2004. A large part of thisincrease will come from investment in naturalresource exploitation, and will be driven byhigher economic growth, a buoyant globalcommodities market and improving investorperceptions.

Higher economic growth forecast for sub-Saharan Africa in 2004 (4.2% according to theIMF (2004)) underlies the expected improvementin the level of FDI. Strengthened growth in SouthAfrica, in particular, will be important, especiallysince South Africa is becoming an importantsource of FDI for the region. In North Africa,privatization drives in the Libyan ArabJamahiriya and Egypt will help attract FDI. Theextension of AGOA (AGOA Acceleration Act2004), as well as the allowance for the 37participating African countries to continueimporting raw materials from elsewhere(typically Asia) in order to manufacture final

While fixed-line telecommunicationsremain largely in the hands of State-ownedincumbents in Africa, mobile telecommunicationsare largely offered by private operators. Someare affiliates of global firms (e.g. Vodafone,France Télécom/Orange), but many are affiliatesof TNCs based in Africa (e.g. MTN, Orascom– box table II.4.1). Both types of firms areinvesting in other African countries. The sixlargest African mobile operators cover 28 Africaneconomies and had more than 33 millionsubscribers in 2003, representing two-thirds ofthe total for Africa (ITU 2004, p. 5). Thesemarket leaders have shown a strategic interestin investing within Africa. They have experienceand resources to tackle large markets such asAlgeria, the Democratic Republic of the Congo,Nigeria and Tunisia. They are gradually movingaway from the high-end subscribers, reaching

Box II.4. Private mobile operators in Africa

larger groups of residential clients, outside capitalcities.

The largest mobile operators of the regionare relatively profitable on their African segment,partly due to the fact that they are not saddledwith high debts as a result of excessive bids forlicences to offer third generation (3G) mobileservices (ITU 2004, p. 5). The profitability ofthe five operators, for which geographicalsegment information is available, reached anaverage of almost 12% in 2003 in Africa (boxtable II.4.1).

Some of the region’s smaller and riskiermarkets tend to attract lesser known TNCs. Forexample, the Lebanese Investcom has startedmobile operations in Burundi, Congo, Ghana,Guinea and Liberia. Telkom Malaysia in turn hasacquired mobile operations through participationsin South Africa and Guinea.

/...Source: UNCTAD, based on ITU 2004.

47CHAPTER II

Box

tab

le I

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larg

est

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ator

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agem

ent,

LP

Fun

d.

48 World Investment Report 2004: The Shift Towards Services

products for another three years will alsocontribute to the region’s FDI appeal.

As to commodities, oil prices rose byover 40% in the period 2003-2004, and pricesof gold, diamonds and platinum have also beenquite high.8 As a result, such natural-resource-rich countries as Algeria, Angola, EquatorialGuinea, the Libyan Arab Jamahiriya, Mauritania,Mozambique, Nigeria and the Sudan are expectedto receive more FDI. For example, ExxonMobilCorporation has announced contracts worth $1.7billion for an offshore project in Nigeria; theFrench-owned Total Oil Nigeria PLC hasannounced plans to invest about $10 billion inthe Nigerian oil industry over the next six years.The large coal deposits in Enugu in EasternNigeria are also attracting foreign investors. OilTNCs are re-entering the Libyan Arab Jamahiriyaas international sanctions end (box II.5).

In the longer term, structural problems,such as low labour productivity and insufficientinfrastructure, will hamper the growth of FDI,especially in export-oriented manufacturing.Policies for human resource development and

capacity building are imperative, as are incentivesfor firms to invest more in export-orientedmanufacturing. Some progress has been made inthis respect as far as the latter is concerned, inresponse to the various preferential tradearrangements in place. But there is scope forimprovement.

Surveys of the investment communityalso give rise to cautious optimism (e.g. UNIDO2003). One-fifth of the respondents toUNCTAD’s 2004 survey of the world’s largestTNCs (UNCTAD 2004c) expected FDI in Africato increase in 2004-2005, with two-thirdsexpecting flows to remain steady (figure II.7).TNCs perceived South Africa to be the mostattractive destination for FDI, with Egypt,Morocco and Nigeria also ranking high(UNCTAD 2004c). The survey of internationallocation experts conducted by UNCTAD(UNCTAD 2004a) showed South Africa as themost attractive country, followed by Angola andthe United Republic of Tanzania. According tothese experts, foreign investors saw opportunitiesin non-metallic products, food and beverages,and textiles and clothing; in the services sector,

After the United Nations imposed sanctionsin 1992, most investors abandoned or withdrewtheir assets from the Libyan Arab Jamahiriya.With an end to sanctions, the country maybecome a major destination for FDI, owing toits large reserves of oil.

United States oil companies – key investorsprior to the sanctions – are now allowed to holdtalks on standstill agreements covering assets theyhold in the country that they have been unableto operate since 1986. India’s ONGC Videsh(OVL) has joined hands with the TurkishPetroleum Overseas Company for a project inthe country. Norsk Hydro (Norway) already hasactivities in oil and energy production, whileStatoil (Norway) is considering exploration anddevelopment possibilities.a Tekhnopromexport(Russian Federation), LG Petrochemicals

(Republic of Korea) and Abengoa and Cobra(Spain) are engaged in electricity and powergenerating projects worth over $1.5 billion. Theconstruction of a $10 billion project to carryEgyptian natural gas to the Libyan ArabJamahiriya for power generation and waterdesalination, and another to carry oil from thecountry to Alexandria in Egypt, is under way.An affiliate of Eni (Italy) has a $500-$550 millioncontract to build and install an offshore naturalgas platform northwest of Tripoli, while aconsortium led by Japan’s JGC, and includingFrance’s Sofregaz and Italy’s Technimont, hascontracts worth $1 billion for engineering,procurement and construction. Based on the valueof active projects, it is estimated that the LibyanArab Jamahiriya will attract $6-7 billion of FDIin 2004-2005.b

Box II.5. The Libyan Arab Jamahiriya: the end of sanctions and the resumption of FDI

Source: UNCTAD, based on information from the United States Energy Information Administration/Department ofEnergy and other sources.

a webbolt.ecnext.com/coms2/description_ 25077_STATOIL310304_TRN.b Estimates based on 60-70% of the projects already awarded to TNCs and due for completion before 2005 in oil

refineries for $3.5 billion, power generation for $2 billion and the West Libya gas project for $5.6 billion. TheLibyan Arab Jamahiriya does not allow 100% private foreign ownership; the usual share is 30-40% State ownership.

49CHAPTER II

Figure II.7. Africa: prospects for FDI inflows,2004-2005, as reported by TNCs

(Per cent of respondents)

Source: UNCTAD (www.unctad.org/fdiprospects).

Figure II.8. Africa: expected policy measures to attractFDI, 2004-2005, as reported by IPAs

(Per cent of respondents)

Source: UNCTAD (www.unctad.org/fdiprospects).

they identified energy services and banking andinsurance.

IPAs will do what they can to attract newinvestment, especially by intensifying investortargeting, introducing more incentives to lureinvestors and further liberalizing their investmentregimes (figure II.8). In doing so, they expectto look to new sources of FDI. South Africa andChina were most frequently mentioned(UNCTAD 2004b). But, of course, the traditionalones (e.g. the United Kingdom, France) willremain important.

To conclude, 2003 was better than 2002for FDI inflows into Africa, and prospects forthe immediate future are promising. The structureof FDI in Africa remains skewed towards primaryproducts, although inflows to services are rising.International initiatives such as AGOA, theEverything-but-Arms Initiative, theACP-EU Cotonou agreements and NewPartnership for Africa’s Development(NEPAD) could help boost the region’sFDI performance. African IPAs appearfocused on greater targeting as apreferred policy measure to attract moreFDI, but low labour productivity in theregion is constraining FDI in export-oriented manufacturing. To change thissituation, governments need to pursuepolicies for human resourcedevelopment and capacity building,improve the infrastructure in key areasand provide better incentives for firms– domestic and foreign – to invest morein export-oriented manufacturing. Officialdevelopment assistance has an importantrole to play here, especially in LDCs.

2. Asia and the Pacific: a rebound

a. A mild upturn

FDI flows to the region rebounded in2003. Total inflows rose from $94 billion in 2002to $107 billion in 2003, ending the downturn thatstarted in 2001. However, the pattern was uneven.High-growth economies attracted more FDI,aided by their improving economic and policyenvironment, while countries suffering frompolitical tensions attracted less. The outbreak ofthe Severe Acute Respiratory Syndrome (SARS)had only limited effects on FDI inflows. Out of55 economies for which data are available, 34received higher flows than in 2002, and 21 lowerinflows (annex table B.1). Regional integrationis encouraging intraregional investment andfacilitates the expansion of production networksby TNCs. The policy framework for FDIcontinued to improve. Prospects are promising,owing to an upturn in the global economy, ahealthier outlook for key industries andfavourable subregional developments andcountry-specific factors.

Asia and the Pacific attracted more FDIthan most other regions, thus remaining thelargest recipient of FDI in the developing world.FDI inflows as a percentage of gross fixed capitalformation rose, from 8% in 2002 to 9% in 2003(figure II.9). But FDI remained concentrated: teneconomies accounted for about 90% of allinflows. The distribution of flows by size andrange of inflows has been largely stable, withthe majority of economies receiving less than $1

50 World Investment Report 2004: The Shift Towards Services

billion (tables II.3 and II.4).However, UNCTAD’sPerformance Index indicatesthat some of the smallereconomies receivedproportionately more FDI(annex table A.1.5). The topten recipients in 2003 wereheaded by China, HongKong (China), Singapore,India and the Republic ofKorea, in that order (figureII.10).

The following aresome salient features of thesubregional distribution ofFDI inflows in 2003:

• Flows to North-EastAsia9 rose from $67billion in 2002 to $72 bill ion in 2003.Falling inflows to Macao (China) andTaiwan Province of China (partly becauseof SARS) were partially offset by higherflows to China,10 Hong Kong (China), theRepublic of Korea and Mongolia. Thesignificant increase in cross-border M&Asin Hong Kong (China), from $1.9 billion in2002 to $6.1 billion in 2003, mitigated adownturn in flows to that economy (annextable B.7). In the Republic of Korea, FDIwas driven by large M&As in finance (e.g.Lone Star Fund (United States) acquired a51% stake of Korea Exchange Bank for $1.2billion) and telecommunications (e.g.Investor Group (United States) purchaseda 40% stake of Hanaro Telecom for $0.5billion).

• Excluding Luxembourg,11 China was thelargest FDI recipient in the world, withinflows of $53.5 billion. The number of

cross-border M&As in China increased from107 in 2002 to 214 in 2003,12 contributingto the surge in FDI flows. Relocation ofinvestment to and expansion of operationsin China by TNCs remained strong. It is notclear how a revaluation of the yuan – if itwere to take place – would affect FDIinflows. Much would depend on the extentof a revaluation, and the response of theChinese economy and of TNCs to theresulting changes in import costs and exportprices.

• Regional economic growth and an improvedinvestment environment contributed to a27% increase in FDI flows to South-EastAsia, which comprises countries of theAssociation of South-East Asian Nations(ASEAN),13 from $15 billion in 2002 to $19billion in 2003. The impact of SARS on FDIflows to the region was limited.14 Flows toBrunei Darussalam,15 Singapore, Thailandand Viet Nam rose thanks to improvedeconomic conditions and better investmentclimates. The magnitude of disinvestmentin Indonesia was considerably smaller thanthat of 1999-2001. The successfulprivatization of a number of State assets(e.g. Bank Danamon, Bank InternationalIndonesia) generated $0.6 billion in FDI(equity flows) in 2003, mitigating anotherwise sizeable decline. Repayments ofintra-company loans by foreign affiliates fellin the subregion.

• South Asia16 received $6.1 billion in FDI,up from $4.5 billion in 2002. FDI to India,

Table II.3. Asia and the Pacific: frequencydistribution of host economies,

by range of FDI inflows, 1999-2003(Number)

Range 1999 2000 2001 2002 2003

More than $5 billion 5 4 3 3 3$2-4.9 billion 3 4 6 4 6$1-1.9 billion 3 3 2 7 3$0-0.9 billion 38 38 40 39 41Less than $0 billion 8 8 6 4 4

Total 57 57 57 57 57

Source: UNCTAD, based on annex table B.1.

Figure II.9. Asia and the Pacific: FDI inflows and their share in grossfixed capital formation, 1985-2003

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

51CHAPTER II

Table II.4. Asia and the Pacific: economy distribution of FDI inflows, by range, 2003

Range Economy

More than $5 billion China, Hong Kong (China) and Singapore

$2-4.9 billion Azerbaijan, Brunei Darussalam, India, Kazakhstan, Republic of Korea and Malaysia

$1-1.9 billion Pakistan, Thailand and Viet Nam

$0-0.9 billion Afghanistan, Armenia, Bahrain, Bangladesh, Bhutan, Cambodia, Cyprus, Fiji, Georgia,Islamic Republic of Iran, Iraq, Jordan, Kiribati, Kuwait, Kyrgyzstan, Lao People’s DemocraticRepublic, Lebanon, Macao (China), Maldives, Mongolia, Myanmar, Nepal, New Caledonia,occupied Palestinian territory, Oman, Papua New Guinea, Philippines, Qatar, Samoa, SaudiArabia, Sri Lanka, Syrian Arab Republic, Taiwan Province of China, Tajikistan, Tonga,Turkey, Turkmenistan, Tuvalu, United Arab Emirates, Uzbekistan and Vanuatu

Less than $ 0 billion Indonesia, Democratic People’s Republic of Korea, Solomon Islands and Yemen

Source: UNCTAD, based on annex table B.1.

Figure II.10. Asia and the Pacific: top 10 recipients of FDIinflows, 2002, 2003 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2003 FDI inflows.

the dominant host country in this subregion,grew by 24%, reflecting its strong growthand continued liberalization. The servicessector, in particular information andcommunication technology (ICT) industries,was the most dynamic for FDI inflows (seePart Two). Except for Afghanistan andBhutan, flows to the other countries rose,and significantly so in Bangladesh, Nepaland Pakistan. In Sri Lanka privatizationhelped boost FDI flows.17

• Central Asia18 also recorded an increase inFDI inflows, from $4.5 bill ion to $6.1billion. Resource-rich countries such asAzerbaijan attracted more FDI than others,mostly in oil and gas. Georgia andKyrgyzstan also received higher flows.Those to Kazakhstan declined by 20%, from$2.6 billion in 2002 to $2.1 billion in 2003.

• Additional investment in oil contributed tothe upturn in FDI flows to West Asia,19 from$3.6 billion in 2002 to $4.1 billion in 2003.The increase in flows to Bahrain, Jordan,

Kuwait, Oman and Saudi Arabiaaccounted for much of thesubregion’s improved performance.However, regional tensions anduncertainty are likely to have heldback a higher increase. And thesubregion continues to facecompetition from locations in Africaand Central Asia.

• Flows to the Pacific islandsdoubled, from $0.1 billion in2002 to $0.2 bill ion in 2003,with most countries benefitingfrom higher inflows. Papua NewGuinea in particular, saw a sharprise in flows from $21 million in2002 to $101 million. Theincrease in M&As in thiscountry, amounting to $82million (up from $28 million in2002), was the main explanation.

One common element standsout: countries with high economicgrowth, such as China, India andsome ASEAN countries, generallyattracted more FDI.

52 World Investment Report 2004: The Shift Towards Services

Unlike in Latin America in the 1990s,privatization has not been a major factor drivingFDI in the Asia-Pacific region. Most FDI in Asiais in the form of greenfield investment. However,some countries – India, Indonesia, the Republicof Korea, Pakistan, Turkey – have increased theirefforts to privatize State assets (including throughFDI) in order to raise revenue and strengthenindustrial development.

Intra-regional investment is expanding,in part because of the shift of production fromhigher to lower cost locations. FDI within andbetween North-East20 and South-East Asianeconomies accounted for 49% of flows in thesesubregions in 2001-2002, up from 38% in 1999-2000. Regional integration arrangements alsoinfluenced investment within them andaccelerated the process of knitting the subregionsinto more widespread production networks(WIR03 p. 47, p. 51; Wee and Mirza 2004; Ernst2004). With regard to outward FDI, China andIndia are becoming relatively important investors(chapter I), joining Malaysia, the Republic ofKorea, Taiwan Province of China and Singapore.

b. Policies improved further

The policy environment in Asia and thePacific continued to become more FDI friendlyin 2003 and early 2004 (box II.6). A total of 26economies introduced favourable national policymeasures in 2003, compared to 23 in 2002.

The number of BITs and DTTs concludedby economies in Asia and the Pacific declinedin 2003: 36 BITs and 23 DTTs were concluded,compared to 45 and 27, respectively, in 2002(figure II.11). To mention a few, Viet Nam signedBITs with Japan and the Republic of Korea, anda DTT with Pakistan; India signed BITs withArmenia, Djibouti, Hungary and the Sudan; HongKong (China) signed DTTs with Belgium,Germany, Macao (China), Norway and Singapore;and China signed a DTT with Kazakhstan. Mostof the economies in the region had alreadyconcluded BITs and DTTs with principal homecountries in previous years, with the number ofsuch treaties peaking in 1996 and 1997.

More countries are cooperating andpromoting FDI jointly within regional or bilateralarrangements in Asia and the Pacific.21 Moreregional FTAs or economic arrangements withinvestment components were concluded or

launched (annex table A.II.1), with ASEANleading in both regional and bilateral FTAs.

c. Services FDI on the rise

As in the world as a whole, the sectoralcomposition of FDI is changing in Asia as well.The share of the primary sector remained stable(at 5%) with oil and gas, in particular, attractingFDI. The share of manufacturing fell (from 57%in 2002 to 53% in 2003);22 weak corporateearnings and demand for semiconductorspersisted until mid-2003 and deterred investmentin electronics and telecom equipment. Whilemanufacturing attracted the bulk of FDI in somecountries (e.g. China) in 2003, the share ofservices rose in FDI inflows into many othereconomies, a major proportion going to the newlyindustrializing economies23 and to ASEAN asa region.

As a result, the share of services in Asia’stotal FDI stock increased from 43% in 1995 to50% in 2002 (table II.5). For instance, the shareof services in total FDI flows in ASEANincreased from 30% in 2002 to 48% in 2003 andin the Republic of Korea from 65% in 2002 to72% in 2003. These economies are becomingincreasingly service-oriented and are creating anefficient infrastructure for such services asfinance, telecoms and commerce.24 FDI inservices has also grown in lower incomecountries (e.g. Bangladesh and Pakistan) becauseof higher investment in infrastructure andutilities. In India and the Philippines, it has grownin particular in IT-related services (chapter IV).

Within services, more than half of FDIgoes to finance, transport, telecommunicationsand business services. Tourism is also animportant industry in countries such as Cambodia(Chenda 2004), Thailand (Tantraporn 2004) andthe Pacific islands. Competition for FDI in high-value-added services (e.g. regional headquarters,R&D) is becoming more intense amongeconomies in North-East Asia (e.g. Hong Kong(China), the Republic of Korea) and South-EastAsia (e.g. Malaysia, Singapore, Thailand).25

Cross-border M&A sales in servicesincreased by half, up from $9.5 billion in 2002to $14.3 billion in 2003, adding to the rise inservices FDI in Asia. The lion’s share of theincrease was in North-East and South-East Asia,where M&A sales in finance grew by 1.4 times

53CHAPTER II

• Cambodia shortened the processing time forinvestment proposals from 45 working days to 28working days. It also amended the Law onInvestment to increase transparency,predictability and the attractiveness of the countryfor FDI. It published an investment guide in 2003to make investment opportunities and conditionsbetter known (box II.7).

• China opened its finance and travel industriesto foreign investment, and the country’s Guizhouprovince opened 13 industries to FDI. It allowed,for the first time, the establishment of educationalinstitutions jointly operated by foreign anddomestic investors or institutions. It alsocancelled a first batch of investment approvalrequirements for 789 items (box II.10). A CloserEconomic Partnership Arrangement agreementwas signed with Hong Kong (China) in 2003,which provides certain privileges to Hong Kong(China) firms investing in the mainland (boxII.8). A similar agreement was also signed withMacao (China).

• Indonesia signed double taxation agreements withseveral countries and allowed FDI in moreindustries.

• Kazakhstan enacted a new law on investment on8 January 2003. The law regulates FDI in thecountry and contains provisions for the protectionof investment, as well as incentives and Statesupport for investment.

• Malaysia further liberalized equity ownershipand expatriate employment policies inmanufacturing.a

• An IPR of Nepal was undertaken (UNCTAD2003b), and an investment guide to promote thecountry’s investment opportunities and conditionswas published (box II.7).

• The Republic of Korea established a freeeconomic zone (FEZ) Committee to coordinatepolicies relating to the design, development andoperation of FEZs in the country. It alsoannounced a strategy to attract TNCs’ regionalheadquarters and a seven-year tax exemption toforeign businesses involved in high-tech services.It opened non-domestic legal services to foreigners.

• Pakistan introduced additional tax incentives forforeign investors and established the PakistanIntellectual Property Rights Organization.

• Saudi Arabia opened up more industries to FDI,including electricity, gas transmission anddistribution, education and pipeline services.Restrictions on FDI in some telecom industries suchas Internet and e-mail service provision, and dataand message transmission services, were removed.

• An IPR of Sri Lanka was undertaken with a viewto improving its investment climate (UNCTAD2004f).

• Viet Nam established a Foreign InvestmentBureau to attract FDI. The Bureau, located inthe Ministry of Planning and Investment,supervises foreign investment activities andreviews and improves the country’s foreigninvestment policy. Viet Nam also revised theLaw on Corporate Income Tax in July 2003, tocreate a fair and equal playing field for domesticand foreign enterprises.

Box II.6. Asia and the Pacific: examples of efforts to improvethe investment climate, 2003-2004

Source: UNCTAD.

a Foreign equity holdings up to 100% are allowed for all new projects as well as investments in expansion/diversificationprojects by existing companies, irrespective of the level of exports, with the exception of industries contained in theSensitive List. In addition, expatriate posts will be granted automatic approval.

Cambodia is perhaps the most open economyamong the world’s 50 LDCs, and a good deal moreopen than most of its neighbours. An InvestmentGuide to Cambodia, published in October 2003by UNCTAD and ICC, includes a description ofa number of steps the country has taken to improveits investment environment. These include revisionsof its laws on investment and taxation, and legalreform more generally. Cambodia has been quitesuccessful in attracting FDI in the garmentsindustry (which dominates the country’s exports)and the tourism industry (which benefits from theattraction of Angkor Wat). Other opportunities canbe found in infrastructure development,hydropower and agro-processing.

Nepal is another country that has been movingtowards creating a more hospitable environmentfor foreign investors. It has renewed its trade treatywith India, guaranteeing most Nepali manufacturesduty-free access to the Indian market, and put inplace a relatively liberal FDI regime by South Asianstandards. The investment potential in a numberof areas, as described in UNCTAD’s An InvestmentGuide to Nepal (March 2003), is high. Inhydropower, the generation of 44,000 MW isthought to be economically feasible, and in tourismthe country has spectacular natural assets andattractive cultural ones. The range of climates fromthe sub-tropical to sub-arctic offers remarkableopportunities for niche agricultural products suchas medicinal herbs.

Box II.7. Cambodia and Nepal: investment guides highlight opportunities

Source: UNCTAD-ICC 2003a, 2003b.

54 World Investment Report 2004: The Shift Towards Services

Figure II.11. Asia and the Pacific: number of BITs and DTTs concluded, 1990-2003

Source: UNCTAD, BIT/DTT database (www.unctad.org/fdistatistics).

The Closer Economic PartnershipArrangement between China and Hong Kong(China) was signed on 29 June 2003. Under it,Hong Kong (China) firms benefit from zero tariffson a wide range of products exported to themainland, subject to meeting the Hong Kong(China) rules-of-origin requirements. Eighteenservice industries are being opened to Hong Kong(China) firms, starting 1 January 2004, with value-added telecom services having been opened on 1October 2003. The Arrangement involves theprogressive elimination of tariff and non-tariffbarriers to trade in goods, liberalization of tradein services and the promotion of trade andinvestment between the two economies.

In the area of services, foreign servicesuppliers residing in Hong Kong (China) will enjoypreferential treatment under the Arrangement,provided they have been engaged in substantivebusiness operations in Hong Kong (China) for aspecific period of time and satisfy the followingconditions: (i) have been incorporated in HongKong (China) for three to five years (dependingon the industry); (ii) are liable to pay a profits tax;(iii) own or rent premises in Hong Kong (China)to engage in substantive operations; and (iv)

employ at least 50% of staff resident in Hong Kong(China). The service industries cover accounting,advertising,a audiovisual, banking, organizing ofconventions and exhibitions, construction and realestate, distribution (excluding tobacco), freightforwarding agency, insurance, legal, logistics,management consultancy, medical and dental,securities, storage and warehousing,telecommunications, tourism and transport.

While it is too early to assess how theArrangement will affect the extent of flows of FDIin services to mainland China, its liberalizationcommitments are expected to lead to higherservices FDI. In particular, the Arrangement couldcreate a “first-mover advantage” for eligible HongKong (China) investors in sensitive serviceindustries.b It could also result in a “channellingeffect”, whereby foreign firms may invest in themainland via Hong Kong (China) in order tobenefit from the privileges provided by theArrangement. For instance, Standard Charteredbank plans to incorporate its business in HongKong (China), rather than operating a branch there,to qualify eventually for the benefits accorded bythe Arrangement when it invests indirectly in themainland.c

Box II.8. The Closer Economic Partnership Arrangement between China andHong Kong (China)

Source: UNCTAD.a Star TV (controlled by Rupert Murdoch) was one of the first well-known TNCs to take advantage of this opportunity

when it received permission in July 2004 to establish a wholly-owned affiliate in the mainland (Financial Times, 6July 2004).

b The market liberalization commitments under the Agreement offer further benefits to Hong Kong (China) companiesin terms of lower entry thresholds in a number of service industries such as management consulting, freight forwardingand banking.

c “Business Digest”, Far Eastern Economic Review, 29 January 2004, p. 23.

55CHAPTER II

and those in business services, including ICTactivities, by 3.7 times as compared to 2002.

Countries in the region are trying toattract FDI in services through integration orcooperation agreements. The ASEANFramework Agreement on Services is anexample (box II.9). In the context of theASEAN Economic Community, the subregionhas identified 11 priority industries forintegration, of which 4 are in services (e-ASEAN, health care, air travel, tourism). Thiswill involve the elimination of tariffs (forgoods) and improvements in the modes ofsupply, including the immediate removal ofnon-tariff barriers. China, under its Protocolof Accession to the World Trade Organization(WTO), is committed to liberalizing its serviceindustries in such areas as banking andfinance, telecom, logistics and distribution,transportation, and retail and wholesalebusinesses; and it will undertake additionalliberalization of services over the next fewyears (box II.10).

Table II.5. Asia and the Pacific: distribution of FDI stock, by industry,selected Asian economies, 1995, 2002

(Per cent)

1995 2002

Economy Primary Manufacturing Services Unspecified Primary Manufacturing Services Unspecified

Armeniaa .. .. .. .. 6.9 17.7 70.8 4.6Bangladesh 9.1 69.9 5.3 15.7 .. .. .. ..Chinab 1.6c 58.5c 36.1c 3.8c 1.9 63.3 31.4 3.4Hong Kong, China - 8.3 91.7 - - 2.8 93.0 4.3India 7.9 83.4 8.7 - .. .. .. ..Indonesia 18.2 64.5 17.2 - .. .. .. ..Kazakhstan 62.9 20.9 3.3 12.9 68.1 7.4 24.5 -Macao, Chinad .. .. .. .. .. 12.6 87.4 -Malaysiae 4.5 52.7 33.5 9.3 24.0 38.0 38.0 -Mongoliaf 18.0 30.4 51.3 0.3 28.2 22.0 41.3 8.5Pakistang 2.1 24.5 73.4 - 6.1 22.2 71.7 -Philippines 17.0 55.0 28.0 - 10.9 39.3 43.9 5.9Republic of Korea 0.2 62.2 35.2 2.4 0.5 57.4 42.0 0.1Singaporeh - 38.2 61.7 - .. 36.1 63.8 -Sri Lankai - 56.8 43.2 - .. 41.0 59.0 -Thailand 6.0 36.6 57.4 -0.9 2.4 37.7 56.8 3.1Total above 3.0 51.0 43.0 3.0 3.0 44.0 50.0 3.0

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Based on cumulative flows from 1998.b Based on cumulative approved FDI flows since 1979.c Based on cumulative approved FDI flows during 1979-1997.d Based on stock of 2001.e Based on application of the proportion of gross FDI stock by sector for the period 1998-2002 to 2002.f Based on cumulative value of foreign investment projects registered with the Foreign Investment and Foreign Trade Agency

(FIFTA) since 1990.g 2001 data are 1995 stock values plus cumulative flows during 1996-2001.h Data for 1995 comprise equity investment (i.e. paid-up shares and reserves) only. Data for 2001 and 2002 incorporate net lending

from foreign investors to their affiliates in Singapore. Data for 2002 are preliminary.i Data refer to estimated foreign investments in projects approved by the BOI since 1978.

Box II.9. Liberalization of services in theASEAN subregion: implications for FDI flows

The ASEAN countries agreed to work towardsfurther liberalization of trade in services under theASEAN Framework Agreement on Services, signedon 15 December 1995. The aim was substantially toeliminate restrictions on trade in services in the regionand improve the efficiency and competitiveness ofASEAN service suppliers. The Agreementprogressively improves market access and grantsnational treatment for service suppliers among ASEANcountries on a GATS-plus basis. Liberalization iscarried out in three-year negotiation cycles, with eachround resulting in commitments from member countriesin agreed economic sectors/subsectors and modes ofsupply. ASEAN has concluded three packages ofservice commitments since 1 January 1996, coveringair transport, business services, construction, financialservices, maritime transport, telecommunications andtourism. The liberalization of FDI in services inASEAN may further enhance the share of services FDIin the region.

Source: UNCTAD.

56 World Investment Report 2004: The Shift Towards Services

China is opening its service industries toFDI in accordance with its schedule ofcommitments to the liberalization of servicesunder its WTO accession agreement (box tableII.10.1). It is removing restrictions on FDI in suchindustries as banking and finance, telecoms,logistics and distribution, transportation, andretail and wholesale trade. Thus, by 2008, serviceindustries in China will be largely open to FDI.

Box II.10. Liberalization of services in China: implications for FDI flows

Aside from relaxing ownership control, Chinahas also eased geographical restrictions and thescope of business operations.

So far, the lion’s share of FDI flows toChina has been in manufacturing, growing from63% in 2002 to 74% in 2003. But with theopening up of service industries, their share islikely to rise.

Box table II.10.1. China: selected schedules for the liberalization of servicesand ownership controla

(Per cent)

Item 2001 2002 2003 2004 2005 2006 2007

Telecoms (value added services) 30 49 50b c c c c

Telecoms (voice and data services) 25 35 35 49 c c c

Telecoms (domestic and international) - - - 25 25 35 49Courier 49 Majority Majority Majority 100 .. ..Advertising 49 49 Majority Majorityd 100 .. ..Rental and leasing - Majority Majority 100 .. .. ..Transportation of goods (railroad) 49 49 49 Majority Majority Majority 100Freight forwarding agency 50 Majority Majority Majorityd 100 .. ..Insurance (non-life) - 51 100 .. .. .. ..Insurance brokerage for selected services 50 50 50 51 51 100 ..Domestic securities investment fund management 33 33 33 49 c c c

Storage and warehousing 49 Majority Majority 100d .. .. ..Testing and inspection - - Majority Majority 100 .. ..Wholesale and retailb Minority Minority Majority 100d .. .. ..Packaging services - Majority Majority 100 .. .. ..

Source: UNCTAD, based on China, Ministry of Commerce 2001.a Per cent relate to maximum foreign equity ownership allowed on or before 11 December of the year shown.b For Hong Kong (China) companies under CEPA, maximum ownership is allowed as from 1 October 2003.c No further commitments were made to further relax foreign ownership for these years at the time of accession.d For Hong Kong (China) companies under CEPA, 100% ownership is allowed as of 1 January 2004.

Source: UNCTAD.

d. Promising prospects

FDI inflows to the Asia-Pacific regionare set to rise. This optimism is largely based onbullish economic prospects for the region, asreflected, for example, in recent reports on theworld economy (IMF 2004, World Bank 2004,Institute of International Finance 2004). The realGDP growth rate is estimated at 7.4% in 2004(IMF 2004). Asian firms are confident about theirperformance in 2004,26 which should have apositive effect on investment spending. Similarly,the improved profitability of Asian firms27 aswell as firms headquartered in major homecountries such as Japan,28 Europe and the UnitedStates should also stimulate more FDI to theregion.29

China is set to remain the top recipientof FDI in manufacturing. The continuedrelocation of investment from high-costeconomies, the opening up of its services sectorand the expected increase in cross-border M&Asin China could well push FDI inflows to yetanother record high. Flows in 2004 to theRepublic of Korea are also likely to increase,propelled by large cross-border M&As such asthe $2.7 billion acquisition of Koram Bank byCitigroup (United States)30 and the privatizationof the Government’s stakes in such assets as HanaBank. As a result, the strong growth in FDI toNorth-East Asia as a whole is likely to continueand dominate flows to Asia. FDI flows to theASEAN subregion are expected to maintain anupward trend, with more countries receiving

57CHAPTER II

greater flows than in 2003. The smooth electionsof new Governments in a number of ASEANcountries in 2004, the regional integration processand strong economic growth should furtherencourage FDI.

Flows to South Asia are also set toincrease, especially to India. The Governmenthas announced the objective to raise FDI flowsby two-to-three times.31 The agreement amongthe South Asian countries to establish the SouthAsia Free Trade Area and the improved geo-political situation should strengthen theinvestment environment. Resource-seeking FDIwill continue to increase in Central Asia ,dominated by Azerbaijan and Kazakhstan. FDIflows to the Pacific islands can also be expectedto rise thanks to an improved economic situationin that subregion and in Australia, Japan and NewZealand – the major investors in the Pacific islandeconomies. Some of the Pacific island economiesare introducing new measures to attract FDI.32

For West Asia, FDI prospects are modest,given the uncertainty affecting some countriesthere. However, some have the potential to attractsignificant FDI flows (e.g. box II.11 on FDI

prospects in Turkey). Progress in rebuilding Iraqshould have a direct impact on FDI flows.Overall, oil investment will continue to dominatethe scene, with Saudi Arabia receiving asignificant share of such investment.

By sector, FDI in manufacturing shouldincrease in 2004 in response to a rise in worlddemand and growth of industrial activities(chapter I). In particular, an improvement inglobal demand for electronics,33 automotiveproducts and telecom equipment in some Asiancountries, together with higher corporateprofitability, should encourage TNCs to increasetheir capital spending. The services sector willmost likely continue to account for the largestshare of FDI inflows in the more developed Asianeconomies. FDI in tourism may be adverselyaffected if there is another outbreak of avianinfluenze (or “bird flu”) and SARS, but in R&D,ICT and corporate services (such as businessprocessing operations and call centres) it shouldgrow in countries such as India, Malaysia, thePhilippines and Singapore. The increase in cross-investment in regional budget airlines signals aresumption of FDI in tourism in 2005.34 With

Although Turkey has not attracted FDIcommensurate with its potential (see annex tableA.I.8), prospects are promising. The presentGovernment has taken a number of measures toimprove the FDI environment (Erdilek 2003). Anew FDI law (Law 4875) was enacted in June 2003to replace the old one (Law 6224), dating back to1954. The new law replaces the old FDI approvaland screening system with a notification andregistration system, bans nationalization withoutfair compensation, guarantees national treatmentto foreign investors, eases restrictions on FDI,eliminates the minimum capital limit, grants foreigninvestors full convertibility in their transfers ofcapital and earnings, allows them to own propertywithout any restrictions and recognizes foreigninvestors’ right to international arbitration. Thecreation of the Investment Advisory Council inMarch 2004, aimed at increasing Turkey’s

attractiveness for FDI, is another example of theimportance accorded to foreign investment; thePrime Minister and several of his cabinet membersparticipated in the meeting, in addition torepresentatives of 20 leading TNCs.

The Government has also instituted inflationaccountinga (one of the long-standing demands offoreign affiliates in Turkey), simplified thecommercial code, liberalized the law on workpermits for expatriates and drafted a bill to establishan investment promotion agency. The Government’saccelerated privatization programme, which isexpected to culminate in the privatization of TürkTelekom in 2004, is also aimed at spurring inwardFDI. Turkey’s economic performance during thepast two years, coinciding with the Government’spro-FDI policies, has been impressive. As theeconomic growth rate has risen,b inflation has fallensharply, to its lowest level in a generation, alongwith nominal and real interest rates.

Box II.11. Promising FDI prospects for Turkey

Source: Erdilek 2003.

a Inflation accounting has been in effect in Turkey since early 2004. It enables companies to restate their financialstatements in terms of constant purchasing power units. This has been an important issue for foreign investors inTurkey, and will enable them to lower their taxes.

b According to IMF 2004, real GDP growth rates grew to 7.9% in 2002 and 5.8% in 2003 as compared with -7.5% in2001.

58 World Investment Report 2004: The Shift Towards Services

further liberalization, privatization and moreM&As, FDI in intermediate services such astelecoms, finance and power generation shouldalso increase.

These expectations are supported by thefindings of UNCTAD’s 2004 surveys of top TNCsand international location experts: almost 60%of the TNCs (UNCTAD 2004c) and nearly 90%of the experts (UNCTAD 2004a) expect animprovement in FDI prospects over 2004-2005,with the worst-case scenario being unchangedprospects (figure II.12).35 For West Asia,however, the outlook is less optimistic comparedto the rest of the region, with 13% of theresponding TNCs expecting a deterioration. BothTNCs and location experts ranked China topposition as an FDI destination, followed by Indiaand Thailand. In manufacturing, improvedprospects are anticipated in motor vehicles,machinery and equipment and chemicals,according to experts (UNCTAD 2004a). Inservices, banking and insurance, businessservices and tourism are expected to take the leadin attracting FDI over the next two years. In termsof corporate functions, the relocation ofproduction and logistical and support servicesis expected to be strong for Asia and the Pacific(UNCTAD 2004a).

IPAs will do their part to attract moreFDI. In fact, competition for FDI will becomemore intense, including through a greater use ofincentives and ongoing liberalization, as well asthe use of targeting. UNCTAD’s 2004 survey of

IPAs reveals that some 83% of the respondentsexpect to intensify their investment promotionefforts by using targeting strategies, while 54%are ready to resort to additional incentives and67% consider l iberalizing their nationalinvestment regimes to attract FDI (figure II.13)(UNCTAD 2004b). Investor targeting andliberalization were more frequently citedinstruments for attracting FDI than in any otherregion. IPAs regard China and India as leadingregional sources of FDI for 2004-2005,complementing the established investors (France,Germany, Japan, United Kingdom, United States).

3. Latin America and the Caribbean:another disappointing year

a. A continuous decline

FDI flows to Latin America and theCaribbean (LAC) fell by 3% in 2003, to$50 billion – the lowest level since 1996.36 Thiswas the fourth consecutive year of decline,following a 53% drop over the period 1999-2003(figure II.14; annex table B.1). Of the region’s40 countries, 19 saw declining inflows. FDI asa percentage of gross fixed capital formationdropped to 11%, from a high of 26% in 1999(figure II.14). While there were wide variationsamong countries,37 the three large economiesArgentina, Brazil and Mexico saw the highestdeclines. The frequency distribution accordingto the range of FDI inflows between 1999 and2003 has remained almost unchanged, with 9countries receiving more than $1 billion and 31

Figure II.12. Asia and the Pacific: prospects forFDI inflows, 2004-2005, as reported by TNCs

and location experts(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.a Locational experts do not expect decreases in FDI inflows.

Source: UNCTAD, www.unctad.org/fdiprospects.

Figure II.13. Asia and the Pacific: expectedpolicy measures to attract FDI, 2004-2005,

as reported by IPAs(Per cent of respondents)

59CHAPTER II

countries less than $1 billion in 2003 (tableII.6). Despite declines, Brazil and Mexicoremained the most important recipients (tableII.7). Total outward FDI rose significantly in2003, but mainly from tax havens such asCayman Islands and the British Virgin Islands.

On the inward side, there wasconsiderable variation within the region.Mexico and Brazil, where services are the mostimportant sector, experienced the sharpestdecline in inflows (figure II.15). Mexico, inparticular, is faced with a competitive challengefrom China, notably in manufacturing (boxII.12). Apart from small island economies (e.g.two offshore centres – Bermuda, the CaymanIslands), other relatively small countries (e.g.Ecuador, Honduras, Nicaragua, Panama,Uruguay) stand out in recording an increase inFDI inflows. Chile and Venezuela recovereda large part of the declines experienced in 2002.

Figure II.14. LAC: FDI inflows and their share in gross fixed capital formation, 1985-2003

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

On the home country side, six countriesaccounted for 65% of the region’s FDI inflowsduring the period 1995-2002 (figure II.16). TheUnited States alone contributed one third,followed by Spain (16%), while the Netherlands,the United Kingdom, France and Canadaaccounted for most of the rest. During theprivatization process, Spain was the majorinvestor from the EU, but in 2001 and 2002, FDIfrom Spain fell drastically (figure II.16).

Various factors contributed to thecontinuing downturn, some of which were beyondthe control of the host countries. TNCs frommajor home countries invested less because ofdeteriorating economic conditions there. The EU

Table II.6. LAC: frequency distribution of hosteconomies, by range of FDI inflows, 1999-2003

(Number)

Range 1999 2000 2001 2002 2003

More than $30 billion - 1 - - -$20-29 billion 2 - 2 - -$10-19 billion 1 3 1 2 2$5-9 billion 3 1 - - 1$1-4 billion 6 3 8 7 6Less than $1 billion 28 32 29 31 31

Total 40 40 40 40 40

Source: UNCTAD, based on annex table B.1.

Table II.7. LAC: economy distribution of FDIinflows, by range, 2003

Range Economy

More than $10 billion Brazil and Mexico

$5-9 billion Bermuda

$1-4 billion Cayman Islands, Chile, Colombia, Ecuador,Peru and Venezuela

Less than $1 billion Anguilla, Antigua and Barbuda, Argentina,

Aruba, Bahamas, Barbados, Belize, Bolivia,Costa Rica, Cuba, Dominica, DominicanRepublic, El Salvador, Grenada, Guatemala,Guyana, Haiti, Honduras, Jamaica,Montserrat, Netherlands Antilles, Nicaragua,Panama, Paraguay, Saint Kitts and Nevis,Saint Lucia, Saint Vincent and theGrenadines, Suriname, Trinidad and Tobago,Uruguay and Virgin Islands (British)

Source: UNCTAD, based on annex table B.1.

60 World Investment Report 2004: The Shift Towards Services

experienced disappointing economic growth ratesduring the period 2001-2003 (IMF 2004). Anotherfactor was a steep drop in cross-border M&Asin the region, both innumber (from 581 in2000 to 281 in 2003)and value, from a highof $64 billion in 1998to $12 billion in 2003.Particularly affectedwas investment by bigpublic util i ty TNCs.However, this alonedoes not explain whythe region attractedless FDI than others,its share shrinking toonly 29% of total FDIto all developingeconomies, from 46%in 1999 (UNCTAD2004g).

The steepdecline in FDI flowscan also be attributedto some extent to“normalization” – areturn to conditions

preceding the privatization drive andthe M&A-led FDI boom of the late1990s. The steepest declines havetaken place mainly in those countriesthat experienced by far the largestincreases, such as Brazil and Mexico.The region’s share of FDI flows toall developing economies had risenfrom an annual average of 30% in1991-1996 to 43% in 1997-1999,largely because TNCs acquired State-owned enterprises throughprivatization programmesimplemented in the region. Withprivatizations running out of steam– either because the programmeswere nearing completion or becausefurther privatizations met with publicresistance – the region lost one of itsmajor driving forces behind FDI (boxII.13).

Yet the return to normality, too,offers at best a partial explanation.The weak growth performance of theregion – an important determinant ofFDI flows – also played a role.Growth in real GDP was below its

long-term trend, the average annual GDP growthrate being only 0.7% for the period 2001-2003(IMF 2004), compared with 6.6% for developing

Figure II.16. LAC: FDI inflows from major home countries as a percentageof world total, 1995-2002

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Note: Percentages are based on FDI inflows in LAC countries that account for some 86% oftotal inflows to the region in 2002.

Figure II.15. LAC: top 10 recipients of FDI inflows,2002, 2003 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2003 FDI inflows.

61CHAPTER II

Maquiladoras have traditionally accountedfor a large share (47%) of Mexico’s merchandiseexports. Developments in the recent past haveraised concerns about their internationalcompetitiveness.

Between December 2000 and April 2004,the number of such enterprises dropped from3,703 to 2,820, with 220,000 job lost as a result.a

Meanwhile, annual inflows in maquiladorasdropped by about one third, from their peak of$3 billion in 2000 to $2 billion in 2003, fallingto about the same level they had reached in 1998(box figure II.12.1).

The relocation of FDI from the maquilaindustries has mainly been caused by competitionfrom Asia. One third of all enterprises that haveleft are reported to have moved to China (Carrillo2003). Other Asian countries accounted foranother 14% of relocations. But some companieshave also shifted their activities to CentralAmerican and Caribbean locations (about 10%).This may be in anticipation of the planned FTAbetween the United States and Central Americaand the ensuing erosion of Mexico’s tradepreferences vis-à-vis Central America. More than100 enterprises that left the maquila industriesreturned to the United States (35) or remainedin Mexico but shifted into the PITEX scheme(Programa de Importación Temporal paraProducir Artículos de Exportación). Thus,

competition from lower cost locations was notthe only reason.

Relocations have mainly affected twoindustries: textiles and clothing, and electric andelectronic materials and accessories. Theyaccount for 88% of the total employment declinementioned above. By contrast, activities such asthe assembly of transport equipment appear tohave remained largely unaffected as the numberof persons employed remained almost unchangedbetween December 2000 and April 2004.

However, Mexico’s geographic proximitywith the United States remains an advantage forMexico, for example for those exportingproducts too big to ship cheaply from Asia, orfor those for which just-in-time management isan important factor

While the economic slowdown in theUnited States has been the trigger for the declinein the maquila industry, successful restructuringwas also hampered by internal factors. Theappreciation of the Mexican peso may havecontributed to job losses as it inflated costs forTNCs operating in Mexico (ECLAC 2003b,p.19). This may have been exacerbated by lowerexchange rates of Asian currencies, notably ofChina. Another factor giving rise to concern bymany maquiladoras relates to cost increasesresulting from taxes and red tape: almost halfof all maquiladoras incurred higher costsrecently, while another quarter did not succeedin reducing costs, which affected their abilityto remain competitive (Carrillo 2003).

The Government of Mexico has taken stepsto help overcome the cost problemsb byannouncing measures to simplify bureaucraticprocedures and eliminate certain taxes. Thepayroll tax will be phased out in 2004, and mostmaquila operations will be exempted fromincome tax (Impuesto Sobre la Renta).Representatives of the maquila industrieswelcomed this move and committed themselves“to recover the 50,000 jobs lost because of theimplementation of the ISCAS” b (payroll tax) in2002. Non-tax incentives announced by theGovernment include the commitment to decidewithin 15 working days a company’s request forestablishing maquila operations. Furthermore,SME maquiladoras were offered a specialgovernment certification, so far restricted to

Box II.12. Is the FDI relocation from Mexico’s maquila industries ending?

Box figure II.12.1. FDI inflows intoMexico’s maquila industry, 1996-2003

Source: UNCTAD, based on data from the Ministry ofEconomy of Mexico, http://www.economia.gob.mx/pics/p/p1175/03-dic.xls.

/...

62 World Investment Report 2004: The Shift Towards Services

Asia. This “lost half-decade”38 was characterizedby tight monetary and fiscal policies, whichfurther contributed to the low economic andinvestment growth rates in Latin America. In

contrast, Asian countries pursued macroeconomicpolicies that were supportive of growth. All this,in turn, was associated not only with decliningFDI inflows, but also with lower domesticinvestment in various countries. Structuralbottlenecks may have been one of the mainreasons for both weak economic growth and low(foreign and domestic) investment.39

Foreign and local investors in the fourlargest Latin American economies (Argentina,Brazil, Chile, Mexico) reacted differently overtime to economic indicators (figure II.17). InArgentina, both the economy and gross fixedcapital formation began to contract already inthe second half of 1998, but foreign investorshad a delayed response to the rising economictensions already perceived by local investors.40

FDI inflows are now much below the levelreached in the mid-1990s. In Chile, the fall inFDI in 2000 was more pronounced, caused partlyby normalization after outstandingly high inflowsin 1999. In Brazil and Mexico, foreign and localinvestments turned out to be relatively stable overthe period 1990-2002.

larger operations, which would expedite importsthrough customs checkpoints.

Since the beginning of 2004, the trend ofdecreasing exports seems to have ended, withtwo-digit growth in February and March andemployment at its highest since the end of 2001.This has occurred mainly in the automobile andelectric and electronic materials and componentsindustries.c

Source: UNCTAD.

a Instituto Nacional de Estadística Geográfica eInformática (INEGI) (Mexico), http://www.inegi.gob.mx.

b SourceMex, 22 October 2003.c Information obtained from INEGI.

Box II.12. Is the FDI relocation fromMexico’s maquila industries

ending?(concluded)

Figure II.17. LAC: trends in FDI inflows and gross fixed capital formation in selected economies,1990-2003

(Per cent of GDP)

Source: IMF 2003; UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

63CHAPTER II

The recent backlash against privatizationin some LAC countries seems to be due to twofactors: governments were seen to have concededtoo much to TNCs in the privatization of someenterprises; and the benefits of someprivatization-related FDI in service industriesfell short of expectations.

On the first point, several governments hadgranted favourable conditions to TNCs when theyacquired State-owned assets in service industries(perhaps because they were still experimentingwith regulatory issues or to send a politicalsignal). In Argentina, for instance, privatizedutilities were relieved of exchange-rate risk byhaving their charges denominated in dollarsindexed to inflation in the United States. InBrazil, foreign investors in electricity generationreceived gas at subsidized prices under thePriority Programme of Thermoelectric Power of2000; they later received gas for a guaranteed pricefrom Bolivia, which removed exchange rate risks.

Following privatization of water supply inBolivia's third largest city, Cochabamba, in early2000, a consortium (Aguas del Tunari, in whichBechtel had a 27.5% stake) obtained a concessionto manage it. User charges were increased topay down debt and finance the investmentrequired. The public protest that followed ledto a reduction of the rate; eventually, the contractwas cancelled. The consortium went toarbitration for $25 million in compensation.a

On the second point, there is a widespreadperception that privatization has not yieldedsufficient benefits for the community. InArgentina, for example, it is accepted that theprivatization of telecoms has led to the expansionand better quality of services, but the chargespaid by users were high, at least until theconversion from dollars to pesos of public utility

tariffs and the price freeze decided in early 2002.In other services, however, benefits fromprivatization seem to be less clear. In gas andelectricity, regulatory bodies alleged that privatesuppliers had failed to meet agreed standards.b

Similarly, water concessions granted to AguasArgentinas, a subsidiary of Suez (France), seemedto have worked well until the steep fall of thepeso in early 2002. Suez then pulled out and wentto arbitration after the authorities did not agreeto higher charges to offset the devaluation.Negotiations continue.c

In 1999, the Government of the DominicanRepublic decided to privatize electricitygenerators and distributors to remedy the chroniclack of reliable provision of electricity whichincreased business costs and hampered economicdevelopment. This resulted in considerable FDIinflows (starting with $0.6 billion in 1999). UniónFenosa, a Spanish electricity company, purchased50% of two electricity distributors, Edenorte andEdesur, of the State-owned CorporaciónDominicana de Electricidad. However, theGovernment decided in September 2003 torepurchase these shares because of variousdifficulties.d

In April 2001, Jamaica succeeded inattracting FDI in the privatization of theelectricity and energy firm Jamaica Public Service(JPS). The company was acquired by Mirant, anelectricity company of the United States. It hasnot yet attained its ideal target according tosurvey results presented by the World EconomicForum (2003, p. 595), but consumers are nowbenefiting from investment in new generationcapacity since 2001. Public consultationsconducted by the Office of Utilities Regulationin early 2004 confirmed that reliability was nolonger their major concern.e

Box II.13. Why privatization is losing popularity in LAC

Source: UNCTAD.

a The Cochabamba case continues to be debated between proponents and opponents of water privatization (see “Privatepassions”, The Economist, 17 July 2003; and The Democracy Center 2003, “Bechtel vs. Bolivia”, http://www.democracyctr.org/Bechtel).

b Latin America Energy Report, 11 July 2003.c See, The Economist, 17 July 2003. An agreement was signed on 11 May 2004 to set the pace for further negotiations

in exchange of $ 84 million investment in 2004-2005 (Clarin, 12 May 2004). d According to survey results presented by the World Economic Forum (2003, p. 595), there were still incidences of

electricity interruptions and voltage fluctuations. See also Economist Intelligence Unit, 22 September 2003; alsoCámara Americana de Comercio del República Dominicana. “Ede-Norte, Ede-Sur, Antecadentes y Resultados de laNegociación”, 20 October 2003.

e Office of Utilities Regulation, “Jamaica Public Service Company Limited tariff review for period 2004-2009”, 25June 2004.

64 World Investment Report 2004: The Shift Towards Services

b. Policy developments: continuedliberalization

At the national level, the trend continuedtowards greater liberalization and investmentfacili tation. For example, Brazil simplifiedregistration procedure by introducing anelectronic registration system and initiated anInvestment Policy Review (UNCTADforthcoming e). Tax discounts for reinvestedearnings were introduced in Mexico, and thereare plans to reduce further corporate incometaxes. In August 2003, Peru introduced a lawseeking to promote decentralized investment tosupport regional development throughcooperation between regional and localgovernments, private investors (domestic andforeign) and civil society.

At the bilateral level, LAC countriesconcluded 8 BITs and 8 DTTs in 2003, for a totalof 421 BITs and 270 DTTs by the end of 2003(figure II.18). The country with the largestnumber of BITs is Cuba (56), followed byArgentina (54) and Chile (49). Brazil and Mexicolead with the largest number of DTTs: 34 each.

At both the bilateral and regional levels,FTAs now typically cover FDI issues, protectinginvestment and, increasingly, facilitating marketaccess (annex table A.II.1). The EU and theUnited States are both engaged in FTAnegotiations with various Latin Americanpartners. Negotiations between the SouthernCommon Market (MERCOSUR) and the EU are

also under way. Japan is a late-comer to FTAs;it gives priority to countries and regions withwhich it has important economic relationships,and where relatively high trade barriers poseobstacles to the expansion of Japanese firms.Japan has so far concluded an FTA with Mexico(April 2004), its largest trade partner in theregion, but has not entered into formalnegotiations with any other country in the region.

The region’s efforts to attract and benefitfrom FDI are not limited to national, bilateraland regional arrangements; there is a growinginterest in multilateral cooperation as well. Anincreasing number of countries are parties tovarious investment-related multilateralinstruments. As of 1 July 2004, 30 countries hadjoined MIGA, while Antigua and Barbuda werein the process of fulfil l ing membershiprequirements. Also, 27 countries are nowmembers of the International Centre forSettlement of Investment Disputes (ICSID), and25 countries are parties to the Convention on theRecognition and Enforcement of Foreign ArbitralAwards.

c. Sectoral patterns

The region’s sectoral distribution of FDIhas shifted towards services at the expense ofmanufacturing (figure II.19). This is mainly theresult of privatizations in the services sector.Resource-seeking FDI has traditionally playedan important role in Andean Community countries

Figure II.18. LAC: number of BITs and DTTs concluded, 1990-2003

Source: UNCTAD, BIT/DTT database (www.unctad.org/fdistatistics).

65CHAPTER II

(Colombia, Ecuador,Venezuela).

In contrast, theprimary sector in the twolargest economies of LatinAmerica, Brazil andMexico, accounts for onlya small share of total FDIinflows. Yet, the sectoralstructure of FDI differssignificantly between thesetwo countries (figure II.20).Almost 70% of Brazil’stotal FDI inflows during1996-2000 were absorbedby the services sector. Thesubsequent drop in FDIinflows in 2001-2003 wasdue to sharply reducedflows to telecommuni-cations and finance. In

Mexico, the manufacturing sector accounted for54% of total FDI inflows during 1996-2000.However, unlike in Brazil, this sector’s share fellin 2001, mainly because of exceptionally highFDI flows to financial services, but it recoveredin 2002 and 2003.

The volatility and recent decline of FDIin the services sector of various LAC economiesindicate that the normalization process appliesto this sector as well . Particularly in SouthAmerica, the privatization of service firms seemsto have run its course. From 1990 to 1995, thecountry with the greatest participation of privatecapital in infrastructure projects was Argentina($35 billion), ahead of Mexico ($26 billion).Between 1996 and 2003, Brazil dominated theregion with $142 billion, ahead of Argentina ($38billion), Mexico ($27 billion) and Chile ($19billion).

Market-access-seeking FDI in serviceshas been important in MERCOSUR and Chile,especially in telecom industries, with Telefonica(Spain) taking a lead and America Movil(Mexico) significantly expanding abroad (boxII.14), and in electricity with the majorinvolvement of Endesa (Spain) (box II.15). Thetwo companies ranked among the largest TNCs,by consolidated sales, operating in Latin Americain 2002.

Figure II.20. Brazil and Mexico: changes in the sectoral structure ofFDI inflows,a 1996-2003

(Billion of dollars and per cent)

Source: UNCTAD, based on FDI/TNC database (www.unctad.org/fdistatistics) and Ministryof Economics of Mexico (www.economia.gob.mx).

a Total inflows in billions of dollars in brackets.

Figure II.19. LAC: sectoral distribution ofinward FDI stock, selected countries,

1986, 1996, 2002a

(Per cent shares in total)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Notes: Totals for 1986 include data for five countries only(Argentina, Bolivia, Brazil, Peru and Venezuela),accounting for 43% of inward stock of LAC. Totals for1996 are based on data for six countries only(Argentina, Brazil, Colombia, Paraguay, Peru andVenezuela), accounting for 45% of inward stock of LAC.Totals for 2002 are based on data for eight countriesonly (Argentina, Brazil, Chile, Colombia, El Salvador,Paraguay, Peru, Venezuela), accounting for 56% ofinward stock of LAC.

a Or latest year available, i.e. Brazil (2000), Chile (2001),Paraguay (2001).

66 World Investment Report 2004: The Shift Towards Services

Recently, the telecom industry in LACexperienced growing competition between twomajor players: Telefónica of Spain and AmericaMovil of Mexico. Both companies accelerated theiracquisitions in the region, which was facilitatedby a wave of divestments by United States telecomcompanies.

America Movil is the leading provider ofwireless communication services in Mexicothrough its subsidiary Radiomovil Dipsa, whichoperates under the trademark “Telcel”. Three-quarters of its revenues are generated in Mexicowhere the network covers approximately 31% ofthe country and 90% of the population. In 2002,America Movil acquired the shares of its foreignpartners – Bell Canada International and SBCCommunications – in the joint venture TelecomAmericas Ltd., a company focusing since late 2000on expanding in the South American wirelessmarket. It has international telecom operations inArgentina, Brazil, Colombia, Ecuador, El Salvador,Guatemala, Mexico, Nicaragua, Venezuela and theUnited States. It is the main competitor ofTelefónica in LAC and,more precisely, TelefónicaMóviles, its wireless arm.

Telefónica Móviles isfocusing on Latin Americafor its growth and, in recentyears, has strengthened itsposition in the region. ByJuly 2004, TelefónicaMóviles was present in 7LAC countries, providingservice to more than 34million mobile customers.Once the acquisition of theBell South operations inLAC is completed, thecompany will be present in13 LAC countries withmore that 40 million lines.Following this recentacquisition (for $5.9billion) of the ten BellSouth operators, TelefónicaMóviles is now the leaderin the mobile market inseven countries, and secondin five countries (box tableII.14.1). Telefónica is alsopresent in Latin America in

Box II.14. Two major players in the telecom industry

the wireline business, with operations in 14countries, providing more than 21 million linesas of March 2004 (box figure II.14.1).

Source: UNCTAD.

Box figure II.14.1. Geographical presence and expansion offoreign affiliates of Telefónica in LAC, 2004

Box table II.14.1: Telefónica’s marketposition for mobile phones, including

acquisition of Bell South Mobile Assetsa

Market shareCountry Rank (%)

Argentina 1 42Brazila 1 56Chile 1 48Colombia 2 32Ecuador 2 35El Salvador 2 25Guatemala 3 22Mexico 2 11Nicaragua 1 69Panama 1 53Peru 1 72Uruguay 2 30Venezuela 1 45

Source: UNCTAD, based on Telefónica(www.telefonica.es/accionistaseinversores/).

a Acquisition announced 8 March 2004; however, notexecuted as of 1 July 1 2004.

Source: UNCTAD, based on Telefónica’s annual reports and its website (May 2004).

Telefónica Data Colombia (65%),Terra Networks (68.3%)

Telefónica de El Salvador (90%);TEM ES (90%); TelefónicaCentroamérica Guatemala (100%);Terra Networks ES, GU, PA, CR, HO,NI (100%); Atento GU (100%)

Telefónica Móviles México (92%),Telefónica Data México (100%),TerraNetworks (100%), Atento (100%)

Telefónica del Perú (97%), TelefónicaMóviles Perú (98%),TelefónicaEmpresas Perú (97%),TerraNetworks (100%),TPI Peru (100%)

Telefónica CTC (43.6%),TelefónicaMóvil (100%),Terra Networks (100%),Atento (83%), Publiguias (51%)

Telefónica de Argentina (98%),Unifón (98%),Terra Networks (100%),Atento (100%),TCP (98%),Telefónica Data (98%)

Telefónica Larga DistanciaPuerto Rico (98%)

Telefónica DatosVenezuela (100%),Terra Networks (100%)

Telefónica Empresas Brasil(100%),Terra Networks(100%), Brasicel (50%),TPI (100%), Atento (100%)

67CHAPTER II

d. Better prospects ahead

Prospects for FDI flows to LAC dependon a number of factors. FDI flows are forecastto rise, thus reversing the recent downward trend.FDI in the largest economies (Argentina, Brazil,Mexico) is expected to recover in 2004.

In the short term , prospects for FDIgrowth depend on the strength of the economicrecovery; forecasts for LAC have improvedsignificantly, approaching 4% in 2004 (IMF2004). This should improve the profitability offoreign affiliates, ease liquidity constraints andoffer more options for financing FDI. The longer

Endesa (Spain) generates, transports andmarkets electrical energy. It is the leadingelectricity utility in six LAC countries (box tableII.15.1). The energy distributed in 2003 climbedto 49,500 Gwh. Service is provided to 10.5million customers (50% of its worldwidebusiness).

In the early 1990s, Endesa beganexpanding in Latin America in anticipation ofthe new competitive conditions in the Europeanmarket. Business is conducted through itssubsidiary Enersis, in which it holds a 60.6%

Box II.15. Privatization in the electric power market: the case of Endesa

Source: UNCTAD.

Box table II.15.1. Endesa’s presence in LAC, 2004(Per cent)

Country Distribution of assets

Argentina 6Brazil 19Chile 40Colombia 21Dominican Republic 4Peru 10

Source: UNCTAD, based on Endesa (www.endesa.com, May2004).

Box figure II.15.1. Geographical presence and expansion of foreign affiliates ofEndesa in LAC, 2004

Source: UNCTAD, based on Endesa’s Annual Report 2003 and its website, www.endesa.com (May 2004).

Comercializadora y Distribuidora deEnergía de Bogotá - CODENSA (48.5%),Empresa Generadora de Energía deBogotá - EMGESA (48.5%), CentralHidroeléctrica de Betania - CHB (85.6%)

Empresa de Generación Eléctrica de LimaNorte - EDELNOR (60%), Etevensa (60%),Empresa Eléctrica de Piura (60%), Empresa deGeneración Eléctrica de Lima - EDEGEL (63.5%)

Consorcio Punta Cana-Macao CEPM (40%)

Central American ElectricalInterconnection System- SIEPAC (Project)

EDESUR (99.4%), Dock Sud (69.8%),Central Costanera (64.3%),Central El Chocón (65.2%),Yacylec (22.2%),TESA (100%),CTM (100%), CEMSA (100%)

Enersis (61%), Chilectra (98.2%), Endesa Chile(60%), Smartcom (100%), San Isidro (50%),Pangue (95%), Celta (100%), Pehuenche (93%)

Cia. de Electricidad do Rio de Janeiro -CERJ (88.2%), Cia. Energética do Ceará- COELCE (58.9%), Cachoeira (99.6%),Compañía de InterconecciónEnergética - CIEN (100%),Central Fortaleza (100%)

interest. It is the largest operator in Argentina,Chile, Colombia and Peru (box figure II.15.1).

68 World Investment Report 2004: The Shift Towards Services

term FDI growth prospects, however, areuncertain. Structural problems that seem to havecontributed to the region’s diminishingattractiveness to investment remain. Furthermore,the normalization of FDI flows means that theregion’s share in overall flows to developingcountries is unlikely to rise unless competitiveweaknesses are overcome.

With privatization-related inflows likelyto remain low (although such FDI could still besignificant for some economies, e.g. Costa Rica,Ecuador), the region would need to attract newtypes of FDI. Moreover, governments will findit difficult to use the remaining potential forprivatization as a stimulus to FDI. There isincreasing scepticism towards privatization,especially after the financial crisis in Argentina.In addition, the region’s ability to attract flowsin relatively labour-intensive and technologicallyless demanding manufacturing industries hasdeteriorated due to the emergence of lower costcompetitors, mainly in Asia. The “Chinachallenge” is set to persist, even if the mostaffected countries respond by lowering taxes andeasing bureaucratic procedures.

Policy makers can take heart, however,from the expectations of corporate executives.According to UNCTAD’s survey of the largestTNCs, 46% of the respondents predict an increasein FDI inflows to the region for 2004-2005(figure II.21). According to them, Brazil, Mexico,Argentina, Chile and Venezuela, in that order,will benefit most (UNCTAD 2004c).

The leading sources of FDIremain the United States and Spainahead of Canada, Germany and theNetherlands, in that order, accordingto IPAs (UNCTAD 2004b). To attractmore FDI, IPAs have beenconcentrating on investor targeting andother measures (figure II.22). LAC isthe least l ikely of all regions tointroduce more incentives or furtherliberalize national FDI regimes overthe short term. In fact, just over one-tenth of the IPAs surveyed reported thatthey were planning to use additionalincentives for FDI, a significantlylower figure than in other regions.

In the longer term, the region’sprospects for inducing more and newertypes of FDI depend on whether hostcountries succeed in tackling their

structural weaknesses. But even then, the chancesof attracting FDI differ across the region.Measured by UNCTAD’s Inward FDI PotentialIndex, prospects look best for Chile (ranked 48th

among 140 countries during 2000-2002),followed by Mexico (ranked 50th). Apart fromBrazil, which moved up from 72nd to 68th place,all other LAC countries dropped in the rankings,with Panama, the Dominican Republic, CostaRica, Venezuela, Argentina, Jamaica and Peruplaced between 58 and 81. For Argentina, therecovery of FDI from its seriously depressed levelis contingent not only on tackling structuralfactors, but also on resolving its debt problem.

Figure II.21. LAC: prospects for FDI inflows,2004-2005, as reported by TNCs

(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

Figure II.22. LAC: expected policy measures to attract FDI,2004-2005, as reported by IPAs

(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

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the boomthe boomthe boomthe boomthe boom

In contrast to earlier forecasts, FDIinflows into CEE declined from a record $31billion in 2002 to a low of $21 billion in 2003(figure II.23). This was almost entirely due tothe end of privatization in the Czech Republicand Slovakia. Inward FDI in the rest of theregion declined only marginally, from $19 billionto $18 billion. Overall, FDI inflows rose in ten

countries and fell in nine, with Poland replacingthe Czech Republic as the top recipient (figureII.24). In spite of the downturn, all but twocountries remained in the same inflow-size range(table II.8). The share of inward FDI in grossfixed capital formation fell from 17% in 2002to 10% in 2003 (figure II.23). No large-scalediversion of FDI from the older EU members toCEE countries occurred during 2003. In contrast,at $7 billion, FDI outflows from CEE reacheda new record in 2003, up from $5 billion in 2002.Despite the decline in 2003, the medium-termprospects for growth of FDI in CEE are good.

Figure II.23. CEE: FDI inflows and their share in gross fixed capital formation, 1990-2003

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Figure II.24. CEE: top 10 recipients of FDI inflows, 2002, 2003 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2003 FDI inflows.

70 World Investment Report 2004: The Shift Towards Services

1. Inward FDI sharply down,outward FDI sharply up

a. Inward FDI: new EU membersperformed less well than otherCEE countries

The decline in FDI inflows into CEE in2003 was largely due to a fall in flows to theCzech Republic and Slovakia, two countries thathad led the FDI surge in 2002 with largeprivatizations. The winding up of theseprivatizations contributed to the decline in FDI.Greenfield projects, spread over a longer periodand generally smaller in size, could notimmediately compensate for the fall inprivatization-related FDI. This was despite thefact that both countries had been selected aslocations for new automobile plants by TNCs(Toyota-PSA in the Czech Republic – WIR02, p.69; PSA and Hyundai in Slovakia – box II.16).However, these projects will be fully operationalonly in 2005 or 2006, and a considerableproportion of the FDI associated with them islikely to materialize only at that time.

Outside the Czech Republic and Slovakia,the decline in FDI inflows was small, leading tothe re-establishment of Poland, the CzechRepublic and Hungary as the three top locationsfor inward FDI in the region (table II.9 and figureII.24).

The group of eight CEE countries thatjoined the EU in May 2004 – the Czech Republic,Estonia, Hungary, Latvia, Lithuania, Poland,Slovenia, Slovakia – saw its FDI inflows shrinkfrom $23 billion in 2002 to $11 billion in 2003.However, if the cycle of privatizations is setaside, FDI prospects for the new EU membersfrom CEE are likely to improve rapidly in thenear future (box II.17).

In the other 11 countries of the region –including Bulgaria and Romania (currentlynegotiating their entry into the EU) – FDI inflowsrose from $8.6 billion in 2002 to $9.5 billion in2003, representing an increase in their share oftotal FDI inflows from 28% in 2002 to 45% in2003. In the South-Eastern European part of thisgroup, a proportion of the high FDI can beexplained by privatization deals, although thesedo not yet match the size of previous privatizationdeals in countries such as the Czech Republic,Hungary and Poland.

During the period 2001-2003, theRepublic of Moldova, the former YugoslavRepublic of Macedonia and Serbia andMontenegro were the region’s leaders in termsof the ratio of FDI to gross fixed capitalformation (figure II.25). Most of these highratios reflect small national economies. During2002-2003, FDI inflows into the RussianFederation declined from $3 billion to $1 billion.But this should be temporary, as foreign investorscan be expected to renew their interest in thenatural resources of the Russian Federation.

Table II.8. CEE: frequency distribution of hostcountries, by range of FDI inflows, 1999-2003

(Number)

Range 1999 2000 2001 2002 2003

More than $5 billion 2 1 2 1 -$1-4 billion 4 7 5 7 9Less than $1 billion 13 11 12 11 10

Total 19 19 19 19 19

Source: UNCTAD, based on annex table B.1.

Box II.16. Slovakia: a new hub forEuropean automobile production

Thanks to FDI in large assembly projects,Slovakia is on its way to becoming a majorEuropean hub for automobile production. By2006, when all factories currently underconstruction are scheduled to be operational, thiscountry of 5 million people will have a capacityto produce 850,000 cars per year (Landler 2004).In a decade and a half, Slovakia will have beentransformed from a country with no assemblycapacity before 1991 into a key internationalplayer.

The backbone of the Slovak automobileindustry today consists of three large assemblyplants set up by TNCs that followed differentstrategies to enter the country. Germany’sVolkswagen opted for a gradual entry. It took overa local plant – at that time mainly producing partsfor Skoda Automobilová in the Czech Republic– in the capital city of Bratislava in 1991 andtransformed it into a large assembly plant overtime. Since 1998, Volkswagen Slovakia has beenby far the largest firm and the largest exporterin the country. Its turnover was close to $5 billionin 2003 (Anderson 2004) and its exports

/...

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Box II.16. Slovakia: a new hub for European automobile production (concluded)

Source: UNCTAD.

exceeded $4.4 billion – 23% of the national total(AIA SR 2004). Currently, the labour-intensivelymanufactured off-road Touareg is its mainproduct line.

French car-maker PSA Peugeot-Citroen andHyundai of the Republic of Korea enteredSlovakia through greenfield investments in smallcar production. PSA decided at the beginning of2003 to build a factory in a town less than 100kilometres from Volkswagen’s Bratislava site.It is expected to start production in 2006. In early2004, Hyundai chose Zilina, another town inwestern Slovakia, close to the other two plants,for another plant operation; this will reach fullcapacity in 2008. Slovakia’s success in attractingautomotive production is linked to five factors:

• The three main sites located in westernSlovakia are close to Western Europe and inthe middle of an emerging cross-border clusterof 13 car plants, 10 power train factories andhundreds of suppliers in a 500-km circle thatencompasses the Czech Republic, Hungary,Poland, Slovakia and Slovenia (Wright 2004).

• Slovakia benefits, within that cluster, fromgood transportation links (a highway link toWestern Europe is almost complete) and freemovement of goods within the enlarged EU,which facilitates the cross-border supply ofcomponents.

• The country offers a combination of labourskills and competitive labour costs. The latterare particularly competitive due to thelatecomer status of the country in attractingFDI. This has kept wages lower than in CEEcountries that have been the traditionalmagnets for FDI (the Czech Republic,Hungary, Poland) and that, as a result, haveseen their wages rising.

• Thanks mostly to Volkswagen’s efforts – suchas the construction of two industrial parks forsuppliers – the supplier capacity of Slovakiais improving, making production more costefficient. In 1997, the production value bySlovak automotive suppliers amounted toaround $450 million. By 2003, it had increasedby more than five times, to about $2.5 billion,more than 60% of which was sold toVolkswagen Slovakia in 2003 (AIA SR 2004).

• In the cases of PSA and Hyundai, theGovernment of Slovakia provided assistance

within the limits of EU rules on State aid (upto 15% of the value of the projects): free landfor the plants, construction financing, subsidiesto train the labour force and tax breaks(Landler 2004). Direct payments to Hyundaiwere estimated to be around $170 million,while estimated public expenses related to theproject amounted to $50 million (BBCMonitoring European 2004). PSA wasexpected to receive $114 million ingovernment assistance (de Saint Seine 2003).

In addition to its contribution to exportcompetitiveness, FDI in Slovakia’s automobileindustry is a major source of new investment andjobs. Over its 13-year presence in Slovakia,Volkswagen has invested around $1.3 billion inits Bratislava factory (Anderson 2004). PSA’sand Hyundai’s total investments, once fullyoperational, are expected to amount to $830million and $1.5 billion, respectively (Wright2004). In Bratislava, Volkswagen employs about11,000 people, while its first-tier suppliersemploy a workforce of more than 9,000(Anderson 2004). Each of these TNCs plans toemploy 3,000 persons, and thousands ofadditional jobs are likely to be created amongsuppliers.

To benefit fully from the opportunitiespresented by this emerging automobile industry,Slovak authorities have to deal with some of thechallenges arising from its quick rise. One relatesto labour skills and costs. To serve the assemblyplants and their suppliers, training of many peoplewith appropriate vocational skills is required.Also, as the three key plants are close to eachother, general labour shortages may occur andwages rise. Authorities may also need to helpfirms that aim to become suppliers to the newplants, because the country’s supplier industryis generally considered less developed than thatof the Czech Republic or Poland (Mackintosh2004). Even under an optimistic scenario of fast-increasing local supplies, Slovakia may needincreasingly to import spare parts fromneighbouring countries. Finally, the authoritiesof Slovakia will need to pay particular attentionto completing the missing parts of the highwaysystem linking the three plants to the WesternEuropean transportation networks.

72 World Investment Report 2004: The Shift Towards Services

b. FDI outflows: robust increase

FDI outflows from CEE rose by 42% in2003, from $5 to $7 bill ion. The RussianFederation remained the leading source, aloneaccounting for the bulk (59%) of the region’soutflows. The traditional dominance of Russianfirms is reflected in the list of the top 25 TNCs

of CEE (annex table A.II.2), in which they remainmuch larger than TNCs from other CEE countries(box II.18). Non-Russian outward FDI rose fasterthan that from the Russian Federation: Hungary’soutward FDI surged from $0.3 billion in 2002to $1.6 billion in 2003.

The surge of outflows is reflected in theratio of FDI outflows to FDI inflows. On average,the ratio more than doubled, from 16% in 2002to 33% in 2003. In 2002, the Russian Federationwas already a net capital exporting country, aposition that became more pronounced in 2003.Slovenia became a net capital exporter in 2003,while the ratio reached 62% for Hungary in thesame year.

The Russian Federation, with an outwardFDI stock of $52 billion in 2003, was the world’s21st largest outward investor (annex table B.4).In terms of the number of new FDI projectsstarted in 2003, the Russian Federation movedup to 17th place, ahead of such countries asFinland, Turkey and Denmark.41 The other CEE

Table II.9. CEE: country distribution of FDIinflows, by range, 2003

Range Economy

More than Bulgaria, Croatia, Czech Republic, $1 billion Hungary, Poland, Romania, Russian

Federation, Serbia and Montenegroand Ukraine

Less than Albania, Belarus, Bosnia and $1 billion Herzegovina, Estonia, Latvia,

Lithuania, Republic of Moldova,Slovakia, Slovenia and The formerYugoslav Republic of Macedonia

Source: UNCTAD, based on annex table B.1.

Box table II.17.1. FDI inflows into CEE countries acceding to the EU in 2004,compared with the EU-15, 1995-2003

(Billions of dollars)

Country/region 1995 1998 1999 2000 2001 2002 2003

CEE countries acceding to the EU 12.2 16.7 18.6 20.3 18.4 22.6 11.5Of which:

Czech Republic 2.6 3.7 6.3 5.0 5.6 8.5 2.6Hungary 5.1 3.8 3.3 2.8 3.9 2.8 2.5Poland 3.7 6.4 7.3 9.3 5.7 4.1 4.2Slovakia 0.3 0.7 0.4 1.9 1.6 4.1 0.6

Memorandum:World 335.7 690.9 1 086.8 1 388.0 817.6 678.8 559.6EU-15 114.6 249.9 479.4 671.4 357.4 374.0 295.2

Of which:France 23.7 31.0 46.5 43.3 50.5 48.9 47.0Germany 12.0 24.6 56.1 198.3 21.1 36.0 12.9Ireland 1.4 8.6 18.2 25.8 9.7 24.5 25.5Spain 6.3 11.8 15.8 37.5 28.0 35.9 25.6

Share of FDI into CEE countries accedingto the EU in total inward FDI of EU-15 (%) 10.6 6.7 3.9 3.0 5.1 6.0 3.9

Source: UNCTAD, FDI/TNC database (www.unctad.org./fdistatistics).

The eight CEE countries that joined the EUon 1 May 2004 have so far not divertedsignificant FDI flows away from the 15 oldermembers or, more generally, have not improvedtheir FDI position significantly relative to theolder members. Over most of the late 1990s andearly 2000s, the combined inflows of the eight

remained considerably below the inflows forolder EU members such as France and Germanyand, more recently, Ireland and Spain (box tableII.17.1). Since mid-1995, FDI flows into theeight accounted for a fraction of the inflows ofthe EU – a mere 4% in 2003, declining from ahigh of 11% in 1995.

Box II.17. EU enlargement has not led to large-scale FDI diversion

Source: UNCTAD.

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Figure II.25. CEE: FDI flows as a percentage of gross fixed capital formation,top 10 countries, 2001-2003 a

(Per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2001-2003 FDI inflows as a percentage of gross fixed capital formation.

In 2002, the 25 largest non-financialTNCs from CEE (annex table A.II.2) continuedto expand both at home and abroad in termsof assets, sales and employment (box tableII.18.1). The resilience of these top 25 firmscontrasts with that of the firms on the top 100list: the latter saw a marginal decline as a resultof a global economic slowdown that year. Partof the explanation lies in the anticipation ofEU enlargement by CEE TNCs, especiallyRussian and Croatian ones, as they aspired togain a foothold in the 25-member EU. Anotherreason lies in the composition of the list, whichis dominated by natural-resource-based firms(five on the list) and transportation companies(five).

The industry and country compositionof the top 25 list in 2002 remained fairly stablecompared to 2001. Three firms entered the listin 2002: Norilsk Nickel (Russian Federation),Finvest (Croatia) and Policolor (Romania).Latvian Shipping (Latvia), Lek (Slovenia) andTiszai Vegyi Kombinát (Hungary) departed.

Those departures increased the importance ofnatural-resource-based and Russian firms.

Russian TNCs continue to be larger and moretransnationalized than the others – more than tentimes in terms of foreign assets and foreign sales.And the transnationality index of the Russian firmsis almost one and a half times higher than that ofthe other firms.

Box II.18. The 25 largest TNCs of CEE

Source: UNCTAD.

Box table II.18.1. Snapshot of the top 25 non-financial TNCs from CEE, 2001, 2002

(Billions of dollars, number of employees and per cent)

Variable 2001 2002 Change in 2002from 2001a

Assets Foreign 9.3 9.8 5.4 Total 33.8 51.3 52.1Sales Foreign 13.1 17.0 29.4 Total 30.2 33.6 11.1Employment Foreign 30 053 31 643 5.3 Total 335 236 451 258 34.6Average TNI 30.3 31.5 1.2

Source: UNCTAD, based on annex table A.II.2.a The change between 2001 and 2002 is expressed in percentage

points.

74 World Investment Report 2004: The Shift Towards Services

countries were much smaller outward investors(in value terms, Hungary is 45th, Slovenia 53rd).

Outward FDI by Russian firms ismotivated partly by a desire to gain a footholdin the enlarged EU, partly by a desire to controltheir value chains globally (e.g. Norilsk Nickel’sinvestment into South Africa’s GoldFields, box II.19). As part of thelatter’s strategy, Russian companiescontinue to focus a large part of theiroutward FDI in other membercountries of the Commonwealth ofIndependent States (CIS). In 2002-2003, four of the ten top destinationsof outward FDI projects from theRussian Federation were other CISmember countries (table II.10).

In 2002-2003, the majority(Alrosa, Gazprom, Group Alliance,Itera Group, LUKoil, RusAl, UES,YUKOS) of the leading Russianoutward investing firms (8 of the 15)– in terms of new projects set upabroad – were engaged in natural-

resource-based activities. In the energy industry,in particular, Russian companies started todiversify their production base and access foreignmarkets by acquiring companies and establishingforeign affiliates. Gazprom began a large long-term pipeline joint venture linking the Russian

Federation withGermany; and LUKoilinitiated a $3 bill iongreenfield project in gasexploration inKazakhstan.42 Comparedwith these greenfieldprojects, the cross-borderacquisitions of Russianfirms tended to besmaller – in the order of$200-$300 million. Forexample, Norilsk Nickelsigned the largest deal(box II.19), followed byLUKoil’s acquisition ofBeopetrol Beograd (ofSerbia and Montenegro)and a partial acquisitionof the Ukrainian MobileC o m m u n i c a t i o n s

Enterprise by Mobile Telesystem. In 2004, thesize of M&As by Russian firms rose.

Besides natural-resource-based firms, thelist of the top 15 Russian investors includes threeautomotive producers, one ICT company, onetelecom operator, one insurance company and onefood producer. The expansion of non-natural-resource-based companies abroad is a recentphenomenon. However, during the past few years,these companies have been active, openingproduction facilities, representative offices andsales units abroad to tap new markets and seizenew business opportunities. For example, the ICTfirm EPAM Systems aims to be a majorcompetitor to the so-called “tier 1” offshoresuppliers, especially companies in India that aretraditionally strong in software development.

Slovenian and Hungarian TNCs, incontrast, seek to improve their intra-regionalcompetitiveness by focusing their investmentmostly on the lower income CEE or somedeveloping countries. In the case of Hungary, oiland gas (an industry in which MOL is thenational leader) accounted for 63% of outwardFDI in 2003, followed by financial intermediation(22%) in which OTP is the national champion.MOL completed the integration of Slovnaft

Box II.19. Norilsk Nickel: the fourthlargest Russian TNC

After Gazprom, LUKoil and RusAl(aluminium), Norilsk Nickel is the fourth largestRussian TNC. Its assets abroad were estimatedat around $2 billion at the end of 2002 (Liuhtoand Vahtra forthcoming). It is a world leader inthe production of several strategic metals:palladium, platinum, nickel, cobalt and copper(idem). It also deals with the sales and marketingof platinum-group metals (iridium, osmium,palladium, platinum, rhodium, ruthenium), cobaltand gold. Norilsk has been expanding abroadthrough a series of investments into trading andmining companies such as a 51% stake in theUnited States-based Stillwater Mining in 2003,a 20% stake in Gold Fields Ltd. of South Africa,and the acquisition of the London-based metaltrading company Norimet Ltd. in 2000. NorilskNickel is particularly active in Belgium, SouthAfrica, Switzerland, the United Kingdom and theUnited States. As a result, the firm is today thefifth largest producer of platinum-group metalsand the fourth largest gold mining company inthe world.

Table II.10. The top 10destinations of FDI projects from

the Russian Federation, 2002-2003(Per cent)

Country Share

Ukraine (CIS) 13.9Belarus (CIS) 4.8China 4.3Germany 4.3Uzbekistan (CIS) 4.3Kazakhstan (CIS) 3.9Latvia 3.5Romania 3.5Egypt 3.0Viet Nam 3.0Top 10 destinations 48.5

Source: UNCTAD, FDI/TNC database(www.unctad.org/ fdistatistics) andOCO Consulting, LOCOmonitor (forgreenfield projects).

Source: UNCTAD, based on Liuhto and Vahtraforthcoming.

75CHAPTER II

(Slovakia) into the group, expanded its petrol-station network in Romania and acquired INA(Croatia). OTP completed the consolidation withits Slovakian affiliate and purchased DSK Bankin Bulgaria. In Slovenia, Lek, a firm that Novartishad acquired in 2002, became the leadingoutward investing firm in 2003; it had startedproduction of generic drugs in Poland andRomania. Automotive supplier Prevent openedits 7th foreign production facility in Morocco andis planning to set up a plant in Shanghai, China.The value of outward FDI by other Slovene firms(e.g. domestic appliance producer Gorenje,retailer Mercator and engineering companyKolektor) is small.

In the future, other new EU members –such as the Czech Republic and Estonia – canbe expected to report similar surges in FDIoutflows.

2. Implications of EU membershipfor national policy

For the eight CEE countries that joinedthe EU in May 2004, full membership in theUnion means that they needed to adopt the fullbody of EU law (the acquis communautaire). Onthe one hand, the acquis communautaireimproves the business environment and theattractiveness of the accession countries. On theother hand, i ts application (e.g. concerningenvironmental protection or labour standards)may increase the cost of doing business.

In 2003, anumber of CEEcountries introducedpolicy measuresaimed at liberalizing,promoting andprotecting FDI. Inthe group of new EUmember countries,for instance, theCzech Republicfurther liberalized itsenergy market andtelecom industry,while Hungaryadopted laws on theprivatization ofhealthcare and on thegradual liberalizationof the natural gas

market in accordance with EU regulations(Natural Gas Act 2003). Other CEE countries,such as Serbia and Montenegro adopted variousreform measures aimed at catching up with therest of the region. For example, it permitted thefree transfer of financial and other resourcesrelated to foreign investment, lifted previouslimitations on the establishment of wholly ownedforeign affil iates in the telecom and publicinformation industries and lifted approvalrequirements for establishing foreign affiliatesor for the acquisition of domestic companies(Foreign Direct Investment Law of 2003).

At the bilateral level, 26 BITs and 18DTTs were signed in 2003. In the early 1990s,the number of DTTs in force was much higherthan that of BITs. With the transition processpicking up and various CEE countries gainingindependence, the number of BITs and DTTsincreased rapidly during the first half of the1990s, with BITs growing faster than DTTs. Thelatter development reflected the growingimportance attributed to inward FDI. With thetransition process maturing, the number of newBITs and DTTs signed diminished (figure II.26).EU membership, however, made it necessary forold BITs to conform to EU regulations (boxII.20).

A special policy issue arises out of thecombination of relatively low wages, lowcorporate taxes and the use of subsidies – notso much for the new member countries as for theold EU members, especially those fearing a

Source: UNCTAD, BIT/DTT database (www.unctad.org/fdistatistics).

Figure II.26. CEE: number of BITs and DTTs concluded, 1990-2003

76 World Investment Report 2004: The Shift Towards Services

A number of provisions of the BITs betweensome of the new EU member States and candidatecountriesa and the United States were amended tofacilitate these countries’ meeting their obligations,whether existing or future, and to take steps toaddress potential incompatibilities between theirexisting international agreements and theirobligations of EU membership.

BITs between these countries and the UnitedStates contained commitments on protection andmarket access for the FDI of investors of thecontracting parties. In particular, they containedthe principles of national treatment and most-favoured-nation treatment (MFN) at the pre- andpost-establishment phases. With respect to somespecific matters and industries (e.g. subsidies,agriculture and audio-visual), the Commissionbelieved that these obligations would beinconsistent with specific obligations deriving fromthe EC Treaty and EU regulation. In addition,concerns with respect to national and MFNtreatment, the obligations on performancerequirements in some industries (i.e. audio visualand agriculture) were believed to raise issues ofcompatibility with EU rules as well.

To address the issue of compatibility betweenEU legislation and these BITs, the new EUmembers and candidate countries to the EU, theEuropean Commission and the United States signeda Memorandum of Understanding (MoU) inSeptember 2003 (box table II.20.1). This MoUserved as a guide for amending and clarifyingprovisions in the individual BITs.

The amendments excluded from the scopeof these BITs national and MFN treatmentobligations measures with respect to agriculture,audiovisual, transport, financial services, fisheriesand energy, to the extent such measures arenecessary to meet EU obligations. TheUnderstanding also addressed the EU concern thatits authority, in accordance with article 60 of theEC Treaty, to adopt measures limiting capitalmovements and payments to and from thirdcountries, and its authority under article 59 of theEC Treaty, to enact safeguard measures to preservethe functioning of the economic and monetaryunion, not be infringed.

Among the various issues dealt with underthe amendments are obligations related to nationaland MFN treatment. For example, the AdditionalProtocol between the United States and Polandstates that, in certain industries, the EU membercountry may take a reservation against nationaland MFN treatment obligations of the BIT,provided that such reservation is necessary to meetthe country’s obligations under EU law, and subjectto the exception that, notwithstanding any suchnew reservation, existing United States investmentsin the country shall remain protected under thenational or MFN treatment obligations of the BITfor at least 10 years from the date of the relevantEU law which made the reservation necessary. TheAdditional Protocol also provides that the UnitedStates reserves the right to make or maintainlimited exceptions to national treatment obligationsto fisheries and subsidies, and to the MFNtreatment obligation in fisheries.b

Box II.20. BITs between the United States and the new EU member Statesand candidate countries

Source: UNCTAD.a The countries concerned are Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia.

The candidate countries are Bulgaria and Romania. b The American Society of International Law, International Law in Brief, 7 April 2004 (http://www.asil.org/ilib/

ilib0706.htm).

Box table II.20.1. Specific BITs of new EU members and candidate countries with the United States

Country Date of signature a Date of entry into force Date of expiry a

Bulgaria 23 September 1992 2 June 1994 1 June 2004Czech Republic 22 October 1991 19 December 1992 18 December 2002Estonia 19 April 1994 16 February 1997 15 February 2007Latvia 13 January 1995 26 December 1996 25 December 2006Lithuania 14 January 1998 22 November 2001 21 November 2011Poland 21 March 1990 6 August 1994 5 August 2004Romania 28 May 1992 15 January 1994 14 January 2004Slovakia 22 October 1991 19 December 1992 18 December 2002

Source: UNCTAD, BIT/DTT database (www.unctad.org/fdistatistics).a BITs are tacitly renewed on the expiry date, but can be renounced at any time, with a one-year advanced notification after

an initial period of ten years. As the BITs stood in their original version, before amendment, the acquired rights of establishedforeign investors remained valid for an unlimited period after the renunciation of the agreement. Following the amendments,the protection of acquired rights of established investors is limited in time, from ten to twenty years.

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relocation of production facilities to the new EUmembers. As far as wages and related policiesare concerned (table II.11), there have been long-standing differences between the more developed,higher wage, and the less developed, lower wageEU members. With the accession of ten newcountries, discrepancies have further widened.In 2001, the average for the EU-15 was more thanthree times higher than that for the ten newmember countries (table II.11). Even adjustedfor labour productivity, new EU membercountries offer major labour cost advantages.

As far as the fiscal regime is concerned,a wave of tax reductions at the beginning of 2004was made by the majority of new EU membercountries (table II.12). Not one of the eight CEEaccession countries is in the top 11 in terms ofcorporate tax rates, while six are in the bottomeleven. A simple comparison of tax rates is ofcourse not sufficient for assessing the relativetax burdens imposed on comparison. The profitsto which the tax rates are applied (“the tax base”)also needs to be taken into account.

Finally, under the EU Structural Funds,the eight new CEE members can expect (in theframework of the objectives defined by the EUregional policy) total transfers amounting to€21.5 billion over a three-year period (2004-2006) from the common budget of the EU.43

These funds are intended mainly for suchpurposes as building basic infrastructure(including transportation), human resourcedevelopment, competitiveness and enterprisedevelopment, rural development and improvingenvironment. If used for the above purposes, theycan enhance FDI attractiveness and improve theinvestment climate of CEE countries.44

This combination of factors – furthercombined with a favourable business climate, ahighly skilled workforce and free access to therest of the EU market – makes the eight accessioncountries attractive locations for FDI, both fromother EU countries and from non-EU members.That applies especially to efficiency-seeking FDI.No wonder, then, that there are some concernsin the old EU members as regards a possible

Table II.11. Gross monthly average salary, selected economies,adjusted to productivity, 1998-2002

(Euros and per cent)

Productivity/salaryCountry Gross monthly average salary Productivitya (EU-15=100%)

1998 1999 2000 2001 2002 2000 2000

Average for the EU-15b 1 845 1 923 2 127 2 191 .. 42.5 100Of which:

Greece 1 101 1 160 1 227 1 286 1 357 19.4 79Portugal .. .. 1 052 1 112 .. 10 48Spain .. 1 297 1 326 1 372 1 425 26.1 98

New EU members from CEE .. 381 410 460 .. 11.7 117Of which:

Czech Republic .. 343 379 430 510 10.9 144Estonia .. 282 303 328 .. 8.3 137Hungary 307 314 348 408 489 11.1 160Latvia .. 257 277 280 .. .. ..Lithuania 233 251 270 300 .. .. ..Poland 346 442 471 626 598 9.3 99Slovakia 274 260 299 320 382 9.2 154Slovenia .. 895 935 988 1 041 21.3 114

EU candidates .. 115 132 146 153 .. ..Of which:

Bulgaria 101 111 120 127 132 .. ..Romania .. 120 144 165 174 .. ..

Source: UNCTAD, based on http://europa.eu.int/comm/eurostat/; www.dree.org/elargissement (data in italics); and Stephan 2003,p. 10 (for productivity data).

a Value added per € 1,000 labour costs, national average.b EUROSTAT estimate. Data for Austria, Ireland and Italy are not available.c Average productivity is based on data for the Czech Republic, Estonia, Hungary, Poland, Slovakia and Slovenia only.

78 World Investment Report 2004: The Shift Towards Services

relocation of manufacturing and servicesactivities to the new members45 – and theexpectation of an FDI boom in the new members(section II.B.4).

3. A shift towards services bringsabout structural change

Service-related FDI inflows into CEEhave followed the trend of growth in services (inGDP, employment, FDI) worldwide and in theregion itself. In the CEE region, services hadbeen largely neglected under the centrallyplanned economic system. With EU enlargement,the adoption of the acquis communautaire andthe integration of the market for services,pressures have increased to upgrade services tothe level of the old EU members and to attractFDI into higher value-added services, includingexport-oriented services.

Table II.12. Corporate tax rates inselected economies, 2003 and 2004:

the highest and the lowest(Per cent)

Rank Economy 1 January 2003 1 January 2004

Eleven highest1 Japan 42 422 United States 40 403 Germany 39.6 38.34 Italy 38.3 37.35 Canada 36.6 36.16 Israel 36 367 India 36.8 35.98 Malta 35 358 Pakistan 35 358 Spain 35 358 Sri Lanka 35 35

Eleven lowest1 Cyprus 10/15 10/152 Ireland 12.5 12.53 Estonia 0/26 0/26 a

4 Lithuania 15 15 a

5 Latvia 19 15 a

6 Hungary 18 167 Chile 16.5 178 Hong Kong (China) 16 17.59 Iceland 18 18

10 Slovakia 25 1910 Poland 27 19

Source: UNCTAD, based on KPMG’s Corporate Tax Rates Survey -2004 (http://www.kpmg.co.uk/pubs/taxrates_04.pdf ).

Note: On 1 January 2004, the Czech Republic applied a corporatetax of 28%, and Slovenia 25%.

a Information collected directly by UNCTAD.

In the largest host countries of theregion (the Czech Republic, Hungary,Poland, the Russian Federation), the industrycomposition of inward FDI is graduallyshifting from manufacturing towardsservices, and within services, from networkindustries privatized in earlier years towardsbusiness services. In the Czech Republic,Hungary and Poland, services had alreadybecome dominant in FDI in the late 1990s.In the Russian Federation, the structuralchange is slower, with both the primary andsecondary sectors retaining a higher shareof FDI. These variations reflect theincreasing differences in income levelsbetween the first three countries on the onehand and the Russian Federation on the other.

In general, the countries of CEEoutside the CIS are characterized bysubstantial FDI penetration in infrastructureservices (e.g. banking, telecommunications,water, electricity). In all non-CIS countriesexcept Slovenia, foreign banks control themajority of banking assets (table II.13). Quiteuniquely, foreign banks have penetrated notonly the business segment, but also retailmarkets (Kraft 2004). In telecommunications,both the dominant operators and theircompetitors are mostly foreign affiliates.

In business services and R&D,however, FDI plays a relatively limited role.In terms of the number of FDI projects inservices in 2002 and 2003, the RussianFederation leads, followed by Hungary,Romania, Poland and Bulgaria (table II.14).In terms of the largest projects, the CzechRepublic, Hungary and Poland are the mostfrequently mentioned locations (Mikerova2004).

Table II.13. CEE: foreign affiliates dominatebanking assets, 2001

(Per cent)

Country Share Country Share

Estonia 99 Latvia 65Czech Republic 90 Macedonia 51Croatia 89 Romania 47Hungary 89 Albania 46Slovakia 86 Moldova 37Lithuania 78 Belarus 26Bulgaria 75 Slovenia 21Bosnia and Ukraine 11 Herzegovina 73 RussianPoland 69 Federation 9

Source: UNCTAD, based on annex table A.III.4.

79CHAPTER II

Table II.14. Largest CEE recipients of servicesFDI projects, 2002-2003

(Number of projects and per cent)

Number of projects Share

Greenfield Cross-border (PerCountry Total FDIa M&As cent)

Russian Federation 126 81 45 15Hungary 121 72 49 14Poland 116 37 79 14Czech Republic 95 31 64 11Romania 77 57 20 9Bulgaria 53 31 22 6Slovakia 43 18 25 5Serbia and Montenegro 31 21 10 4

Total 852 439 413 100

Source: UNCTAD, based on information provided by OCO Consultingand UNCTAD, cross-border M&A database.

a Based on projects monitored in five key services areas: financialservices, telecommunications services, headquarters anddistribution centres, R&D and shared services/call centres.

4. Prospects: again sunny

Robust growth is expected forFDI inflows into CEE, both in the newmembers of the EU and the rest of theregion. Growth in CEE is predicted toremain robust, at 4.5% in 2004 (IMF2004). Flows to EU accessioncountries are likely to experience a“second wind” of FDI from traditionalinvestors seeking to reap the benefitsfrom these countries’ redefinedlocation advantages. In the newmembers, this expectation is based onthe wide range of new or expansionprojects approved or committed overthe past few years, which should lead to large FDIinflows in the near future. One illustration of thisis the announced investment by Hyundai Motorsin Slovakia (box II.16). Prospects for inward FDIwill also depend on the success of these countriesin positioning themselves as production and serviceplatforms for TNCs originating outside Europe (theUnited States, Japan, the Republic of Korea, and,to a lesser extent, China and India).

Privatization in CEE is likely to pick upagain in 2004, as new EU member countries seekto reduce further their public sector debts in linewith EU requirements, which also augurs well forFDI. Over the longer term, many EU accessioncountries are well positioned to receive not onlyFDI, but also upgrade into higher value-added TNCactivities. Better quality FDI should follow.

In UNCTAD’s surveys of large TNCs andlocation experts (UNCTAD 2004a, 2004c), the CEEregion attained the highest score, with more thantwo-thirds of the respondents of both TNCs and

experts expecting FDI to increase during2004-2005, fuelled by accession prospects(figure II.27). Poland and the Czech Republicwere identified as the top FDI destinations.Romania, the Russian Federation and Hungarywere also ranked high. Germany and theUnited States are expected to be the principalinvestors in the region. Location expertspredict FDI inflows will rise in food andbeverages and motor vehicles, while inservices, prospects appear to be brightest inconstruction and real estate, retail andwholesale trade and transport (UNCTAD2004a). Cross-border M&As and greenfieldprojects were viewed as equally importantmodes of entry by TNCs. Production stillstands out as the corporate function mostlikely to be attracted to CEE, followed, atsome distance, by logistics and supply

services (UNCTAD2004c).

As in the case ofother regions, refinedinvestor targeting,further FDIliberalization andadditional incentiveswere mentioned as theprincipal instrumentsto attract FDI over thenext year inUNCTAD’s IPAsurvey (figure II.28).In fact, virtually allIPAs surveyed saidthey would useinvestor targeting to

attract FDI into the region over the coming years,the highest proportion of all regions (UNCTAD2004b). No IPA expected to remain passive bynot introducing any new measures.

Figure II.28. CEE: expected policy measures toattract FDI, 2004-2005, as reported by IPAs

(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

Figure II.27. CEE: prospects for FDIinflows, 2004-2005, as reported by

TNCs and location experts(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

80 World Investment Report 2004: The Shift Towards Services

C C C C C. De. De. De. De. Devvvvveloped countries:eloped countries:eloped countries:eloped countries:eloped countries:the decthe decthe decthe decthe decline continline continline continline continline continuesuesuesuesues,,,,,

bbbbbut prut prut prut prut prospects arospects arospects arospects arospects are ge ge ge ge goodoodoodoodood

Mainly because of developments in theUnited States, FDI inflows into developedcountries fell, but outflows increased in 2003.Policy measures at all levels improved the FDIclimate, and a rebound in flows is expected inthe short term.

1. Uneven trends

Developed-country FDI inflows declinedby a quarter, to $367 billion – the lowest levelin six years – whilst outflows increased by 4%,to $570 billion in 2003 (annex table B.1). Sloweconomic recovery, sluggishness in M&As andoutflows of intra-company debt were mainlyresponsible for the continued decline. Outflowsto developing countries increased, particularlyin Asia, as TNCs sought locations with lowerfactor costs and high economic growth. FDIinflows were higher for 10 countries in the regionand lower for 16. As a result of transshipped FDI,Luxembourg46 was once again the largest FDIrecipient worldwide, followed by China, Franceand the United States (figure II.29). The UnitedStates resumed its position as the top homecountry (figure II.29). FDI flows into the EUand Japan declined by 21% and 32%,respectively. In 2003, only two developedcountries were ranked in the top ten inUNCTAD’s Inward FDI Performance Index(down from three in 2002): Belgium-Luxembourg and Ireland, ranked first and fourthrespectively (table I.5; annex table A.I.5).

Despite stronger performance in theworld’s stock market in 2003, cross-border M&Apurchases and sales among developed countrieswere down in number and value for the third yearin a row, to pre-1998 levels (annex tables B.7-B.8). At the regional level, North American andEU cross-border M&A sales declined by 16% and37%, respectively. With regard to purchases,North American cross-border M&As grew by 8%while EU cross-border M&As fell by 44%. Therewere some large deals, including HSBC HoldingsPLC (United Kingdom) acquiring HouseholdInternational Inc. (United States), valued at $15billion, the German company RWE AG acquiringAmerican Water Works Co Inc. ($8 billion) andBP PLC-Russian Assets (Russian Federation/

United Kingdom parent) acquiring Alfa Renova-Russian Asset (Russian Federation) ($8 billion).Nevertheless, there were fewer cross-borderM&A purchases and sales worth over $1 billionconcluded by developed countries: purchaseswere down to 48 from 76 in 2002, and sales weredown to 45 from 69 the previous year.

Inward investment into North Americawas down by 57%, largely on account ofdropping inflows into the United States. FDIinflows into the United States declined (by 53%)for the third year in a row, to a low of $30 billion– its lowest value since 1992. There were largerepayments of intra-company debt ($34 billion),as foreign affiliates in the United States reducedthe debt they had accumulated with their parentfirms abroad during the M&A boom of 1998-2001. With M&A activity running at much lowerlevels in 2003, new borrowing did not matchrepayments, resulting in substantial net outflows.Equity flows also declined (to $62 billion).Reinvested earnings rose because of improvedprofitability, but their level was low ($2 billion).FDI flows to Canada were at their lowest levelsince 1993, due primarily to divestments.

In recent years, the United States hasincreased its outward FDI while receiving muchless inward FDI. This has meant that the balance-of-payments contribution of FDI has turnedsharply negative. Thus, net FDI flows turned froma surplus of $171 billion in 2000 to a deficit of$122 billion in 2003 (figure II.30). The swingdiffers from previous such episodes in the pasttwo decades in that it is the first time that boththe FDI balance and the trade balance havemoved negatively together. As a result , thecombined impact of trade and FDI on the balanceof payments in 2000-2003 went from minus $208billion to minus $617 bill ion. The primaryexternal financing for this growing deficit camefrom portfolio capital inflows, which surged (ona net basis) from $63 billion in 1999 to $437billion in 2003. Most of these inflows were netforeign purchases of government debt securities.

FDI flows to the EU shrunk by over 21%in 2003, due primarily to sluggish economicgrowth, a fall in equity investment in general (andM&As in particular) and in intra-company loans.When the 16% depreciation of the dollar vis-à-vis the euro is factored in, the downward trendis even more pronounced. As noted above,Luxembourg’s position as the top recipient(figure II.29) was due to transshipped investment(WIR03, p. 69). Only four EU countries registered

81CHAPTER II

higher FDI inflows: Austria, Belgium, Italy andIreland. Inflows into Austria rebounded strongly,in contrast to 2002 when they were low due tolarge divestments in the telecom industry. M&Asand reinvested earnings were the main sourcesof the surge in FDI inflows. Belgium’s FDIinflows doubled in 2003, with equity capitalbeing the main source. FDI flows to Italy roseby 13% as a result of an increase in M&Aactivity, while in Ireland, they grew by 4% due

to high equity inflows and reinvested earnings.However, in the case of both Italy and Ireland,these increases were more than offset by thedepreciation of the dollar vis-à-vis the euro.

Eleven EU countries registered lowerinward FDI. In Sweden, inflows were at theirlowest level since 1990, notably due to a majordownturn in equity investment and intra-companyloans. Group reorganizations (especially of thefinancial services Nordea Group) also had animpact. FDI flows to the United Kingdom weredown by nearly half, mainly as a result of thecontinued downturn in cross-border M&As anda net repayment of loans to foreign parent

companies. As a result, since 2000, FDIinflows to the United Kingdom haveplummeted by $104 billion. In Germany,where inflows plunged by two-thirds, equitycapital inflows remained stable, but wereoffset by large amounts of intra-companydebt transactions. These were prompted byamendments to the German corporation taxact, which removed tax privileges oncorporate borrowing by Germanshareholders. As a result, foreign parentcompanies reduced intra-company loans infavour of new equity investments. Thedecline since the peak year, 2000, amountsto $185 billion.

Inflows into “other Western Europe”rose by 140% in 2003. Switzerland’s morethan doubled, with both M&As andreinvested earnings rebounding strongly. InJapan, FDI inflows fell by one-third (havinggrown by half in 2002), with its share ofglobal inflows remaining low, at only 1%.In recent years, inward investment has risendue to deregulation in the finance, telecom,retail and pharmaceutical industries, and toM&As in the auto and retail industries. Butweak economic growth has held backsignificant improvements. Nevertheless, thecountry could achieve its target of doublinginward FDI stock by 2006 (box II.21).

For the first t ime since 1999, nodeveloped country received more than $100billion of FDI, with Luxembourg the onlycountry to attract more than $50 billion(table II.15). For most of them, inflowswere between $1 billion and $50 billion.Japan remained in the $1-$9 billion cohort(table II.16). In the 2001-2003 period, FDIinflows as a percentage of gross fixed capitalformation continued the downward trend

Figure II.29. Developed countries: FDI flows,top 10 countries, 2002, 2003 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2003 FDI flows.

82 World Investment Report 2004: The Shift Towards Services

Figure II.30. United States: balance of trade and net flows of FDI andportfolio investment, 1986-2003

Source: UNCTAD, based on IMF and OECD data.

Prime Minister Junichiro Koizumi of Japanstated in January 2003 that Japan would seek todouble the cumulative amount of inward FDI infive years.a To that end, concrete measures wereproposed. The five priorities of this package(encompassing 74 specific measures) were: todisseminate information on FDI within Japan andabroad; to improve the business environment; toreview administrative procedures; to improve theliving standards and environment for TNCexpatriates; and to develop local and nationalstructures and systems (WIR03). Progress has beenmade with the successful implementation of theM&A code reform — of particular importance forimproving the business environment, given thatM&As are the main source of global FDI.

Despite the new measures, however, FDIinflows in 2003, on a balance-of-payments basis,amounted to $6.3 billion, down from $9.2 billionin 2002. This raises the question as to whetherPrime Minister Koizumi’s goal is achievable.

According to FDI stock data for the past fiveyears, Japan was one of the top performers amongdeveloped countries. Between 1999 and 2003, anumber of developed countries doubled their stockof inward investment: Ireland (168%), Austria(156%), Finland (153%), Portugal (122%),Switzerland (102%) and Japan (95%). However,growth in FDI stock started from a small base, andinflows for 2003 were lower than 2002. The statedgoal of doubling inward FDI stock from $50 billionin 2001 to $100 billion in 2006 requires that Japan

receive a minimum of $10 billion a year.b Thisrepresents a considerable challenge.

As the second largest economy in the world,Japan has a large potential market for FDI. Itranked 12th in UNCTAD’s FDI Potential Index,but 127th in the FDI Performance Index for the2001-2003 period (annex table A.I.5). High costsrelating to personnel, land construction andcompany operations are some of the factors thathave inhibited inward FDI. Furthermore, practicesof various kinds – many informal – operate againstinward FDI. In 2003, Japan’s FDI inflows as apercentage of GDP at current prices were 0.1%,compared with 2.8% for the EU and 0.8% for theUnited States.

The main locational advantages of Japan forFDI are market size and advanced technologicalcapabilities associated with created assets. Theeconomy is rebounding from the economicstagnation of the 1990s, and growth prospects arerelatively strong for the medium term. Japan ispotentially a large market for efficiency-seekingand market-seeking FDI. The manufacturing sectoris very efficient and globally competitive, ashighlighted by the example of Nissan, and thereis an emerging consensus that foreign firms canhelp revitalize poorly performing companies.Services FDI is growing, accounting for two-thirdsof inward flows. Cross-border M&As haveincreased in this sector, including in traditionallyprotected industries such as retail tradec andfinancial services.d FDI in this sector now spans

Box II.21. Can Japan double its inward FDI stock by the end of 2006?

/...

83CHAPTER II

a wide range of industries – from telecoms tohotels and golf courses.e

Economic growth has increased, thusrestoring prospects for market-seeking FDI.However, transaction costs are still high, and theexchange rate is volatile. A further potentiallimiting factor is the relative competitiveness ofJapanese companies vis-à-vis foreign investingcompanies. Deregulation in retail, for instance,provides as many opportunities for Japanesecompanies as for foreign investors. In retail,neither Wal-Mart nor Carrefour are finding theJapanese market easy to exploit. Jusco, a localsupermarket chain, is not only emulating Wal-Mart’s market strategy, but improving on it.f

The wave of inward FDI in recent years wasdue to deregulation in the non-manufacturingsector, a rise in corporate failures, a decline instock valuations, reductions in cross-shareholdingsand the global M&A boom. In many ways, thisrepresents the first wave of inward FDI into Japan.Given the importance of M&A activity in

developed countries, reforms to facilitate suchtransactions are of particular relevance. Whilstreform of the M&A law is under way, the specificissue of tax deferral for stock swaps for foreigncompanies is only being evaluated and has not yetbeen revised. Since stock swaps account for alarge share of global M&As, if this issue is notresolved, M&As with foreign companies will provedifficult. On a more positive note, local mayorsand prefectural governors see FDI as a source oflocal economic regeneration and employment. Theformer perception of M&As (the main FDI entrymode into Japan) as job cutters has given way toone of job retention, as has been the case inRipplewood’s acquisition of Seagaia.g

In the final analysis, large-scale deregulationmay still be necessary. Japan’s FDI environmentand attitude towards FDI has been improving.Whilst the concrete measures for the promotionof FDI in Japan should help, their fullimplementation will be necessary to achieve thegoal of doubling the country’s inward stock.

Source: UNCTAD.

a General Policy Speech by Prime Minister Junichiro Koizumi to the 156th Session of the Diet, 31 January 2003 (http://www.kantei.go.jp/foreign/koizumispeech/2003/01/31sisei_e.html). Reiterated in the General Policy Speech by thePrime Minister to the 159th Session of the Diet, 19 January 2004 (http://www.kantei.go.jp/foreign/koizumispeech/2004/01/19sisei_e.html).

b In Japanese yen, this represents 6.6 trillion in 2001 and 13.2 trillion in 2006.c For example, Tesco (United Kingdom) acquired C Two Network in 2003. Costco (United States) and Carrefour

(France) had already entered the Japanese market through greenfield investments, and Wal-Mart (United States)entered the market through a partnership with Seiyu.

d Goldman Sachs made a major investment of $1.27 billion in Sumitomo Mitsui Financial Group in 2003. MerrillLynch & Co also took a major stake in a UFJ Holdings’ affiliate to write off bad debt. However, it should be noted thatMerril Lynch’s foray into the Japanese market through a partial acquisition of Yamaichi Securities in 1998 led tomassive losses.

e Distressed assets were acquired, for example, by Ripplewood Holdings and the Goldman Sachs Group. See, “Foreignacquisitions in Japan focus more on healthier firms”, Wall Street Journal (Eastern Edition), 5 July 2002, p. A.8; and“A global journal report: Goldman plans $1.27 billion bet on Tokyo”, Wall Street Journal (Eastern Edition), 16 January2003, p. C.1.

f “A global journal report Pacific aisles: Wal-Mart’s foray into Japan spurs a retail upheaval. As giant confronts barriers,local competitors rush to emulate its methods. Balking at the ’10 foot’ rule”, Wall Street Journal (Eastern edition), 19September 2003, p. A.1.

g In some cases, M&As have conserved jobs in target companies that would have gone bankrupt without M&As, forexample, Ripplewood’s acquisition of the troubled Seagaia resort in Miyazaki prefecture. “American investors putJapan’s resorts in play “, New York Times, 6 Jan 2004, p. W.1.

Box II.21. Can Japan double its inward FDI stock by the end of 2006? (concluded)

that began in 2001, falling to less than 10%(figure II.31). Excluding Luxembourg, Irelandranked first place in this measure (figure II.32).

Unlike inflows, FDI outflows fromdeveloped countries rose by 4% in 2003 (annextable B.2). While outward investment from NorthAmerica was up by 22%, from the EU it wasdown by 4%. Overall, outflows from 10 of 25

developed countries increased. The United Statesregained its position as the main investor country,followed by Luxembourg, France and the UnitedKingdom. United States outward flows rose by32% on the 2002 figure, and its global share shotup to 25%, from 19% the previous year. Theywere mainly financed from reinvested earnings(from $75 billion to $119 billion), derived from

84 World Investment Report 2004: The Shift Towards Services

overall improvements in corporate profitabilityin foreign markets. Canadian outflows declinedby 18%, despite more cross-border M&Apurchases (annex table B.8). Overall, outflowsfrom France and the United Kingdom rose by16% and 57%, respectively. In these countries,this was largely due to increases in intra-companyloans. Luxembourg’s outward FDI flows fell by24% paralleling a similar fall in inflows due totransshipped investment (WIR03 , p. 69).Outflows from Germany slumped by 70%, dueto reduced parent company loans as well as theweak performance of German enterprises.Denmark, Finland and Norway registered notabledeclines associated with large divestments, asthe Nordea group, a financial services company

Table II.15. Developed countries: frequencydistribution of host countries,

by range of FDI inflows, 1999-2003(Number)

Range 1999 2000 2001 2002 2003

More than $300 billion - 1 - - -$100-299 billion 2 2 1 1 -$50-99 billion 3 3 4 1 1$10-49 billion 8 8 6 11 10$1-9 billion 8 8 11 6 10Less than $0 billion 4 3 3 7 5

Total a 25 25 25 26 26

Source: UNCTAD, based on annex table B.1.a After 2002, Belgium and Luxembourg are reported separately.

Table II.16. Developed countries: countrydistribution of FDI inflows, by range, 2003

Range Economy

More than $50 billion Luxembourg

$10-49 billion Belgium, France, Germany, Ireland,Italy, Netherlands, Spain,Switzerland, the United Kingdomand the United States

$1-9 billion Australia, Austria, Canada, Denmark,Finland, Israel, Japan, New Zealand,Norway and Sweden

Less than $1 billion Gibraltar, Greece, Iceland, Malta and

Portugal

Source: UNCTAD, based on annex table B.1.

whose shares are owned by these three countriesand Sweden, came under the direct ownershipof its Swedish parent firm.

The importance of the EU and the UnitedStates diminished as the preferred destinationsfor developed-country FDI, as developingcountries became the main poles of attraction.There was a tendency to look for lower costlocations in the face of intensifying competitionand pressures to cut operating costs. While FDIfrom the EU into the CEE accession countriesfell sharply in 2003, there were some notableinvestments. For instance, Volkswagensubstantially increased its production in Slovakia(see CEE section).

Figure II.31. Developed countries: FDI inflows and their share in gross fixedcapital formation, 1985-2003

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

85CHAPTER II

Figure II.32. Developed countries: FDI flows as a percentage of gross fixedcapital formation, top 10 countries, 2001-2003 a

(Per cent)

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2001-2003 FDI inflows as a percentage of gross fixed capital formation.

Japan’s outflows continued to fall (by11%), having also dropped in 2002. They weremainly in the tertiary sector, with Europe beingthe main destination. However, the trend istowards increased investment in manufacturingin Asia and the United States. Notable examplesincluded the $8.7 billion investment by Nissanin the United States, and the $1.1 billion Toshiba-Matsushita joint-venture investment in a LCDplant in Singapore (JETRO 2003). This contrastswith FDI outflows from the United States andEurope, which increasingly involve services.

2. Policy responses

At the national level, a number ofcountries adopted policies aimed at attracting andfacilitating FDI (table II.17). The FDI processwas streamlined and simplified in France, Japan,Germany and Portugal. In response to decliningFDI inflows, France set up a strategic councilto recommend measures that would make it moreattractive to investors (box II.22). Japan, asmentioned above, has launched an initiative at

the highest level of government to double inwardFDI by 2006 (box II.21).

Countries also continued to concludeBITs and DTTs – albeit at a reduced rate –reaching 1,211 and 1,691, respectively (figureII.33). This reflects the fact that developedcountries have already entered into many suchtreaties – particularly BITs – with their keyinvestment partners. There is also a trendtowards signing up to multiple FTAs coveringalso investment issues. For example, the UnitedStates has concluded and initiated a number ofFTAs with countries or groups of countries (e.g.in Central America and Southern Africa) (annextable A.II.1). In ongoing, but slow negotiationsfor a Free Trade Area of the Americas (FTAA),it has been agreed that the differences in thelevels of development and the size of theeconomies will be taken into account (box II.23).The EU is developing economic partnershipagreements (EPAs) with members of the African,Caribbean and Pacific (ACP) group of countrieswhich, like FTAs and regional trade agreements(RTAs), will also cover investment issues.

86 World Investment Report 2004: The Shift Towards Services

Table II.17. Examples of policy changes in developed countries, 2003-2004

Country Law / regulation/ policy Policy changes

Austria Privatization programme Privatization of the State holding company, Österreichische Industrieholding(ÖIAG), the steel group, Böhler-Uddeholm (25%), Voest Alpine steelworks(34.7%), Telekom Austria (47.2%), and the engineering and services group,VA Technologie (24% State-owned). The government strategy is for a coreof Austrian shareholders (through syndicates of industrial partners, banks,insurance firms and pension funds) to hold a majority stake in the privatizedcompanies, to guarantee that their headquarters remain in Austria.

Canada Legislation to reform the Allows foreign banks or interests to own up to 20% of an individual bankfinancial services industry double the previous limit).Foreign ownership rules in Permitted ownership share in media companies raised from 20% totelecommunications 33% by 2004.

France Foreign investment policy National Strategic Council for Attractiveness set up to enhance the appealof France for investment and expertise.

Regulation on financial Eliminates prior declarations and authorizations, except for investmentsrelationships with in sensitive industries such as national defence and health. Non-EUforeign firms investment is now subject only to the administration declaration,

regardless of the investment amount.

Germany Foreign investment Eliminates tax disadvantages faced by foreign investment funds distributedModernization Act in Germany.Tax Allowance Reduction Act Avoids double taxation. Allows income tax paid abroad to be credited

against German taxes due.Foreign investment policy The Invest in Germany corporation replaced the separate offices of the

commissioner for FDI in Germany and the Industrial Investment Councilas the one-stop shop for investors.

Ireland 2003 budget Non-trading investment income (such as interest, royalties and rentalincome) is now taxed at 25%, to discourage brass-plate companies.

Japan Foreign investment policy The Japan External Trade Organization (JETRO) opened the Invest JapanBusiness Support Center, a one-stop office that will provide foreigncompanies with complete information on conditions and procedures, andrelated consultation, regarding investment in Japan.

Foreign investment policy Concrete measures put in place to increase inward FDI (box II.21).Trade Insurance Scheme This scheme is run under the auspices of the Ministry of Economy, Trade

and Industry. Japanese affiliates abroad (specifically Asia) can utilizegovernment trade insurance from 2004.

Portugal Contractual regime Establishment of a single contractual regime for large-scale investmentprojects, regardless of the business sector involved or the nationality ofthe investor.

Procedures relating to FDI Simplified procedures relating to FDI.Regulations on shares of Certain regulations limiting the shares of foreign capital in privatized firmsforeign capital in privatized have been repealed.companies

Spain Tax reform The standard capital gains tax for companies has been cut from 18% to15% for assets held for more than one year.

Sweden Tax Tax on capital gains on the sale of business-related shares on or after 1July 2003 (the same should apply to Swedish economic cooperation,certain foundations and non-profit organizations) have been abolished.

Switzerland New telecoms law Aims to complete opening to investors of the last-mile telecomsnetwork, which is fully owned by Swisscom.

United Kingdom The Finance Act, 2003 The Changes the basis of taxation for non-resident companies operating in thechange took force for United Kingdom.accounting periods startingon or after 1 January 2003.

United States The Safeguards Rule On 23 May 2003, non-bank financial institutions must be in compliancewith the Federal Trade Commission (“FTC”) rule implementing theinformation security requirements of the Gramm Leach Bliley Act(“GLBA”).

Ratification of the Madrid Provides trademark owners with the option to use the InternationalProtocol with the World Registration system to protect their trademarks in all of theIntellectual Property 59 Madrid Protocol member countries with only one application,Organization ( WIPO) in in one language and with one set of fees in a single currency.Geneva on the 2 August 2003.

Source: UNCTAD.

87CHAPTER II

In 2003, Prime Minister Jean-PierreRaffarin outlined a number of new measures toattract FDI to France. Forty measures were drawnup with the relevant government departments.a

The overall objective was to identify and analyzeboth the strengths and weaknesses of France asa host country for FDI compared with itscompetitors. This new policy is to be guided bythe recommendations of a national StrategicCouncil for Attractiveness (Conseil stratégiquepour l’attractivité de la France). Members includealso chief executives from leading TNCs.

The measures seek to attract both skills andinvestment.b A programme is being launched in2004 to attract the world’s leading experts togrowth sectors in France and to build teamscentred around them. A number of measures aimto improve radically the conditions of entry andresidence for expatriate managers and theirfamilies. With respect to attracting FDI,

objectives include targeted improvements in thetax competitiveness of France, in particularrelating to R&D and innovation. More effectivesupport for the setting up of businesses will beprovided, legal security for investors enhancedand laws simplified and modernized. Additionalmeasures include initiatives to attractheadquarters and decision-making functions ofTNCs to France and to enhance itscompetitiveness as a European financial centre.This can be seen as an example of a developedcountry seeking to leverage the offshoring ofservices. Furthermore, a drive to promoteFrance’s image to investors internationally is tobe launched in September 2004. This will involvean advertising campaign based on successfulinvestments in France, and meetings withpotential investors, specifically targeting theUnited States, the United Kingdom, Japan,Germany and China.

Box II.22. France adopts new measures to attract FDI and skills

Source: UNCTAD.

a “France adopts new measures to enhance appeal”, AFII (Invest in France Agency) Press Release, http://www.afii.fr/UK/Newsroom/PressReleases/?p=press_release_2003-12-11&l=en.

b “France adopts new measures to enhance appeal”, AFII Press Release, 11 December 2003, http://www.afii.fr/France/Newsroom/PressReleases/press_release_2003-12-11_en.pdf.

Figure II.33. Developed countries: number of BITs and DTTs concluded, 1990-2003

Source: UNCTAD, BIT/DTT database (www.unctad. org/fdistatistics).

88 World Investment Report 2004: The Shift Towards Services

Negotiations for these EPAs are taking placeunder the overall umbrella of the CotonouAgreement. Japan has developed an FTA strategyaimed at strengthening alliances in areas notcovered by the WTO; achieving liberalizationover and above levels attainable in the WTO;facilitating the development and expansion ofmarkets on a bilateral or regional level; andincreasing Japan’s bargaining power in WTOnegotiations.47

3. Services dominate

Services dominated the changing patternof FDI in developed countries as a group,accounting for more than two-thirds of bothinflows and outflows in the 2000-2002 period.FDI in the primary sector was still of importance(albeit declining) in countries such as Australia(18% in 2001), the Netherlands (19% in 2001)and Norway (28% in 2001). Manufacturing stillaccounted for a large share of total FDI stockin some countries, notably Canada (52% in 2002),Iceland (54% in 2002), Italy (40% in 2001) andSweden (68% in 2001), with chemicals,automobiles and machinery being the largestindustries.

Developed countries are the prime sourceas well as destination of FDI in services. Between1996 and 2002, inward and outward stocks inservices rose in 10 and 13 developed countries,

At the seventh FTAA Ministerial Meetingheld in Miami on 20 November 2003,participating countries agreed that the FTAA willinclude measures in each negotiating discipline,and horizontal measures, as appropriate, that takeinto account the differences in the levels ofdevelopment and the size of the economies, andthat are capable of implementation. Specialattention will be given to the needs, economicconditions (including transition costs and possibleinternal dislocations) and opportunities of smallereconomies, to ensure their full participation inthe FTAA process.

Ministers instructed the Trade NegotiationsCommittee to develop a common and balancedset of rights and obligations applicable to all

Box II.23. Free Trade Area of the Americasa

countries. They agreed that the negotiations onthe common set of rights and obligations willinclude, among other things, provisions onservices and investment. The results of thenegotiations must be WTO compliant.

During the first week of February 2004, theTrade Negotiations Committee met in Puebla,Mexico, to develop guidelines for the FTAAnegotiating groups for developing a common andbalanced set of rights and obligations to beapplicable to all countries and to developprocedures for plurilateral negotiations amongFTAA countries that wish to undertake additionalliberalization and disciplines within the FTAA.The co-chairs have agreed that further progressis necessary before resumption of the nextmeeting of the Trade Negotiations Committee.

Source: UNCTAD.

a The third draft of the Agreement and additional information is available at http://www.ftaa-alca.org.

respectively.48 In absolute and relative terms,the United States accounted for the highestoutward and inward FDI stocks in services(amounting to $1,050 billion and $826 billion,respectively, at the end of 2002, or 69% and 61%of the totals, respectively – annex tables A.I.20-A.I.23), led by finance, trade, business activitiesand transportation, storage and telecoms. Othercountries with a large share of services in theirinward stock are Denmark, Switzerland,Luxembourg and France (above 80%, annex tableA.I.22); countries with the largest outward sharein services are Denmark, France, Austria and theUnited States (ranging from 69% to 78%, annextable A.I.23).

While finance has remained the topservice industry, its share in total FDI stock hasdeclined. Trade has also declined in relativeimportance. In contrast, FDI stock in businessservices and the transport, storage and telecomindustries has expanded. Further liberalizationand ongoing privatization programmes in theservices sector have shaped this pattern. Cross-border M&As are important market entry vehiclesfor FDI in services in developed countries, withmore deals concluded in infrastructural industriesthan in business activities, partly reflectingprivatization.

Finance has consistently been the mainindustry for M&A sales and purchases, apart from2000, when telecoms held sway. Between 1996

89CHAPTER II

and 2002, the share of finance in inward FDIstock decreased from 21% to 19% and in outwardstock from 27% to 23%, affected largely by thedecline in M&As. In 2003, however, cross-border M&A purchases and sales in finance grewstrongly, by 38% and 18%, respectively, duelargely to the resurgence of global stock marketsand strong growth in the United States economy.There has been a relative decline in the share offinance in inward FDI stock for some countries,notably the United States, the United Kingdom,the Netherlands and France. By contrast, FDIstock in finance rose in several countries due tosignificant increases in inflows in that industryin 2002, accounting for 46% of total FDI flows.This is due to the success of the InternationalFinancial Services Centre in Dublin, set up in1987 as a financial services cluster. Locationaladvantages (appropriate regulatory environmentplus incentives) were the catalyst, andagglomeration economies have taken root. InSwitzerland and Germany, the finance industryattracted more than 70% and 40% of FDI inflowsin 2002, respectively. The largest finance industrydeal in 2003 was HSBC Holdings PLC (UnitedKingdom) acquiring Household International Inc.of the United States (annex table A.I.1). In May2004, the Royal Bank of Scotland Group, plc.acquired a United States bank, Charter One, for$10.5 billion.

Business activities increased their sharesof total inward and outward FDI stocks indeveloped countries to 14% and 22%,respectively (annex tables A.I.18 and A.I.19).Many developed countries have experienced largeincreases in their FDI market share in thisindustry in recent years, notably Denmark, Franceand Germany, with over half of their inflowsgoing to such activities in 2002. Denmark,Austria and the United States accounted for themajor shares of outward investment flows inthese activities, all above 40% in 2002. The shareof this industry in total purchases and sales ofcross-border M&As declined in 2003, to 3% and8%, respectively. In contrast to the increasingshare of FDI flows and stock in general, cross-border M&As are used as a mode of investmentin capital-intensive service industries to a greaterdegree than in business activities. Thus theirvalue is usually smaller. One of the largest M&Asin this industry in 2003 was the acquisition ofa German company, Viterra Energy Services, bya United Kingdom investor group for $996million.

Inward and outward FDI stocks in thetransport, storage and telecom industries grewstrongly, and their shares rose to each 7% by2002 (annex tables A.I.18 and A.I.19). Cross-border M&As were the driving force, particularlyin capital-intensive telecoms as illustrated by thelarge deal that took place in 2000 when Vodafoneacquired Mannesmann AG for $203 billion. In2003, the share of transportation, storage andtelecoms in cross-border M&A purchases wasdown to 7%, having peaked in 2001 with a 19%share, primarily due to the telecom boom: thetelecoms share in cross-border M&As did notexceed 4%, compared to 18% in 2001.

Trade almost retained its share of inwardand outward FDI stocks (11% and 7%respectively in 2002) (annex table A.I.18 andA.I.19). However, it continues to account for asizeable share of inward FDI stock in somedeveloped countries such as Iceland (17%),Austria (16%) and the United States (16%). M&Apurchases and sales in trade fell in 2003. Theretail industry has been characterized by a spurtof M&A activity by the main players. Some majordeals in 2003 include the Canadian companyAlimentation Couche-Tard Inc. acquiring theUnited States company Circle K Corp. ($812million), and the United Kingdom companyTesco’s acquisitions of C Two-Network Co. Ltd.of Japan ($264 million) and Kipa Kitle PazarlamaTicaret of Turkey ($118 million).

TNCs are finding niche areas for FDI inservices. For example, the Netherlands hasbecome an important logistics centre in Europefor companies such as Coca-Cola, Fed-Ex, TexasInstruments. Switzerland (Dupont, Philip Morris,Hewlett-Packard) and the Netherlands (Nike,Unisys, Starbucks) took the lead in attractingregional headquarters. Sweden has become theleading European country for winter car-testingfor a number of automobile firms, while the filmindustry in London (Nachum and Keeble 2000)has also proven an attractive niche area forservices FDI.

4. Prospects: FDI will pick upagain, but not everywhere

The outlook for FDI in 2004 is positivefor both inward and outward FDI. But much willdepend on the pace of the global economicrecovery. FDI is expected to rebound in mostdeveloped countries as economic growth gainsmomentum. Prospects will be influenced by

90 World Investment Report 2004: The Shift Towards Services

developments in cross-border M&As,developments in the euro-dollar exchange rate,as well as the results of economic reformprogrammes under way in major economies.

Economic variables are favourable. RealGDP in 2004 (3.5%) is expected to be higher thanin 2003 (2.1%), and its growth is predicted tobe broad-based, including countries (France,Germany, the Netherlands, Switzerland) thatexperienced low or negative economic growthrates in 2003 (IMF 2004). The United States willlead economic growth. If the United States dollarshould decline further, its impact on FDI flowsis not certain. The profitability of firms in majorcountries continues to improve.49 The UnitedStates’ Fortune 500 firms experienced a dramaticturnaround (figure II.34). Stock markets, too,improved. Worldwide M&As, including cross-border ones, are picking up.

UNCTAD’s survey of the top TNCs andinternational location experts yielded a mixedresponse as to FDI prospects in 2004-2005:almost 80% of experts but only 30% of TNCspredicted an increase (figure II.35). Greateroptimism was expressed for North America andJapan than for Western Europe by TNCs. One-fifth of the TNCs surveyed predicted adeterioration in FDI in Western Europe(UNCTAD 2004c). Both TNCs and expertsranked the United States, followed by the UnitedKingdom and Canada, as the top FDI destinationsamong developed countries (UNCTAD 2004a,2004c). Electrical and electronic products, motorvehicles, chemicals and machinery were viewed

by experts as the most attractive industries inmanufacturing. In services, transport and businessservices were seen to be the most attractive,followed by tourism, retail and wholesale tradeand computer/ICT services.

Location experts consider that the bulkof relocations will involve lower value-addedcorporate functions. Processing activities,followed by logistics and support functions, arethe most frequently mentioned corporatefunctions likely to relocate abroad, in particularto developing countries. More respondentsexpected higher value-added functions such asR&D to relocate to developed countries than todeveloping countries (UNCTAD 2004a).

UNCTAD’s IPA survey suggests thatthese institutions will make greater use ofinvestor targeting – identified as the single mostimportant measure to attract FDI in 2004. Furtherliberalization did not rank high. Some 10% ofthe responding IPAs – the highest share of allregions – did not envisage the introduction ofany new measures (figure II.36). They view theUnited States, followed by Germany and theUnited Kingdom as being the top investors(UNCTAD 2004b).

Despite the overall positive prospects foreconomic growth in the region, FDI flows arelikely to grow at a slow pace, unevenly acrosscountries. Lower growth prospects for the Eurozone, compared with the United States and theUnited Kingdom, are l ikely to dampen FDIprospects there. For Japan, however, inflows arepoised to increase, even if cross-border M&Ascontinue to remain at a low level.

Figure II.35. Developed countries: prospectsfor FDI inflows, 2004-2005, as reported by

TNCs and location experts(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

Figure II.34. Profits of the United States’Fortune 500 firms, 2000-2003

(Values in billions of dollars andgrowth rates in per cent)

Source: Fortune, 5 April 2004, p. 97.

91CHAPTER II

1 Algeria, Angola, Benin, Botswana, Congo, Egypt,Ethiopia, Ghana, Mali, Morocco, Mozambique,Rwanda, Sierra Leone, South Africa, the Sudan,Tunisia, Uganda and the United Republic of Tanzania.

2 Niger and Zambia.3 Burkina Faso, Cameroon, the Democratic Republic of

the Congo, Côte d’Ivoire, Gabon, Gambia, Guinea,Kenya, the Libyan Arab Jamahiriya, Madagascar,Malawi, Namibia, Nigeria, Senegal, Togo andZimbabwe.

4 AGOA encouraged the upgrading of automotive plants,with increased production and investment of over $20million in South Africa. In Swaziland, investors fromChina and Taiwan Province of China invested over $30million in denim fabric mills and other facilities. Anew coffee-processing plant was built in Uganda toserve the United States market. A garments factory inBeira, Mozambique, attracted some FDI. In Mauritius,Chinese and Indian firms invested over $100 millionin new spinning mills. The biggest winner was Lesotho,which became the largest African apparel exporter tothe United States. Lesotho estimates that this hascreated 10,000 new jobs in the past year (source:www.agoa.info). Its exports to the United States grewfrom $129.5 million in 2001 to $267.7 million by theend of September 2003 (USITC, news.bbc.co.uk).

5 Source: http://allafrica.com/stories/200404010162.html.6 Source: www.gov.bw/cgi-bin.7 This is the first multilateral export credit and political

risk agency in which its member countries directlyassume financial liability for political risk-relatedforeign investment losses that could affect trade withintheir own countries.

8 Kitco Bullion Dealers (www.kitco.com).9 Includes China, Hong Kong (China), Democratic

People’s Republic of Korea, the Republic of Korea,Macao (China), Mongolia and Taiwan Province ofChina.

10 FDI flows to China slowed down at the initial outbreakof SARS, but surged towards the end of the year,

resulting in marginally higher flows than in the previousyear.

11 Luxembourg received $88 billion of FDI flows in 2003,most of which was transshipped to other destinations.

12 UNCTAD, cross-border M&A database (www.unctad.org/fdistatistics).

13 Brunei Darussalam, Cambodia, Indonesia, the LaoPeople’s Democratic Republic, Malaysia, Myanmar,the Philippines, Singapore, Thailand and Viet Nam.

14 The initial outbreak of SARS deterred FDI to somecountries. But in the second part of the year, flowsrecovered, averting an overall decline.

15 An increase in investment in the oil industry andconstruction services contributed to the rise in FDIflows to Brunei Darussalam.

16 Comprises Afghanistan, Bangladesh, Bhutan, India,Maldives, Nepal, Pakistan and Sri Lanka.

17 Privatization proceeds of FDI increased from $5 millionin 2002 to $30 million in 2003.

18 Comprises Armenia, Azerbaijan, Georgia, Kazakhstan,Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

19 Comprises Bahrain, Cyprus, the Islamic Republic ofIran, Iraq, Jordan, Kuwait, Lebanon, Oman, theoccupied Palestinian territory, Qatar, Saudi Arabia, theSyrian Arab Republic, Turkey, the United ArabEmirates and Yemen.

20 Mainly China, Hong Kong (China), the Republic ofKorea and Taiwan Province of China.

21 Such cooperation includes statistical harmonization.For instance, the ASEAN Working Group on ForeignDirect Investment Statistics was established toharmonize and improve the quality of data on FDI inthe region so that progress in the ASEAN InvestmentArea arrangement can be effectively monitored andregional FDI measured.

22 Based on 12 economies (ASEAN countries (notincluding Cambodia), China, Hong Kong (China) andthe Republic of Korea) for which data are available.These economies accounted for about 85% of the totalFDI flows to Asia and the Pacific in 2002-2003.

Figure II.36. Developed countries: expected policy measures to attract FDI,2004-2005, as reported by IPAs

(Per cent of respondents)

Source: UNCTAD, www.unctad.org/fdiprospects.

Notes

92 World Investment Report 2004: The Shift Towards Services

23 Comprises Hong Kong (China), the Republic of Korea,Singapore and Taiwan Province of China.

24 The services sector accounted for more than 60% ofthe GDP of the newly industrializing economies during2000-2002, as compared to 39% for the otherdeveloping Asian countries.

25 Hong Kong (China), the Republic of Korea, Malaysia,Singapore (box IV.3) and Thailand have introducedpolicies for attracting regional headquarters andregional business hub activities.

26 “Asian companies raise a record amount of funds”,Financial Times, 22 March 2004.

27 For example, profits of the top 1,000 companies in Asiafor 2002/03 increased by 128% over the previous fiscalyear (data obtained from the Asian Week). Profitabilitycontinues to improve in 2004: for 550 companies listedon the stock exchanges in the Republic of Korea duringthe first quarter of 2004 profits were twice as high asthose in the corresponding period of 2003 (Nihon KeizaiShimbun, 19 May 2004). Improved profitability is alsoreflected in foreign affiliates operating in the regionowned by 551 Japanese TNCs: profits rose by morethan 40% in the two consecutive fiscal years 2002-2003 (Nihon Keizai Shimbun, 25 June 2004).

28 See “Surging demand revitalises electronics”, FinancialTimes, 28 April 2004; “Strong sales of digital gear buoyJapanese electronic makers”, The Wall Street JournalEurope, 28 April 2004.

29 See Thornton 2004; “America’s largest corporations”,Fortune 500, Vol. 149, No. 6, 5 April 2004; “Europe500”, The Wall Street Journal Europe, 24 June 2004.

30 “Citigroup lands $2.7 bn Koram deal”, Financial Times,24 February 2004.

31 “FDI push to continue, focus on core sector”, TheEconomic Times , 29 May 2004 (http://economictimes.indiatimes.com/articleshow/706854.cms);“Economy can grow by over 8%: FM”, OutlookIndia.com, 28 May 2004 (http://www.outlookindia.com/pti_news.asp?id=224767).

32 For instance, Vanuatu is promoting specific investmentopportunities in tourism, agriculture and fisheries. Italso plans to put in place an investment marketingstrategy and product profiling for specific investmentopportunities.

33 “Global semiconductor sales up 18.3% in 2003”. Pressrelease, Semiconductor Industry Association, February2004 (http://www.sia-online.org/pre_release.cfm?ID=299).

34 “Thais become new budget jetsetters”, CNN.com, 12February 2004 (http://www.cnn.com/2004/TRAVEL/02/12/biz.trav.thai.nofrills.rent/); “Low-cost airlinescatalyst for change”, Business Times, 7 June 2004(http:/ /www.business-t imes.asia1.com.sg/story/0,4567,118936,00.html); “Singapore’s no-frill TigerAirways hits turbulence over name”, Channel NewsAsia, 2 March 2004 (http://www.channelnewsasia.com/stories/corporatenews/view/73504/1/.html).

35 Other recent corporate surveys, too, indicate thatcompanies are optimistic about increasing theirinvestment in the region in the near future (Marugamiet al. 2003; AT Kearney 2004).

36 Figures from ECLAC (2004) differ due to differentcountry coverage; specifically, ECLAC data excludefinancial centres such as Bermuda and the CaymanIslands.

37 For comprehensive data on FDI and activities of TNCsin individual LAC countries, see UNCTAD 2004g andwww.unctad.org/fdistatistics.

38 Quoted from ECLAC in The Economist, 26 April 2003,p. 43.

39 Nunnenkamp (2003), comparing structural factors for20 LAC countries and 8 Asian countries, found thatLatin America lags significantly behind Asia incompetitiveness. See also UNCTAD 2003e.

40 Owing to the acquisition of YPF by Repsol (Spain),1999 was an exceptional year, and although there wasa significant drop in 2000, the level of FDI was stillhigher than in 1998.

41 Source: OCO Consulting’s LOCOMonitor database ofgreenfield FDI projects.

42 Zarubezhneft, a company not on the list of the top 15,started a $1.3 billion oil refinery project in Viet Nam.

43 The figure for the eight new CEE members is calculatedon the basis of commitment appropriations under theStructural Funds for acceding countries, contained inthe Third Report on Economic and Social Cohesion(European Commission 2004, p. 186).

44 The EU Structural Funds are not specifically directedto FDI, but may have an indirect effect. However, asimulation study showed that increasing and redirectingthe Structural Funds would have only a small effect– 1% of total FDI (Breuss et al. 2001).

45 Concerns have been expressed in the press by variousEU countries about relocation to new members. See,for example, Gunhild Lütge, “Ungarn lockt”, Die Zeit(Hamburg), 22 April 2004 (http://www.zeit.de/2004/18/Siemens); “Im Sog des Ostens”, Tagesspiegel(Berlin), 21 March 2004 (http://archiv.tagesspiegel.de/archiv/21.03.2004/1031764.asp); “Esso verlegt 200Jobs nach Prag”, Hamburger Abendblatt (Hamburg),10 March 2004 (http://www.abendblatt.de/daten/2004/03/09/271295.html); “BASF kehrt im Herbst Wien denRücken”, Der Standard (Vienna), 1 April 2004 (http://derstandard.at/?id=1614047); “Avec l’élargissement,les délocalisations vers l’Est se multiplient”, Le Monde(Paris), 28 March 2004 ; “Electrolux ferme une usineen Suède et relance le débat sur les délocalisations”,Le Monde, 18 May 2004 (http://www.lemonde.fr/); and“Will bigger be better?”, Director (London), 56(10)(May 2003), p. 49.

46 About four-fifths of FDI flows are transshipped FDI,i.e. investment that is invested in other countries. Foran explanation, see WIR03.

47 “Japan’s FTA strategy”, Economic Affairs Bureau,Ministry of Foreign Affairs, Japan, October 2002, http:// w w w . m o f a . g o . j p / p o l i c y / e c o n o m y / f t a /strategy0210.html.

48 Countries that experienced a fall in the share of servicesin inward FDI stock were Australia, Canada, Italy,Luxembourg, Portugal, Sweden and Switzerland, whilecountries that experienced a fall in outward FDI stockswere Australia, Italy, Luxembourg and Portugal.

49 For 551 Japanese firms whose profits are reported byregion, domestic profits increased by 20% and foreignprofits by 22% in fiscal year 2003 (Nihon KeizaiShimbun, 25 June 2004). Not surprisingly, JapaneseFDI is expected to rise in 2004. Planned expendituresof FDI for 757 Japanese TNCs in 2004 are 12% higherthan in 2003 (Nihon Keizai Shimbun, 17 May 2004).In particular, investment expenditures in China areexpected to rise by more than 20%.

PART TWO

THE SHIFT OF FDI TOWARDSSERVICES

94 World Investment Report 2004: The Shift Towards Services

In a world with fewer investment andtrade restrictions, shrinking economic distanceand more mobile resources, only activities thatare competitive survive and grow. Thus,competitive production has become essential fordevelopment. In order to achieve and sustaingrowth, structural change, desired patterns ofincome distribution, education, health,environmental protection and, ultimately,development, countries need firms that areefficient and productive enough to compete inopen markets. Conversely, a competitive positioncan be maintained only if i t can rely ondevelopment that benefits the majority of thepopulation.

In ensuring a competitive productionsector, services play a vital role, for three mainreasons:

• Services are the largest productive sectorin most economies, and their competitive(that is, efficient) production is critical tothe welfare of a society as a whole. Thegrowth and efficiency of services promotecompetitiveness in the broad sense of theterm.

• Many services are crucial inputs intoproducts that compete in domestic andinternational markets. Cheap, reliable andmodern infrastructure, as well as financial,technical and other services areconsequently the backbone of a competitiveeconomy. With the rising importance of theinformation- and knowledge-based economy,the share of services in most activities isgrowing, which accentuates the need for theefficient provision of key services.

• Advances in information and communicationtechnologies (ICTs) facili tate trade inservices as they make it unnecessary forproviders and users to be close to oneanother. New technology is making it easierto digitize information and send it acrossthe world at negligible cost; and it allowsservices to be split into components, eachof which can be located in countries that canprovide them most efficiently and costeffectively. As a result, IT-enabled services

are now increasingly globalizing in the sameway as manufactures have been for severaldecades.

From the perspective of the role of FDIand TNC activities in development, these factorsimply new opportunities as well as risks.

On the positive side, TNCs in servicescan help improve the competitiveness of hosteconomies. As in other sectors, they can providecapital, technology and managerial knowledge,enhance skills and restructure inefficiententerprises. They can also introduce new serviceproducts that previously were not supplied bydomestic firms. There is potential for positivespillovers to the host economy, therebystimulating improvements in competing servicefirms as well as for customers and suppliers.Where TNCs enter by acquiring State-ownedutilities, they can improve the provision of basicservices such as telecommunications, power andtransportation, enhance the welfare of consumersand lower costs to industries using these servicesas inputs. Finally, service TNCs can open up newexport opportunities by providing access tomarkets and skills not otherwise available.

In a knowledge-based economy, TNCsmay have a larger impact in services than inmanufacturing or resource-based industries. Therole of services is closely linked to the knowledgecontent of the final product (goods or otherservices), and TNCs tend to have a competitiveadvantage in knowledge-intensive activities.Moreover, while in goods industries countrieshave a choice between imports and FDI as modesof international delivery, in many serviceindustries, they may have to rely on FDI to getaccess to state-of-the-art knowledge and products.

FDI in services also entails potentialcosts, similar to those in manufacturing. Forinstance, FDI may crowd out local enterprises.In services that are natural monopolies, there isthe risk of a possible abuse of monopoly power.In tourism, FDI inflows may have unwantedimpacts on local communities and on theenvironment. FDI in certain kinds of simpleexported services may relegate an economy tolow-level tasks from which it may find it difficult

INTRODUCTION

96 World Investment Report 2004: The Shift Towards Services

to upgrade. Reliance of foreign-service providerson expatriate personnel can hold back thedevelopment of local skills, while reliance onforeign subcontractors can undermine localservice providers. Since many services are moredeeply embedded in the social, cultural andpolitical fabric of host societies thanmanufacturing, potential costs can also be moresignificant. Therefore, national policies need notonly to facilitate the attraction of FDI in services,but also to minimize its possible negativeconsequences.

Notwithstanding the risks, countries areopening up to FDI in services. In response, FDIin this sector has expanded rapidly in recentyears. In fact, a shift of FDI towards services hasbeen under way for some time, but it has assumednew dimensions and patterns since the 1990s.However, its implications for development havenot been fully explored.

The shift of FDI towards services and itschanging mix manifest themselves in severalways:

• Services now account for the largest shareof the inward FDI stock in many countries,and foreign-affiliate service providers playan important role in a growing number ofservices. Most service FDI has beendomestic-market seeking, in such traditionalservices as finance, tourism and trading, orin industries that have only recently openedup to the private sector, such as electricity,water or telecommunications.

• The continuous process of liberalization andderegulation of key service industries hasled to large inflows of FDI – with significantregional differences – into industries thatwere previously dominated by the State orby domestic private sector firms.

• A growing number of the world’s largestTNCs are in service industries; even amongthe largest TNCs in manufacturing, servicesaccount for a rising proportion of valueadded.

• The ICT revolution has opened up export-oriented FDI in tradable services, eventhough the amounts involved are sti l lrelatively small and the destinations limitedto a few countries. But as more servicefunctions become directly tradable,international production systems involvingservices are being established.

Part Two of WIR04 examines this shift.Chapter III takes stock of trends in FDI inservices and examines the economic impacts.Chapter IV is devoted to one of the mostinteresting recent trends in the globalization ofproduction with potential benefits for countriesat all levels of development – the offshoring ofcorporate service functions. It assesses the currentand future scope of the phenomenon, analysesthe corporate strategies driving the process,considers the role of FDI in it and exploresimplications for host and home economies. PartThree then turns to the policy dimensions at thenational and international levels.

CHAPTER III

THE GROWTH OF FDI IN SERVICESAND ITS IMPLICATIONS

Foreign direct investment is increasinglyshifting towards services. Service industries that,until recently, were largely national, arebecoming transnational. All countries are affectedby the rise of services FDI and the broad-basedgrowth of service TNCs. What does this meanfor the development prospects of host countries?FDI in services, as in manufacturing, has thepotential to enhance, directly and indirectly, theefficiency, productivity and supply capacity ofhost-country industries, thereby benefiting theeconomy as a whole. But it can also entail risksand costs against which the benefits need to beweighed carefully.

A. A. A. A. A. Changing paChanging paChanging paChanging paChanging patterns oftterns oftterns oftterns oftterns ofFDI in serFDI in serFDI in serFDI in serFDI in servicesvicesvicesvicesvices

How is the growth of services reshapingFDI patterns? First, the sectoral mix of FDI hasshifted towards services, and the industrycomposition of services FDI is also changing,reflecting, in particular, a surge in flows intoactivities previously closed to FDI. Second, thishas been accompanied by changes in the homeand host country composition of FDI.Nevertheless, service industries and TNCstypically are less transnational than theirmanufacturing counterparts. This suggests thatthere is potential for services FDI to expandfurther – not counting non-equity forms of TNCparticipation (which are particularly importantin this sector).

1. The growth of services FDI andits changing mix

The share of services (for definitions, seethe annex to this chapter) in the national productsof most countries has risen steadily during at leastthe past four decades, to reach 72% of GDP indeveloped, 52% in developing and 57% in theCEE countries in 2001 (UNCTAD 2003f).However, services accounted for a mere 20% ofworld exports in 2002 (IMF 2003).1 Only one-

tenth of world services output enters internationaltrade, compared to over half of the productionof goods (World Bank 2003a). This largelyreflects the non-tradable2 nature of manyservices: most services are non-storable andhence need to be produced when and where theyare consumed. Non-tradability is overcome insome cases by the temporary movement ofindividual consumers or providers. But in mostservices, the only way of serving foreign marketsis by setting up local operations through FDI orby using non-equity arrangements (such aslicensing). This may change as more servicesand service components become tradable viacomputer-communication links (the focus ofchapter IV) but, so far, these services accountfor only a small part of the services sector.

Services FDI has grown more rapidlythan FDI in other sectors.3 As a result, thecomposition of FDI has been shifting towardsthe services sector, initially in developedcountries, followed by developing countries andeconomies in transition. This shift is in line withthe growing importance of services in GDP onthe one hand and the limited tradability of manyservices on the other. What is surprising is thatthese factors have only relatively recently beenmirrored in FDI flows (box III.1) and that, evennow, FDI and foreign affiliates’ activities are lessimportant in service industries of home and hosteconomies than in goods industries – i.e. serviceindustries are less transnationalized than goodsindustries. One major reason is that many serviceindustries have until recently been relativelyclosed to foreign entry for various reasons(chapter V). Once the liberalization of FDIpolicies began around the mid-1980s andgathered momentum during the 1990s, servicesFDI surged.

The world’s inward stock of services FDIquadrupled between 1990 and 2002, from anestimated $950 billion to over $4 trillion (basedon 61 countries accounting for over four-fifthsof the world’s stock of FDI (annex table A.I.18),extrapolated to the world). Its share in the world’s

98 World Investment Report 2004: The Shift Towards Services

Box III.1. International delivery modes in goods and services

Source: UNCTAD.

Given the non-tradability of many servicesacross borders, one would expect services to bedelivered to foreign markets mainly via FDI, andgoods mainly via trade. Data for the United States(the world’s largest exporter and importer ofservices and the largest home and host countryfor services FDI), permit such a comparison. Itcontradicts this expectation: internationaltransactions in goods rely on FDI much morethan on trade, and much more so thaninternational transactions in services.

Since at least the mid-1980s, sales ofmajority-owned foreign affiliates of United StatesTNCs were far more important for theinternational delivery of goods than United Statesexports (by a factor of around 2.5). At the sametime, the ratio of affiliates’ sales to exports(whether by the movement of consumers orproducers or via cross-border delivery) inservices was close to one between the mid-1980sand the mid-1990s; while it started growingthereafter, it still lagged behind that for goods(1.7 vs. 2.5) at the end of the 1990s. The patternfor inward services transactions is similar:

imports and sales of foreign affiliates were largelysimilar in importance as modes of delivery in the1980s and early 1990s, with the ratio increasingin favour of sales by affiliates only in the secondhalf of the 1990s (Zimny and Mallampally 2002,p. 98).

More recently, in 2001, the ratio of foreignaffiliates’ sales to exports in services was still 1.8for the United States, but exceeded 2 for Canada,Germany and Finland (annex table A.III.3); onthe inward side, the ratio of foreign affiliates’ saleswas 2.5 for the United States (2001), and between1 and 2 for most other countries for which dataare available. According to United States data,the increase in the ratio of foreign affiliates’ salesto imports and exports of services occurred notonly for services in general but also for servicesthat include many products that can be deliveredvia trade as well as FDI, including business,professional, telecommunications and financialservices: the ratios increased from 1.6 in 1986 to2.4 for outward transactions, and from 2 to 3.2for inward transactions, following the patterntypical for tradable goods.

total inward FDI stock rose to some 60% in 2002(figure I.18), compared to less than half in 1990and only one-quarter in the early 1970s (UNCTC1989a, p. 8). On average, services accounted forabout two-thirds of total FDI inflows (and 70%of outflows) over 2001-2002 (annex figure A.I.1)– an estimated $500 billion ($450 for outflows)per year (using the same methodology as for theestimation of stocks – annex table A.III.1, A.III.2).

Among individual economies, the share ofservices in total FDI varies considerably. Forexample, in the early 2000s, it ranged from 30%or less of the inward FDI stock in Bangladesh,Sweden and Venezuela to over 80% in Denmark,Luxembourg, Switzerland, Hong Kong (China) andLatvia; and from less than 40% of outward stockin Australia, Croatia and Sweden, to more than70% in Austria, Colombia, Denmark and a numberof other developed and CEE countries (annextables A.I.22-A.I.23).

However, these figures present animperfect picture of TNC activity in services. Insome respects the role of services is inflated,because of FDI in holding companies (see below)and tax havens. In other respects i t may be

understated, due to non-equity forms ofinvestment. In addition, problems of inadequatedata collection and reporting, and the lack of auniform classification of service industries amongcountries, are particularly acute.

The growth of services FDI stock has gonehand-in-hand with changes in the industry mix ofsuch FDI. Until 1990, services FDI wasconcentrated in trade and finance, accounting for25% and 40%, respectively, of total inward FDIstock in services (table III.1). These activitiesare still important, with trade accounting for 18%and finance for 29% in 2002. They are critical forthe international expansion of industrial firms and,more generally, for economic development.

Since the 1990s, however, other serviceshave seen more dynamic FDI growth. Notableamong them are electricity, telecommunications,water supply and business services – the last ofthese a diverse group, ranging from real estate toprofessional services to IT-enabled corporateservices. For example, between 1990 and 2002,the dollar value of total inward FDI stock inelectric power generation and distribution jumpedby 14 times, to 3% of the world services inward

99CHAPTER III

Table III.1. Distribution of FDI stock in services, by industry, 1990, 2002(Per cent)

1990 2002

Central andDeveloped Developing Developed Developing Eastern

Sector/industry countries economies World countries economies Europe World

A. Inward FDI stockTotal services 100 100 100 100 100 100 100

Electricity, gas and water 1 2 1 3 4 6 3Construction 2 3 2 1 3 5 2Trade 27 15 25 20 14 21 18Hotels and restaurants 3 2 3 2 2 2 2Transport, storage and communications 2 8 3 11 10 24 11Finance 37 57 40 31 22 29 29Business activities 15 5 13 23 40 10 26Public administration and defence - - - - - - -Education - - - - - - -Health and social services - - - - - - -Community, social and personal service activities 2 - 2 2 1 1 2Other services 10 8 9 2 4 2 2Unspecified tertiary 2 1 2 6 2 - 5

B. Outward FDI stockTotal services 100 100 100 100 100 100 100

Electricity, gas and water 1 - 1 2 - 2 2Construction 2 2 2 1 2 2 1Trade 17 16 17 10 12 17 10Hotels and restaurants 1 - 1 2 2 - 2Transport, storage and communications 5 4 5 11 7 19 11Finance 48 62 48 35 22 39 34Business activities 6 11 7 34 54 19 36Public administration and defence - - - - - - -Education - - - - - - -Health and social services - - - - - - -Community, social and personal service activities - - - - - - -Other services 13 5 13 2 2 2 2Unspecified tertiary 6 - 6 3 - - 3

Source: UNCTAD, based on annex tables A.I.18 and A.I.19.

FDI stock; that in telecommunications, storageand transport rose by nearly 16 times, to 11%;and that in business services by 9 times, to reach26% of the stock4 (annex table A.I.18). Rapidexpansion also occurred in health services andeducation; from a low level, their stocks rose by12 times and by 4 times, respectively (annex tableA.I.18). Rapid growth in demand for theseservices and privatization and liberalization inmany countries facilitated this surge.

2. Changing distribution amonghome and host countries

The shift towards services FDI has gonehand-in-hand with a changing distribution amonghome and host countries. Outward FDI hasbecome more evenly spread among developedcountries (by far, still the main source of suchinvestment), and some developing countries have

emerged as significant home countries, especiallysince 1990. On the inward side, developingcountries as a group have seen their shareincrease noticeably.

a. Outward FDI

Some three decades ago, TNCs fromdeveloped countries held almost the entireoutward stock of services FDI. The United States– already then one of the most service-orientedeconomies – alone accounted for two-thirds ofthe stock of the nine principal home countries.Since then, many other countries have emergedas outward investors, including some from thedeveloping world (table III.2, annex tableA.III.2). By the beginning of the 1990s, theUnited States’ share had fallen to around one-quarter in terms of stock – a share it still heldin 2002 (annex tables A.I.19 and A.1.21).

100 World Investment Report 2004: The Shift Towards Services

Table III.2. Distribution of FDI stock in services, by group of economies, 1990, 2002(Per cent)

1990 2002

Central andDeveloped Developing Developed Developing Eastern

Sector/industry countries economies World countries economies Europe World

Inward FDI stockTotal services 83 17 100 72 25 3 100

Electricity, gas and water 70 30 100 63 32 6 100Construction 77 23 100 47 45 8 100Trade 90 10 100 78 19 4 100Hotels and restaurants 87 13 100 70 26 3 100Transport, storage and communications 58 43 100 71 22 7 100Finance 76 24 100 77 20 3 100Business activities 93 7 100 61 38 1 100Public administration and defence .. .. .. 99 1 - 100Education 100 .. 100 92 4 4 100Health and social services 100 .. 100 67 32 1 100Community, social and personal service activities 100 .. 100 91 8 2 100Other services 85 15 100 61 36 3 100

Outward FDI stockTotal services 99 1 100 90 10 - 100

Electricity, gas and water 100 .. 100 100 0 - 100Construction 99 1 100 80 20 - 100Trade 99 1 100 88 12 - 100Hotels and restaurants 100 - 100 90 10 - 100Transport, storage and communications 99 1 100 93 7 - 100Finance 98 2 100 93 7 - 100Business activities 98 2 100 84 16 - 100Public administration and defence - - - 100 .. .. 100Education 100 .. 100 100 .. .. 100Health and social services 100 .. 100 100 - - 100Community, social and personal service activities 100 .. 100 99 1 - 100Other services 100 1 100 90 10 - 100

Source: UNCTAD, based on annex tables A.I.18 and A.I.19.

European Union TNCs traditionally havehad a substantial FDI presence in banking,insurance, trading and air transport. The SingleMarket programme, announced in the second halfof the 1980s and implemented in the early 1990s,provided impetus for the expansion of FDI inthese and other services, notably in transport andtelecommunications. The programme triggeredan EU-wide restructuring of service industries,accelerating intra-EU services FDI (as well asinbound FDI, notably from the United States andJapan) (UNDESD 1993). In the second half ofthe 1990s, EU service TNCs, having acquiredexperience in cross-border M&As within Europe,expanded into the United States in pursuit of themore ambitious goal of establishing a globalpresence. The resulting FDI boom in services(largely through M&As – section B.2 below) wasinstrumental in strengthening the EU’s role asa leading home region: its share in the world’soutward FDI stock rose from 39% in 1980 to 49%in 2003.

Japan’s emergence as one of the largesthome countries in the 1980s and the 1990s wasdriven by services FDI. Major TNCs involvedwere the sogo shosha (general tradingcompanies), banks, securities companies and, toa lesser extent, insurance firms. FDI in realestate,5 transport and business services alsoexpanded rapidly. Japan remains a major sourceof services FDI, although the stagnation of theJapanese economy during the 1990s slowed downits outward expansion.

Developing countries’ outward FDI inservices took off during the 1990s. Their sharein the global outward FDI stock in services rosefrom 1% in 1990 to 10% in 2002 (table III.2).6

FDI in trading services expanded rapidly in thisperiod, both in absolute value (annex tableA.I.18) and as a percentage (12%) of the globalFDI stock in these services (table III.2). Thissuggests that a good part of services FDIexpansion by manufacturing firms was of a trade

101CHAPTER III

supporting nature. But TNC activity in otherservices also contributed to this expansion: FDIincreased particularly in business activities,hotels and restaurants, financial services, andtransport, storage and communications, both inabsolute values and in relative terms (annex tableA.I.18 and table III. 2). For instance, the shareof developing countries in the global FDI stockin each of these services was at best 2% in 1990.By 2002, it had risen to 7% for transport, storageand communication as well as for financialservices; to 10% for hotels and restaurants, andeven to 16% for business activities. In the lastcase, this was partly due to the inclusion ofmanagement holdings in business services by anumber of countries.

Overall, the largest outward stocks inservices were held (in 2001) by TNCs from theUnited States, followed by the United Kingdom,Germany, France and Hong Kong (China).

b. Inward FDI

On the inward side, the geographicdistribution of services FDI has always been morebalanced. The United States has long been thelargest recipient but its share in the global inwardFDI stock in services has never exceeded 30%.The expansion of inward services FDI has takenplace mainly in Western Europe and the UnitedStates. Japan is an insignificant host for such FDI(as it is for FDI in general), although recentlyflows to that sector have increased (annex tableA.I.20). During the second half of the 1980s,developing countries joined in and, since theearly 1990s, the economies of CEE. In 2002,developed countries accounted for over two-thirds of the inward FDI stock in services (tableIII.2). This share was 25% for developingeconomies and 3% for CEE – comparable to theirshares in world FDI stock.

Developing countries as a group haveattracted sizeable FDI in some services,sometimes as much as developed countries. Inconstruction, for example, developing countries’share doubled, from 23% in 1990 to 45% in 2002(table III.2). Other examples are trade, hotels,restaurants and business activities. (In the lastcase, the inclusion of management holdingcompanies is again a factor influencing themagnitude.) Conversely, the share of developingcountries halved in transport, storage andcommunications, despite a noticeable rise in TNC

participation in their telecom industries. This ispartly because of significant FDI in this industryamong developed countries and CEE.

Overall, the largest inward FDI stocks inservices were (in 2001) in the United States,followed by Hong Kong (China), the UnitedKingdom, China and France (annex table A.I.20).

3. Transnationalization is lower inthe services sector and differsby industry and country

At the sectoral level, on the outward FDIside, data for a number of home countries showthat shares of value added, employment and salesof foreign affiliates relative to total national valueadded, employment and sales are much higherin manufacturing than in services (table III.3).In other words, the services sector in homecountries is less transnationalized than themanufacturing sector.

On the inward side, too, the degree oftransnationalization of the services sector – thatis, the importance of TNC activity relative to totalhost-country activity – is less than that inmanufacturing. For example, in most countries,FDI inflows in 1992-2002 as a percentage ofsectoral GDP were lower in services than inmanufacturing, with some important exceptions(annex figure A.I.2). More significantly, foreignaffiliates accounted for much lower shares ofsales, value added and employment in theservices sector, than in manufacturing in anumber of host countries (figure III.1).

OECD data for 11 service categoriescovering between 5 and 18 member countries throwlight on differences in the transnationalization ofindividual service industries in host developedcountries. The pattern is quite consistent:transportation, telecommunications, real estateand hotels and restaurants (in that order) are, onaverage, the service industries in which inwardFDI plays the smallest role in developed countries(OECD 2001, pp. 42-47). Business services, andespecially computer and related services, are atthe other end of the spectrum, while financialand trading services fall in between. In 10 outof 16 OECD member countries, for instance, theshare of foreign affiliates in the total sales incomputer services was 20% to 35%. In two ofthem, it was 10% to 15% and in four countries,below 10%.

102 World Investment Report 2004: The Shift Towards Services

the United Kingdom (46%). In many other developed countries, the foreign bank pe

Table III.3. Shares of value added, employment and sales of foreign affiliates of home-based TNCsin home-economy totals, by sector of parent firm, selected countries and years

(Per cent)

Value added Employment Sales

Economy Manufacturing Services Year Manufacturing Services Year Manufacturing Services Year

Austria .. .. .. 28.7 11.8 2001 7.7 .. 1998Canadaa .. .. .. 18.1 3.3 1999 .. .. ..Finlanda .. .. .. 35.4 5.9 2002 42.5 .. 1998Francea .. .. .. .. .. .. 16.1 7.8 1998Germany .. .. .. 32.3 7.8 2001 .. .. ..Japanb .. .. .. 21.1 1.3 1999 9.6 7.8 1997Portugala 1.4 1.2 1999 0.6 2.6 2001 2.7 .. 1999Swedena .. .. .. 69.4 13.7 2000 68.3 4.4 1997United Statesc 21.2a 2.6a 2001 29.2 3.4 2001 .. .. ..

Czech Republic 1.1 0.3 2000 0.4 0.2 2002 .. .. ..Macao, China .. .. .. 5.2 1.4 2001 .. .. ..

Source: UNCTAD, based on FDI/TNC database (TNC data on value added and employment), the United Nations Statistical Office(total value added), ILO 2001a (total employment) and OECD 2001a (sales, all entries).

a Data refer to majority-owned foreign affiliates only.b Data refer to foreign affiliates of non-financial TNCs only.c Data refer to foreign affiliates of non-bank TNCs only.

Figure III.1. Share of foreign affiliates in the total services andmanufacturing sales, value added and employment of selected

host economies, various years(Per cent)

Source: UNCTAD, based on FDI/TNC database (www.unctad.org/fdistatistics) and OECD2001a.

Note: 1997 for Japan, the Netherlands, Norway,Sweden; 1998 for the Czech Republic,Finland, France, Poland.

a. Sales

Judging from the shares of FDI flows asa percentage of GDP in selected industries in anumber of developing and CEE countries, thepattern of transnationalization of individualservice industries varies in these countries aswell. They are frequently high in finance,electricity and, to a lesser extent, transport,storage and communications, whereas they tendto be low in construction andhotels and restaurants (annexfigure A.III.1). This reflects,among other things, differencesin the level of countries’openness to FDI, privatizationprogrammes and the degree ofreliance on non-equity forms ofinvestment.

There are alsoconsiderable differences in therole of foreign affiliates in thesame service industry amongindividual countries. Inbanking, for instance, in manycountries in Africa, LatinAmerica and CEE, transnationalbanks (TNBs) dominate, or playa much greater role than indeveloped countries (annextable A.III.4). In 29 economies,TNBs account for more than70% of total banking assets

(table III.4) and in a few of these – Botswana,Guinea Bissau, Lesotho, Tonga – all banks areforeign-owned. In some smaller economies, theTNB penetration ratio can be very high, evenwithout large investments by TNBs, because ofthe small size of the host country’s bankingsystem. In general, this ratio is higher indeveloping and transition economies than in

Share of manufacturing foreign affiliatesin sales in the manufacturing sector

Shar

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f ser

vice

fore

ign

aff

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esin

sal

es in

the

serv

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sec

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5

10

15

20

25

0 5 10 15 20 25 30 35

NorwaySweden

Czech RepublicNetherlands

Poland

Finland

France

Japan

103CHAPTER III

penetration ratio

Source: UNCTAD, based on FDI/TNC database (www.unctad.org/fdistatistics) and OECD 2001a.

Note: 1995 for Malaysia; 1997 for the Netherlands and Sweden; 1998 for the Czech Republicand France; 1999 for Finland, Japan and Portugal; 2000 for Hungary and the UnitedStates.

b. Value added

Figure III.1. Share of foreign affiliates in the total services andmanufacturing sales, value added and employment of selected

host economies, various years (concluded)(Per cent)

Source: UNCTAD, based on FDI/TNC database (www.unctad.org/fdistatistics) and OECD2001a.

Note: 1997 for the Netherlands and Norway; 1998 for the Czech Republic and France;1999 for Japan; 2000 for Hungary, Luxembourg, Poland and the United States; 2001for Austria, Finland, Germany, Macao (China), Portugal and Sweden.

c. Employment

developed countries, with the exception of NewZealand (99%) and the United Kingdom (46%).In many other developed countries, the foreignbank penetration ratio is 11% or less (annex tableA.III.4).

Similar disparitiesexist in the case oft e l e c o m m u n i c a t i o n s ,electricity and water, inwhich, after the wave ofprivatizations during thepast decade or so, foreigncompanies are playing animportant, if not dominant,role in a number ofcountries in Latin Americaand CEE. Hotels in anumber of small countries,such as in some Caribbeancountries, are mostly ownedor operated by internationalhotel chains, while manyother countries have failedto attract these chains.There is also a growingpresence of internationalretail chains in largedeveloping countries suchas Brazil and Mexico. Inbusiness services, largeinternational businessconsultancy, advertising orlegal firms are present inmany developing countries,but they tend to catermainly to foreign investors,and the bulk of domesticenterprises are served bylocal service providers.

All told, however,the dominance of the globalFDI stock in services doesnot translate into acorresponding importanceof foreign service affiliatesin host countries. Onereason is that, while theservices FDI stock is large,so is the services sector inmost economies. Manyservices, such as education,media, health, governmentservices and transportation,are predominantly domestic

in nature, and therefore mainly provided bydomestic companies or public undertakings.However, partial privatization in some of these,such as education and health services, hasattracted FDI. In others, such astelecommunications, electricity, gas, water and

Share of manufacturing foreign affiliatesin sales in the manufacturing sector

Shar

e o

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vice

fore

ign

aff

iliat

esin

sal

es in

the

serv

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sec

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5

10

15

20

25

30

0 5 10 15 20 25 30

Czech Republic

Hungary(64.0, 16.2)

Malaysia(51.6, 14.4)

Sweden

NetherlandsFrance

Finland

Portugal

United StatesJapan

Share of manufacturing foreign affiliatesin sales in the manufacturing sector

Shar

e o

f ser

vice

fore

ign

aff

iliat

esin

sal

es in

the

serv

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5

10

15

20

25

30

35

0 5 10 15 20 25 30 35

Luxembourg(71.0, 19.4)

Macao (China)

Hungary(50.9, 11.9)

SwedenAustria

Czech Republic

FinlandFranceNorway

PortugalJapan

Germany

United StatesPoland

Netherlands

104 World Investment Report 2004: The Shift Towards Services

Table III.4. Host economies with a penetration ratioa of foreign bank affiliatesexceeding 70%, 2001

(Per cent)

Developing economies

Latin America andDeveloped countries CEE Africa Asia and the Pacific the Caribbean

New Zealand 99.1 Estonia 98.9 Botswana 100.0 Tonga 100.0 Belize 94.6Czech Republic 90.0 Guinea-Bissau 100.0 Fiji 98.9 Aruba 92.3Croatia 89.3 Lesotho 100.0 Vanuatu 94.1 Grenada 88.7Hungary 88.8 Gambia 95.8 Singaporeb 76.0 Mexico 82.7Slovakia 85.5 Benin 91.0 Bahrain 72.0Lithuania 78.2 Guinea 90.0 Hong Kong, Chinab 72.0Bulgaria 74.6 Côte d’Ivoire 84.2 Cambodiac 71.0Bosnia and Senegal 78.7Herzegovina 73.0 Niger 73.4

Source: UNCTAD, based on annex table A.III.4.a Ratio of assets of majority-owned foreign bank affiliates (including branches and representative offices) to total bank assets.b Data from Committee on the Global Financial System (CGFS) 2004, p. 9.c Data from the World Bank 1998 survey, www.worldbank.org/research/projects/bank_regulation.htm. Data relate to the late 1990s.

business services, FDI growth has beenimpressive, but is relatively recent. Anotherreason is that a good deal of services FDI –notably that in holdings and financial affiliates(section B.1) – involves activities with little valueadded, employment, sales or investmentexpenditure on fixed capital.

Thus, the picture has changed over time,as FDI in services has grown rapidly due tochanges in economic and policy-related factorsthat influence TNC activity in services. Therelative importance of FDI in services is not (yet)as high as in manufacturing, although the gapis narrowing. Moreover, there is a significantTNC presence in some individual services, butit involves non-equity arrangements of variouskinds, and not (much) FDI. Consequently, suchactivity is not captured in data on either FDI orthe economic activities of foreign affiliates. Tothat extent, the transnationalization of theservices sector is higher than what is reflectedin the data on FDI in services.

4. Non-equity forms of investmentare common in services

A striking difference between TNCactivities in services and goods is that non-equityforms of TNC participation are important in anumber of service industries. Such forms includefranchising, management contracts, concessions,partnerships, turnkey, build-operate-and-transfer(BOT) and build-transfer-and-operate (BTO)

projects. They are important, and sometimesdominant, in hotels, fast-food outlets, restaurants,car rentals, retailing, construction and variousprofessional services. For example, a survey of34 large international hotel chains in the 1990sshowed that fully- or partially-owned foreignaffiliates in 1990s accounted for only 36% oftheir overseas properties. The rest took the formof such non-equity arrangements as managementcontracts (37%) and franchising agreements(28%) (Contractor and Kundu 2000, p. 300). Infact, non-equity participation by TNCs appearsto be gathering further momentum (box III.2).

Partnerships rather than equity links areused in business consultancy (which grew outof accounting services), engineering and legalservices. Franchising is common in retail tradeand car rentals. Concessions, giving rise tomanagement contracts, are commonly used bysome countries in infrastructure services suchas electricity, transportation and water. Exceptfor capital inflows, these forms of participationcan have all the impacts characteristic of FDI.

The greater popularity of non-equityforms of TNC participation in service industriesthan in goods is due to a number of reasons. Thecompetitive advantages of service firms consistof knowledge-based, intangible assets (softtechnologies), rather than tangible ones (hardtechnologies) that are more important inmanufacturing firms. Intangible assets, such asorganizational and managerial expertise, can beseparated from tangible and capital-intensive ones

105CHAPTER III

(such as real estate in the case of hotels or waterdistribution networks). More importantly, becausethe critical knowledge transferred by TNCs andthe capabilities of local firms in a number ofservices are frequently codifiable (e.g. as in amanagement contract), they can be equally wellprotected and enhanced in non-equity-basedarrangements as in equity-based operations. Forexample, in the hotel industry, contracts can bedesigned to ensure that incentives are compatiblefor all sides to an agreement, to protect theinterests of both the investor owning the physicaland capital-intensive parts of the business (thehotel) and of those holding the knowledge,managerial expertise and reputation. Such non-equity participation arrangements offer hoteliersa way to expand rapidly their networks andmaintain brand dominance without having tocommit capital; at the same time they protect theasset owners by defining the conditions underwhich managers can exit from their contract.

In other service industries, host countries’policies are decisive in determining the mode ofentry and the forms of cross-border inter-firmcooperation. A case in point is air transportation,where, in spite of deregulation and liberalization,many FDI restrictions remain. As a result, theprincipal mode of TNC activity in the industrytakes the form of cross-border alliances(sometimes accompanied by minority equityholdings) rather than FDI (box III.3).7 In the caseof accounting, host-country regulations as wellas industry-specific practices have led to areliance on networks and partnership involvinglocal firms (box III.4). Partnerships are also acommon feature of TNC activity in legal services(box III.5). Thus, industry characteristics as wellas host-government policies influence the modeof TNC participation.

In the context of one particular policymeasure, privatization, FDI has been the typicalmeans of acquiring State-owned assets, especiallyof public utilities. But in some regions, notablyWest Asia and North Africa, about 60% ofelectricity investment has taken the form ofconcessions, including with foreign firms takingover the management of State-owned enterprisesfor a specified period.8 Concessions are alsocommon in water services.

Given the limited availability ofsystematic information on non-equityparticipation by TNCs in services, the full extentof such forms and the scope of TNC involvement

are difficult to ascertain. However, if receiptsof royalty fees – paid by host-country firms forthe use of the assets and expertise obtained undercontractual agreements of various types – areused as a proxy for non-equity based activity,they are growing fast. For example, royalty feesin the services sector received by German TNCsfrom abroad rose from $11 million in 1989 to$323 million in 2002. Japanese TNCs’ royaltyfees in services increased over 10-fold (to some$150 million) during the same period, and thoseof United States TNCs rose at a similar rate (tableIII.5).

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FDI in services mirrors, to some extent,the global expansion of service TNCs, in the sameway as FDI in goods production mirrors theglobal expansion of TNC goods producers. Buta substantial proportion of services FDI alsoincludes services production in host countriesby TNCs in manufacturing, for local sale orexport (in the same way as some goods FDI isundertaken by service TNCs).

However, the role of service TNCs isexpanding: large TNCs have emerged in a numberof service industries and from a number of homecountries. Their expansion into host countrieshas often occurred through M&As. Firm-specificadvantages and location advantages of countriesdrive this expansion. It is taking place in thecontext of growing markets for services, the rapidspread of information and communicationtechnologies and increased competition. Market-seeking motivations and strategies dominate TNCactivities in services, but integrated internationalproduction networks are also emerging asefficiency-seeking TNCs take advantage of thegrowing tradability of many service products.

1. Goods TNCs invest in services

A large – but declining – proportion ofoutward FDI in services is controlled by goodsrather than service TNCs: at least 41% in the caseof the United States in 1999 (a decline from 50%or more in the late 1980s (UNCTC 1989a)) and10% in Germany in 2000 (table III.6).Comparable data are not available for other

106 World Investment Report 2004: The Shift Towards Services

Box III.2. Transnational hotels: non-equity participation on the rise?

Source: UNCTAD, based on Contractor and Kundu 2000, World Travel and Tourism Council 2003; company annualreports.

a IHG divested itself in April 2003 from the United Kingdom brewing, pub and hotel group Six Continents(www.ihgplc.com/ accessed July 2004).

b Factors such as perceived risk do not appear to prompt non-equity modes, but there is evidence of a positive associationwith the level of GDP per capita (Contractor and Kundu 2000).

Box table III.2.1. Selected leading hotel chains: modes of operation, 2003

International Mode of participationrooms as (Per cent of total rooms)

per cent of Full or Management Franchised,Hotel group Home economy total rooms partial equity contract leased or other

Starwood Hotels & Resorts United States 34 24a 41 35Accor France 74 21 17 62Orient-Express Hotels Ltd.b Bermudac 100 92 .. ..Hilton Group plc United Kingdom 80 17d 32d 50d

Shangri-La Hotels and Resorts Hong Kong, China 97 90 10 -

Sources: UNCTAD based on annual company reports.a Includes leased rooms.b Figures based on reported revenues and earnings, not hotel rooms.c Management decisions are made in the United Kingdom.d Based on numbers of hotels, not rooms.

Hotels with foreign names remain one of themost visible symbols of FDI in global tourism,especially in developing countries. Butappearances can be misleading: there isincreasingly less reason to assume that, justbecause a well-known chain runs a hotel, it alsoowns it. As in many other service industries,franchising, leasing and management contractsare becoming more popular forms of TNCparticipation while equity purchase and ownershipare declining. The Intercontinental Hotels Group(IHG) (annex table A.III.5), for example (whichclaims to be the world’s most global hotelcompany and the largest, with 3,500 hotels and535,000 rooms), has slated for sale almost $1billion worth of its total $6 billion portfolio sinceApril 2003.a The move is part of a wider strategyto reduce its capital investment and increase thespread of its operations by management contractsand franchising.

Even TNCs that historically eschewed non-equity participation seem to be moving towardsit. Shangri-La Hotels and Resorts, for example,which was the second largest global hotel TNCin terms of foreign assets, currently owns 90%of its 20,000-plus hotel rooms, one of the highestproportions of equity ownership among the tophotel TNCs (box table III.2.1). However, itsannual reports indicate that the company’s plannedexpansion into China and other parts of Asia will

rely heavily on non-equity modes. Plans includemanagement contracts for another 6,145 rooms,plus ownership of another 5,646 rooms, takingthe total proportion of rooms owned down to 80%(and those managed, up to 20%) by 2007.

At the same time, hoteliers make every effortto ensure that quality and reputation are notcompromised. One reason deterring the choiceof non-equity participation seems to be the extentto which a hotelier’s service is customized, asopposed to standardized. For example, evenhoteliers with a general preference not to own the“hardware” will make an exception when thebuilding in question is famous or a landmark.Similarly, hoteliers tend to retain ownership oftheir luxury or highest quality ranges. Reflectingsuch factors are the high ownership ratios of AsianTNCs hotel chains such as Orient-Express Hotelsand Shangri-La. They are firms that target smallnumbers of high-end properties and clients.

In terms of country and regional patterns,different TNCs follow different strategies.b Forexample, IHG follows a predominantly franchisingmodel in the United States, an ownership modelin Europe, and a management model in Asia andthe Pacific. Accor, by comparison, relies moreon ownership modes of operation in the UnitedStates, and on franchising in Europe (includingFrance). In Latin America, its most common modeof entry is via management contract.

107CHAPTER III

countries, but the proportion of foreign affiliatesin services held by non-service parent firms wasat least 20% in Japan in 2001, and, in the late1980s, the stock of services FDI held by non-service parent firms was 20% in the UnitedKingdom (WIR 1993 , p.78). This reflects theglobalization of corporate service functions byTNCs in the manufacturing and the primarysectors rather than the global expansion of serviceTNCs. This is typical for trading and financialservices (other than banking and insurance),where the role of TNCs from non-serviceindustries is the greatest.

Goods TNCs often invest in trading,marketing or financial affiliates in support oftheir exports from their home bases or their localsales of goods produced in host countries (forexample, affiliates of automobile manufacturersprovide credit to buyers of cars; oil companiesoperate their own tankers and gas stations; andsales agencies of electrical goods companiesmarket their parent firms’ products).9 In somemanufacturing industries, such as pharmaceuticalsand electronics, TNCs locate R&D affiliateswherever a cost-competitive, well trainedworkforce and agglomeration economies areavailable. Moreover, some large manufacturingTNCs have gradually shifted much of theiractivity to services. Prominent examples includeIBM and GE which, judging from their range ofactivities, could now be classified as bothmanufacturing and service firms.10 Somemanufacturing TNCs have taken over servicecompanies unrelated to their major activity insearch of new areas of future growth. With theoffshoring of corporate service functions byTNCs in all sectors (chapter IV), FDI in servicesby TNCs in the manufacturing (and primary)sectors is likely to continue to grow. That maynot, however, have a significant impact on theflows and stocks of FDI, as most corporateservices are human-capital intensive rather thanphysical-capital intensive, and therefore do notrequire significant investment expenditure at theoutset.

A specific subset of services FDI resultsfrom the establishment of affiliates abroad thatperform finance- and management-relatedservices for goods-producing firms. As theseaffiliates often manage the financial assets ofTNCs, they generate large FDI stocks butdisproportionately small economic activity in hostcountries. A case in point is holding companies.

Countries often classify them under managementservices, financial intermediation or businessservices. Investment in holding companies andsome kinds of financial activities may distort thepicture of FDI flows and stocks in these servicesand in the countries involved. Luxembourg, forexample, attracts many holding companies thatreceive funds from parent firms to invest inaffiliates in other countries; because of suchtransshipped FDI, Luxembourg was the world’slargest home and host country in 2002 (WIR03,p. 69). Another example is Hong Kong (China),one of the world’s largest host economies forservices FDI (including in business services),owing to the large concentration of holdingcompanies (reported under business services).The location of holding companies is oftendetermined by tax considerations, although thesituation may be changing (box III.6). Financialaffiliates (including in the form of holdings) areoften established in tax havens, again inflatinginward and outward FDI figures, but with littleemployment or value added. For example, thesmall island of Bermuda had an inward FDI stockof $81 billion in 2003, almost equal to that ofDenmark or Japan, and much larger than that ofMalaysia (annex table B.3).

2. Service TNCs are expandingrapidly

a. The players

A United Nations study (UNCTC 1989a,p. 41) described TNCs in service industries asthey were some 20 years ago, as follows:

… although TNCs are found in all majorservice industries, the propensity toengage in foreign production is fairlyuneven. Typically, only a handful ofmostly large firms have world-widenetworks of affiliates and account formost of an industry’s transnationalactivities. Normally, many small- andmedium-sized domestic firms coexistwith transnational firms. In many serviceindustries the process of transnationa-lization is determined mainly by a limitednumber of large TNCs.

The study also found that almost all ofthe largest service TNCs were headquartered indeveloped countries (UNCTC 1989a, p. 45). The

108 World Investment Report 2004: The Shift Towards Services

Box III.3. Airlines: little FDI, many alliances

Source: UNCTAD, based on information provided by the International Civil Aviation Organization.

Box table III.3.2. Alliances among airlines, 2001a

(Number, per cent)

Agreements containing Per cent ofprovisions on Number total agreements

Code-sharing 911 75Frequent flyer programmes 114 9Cargo 106 9Marketing 78 6Joint venture on destination 55 4Pooling agreement 33 3Joint-ground handling 32 3Regional connection/franchise 31 3Others 165 14Total number of agreements 1 222 …

Source: WTO 2001, pp. 7-8.a As agreements between two airlines may cover several areas of

cooperation, and categories may overlap, the sum of percentageshares in the far right column exceeds 100.

Box table III.3.1. FDI by, and in, airlines, by region, 2004(Number, per cent)

Developing countries Developed countriesOther

West Latin Sub- Western North developed Sub-Item Africa Asiaa Asia America total Europe America countries total CEE World

Number of operating airlines 91 143 53 135 422 223 149 60 432 156 1 010Number of airlines owned by foreign investors/airlines 24 37 8 39 108 60 29 10 99 23 230Percentage of airlines owned by foreign investors/airlines 26 26 15 29 26 27 19 17 23 15 23Number of airlines owning stakes in foreign airlines 7 7 5 9 28 26 6 2 34 3 65Percentage of airlines owning

stakes in foreign airlines 8 5 9 7 7 12 4 3 8 2 6

Source: UNCTAD, based on information provided by the International Civil Aviation Organization.a Excluding West Asia.

FDI is of little importance in airlines,compared to other services and to non-equityarrangements such as alliances: fewer than 25%of the world’s 1,010 airlines are owned by foreigninvestors (including banks and other airlines)(box table III.3.1), compared with 17% threeyears ago. Many countries have statutory limitson foreign ownership levels in national carriers;and most international air services are governedby bilateral air service agreements betweencountries (often containing restrictions regardingnational ownership and control). The proportionof airlines owned by foreign investors is similarin both developed and developing countries. Atthe regional level, Latin America and WesternEurope had the highest proportion, while CEEand West Asia had the lowest. North America alsohad a low proportion, but this is changing: thenumber of airlines owned by foreigners has risensharply in recent years, from 8 airlines withforeign ownership in 2001 to 29 by 2004.

The proportion of airlines owning sharesin other foreign airlines is even smaller. Only65 airlines out of a total of 1,010 have investedin foreign airlines. Again, there are no significantdifferences between developed and developingcountries, although there are very few carriersin North American and in other developedcountries in Asia and the Pacific that haveholdings in foreign airlines.

Alliances have become an increasinglyimportant vehicle through which airlines seekto benefit from closer ties with other airlines.Their number has risen markedly, from around20 worldwide in the early 1990s to a total of1,222 by 2001 (box table III.3.2). Alliances canbe of any size in terms of participants, temporaryor permanent, with different strategic objectivesand involving different degrees of cooperation.In 2001, the most common arrangement involvedcode-sharing, frequent flyer programmes andcargo arrangements (box table III.3.2), and theleast common, joint terminals and training.

109CHAPTER III

single most important home country was theUnited States. Not surprisingly, therefore, UnitedStates service TNCs were strongly representedin most service industries. They were alsoconsiderably more transnationalized (as measuredby the number of their foreign affiliates) thanWest European firms and, especially, Japanesefirms; the latter, however, had gainedconsiderable ground, especially in banking andwholesale trading (UNCTC 1989a, p. 60).

Many of these general observations arestil l valid, especially those concerning thedominant role of the largest TNCs in individualindustries. But many things have also changed,mirroring the expansion of service TNCs andchanges in the pattern of services FDI.

Most importantly, a large group of newTNCs has emerged in service industries that arenew for FDI – notably telecommunications (boxIII.7), electricity (box III.8), water (box III.9)and postal services (box III.10) – somewhatsidelining long-standing TNCs in traditional FDIindustries such as banking or trading. Taketelecommunications. Once consisting of uni-player domestic industries, it is now a multi-player global industry. Top players are presentalmost everywhere, dominating the provision oftelecom services in many developing countriesand economies in transition. Many of them areformer State-owned monopolies from Europe:France Telecom, Deutsche Telekom, TelecomItalia and Spain’s Telefonica are among the tenlargest firms in the industry (box III.7). Thelargest, Vodafone (which ranked second on thelist of the world’s largest TNCs in 2002, annextable A.I.3) – originates from the UnitedKingdom. All these firms have expanded abroadthrough cross-border M&As, many involvingprivatizations. Vodafone apart, there are some40 telecom TNCs with foreign sales of $100million or more.

Electricity, too, is an industry with asubstantial number of important internationalplayers. Some 30 TNCs have foreign sales of$100 million or more. France’s Electricité deFrance and two German companies (RWE, E.On)lead the list (box III.8 and annex table A.III.8).The same cannot be said about the water industrywhere only a handful of companies dominate themarket (box III.9).

The largest service TNCs are now moreevenly distributed among home countries,especially when considering the size of their

foreign assets, employment or sales (annex tableA. III.5). United States TNCs still have a strongpresence in many services, but they are lessdominant than 15 years ago, and in someindustries they no longer occupy leadingpositions. Even in advertising and media,believed to be strongholds of United States TNCs,European firms now lead. In insurance, too,European TNCs have taken over the lead fromUnited States and Japanese firms (box III.11).In retail trade as well , the home-countrycomposition of the largest TNCs has changeddramatically over the past 20 years of rapidtransnationalization (box III.12). Whereas, in1986, nine of the top ten retail TNCs were fromthe United States (UNCTC 1989a, pp. 191-192),in 2002 only one was from that country. Ininternational trade, sogo shosha continue to playan important role for Japan, but it has declineddramatically (box III.13).

Changes in banking have involvedJapanese firms in particular. In 1986, Japanesebanks dominated the list of the world’s largestbanks (ranked by assets): five of them led thelist, and as many as 12 featured among the top20 (UNCTC 1989a, pp. 176-181). Today thepicture is different. Although the second largestbank is still Japanese (Sumitomo Mitsui), onlyfour banks from Japan figure among the top 20(box III.14). This is in large part due to therestructuring and consolidation of the Japanesebanking industry in response to widespreadbanking distress during the economic recessionof the 1990s. It also reflects government effortsto reform and deregulate the Japanese bankingsystem and to deal with the critical problem ofnon-performing loans.11 The list of the world’stop TNBs is now dominated by European banks:more than half are from four EU countries (boxIII.14).

The rise to prominence of EuropeanTNCs in many services has occurred in parallelwith their increasing participation in cross-borderM&As (discussed below). Growing competitivepressures on the one hand and improvedcompetitive strengths on the other – partly dueto operating in a unified European market –propelled the rapid international expansion ofEuropean firms during the 1990s.

Another big change is the rise of serviceTNCs from developing economies. Most of themoriginate from Hong Kong (China), many hailfrom Singapore and a few are from Mexico and

110 World Investment Report 2004: The Shift Towards Services

Box III.4. Accountants network, led by the Big Four

Source: UNCTAD.a Datamonitor (2004). Data include all revenues generated by accountants, auditors, tax advisers, bookkeepers and

related services.b Data from Big Four companies’ web sites.c Partnerships in this context include general partnerships, limited partnerships and limited liability partnerships. In

some jurisdictions, the most common form chosen is the limited liability company.

Mirroring the transnationalization of variousindustries that draw upon its services, theaccountancy industry has become global as well.Today, it is a large and highly regulated industrydominated by four firms known as the “Big Four”(box table III.4.1). The Big Four have grown andexpanded through the formation of networks andpartnerships with local accounting firms under abrand name and through mergers. Concentration wasdriven by mergers among the “Big Eight” accountingfirms during the 1980s and 1990s, and thedissolution of one of the top firms (Arthur Andersen)in 2002, following a major corporate governancescandal.

The Big Four are substantially larger than theother accounting firms, each with thousands ofpartners, tens of thousands of employees, officesaround the world and annual revenues running intobillions of dollars (box table III.4.1). They performboth accounting and management consultingservices, although the trend is increasingly towards

the separation of these activities. The combinedrevenues of the four amounted to some 33% of theglobal market for accounting services – estimatedto be $142 billion in 2002 – and 84% of the totalrevenues of the 10 largest accounting firms in2003.a There is a considerable revenue gap betweenthe fourth and fifth largest firms (box table III.4.1).

Historically, accounting firms went abroadto service clients from their home countries. Today,the Big Four audit the bulk of publicly listedcompanies in developed countries: 78% in theUnited States, 80% in Japan, 80% in Italy, 90%in the Netherlands and an estimated 95%-98% inthe United Kingdom (United States, GeneralAccounting Office 2003). They have globaloperations, and are among the most transationalizedbusiness service enterprises, with a presence(between them) in all but 43 countries. The latterare mainly low-income (including 25 LDCs) andsmall Pacific and Caribbean island countries.b

Table III.4.1. The top ten accounting firms, ranked by total revenue, 2003(Billions of dollars and number)

Name Headquarters Total revenue Employees Number of host countries

PricewaterhouseCoopers New York 16.0 122 820 139Deloitte Touche Tohmatsu New York 15.1 119 770 144Ernst & Young New York 13.1 103 000 140KPMG Amsterdam 12.2 98 900 148BDO Brussels 2.6 23 230 99Grant Thornton Chicago 1.8 21 500 110RSM London 1.8 20 000 80Moores Rowland a High Point, NC 1.8 20 850 92Horwath New York 1.5 18 680 86Baker Tilly London 1.5 17 000 67

Source: UNCTAD, based on company annual reports and websites.a Figures for total revenues and employees are for 2002.

The mode of expansion of accounting firmsabroad relies largely on non-equity forms ofinvestment. It has been determined to a great extentby the specific nature of the industry, including, inparticular, its legal features, and by nationalregulatory constraints. In many parts of the world,regulatory authorities grant the right to practicegovernment accountancy services only to nationalfirms in which locally recognized professionals have51% to 100% ownership and management control.More generally, international accounting firmswishing to expand network membership face variousbarriers, including as regards the regulation of tradeand commercial presence, accounting standards andthe recruitment of highly specialized professionals.

Hence, these firms usually expand operations byadding members to a network of firms that areusually legally separate, locally owned and locallymanaged. They are typically operated aspartnerships.c

The global expansion of the Big Four firmscan present problems for local small and medium-sized accounting firms, which face considerablebarriers (such as lack of capacity and capitallimitations) when competing for the audits of largenational and public companies. Some of them haveresponded by focusing on SMEs or by reorientingtheir services away from audit and attestation, andtowards accounting and other business services.

111CHAPTER III

South Africa (box table I.3.1). They are presentin particular in the hotel industry (annex tableA.III.5), logistics (annex table A.III.5) andtelecommunications (annex table A.III.7). Butwith a few exceptions, their degree oftransnationalization is much lower than that ofTNCs from the Triad. Moreover, they typicallyoperate within their home regions, and, onaverage, in a smaller number of countries thantheir counterparts from developed countries.

b. M&As take the lead in entrypatterns

TNCs in all industries use cross-borderM&As as a speedy and practical mode of entryinto host countries, or as a tool for global orregional restructuring. However, in someservices, the propensity of TNCs to enter newmarkets through M&As, rather than greenfieldFDI, is particularly high. In banking, for example,it is less common for banks to build their affiliatenetworks in a host country from scratch. Rather,they take over existing networks wherever theseare available, if permitted to do so. Ininfrastructure services such as basictelecommunications, electricity and water, M&Asare frequent. Privatization programmes open toFDI, which peaked in many countries during the1990s, added to the number of cross-borderM&As.

During the 1990s, M&As became awidely used mode of TNC entry and expansionin virtually all industries. Indeed, they drovethe FDI boom during the second half of the1990s.12 But it was in services that most M&Astook place, helping to shift the FDI patterntowards services. From 36% of total global cross-border M&A sales during 1987-1990, their shareworldwide rose consistently during the 1990s,to peak at 63% during 1996-2000; they remainedat a similarly high level during the subsequenteconomic downturn (annex table A.III.13). Theshare of services in cross-border M&A sales wasslightly higher in developing (64%) than indeveloped countries (57%) during the period1987-2003 taken as a whole. A similarly highproportion was evident in CEE, which saw thefastest growth of services cross-border M&Asin both value and proportionate share of totalcross-border M&A sales. The picture is similaron the purchasing side, with the exception ofCEE. The composition of the world’s 100 largest

cross-border M&As sales also shifted towardsservices (annex table III.14).

As regards individual services, the shareof telecommunications, electricity, water andbusiness services in cross-border M&A salesrose, while that of traditional industries – finance,trade, hotels, restaurants – fell between 1988-1990 and 2001-2003 (table III.7). But,notwithstanding these structural changes, theM&A boom of the second half of the 1990saffected almost all service industries (annex tableA.III.15).

On average, more than three-quarters ofglobal M&A transactions in the services sectortook place among developed countries during1987-2003 (annex table A.III.13). Intra-WesternEurope transactions (the bulk of which compriseintra-EU transactions) and transatlantictransactions dominated the picture (table III.8).The latter were characterized by an increasingimbalance in favour of EU purchases in theUnited States. This reflects a change in therelative roles of EU and United States TNCs incross-border M&As generally: traditionally,United States TNCs had been the champions offoreign takeovers; but since the second half ofthe 1990s and especially the M&A boom of thesecond half of the 1990s, European TNCs havebecome the dominant players. Services accountedfor 36 and 64 deals among the top 100 cross-border M&As in 1987-1995 and 1996-2003,respectively. Western Europe’s share in thesedeals rose from half to two-thirds between thesetwo periods (as compared with 14% for UnitedStates firms in both periods) (annex tableA.III.14). In terms of value, the share of WesternEurope in the top deals increased from 52% to82% over the same period.

The increasing use of M&As as a modeof entry by European TNCs goes back to theannouncement and inception of the EU’s SingleMarket programme. It triggered a wave of intra-EU cross-border M&As, particularly in services,which regained momentum during the globalM&A boom of the late 1990s. At the same time,EU service TNCs began to expand into non-EUmarkets, notably the United States, but also otherregions. The increasing role of European TNCsin cross-border M&As in services and in servicesFDI worldwide and their rise to prominenceamong the largest service TNCs suggest that theircompetitive strength has increased. This is at leastpartly due to growth as a result of domestic and

112 World Investment Report 2004: The Shift Towards Services

Box III.5. Legal partners

Source: UNCTAD.

intra-EU cross-border mergers followingderegulation in national markets andliberalization within the EU. It also suggests thatincreasing competition at home and withinEurope drives EU service firms to seek marketsabroad on a much larger and wider scale thanever before.

Developing countries’ participation incross-border M&As in services is also on the rise,still more as sellers than as buyers. During 1987-1994, developing countries’ cross-border salesof service companies amounted to an average of$5 billion per year, rising to $53 billion per yearduring 1998-2000, and $34 billion in 2001-2003(annex table A.III.16). Purchases rose by eight

times their value, to an average of $26 billionper year during 2001-2003. This latter amountwas almost half the total annual average of cross-border purchases by United States TNCs.

In conclusion, cross-border M&As havebeen instrumental in boosting services FDI in allgroups of countries, and thus shifting the patternof FDI towards services. Although global M&Asales in services fell by more than half duringthe downturn of 2001-2003 compared with theboom of 1998-2000, they were still at a muchhigher level than in any period before the boomfor almost all groups of countries (annex tableA.III.16). Finally, the growing participation ofnon-United States TNCs in M&As in general and

Box table III.5.1. United States outward FDI inlegal services, 1988-2002

(Millions of dollars)

Year Stock Outflows

1988 27 61989 94 441990 138 441991 181 431992 242 601993 88 441994 75 651995 145 701996 214 691997 413 711998 504 851999 370 2972000 559 2412001 738 2322002 918 232

Source: UNCTAD, based on data from United States,Department of Commerce.

In less than a decade and a half, the UnitedStates outward FDI stock in legal services – thecountry whose firms dominate international legalservices – had grown over 30 times, from amodest $27 million in 1988 to $918 million in2002 (box table III.5.1). But these figures area highly imperfect measure of the transnationalactivities of United States law firms: legal serviceTNCs typically organize their activities in theform of partnerships with host-country firms.

Of the 20 largest legal TNCs ranked by thenumber of lawyers employed in 2002, 12 werebased in the United States, 7 in the UnitedKingdom and 1 in Australia (annex table A.III.6).Their total income ranged from close to half abillion to more than one billion dollars a year.They operate in a variety of legal areas, servingmostly large TNCs. The top ten operate in anaverage of 20 countries. For example, the largestof these, Baker & McKenzie, now has officesin 68 locations in 38 countries; it operates in anti-trust and trade, banking and finance, intellectualproperty, real estate, environment and tourism.

The legal business is skills-oriented andstrongly host-country specific. Each country hasits own legal code under which firms operate.Superimposed on these written legal codes area country’s values, culture and beliefs. Given thecomplexities of these features, law firms seldomset up greenfield affiliates, preferring to formpartnerships or engage in cross-border M&As.Indeed, M&A activity in this profession hassteadily risen in recent years, with most M&As

carried out between European and NorthAmerican firms. A few have also taken place insuch countries as Poland, Thailand and theRepublic of Korea. In 12 of the 71 M&Asreported in 1988-2003, legal TNCs acquired non-legal firms (e.g. employment agencies, pre-packaged software, security brokers, dealers,floatation companies, business consultingservices, advertising agencies, commercial artsand graphic designers, automotive services,investment advises). And with the rebound ofglobal M&A activity, those by legal TNCs maypick up again.

113CHAPTER III

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b19

95.

c19

98.

d2

00

1.

114 World Investment Report 2004: The Shift Towards Services

Table III.6. Foreign affiliates, by sector of foreign affiliates and parent firms, Germany, Japan andthe United States, selected data, various years

Number of foreign affiliates Assets of foreign affiliates FDI outward stock

By sector of: By sector of: By sector of:Home country ($ billion) ($ billion)

Foreign affiliates Parent firms Foreign affiliates Parent firms Foreign affiliates Parent firms

Germany, 2000All sectors .. .. .. .. 532 532Primary .. .. .. .. 3 ..Manufacturing .. .. .. .. 168 208Services .. .. .. .. 361 324 a

Japan, 2001All sectors 12 476 12 476 .. .. .. ..Primary 220 45 .. .. .. ..Manufacturing 6 522 7 866 .. .. .. ..Services 5 734 4 565 .. .. .. ..

United States, 1999All sectors 23 121 23 121 4 632 4 632 1 133 1 133Primary 907 477 218b 68 71 31Manufacturing 8 335 14 387 1 126 2 143 328 690Services 13 879 8 257 3 287c 2 421 734 412

Source: UNCTAD, based on Japan, Ministry of Economy, Trade and Industry (METI) 2004; Germany, Deutsche Bundesbank 2002;United States, Department of Commerce 2004a.

a Includes primary.b Only mining.c Includes agriculture, forestry, fisheries and hunting.

in services in particular has made the pattern ofservices FDI (and, consequently, overall FDI)more balanced among both home and hostcountries. Cross-border M&As, once almost theexclusive domain of United States TNCs, are nowbeing undertaken by TNCs from other countries,including developing ones, and can be expectedto remain an important mode of FDI entry inservices.

c. Catching up with manufacturingTNCs?

Whether measured in terms of the shareof foreign affil iates in total TNC assets,employment or sales, service TNCs are lesstransnationalized than TNCs in other sectors,judging from United States data (table III.9):whereas the foreign content of manufacturingTNCs overall was almost 40%, that of serviceTNCs was just above 20% in 2000. And althoughthe foreign content has increased for bothmanufacturing and services, the gap betweenthem has remained more or less the same.

An examination of the top TNCs confirmsthe difference in the degree oftransnationalization of TNCs in the two sectors.

In 2002, the average Transnationality Index13 ofthe service TNCs on UNCTAD’s list of theworld’s 100 largest TNCs was lower than thatof the manufacturing and primary-sector firmson the same list. But, for these big firms, the gaphas narrowed since 1995 (table III.10). Thissuggests that the larger service firms aretransnationalizing faster than the smaller ones.In fact, in the case of developing countries, thelargest services TNCs are now moretransnationalized than their manufacturingcounterparts, judging from the TransnationalityIndex of the top 50 TNCs from developingcountries.

There do not seem to be large differencesamong service industries as regards the degreeof transnationalization of the top TNCs. In everyindustry, there are companies with very large andvery low Transnationality Index values. Butvalues are generally lower for United StatesTNCs, which have a large domestic market attheir disposal, than for European ones. Using thenumber of host countries as an indicator, Japanesetransnational banks were much less transnationalthan their European counterparts in 2002: themost transnational, Tokyo-Mitsubishi, had 104subsidiaries in 20 countries; by comparison,Deutsche Bank, the third largest bank in the

115CHAPTER III

Box III.6. Tax havens – no longer tax heavens?

Source: Eden and Kudrle forthcoming.

world, had 981 subsidiaries in 45 countries(annex table A.III.12).

3. Drivers and determinants

What drives the expansion of TNCactivity in services?

The rise in the share of services ineconomic activity, the externalization of servicesto independent providers,14 the growing serviceintensity of the production of goods, thederegulation of service markets and theliberalization of FDI policies have createdopportunities for increased services FDI. At thesame time, greater competitive pressures in

service markets (especially in home developedcountries) have pushed firms to seek marketsabroad and strengthen their competitiveness.Within that context, the ownership-specificadvantages of firms, location-specific advantagesof countries and internalization advantages tofirms from investing directly abroad combine todetermine the extent and pattern of expansion,particularly by firms from service industries(UNCTC 1989a).

Ownership-specific advantages. FDI inservices has traditionally been undertaken byservice firms moving abroad to support trade oroverseas manufacturing by their domesticmanufacturing clients (or by the manufacturing

Tax havens are countries with typically zeroincome tax or low rates of tax, no foreigncurrency controls, strong bank and commercialsecrecy laws and administrative practices, moderninformation and communications facilities tosupport financial services, a stable currency, andactive self-promotion as offshore financialcentres. Some tax havens offer zero or low taxesonly to non-residents through forms such asinternational business corporations; others levyno income taxes at all but rely instead on licencefees.

While tax havens have existed for manyyears (Naylor 1987; Palan 1998, 2002), the rapidgrowth of the Internet in the 1990s facilitatedtheir spread. According to one estimate, thereare 59 such havens (Eden and Kudrleforthcoming). In 2001, the United States SenateSubcommittee on Governmental Affairs estimatedthat the size of offshore havens had grown from30 jurisdictions with $200 billion in assets in1983 to 60 jurisdictions with $5 trillion in mid-2001, $3 trillion of which were in bank accounts(Levin 2001). Oxfam (2000) estimated assets of$6 to $7 trillion in offshore centres, of which halfwere savings of wealthy individuals.

Why do countries become tax havens?Some small, poor economies lacking naturalresources or other obvious attractions for FDIuse tax-haven status to attract foreign bankingand commercial activities. Historical ties withrich countries, that include preferential status forinvestments in the poorer partners, also encouragelow tax rates since the host tax rate becomes the

effective rate. Tight secrecy laws and anunwillingness to exchange information furthersupport haven activities.

Firms set up “letterbox” companies in taxhavens to collect patent royalties, licensing feesand interest on loans. As long as tax havens donot share information on banking activities withother countries, clients can keep their financialactivities hidden from scrutiny. In fact, tax havensmay not provide much of a tax advantage toTNCs in high tax locations. The advantage onlyoccurs if the home country does not tax incomeearned in havens on an accrual (earned) basis,but either exempts such income from home-country tax or permits deferral of the tax untilthe income is repatriated. In spite of the reducedtax advantages, secrecy laws, high rates of returnon capital due to minimal regulation and lowlending rates continue to be powerful magnets.

The OECD is working with affectedjurisdictions to improve transparency andinformation exchange (OECD 1998, 2000a,2004b).

At the beginning of the twenty-first century,“tax heavens” relying on certain characteristicsmay be coming to an end. Consequently, a criticalchallenge for the tax havens, particularly thesmaller island economies, is the development ofother sources of long-term competitive advantage.For many of the smaller islands, tourism, andsome agricultural exports are the only othercompetitive sectors in addition to the offshoresector. These countries face difficult choices inthe years to come.

116 World Investment Report 2004: The Shift Towards Services

firms themselves to support their own activities).Thus, banks, insurance companies andtransporters set up offices in countries as acomplement and support to primary andmanufacturing FDI. This is sti l l true today,especially for TNCs from developing countries.

However, service firms are increasinglyinvesting overseas on their own account, as theyseek to serve new clients and exploit (andsometimes augment) their own uniquecompetitive advantages. Such advantages takeseveral forms:

• In producer services such as banking,finance, business and professional services,firms are building global advantages basedon their possession of, or privileged accessto, proprietary information, tacit knowledge,skills, brand names and learning (includingthose derived from their foreign affiliates).

• In consumer services such as hotels, fastfood, car rentals or retailing, firms areexploiting their home-based and/or localcapabilities to organize activities, acquireknowledge about their customers, networkwith other agents and create strong brandnames.

• In services such as stock broking, foreignexchange or securities dealing, businessconsultancy, commodity-broking, dataprocessing, data provision, data transmissionand information-gathering and processing,ownership advantages are often based on thepossession of software and hardware skillsand technologies.

• Some service firms’ outward expansion isbased on their need for economies of scaleand scope, as well as access to globalmarkets and supply capabilities. Examplesinclude firms in insurance, trade, banking,professional business services and retailing.

Location-specific advantages . Thelocation advantages that countries can offerservices TNCs have also grown and diversified.In non-tradable services,15 liberalization andmarket growth remain key to attracting FDI. Indirectly tradable services (chapter IV), the mainlocation advantages are access to a goodinformation and communication infrastructure,well-developed institutions and trained humanresources available for employment at

competitive cost. All these have been improvingin a number of locations worldwide.

The recent liberalization of services FDIregimes has also done much to attract TNCs. Oneparticularly important form of liberalization hasbeen the privatization of State-owned utilitiesto foreign investors, notably in Latin Americaand the Caribbean and in CEE for attracting FDIin the telecoms, electricity and water industries.In some services (such as telecoms and computerservices), adequate protection of intellectualproperty rights can influence the choice of a FDIlocation.

Internalization advantages. FDI meansthat firms with ownership advantages preferinternal expansion abroad rather than licensingor entering into other arrangements with localfirms. They choose internalization for a numberof reasons, especially when it is important tosafeguard proprietary knowledge (e.g. bankingand financial services, most information-intensiveand professional services), ensure product quality(e.g. advertising, market research, some consumerservices), minimize transaction costs associatedwith opportunism, protect property rights, avoidsearch and negotiation costs, tap synergies fromgeographical diversification (financial services),obtain inputs or develop new markets (tradingcompanies) (Dunning 1993, pp. 52-54). In otherservices, non-equity links or minority jointventures are preferred. In these cases, qualitycontrol, performance commitments and theminimization of transaction costs can beembodied in management contracts or franchisingagreements (e.g. hotels, restaurants, car rentals).On the other hand, it is also important in someservices to have specialized local knowledge orto customize products (engineering, architectural,technical services). Furthermore, cooperativeventures are a way of sharing financial risk insuch industries as investment banking orinsurance.

The balance between the forces makingfor internalization and externalization variesamong industries and firms. And it is difficultto establish firmly that internalization advantagesof TNCs in the relevant service industries haverisen over t ime. However, many of theimprovements in firms’ ownership-specificadvantages are based on proprietary knowledgeon which profits might be maximized thoughinternalization.

117CHAPTER III

Box III.7. Telecoms: the emergence of a global industry

Source: UNCTAD.

a Statistics refer to the “communications, transport and storage category”.b Based on data from World Bank (2004b).

Over the past two decades, rapid growthand major restructuring have changed the globallandscape of telecom services. Many countriesliberalized their telecom industry and opened itto foreign investors. A dramatic increase ininward FDI stock worldwide took place: between1990 and 2002, FDI in communications, transportand storagea rose 16 times, from an estimated$29 billion to an estimated $476 billion, thelargest increase of all service industries (annextable A.I.18). In developing and transitioneconomies as a whole, the rate of growth ofinward FDI stock in this industry was lesspronounced than for the world average, but stillquite high: between 1990 and 2003, this stockrose 11 times, to $138 billion.

On the basis of World Bank estimates, FDIrepresents about 40% of the costs of privateinvestment projects in telecoms in developingand transition economies (Sader 2000, p. 152).Overall, privatization was the dominant form ofinvestment, accounting for around two-thirds ofthe $274 billion invested in telecoms between1987 and 2002.b It was primarily driven by largesell-offs of State-owned fixed-wire networks,especially in Latin America; about half of theseinvestments were used for the initial purchaseof assets while the remainder representsadditional investment into facilities. Investmentsin greenfield projects (box figure III.7.1)accounted for one-third of total investment inthe industry, focusing on the expansion of cellulartelephony. This was of particular importance inAsia and the Pacific where almost 60% of privateinvestment over the period was spent ongreenfield projects. Technological changes haveshifted the modes of investor-entry in telecomsfrom privatization towards greenfield projects,as mobile telecommunications have increasinglybecome dominant (Dutta et al. 2004, p. 55).

A large part of the activity took place inLatin America and the Caribbean and, to a lesserextent, in the CEE countries that joined theEuropean Union in 2004. In the developingworld, Latin America and the Caribbean attractedalmost 63% of private investment in telecoms,Asia and the Pacific 28% and Africa only 9%.Private investment in telecoms in developingcountries and transition economies declined after

1998. Besides heightened concerns aboutcurrency risk (following the Asian financialcrisis) and the completion of major privatisationprogrammes in Latin America and CentralEurope, major turbulence in the telecom industryworldwide were the main culprits.

Box figure III.7.1. Private investment inthe telecom industry in the developing

countries and CEE, 1990-2002(Billions of dollars)

Source: UNCTAD, based on World Bank (2004b)..

Large telecom companies – mainly fromdeveloped countries – that shared in thesubstantial investment that took place in theindustry over the past decade experienced veryrapid expansion: in 2002, there were eighttelecom firms listed among the world’s 100largest TNCs (annex table A.I.3), compared toonly two ten years ago. Such expansion resulted,in some cases, in instability stemming fromoverspending on new technologies and newlicences. Some of these companies had to slowdown their expansion abroad, or even withdrawfrom some markets, leaving the activities to newcompetitors from developing countries. This isreflected in the composition of the list of the 30largest telecom TNCs: though still dominated bycompanies from Europe and the United States,it also includes four companies from developingcountries – Singapore Telecommunications,América Móvil (Mexico), MTN Group (SouthAfrica) and Telekom Malaysia (annex tableA.III.7). Today, the top players are presenteverywhere, dominating the provision of servicesin many developing countries and economies intransition. On average, they are present in 15 hosteconomies.

0

5

10

15

20

25

30

35

40

45

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Investment into facilities in greenfield projects

Investment into facilities in privatization

Privatization of government assets

$ b

illio

n

118 World Investment Report 2004: The Shift Towards Services

Table III.7. Shares of selected industries in cross-border M&A sales in services,1988-2003(Per cent)

Industry of sale 1988-1990 1991-1994 1995-1997 1998-2000 2001-2003

Telecommunications 8.8 10.2 7.1 34.2 20.8Electricity 0.2 3.3 14.2 6.0 9.4Business services 9.6 8.8 9.3 12.3 11.3Water 0.4 0.1 0.4 0.9 1.6

Sub-total 19.0 22.4 31.0 53.7 43.1Finance 32.4 30.6 29.8 25.1 29.2Trade 15.4 17.3 13.5 6.6 7.1Hotels / restaurants 15.8 4.9 4.1 2.1 2.5

Sub-total 63.6 52.8 47.4 33.8 38.7Other 17.4 24.8 21.6 12.5 18.2

Total 100.0 100.0 100.0 100.0 100.0

Source: UNCTAD, based on annex table A.III.13.

4. Most services FDI is still market-seeking – but this is changing

Traditional host-country market-orientedservices (such as finance and retail trading) ornew dynamic ones with a similar orientation(telecommunications, electricity, water) dominateservices FDI in most countries. The share oflocal sales and exports of United States foreignaffiliates in host countries bears this out. In 2001,for example, 84% of worldwide sales of servicesin host countries by foreign affiliates of UnitedStates TNCs were local sales, while thecorresponding share for goods was 61% (Borgaand Mann 2003, p. 71). Even more striking, localsales accounted for 93% of sales of services byUnited States affiliates of foreign companies andfor an estimated 91% of sales of goods.

Because many services are not tradableand require face-to-face contact betweenproviders and customers, TNCs in services haveto rely largely on stand-alone affiliates that oftenare miniature versions of their parent companies.These affiliates need to operate as self-containedunits that serve local markets, replicating theproduction organization of their parent firms(WIR93, p. 118). There are, of course, exceptions:FDI in tourism such as hotels has direct parallelswith resource- or asset-seeking FDI with anexport orientation rather than a local-marketorientation.

But as the cross-border tradability ofinformation-intensive services increases, theoffshoring of services by both manufacturing andservice TNCs can be expected to rise as well(chapter IV). The fact that TNCs in various

industries locate one or more functional activitiesalong the value chain of services in affiliatesabroad, and integrate them with activitieselsewhere within their production systems,indicates that services production is evolving inthe direction of integrated internationalproduction networks.

This development is well known inmanufacturing, where firms over the past fewdecades have increasingly pursued integratedproduction strategies across countries. This hasinvolved locating the production of components,parts or final products in different affiliates toexploit the comparative advantages of differentcountries (such as the availability of naturalresources, lower costs, better skills, access tolarge regional markets) (WIR93). In fact, TNCshave long practised “simple integration”strategies in the primary sector: FDI wasundertaken to extract or cultivate naturalresources and/or process primary commoditiesfor sale through parent companies in the homecountries of the TNCs involved and in othercountries. Later on, such integrated strategiesspread to such manufacturing industries asclothing, toys, semiconductors and otherelectronic products. In these strategies, foreignaffiliates essentially “work” for parentcompanies, triggering intra-firm trade betweenparent firms and their affiliates.

“Complex integration” strategies relyadditionally on foreign affil iates producingcomponents – not necessarily for their parentfirms, but for other affiliates that specialize inother components – thus giving rise to inter-affiliate trade.

119CHAPTER III

Box III.8. An electrifying rise

Source: UNCTAD, based on World Bank (2004b).Source: UNCTAD.

a Based on data from World Bank (2004b).

0

10

20

30

40

50

1984

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

$ b

illio

n

Box figure III.8.1. Private investment inthe electricity industry of developing

economies and CEE, 1984-2002(Billions of dollars)

The privatization of public utilities indeveloped economies beginning in the 1980s wasfollowed by their consolidation through M&As.This process has created a handful of large private(or joint public-private) utility firms withconsiderable strength.

When developing countries and economiesin transition undertook privatization programmesin the electricity industry, utility firms based indeveloped economies took the opportunity toexpand and invest in the newly privatized firms.In 2002, nine of the world’s 100 largest non-financial TNCs (annex table A.I.3), ranked byforeign assets, were in the electricity industry –a remarkable ascendancy, considering that only 15years ago there were hardly any TNCs in theindustry. Many of the largest electricity TNCs,especially European ones, also have operations inother utilities, most notably in the gas industry.

Firms from developed economies dominatedthe list of the 25 largest TNCs in this field in 2002(annex table A.III.8). Three European TNCs – E.On(Germany), RWE (Germany), Electricité de France(France) – were by far the largest. Thirteen of thelargest TNCs were from Europe and nine from theUnited States. Only three were from developingeconomies: Korea Electric Power (Republic ofKorea), CLP Holdings (Hong Kong (China)) andHong Kong Electric Holding Limited (Hong Kong(China)). European TNCs had a greaterinternational presence than their counterparts fromthe United States: the average number of hosteconomies for them is 15.6, compared to 4.8 forthe United States TNCs (annex table A.III.8).

About 28% of private investment in electricitytook the form of FDI in developing countries andCEE during 1990-2002 (based on Sader 2000, p.9). However, a large part of the projects inelectricity also involved non-equity flows in theforms of commercial lending on a project financebasis for concessions and BOT-type investments.

Private investment in electricity in developingcountries and CEE rose at an average annual rateof 24% over this period, nearly double the rate forall infrastructure projects, with a peak in 1997 (boxfigure III.8.1). It totalled almost $200 billion overthis period, with Latin America and the Caribbeanaccounting for the largest share, followed by EastAsia and the Pacific. These two regions togetheraccounted for nearly three-quarters of all privateinvestment in the electricity industry in developingcountries.a Within them, investment has beenconcentrated in a relatively small number ofcountries: 25 projects in 15 countries accounted

for three-quarters of the total, with Brazil takingup the largest share (21%), followed by China(10%) and Argentina (7%). The fall of investmentin recent years reflects the effects of the completionof major privatisation programmes, especially ina number of Latin American countries, as well asthe 1997 Asian financial crisis which had asignificant impact on the industry. Conditions ininternational capital markets for raising capitalturned less favourable, companies became moreaware of currency risks, confidence began to erodeand companies in the industry experiencedfinancial difficulties as stock prices fell.

Of the three segments that make up theelectricity industry (generation, transmission,distribution), the power generation segment hasbeen privatized the most (73%). The other twosegments remain largely under State control, asthey are mostly regarded as natural monopoliesbecause of the characteristics of the infrastructurerequired to provide the service. From a survey of52 developing countries, the World Bank estimatesthat privatization is either in progress or completedin 31% of them and planned in a further 18%. Therest is expected to remain State-owned (WorldBank 2004a, p. 153).

Foreign investors continue to be guardedlyinterested in the electricity industry of developingcountries. A survey of energy TNCs that investedin these countries found that, although they werenot satisfied with their experiences in all cases,about half of the 48 respondents still had as muchor even more interest in the electricity industryin developing countries than they had in 2000(Lamech and Saeed 2003). The trend towardsincreased TNC participation in the electricityindustry in developing countries may thereforecontinue.

120 World Investment Report 2004: The Shift Towards Services

Table III.8. The geographic composition of global cross-border M&A deals in services, 1987-2003 (Per cent of the global value)

Home and/or host region 1987-1990 1991-1994 1995-1997 1998-2000 2001-2003

A. Deals among developed countries 83 75 69 82 74 of which:

Intra-Western Europe 22 29 26 43 32Transatlantic 24 25 24 27 27United States-United Statesa 16 6 6 3 3Other b 22 15 12 8 12

B. Deals with participation of developing countries 13 21 23 13 18

Developing countries’ sales todeveloped countries 8 9 12 8 8

Developing countries’ purchasesin developed countries 4 5 5 3 4

Deals among developing countries 1 7 7 2 6

Source: UNCTAD, based on annex table A.III.16.

Note: Transaction shares by subregion do not add up to to 100, because deals involving two or more buying firms from differentcountries are included in totals but not assigned to home and host countries.

a Purchases of United States firms by foreign affiliates located in the United States.b Transactions involving developed countries other than those in the EU and the United States.

In practice, of course, the two types ofintegration can be (and have been) pursuedsimultaneously within a TNC, giving rise tointernational production networks and flows ofgoods, technology and capital among variousunits of a corporate system.16 The shift towardssuch integrated strategies by manufacturing TNCssignified a shift towards an international intra-firm division of labour.

As in manufacturing, such aninternational intra-firm division of labour inservices can take various forms:

• Breaking up service activities intocomponents that are produced wherever itis most efficient to do so, in a mannersimilar to that followed by manufacturingTNCs for producing, say, labour-intensivecomponents. For example, certain foreignaffiliates perform back-office functions ofvarious kinds for the parent firm (chapterIV). When foreign affil iates provide aservice (component) to the parent companyonly, this represents simple integration;when the division of labour involves variousforeign affiliates and possibly also the parentfirm, it involves complex integration.

• Assigning one or more foreign affiliates aglobal (or regional) mandate each to providea particular service product or function toall members (or all members within a

region) of a TNC system. For example, anaffiliate is designated to do all theaccounting work for a TNC’s regionalheadquarters or perform co-ordinationfunctions for a TNC’s activities in aparticular region.

• Entrusting an activity to a few affiliates thatwork on it simultaneously. For exampleforeign affiliates are set up to undertakeR&D on a centralized database throughoutthe world, with activities being undertakensimultaneously and/or shifted to the nextaffiliate at the end of the day. (This formis specific to services.)

However, even in the case of servicefunctions that lend themselves to standardizationand fragmentation, quality is more important thancost. In addition, there could be tacit elementsin provider-customer relations that could makeintegrating even simpler tasks more complicatedthan in manufacturing. On the other hand, thelogistical challenges facing integration are moreformidable in manufacturing: establishingproduction facilities, accessing supplies andtransporting output are more complex for manygoods than for tradable services. In the latter,production in a foreign location can be quicklystarted and services easily transported, providedthe necessary human resources and ICTinfrastructure exist. Each firm, be it in services

121CHAPTER III

Box III.9. Water services: falling in developing countries and rising in developed ones?

Source: UNCTAD, based on World Bank (2004b).

Box figure III.9.1. Concessions dominate annual private investment in water and sewerage indeveloping countries and CEE, 1987-2002

(Billions of dollars)

/...

0

2

4

6

8

10

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

$ b

illio

n ConcessionsPrivatizationGreenfieldManagement/lease contractTotal investment

FDI in water services is low compared tothat in other privatized or liberalized utilities,and it has different characteristics. Total privateinvestment commitments in water and seweragein developing countries was $35 billion in theperiod 1987-2002 (box figure III.9.1); on thebasis of World Bank estimates, it is likely thatless than 10% of this was FDI.a However, a greatnumber of the new water and sewerage projectsin developing countries are under the governanceof TNCs through equity as well as non-equityforms (concessions, management and leasecontracts or BOT-type investments, for example).

A small number of large TNCs dominateFDI in water services. Historically, the largestand most important ones were France’s SuezEnvironnement and Veolia Environnement SA(formerly Vivendi). A new and significant majorplayer has emerged since 2000 – Germany’sRWE. Typically, TNCs active in water servicesare also involved in other businesses such asenergy services and, historically, in the media.b

In terms of water services alone, Thames/RWEhas become the leading investor in recent years,accounting (by value) for more than half of totalwater service M&As (i.e. excluding otheraffiliated activities) over the past decade (boxtable III.9.1). About half of this stemmed fromthe initial merger of RWE AG and Thames WaterPlc; the remainder involved subsequentinvestment in Chile, Poland, Spain and, inparticular, the United States. Following Germanyare France (15% of total water M&As), the

United States (12%) and the United Kingdom(8%).c

Latin America and the Caribbean led privateinvestment in water services in developingcountries and transition economies between 1987and 2002 (with 52% of the total amounts investedover that period), followed by South, East andSouth-East Asia (36%) and CEE (6%). CentralAsia and sub-Saharan Africa had negligibleamounts.

The most common mode of entry in waterservices has been through management contractsand concessions. As management contracts arethe most restrictive form in terms of operatorresponsibility over physical assets, they typicallyresult in barely any financial flows in terms ofnew or rehabilitation investments, representingonly about 0.5% of the total value of privateinvestment in the industry during 1987-2002 inthe developing world (World Bank 2004b).Concessions, on the other hand, accounted for64%, as investors buy the right to rehabilitate(or to build) and operate water services for a fixedperiod (usually 20-30 years), after whichownership reverts to local control. Greenfieldprojects accounted for another 20%; these involvemainly the construction of bulk water andwastewater treatment facilities. Privatizationsaccounted for the remaining 16%. Most of theconcession and greenfield projects in the pastdecade have been awarded in Latin America andthe Caribbean and South, East and South-East

122 World Investment Report 2004: The Shift Towards Services

Source: UNCTAD, based on World Bank (2004b); annual company reports, Grusky (2003); UNCTAD database.

a Sader (2000) attributes the low proportion of foreign, rather than domestic, investment in part to the relatively highdebt-to-equity ratios in water projects, combined with the preponderance of concessions. Note that the investmentcommitments are for the duration of a given agreement.

b For example, the Suez group has interests in electricity and gas, and, until recently, in television .c UNCTAD cross-border M&As database.d “Water is a limited natural resources and a public good fundamental for life and health. The human right to water is

indispensable for leading a life in human dignity”, Committee on ESCR, General Comment No. 15, E/C.12/2002/11(26 November 2002).

Box table III.9.1. The three largest TNCs in the water service industry, 1988-2003(Millions of dollars)

Value of Percentage of totalCorporation Home country water service M&Asa water service M&As

Thames /RWE AG Germany 14 153 51Suez Lyonnaise des Eaux SA France 3 474 13Veolia Environnement SA. France 460 2

Source: UNCTAD cross-border M&A database.a Cumulative total of cross-border M&As in water services (a sub-set of total M&As undertaken by the TNCs shown),

during 1988-2003.

Box III.9. Water services: falling in developing countries and rising in developed ones?(concluded)

Asia. Of the management and lease projects,most have been in CEE (two-thirds of the total)and sub-Saharan Africa.

Private investment – and with it FDI – indeveloping countries in water services peakedin 1997 and then declined (box figure III.9.1);as with other infrastructure projects, exchange-rate risks and volatility played an important role.In developed countries, however, FDI in suchservices appears to be continuing. The annualvalue of cross-border M&As (the only availableindicator of FDI in this case), which involvedfor the most part developed countries, peakedin 2000, and rose again in 2003. Furtherincreases are expected: the fact that many EUcountries still need to comply fully with currentenvironmental European standards indeed offersnew opportunities for FDI in those countries (e.g.Suez Group annual report 2003). To date, theUnited Kingdom has been the single largestrecipient of FDI in water through M&As (48%of the total between 1988 and 2003), followedby the United States (43%).

Although the total value of private sectorinvestment in the water industry to date has notbeen large compared to other formerly State-owned infrastructure industries, the broader

questions it has raised have been profound,especially in developing countries. It is widelyaccepted that the investment needs of the industrygo beyond the scope of government or otherpublic organisations. But private investors mayfind it not profitable to serve remote or low-income areas or may set cost-recovery prices thatare considered unacceptably high.

On the other hand, the commercialrequirements of private investors need to bebalanced against wider social needs. Access towater has been identified as a basic human right,enshrined in the United Nations Covenant onEconomic, Social and Cultural Rights.d Foreigninvolvement has not always produced theimproved scale and quality or lower costs thathost countries expected, nor the profits thatinvestors anticipated, and creating a regulatoryframework that addresses the needs of all partiesis not easy, as evidenced in early terminationsof contracts or their re-negotiation. Hence, thechallenge for governments and industryregulators is to find a framework that takes theneeds of both sides into account. Successfulstrategies in some public-private partnershipshave included tariff regulation and the use ofsubsidies to low-income areas (e.g. Chile) (UNDP2003, pp. 111-121).

123CHAPTER III

or manufacturing, therefore needs to determinehow best to configure its corporate network tobecome as competitive as possible. And bestpractices in this respect are likely to be imitatedby other firms.

Data on intra-firm trade for the UnitedStates – the largest home and host country forservices FDI (annex tables A.I.20, A.I.21) andthe leader in the offshoring of services – suggestthat integrated international production networksin services are indeed emerging. The share ofintra-firm imports in total United States importsof “other private services”17 rose from 30% in1986 (Zimny and Mallampally 2002, p. 100) to42% in 1997, then to 47% in 2002 (table III.11).It was particularly high in business, professionaland technical services and in financial services;together these accounted for more than two-thirdsof United States imports of “other privateservices” in 2001-2002. On the export side, theshare of intra-firm trade remained relativelystable, at about one-third. It was high for businessprofessional and technical services, but not forfinancial services.

Looking into the composition of intra-firm trade by destination within TNC systems cangive a rough idea about the extent to whichintegration strategies have moved from simpleto complex. In goods, there has been a long-termshift towards complex strategies: between the late1970s and early 1990s, the share of affiliate-to-affiliate exports in total intra-firm trade of UnitedStates TNCs (comprising parent firms’ exportsto foreign affiliates, affiliates’ exports to parentfirms and affiliate-to-affiliate exports) rose from30% to 44%, and in total intra-firm exports ofaffiliates (comprising the last two categories)from 37% to 60% (table III.12).18 Trade withother affiliates was particularly intensive forUnited States affiliates in manufacturing locatedin developed countries, and especially those inthe EU (e.g. Ford’s network in Europe, one ofthe first to be set up). In services, the value ofaffiliate-to-affiliate exports in total intra-firmexports in services of United States TNCs was34% in 1996 and increased marginally to 35%in 2001 (table III.12), sti l l below thecorresponding share for goods even comparedto the early 1980s. The dominant – albeitdeclining – share of parent-to-affiliate trade intotal intra-firm trade of services suggests thatintegrated international production in servicesremains largely simple integration.

These data need to be interpreted bearingin the mind the context and the proportions.Given that only a small proportion of servicesproduction is traded internationally, both intra-firm trade in services and the associated TNCstrategies affect only a small part of the serviceseconomy. However, the picture is l ikely tochange in the direction of more intra-firm tradeas firms identify an increasing number of servicesthat can be offshored by means of ICTs to takeadvantage of the availability of the necessaryhuman resources, infrastructure, cost differencesand other advantages of an international divisionof labour within the framework of corporatestrategies – a matter examined in chapter IV.

CCCCC. Impact on host. Impact on host. Impact on host. Impact on host. Impact on hostcountriescountriescountriescountriescountries

Services account for the largest share ofeconomic activity in most countries.Furthermore, the services content ofmanufacturing has been rising steadily. Theefficiency and productivity of service industriesare therefore important for the overallcompetitiveness of economies, i.e. their abilityto raise living standards on a sustained basis. Inparticular, the availability, cost and quality ofmodern intermediate services – infrastructural,financial, professional, business – affect thecompetitiveness of products in all sectors, in bothdomestic and foreign markets. Furthermore,improved conditions for the provision of keyconsumer services, especially basic services suchas health, education, water and sanitation, directlycontribute to improving living standards as wellas to building human resources. Increasingawareness of the role of services in buildingsystemic competitiveness in their economies hasprompted policy-makers in developing countriesto pay greater attention to this sector, includingby opening it up to FDI.

Services FDI spans such a wide range ofactivities that it is difficult to make a generalizedassessment of its impact on host countries. Thefact that developing countries are liberalizingtheir policies and regulations on FDI in services(chapter V) suggests that, on balance, theyconsider it potentially beneficial for achievingtheir development objectives; equally, therestrictions they maintain indicate that manyservice industries remain sensitive. Clearly, theeconomic impact of FDI in activities as diverse

124 World Investment Report 2004: The Shift Towards Services

Table III.9. The degree of transnationalization of United States non-bank TNCs,by sector, 1986, 1992, 2000

(Share of foreign affiliates in total TNC activities)

Sector of Assets Sales Employment

parent firms 1986 1992 2000 1986 1992 2000 1986 1992 2000

Total 19.7 24.0 29.7 26.7 32.1 30.7 26.0 27.5 29.5Primary 15.6 22.5 36.8 22.6 27.3 22.4 42.2 32.8 31.4Manufacturing 27.7 33.1 38.6 33.1 39.8 37.9 29.9 33.1 36.6Services 11.4 13.3 23.5 15.6 15.0 21.5 18.8 18.9 23.3

Source: UNCTAD, based on data from United States Department of Commerce.

as tourism, banking, media, telecommunication,transportation or retailing must differ. Thesedifferences call for varying policy responses. Thissection highlights some of the main impacts,while chapter V deals with the policy dimension.

Until recently, developing countries’more restrictive FDI policies towards servicesindicated that they considered FDI in theirservices sectors to be less desirable than inmanufacturing, for a number of reasons. The maineconomic reason was that services FDI was notseen to provide advanced technologies, accessto export markets or linkages to local enterprises– the most important benefits expected ofmanufacturing FDI. This perception has changed.TNCs in services are now seen to transfer newtechnology, if “technology” is defined broadlyto include organizational, managerial, informationprocessing and other skills and knowledge. Theycan provide vital inputs into the production ofexport-oriented primary and manufacturingindustries (and, increasingly, export-orientedservice industries), and can furnish valuableinformation on, and contacts with, internationalmarkets. With the growing tradabili ty ofservices, TNCs can now also add directly to host-country exports by investing in services orservice functions in which a host country has acomparative advantage (taken up in the nextchapter). They can also provide backwardlinkages to local producers. More generally, FDIcan add to the availability of competitiveservices, and thereby help domestic firms becomeinternationally competitive in an increasinglyglobalized and knowledge-based world economy.Thus, the overall impact of services FDI on theindustries concerned and the economy as a wholecan be significant.

Services FDI has also been regarded byhost countries as entailing more risks and socialcosts than manufacturing FDI. In some cases,

such risks or costs arise from the nature of theservice. For instance, some services areinherently monopolistic, and therefore susceptibleto exploitation of market power by TNCs (as wellas domestic firms), unless the government canset up and manage a complex regulatory system.Others, like the media, are of considerable socialor cultural significance, and may arouseresentment if controlled by foreigners. Againothers, such as retailing, may involve particulartraditions, and their disruption by new practicesintroduced by TNCs may be regarded as sociallyundesirable, especially if this displaces smallservice providers. Yet others, such as air transportor finance, are often considered strategicallyimportant to a country, and the loss of nationalownership would be regarded as harmful to long-term national interests.

Many of the perceived costs and benefitsof services FDI are similar to those of FDI inmanufacturing. Governments may worry, forinstance, that foreign takeovers of local bankswill “crowd out” local banks, or that foreignownership of infrastructure services that areinherently monopolistic may lead to high prices.As with some manufacturing activities, serviceTNCs may cause environmental damage (say, intourism), or they may employ locals in low-level,poorly-paid jobs and not upgrade them over time(say, in call centres). If services TNCs prefer touse expatriate managers or professionals, theymay be regarded as holding back local skillsdevelopment. And if they prefer to use foreignsuppliers, they may be viewed as not contributingto local enterprise development.

With the rather scanty informationavailable, i t is difficult to assess how well-founded these expectations and fears are. Thediscussion that follows reviews the impact ofservices FDI on host countries in general terms,focusing on some key differences between

125CHAPTER III

Box III.10. Postal services go transnational

Box table III.10.1. The big four of the postal-courier industry, selected indicators, 1990, 2003

DPWN TPG UPS FEDEXIndicator (Germany) (Netherlands) (United States) (United States)

Employees 1990 313 177 63 000a 252 000 58 000Employees 2003 341 572 163 028 357 000 190 918Growth rate per annum, 1990-2003 (%) 0.7 b 9.0 2.7 9.6

Share of foreign employment 1990 (%) - <1 .. ..Share of foreign employment 2003 (%) 39 58 11 ..

Turnover in 1990 ($ million) 7 734 2 351 13 600 5 183Turnover in 2003 ($ million) 45 267 13 423 33 485 22 487Growth rate per annum, 1990-2003 (%) 14.6 14.3 7.2 11.9

Share of foreign turnover 1990 (%) <1 11c .. ..Share of foreign turnover 2003 (%) 43 68 .. ..Share of mail service in turnover 1990 (%) 67 >90 .. ..Share of mail service in turnover 2003 (%) 28 33 .. ..

Source: UNCTAD, based on Dörrenbächer 2003, p. 44, and information provided by firms and annual company reports.a 1992.b Growth rate is not directly comparable with that of other firms, due to the integration of the postal services of the new

Länder, into those of DPWN, at the beginning of the 1990s.c 1995.

Box table III.10.2. Selected large cross-border M&As by European postal operators, 1995-2003

Acquisition No. employees ofBuyer Country Year share (%) Acquired company Country acquired company

DPWN Germany 2001 51a DHL United States 55 000TPG Netherlands 1995 100 TNT Express Division Australia 24 000DPWN Germany 2003 100 Airborne United States 22 000DPWN Germany 1999 100 Danzas Switzerland 16 000TPG Netherlands 1996 100 GD Express Worldwide Netherlands/Sweden 14 000DPWN Germany 1998 50 Securicor Omega Express United Kingdom 12 500DPWN Germany 1999 100 Nedlloyd European

Transport & Distribution Netherlands 11 500La Poste France 2001 85 German Partners of DPD Germany 10 000TPG Netherlands 1996 100 TNT Logistic Division Australia 9 000DPWN Germany 1999 100 Air Express International (AEI) United States 7 500DPWN Germany 2001 51 ASG Sweden 5 700Consignia United

Kingdom 1999 100 German Parcel Germany 4 500

Source: UNCTAD, based on Dörrenbächer 2003, and information provided by firms. a The remaining 49% were acquired in 2002.

/...

Technical innovations and liberalization inthe 1990s have led to the reorganization of manylarge postal operators into more diversified andtransnationalized entities. These efforts werespurred by increasing competition, largely fromoperators such as UPS, Deutsche Post World Net(DPWN, which owns DHL), FedEx and TPG(which owns TNT) (box table III.10.1). Thestagnation in domestic demand in the mail andparcel delivery segments in some countries suchas the United States and the Netherlands alsoplayed a role. Some of the leading operators havebecome quite transnationalized, with European

operators at the forefront, particularly throughM&As since the mid-1990s (box table III.10.2).

TPG and DPWN illustrate the transnationalexpansion of this industry. In the second half ofthe 1990s, TPG acquired several large foreignexpress and logistics companies such as TNT andGD Express Worldwide. TPG also diversified intoniche markets such as direct mailing,international mail or international remailing. In2000, it formed joint ventures with Consignia(the former British Post Office) and SingaporePost. As a result of its international acquisitionsand joint-ventures, the share of foreign sales in

126 World Investment Report 2004: The Shift Towards Services

Source: UNCTAD, based on Dörrenbächer 2003 and information provided by the firms and company websites.

Box III.10. Postal services go transnational (concluded)

total sales rose from 11% to 68% between 1995and 2003, and the share of foreign employmentrose from almost nil in 1990 to 58% of total staffin 2003. Its international expansion strategy hasfocused on Europe, which in 2003 accounted for77% of its foreign sales, while the United States,Australia and Asia accounted for the remainingshare.

DPWN has pursued a three-pronged strategy.First it focused on rationalization, reducing itswork force from 313,000 in 1990 to 263,000 in1998. In the second phase, it diversified andglobalized its business through a wave of M&Asthat brought its workforce back to the pre-rationalization level. Its foreign employment rosefrom nil in 1990 to almost 40% of its workforcein 2003. In the third phase, DPWN focused onintegrating many of its new businesses into its

global operations, to realize synergies. Its totalturnover between 1990 and 2003 rose more thanfive times, to $45 billion. Like TPG, it expandedabroad through a wave of M&As starting in thelate 1990s, a major acquisition being DHL. Itsforeign turnover had reached 43% in 2003, asagainst less than 1% in 1990.

While these firms are consolidating, they faceincreasing competition from other large Europeanoperators such as Consignia of the UnitedKingdom and La Poste of France and from Asiancompanies, such as the postal operator of theRepublic of Korea. The Ministry of Informationand Communication of the Republic of Korea hasexplicitly declared its intention to expand abroad(Republic of Korea, Korea Post 2001). This willintensify global competition and bring aboutfurther structural changes in the industry.

services and manufacturing FDI and on effectsspecific to services.19 The analysis focuses onthe following areas of impact with specialreference to developing countries: financialresources and balance of payments; servicesprovision, competition and crowding out;technology; exports; and employment.

1. Financial resources and balanceof payments

Initially, FDI in services injects financialresources into a host economy. The amountsinvolved can be quite substantial.20 In developingcountries, for instance, the stock of services FDIrose from an estimated $160 billion in 1990 toan estimated $1.1 trillion in 2002 (annex tableA.I.18). Not much is known about thecomposition of this stock in terms of the sharesof equity, intra-company debt and reinvestedearnings, but there is no reason to expect thatit differs greatly from that in manufacturing.

The same can be said about the financingof capital expenditures by foreign affiliates inservices and in manufacturing from extra-corporate sources. FDI inflows generallycomprise only part of the financing of foreign-affiliate operations in host countries. TNCs alsoraise funds from capital markets in host countries

and from international capital markets; such fundsare not included in data on FDI inflows. Doesthe source of these funds matter? When fundsare raised in international capital markets, theyare a net addition to FDI flows.21 Where theyare raised locally, however, and if they aresubstantial, domestic interest rates may rise,making capital more expensive for domesticenterprises. The significance of this risk isdifficult to establish, especially in globalizingcapital markets. In any case, the pattern offinancing is likely to reflect the nature of the hosteconomy (e.g. its risk, the nature of its bankingsystem, the relationship with internationalfinancial markets), rather than whether theinvestment is in services or in manufacturing.

In some service industries, the financialaspects of the FDI package are especiallyimportant for developing countries. In particular,the capital requirements of infrastructure servicesare enormous, and they are growing apace. Inelectricity, for example, projections for 2001-2030 suggest that investment needs will bearound $5 trillion in developing countries and$1 tril l ion in the transition economies(International Energy Agency 2003). In telecoms,they are estimated at $187 billion per year forthe period 2005-2010 (Fay and Yepes 2003),while annual projections for water and sanitationin developing countries alone amount to $49

127CHAPTER III

Table III.10. The top TNCs, by sector: indicators of transnationality, 1995, 2002a

A) The world’s top 100 non-financial TNCs

ForeignForeign assets/ Foreign sales/ employment/total

Number of total assets total sales employment TNI b

Sector companies (Per cent)

1995 2002 1995 2002 1995 2002 1995 2002 1995 2002

Services 12 31 42.4 57.6 45.7 52.7 39.9 52.6 43.1 54.3Manufacturing 68 56 47.8 54.5 59.7 62.9 53.9 56.5 54.3 57.9Primary 15 10 49.6 64.6 55.7 60.4 44.9 60.0 49.5 61.7Diversified 5 3 34.7 49.0 38.4 50.3 47.3 55.9 40.2 51.7

B) The top 50 non-financial TNCs from developing countries

ForeignForeign assets/ Foreign sales/ employment/total

Number of total assets total sales employment TNI b

Sector companies (Per cent)

1995 2002 1995 2002 1995 2002 1995 2002 1995 2002

Services 8 16 31.7 49.3 25.0 53.0 35.2 46.6 29.8 49.6Manufacturing 24 23 34.2 47.5 37.5 51.8 41.2 45.5 32.9 48.2Primary 5 5 13.7 34.8 33.6 37.9 11.9 28.6 18.3 33.7

Diversified 13 6 22.8 65.6 40.0 63.4 48.5 63.9 39.4 64.3

Source: Based on annex table A.I.3, box table I.3.1 and WIR97, tables 1.7 and 1.8, pp. 29-33.a The percentages shown are simple averages of the percentages for all of the TNCs in each sector.b TNI, the abbreviation for "Transnationality Index", is calculated as the average of the following three ratios: foreign assets to

total assets, foreign sales to total sales and foreign employment to total employment.

billion in 2001-2015 (Camdessus 2003). Giventhe budget constraints facing most governmentsin these countries, FDI can contributesignificantly to the financing of capacityexpansion in such services.

China, for example, has progressivelyopened up to FDI in electricity generation, mainlybecause it lacked both the financial resources andmanufacturing capacity to meet the demand forpower generating equipment (Gabriele 2004, p.13). Up to the mid-1990s, foreign financingprovided about 10% of investment funds for theindustry, of which over 80% came from foreigngovernments and multilateral lending institutions.By mid-1998, 24 plants funded by FDI were inoperation and 12 others were under construction,most of them operated by United Statescompanies (Gabriele 2004, p.13).

Similarly, in several Latin Americancountries, large-scale financing needs were oneof the main reasons for privatization and FDIinvolvement in the electricity, telecoms and waterindustries. They were also the major factor behindthe sale to foreign banks of domestic banks insome CEE countries where the private sectorlacked the necessary funds for large-scale bank

recapitalization after the transition to free markets(Kraft 2004). In a number of cases, fiscalpressures also lay behind bank privatizations andthe partial or complete sale of domestic banksto foreign investors. These are also the reasons,in addition to the threat of bank failure, forprivatizations and sales to foreign investors ofdistressed banks in some East Asian and LatinAmerican countries following financial crises.

A number of developing host countriesfear that FDI in services will negatively affecttheir balance-of-payments situation. A largeproportion of services FDI is market-seeking, andhence does not contribute directly to foreign-exchange earnings; but it does lead to externalpayments (repatriated profits, interest andsometimes equipment imports). For example,profit remittances can be quite high (annex tablesA.III.17 and A.III.18), amounting to 35% of thetotal income of services foreign affiliates ofUnited States TNCs in 2002 and 53% of the totalincome of services foreign affiliates of JapaneseTNCs in 2001; comparable figures formanufacturing foreign affiliates were 50% and62%, respectively (annex table A.III.18). Suchpayments can quickly outweigh the initial capitalinflows, and thus entail net foreign-exchange

128 World Investment Report 2004: The Shift Towards Services

Table III.11. Trade in selected services and the share of intra-firm trade, United States, 1997-2002(Billions of dollars and per cent)

Trade in selected services 1997 1998 1999 2000 2001 2002

Imports

Other private services a 42 46 53 58 63 69Intra-firm (%) 42 43 49 50 47 47

Financial services 6 8 9 12 11 9Intra-firm (%) 46 54 63 61 63 60

Business, professional and technical services b 21 23 28 31 33 38 Intra-firm (%) 70 67 70 71 70 71

Exports

Other private services a 83 91 104 107 116 123Intra-firm (%) 33 29 32 33 34 35

Financial services 13 14 18 19 19 20Intra-firm (%) 18 19 23 20 22 20

Business, professional and technical services b 44 46 54 55 62 65Intra-firm (%) 51 50 49 54 54 56

Source: Based on Borga and Mann 2003, table E, p. 65.a Includes, in addition to the two categories shown below in the table, education, insurance services, telecommunications and

other services (film and television tape rentals and “other”).b Includes computer and information services, management and consulting services, operational leasing and other business,

professional and technical services.

losses. In times of crisis, moreover, TNCs canaccelerate transfers abroad and so exacerbatecrises.

While services FDI (like market-orientedmanufacturing FDI) may involve a net outflowof foreign exchange, this is not necessarily acorrect measure of i ts overall balance-of-payments impact. A full assessment needs acounterfactual: what would have happened to thebalance of payments had that investment nottaken place? For example, if a local firm hadmade the investment (assuming it had thefinancial and technological resources), it alsowould not have earned foreign exchange and mayalso have imported new equipment. While itwould not have repatriated profits, it would nothave provided the initial inflow of foreign capitaleither. And it may not be as efficient (at leastinitially) as the foreign investor. After all, TNCsexist because they have ownership advantagesover domestic firms in technology, organizationaland managerial skills and entrepreneurship.Where these advantages lead to more efficientand better quality services, FDI promotes thecompetitiveness of tradable activities that usethese services. At the same time, however, foreignaffiliates (in services as well as goods) mayrepatriate earnings or loans to shore up parentfirms’ balance sheets (observed in Asia and LatinAmerica in 2002 – WIR03). Further, since

revenues of services foreign affiliates are in localcurrency, they are more sensitive to exchange-rate fluctuations, and parent firms may moreeasily withdraw funds if they expect adevaluation. Hence, evaluating the balance-of-payments impact of services FDI cannot be donesimply by looking at direct foreign-exchangeinflows and outflows.

Moreover, the full economic value of aninvestment goes well beyond its balance-of-payments effects. The welfare effects of betterservice provision on consumers have also to beconsidered, as well as its spillovers to othereconomic activities.

2. Services provision, competitionand crowding out

How does FDI affect the provision ofservices in terms of supply, cost, quality andvariety in host economies and what impact doesthis have on domestic firms? It is again difficultto generalize. In some industries – especiallythose involving expensive and risky projects –FDI can add significantly to the volume ofservices available in a host country. TNCs’financial strength and ability to implement andmanage complex systems can enable them toincrease supply capacities quickly in complex,

129CHAPTER III

Box III.11. Insuring and reinsuring the world

Source: UNCTAD.

a Ranking is by foreign insurance income. If only total income is considered, Nippon Life (Japan) would feature amongthe top ten.

capital-intensive services such astelecommunications, power, water or transport– perhaps more quickly than any feasiblealternative. For example, in Latin America, FDIin telecommunications in Argentina, Brazil, Chileand Mexico contributed to a doubling or moreof main telephone lines in 1990-1999 (ECLAC2000, p. 197) and to a number of otherimprovements in the conditions of service supply(box III.15).

However, experiences in infrastructure-related FDI have not all been positive. In LatinAmerica, for instance, results have been unevenin electricity. In Brazil, privatization with bothforeign and domestic participation did not reversethe declining investment trend in the electricpower industry (ECLAC 2004). Before that, Chilesuffered an energy crisis in 1998, in spite of anearly start in electricity privatization with FDIparticipation. This was provoked by a drought,but revealed weaknesses in the regulatory andinstitutional frameworks and public bodies that

dealt with enterprises in the industry (Gabriele2004).

Indeed, much depends on governmentpolicy and, specifically, on the regulatoryframework for private monopolies. In Argentina,the electricity industry was privatized during the1990s, mostly involving foreign investors whonegotiated tariffs fixed in dollars, and indexedaccording to United States inflation rates. Theinitial impact was beneficial. Supply capacityrose, the wholesale price of electricity fell andArgentina turned from being an energy importerin the 1980s to an energy exporter in the 1990s.By the end of the 1990s, however, prices beganto rise as a result of the indexation mechanismand local price deflation. By 2004, the countrywas again facing energy shortages due to higherenergy demand of the growing Argentineaneconomy and the problems that arose followingthe electricity price freeze (in nominal pesos) in2002.

The life insurance business dominates theinsurance industry accounting for almost 60%of all insurance premiums in 2003 ($2.9 trillion)(Sigma 2004). However, the trend among thelargest insurance TNCs is to diversify from lifeinsurance into other financial services and fromnon-life insurance to life insurance.

Twenty years ago or so, the insurancegroups heading the list of the largest insuranceTNCs were life insurers (UNCTC 1989a, pp. 184-186). Today, their business has diversified and,as a result, insurance groups now compete moredirectly with banks and financial service firms.Deregulation, particularly in Europe, was a majorfactor behind this trend: it opened the door forbanks to combine with insurance firms. Today,for example, Allianz has stakes in Deutsche Bank,Dresdner Bank, HVB Group and AGF; ING inthe Netherlands is a typical example of a financialservices group selling insurance and bankingproducts under the same name. So far,bancassurance (broadly defined as the sale ofinsurance products by banks) has been mostsuccessful in France, Italy and Spain where morethan half of all life insurance products are

distributed through banks. In the United States,nearly five years after the Gramm-Leach-BlileyAct (which liberalized financial services), banksaccount for only 5% of life insurance sales(Deloitte Touche Tohmatsu 2004).

A parallel trend towards consolidation ofactivities has also taken place among non-lifeinsurers. In the top ten, property/casualtycompanies such as Aviva, American InternationalGroup (AIG) and Prudential have expanded theiractivities into the life insurance business (annextable A.III.9).

Partly as a result of the greater varietiesof services – including non-insurance services– that they provide and the resulting growth,European firms now dominate the list of theworld’s largest insurance TNCs. Some 20 yearsago, nine out of the top ten companies, rankedby total income, originated from the United Statesand Japan (UNCTC 1989a, pp. 184-185). Today,nine companies from European countriesdominate the list of the ten largest companies.a

The two largest reinsurance groups, Munich Reand Swiss Re, also make it into the top ten (annextable A.III.9).

130 World Investment Report 2004: The Shift Towards Services

Table III.12. The relative importance of intra-firm trade in services of United Statesnon-bank TNCs, selected years(Billions of dollars and per cent)

1996 1999 2001

Category Value Share Value Share Value Share

A. Intra-firm exports of services Parents to affiliates 5.6 27.6 22.2 45.0 24.7 36.1 Affiliates to parents 7.9 38.9 14.5 29.4 19.8 28.9 Affiliates to affiliates 6.8 33.5 12.6 25.6 24.0 35.0 Total intra-firm (1+2+3) 20.3 100.0 49.3 100.0 68.5 100.0

B. Affiliates’ exports of services from host countries Total exports 21.9 100.0 50.0 100.0 74.5 100.0 Exports to other affiliates 6.8 31.1 12.6 25.2 24.0 32.2

Memorandum 1977 1983 1993

Intra-firm exports of goods

Share of affiliate-to-affiliate exports in total intra-firmexports of United States TNCs (%) 30 40 44

Share of affiliate-to-affiliate exports in total hostcountry exports of United States MOFAsa (%) 37 53 60

Source: UNCTAD, based on Zimny and Mallampally 2002, Borga and Mann 2003, and United States, Department of Commerce,2004c.

Note: The term “affiliate” refers to foreign affiliates only.a Non-bank majority-owned foreign affiliates.

In banking, foreign banks are often moreefficient than domestic ones in the developingand transition economies. But it is not alwaysclear how this translates itself into benefits andcosts for a host economy. The range of potentialimpacts is wide (box III.16).22 It differs acrosscountries as regards, for instance, the impact oninterest rate margins between deposit and lendingrates, the cost of capital, fees for services andthe variety of new products introduced.23

The impact of TNBs also varies when itcomes to the provision of services to variousmarket segments, SMEs in particular. For bigbanks geared mainly towards corporate lending,it can be relatively costly to undertake anevaluation of SME loans and to manage them,because of the small loan size typically involved.In fact, credit scoring techniques often used byTNBs for corporate lending may not be suitedfor use with SMEs in developing countries, partlybecause information on such borrowers isgenerally more difficult to obtain. Moreover,foreign banks are often more conservative andrisk-averse than domestic banks, and lending toSMEs arguably involves higher risk than lendingto large companies. Domestic banks – andespecially smaller ones – may therefore be bettersuited to SME lending than foreign ones. With

the high degree of market segmentation that oftenprevails in banking, TNBs can therefore choosenot to extend credit to SMEs and concentrate,instead, on other market segments.24

Access to services for all sections of amarket is a particularly important considerationwith regard to utilities and other basic services.In the absence of appropriate governmentpolicies, privatizing State-owned enterprises withTNC involvement may lead to an inequitabledistribution of services. Take the case oftelecommunications: where policies have notspecified the provision of services to poorercustomers (e.g. through performance conditionsor universal service funds25), foreign entry canlead to uneven access. In Peru, for example,improvements in telecom services were unevenlydistributed: availability increased mainly in Lima,but less elsewhere. At the same time, the priceof local telephone calls went up, as well as thatof fixed charges, while long-distance chargesdecreased slowly (Torero and Pasco-Font, 2000).

Countries may fear that the entry ofservice TNCs crowds out domestic firms. Is thislikely? And is it more likely in services than inmanufacturing? Unfortunately “the jury is stillout” on the extent of crowding out, owing to thelack of systematic evidence. In major areas of

131CHAPTER III

Box III.12. Consumer goods anyone? The rise and spread of retail TNCs

Source: UNCTAD.a According to Coe 2003, p. 7, IKEA’s foreign sales accounted for 85% in 2001.

services FDI such as electricity, water ortelecommunications, TNCs often enter viaprivatization. This is usually in response to adeliberate government policy to sell utilities toforeign investors and therefore cannot beconsidered as crowding out local providers.(There may, however, be the indirect effect ofcrowding out local suppliers of the previousState-owned company, if foreign affiliates switchto their own global suppliers.) Crowding outtakes place in services in which both domesticand foreign companies exist and can enter freely.For instance, it can occur in the hotel industry,where the entry of large foreign chains cansqueeze out small domestic hotels from segments

like mass tourism; on the other hand, in mostcountries both foreign and domestic hotelscoexist, catering to different sets of tourists. Inretailing, TNCs with competitive advantages interms of ways of doing business, pricingstructures, information management, marketingand merchandising methods and, in some cases,firm-level economies of scale, greater financialresources and negotiating power with suppliers,may squeeze out local competition. But this mayalso have beneficial effects: the remaining localretailers could be forced to upgrade (Goldman2000; Lo et al. 2001) and consolidate (Toktaliand Boyaci 1998), leading to improvedservices.26

Trade is a service industry in which FDI isrelatively high. Since the 1970s, the world’s largestretail TNCs have grown significantly. In 1976, thetotal sales of the largest retail TNC (SearsRoebuck) were below $15 billion (UNCTC 1989a,p. 191); in 2002, they (for Wal-Mart Stores)amounted to $245 billion. Over the past threedecades, the home-country composition of thelargest transnational retailers has shifteddramatically, away from the United States andtowards European countries. In 1986, 14 of the20 largest retailers were based in the United States(UNCTC 1989a, p. 191); by 2002, that number hadshrunk to 2 (annex table A.III.10). At the sametime, the number of European retail TNCs on thelist rose from 3 to 17. Food retailers or generalmerchandisers, rather than specialty providers,dominate the expansion of the retail industry(annex table A.III.10).

The degree of transnationality of the largestretail TNCs has risen dramatically. By 2002,leading players had extended their operations to20-30 countries. In the near future, large retailTNCs may become as transnationalized asmanufacturing TNCs. Nevertheless, despite theirfast foreign expansion, most of the retail TNCscannot yet be called fully global firms (Currah andWrigley 2004), as they continue to derive animportant part of their revenues from their homemarkets. Of the retailers listed, the share of foreignsales in total sales exceeded 50% in seven (IKEA,a

Delhaize, Christian Dior, Ahold, Kingfisher,Pinault-Printemps-Redoute, Otto Versand). ForTesco, foreign markets represented 22% of sales,and for Wal-Mart 19%.

The expansion of retail TNCs follows acomplex organizational geography. Different firmsand activities are organized and coordinated ondifferent spatial scales. With the notable exceptionof Africa, where smaller South Africa-based TNCssuch as Shoprite and Pick’n Pay dominate(Weatherspoon and Reardon 2003), the largestretail TNCs of the world are extending theirpresence into Latin America, East Asia and CEE,i.e. countries outside the Triad. Within thoseregions, retail TNCs target the more attractivemarkets that have larger consumer bases. In LatinAmerica, much of the inward FDI has beendirected to Argentina, Brazil and Chile; in Eastand South East Asia to Malaysia, the Republic ofKorea, Taiwan Province of China, Thailand and,increasingly, China; and in CEE to the CzechRepublic, Hungary, Poland and, to a lesser extent,Slovakia.

On the demand side, the global spread ofurbanization is resulting in new shopping habitsin many developing and CEE countries. It is themost important determinant of the fast growth ofthe retail industry, and its TNCs in particular. Onthe supply side, it is the combined effect ofsaturated home markets and good financialpositions that prompt large retailers from thedeveloped countries to try to sustain theirprofitability through international expansion (Coe2003). This leads to strong inter-firm competitionin all markets. In addition, technological progressin many areas related to retailing facilitatesinternational expansion and competition. Tradeliberalization and the opening of markets to FDIare the most important policy developments thathave accelerated the process.

132 World Investment Report 2004: The Shift Towards Services

Table III.13. Average compensation of employees in United States parent firms and their affiliates,selected years

(Compensation per employee, thousands of dollars)

1982 1989 2000

Item Services Manufacturing Services Manufacturing Services Manufacturing

Parent firms a 24.2 29.8 30.5 39.3 42.2 58.4Foreign affiliatesb 18.8 16.9 27.8 25.8 34.6 29.1 In developed countries 19.1 20.6 28.8 34.0 39.7 43.5 In developing countries 15.0 8.7 15.8 9.6 25.0 13.4

Source: UNCTAD, based on data from United States Department of Commerce.a United States non-bank parent firms with non-bank affiliates.b Majority-owned non-bank foreign affiliates of United States non-bank parent firms.

In banking, FDI has sometimes takenplace through the privatization of troubled State-owned banks (e.g. in CEE) or following financialcrises (e.g. in Mexico in 1995 and in East Asiaafter the financial crisis that began in 1997), withTNBs taking over distressed privately-ownedbanks. Both types of foreign entry have oftenoccurred with government encouragement. Thereare not many clear-cut cases of domestic banksbeing driven out of business as a result of theentry of TNBs. One reason may be that TNBsoften cater to a different segment of the marketthan domestic banks (Pomerleano and Vojta 2001;Clarke et al. 2000), although this is less likelyto be the case where foreign bank penetrationis high and where such banks have acquired largedomestic banks active in retail markets.

The competitive impact of FDI entry onservice supply conditions, as well as thelikelihood of its crowding out domestic firms,depend considerably on initial country conditions,especially the level of economic and service-industry development, the market structure of theservice industries and the regulatory frameworkin the host country. FDI can improve supplycapacity and conditions. Where markets areoligopolistic or segmented, however, the entryor presence of TNCs may not necessarily resultin benefits to customers unless the necessarypolicies and regulatory mechanisms are in place.

3. Technology, knowledge andskills

As in manufacturing, the most importantpotential contribution of services FDI todevelopment is the transfer of technology.Service TNCs may bring both hard technology(e.g. equipment, industrial processes) and softtechnology (e.g. knowledge, information,

expertise, organizational skills, management,marketing, technical know-how).

Service industries differ greatly in theirhard and soft technology mix. Industries suchas air and rail transport, communications,broadcasting, electricity, gas and water are highlycapital-intensive. United States data (for the mid-1980s) suggest that only a few services are inthe lowest capital-intensity group (Quinn 1987,p. 124). Since the equipment used by servicefirms is generally not proprietary, i t is alsoavailable to local service providers. In this sense,FDI is not essential for countries to access hardtechnologies.

Soft technologies are the main form ofknowledge and skills transfer in services FDI.Taking average salaries as an indicator of skilllevels, United States data suggest that the averageskill levels of employees in parent firms inservices are lower than those in manufacturing.The difference between the average skill levelsof parent firm employees in the two sectors hasincreased over time (table III.13). However,foreign affiliates of service TNCs in developingcountries were more skills-intensive than thoseof manufacturing TNCs, and that difference, too,rose somewhat during the period 1989-2000. Inaddition, compensation in service affiliates indeveloping countries was much closer to that ofaffiliates in developed countries (63%), whilethe comparable figure in manufacturing waslower (31% in 2000).

This points to a major difference betweenFDI in services and manufacturing, withimplications for their respective potential fortechnology transfer: FDI in manufacturing isbetter able to take advantage of low labour costsin developing countries by splitting up the valuechain and moving less skilled processes(remunerated at a lower level) to those countries

133CHAPTER III

Box III.13. FDI by sogo shosha: shifting from manufacturing to services

Box figure III.13.1. The share of the eight sogo shosha in Japan’s external trade, 1981-2002(Per cent)

0

10

20

30

40

50

60

70

80

90

100

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

a

2002

a

Exports

Imports

Source: JETRO.a Calculated based on the financial results of seven sogo shosha.

/...

Sogo shosha – or “general tradingcompanies”– have traditionally played a major rolein Japan’s domestic and international trade.a Thereare more than 11,000 trading companies in Japan,but only sevenb (annex table A.III.11) are classifiedas sogo shosha. They have contributed significantlyto the development of Japan’s trade, particularlythat of corporate groups (keiretsu), but also thatof other Japanese firms, especially SMEs, whichthey have helped penetrate international marketsand integrate into global production chains. Today,they have started playing a key role in businesspromotion, research and information, marketdevelopment, group management, riskmanagement, logistics, finance and large-scaleproject organizationc (Japan Foreign Trade Council2004).

At the same time, the share of Japan’s importsand exports accounted for by the sogo shosha hasdeclined gradually but significantly (box figureIII.13.1). But their share in imports hasconsistently remained above their share in exports.This reflects the important role of these firms assuppliers of strategically important items,especially oil, gas, minerals and other primaryproducts. On the export side, the decline is largelydue to Japan’s manufacturing TNCs establishingtheir own marketing and sales networks overseas.In addition, while the keiretsu continue to maintaina close relationship with the sogo shosha, thelatter ’s business transactions outside thesecorporate groups are increasing.

Indeed, sogo shosha invest in manyindustries, but the industries in which they makenew investments are changing. Prior to 1980,46% of the nine sogo shosha’s foreign affiliates(1,338 firms) were in manufacturing (in particulartextiles and chemicals), ahead of commerce(31%) (Yasumuro 1998). By host economy, theywere concentrated in Asia (46%) and thedeveloped countries (37%).

According to a survey conducted inNovember 2002, the five largest sogo shosha ownmore than 1,500 foreign affiliates, operating, asin the past, in almost all industries and businessactivities (Toyo Keizai 2003). The geographicalconcentration has not changed much (41% in Asiaand 41% in developed countries). Butmanufacturing no longer constitutes the majorpart of their FDI portfolio: foreign affiliates inservices account for 69% (of which half is incommerce).d In commerce, other than theirtraditional overseas offices that are locatedvirtually all over the world,e an interesting trendis an increase in trade of foreign brands ofautomobiles in developed countries (where sogoshosha operate as dealers in brand-nameproducts) and in wholesale and manufacturingin China,f as well as their rising participation inICT activities. Among the sogo shosha’s otherservice affiliates, the majority of them are eitherholding companies or they manage projectinvestments. In addition to finance, insuranceand transportation, they cover a wide range of

134 World Investment Report 2004: The Shift Towards Services

Box III. 13. FDI by sogo shosha: shifting from manufacturing to services (concluded)

than is (still) the case with FDI in services. Mostservices do not lend themselves, so far, to asimilar separation of low- and high-skilledprocesses, and hence there tends to be greateremployment of local staff in high-skilled (betterremunerated) jobs. But this is changing for someinformation-intensive services in which functionscan be separated to an increasing extent andlocated in foreign affiliates (chapter IV).

The skills involved in services affiliatesgenerally have three main components: technicalknowledge and know-how, marketing andorganizational and managerial expertise. Someskills are linked to the use of sophisticatedequipment, but most involve specializededucation, professional training or experience.TNCs that have skill advantages can, underappropriate conditions, contribute to host-countrycapabilities.27 Take some examples:

• Insurance requires specialized skills in riskmanagement (i .e. the measurement,identification and minimization of risk).Foreign affiliates can transmit these skillsto local employees, who can thendisseminate them when they move.

• In banking, where risk-managementtechniques and technology have beenchanging due to competition and the use ofICTs, TNBs may transfer organizational,managerial and marketing expertise toaffiliates. They may also transfer know-howregarding new or standardized products,created and tested in parent companies and

activities – from industrial park development toaircraft leasing and to database development.

In examining the 139 foreign affiliatesestablished by the top five sogo shosha in 2000-2002, the shift from manufacturing to services

becomes clear: 82% were in services (40% incommerce and 42% in other services). Most ofthe new FDI was directed to developed countries(51%); in developing countries, the focus remainson Asia (30%).

Source: UNCTAD, based on various publications and communications by Shigeki Tejima.a Originally, the shosha were known as “trading companies” or “trading houses”. As their activities expanded, some of

them became “general trading companies”. Most sogo shosha began from a base in a specific industry (e.g. metals ortextiles) and gradually moved to a variety of activities (Roehl 1998, p. 202).

b There used to be nine, but one of them, Kanematsu, became “senmon shosha” (specialized trading company) in 1999.With the merger between Nissho Iwai and Nichmen in April 2003, they are now seven.

c They also coordinate Japanese ODA projects (www.euroact.co.jp/oda-japan/AboutODA/Key_Players/Sogo_Shosha).d According to the 2003 annual reports of the five largest sogo shosha, out of 660 foreign affiliates listed as their principal

subsidiaries and associated companies, 49% are in commerce and 28% in other services.e The majority were established in the 1960s as wholly-owned affiliates. Among the 248 foreign affiliates established prior

to 1980, 57% are in commerce and 14% in other services.f Almost all affiliates in China were established in the 1990s.

other units within their global corporatesystems, to their foreign affiliates, andperhaps also to banks in which they hold aminority interest. This is often an importantaspect of their competitive advantage overcompetitors in foreign markets. It alsoenables local employees in their affiliatesto acquire new skills and knowledge, andto pass them on should they move to a localcompetitor.28 For example, foreign bankshave transferred the latest banking skills andtechniques to banks in Hong Kong (China)(Carse 2001). Imitation can also beimportant. For instance, following the entryof TNBs, Turkish banks began to adoptmodern planning, budgeting andmanagement information systems andelectronic banking techniques (Denizer2000).

• In the hotel industry, specialized skillsconcern the pre-operational phase(engineering, architecture, mechanical,interior design, choice of location andmarket segments) as well as the operationalphase (preparation of rooms and food,laundry, other personal services). They alsoinvolve direct interaction between personneland customers and the processing ofinformation (e.g. computerized reservationsystems, credit facilities, centralized billing,check-in and check-out, other front- andback-office operations). Foreign affiliatesas well as franchisees are likely to havegreater access to this soft technology.

135CHAPTER III

The potential for technology and skillstransfer does not mean that it occurs equally inall host countries. What determines the outcome?

Intensity of competition. This determinesthe incentive for foreign affiliates to use the besttechnologies available within their TNC systems.

Quality of education and training in hostcountries. This determines the ability of hostcountries to attract knowledge- and skill-intensiveservices. It also determines the capacity ofemployees to absorb the expertise and skillsprovided by formal training, contacts withexperts, international communications, or thetransfer of equipment and operating procedures.

Training and personnel policies of TNCs.These determine whether the skills needed byforeign affiliates are acquired by training host-country employees, competing for skilled labourin host-country markets or hiring expatriates (anexpensive option and one that may be limited byhost-country policy). The first involves thetransfer of technology, while the second,depending upon the labour market, may representan internal brain drain that could crowd out localfirms.

Adapting to the local environment. Thisconcerns the ability and willingness of foreignaffiliates to create and util ize knowledgeeffectively in a host economy and transmitentrepreneurship and trust-based institutionalmechanisms to their employees and to other firmswith which they have dealings.

Labour market structure and mobility.Competition in host-country labour markets andefficient labour market institutions help foreignaffiliates hire the best qualified employees. Theyalso facilitate labour mobility, important fordiffusing new skills.

Linkages between foreign affiliates anddomestic service suppliers and buyers in hostcountries. These allow domestic firms to acquiresoft technologies from foreign affil iates bycontact with experts, information flows andobservation.

Systematic evidence on the extent oftransfer and dissemination of knowledge,expertise and skills by service TNCs is limited.But TNCs in services such as banking, insurance,professional services (management, engineering,accounting), and hotels and restaurants generallyprovide training to their employees at variouslevels (UNCTC 1989b, p. 22; WIR95, p. 185;

WIR94, p . 229; Denizer 2000). In addition,transnational consultancy firms help upgradeindigenous management expertise in domesticfirms (in the goods as well as services sectors)(WIR95, p. 185).

4. Export competitiveness

Direct cross-border exports by serviceTNCs, or goods TNCs investing in services,relatively limited until recently, have startedgrowing as a result of IT-enabled trade in services(chapter IV). However, the indirect impact ofservices FDI on export competitiveness – i.e. onsystemic competitiveness – can be significant.FDI in intermediate services can directly andindirectly help goods producers become moreefficient. Such services range from trade-support,banking, insurance and business services totransport, electricity and telecommunications. Forexample, transnational trading corporations canhelp boost host-country exports through theirforeign affil iates; these can be importantintermediaries between host-country producersand markets abroad. Some – such as the Japanesesogo shosha – have played an important role byinvesting in export-oriented primary,manufacturing and service activities in hostcountries (box III. 13). FDI and internationalalliances in air transport can improve air-cargoservices. And, as discussed above, TNCs haveplayed an important role in expanding telecomservices and enhancing the competitiveness ofthese services in a number of developingcountries, thus facilitating trade.

TNC (equity and non-equity) involvementin tourism services catering to foreign travellershas improved the export competitiveness in thetourism industry of host countries. Internationaltourism is an important foreign-exchange earnerfor four-fifths of developing countries, and theprincipal one for one-third of them (WorldTourism Organization 2002). After petroleum,tourism is the primary source of foreign-exchangeearnings in all 50 LDCs. It is particularlyimportant for small island countries, notably inthe Caribbean. Many, but not all, segments oftourism in developing countries need FDI tocompete internationally. A large number ofcountries focus, in varying degrees, on attractinginternational hotel chains. In Botswana and theCaribbean, for example, nearly two-thirds of thehotels are foreign-owned, but in most, there isa mix of international and local hotels.

136 World Investment Report 2004: The Shift Towards Services

Source: UNCTAD.

a Based on almost 400 TNBs with majority-owned foreign affiliates (subsidiaries) involved in financial services (datafrom the Bankers Almanac database, October 2003). Central banks are excluded.

Box.III.14. The world’s bankers

The financial services industry hastraditionally accounted for the largest share ofservices FDI in all regions. In developing countriesand CEE, its share in services FDI stock is stillhigh, at 22% in 2002. In developing countries, thestock of FDI in financial services grew 1.5 timesbetween 1990 and 2002, to $250 billion (annextable A.I.18). In CEE, it rose from virtually nothingto $37 billion over the same period. In bankingalone, cross-border M&As, the principal mode offoreign entry into developing countries and CEEduring the 1990s (CGFS 2004), amounted to nearly$80 billion for the period 1995-2003 (comparedto $2 billion for 1987-1994).

Among the major players, there is a splitbetween financial conglomerates offering a widerange of financial services and specialized financialservice providers. Some banks have integratedvarious financial services under one umbrella,while others remain specialized and concentrateon specific business lines. For example, ING rankshigh on the list of both the largest banks and thelargest insurance providers.

Among foreign investors in banking, TNBslead, although non-bank investors (such asinvestment funds) also sometimes take directinvestment positions. Today, the 20 largest TNBs(annex table A.III.12) are dominated by banks froma small group of developed countries: more thanhalf are from the EU (France, Germany, theNetherlands, the United Kingdom) and theremainder are from Japan, Switzerland and theUnited States. As noted in the text, the mostdramatic change in the list of the largest TNBsin the past 20 years or so is the marked reductionin the number of Japanese banks.

About 60% of a large sample of TNBs arefrom developed countries, about a third fromdeveloping countries and 5% from CEE.a Of theTNBs’ 10,102 foreign subsidiaries, 65% werelocated in developed countries, 30% in developingcountries and 6% in CEE at end-2002. TNBs fromdeveloping countries and CEE are generallyrelatively small by international standards and lessinternationally active (with a physical presencein relatively few foreign banking markets). None

of them are global players, and only a few (withthe major exception of some South African TNBsin Africa) are strong regional players, while a merehandful are from LDCs (Bangladesh, Senegal,Togo).

The largest TNBs ranked by asset size arenot necessarily the most transnationalized in termsof the geographic spread of their foreignsubsidiaries. An indication of this is the differencesin the ranking of the 20 largest TNBs (annex tableA.III.12) by the number of host countries in whichthey maintain at least one subsidiary comparedto their ranking by their total assets. CréditAgricole, while highly global in operations, ismuch smaller than Sumitomo Mitsui BankingCorporation. The latter, though very large, is muchless global. In fact, the largest Japanese TNBs havebecome less transnationalized, due to a significantscaling down of their foreign operations as a partof the restructuring of parent banks. Indeed, FortisBank, Banca Intesa and Standard Chartered Bank,for example, are not even among the 20 largestranked by assets, but all have a higher globalpresence than do the much larger “big four”Japanese TNBs. These differences become moremarked the larger the number of TNBs includedin the ranking. TNBs from developing countriesbegin to enter the ranks of the most global TNBsbefore they enter the rankings in terms of size,as they are in general relatively small. But, asexpected, the largest players are among thoseTNBs with a global reach. For example, HSBCand Citigroup, two commercial banking giants withclearly stated global ambitions, are at the sametime among the very largest and most transnationalplayers.

A significant proportion of TNBs’ foreignsubsidiaries are located within the region of thehome country. For TNBs from Africa, as well asthose from Latin America and the Caribbean andSouth, East and South-East Asia, 48% of theirforeign subsidiaries are located in the region oftheir home country, compared to 37% for TNBsfrom the EU and 30% for those from CEE. Thesefigures indicate the fairly strong intra-regionalnature of TNBs in terms of physical presence,particularly in developing countries.

137CHAPTER III

International chains are often prominent in thehighest quality end of the market, and thepresence of at least some can be critical to puttinga country on the global tourist map. These chainscan attract a critical mass of international tourists,while other tourists relying on less expensive,locally-owned hotels, might follow. The largechains also have access to international touroperators, another vital feature of the tourismnetwork. Analysts of the life cycles of touristdestinations have noted that, while drifters orbackpackers might “discover” destinations (suchas Goa, Bali or Morocco in the 1970s), the realeconomic pay-off comes from attractinginternational hotel chains and being part ofmainstream tour-operator programmes. Thepotential offered by tour operators based intourism-generating countries is especiallyimportant for many developing countries that lackthe resources needed for international marketingcampaigns. Large tour operators influence manyaspects of tourism demand in host countries,including image creation, access to consumers,volume and type of tourism.

5. Employment

FDI in services, as in manufacturing,creates employment in host countries. In the shortterm, employment effects vary according towhether a particular project is greenfield, amerger or an acquisition. In the special case ofM&As, there may be a decline in employmentas companies are restructured and rationalized.Indeed, most studies find that employment inprivatized firms usually falls.29 In Argentina, forexample, increased profitability, efficiency andoperational productivity in telecommunicationscame at the cost of a large cut in employment(Galiani et al. 2003). This was also true of Brazil(Anuatti-Netto et al. 2003) and Chile (Fischeret al . 2003). However, negative short-termemployment effects are often reversed in themedium to long term as sales rise (Sheshinskiand López-Calva 2003).

How large is employment generationfrom services FDI compared to that frommanufacturing FDI? Perhaps contrary toexpectations, given the larger human elementtraditionally associated with services, servicesFDI generally does not create as muchemployment per dollar invested as manufacturingFDI. According to data for Germany, Japan,Switzerland and the United States for the period

1999-2001, services accounted for a much largerproportion of FDI stock (50% to 60%) than theshare in total employment of their respectiveTNCs’ foreign service affiliates (about 40%,except for Japan where it was only 15%).

This suggests that, while employees inforeign service affiliates are, on average, bettertrained and better paid than those inmanufacturing, the direct job-creating potentialof these affiliates is lower than in manufacturing.It also reflects the stand-alone nature of mostforeign affiliates in services and the (still) limitedability of TNCs to break up service products intocomponents and to find the best location for theirproduction. However, FDI in holding companiesand in some kinds of financial affiliates (includedin services FDI) generates little economic activityand, hence, little employment in host countries(section B.2). For example, in the case of UnitedStates outward FDI, on average $136,000 of FDIstock (excluding stock in banking) generated onejob in 2001; the corresponding figure for stockin financial affiliates was $656,000 and for stockin holdings, $21 million. Of course, non-equityforms of TNC participation (which do notcontribute to FDI flows or stock) contribute toemployment generation, but foreign-affiliateemployment data do not capture this.

The potential for job creation by servicesFDI is growing with the rise of export-orientedservices. FDI in these services can be expectedto generate more employment per dollar than FDIin location-bound services (chapter IV). Also,aside from the direct impact of services FDI onemployment, indirect effects are important. Inparticular, the greater availability and betterquality of producer or intermediate services asa result of FDI can stimulate production indownstream industries and add to employmentin those industries. In host countries wheresupplier industries of international standards existor can be developed, production and employmentin upstream industries can also increase. Theseeffects can be particularly significant in someservices such as telecom services.30

6. An assessment

The net effects of services FDI on hostcountries are difficult to assess — but i t isimportant to start with a clear view of thepotential benefits. Technology in the provisionof many services is changing rapidly, and servicesare playing an increasing role in boosting

138 World Investment Report 2004: The Shift Towards Services

Box III.15. FDI in telecommunications: effects on supply and costs in host economies

Source: UNCTAD, based on Mortimore 2003.

a Organismo Supervisor de Inversión Privada en Telecommunicaciones, www.osiptel.gob.pe.b The experience of Costa Rica and Uruguay demonstrate that a fair amount of modernization can be achieved without

privatization and FDI, on condition that the Government can successfully acquire the capital and technology required.

competitiveness. They are becoming indispensablefor most production activities, and they areconstantly changing and improving.Manufacturing activities themselves have asteadily growing component of services (in R&D,design, logistics, marketing, servicing), many ofwhich are subcontracted to sophisticated,specialized suppliers. Service providers in areassuch as banking, media and transport can serveas valuable links to the outside world, providinginformation, contacts and skills. And,increasingly, many services can be exporteddirectly, thanks to ICTs.

The entry of service firms from moreadvanced countries can thus improve theconditions of service provision to consumers andproducers in host developing economies,including for producers of goods and servicesthat are newcomers to international competition.Service TNCs can bring with them state-of-the-art techniques (soft technology) which, whereproperly transferred and deployed, can transformthe provision of services in the relevant activitiesand raise skill levels in host economies. TNCscan also provide new services that local firmshave not developed, or cannot develop without

Evidence on the availability andperformance of telecom services after large-scaleforeign entry, covering 85 developing countriesfor the period 1985-1999, points, on balance, toan improved and more competitive provision ofservices owing to better firm performance (Finket al. 2002). FDI has increased supply capacityin telecommunications in developing andtransition economies and improved reliability,especially by providing mobile telephony. Incountries with strong regulatory systems, FDIhas led to improved telecom services andcontributed to higher economic growth (Norton1992; Roller and Waverman 2001).

In many countries in Latin America, FDIwas deemed necessary for improving theirtelecom systems. In general, the process broughthigher levels of investment, significantimprovements in services, greater efficiency andproductivity, more operators and more products.Over the decade 1992-2002, fixed-linepenetration doubled in Latin America. In the caseof mobile telephony (which took off in the early1990s), the number of subscribers rosesubstantially, to reach that of fixed linessubscribers in 2003.

In Argentina, the number of fixed linesdoubled from 3.8 million in 1989 to almost 8million in 1999, and the number of publictelephones rose from 1,300 booths to over170,000. Productivity improved from almost 92lines per worker to around 400 lines per worker

(Gerchunoff et al. 2003). In Peru, investment wassignificant and services expanded and improvednoticeably. There was an improvement inresidential and public telephony penetration: thedensity of public phones climbed from 0.35 to4.5 for every 1,000 residents between 1993 and2003, and fixed lines from 3.2 to 6.9 per 100residents between 1994 and March 2004.a

However, the picture is not one ofunalloyed benefits. Competition problemsemerged in several cases. In mobiles, biddingfor licences resulted in oligopolistic competition;in fixed-line services, State monopolies werefrequently turned into foreign-owned quasi-monopolies with long exclusivity periods. Pricessometimes rose because of reductions insubsidies.

When FDI took place without competition,or when competition was delayed, the incentivefor investors to improve capacity (e.g. lineconstruction) was reduced. In Argentina, Mexicoand Venezuela, there was a sharp increase intelephone line construction immediately afterprivatization, only to fall later to below theregional average.b In these cases, while telecomenterprises were transformed from loss-making,subsidized entities into tax-paying firms, part oftheir profitability arose from monopoly positionsand captive regulators. In Argentina, theprivatization of Entel did not result in lowerservice prices (Abeles 2002), and in Brazil,greater efficiency was accompanied by higherprices (Anuatti-Neto et al. 2003).

139CHAPTER III

the complex networks and skills to which TNCshave access. Some of these new services, as inlogistics management or insurance riskmanagement, can be important for enabling acountry to compete in international markets.

FDI can also spur local service providersto become more competitive and, bydemonstration effects and skill diffusion, helpthem improve efficiency. Where service provisioncalls for large investments, as in basicinfrastructure, FDI can help bridge the investmentgap in developing countries. Furthermore, theentry of flagship service TNCs can improve theinvestment image of a host country, helping itto attract other investors.

However, these benefits may only berealized if conditions in a host economy areappropriate. A number of services are inherentlymonopolistic, while others are prone to systemicrisk and require strong supervision andgovernance structures. In addition, there are risksthat are associated with social or cultural impacts,the crowding out of local firms or the deprivationof services to poorer groups. Thus, services FDIentails three kinds of risk:

• Systemic risk exists where the absence ofeffective regulation can expose a hosteconomy to significant economic instability.For instance, in financial services, the entryof foreign financial institutions mightundermine the ability of national authoritiesto exercise control over international capitalmovements into and out of their countries(Cornford 1993; Cornford and Brandon1999; Montgomery 2003). Also, the risk ofvolatility in foreign-exchange flows may risewith the entry of international financialservice providers. Furthermore, there is apossibility of contagion effects from foreigncrises in the home market or third-countrymarkets that are transmitted via the presenceof foreign banks (CGFS 2004; Clarke et al.2003; Hawkins and Mihaljek 2001; Peek andRosengren 2000). On the other hand, if thealternative to TNB participation in a hosteconomy is reliance on the internationalcapital market or borrowing, the risk ofvolatility in capital flows and contagion maybe even larger. The possibility of contagionthrough cross-border lending by foreignbanks has been observed in several cases,but so far contagion through foreign-bankaffiliates has been less well studied. As the

Asian financial crisis demonstrated, thecosts of instability can be high. The problemis not necessarily one of foreign banks assuch — domestic banks can alsointermediate international capital flows and,under certain conditions, contribute todomestic financial instability. But a largeforeign presence may exacerbate volatility.31

• Structural risk can arise from services FDIin activities with large inherent monopolisticelements. Where the regulatory apparatusneeded to manage privatization and regulateutili t ies is insufficient, State-ownedmonopolies may turn into private ones andimpose high costs on an economy, even ifthey are run more efficiently. Somedeveloping countries are short on the skillsneeded to negotiate appropriate deals andprovide such a regulatory apparatus; asexamples show, this can create hostility tofurther FDI in privatization (box II.13). Insome cases, there may not be many serviceTNCs to choose from: the global waterindustry for example is dominated by threelarge corporate groups that are among thelargest TNCs in the world (box III.9). Thepotential for structural risk calls for aninstitutional upgrading in the regulation ofmarkets.

• Contingent risks can arise from services FDIin socially or culturally sensitive areas,causing unintended harm. Changes toconsumption patterns by the entry ofefficient retail TNCs is a case in point. Forexample, in Thailand, their entry has led tothe disappearance of many local markets andstreet stalls and has affected traditionalconsumer habits (Hewison 1996; Robisonand Goodman 1996). The takeover of mediaby foreign firms may be inherentlyunacceptable in some cases, especiallywhere market concentration is high. Theremay be inequities in the distribution ofessential services provided by foreignaffiliates if left to market forces, unlessgovernments ensure that remedial measuresare taken. Foreign service providers maycrowd out local providers if factor marketsfavour foreign firms in, for example,providing access to capital or skills. It is,therefore, important for host-countrygovernments to be clear about what theyseek and what they can expect from foreignaffiliates in such industries.

140 World Investment Report 2004: The Shift Towards Services

Box III.16. The pluses and minuses of TNB participation

Positive impacts. The participation ofTNBs may benefit the banking system of a hosteconomy in various ways:

• TNBs may bring in additional capital andrecapitalize, restructure and rehabilitatedistressed domestic banks in the host economy.

• Through other direct means, they maystrengthen the domestic banking system’shealth and resilience. They may be bettercapitalized than domestic banks, have betterrisk-management practices, allocate creditmore efficiently or make available financialinstruments for hedging risk. Not only can thisdirectly strengthen the domestic bankingsystem, it can also improve credit allocationand improve economic efficiency.

• They may directly introduce new bankingproducts and technology.

• TNB entry can stimulate increased competitionin a host-country’s banking market, which mayimprove the efficiency of domestic banks andthe quality and diversity of banking services,and perhaps lower prices.

• TNB entry can stimulate indirect effects(spillovers) on domestic banks in theiroperational methods, for example by causingdomestic banks to improve their risk-management and credit allocation practices.

• TNB entry can prompt a strengthening of themarket infrastructure (such as improved legal,accounting, disclosure or auditing standards).Their entry may also lead to improvedregulation and supervision in countries wherethese are weak.

• To the extent that TNBs are well diversified,they may directly improve the stability of thebanking system through their moreinternationally diversified portfolios.

• Due to greater diversification, TNBs may beless sensitive to local shocks, and as a resultthey may have more stable lending patterns;a domestic bank, on the other hand, might beforced to reduce credit in response to aneconomic shock.

• To the extent that financial support isforthcoming from parent banks (and perhapsin some cases – notably for branches – evenindirectly via the regulators of the parent banksthrough lender-of-last-resort facilities), TNBs

can more easily access funding frominternational financial markets, if needed, andcan provide stability in a crisis.

Negative impacts. TNB participation canalso weaken the domestic banking system orcreate problems for a host economy in variousways:

• TNB entry can affect the degree ofconcentration of the banking industry andmarket contestability.

• In countries with a weak regulatory frameworkand poorly prepared bank supervisors, theregulation of TNBs may be difficult.

• TNBs may target the largest and mostcreditworthy clients and crowd out domesticbanks from the most creditworthy customerbase.

• If domestic banks are unable to competeeffectively with TNBs, they may respond bytaking on high-risk business, which couldundermine their health and that of the domesticbanking system, particularly where banksupervision is weak.

• TNBs may ration credit to SMEs, making itdifficult, in some cases, for the latter to obtaincredit.

• TNBs may be less amenable to monetarypolicy via “moral suasion”.

• TNBs may shift funds between markets, evenin an abrupt manner, reflecting perceived risk-adjusted returns; this could cause relativelyvolatile credit patterns if risks and returns indifferent markets change quickly.

• Profit repatriation by TNBs may place pressureon the balance-of-payments of host countries.

• TNBs may reduce local operations orwithdraw from a host-country market becausethe parent bank may “cut and run” during acrisis in a host country, rather than act as asource of stability.

• TNB entry may expose a host-country’sbanking system and a host economy tocontagion from crises and wider economic andfinancial developments abroad.

• TNB entry might reduce the ability of nationalauthorities to exercise control overinternational capital movements to and fromthe host country.

Source: UNCTAD, based on the literature cited in footnote 22 of this chapter.

141CHAPTER III

Banking provides a good illustration ofthe diverse effects that must be taken into accountwhen assessing the overall impact of FDI inservices in a host country (box III.16). To identifyand assess these various effects, and arrive at apolicy response that maximizes the benefits fromservices FDI and minimizes the negative impacts,is not easy.

The challenge of balancing variouseffects and objectives also characterizesprivatizations. What is the evidence of the impactof FDI in privatization? Privatized firms,regardless of their ownership, tend to becomemore efficient and profitable, increase investmentspending and improve their financial health(Megginson and Netter 2001). Furthermore,evidence from economies in transition,distinguishing foreign from domesticprivatizations, shows that foreign ownership wasassociated with greater post-privatizationimprovements than was domestic ownership.32

However, higher profitabili ty is notsynonymous with increased economic efficiencyif firms operate in an uncompetitive environment,or if they can capture the regulators. Nor doesit mean that social objectives are met. Utilitiesproviding basic services such as electricity, wateror telecoms are particularly sensitive in theserespects, and the provision of these services tothe poorer or more remote segments of acommunity requires special policies andcontractual commitments (chapter V).

These difficult cases should not, however,distract from the fact that services FDI isbecoming an important element of systemiccompetitiveness. The implications of this for theprocess and pace of development, even more thanwith other kinds of FDI, have to be consideredcarefully. The special nature of some services,particularly in basic utilities and socially orculturally sensitive areas, means that free marketscannot be left to work efficiently by themselves.Strong, independent and competent regulatorystructures are vital if the potential economicbenefits of FDI are to be realized. It is not easyfor developing countries to build such structures.Regulatory agencies need specialized skills andinformation and the capacity to adaptcontinuously to rapidly evolving conditions ofmarkets, technology and corporate strategies.They also need to be able to draw upon theexperiences of regulators in other parts of theworld and to experiment with them in their owncontexts. Moreover, while an evaluation of theeconomic benefits of any kind of FDI has to beset against the value of maintaining diversity ofinstitutions or belief systems, this dilemma ismore marked in services FDI. This is because ofthe greater human element in services andbecause a number of services take the form ofpublic goods: the “externalities” of services arethus likely to be more important than those ofgoods. Hence, much depends on policies at thenational and international levels to maximize thepositive effects of services FDI and minimize itsnegative ones – an issue taken up in chapters Vand VI.

1 On a balance-of-payments basis, including salesbetween residents and non-residents (whether by cross-border sale or by temporary movement of buyers orproviders). Balance-of-payments data on services tradecompiled by the IMF cover the following:transportation, travel, communication services,construction services, insurance services, financialservices, computer and information services, royaltiesand licence fees, other business services, personal,cultural and recreational services and governmentservices (IMF 1993).

2 In this volume, the term “tradability” refers to theability to supply services across borders, i.e. it is basedon the traditional concept of cross-border trade ofservices from one country to another. For the purposeof the General Agreement on Trade in Services (GATS),however, “trade” includes not only cross-border trade,but also consumption abroad (by a service consumermoving to another member ’s territory to obtain aservice), commercial presence (by a service supplier

Notes

of one member establishing a presence in anotherterritory to provide a service) and the presence ofnatural persons (by persons of one member enteringtemporarily the territory of another to supply a service).See WTO “The General Agreement in Services (GATS):objectives, coverage and disciplines”, at http://www.wto.org/English.

3 The growing importance of FDI in services was notedin the mid-1980s by the United Nations Centre onTransnational Corporations (UNCTC) in a number ofstudies. For the first comprehensive analysis of FDIin services, see UNCTC 1989a. Two other studiesfocused specifically on conceptual and theoreticalissues (Dunning 1989), and on impact and policy issuesfor developing countries (UNCTC 1989b). Otherstudies by UNCTC and UNCTAD followed; see http://unctc.unctad.org.

4 Aggregated FDI data on business services should beinterpreted with caution, as their coverage in countriesvaries considerably. For example, real estate may

142 World Investment Report 2004: The Shift Towards Services

include not only services of real estate agencies butalso fixed assets (buildings). Some economies includeholding companies, which greatly inflate the value ofFDI. A case in point is Hong Kong (China), whichaccounts for 27% of the world stock of inward FDIin business services, owing largely to the inclusionof holding companies.

5 Especially in the United States, where Japanese FDIstock jumped from $1 billion in 1985 to $15 billionin 1990.

6 The share of developing countries in world outwardFDI stock in manufacturing during this period rose onlyfrom 1% to 4%.

7 But it is difficult to say whether the full liberalizationof FDI in air transportation would result in much higherFDI. For example, in the hotel industry, manydeveloping countries in the past had a strong preferencefor control of the physical assets in their territories.They thus preferred local ownership, sometimes inminority joint ventures with foreign investors, whichled to the proliferation of non-equity arrangements.Nowadays, most countries have lifted restrictions andseek not only the presence but also the capitalinvestment of international hotel chains. Although amore liberal investment climate gives companies agreater choice of modes of entry, the preferred modecontinues to be non-equity arrangements in a numberof industries. Thus, one would have to take a closerlook at ownership-specific advantages of airlines beforemaking a judgment about the impact of FDIliberalization on the modes of entry in this industry.

8 Based on data from World Bank 2004b.9 Conversely, service TNCs can establish manufacturing

affiliates abroad. This is especially the case with UnitedStates’ wholesale trading TNCs: in 1999, 72% of thegross product of their majority-owned foreign affiliateswas in manufacturing and only 13% in wholesale tradeservices. The same applies to the Japanese sogo shosha(box III.13).

10 According to data from their respective annual reports,roughly half of their sales were in services.

11 The restructuring resulted in a series of national M&Asamong the largest Japanese banks, leading to thecreation of four major financial groups: Mizuho,Sumitomo Mitsui, UFJ and Tokyo-Mitsubishi. In July2004, UFJ and Mitsubishi Tokyo Financial Group(MTFG) announced discussions on a possible merger.

12 Cross-border M&As occur in waves. They intensifyduring economic upturns and weaken during recessions.The M&A boom of the late 1980s ended with therecession of the early 1990s. In the second half of the1990s, M&As rebounded, producing an M&A boomon an unprecedented scale. They then halved in valueduring the economic downturn of 2001-2003.

13 As discussed in chapter I, the Transnationality Index(TNI) of a company is a measure of the relativeimportance of foreign affiliate activity in a TNC’s totalactivity. UNCTAD’s TNI is a composite measure ofthe average of a TNC’s foreign assets, employmentand sales, relative to its total assets, employment andsales, respectively. But the Index can also be calculatedfor other variables, such as the number of foreignaffiliates relative to total affiliates.

14 The reverse processes can also take place, i.e. serviceproduction can be internalized, by being undertaken

in-house. However, the overall trend is in favour ofexternalization.

15 These cover six types of services (Dunning 1993, p.46): (i) those the sales of which depend on the presenceof people, goods or other services located in the countryof use (hotels, restaurants, car hire, constructiondevelopment, motion picture production, real estate,news agencies); (ii) transport facilities; (iii) mosttelecommunication and public utilities; (iv)warehousing, wholesaling and retailing services; (v)most public administration and social and community-related services; and (vi) services that require face-to-face contact between buyer and seller.

16 Past WIRs have documented the emergence of suchnetworks in manufacturing industries; examples includeFord’s network in Europe (WIR93), Toyota’s networkin Asia (WIR96,WIR01) and Honda’s inter-regionalnetwork (WIR96).

17 This is the category that includes most tradableservices; in 2002, it accounted for more than 40% oftotal outward and inward transactions in services.

18 Zimny and Mallampally 2002, p. 108.19 For a full discussion of FDI impacts in general, see

in particular WIR99, but also WIR97 (for the impactof FDI on market structure and competition), WIR01(on linkages) and WIR02 (on export competitiveness).

20 The financial needs of some infrastructure services canbe high owing to the capital-intensity nature of theindustry concerned (as in electricity or fixed-linetelecommunications). In others, such as corporate orbusiness services, capital investment needs are muchsmaller (see chapter IV).

21 These additional resources may be as large as the FDIinflows themselves – see WIR99, p. 160.

22 Ahumada and Marshall 2001; Akbar and McBride2004; Aleem and Kasekende 2001; Barajas et al. 2000;Baudino et al. 2004; Beck 2000; Berger et al. 1999;Berger et al. 2000; Berger et al. 2001; Bonin and Abel2000; Bonin et al. 2004; Brownbridge 1998;Brownbridge et al. 1998; Brownbridge et al. 1996;Caprio 1996; Caprio et al. 2001; Cardenas et al. 2003;Carse 2001; CGFS 2004; Chirwa and Mlachila 2004;Chua 2003; Claessens and Glaessner 1998; Claessensand Jansen 2000; Claessens and Laeven 2003;Claessens et al. 2001; Clarke et al. 2000; Clarke etal. 2002; Clarke et al. 2003, 2004; Coppel and Davies2003; Cornford 1990, 1993; Cornford and Brandon1999; Crystal et al. 2001; Dages et al. 2000; Daumontet al. 2004; de Carvalho 1998, 2000; de Freitas andPrates 2000; de Nicolo et al. 2003; de Paula 2002, 2003;de Paula and Alves 2003; Demirguç-Kunt and Huizinga1999; Denizer 2000; Dobson and Jacquet 1998; Drakos2003; ECLAC 2003b; Galac and Kraft 2000; Galindoet al. 2003; Gallego et al. 2002; Gelos and Roldos 2004;Goldberg 2003; Goldstein and Turner 1996; Hapitan2001; Hasan and Marton 2003; Hausmann and Gavin1996; Hawkins and Mihaljek 2001; Honohan 2000;IMF 2000, 2001; Jenkins 2000; Kim 2002; Kim andLee 2004; Kiraly et al. 2000; Kireyev 2002; Kono andSchuknecht 2000; Kraft 2002; Kraft et al. 2002; Laeven1999; Lensink and Hermes 2004; Levine 2001; Loong2004; McKinsey Global Institute 2003; Majnoni et al.2003; Manzano and Neri 2001; Martinez Peria andMody 2004; Mathieson and Roldos 2001; Mero andValentinyi 2003; Milo 2001; Mishkin 1997, 1999, 2001;

143CHAPTER III

Montgomery 2003; Montreevat 2000; Murinde andTefula 2003; Park 2003; Pastor et al. 2000; Peek andRosengren 1997, 2000; Pomerleano and Vojta 2001;Stiglitz 1994; Studart 2000; Tamirisa et al. 2000;Tinghuan 2001; UNCTAD 1996a; Unite and Sullivan2003; Uribe 2001; Vander Stichele 2003; Xiaochuan2004; Yacaman 2001.

23 For a discussion of these issues, see, e.g. Bonin andAbel 2000; Clarke et al. 2000; Denizer 2000; Drakos2003; ECLAC 2003b; Kiraly et al. 2000; Loong 2004,Kraft 2002; Majnoni et al. 2003b; Martinez Peria andMody 2004; McKinsey Global Institute 2003.

24 For further discussion and evidence, see, e.g. Bergeret al. 2001; Brownbridge 1998; CGFS 2004; Clarkeet al. 2002, 2004; de Freitas and Prates 2000; Hawkinsand Mihaljek 2001; IMF 2000; Kraft 2002; Laeven1999; Pomerleano and Vojta 2001; Yacaman 2001.

25 A universal service fund supports investment in areas(or for the benefit of social groups) that are notcommercially attractive. Such funds do not replacemarket forces, but supplement them to assure supplyto targeted consumers.

26 In Mexico, for example, the three domestic hypermarketchains have repeatedly taken a number of steps inresponse to competition from Wal-Mart, which boughtCifra – the country’s largest and strongest retailer –seven years ago. They overhauled their purchasingand pricing strategies, revamped their stores, introducednew products and invested in computer systems anddistribution centres. They are also planning a jointpurchasing company that could strengthen theirnegotiating power with suppliers (International HeraldTribune, 10-11 July 2004, p. 13).

27 See UNCTC 1989b, pp. 17-22, for a discussion oftechnology transfer in the insurance, banking and hotelindustries.

28 In Turkey, for instance, staff quality increased followingforeign bank entry, as they often send locally recruitedstaff to their training centres abroad and provide

training of other kinds. More recently, both foreignand local banks have been competing actively for well-trained graduates (Denizer 2000).

29 For example, in CEE, where State-owned enterprisesaccounted for half or more of total employment priorto the beginning of transition, privatization involvingcross-border investors (as well as domestic ones), andthe restructuring that followed, led to large employmentcuts in the enterprises acquired. A 1999 UNCTADsurvey of the pre- and post-privatization performanceof 23 major companies acquired by foreign investorsin seven countries of CEE found that employment inthem fell before as well as after privatization (Kalotayand Hunya 2000). Also, according to the ILO (ILO,2001b), restructuring, which typically accompaniesM&As in financial services, frequently resulted in theelimination of jobs and a shift from traditional full-time to part-time work.

30 It has been estimated that, in the case of mobiletelecommunications, the cumulative value added andemployment of first-rank suppliers were nearly fourand five time higher, respectively, than those of telecomoperators in France during the period 1991-2002(Orange 2003). The downstream effects of investmentin telecommunications – often a precondition forproduction activity in modern economies – are likelyto be even larger.

31 Regulation can help to deal with this problem. Forexample, volatility can be discouraged throughinstruments such as those used in the 1990s by Chileand Colombia (and currently in Argentina), namelythe requirement to keep a proportion of capital inflowsas non-remunerated deposits in the Central bank fora certain period of time before capital is allowed tobe repatriated.

32 According to Mihályi (2001), privatization in Hungarysimply did not produce the expected results withoutthe involvement of TNCs.

144 World Investment Report 2004: The Shift Towards Services

145CHAPTER III

AnneAnneAnneAnneAnnex to cx to cx to cx to cx to chahahahahapter III. Whapter III. Whapter III. Whapter III. Whapter III. What art art art art are sere sere sere sere services? Classifying invices? Classifying invices? Classifying invices? Classifying invices? Classifying invisibvisibvisibvisibvisibleslesleslesles

social services (education, health, welfare andreligious services, postal services, governmentalservices) and personal services (domestic, repair,barber and beauty shops, hotels, restaurants,entertainment) (Browning and Singelmann 1975).Services can also be classified according to theirfactor- and knowledge-intensity: capital-intensive(such as electricity, telecommunications andtransport), human-capital-intensive (e.g. callcentres) or knowledge-intensive (insurance,professional business services).

For the purpose of the discussion inWIR04, services comprise all economic activitiesincluded under the “tertiary sector” in the UnitedNations International Standard IndustrialClassification (ISIC) (Rev. 3.1) (United Nations,Statistics Division 2002).a The broad categoriesof services in this classification includeelectricity, gas and water supply; construction;wholesale and retail trade; hotels and restaurants;transport (e.g. railway, water, air, pipeline);storage and warehousing; post andtelecommunications; financial institutions (banksand other institutions providing financialservices); insurance; real estate; businessservices; machinery and equipment rental andleasing; public administration and defence;sanitary and social services; social and relatedcommunity services (including education,research and scientific institutions, medical,professional and labour associations, radio andtelevision broadcasting, entertainment services);and personal and household services (repairs,laundry, shopping services).

The United Nations StatisticalClassifications Section is, however, embarkingon its fourth revision of the ISIC, for use from2007. Many of the proposed changes reflecttechnological developments, as well as the effectsof deregulation, liberalization and privatizationof activities that were formally held under Statemonopoly. For example, suggested changes thathave implications for services include thecreation of two separate categories for electricityand water (currently grouped together); a newinformation and communication category, withsecond-tier groupings for telecommunications,broadcasting and Internet providers (currently

Value-adding activities in an economyresult in the production of goods, services or acombination of the two. Services are usuallyperceived as intangible, invisible, perishable andrequiring simultaneous production andconsumption, while goods are tangible, visibleand storable, and do not require direct interactionbetween producers and consumers. But aconceptual distinction between goods andservices is not as straightforward as thischaracterization suggests. First, some serviceshave elements of tangibility (e.g. a consultant’sprinted report), visibility (theatre) and storability(voice-mail). Second, most goods are intendedto provide a service or function. Third, there arefew “pure” goods or services: nearly all goodsrequire non-factor services for their production,most services require physical assets andintermediate goods and, at the point of sale, mostgoods and services are jointly and simultaneouslysupplied – airline travel requires aircraft andother equipment, and cars need to be marketedand distributed.

These and other complications make itdifficult to formulate a clear-cut definition ofservices. No commonly accepted definition exists.Analyses of services generally adopt a pragmaticapproach by simply listing activities that theyconsider part of the services sector,acknowledging the fact that, as productionbecomes more complex, the boundaries betweeneconomic sectors become more and more blurred.Often, a residual approach is used – all activitiesnot included in the primary and secondary sectorsare classified as services. As a result, someactivities (e.g. construction, repair, public utilitiessuch as electricity, gas, water supply) aresometimes classified in the secondary sector andat other times in services.

Regardless of the definition or precisecoverage of services, for analytical purposes, theycan be classified in a number of ways. One broadclassification is that of consumer (final) andproducer (intermediate) services. Another is togroup them into distribution services (transport,storage, retail , wholesale trade), producerservices (banking, finance, insurance, real estate,engineering, architectural, accounting, legal),

146 World Investment Report 2004: The Shift Towards Services

a This classification is used for the classification of GDP data under the United Nations System of National Accounts(SNA), which is followed by most national accounting systems.

grouped under a sub-set of “transport, storageand communications”); and two new businessservice categories.

The Central Product Classification(CPC), developed by the United Nations morerecently, provides a greater level ofdisaggregation than the ISIC (United Nations,Statistics Divisions 1998). It focuses on productsinstead of activities and identifies more than 600service products. It is used not only as thereference for the identification of services underthe General Agreement on Trade in Services(GATS), but also to describe the services

components in the balance of payments asrecommended in the IMF’s Balance of PaymentsManual (IMF 1993). Major services categoriesin the CPC include transport services;communications services; construction services;insurance; financial services; computer andinformation services; merchandising and otherrelated-services; miscellaneous business,professional and technical services; legal,accounting, management consulting and publicrelations; personal, cultural and recreationalservices; agricultural, mining and on-siteprocessing services; and government services.

In July 2003, Infineon Technologiesannounced the establishment of three newcentres, in Dublin (Ireland), Kista (Sweden) andMunich (Germany), to rationalize its customerlogistics management that had, till then, beenhandled in 19 European locations.1 The sameyear, British Telecom set up two call centres inIndia, in New Delhi and Bangalore, to deal withdirectory inquiries,2 and DHL, one of the world’sleading logistics companies, announced that itwould locate a centre in the Czech Republic tomanage IT services for i ts entire Europeanoperations. Most of DHL’s IT activities inSwitzerland and the United Kingdom would shiftto Prague, creating 400 jobs to start with, andgrowing to 1,000 over two years. Together withDHL’s regional centres in Malaysia and theUnited States, the European centre would blendinto a seamless IT infrastructure supporting thecompany’s global operations. Meanwhile, ACS(United States) announced that it was buildinga new 40,000 sq. ft. office complex in Accra,Ghana, to accommodate the growing demand forits data processing services that support clientsin the communications, healthcare and insuranceindustries.3 In 2004, the Bank of Americaannounced that it would establish a wholly-ownedaffiliate in Hyderabad, India, to undertake back-office operations for its units in the United States.The affiliate would employ at least 1,000 peopleby mid-2005. The bank had previouslyoutsourced software development to Indiancompanies such as Infosys Technologies inBangalore and Tata Consultancy Services inMumbai.4

***************What started some two decades ago with

the “offshoring” of IT services from the UnitedStates to India has gained momentum in recentyears. Similar cases of offshoring are nowreported almost daily in the media as servicesof all kinds are restructured and relocated.Offshoring of export-oriented services such ascall centres, business processes, drawing, testingand even research and development (R&D), is

gathering pace in response to the “tradabilityrevolution” in services.

Some of the offshoring is done internallyby moving services from a parent company toits foreign affiliates (sometimes referred to as“captive offshoring”, involving FDI), while someis outsourced internationally to third-partyservices providers (table IV.1). Many servicesare restructured among the developed countries;others are shifted to low-cost locations. Ofcourse, not all services are moving, but theprocess is in its infancy, and likely to gather pace.It may well mark the next stage in the evolutionof the international division of labour. Indeed,economic geographers see it as the cutting edgeof the “global shift” in productive activity(Dicken 2003).

The global shift in services offers largepotential benefits for countries at both ends ofthe process: the receiving countries gain jobs,skills, access to foreign markets and otherbenefits while the sending ones improve theircompetitiveness and can move into higher valueactivities. So far, most offshoring has taken placeamong developed countries, which underscoresthat it is not primarily a “North-South” issue. Infact, with a 25% share, Ireland leads the globalmarket for offshored IT and IT-enabled services.The increased tradability of services allowscompanies to reconfigure their production ofservices across borders, sometimes involving aninternational intra-firm division of labour toenhance their overall competitiveness. Hence,there are more factors than only cost differentialsthat determine where a service will be produced.Indeed, in many instances, companies areoffshoring services as much to improve thequality of the service produced, as to consolidateactivities in search of economies of scale and toaccess certain skills or markets – in short, to reapthe benefits of the new international division oflabour that is unfolding.

Although recent media attention maysuggest otherwise, to date, the magnitude ofoffshoring to developed and developing countries

CHAPTER IVCHAPTER IVCHAPTER IVCHAPTER IVCHAPTER IV

THE OFFSHORING OF CORPORATE SERVICEFUNCTIONS: THE NEXT GLOBAL SHIFT?

148 World Investment Report 2004: The Shift Towards Services

is relatively small, albeit growing fast. Over time,as companies learn how to manage theinternational production of services, developingcountries are likely to play a growing role asservice exporters. As in previous periods ofeconomic restructuring, new challenges will ariseas companies adjust and reconfigure theiroperations.

This chapter looks at the technological,economic, institutional and organizational factorsthat are catalysing the growth of offshoring, tracesthe role of FDI in the process and explores theimplications for host and home countries. Whilethe bulk of offshoring has so far been undertakenamong developed countries, the chapter paysspecial attention to the role of developing countriesand economies in transition in this process.

A. TA. TA. TA. TA. The trhe trhe trhe trhe tradaadaadaadaadabilitybilitybilitybilitybilityrrrrreeeeevvvvvolutionolutionolutionolutionolution

1. The tradability of services

Offshoring reflects nothing less than arevolution in the tradability of services.Traditionally, most services have been “non-tradable” in that they require buyers and sellersto be in the same place at the same time. Unlikephysical products, they could not be tradedbetween parties located in different countries; ahaircut, for instance, is impossible to deliver acrossa distance. Many services, however, do not requirephysical proximity, but have usually taken placeface-to-face because of technical constraints,habits or customs. These services centre on the

exchange, storage, processing and retrieval ofinformation broadly defined.5 They have been non-tradable because:

• Some types of information (such as musicbefore the discovery of recording devices)could not be stored, and had to be producedand consumed instantaneously.

• Some information could be stored (such aswords or data in books or other written form),but not transmitted rapidly and economically(and in bulk) across countries for processing.

• Some information was processed in-house byenterprises because “it had always been so”;for example, i t was customary to doaccounting, archiving or designing internally.Some information exchange between serviceproviders and consumers traditionallyinvolved face-to-face contact, such as patientsmeeting their doctors or clients meeting theirlawyers or bankers for consultation.

New information and communicationtechnologies (ICTs) are dramatically changing thetradability of the information-centred set ofservices, in several ways (Sauvant 1990; Zimnyand Mallampally 2002).6 For example, all kindsof information can be stored by digitization. Andmuch cheaper and faster transportation allows theinstantaneous exchange of digitized informationand voice communication between peopleanywhere around the globe (provided the necessaryinfrastructure exists).7 In addition, customs andtraditions are being broken as people are inducedto use electronic media to acquire services theyhad previously only accessed by direct contact.In the business sphere, services traditionallyobtained in-house by firms are now being

Table IV.1. Offshoring and outsourcing – some definitions

Internalized or externalized production

Location of Internalized Externalized production (“outsourcing”)

Home country Production kept in-house at home Production outsourced to third-party service provider at home

Foreign country Production by foreign affiliate, e.g. Production outsourced to third-party provider abroad,(“offshoring”) - Infineon‘s centre in Dublin To local company, e.g.

- DHL’s IT centre in Prague - Bank of America’s outsourcing of software development to- British Telecom’s call centres in Infosys in IndiaBangalore and Hyderabad To foreign affiliate of another TNC, e.g.

- A United States company outsourcing data processing

”intra-firm (captive) offshoring” services to ACS in Ghana

Source: UNCTAD.

149CHAPTER IV

externalized, and consultations between serviceproviders and customers are starting to take placeat a distance because face-to-face interaction isnot always deemed necessary.

The use of ICT allows knowledge to becodified, standardized and digitized, which inturn allows the production of more services tobe split up, or “fragmented”, into smallercomponents that can be located elsewhere to takeadvantage of cost, quality, economies of scaleor other factors. This makes it possible to producecertain services in one location and consume them(or use them in further production) in another– either simultaneously (e.g. informationprovided via call centres) or at a different time(e.g. data entry, software development). As arecent article puts it: “tasks that can be performedelsewhere are limited only by a manager ’simagination”.8 Such fragmentation exceeds thatin manufacturing.9 New technologies do not justmake services transportable; they also oftensimplify the tasks involved and so allow themto be relocated more easily.

The range of service products orfunctions affected by the fragmentation are huge.As a result, a wide range of services is alreadybeing exported, including by developingeconomies (box IV.1), whether relatively simplelow-value data (e.g. numbers entered into acomputer) or more sophisticated, high-value data(e.g. architectural designs, results of sophisticatedfinancial analyses, R&D, X-rays, films, softwareprogrammes, advertising clips).10 While someare service products of one industry, most aregeneric and cut across industries. They areneeded and widely used by individuals, firms inall industries, governments and non-governmentalorganizations (NGOs) and all types ofinstitutions. As with manufactures, it is possibleto categorize traded services according to skillrequirements. This exercise is useful for assessingthe potential of countries as exporters (box IV.2),but it needs to be refined and further developed.

Thus, progress in ICT has solved thetechnical problem of non-transportability and,for many services, that of non-storability.

Tradability is not just a matter oftechnology, however. Even when services aretechnically divisible and transportable, trade maynot take place for economic reasons (UNCTAD1994, p. 3; UNCTAD and the World Bank1994).11 For some types of services, proximityto markets, interaction with customers, trust andconfidence outweigh the possible benefits from

the benefits of arm’s length trade. But on thepremise of comparative advantage, increasedtransportabili ty does open the potential forconsiderable economic gains from specialization.With sharply reduced telecom costs and increasedbroadband width, cost differentials play outdirectly. Increased competition – itself aconsequence of falling transport andcommunication costs and liberalization – forcesenterprises to reduce costs, hive off functionsthat can be performed more efficiently byspecialized agents, and focus harder on their corecompetencies. This leads both to outsourcingwithin countries and to offshoring to locationsabroad. Governments, hospitals and otherinstitutions can also gain from offshoring whenunder pressure to economize.

The tradability revolution is alreadyvisible in the balance-of-payments data ofcountries (van Welsum 2004; Borga and Mann2003).12 In terms of imports of services, theUnited States has reported the largest increases,its share of global imports rising from 11% in1992 to 13% in 2002 (WTO 2004a).13 In “otherprivate services” imports, some of the fastestgrowth rates in the United States can be observedfor “computer and data processing services” and“accounting, auditing and bookkeeping services”,two categories that are closely associated withthe offshoring of services (table IV.2).Meanwhile, the largest increases in the exportmarket share of “other business services” and“computer and information services” are reportedby the United States, India, Ireland, the UnitedKingdom, Sweden, Spain, China and Israel, inthat order (van Welsum 2004).14

2. Limitations to offshoring

Not all services will relocate. Typicalfeatures of services with a high probability foroffshoring include (Bardhan and Kroll 2003, p.4):

• no face-to-face servicing requirement;

• high information content;

• the work process is telecommutable andInternet-enabled;

• high wage differentials with similaroccupations in destination country;

• low set-up barriers; and

• low social networking requirements.

150 World Investment Report 2004: The Shift Towards Services

The offshoring of services affects a widerange of service activities. The following are afew examples of services that are now exportedacross borders by various developing countries:

Audiovisual and cultural services includemotion picture and video tape production anddistribution; motion picture projection; radio andtelevision; radio and television transmission; soundrecording; recreational, cultural and sportingservices; and news agency services. Developing-economy exporters include Argentina, Brazil,Hong Kong (China), India, Mexico and Venezuela.

Business services encompass various back-office processes, customer interaction andtechnical support. Examples include abstractingand indexing, data entry and processing, electronicpublishing, legal transcription, litigation support,mailing list management, remote secretarialservices, technical writing, telemarketing,telesupport and web-site design. India is by farthe largest developing country exporter of suchservices, but more and more countries are enteringthe arena.

Computer and related services include theinstallation of computer hardware, softwareimplementation, data processing, databaseservices, maintenance and repair of officemachinery and equipment such as computers, andother computer services. Ireland, India and Israelaccount for much of the exports of these services,but there are also many other exporters.

Higher education and training servicesbenefit from new technologies that are makingpossible the inexpensive delivery of content inaudio and visual formats (or on the Internet),leading to a surge in cross-border education inelectronic format. Some developing countries areestablishing a presence in this market.

Financial services cover insurance andinsurance-related services, as well as banking andother financial services. Many developing-countryexports of these take the form of joint venturesor affiliates of large financial service TNCs fromdeveloped countries. Foreign affiliates provideservices not only to the parent company and thelocal market, but are also involved in exports tothird parties, including to other developing countrymarkets. Here too, India is a major player. In LatinAmerica, reinsurance firms are collaborating with

Box IV.1. Developing countries are exporting a bewildering array of services

providers of financial services and insurance firmsto offer a range of competitive new products.

Health services include medical, dental,nursing and paramedical services, hospital, socialand other human health services; these are amongthe most rapidly growing industries in the worldeconomy. Direct exports of related services includeshipment of laboratory samples, diagnosis, secondopinions and consultations via traditional postalchannels as well as via electronic means. Chinaoffers on-line diagnostic services to patients inTaiwan Province of China and some South East-Asian countries. In India, radiologists interpretcomputer tomography scans for hospitals in theUnited States. Medical samples go for diagnosisto Mexico from Central America, and somemedical facilities have their medical records orpatient interviews digitally transcribed inBangladesh, India, Pakistan, the Philippines andZimbabwe.

Internet-related services include the supplyof the Internet itself (telecommunication services),the supply of content, a mix of business services,audiovisual services and computer and relatedservices. Latin American Internet companies haveexpanded to other countries in the region buildingon the common language base. Hong Kong(China), Lebanon and Singapore are exporters totheir neighbours.

Various professional services, such as legalservices, accounting, auditing, taxation,architectural and engineering services, representsome of the most sophisticated areas of servicesoffshoring. This has been a difficult area fordeveloping countries to break into because of highskill requirements and problems in establishingcredibility in foreign markets. However, theirexports are growing. Commonly offshoredprocesses include bookkeeping for clients, tax co-sourcing solutions, document management,staffing and IT services. Architectural design andother services are also being exported. India,Singapore and several CEE countries are amongthe exporting countries in this category.

Animation production in India alone isexpected to surge, from $600 million in 2001 tomore than $1.5 billion in 2005. This is in responseto the fast growing demand from animation studiosto meet 2-D and 3-D requirements (Bajpai et al.2004).

Source: UNCTAD, based on Nielson and Taglioni 2004.

151CHAPTER IV

Table IV.2. Growth in imports by the United States of selected services within the category ofbusiness, professional and technical services, 1992-2002

(Per cent and millions of dollars)

Type of service Average annual growth rate Value 2002

Computer and data processing services 31 1 057Accounting, auditing and bookkeeping services 21 716Management, consulting and PR services 17 1 188Research, development and testing services 16 1 040Training services 14 361

Memorandum itemsTotal business, professional and technical services 13 10 732Total other private services 11 69 436Total private services 7 205 234

Source: UNCTAD, based on Borga and Mann 2003.

As with manufactures, the categorization oftraded services by skill levels highlights the kindsof attributes needed for countries to becomecompetitive suppliers. Of course, these attributesdetermine service exports only when othernecessary conditions such as the investmentclimate, infrastructure and regulatory frameworkare in place.

Low-skill services. These are services withthe lowest entry barriers in terms of skills, scaleand technology. They include data entry or callcentres (although some call centres require higherskills, computer or technical support). They tendto need general – but not very high – levels offormal education, a working knowledge of therelevant language and/or basic computer skills.There are generally few economies of scale oragglomeration: a call centre may be viable with30 operatives in a site where there are no similarcentres or knowledge institutions. The level ofdevelopment of other services or manufacturingis not necessarily important for competitivenessin such activities. For this reason, there are likelyto be few positive spillovers in terms of supplierlinkages or skills creation.

Medium-skill services. These are complexservices that require more advanced skills, andmay offer considerable scale economies andagglomeration effects. Examples include financialand accounting services, standardizedprogramming work, routine data analysis andprocessing or back-office services such as ticketingand billing. Specialized training would generally

be required (and so also the necessary traininginstitutions). The building of competitivecapabilities may also call for a large local marketwhere the skills accumulate over time. Someservices may require a minimum critical mass ofdifferent skills in one location to provide the wholepackage.

High-skill services. This is the most creativeand skill-intensive end of offshored services, withthe most stringent entry requirements. Examplesinclude R&D (from all sectors), design services,architectural drawings, new software development,animation, medical testing or analysis andtechnology systems design. These requireadvanced skills at high levels of specialization,often with strong educational institutions. Theyinvolve agglomeration economies, with differentskills, enterprises and institutions interacting witheach other to share work, stimulate knowledgeflows and allow specialized skills to be fullyutilized. Needless to say, the location would haveto be attractive enough to retain a large numberof qualified personnel.

The line between the three types of servicesis not firm. The proposed categories are highlyaggregated, and there is likely to be considerableskill variation within each of them. Sincetechnologies change rapidly, activities may moveup or down the ladder from one year to the next.Nevertheless, the categorization is useful inmatching the growth of offshoring of services withthe potential for countries to export and becomecompetitive.

Box IV.2. Skills categorization of traded services

Source: UNCTAD.

152 World Investment Report 2004: The Shift Towards Services

There are a number of services or serviceprocesses that do not meet these criteria. Andthere are other limits to offshoring. There aretechnological limitations: many service functionscannot be digitized and/or separated from relatedactivities. Face-to-face interaction is still requiredat many points in the value chain of developing,marketing, delivering and maintaining a varietyof services. Proximity to customers is oftenimportant to gain knowledge of markets. Someprocesses are hard to manage cross-nationally;for example, creative and innovative processesmostly require close interaction and are thereforedifficult to separate and offshore.15 In somecases, a local presence is critical to understandtechnical requirements such as health-careregulations or legal codes. In others, theinformation to be processed may be personal,idiosyncratic, sensitive or confidential, increasingthe transaction costs involved and so limiting thedesirability of offshoring. Some countries requireparticular services to be provided by companiesestablished locally (in case of foreign companies,through FDI) (chapter V).16

Other legal factors that may limit theglobalization of IT-enabled services relate toareas where the marketplace is global, but thelegal jurisdiction is local. Professionalqualifications are one such example. Whereascertain accounting activities can be offshored,the final stamp of approval may need to be givenby a certified accountant in the home country.The lack of globally agreed privacy rules maysimilarly limit the globalization of IT-enabledservices. In the United States and the EuropeanUnion (EU), data-security issues have emergedas potential barriers to further offshoring. Legalrestrictions in a few developed countries to theoffshoring of services to protect jobs at home mayalso have a dampening effect on the trend(chapter V).

There are also limits to the supply ofappropriately educated workers. For example,among companies interviewed concerning thelocation of shared service centres for theEuropean market, the lack of language skills wasperceived to be the main obstacle to offshoring(IBM and Oxford Intelligence 2004). Continuedhigh levels of growth in offshoring to preferredlocations are likely to affect both the availabilityand cost of appropriate skills. Even in largeeconomies like India, shortages can lead to wageinflation and high levels of attrition, making theoffshoring proposition less attractive. The greater

the interest among companies and institutions torelocate services, the more efforts are needed byboth host governments and the private sector toincrease the supply of adequately trained labour.Shortages of skills in one location may also leadcompanies to consider other locations, thusopening the door for new entrants to become abase for exports of services.

Finally, based on their perceptions ofrisk, companies, even in the same country andindustry, differ significantly in their assessmentof the benefits from shifting the production ofa service abroad. For example, in the financialindustry in the United Kingdom, the Royal Bankof Scotland – in contrast to competitors such asBarclays and HSBC – took a decision not to shiftcertain services abroad (at least not for the timebeing).17 Thus, any assessment of the potentialfor services offshoring requires a careful analysisof corporate strategies.

3. Is the globalization of IT-enabledservices different from that ofmanufacturing?

As services become more open toefficiency-seeking FDI, information-intensiveservices can be fully subjected to the internationaldivision of labour and hence integratedinternational production (WIR93). WIR02analysed the emergence of integratedinternational production systems inmanufacturing and their impact on the exportcompetitiveness of developing countries. It notedthat export growth was more rapid in technology-intensive activities where such systems hadadvanced the furthest. However, the spread ofintegrated production systems in manufacturingwas uneven; there were cumulative agglomerationforces allowing first movers to pull ahead of laterentrants. While the forces driving thefragmentation and globalization of goods andservices production are similar, some notabledifferences exist (Bardhan and Kroll 2003; Mann2003):

• The Internet and associated IT hardware andsoftware have rapidly removed a basicbarrier to trade in IT-enabled services.Moreover, i t is structurally simpler tooffshore services in terms of resources,space and equipment requirements. Thus,the fragmentation of services, where it ispossible, proceeds faster than inmanufacturing. The need for adjustment

153CHAPTER IV

policies in importing countries maytherefore also be more important.

• The offshoring of tradable servicespotentially affects firms in all sectors, andmay have wider implications than thefragmentation of manufacturing.

• The offshoring of services affects mainlywhite-collar workers whereas the relocationof manufacturing involved primarily blue-collar workers.18 In manufacturing,considerable offshoring has taken place withrelatively low skill demands on theworkforce, compensating, as necessary, byimporting skills through on-the-job training.The skill intensity of some services beingoffshored is adding to concerns in developedcountries about the possible loss of white-collar jobs.

• Offshoring of services may be morefootloose than that of manufacturing becauseof lower capital intensity and sunk costs aswell as weaker links to local suppliers.Obviously, this applies more to lower skillthan to higher skill services.

In sum, many of the forces that havedriven the internationalization of manufacturingare increasingly at play for a growing numberof service functions. However, as the offshoringphenomenon may unfold faster, and because itis likely to affect corporate strategies in allsectors, it is all the more important to studycarefully its implications.

BBBBB. Futur. Futur. Futur. Futur. Future pre pre pre pre prospects fospects fospects fospects fospects forororororthe ofthe ofthe ofthe ofthe offshoring offshoring offshoring offshoring offshoring of

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The offshoring of service functions is stillat an early stage. The trend began with IT/software services in the 1980s19 and acceleratedin the 1990s as offshoring was used to cope withconcerns related to the Y2K problem.20 The earlymotivation was not just to lower costs but alsoto handle the surge in demand for such services,and to improve quality. In 2002, the market foroffshore outsourcing of IT-enabled services(mostly business process outsourcing) wasestimated at $1.3 billion – less than 1% of theglobal market for such outsourcing (Scholl et al.2003). However, a more complete picture ofoffshoring of services needs to take into accountcaptive production as well as international

outsourcing of such services as softwaredevelopment and other IT services, which are notcovered under IT-enabled services. The totalmarket for all offshore service exports wasestimated at $32 billion in 2001, most of whichwas supplied by Ireland, India, Canada and Israel,in that order (McKinsey & Co. 2003).

While assessments differ, virtually allobservers expect offshoring of services toaccelerate in the foreseeable future. Offshoreoutsourcing of business processes is expected togrow from $1.3 billion in 2002 to $24 billion in2007, raising the international share of the totalmarket from 1% to 14% in five years. Between2001 and 2003, the planned adoption of offshoreoutsourcing of business processes amongcorporate decision-makers in the United Statesrose by a factor of six (Scholl et al. 2003). Evenamong the world’s 1,000 largest companies, some70% have sti l l not offshored any businessprocesses to lower cost countries.21 In a 2004survey of the top 500 European firms jointlyundertaken by UNCTAD and Roland BergerStrategy Consultants (RBSC), only 39% hadexperience with offshoring of business services(UNCTAD and RBSC 2004). The respondingcompanies had already offshored some 20,000jobs, and 44% of all respondents said that theyplanned to offshore more in the next few years.Other studies confirm that more offshoring is inthe making:

• The number of call centres in Scotland withoffshore operations is expected to doublein the next five years (Taylor and Bain2003).

• In a study of mainly United Statescompanies, 25% had offshored someservices, and as many as 79% said theyplanned to offshore within two years (Bajpaiet al. 2004).

• In Japan, 23% of the corporate members ofthe IT-related trade association wereutilizing offshore services, especially inChina. While some Japanese companies haveset up call centres and back-officeoperations in Dalian, which has a large poolof Japanese speakers (Sasaki 2004), theystil l lag significantly behind theircounterparts in the United States in termsof services offshoring.

• Foreign affiliates exporting services fromIndia predicted in early 2003 that theiremployment would double over thesubsequent 12 months (Dossani and Kenney

154 World Investment Report 2004: The Shift Towards Services

2004). (Some examples of expansion plansof leading TNCs in the ICT industry in Indiaare presented in table IV.3.)

How big is the offshoring phenomenonlikely to become? Its future scope and dimensionsremain uncertain. It has a long way to go beforeit matures and settles down in pattern andlocation. An early assessment of the “outer limit”of the number of jobs for which long-distanceprovision is technically feasible and for whichcost savings of up to 30-40% would be plausible,suggested that 1-5% of the total employment inthe G-7 countries could be affected (World Bank1995). A more recent analysis concluded that themaximum number of jobs potentially subject tooffshoring from the United States was in themagnitude of 11% of jobs in all occupations, or14 million jobs (Bardhan and Kroll 2003).Estimates on the likely actual impact are muchlower. For example, one study has suggested that3.4 million service jobs are likely to have shiftedfrom the United States to low-income countriesby 2015.22 Another study concluded that 2million offshored jobs could be created in thefinancial services industry alone, and that thetotal number of jobs affected for all industriescould be in the area of 4 million.23

Even the financial and IT industries,which have spearheaded offshoring, are only atthe beginning of the international restructuringprocess. In banking, for example, large

opportunities remain for reorganizing operationsat a regional or global (rather than national) level.The best prospects are to be found in the highervalue, more strategic functions (IBM and OxfordIntelligence 2004). Further consolidation ofoperations that can be standardized and digitizedin combination with economies of scale, lowerlabour costs and a focus on core activities offerattractive prospects for offshoring by companiesfrom all sectors. If pioneering firms succeed inimproving their competitiveness, competitors arelikely to follow quickly. The unfolding of theprocess is difficult to forecast. There can beconsiderable inertia in organizational systems.Also, the technical changes involved ininternational restructuring can be expensive.Indeed, among European TNCs, increasedoffshoring is more likely to come from companiesthat already have experience in this field thanfrom newcomers (UNCTAD and RBSC 2004).

However, to the extent that offshoring isshown to pay off – as various surveys of UnitedStates and European TNCs seem to suggest (seebelow) – it is likely to spread across industriesand countries. Notwithstanding differences incorporate strategies, the standard benefits of aninternational division of labour andinternationalization of production apply to mostservice activities. Similarly, while offshoring hasso far been considered mainly by largecorporations, sooner or later small companies are

Table IV.3. Plans of TNCs in the ICT industry for offshoring of services to India, based oninformation available at the end of 2003

Company No. of employees Employees in India Plans for India office

Accenture 65 000 3 500 8 000 by August 2004Adobe Systems 3 250 185 250 in 6 monthsCadence 5 000 315 Doubling in four yearsCap Gemini 56 500 800 2 000 by December 2004Cisco 34 466 2 300 …Covansys 4 556 2 000 2 800 in one yearCSC 92 000 1 200 4 800 by 2004EDS 138 000 300 2 400 by 2005i2 2 800 1 000 Actively recruitingIBM Global Services 150 000 3 100 10 000 in 3 yearsIntel 79 200 950 3 000 by 2005Keane 5 819 623 2 000 by end 2003Logica-CMG 24 000 350 1 000 by end 2004Lucent 35 000 570 …Microsoft 55 000 200 500 in three yearsOracle 40 000 3 159 6 000 in one yearSapient 1 500 600 Will growSun Microsystems 36 000 700 Will growTexas Instrument 34 400 900 1 500 by March 2006Xansa 5 583 1 200 6 000 in a few years

Source: Roach 2004, pp. 90-92.

155CHAPTER IV

likely to follow the larger trailblazers; in fact,some smaller TNCs are already exploiting theopportunities from offshoring (see e.g. box IV.3).

Benefits of offshoring are not confinedto the corporate sector; they can also be reapedby governments. For instance, tax authorities inhigh-cost countries can at present afford to checkonly a small number of tax declarations everyyear; by shifting some work to lower costlocations, they could raise the audit ratiosignificantly and improve their intake. Othergovernment services could also raise the qualityof their services while lowering their costs byoffshoring some segments of their work. And stillother official and private institutions couldfollow, as they seek to economize and becomemore efficient.

For some services, offshoring strategiescompete with automation trends. Whenautomation is preferred, jobs are likely todisappear in both developed and developingcountries. Prominent examples include basicbanking services that previously required face-to-face interaction, but are now often handledover the Internet. On the other hand, for many

other types of services, human interaction offersflexibility that automation does not. For complexactivities, a real time human interaction willremain crucial.

In sum, there are sound – some wouldsay compelling – reasons for the offshoring ofservices to grow and spread. TNCs will play avital role in this international restructuring ofactivities, directly by setting up captive offshorecentres or affiliates serving third parties, andindirectly by subcontracting work to local serviceproviders. The opportunities for all countries,not least developing and transition economies,to attract employment and income-creating workare significant, although at this stage, i t isimpossible to say exactly how significant. Theforces driving offshoring are powerful and theresulting economic benefits are a classicillustration of gains from trade and specialization.Competitive pressures on companies are likelyto spur further offshoring as managers are obligedto look for new ways to improve competitiveness.As companies learn how best to optimize servicefunctions internationally, and as they monitor themoves of their competitors, the process is likelyto gain momentum.

The bulk of offshoring of services has so farbeen undertaken by large firms – but smallercompanies are also starting to exploit opportunitiescreated by the increased tradability of services.Global Refund – a market-leading supplier offinancial services to enable travellers to collecttax refunds – is a good example.

Global Refund employs 800 peopleworldwide, in some 35 countries. It has its originin Sweden, but is legally registered in theNetherlands (mainly for tax purposes). Informationtechnology has made it possible to locate variousheadquarter functions to different locations: thechief executive officer is based in Switzerland,marketing and finance functions are located inSweden, IT and transaction processing functionsare run from Austria, and certain businesssegments are managed from Singapore.

As of early 2004, Global Refund was in theprocess of consolidating back-office work intotwo “centres of excellence” in Europe. Onceconsolidated, tried and tested, the company may,

as a second step, offshore these functions andestablish a foreign affiliate in a lower cost locationin either CEE or Asia.

The company has also chosen to offshoresome services through outsourcing. In onebusiness segment, all transaction processing workhas been outsourced to a local service providerin Singapore; software development for theEuropean market has been outsourced to a localcompany in Bulgaria; and software developmentto support the Asia-Pacific region is undertakenby a local company in India. There are also plansto establish a captive call centre in a low-costlocation.

The company views the offshoring ofservices as a necessary process to increasecompetitiveness. By consolidating certainfunctions in centres of excellence, it has been ableto reap economies of scale, avoid duplication ofwork, enhance worker skills, and thereby reducecosts as well as improve the quality of the servicesperformed.

Box IV.3. Smaller TNCs are offshoring too

Source: UNCTAD, based on company interview.

156 World Investment Report 2004: The Shift Towards Services

However, realizing the full developmentand competitive potential of offshoring will notbe easy. To date, a relatively small number ofcountries at different levels of development haveattracted most of the service activities that havebeen offshored. This tendency to agglomerate isstronger the more sophisticated the serviceactivity is, reflecting the need to access thenecessary levels of skills and infrastructurequality. Spreading the benefits more broadly, notleast in the developing world, means othercountries will have to increase their attractivenessand capabilities. Not only will they have to offerfavourable conditions for local and foreignservice providers, they will also have toovercome the first- mover advantages of thepioneers. On the side of developed countries,there is growing realization of the competitivebenefits of offshoring, but bridging the perceptiongaps and institutional and organizational inertiawill take time. There is, moreover, growingconcern about job losses and, underlying this,about the costs of adjusting to the emergingpattern of comparative advantage in services.

CCCCC. Outsour. Outsour. Outsour. Outsour. Outsourcing vscing vscing vscing vscing vs.....cacacacacaptivptivptivptivptive be be be be business modelsusiness modelsusiness modelsusiness modelsusiness models

1. What determines how offshoringis undertaken?

As noted above, offshoring – shifting anactivity abroad – can be done internally (captiveoffshoring) or through internationalsubcontracting or outsourcing (table IV.1). Anyoffshoring decision requires a firm to choose toremove a service function previously undertakenin-house at home and entrust it to a provider –either its own foreign affiliate or a third party– located outside the home country. The potentialfor offshoring of services may partly be gaugedby the progress in outsourcing of services at thenational level (box IV.4). After all , once acompany has outsourced an activity to anindependent supplier in its home market, a logicalnext step may be to explore similar set-ups inother locations, and, for instance, consolidate inone place the production of individual servicefunctions for the corporate network as a whole.Moreover, as domestic suppliers of outsourcedservices expand internationally, the scope foroffshoring also increases.

If it is economical to offshore a service,the principal has to decide whether to producethe service in-house (by setting up an affiliatein the chosen location) or to buy it from anindependent enterprise. A considerable proportionof all offshored services is produced by foreignaffiliates. According to balance-of-payments data,intra-firm trade accounts for more than 71% ofall imports of “business, professional andtechnical services” into the United States.24

Moreover, during the period 1997-2002, the valueof intra-firm imports of such services increasedfaster than unaffiliated imports (van Welsum2004; Borga and Mann 2003). In Europe, 45%of the largest firms with offshoring experiencehad offshored services to their foreign affiliatesor a joint venture set up abroad, whereas 48%of the companies had outsourced activities tothird party service providers (UNCTAD andRBSC 2004).

As il lustrated by Bank of America –mentioned in the introduction to this chapter –a company may choose to offshore two types ofservices to the same location (India) in differentways, outsourcing one (software development)to local providers while producing the other(back-office operations) in-house in a foreign

Box IV.4. Outsourcing at the nationallevel

The outsourcing of business processeswithin a country has existed in some form forcenturies. However, it really took off in theUnited States in the late 1980s, when companiesstarted to focus harder on their core activitiesand to tap the technological potential of ICT(UNCTAD 2003g). Large companies increasinglyoutsourced ICT functions to external serviceproviders, which also delivered and maintainedvarious data-related services. As the capacity tostore and transfer data at low cost rose, the scopeof outsourced operations and the number ofproviders expanded. Today, companies in allsectors undertake a broad range of businessprocesses outsourcing related to both front-office(customer interaction) and back-office services(data processing, finance, accounting, humanresources, knowledge services). The globalmarket for such outsourcing was estimated at$110 billion by end 2002, and is expected to growto about $173 billion in 2007 (Scholl et al. 2003).

Source: UNCTAD.

157CHAPTER IV

affiliate. Similarly, ExxonMobil and GE set upaffiliates in Hungary to provide back-officeservices, while K&H Bank outsourced similaractivities to the Hungarian affil iate of thespecialized service provider, EDS. A range offactors affects these decisions.

First, a company usually opts for keepingan activity in-house when strict control of thatactivity is considered crucial, when hightransaction costs are involved (Buckley andCasson 1976) or when proprietary knowledge andinformation is sensitive, tacit , expensive toproduce, complex or idiosyncratic, but easy toreplicate (Dunning 1989). As in any economicactivity, the more strategic the service function,and the closer it is to the core competence of afirm, the less likely it is to be outsourced.25 Forexample, the financial services industry appearsto rely almost exclusively on internalized modelsof offshoring (Joyce 2002).26 Most offshoredR&D operations in India are performed byforeign affiliates. Examples include Oracle’s andTexas Instruments’ design and developmentcentres and GE’s R&D laboratory in Bangalore.27

Other TNCs such as Cisco, Hewlett-Packard,IBM, Lucent and Microsoft have also madeinvestments in R&D centres in India (Kapur andRamamurti 2001).

Second, the level of internal interactionassociated with an activity matters. A commonlycited risk with outsourcing is associated withcommunication difficulties with the vendor(Bajpai et al . 2004). For services that aretechnically separable, but involve closeinteraction with other (service, manufacturing,R&D) activities of the firm to be efficient, aninternalized solution is likely to be preferred. Incontrast, back-office operations and customerinteraction services that can be easilystandardized and separated from other activitiesare more likely to be outsourced. Thus, a numberof TNCs has outsourced routine, standardizedsoftware development to Indian companies, butinternalized more complicated development work(Kumra and Sinha 2003).28

Third, the availability of capable localfirms influences the choice.29 The emergence oflow-cost service providers in some developingcountries is a recent phenomenon (Huang andKhanna 2003; Zaheer and Rajan 2003; Kumraand Sinha 2003).30 For example, when TNCsstarted to transfer back-office functions to India,there were no local companies to which theycould outsource. American Express in 1993,

British Airways in 1996 and General Electric in1998 set up their own affiliates for this reason(Dossani and Kenney 2004; Riera et al. 2002),whereas latecomers to offshoring in the airlineindustry chose to externalize similar activitiesin that country. Delta Air Lines outsourced someof its call-centre reservations to Spectramind, aWipro subsidiary. Swiss International Airlines,Austrian Airlines and Sabena outsourced revenueand traffic accounting, cargo revenue accounting,passenger interline billing, navigation supportand frequent flyer programme administration toAFS, a wholly-owned affil iate of TataConsultancy Services, the largest Indian softwarecompany.31 Consequently, for more “mature”services that have been offshored for some time(such as software development), it is easier fora company to find a third-party supplier than inan area that is emerging (e.g. financial analysis).

Different business models may be chosen,depending on a host-country’s features. In thecase of shared service centres for the Europeanmarket, offshoring to India tends to involvemainly outsourcing, whereas offshoring to CEEcountries is likely to have a higher element ofinternalized solutions (IBM and OxfordIntelligence 2004). Other host-country factorsthat could deter outsourcing include weakproperty rights protection, cultural mismatchbetween home and host countries and a poor trackrecord of existing local vendors.

Fourth, larger scale activities are morelikely to be kept in-house when offshored. Unlessthe volume of work is large, it can be difficultto generate the required economies of scale toreap savings. Being a small player may also makeit more difficult to recruit the best talents.Outsourcing the activity to a better-knownspecialized service provider may be a solution.The higher the value added in the service functionperformed, the greater the incentive for thesourcing company to keep the activity in-houseto reap the full return on investment.

2. A new breed of TNCs providesservices globally

The expansion of internationaloutsourcing has contributed to the emergence ofa new breed of TNCs that supplies services ofother companies, rather l ike contractmanufacturers in manufacturing (Sturgeon 2002;WIR02, p. 139). Since outsourcing is the mostadvanced in the United States, most specialized

158 World Investment Report 2004: The Shift Towards Services

contract service providers also hail from there.Some have become global players by setting upforeign affiliates around the world, and are hencebecoming key targets for investment promotionagencies seeking to attract FDI into export-oriented services. One of the main advantagesof contract service provider TNCs is theirestablished links to clients in the United Statesand Europe. By developing a portfolio oflocational advantages through a global networkof their own affiliates, they have great flexibilityin offering tailored solutions to their clients.

In the call centre industry, the largestcontract service providers include Convergys,ICT Group, Sitel and Sykes – all from the UnitedStates (table IV.4). These companies have beenestablished for some time, but have only recentlyset up foreign affiliates in developing countries.Sykes, founded in 1977, set up its first contactcentre in a developing country (the Philippines)only in 1997. Convergys, the world’s leading callcentre company, set up its first developing-economy affiliate in 2000, and then expandedrapidly – by 2003, it had export-oriented centresin Argentina, Brazil, India, Indonesia, Mexico,the Philippines, the Republic of Korea,Singapore, Sri Lanka, Taiwan Province of Chinaand Thailand. Sitel’s export-oriented contactcentres are in Canada, Colombia, India, Jamaica,Mexico, Morocco, Panama and the Philippines.However, these centres account for less than 10%of the company’s worldwide business, i.e. thegreat bulk of activities are in developedcountries.32

While the main operations of thesecompanies remain in industrialized countries,those in developing countries are growing morerapidly in employment terms. Convergys’ Indianoperations, started in 2000 in New Delhi, hadexpanded to employ 3,000 people by April 2003,and another centre was being developed inBangalore for an additional 3,000 employees.Similarly, Sykes announced plans to expand its

Indian activities by 1,200 people during 2003(Dossani and Kenney 2004).

In business-process outsourcing and IT-related services, there are also a growing numberof external service providers. Some of the topcompanies are IBM Global Services, EDS,Accenture and Hewlett-Packard. In India, IBMis the largest foreign IT service provider withsome 15,000 employees, followed by Hewlett-Packard and Accenture, each employing 3,000people. EDS expects to reach similar levels ofemployment at the end of 2004.33

The emergence of contract serviceprovider TNCs makes it increasingly importantfor local suppliers in developing countries toexpand abroad and establish a global foothold.TNC clients expect a presence or support in manycountries, and often prefer to deal with one globalcontact of a single outsourcing company thanentering into multiple contracts with a range oflocal suppliers around the world. Companies thathave a global presence are better equipped tomanage an outsourced function effectively andcost efficiently across geographic areas.Accordingly, some Indian companies establishedaffiliates in the United States and Western Europesome time ago and are now starting to move intoCEE (see also chapter I). For example, in April2004, Infosys announced plans to invest $20million in a business consulting subsidiary in theUnited States to match rivals and counter apossible political backlash against outsourcing;34

Satyam plans to start a software-developmentcentre in the Czech Republic, Hungary or Polandin 2004, initially employing at least 100 softwareengineers; Tata Consultancy Services in 2003 setup a software development centre in Budapest,with 160 engineers, to serve its European clients;and Progeon, the back-office services arm ofInfosys, will open its first overseas call centrefacility employing about 150 people in the CzechRepublic later in 2004.35, 36

Table IV.4. Contract service provider TNCs offering call/contact centre services, 2003

Turnover Number of Year of Year of first offshore location

Company name ($ billion) employees establishment in developing country

Convergys 2.3 55 000 1998 2000 (India)ICT Group 0.3 11 000 1987 2002 (Philippines)Sitel 0.8 26 000 1985 2001 (India)Sykes 0.5 16 000 1977 1997 (Philippines)

Source: UNCTAD, based on information from company websites.

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In sum, there is l ikely to be moreconsolidation, and the structure of the industryrelated to the offshoring of services will becomeclearer.37 To the extent that customers requirethe ability to offer blended solutions (in whichsome work is done “onshore” and some offshore),it may become increasingly difficult for smallerservice providers with limited internationalexposure to compete successfully for largerprojects.

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1. FDI related to the offshoring ofservices is still concentrated

Most offshored services to date areconcentrated in a relatively small number ofcountries. Ireland, India, Canada and Israel (inthat order) accounted for over 71% of the totalmarket for offshored services in 2001, mostly insoftware development and other IT services(McKinsey & Co. 2003). But many otherdestinations are emerging as potential hostcountries. Due to rising labour costs in the mostpopular locations, competitive pressures andimproving host-country environments, thegeographic scope of locations for FDI in servicesis broadening. An assessment of the attractivenessof the 25 leading destinations for offshoringconcluded that India topped the list by far,followed by China, Malaysia, the Czech Republicand Singapore (A.T. Kearney 2004). Brazil led

in Latin America, South Africa was the leaderin Africa, while Canada and New Zealand werethe highest ranking developed countries.

Among large European TNCs, the patternis similar. Almost one-third of all offshoredservices projects have gone to India; WesternEuropean countries (e.g. Ireland, Portugal, Spain,the United Kingdom) have attracted 29% of allprojects, while CEE countries (e.g. Hungary,Poland, Romania) account for another 22%. Only8% of offshored services are located in LatinAmerica, and less than 4% in Africa (UNCTADand RBSC 2004). As projects offshored to Indiatend to be the largest ones, the country’s shareof the total number of jobs created to date throughoffshoring by the top 500 European firms exceeds50% of all jobs created.

FDI plays an important role in offshoring,although this is difficult to quantify owing to thelack of reliable data. In principle, FDI affectsoffshoring in two ways: through captiveoffshoring, and when specialized serviceproviders set up foreign affiliates to serve foreignclients. While such investments can create manyjobs, they typically do not generate large capitalflows. Consequently, they do not account forlarge shares in the FDI statistics.38 It may alsobe difficult to capture all the offshored serviceprojects by the existing industrial classification.It is possible, however, to examine the numberof TNC greenfield and expansion projects (ratherthan their value) in export-oriented services. Themain categories of such projects, discussedbelow, are back-office services (shared servicecentres), front-office functions (call/contactcentres), regional headquarters and IT services(including software development) (table IV.5).39

Table IV.5. Definitions of export-oriented FDI projects related to offshored services

Shared service centresCall/contact centre services (back-office services) IT services Regional headquarters

Help desk Claims processing Software development HeadquartersTechnical support/advice Accounts processing Application testing Coordination centreAfter-sales Transaction processing Content developmentEmployee enquiries Query management processing Engineering and designClaims enquiries Customer administration Product optimizationCustomer support/advice processingMarket research HR/payroll processingAnswering services Data processingProspecting IT outsourcingInformation services Logistics processingCustomer relationship Quality assurance management Supplier invoices

Source: UNCTAD and OCO Consulting.

160 World Investment Report 2004: The Shift Towards Services

While all these service functions can befragmented and made into parts of integratedinternational production systems, the locationaldeterminants as well as their potential differ.

Overall picture. The share of developingcountries and CEE in FDI projects related toservices offshoring is increasing, from 37% in2002 to 51% in 2003. Their share in the numberof jobs created reached 57% in 2003. The fourcategories of services discussed in this chaptermake up a significant proportion of overall FDIactivity. In 2002-2003, FDI projects in theseservices accounted for 12% of the total numberof FDI projects, and as much as 20% of all jobscreated by the same projects.

The data used here only capturegreenfield and expansion projects, and do notinclude acquisitions. However, data suggest thatgreenfield projects still dominate. In India, FDIin IT and IT-enabled services in 1998-2002comprised almost 90% greenfield investment,10% joint ventures and less than 1% acquisitions(McKinsey & Co. 2003).40 A study of Europeanshared service centres found that about 46% of

all centres had been established throughgreenfield investment, more than half involvedexpanding an existing facility, and only 3% werethe result of an acquisition (IBM and OxfordIntelligence 2004). This may be changing,however, as the outsourcing industry matures.For example, in April 2004, IBM announcedplans to acquire Daksh eServices, one of India’slargest independent IT-enabled servicecompanies, employing 6,000 people in India andthe Philippines.41 (Selected cross-borderacquisitions of Indian firms are presented in tableIV.6.) A European example of this possible trendis the € 2 million purchase in May 2004 of theHungarian call centre operator Marketlink byTranscom WorldWide, of Swedish origin butheadquartered in Barcelona.42 It is likely thatfurther consolidation will follow as companiesrespond to the moves of competitors (WIR00).

Shared service centres. Developingcountries and CEE economies attracted 65% ofall export-oriented FDI service projects in 2002-2003 (tables IV.7, IV.8), almost half going toIndia. In CEE, the key locations were Hungary,

Table IV.6. Selected acquisitions of Indian firms by foreign firms, 2003-2004

Foreign firm Indian firm Comment

Hughes Software Tenet Technologies Deal to increase HSS’ presence in Japan, where Tenet Technologies has Systems (US) an established presence.

GE India Engineering Analysis EACE was bought from Tata Consultancy Services to provide high-endTechnology Centre of Excellence engineering analysis, design and software development. Centre (US)

SPI Technologies Kolam Information SPI expects Kolam to contribute close to $3.5 million to its top line in (Philippines) Services the current financial year. The deal was for $4 million. Kolam’s work

spans editorial functions, from manuscript development to productionof books/journals and other activities.

WebEx CyberBazaar The acquisition of CyberBazaar (estimated at $4 million in cash) will Communications enable WebEx to provide multimedia web communication services for (US) the Indian services sector.

Perot Systems Vision Healthsource The deal was closed for $10 million. Vision Healthsource is a provider of Corporation billing, receivables and claims and business-process outsourcing (US) solutions for healthcare service providers. Perot Systems Corporation

describes itself as “a global provider of technology-based businesssolutions in selected industry sectors”.

Cognizant Ygyan Consulting The purchase price is approximately $2 million. Ygyan Consulting is a Technology Pune-based services provider. Solutions (US)

IBM (US) Daksh eServices The deal will increase the scope of IBM’s global network of 22 businesstransformation delivery centres by adding capabilities in India and thePhilippines. Daksh eServices will also bring an experiencedmanagement team to IBM in India.

Source: The Hindu Business Line (http://www.thehindubusinessline.com/cgi-bin/bl.pl?mainclass=15&subclass=345).

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the Czech Republic and Poland, especially forEuropean companies; Chile and Costa Ricaattracted some shared service centres for theAmericas; and China and the ASEAN countrieswere relatively well represented in Asia. Indeveloped countries, Ireland remained the leadinglocation. Financial and IT companies generatedmost of the projects, with the contract serviceprovider Accenture and Citibank as leadinginvestors (annex table IV.2).43 In terms ofprospects for shared service centres, 20% of theFortune 500 companies have not yet set up anysuch centres but could do so in the future, ascould smaller companies in order to save costsand improve competitiveness (IBM and OxfordIntelligence 2004). While India, China and thePhilippines are likely to be the most attractivelocations for global solutions, various studiesmention countries in CEE and Latin America ascandidates for regional shared service centres.In the case of pan-European shared servicecentres, Ireland is the preferred location, followedby Hungary, Poland and the Czech Republic(IBM and Oxford Intelligence 2004).

Call centres. More than half the 500 FDIprojects in call centres recorded in 2002 and 2003went to developed countries, notably Canada,Ireland and the United Kingdom.44 This suggeststhat geographical and psychic distance to marketsmatters, as do linguistic, cultural and otheraffinities – and that costs are not the onlydetermining factor. In Ireland, inward FDI hasboosted employment in related industries. In2003, two-thirds of all the people employed inthe Irish call centre industry worked in foreignaffiliates, mostly controlled from the UnitedStates (CM Insight et al. 2004). Irish call centresappear to focus on the high end of the market,providing telesales and marketing, customerservice and technical and software support forvarious industries (ibid., p. 160). In thedeveloping world, more than 80% of FDI in callcentres went to Asia, with India (60 projects),China (30), Malaysia (16) and Singapore (16)as top recipients. A number of countries in LatinAmerica and the Caribbean were also recipients,including Brazil , Chile, Costa Rica, Africaattracted only a few call centres, which went toEgypt, Morocco and South Africa. In CEE, 31projects were registered, with Hungary being themarket leader. Although developed countrieshosted more projects, the growth of call centreswas much higher in developing countries.

Half the call centre projects came fromIT companies and business service providers,followed by telecom and electronics companies.The preferred locations for call centres in the nearfuture include India, the Philippines, China,South Africa, Mauritius and the United ArabEmirates (UNCTAD interviews; CM Insight etal . 2004). However, due to languagerequirements, many other countries have goodchances of attracting FDI in call centres.

Regional headquarters (RHQs) have amuch longer history than the other categories ofoffshored services addressed in this section, andare not driven by labour cost differentials (seebelow). They are included in the analysis mainlybecause the services provided in them are export-oriented in nature, and because many countriesincreasingly seek to attract headquartersfunctions. Almost 40% of new FDI projectsrelated to RHQs in 2002-2003 went to developingeconomies, with China, Hong Kong (China),Singapore and the United Arab Emirates (Dubai)as the leading destinations in the developingworld. Brazil was the main location for LatinAmerica, and Hungary and Romania for CEE.Among developed countries, the United States,the United Kingdom and Canada were the toplocations. The IT industry was the source foralmost one-quarter of all projects, followed byelectronics and automotive industries. In termsof future prospects outside developed countries,the strongest candidates for new RHQs in Asiaappear to be the United Arab Emirates, Singaporeand China; in CEE, Hungary, the Czech Republicand the Russian Federation; in Latin America,Brazil; and in Africa, South Africa (UNCTADinterviews).

IT-related services. FDI projects in IT-related services were equally distributed betweendeveloping and developed locations. However,the number of IT service projects in developingcountries more than doubled in 2003, while indeveloped countries it grew by only 6%. Toplocations for offshored IT services in developedcountries were the United Kingdom, Germany,the United States and Australia. Asia dominatedamong developing regions. Of the more than 300export-oriented IT projects in developingcountries, 37% went to India, 19% to China and11% to Singapore. The Czech Republic attractedthe most projects in CEE, Brazil in LatinAmerica, and South Africa in Africa. Asked aboutthe potential future locations for FDI projects

162 World Investment Report 2004: The Shift Towards Services

Table IV.7. Export-oriented FDI projects in call centres, shared service centres, IT services andregional headquarters, by destination, 2002-2003

(Number and per cent)

Call centres SSCs IT services Regional HQs

No. of Share No. of Share No. of Share No. of ShareRegion/economy projects of total projects of total projects of total projects of Total

World 513 100 139 100 632 100 565 100 Developed countries 279 54 48 35 293 46 339 60

Western Europe 174 34 38 27 208 33 200 35EU 169 33 38 27 198 31 185 33

Austria 2 - - - - - 2 -Belgium 7 1 1 1 5 1 9 2Denmark 5 1 1 1 6 1 15 3Finland 2 - - - 2 - 1 -France 13 3 2 1 16 3 11 2Germany 20 4 1 1 34 5 22 4Greece 1 - - - - - 1 -Ireland 29 6 19 14 14 2 15 3Italy 6 1 - - 7 1 2 -Luxembourg 1 - 1 1 - - 1 -Netherlands 13 3 3 2 16 3 20 4Portugal 5 1 - - 3 - - -Spain 8 2 2 1 8 1 9 2Sweden 14 3 1 1 14 2 13 2United Kingdom 43 8 7 5 73 12 64 11

Other Western Europe 5 1 - - 10 2 15 3Norway - - - - 3 - 1 -Switzerland 5 1 - - 7 1 14 2North America 71 14 5 4 40 6 105 19Canada 56 11 3 2 14 2 25 4United States 15 3 2 1 26 4 80 14

`Other developed economies 34 7 5 4 45 7 34 6Australia 19 4 3 2 26 4 24 4Israel - - - - 2 - - -Japan 11 2 - - 16 3 8 1New Zealand 4 1 2 1 1 - 2 -

Developing economies 203 40 72 52 315 50 209 37Africa 7 1 1 1 10 2 4 -North Africa 4 1 - - - - - -Egypt 2 - - - - - - -Morocco 2 - - - - - - -Other Africa 3 1 1 1 10 2 4 -Mauritius - - - - 1 - - -Nigeria - - - - 1 - - -South Africa 2 - 1 1 6 1 3 1Senegal 1 - - - 1 - - -Tanzania, United Rep. of - - - - 1 - 1 -Uganda - - - - - - - -

Latin America & the Caribbean 29 6 5 4 22 3 10 2South America 13 3 4 3 16 3 7 1Argentina 2 - - - 1 - - -Brazil 6 1 - - 9 1 6 1Chile 4 1 4 3 5 1 1 -Uruguay - - - - 1 - - -Venezuela 1 - - - - - - -

Other Latin America & Caribbean 16 3 1 1 6 1 3 1Antigua & Barbados 2 - - - - - - -Costa Rica 4 1 1 1 - - - -Dominican Republic - - - - 1 - - -El Salvador - - - - - - 1 -

/...

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Table IV.7. Export-oriented FDI projects in call centres, shared service centres, IT services andregional headquarters, by destination, 2002-2003 (concluded)

(Number and per cent)

Call centres SSCs IT services Regional HQs

No. of Share No. of Share No. of Share No. of ShareRegion/economy projects of total projects of total projects of total projects of Total

Jamaica 1 - - - - - - -Honduras - - - - 1 - 1 -Mexico 5 1 - - 2 - - -Panama 2 - - - 1 - 1 -Puerto Rico 2 - - - 1 - - -

Asia 167 33 66 47 283 45 195 35West Asia 17 3 1 1 17 3 36 6

Bahrain - - - - - - 3 1Jordan 1 - - - 1 - - -Lebanon - - - - 2 - - -Qatar - - 1 1 - - - -Oman - - - - - - 1 -Saudi Arabia 1 - - - - - - -Turkey 2 - - - 2 - 1 -United Arab Emirates 13 3 - - 12 2 31 5

Central Asia 1 - 1 1 1 - 1 -Uzbekistan 1 - 1 1 - - - -

Southern, East and South-East Asia 149 29 64 46 265 42 158 28

Bangladesh 1 - - - - - 1 -China 30 6 4 3 60 9 38 7Hong Kong, China 2 - - - 14 2 37 7India 60 12 43 31 118 19 7 1Korea, Rep. of 5 1 - - 5 1 6 1Malaysia 16 3 6 4 8 1 17 3Pakistan 1 - - - - - - -Philippines 12 2 1 1 9 1 4 1Singapore 16 3 8 6 35 6 36 6Taiwan Province of China 4 1 - - 9 1 4 1Thailand 2 - 2 1 7 1 8 1

Central and Eastern Europe 31 6 19 14 24 4 17 3Belarus - - - - 1 - - -Bulgaria 1 - - - - - 1 -Czech Republic 9 2 6 4 5 1 - -Estonia - - - - 1 - - -Hungary 11 2 7 5 4 1 4 1Latvia - - - - 1 - 1 -Lithuania 1 - - - - - 1 -Poland 3 1 5 4 4 1 3 1Romania 1 - - - 2 - 4 1Russian Federation 1 - 1 1 4 1 2 -Serbia and Montenegro - - - - - - 1 -Slovakia 4 1 - - - - - -

Unspecified - - - - 2 - - -

Source: UNCTAD, based on data from OCO Consulting.

164 World Investment Report 2004: The Shift Towards Services

related to IT services, companies interviewed byUNCTAD mentioned India, the RussianFederation, Bulgaria, Albania, the Philippines,China, Mexico, the Czech Republic and theUnited Arab Emirates, in that order.

To sum up for 2002-2003:

• While the stock of FDI projects related tothe offshoring of services is larger indeveloped countries, the greatest dynamismis in developing economies. South andSouth-East Asia dominate FDI projectsrelated to the offshoring of services in thedeveloping and transition economies,accounting for 63% of all projects bynumber. The region’s dominance is greatestin IT services, where it accounts for almost80% of all FDI projects in the non-industrialized countries.

• A significant number of the recorded FDIprojects went to developed countries,implying that low wages, per se, do notaccount wholly for the pattern of offshoring.

• The locational determinants of offshoringof different services vary (see below).

• By industry of origin, firms in IT andsoftware dominate FDI projects in IT-relatedservices. IT companies are among the mostactive also in the other three groups of FDI

projects, but not dominant. Firms in businessservices and electronics account for mostcall centre projects. Financial service TNCsare significant in IT, and software firms inshared services. In regional headquartersprojects, manufacturers of electronics,transport equipment and pharmaceuticalslead.

2. Cost reduction and improvedquality are key drivers

Corporate strategies related to offshoringresemble those that have led companies torestructure their manufacturing operations.Technical changes that make for increasedtradability, together with liberalization ofinvestment and trade, induce companies torestructure (and fragment) their activitiesinternationally in order to protect or advance theircompetitiveness. TNCs can gain scale advantagesfrom consolidating service activities in onelocation and standardizing the services acrossthe globe. Offshoring, besides allowing acompany to lower its costs, can also help improvethe quality of the services produced.

Cost reduction is one of the primemotivations for offshoring. Various studiesconfirm that a large majority of companies cite

Table IV.8. Export-oriented FDI projects in services, by industry, 2002-2003(Number and per cent)

Call centres SSCs IT services Regional HQs

No. of Share No. of Share No. of Share No. of ShareIndustry projects of total projects of total projects of total projects of Total

Business services 116 22 24 17 - - 17 35Chemicals 3 0.6 1 0.8 1 0.2 15 2.8Electronics 42 8 6 4.4 4 0.6 57 10Energy 14 3 5 3.6 - - 15 2.8Financial services 30 6 40 29 2 0.3 32 5.7Food and drink 3 0.6 4 3 - - 20 3.5Hotels, tourism and leisure 3 0.6 2 1.5 - - 19 3Internet 12 2 1 0.8 - - 8 1.5IT and software 154 30 33 24 618 97.8 132 23Life sciences 7 1.3 3 2 - - 51 9Light industry 2 0.4 2 1.5 - - 20 3.5Machinery and industrial goods 18 3.5 1 0.8 - - 28 5Metals/mining 5 1 1 0.8 - - 10 1.7Telecom equipment 20 4 3 2 4 0.6 15 2.8Telecom services 30 6 - - 3 0.5 25 4.4Transport equipment 30 6 6 4.4 - - 55 9.7Other 24 5 6 4.4 - - 47 8Total 513 100 138 100 632 100 566 100

Source: UNCTAD, based on data from OCO Consulting.

165CHAPTER IV

lower costs as the prime reason for setting upan offshore shared service centre (UNCTAD andRBSC 2004; IBM and Oxford Intelligence 2004;Bajpai et al. 2004; CM Insight et al. 2004). Costsavings can be achieved partly by seeking outlower cost locations, and partly by consolidatingoperations and reducing the cost of infrastructure,training and management. Any majorinternational bank that currently has, say, 50-60data centres with infrastructure, maintenance andspecialized skills, could consolidate operationsinto perhaps 5-10 such centres. This implies lessexpenditure on infrastructure and maintenance,as well as labour costs; it would also allow thedevelopment of centres of excellence. Suchconsolidation can entail considerable savings,especially (but not necessarily) if combined withlower labour costs. GECIS (United States)reportedly saves more than $300 million annuallyas a result of i ts offshored operations (boxIV.6).45 Similarly, it has been suggested that thebanking industry in the United States saved upto $8 billion during 1999-2002 by offshoringservices to India.46 About 80% of majorEuropean TNCs with experience in offshoringreport cost savings in the magnitude of 20-39%,and for another 10% of the companies the savingswere even higher (UNCTAD and RBSC 2004).Cost savings allow companies to lower theirprices or increase their profit margins – in short,to raise their competitiveness.

In call centres, labour costs account for50-70% of total costs in developed countries.Moving to India, where wages are 80-90% lowerthan in the United Kingdom, for example, is anattractive proposition (Outsourcing Insight 2001,p.11). However, the actual savings are smaller,since labour costs constitute a smaller share ofcosts in a developing country, while costs ofinfrastructure, training and travelling tend to behigher. Taking all these factors into account, costsavings in India are in the range of 30-40%, orperhaps higher when compared with the UnitedStates.47

But cost reduction is only part of thestory. As companies gain experience, they seeother benefits in the form of improved qualityof services. As some observers put it , someoffshoring companies “Went for cost, stayed forquality” (Dossani and Kenney 2004). Qualityimprovements were cited by large EuropeanTNCs as the third most important benefitachieved from offshoring (after reduced labourand other costs), often exceeding expectations

(UNCTAD and RBSC 2004). When the “back-office services” of the outsourcing firm becomethe “front-office services” of the service provider,the latter pays more attention to quality.Moreover, lower cost locations may offer bettereducated staff for the services than a developedcountry. For example, in India, the majority ofcall centre agents are university graduates whilethey tend to be school-leavers in industrializedcountries (Taylor and Bain 2003). Lower costsalso allow a company to carry more slack to meetpeak loads than is possible in a high-cost country,enhancing the quality of the service. Moreover,by outsourcing standardized, routine work,companies can focus scarce resources on theircore activities. Relocating some functionsoffshore may also be a way to cope with excessdemand, as was done by IT services in copingwith the Y2K problem in the run-up to the newmillennium, mentioned earlier.

In terms of locational determinants ,while cost reduction is also the leading factor,followed by availabili ty of labour with theappropriate skills, an additional key considerationis the quality of the infrastructure, notably cost-effective and reliable telecommunications andpower supply (Bajpai et al. 2004; UNCTAD andRBSC 2004; IBM and Oxford Intelligence 2004;Taylor and Bain 2003; Outsourcing Insight 2001).In addition, economic and political stability andthe legal and regulatory framework are important.The weight of each factor varies according to thenature of the service. For FDI projects relatedto call centres, shared services and IT services,particular importance is attached to theavailability of skills when selecting a location(figures IV.1 to IV.4). In general, a ready supplyof people with good secondary or tertiaryeducation and IT proficiency is important but notsufficient. Software development requires, inaddition, specialized engineering skills, back-office work may need skills in human resourcesor accounting, and call centres need skills incustomer interaction and marketing.48

Language skills are, of course, criticalfor call centres, and linguistic traditions play asignificant role in their location. Chile, Mexicoand Morocco have attracted call centres servingSpanish-speaking clients in the United States andEurope. Mauritius, Morocco, Senegal and Tunisiahost call centres for the French-speakingmarket.49 German-speaking centres have beenset up in the Czech Republic and Hungary.Japanese call centres have gone to China. Canada,

166 World Investment Report 2004: The Shift Towards Services

Ghana, India, Ireland, the Philippines and SouthAfrica host call centres serving English-speakingmarkets.50

For IT services, the presence ofuniversities and dynamic IT clusters matters.Capabilit ies in these areas are difficult fordeveloping countries to acquire: they take timeto build and enjoy cumulative agglomerationeconomies. This explains why IT centres tendto cluster in only a few sites; moreover, once thefirst offshoring work has been attracted, thereare potential learning benefits for first-movers

that reinforce their initial advantages. The patternpersists at the subnational level; for instance, inIndia, most of the software work is performedin a few cities (Kumar 2001a; D’Costa 2003).

Attrition and staff turnover are alsoimportant issues. Where these are high, costs risefor recruiting and training staff, and high turnovercan affect the quality of the service. Whereas callcentres in India have shown considerably lowerattrit ion rates than in the United States(Outsourcing Insight 2001), they are now slightlyhigher (30%) than in Ireland and the Netherlands

Figure IV.1. Low costs lead the locationdeterminants of call centre-FDI projectsin developing countries and economies

in transition, 2002-2003(Number of companies citing factor)

Source: UNCTAD, based on information from LOCOmonitor.

Figure IV.3. Market growth leads the locationdeterminants of IT services FDI projects in

developing countries and economiesin transition, 2002-2003

(Number of companies citing factor)

Source: UNCTAD, based on information from LOCOmonitor.

Figure IV.4. Market growth leads the locationdeterminants of regional headquarters FDI

projects in developing countries andeconomies in transition, 2002-2003(Number of companies citing factor)

Source: UNCTAD, based on information from LOCOmonitor.

Figure IV.2. Low costs lead the locationdeterminants of FDI projects in shared service

centres in developing countries andeconomies in transition, 2002-2003(Number of companies citing factor)

Source: UNCTAD, based on information from LOCOmonitor.

167CHAPTER IV

(20-25%) and well above those of the UnitedKingdom (15%), the Philippines (10%) and SouthAfrica (7%) (CM Insight et al. 2004). Risinglevels of attrition in current hotspots may openup opportunities for new locations.

Telecom infrastructure and access remaincritical to attracting all types of IT and IT-enabledoffshored services. Telecommunications need tobe not only reliable and stable, but alsocompetitive. This is especially true for smallerlocations.51 In the case of call centres, telecomcosts can represent up to 40% of the total costin “low-income” locations. Moreover, due to thespecific quality requirements that apply to voicetransmissions, access to f ibre-optic l inks isimportant for countries that seek to attract callcentre activities.

Another factor affecting location is thetime zone of a host country relative to that of thehome country. For some services, especially thosethat need to be provided during normal workinghours, it is desirable to locate the service in thesame time zone as the customers. In other cases,there are advantages to being in a completelydifferent time zone, to offer 24-hour service.Cultural affinity may play a role in someoffshored services, particularly in call centres.However, where this is lacking, it can be (at leastpartly) developed. Some call centres in India, forexample, are training their staff in the accents,interests and traditions of United Statescustomers.52 The Indian company Akiko Callnethas more than 100 call centres in the country andhas launched a chain of 53 training institutes tocreate a pool of staff with the requisite skills.53

As already noted, the motives for thesetting up of regional headquarters differ fromthose of the other three categories of FDIprojects, and cost considerations take lowerpriority in the list of determinants. Regionalheadquarters provide high-level servicesemploying senior management and professionals,including a significant number of expatriates. Toattract such projects, locations need to offer agood quality of life, convenient air connectionsand access to competent suppliers of businesssupport services.54 Key location determinantsinclude proximity to customers (both external andnetworks of foreign affiliates located in theregion), market growth opportunities, access toa skilled workforce, a supportive business andregulatory climate as well as a high-qualityphysical and ICT infrastructure (figure IV.4).

Only a few developing economies currently meetall of these requirements. Those that do, such asthe United Arab Emirates (Dubai), Hong Kong(China) and Singapore, have been successful.Given the considerable agglomeration benefitsin the location of headquarters functions, it canbe difficult for newcomers to emerge as attractivecompetitors.

Many policy-related factors also affectthe location decisions of different offshoredservices. Some companies have been attractedto a location as a result of promotion by the host-country government (UNCTAD and RBSC 2004).In setting up shared service centres for theEuropean market, about 25% of all projectsinvolved interaction with development agenciesat some stage in the process (IBM and OxfordIntelligence 2004). In the same study, theprovision of grants and incentives also rankedamong the most important factors affecting thelocation decision. Interestingly, many companieschoose to offshore services to countries wherethey already have a presence. For large Europeanfirms, this has been the third most importantfactor for selecting a specific country in the CEEregion and the fifth most important factor whenoffshoring to Asia (UNCTAD and RBSC 2004).55

The same survey also showed that internallobbying of headquarters by a foreign affiliatecan affect the choice of location, indicating animportant role of after-care by investmentpromotion agencies to attract further offshoredservice activities (chapter V).

Success in attracting offshore serviceshas a cumulative dynamic of its own – successin one set of activities can lead to success inanother. India may be attracting services of allkinds (with the exception of regionalheadquarters, which are more attracted to otherlocations) because it has developed a reputationfor offering efficient and reliable services.“Bangalore” has become a brand name. Otherfactors may reinforce the reputation effect, suchas policy learning (successful sites make newentry easier as they learn to meet offshoringneeds), skill spillovers across activities, scaleeconomies in infrastructure and institutionalsupport. Offsetting these factors may be the costsof clustering: congestion, rising wages, staffturnover and other costs, and the risk of losingproprietary knowledge to competitors. This, inturn, may lead to dispersion, offering otherlocations an opportunity to attract FDI.

168 World Investment Report 2004: The Shift Towards Services

3. European TNCs offshore lessthan their United States rivals

As noted above, the practice of offshoringof services started in the United States. Even in2004, companies from that country dominate theoffshoring scene. For example, more than two-thirds of India’s exports of software services areto the United States. The patterns are similar inthe case of FDI projects (annex table IV.1). Firmsfrom the United States dominate, with two-thirdsof all IT service projects, 60% of all call centreprojects and 55% of shared service projects.

In general, European companies haveshown less inclination to offshore services. Inthe case of pan-European shared service centres,65% have been set up by TNCs from the UnitedStates (IBM and Oxford Intelligence 2004). Infact, as noted above, even among the largestEuropean TNCs, less than 40% have experiencewith services offshoring (UNCTAD and RBSC2004). Moreover, more than half of them do nothave any plans to pursue offshoring in the nearfuture. However, interest in offshoring variesconsiderably by European country, with the

United Kingdom following the most closelybehind the United States.56 In all four categoriesof export-oriented FDI projects analyzed above,the United Kingdom accounted for the largestshare of projects originating in the EU (annextable IV.1).57 These findings were confirmed inthe survey conducted by UNCTAD and RBSC.It showed that, while more than half ofresponding TNCs based in the United Kingdom(and in the Benelux countries) had alreadyoffshored some services, the corresponding figurein German-, French-, Spanish- and Italian-speaking countries was much lower.58

Although United Kingdom companieshave offshored some of their operations forseveral years, particularly to India, the trendaccelerated in 2003 (table IV.9). Offshoring hasmainly involved call centres, but also legalservices and various back-office functions (billingfor Thames Water; customer relations andpassenger revenue accounting for BritishAirways). At the same time, some companieshave deliberately decided not to offshore,59 anda few have moved operations back in responseto customer complaints. In the Netherlands, more

Table IV.9. Selected offshoring cases, United Kingdom, 2003-2004

Country and number of Service Company Function jobs or value involved

Financial services HSBC Back-office processing jobs 4,000 by the end of 2003 in(banking, insurance) India, China and Malaysia.

Another 3,500 wereannounced in June 2004.

Norwich Union/ Administrative insurance jobs; 350 2,350 in India by end ofAviva in call centres, 2000 in back-office 2004

and administrationLloyds TSB Call centre jobs 1,500 jobs in India by end 2004Barclays Back-office staff 500 to IndiaAxa 700, some to IndiaAbbey National Back-and-front office work 400 jobs to Bangalore

Distribution services Tesco Business support centre 350 to India

Telecommunication BT Call centre 2,200 by 2004 to India services

Transport services British Rail National Rail inquiries 600 to India

Health services NHS Fast-track centres offering surgery Non-UK health care providers,to NHS patients. Foreign providers including Netcare of Southrun mobile operating units. Netcare Africa, amounting to a total ofplans to bring over surgical teams £2 billion from South Africa on rotation onceevery 11 weeks

NHS £896-mn IT contract to modernize NHS Tata Consultancy Services(India) part of a consortium

Other government Greater London Software for toll charging A $10 million contract toAuthority Mastek

Source: UNCTAD, based on various newspaper articles in the United Kingdom.

169CHAPTER IV

than 200 firms have offshored IT work to India,60

and it is estimated that 50,000 IT jobs will becreated in India over the next ten years.61

Among large European companies thathave experience with offshoring, most aresatisfied with the associated outcome: 83% statedthat projects were partly or entirely successful,while only 3% were of the opposite opinion(UNCTAD and RBSC 2004). In l ight of theconsiderable advantages reaped throughoffshoring, this raises questions related to thefuture competitiveness of companies that do notconsider such opportunities. If companies thatdo offshore become more competitive, others –in developed as well as developing countries –may be compelled to jump onto the bandwagon.

E. Impact on hostE. Impact on hostE. Impact on hostE. Impact on hostE. Impact on hostcountriescountriescountriescountriescountries

FDI in export-oriented services offers anumber of economic development benefits forhost countries. Key benefits relate to increasedexport earnings and the impact on the labourforce: job creation, higher wages and upgradingof skills. Jobs in IT-enabled or IT services aretypically better paid than in, for example,assembly work or other manufacturing activities.Given the short time needed to implement an FDIproject in such services, attracting offshoredservices can offer fast-track job creation,especially in locations where the skills neededalready exist. Obviously, this also means thatinvestment projects won may easily be lost; sunkcosts are typically low for simple operations, andthe risk of footloose behaviour is high – althoughthis risk diminishes the more skill-intensiveoperations are.

FDI related to the offshoring of servicesmay be desirable from a spillover perspective,especially if the exported services are alsosupplied to the domestic market. Positivespillovers in terms of raising the competitivenessof human resources and improvements in ICTinfrastructure and business services thataccompany significant services FDI benefit allsectors of the economy. Most of the associatedskills are readily transferable to other parts ofthe economy: skills involving computers, sales,languages, finance, accounting and softwaredevelopment are in high demand locally andinternationally. Moreover, negative spillovers interms of environmental pollution and exploitationof natural resources are likely to be limited.

The scope for upgrading has improvedas the nature of offshored services has evolved.Initially, most work tended to be in low-end IT-enabled services such as data entry and basicprogramming. These activities require only basiclevels of computer literacy and limited interactionbetween customers and suppliers. Foreigncompanies that set up the first back-officefunctions in India in the mid-1990s are nowoffshoring more sophisticated tasks as well, suchas software development and design, financialanalysis, architectural services, tax preparationand medical analysis.62 The upgrading of the skilland technology content of offshoring continuesas capabilities in developing-country suppliersimprove and firms in industrialized countries seethe potential for and economic benefits ofoffshoring.

Meanwhile, since export-orientedservices tend to be relatively skill-intensive andrequire advanced infrastructure, the scope forbroader development benefits outside the mostadvanced regions of an economy may be limited.There are also indications that the scope forlinkages between foreign affiliates and local firmsis small, especially in the area of softwaredevelopment (Kumar 2001a). Moreover, an influxof export-oriented services FDI may attract thebest skills to certain types of service activitiesthat, unless continuously upgraded, may moveon to another location as the competitive situationchanges. Increased competition for skills mayhave adverse effects on other industries of theeconomy. The experience of India and some otherdestinations of offshored services is reviewed next.

1. India

The offshoring of software developmentand, later, back-office and call centre services,has driven India’s rapidly expanding serviceexports. During the past decade, the value ofexports of software and other services jumpedfrom less than a $0.5 billion to $12 billion in2003-2004, according to the National Associationof Software and Service Companies(NASSCOM). In parallel, the export intensity ofthe Indian software and service industry rosefrom 58% to 78%, and the share of these servicesin total exports from India increased from 3%to 21% between 1996 and 2003 (RIS 2004).Whereas software exports still account for thelion’s share of these exports, IT-enabled serviceshave emerged as an increasingly importantcomponent, rising from $0.6 billion in 1999-2000

170 World Investment Report 2004: The Shift Towards Services

to the current level of $3.6 billion. Of India’ssoftware and service exports, 68% go to theUnited States and another 14% to the UnitedKingdom (Joseph and Parayil 2004).63 In 2001,India’s share of the global market for offshoreIT and IT-enabled services was estimated at 25%– second only to Ireland – while for offshore IT-enabled services only the figure was as high as67% (McKinsey & Co. 2003; Scholl et al. 2003).According to estimates by NASSCOM, themarket for IT-enabled services will continue togrow fast and could be worth $17 billion by2008.64

What has been the role of FDI in India’ssuccess as an offshore location?65 In softwaredevelopment, TNCs have played a key initial rolein the development of the Indian industry (seebox IV.5 for the case of Nortel Networks ofCanada). Some early entrants (such as TexasInstruments) led more TNCs to consider Indiaas an attractive location for offshored services.However, FDI has not been a dominant feature.In 2002, foreign affiliates accounted for 20% oftotal export revenues in the software industry.66

While foreign investors have created newsoftware jobs in India, most of them entered thecountry when the domestic industry was alreadywell developed (Kumar 2000). Today, leadingIndian companies (Tata Consultancy Services,Infosys Technologies, Wipro Technologies,Satyam Computer) are on par with, or even aheadof, many of their foreign rivals in terms ofprofitability.67 India has earned a strongreputation on account of high quality services.IT firms in India typically hold the necessaryquality certifications.68

In contrast, TNCs have played a criticalrole in India’s exports of back-office services(Patibandla and Petersen 2002; McKinsey & Co.2003). The IT-enabled service industry in Indiabegan to evolve in the early years of the 1990s,when companies such as American Express,British Airways, GE and Swissair set up theirown offshore operations in India. Today, a largenumber of foreign affiliates operate IT-enabledservices in India (table IV.10). According toNASSCOM estimates, foreign affiliates in 2002-2003 accounted for 58% of exports of offshoredbusiness processes; their share is expected toincrease in the next few years.69 TNCs haveprovided capital, knowledge and expertise, newinfrastructure, access to markets and fostered theformation of new companies (McKinsey & Co.2003).

Among IT-enabled services, companiesare offshoring to India customer care, finance,human resources, billing and payment services,administration and content development (tableIV.11). There is increasing offshoring ofupcoming service lines involving higher value-added activities such as engineering and design,knowledge processing and logistics. It has beenestimated that the industry generates about240,000 jobs. The customer-care segmentaccounts for about 39% of employment, and hasrecorded the highest growth rate in recent years.

The total number of foreign affiliates inIT-enabled services in India increased from 57to 102 between 1997/98 and 2002/03. As a result,the share of foreign firms in the total number offirms in this industry rose from about 13% to20%. These companies are concentrated in a fewIndian states, notably Karnataka, Maharashtra,Delhi, Tamil Nadu and Andhra Pradesh (tableIV.12). The export intensity is as high as 93%for foreign affiliates, whereas the correspondingshare for local firms was about 70%.

There is a high regional concentration ofexport production. Even within states, one or twometropolitan centres account for the bulk ofexports. Thus, Bangalore in Karnataka, Mumbaiand Pune in Maharashtra, Noida and Gurgaon inthe Delhi area, Hyderabad in Andhra Pradesh andChennai in Tamil Nadu are the centres of softwareand service activities. In terms of growth, duringthe past five years foreign firms have been moredynamic than their local counterparts, but thereis significant regional variation in the generationof export earnings and employment. Foreignaffiliates in IT-enabled services in Delhi, forexample, accounted for 24% of employment butonly 14% of exports in 2002/03. Conversely, inKarnataka, their share of employment was 23%whereas their export share was 45%.

Employment in foreign affiliates hasexpanded faster than in local firms during thepast five years. In software development, foreignfirms now account for about 20% of totalemployment; in IT-enabled services the share isabout 28% (RIS 2004). There is hardly anydifference in the employment intensity of foreignand local firms, but highly skill- and design-intensive activities generate fewer jobs than lessskill-intensive activities such as data entry. Insoftware development, the average employmentper $1 million of exports is in the order of 30persons. For the IT-enabled service industry as

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In 1989, Nortel (Canada) had itself set anambitious target of increasing its turnover from$6 billion to $20 billion by 2000. To achieve this,it started expanding its R&D capabilities for whichit required highly educated personnel. However,the company saw a serious constraint in terms ofa shortage of locally available scientific andtechnical skills. Enrollment in science andtechnology had already peaked in North Americaand the college-age population was declining. Thisposed a challenge for a company that used torecruit the top 10% of science students fromselected universities in North America. It thereforedecided to look globally for technical talent. Thus,the starting point was not cost savings, but the needto access the best and brightest skills.

This was when Nortel set its sights on India– it saw the potential of India’s nascent softwareindustry. India also offered the rule of law,democratic institutions, judicial and bankingsystems as well as process protection.Consequently, in the early 1990s, Nortel decidedto set up an offshore software development centrein the country. Another advantage was that the timedifference with North America allowed thepossibility of doing R&D 24 hours a day.Moreover, India was churning out thousands ofEnglish-speaking graduates with solid engineeringand programming credentials. While many of themheaded straight to North America and Europe forfurther study or to join TNCs, thousands morestayed back. Thus, Nortel found a pool ofprogramming talent available for less than 30%of the cost of a North American engineer.

Some hurdles remained. Colleagues in NorthAmerica were not convinced that the farming outof jobs to India was a good idea. Many managersworked hard to keep jobs at home to retain control.Some were dubious about the quality of Indianprogrammers. Still others were suspicious that theirnew Indian partners would share what they learnedwith Nortel’s competitors.

In Mumbai (then Bombay) and Bangalore,Nortel identified a number of companies, each ofwhich was awarded small R&D contracts. Amongthe jobs assigned was a project to convert softwarecode from one computer language to another. Otherassignments involved the development of toolsfor testing telecom software. From the outset, thegoal was to engage the minds of Indian engineersand steadily ratchet up the sophistication of the

work done on Nortel’s behalf. Whereas the Indianprogrammers completed most of the projectssuccessfully and Nortel began assigning morecomplicated jobs, some problems began to emerge.People in India were not familiar with workingin an environment with proprietary software andadvanced equipment, and required guidance.India’s top software companies at the time werevery good at handling chores involving thetranslation of software from one type oftechnology platform to another, but less adapt infinding imaginative approaches to creatingapplications or products. Moreover, India’scompanies were operating under severerestrictions: they could not raise money, list onstock exchanges or import computers for personaluse without government permission. In addition,at the time, telecom and power networks wereinefficient.

After 1991, the Government encouragedTNCs from the United States to set up operationsin India, which put pressure on India-based firmsto upgrade. In this phase, Nortel’s influence wascrucial; it encouraged Infosys and Wipro todevelop groups of employees who workedexclusively on Nortel projects. The programmerswere assigned their own offices and telephoneexchanges, and Nortel spent millions on satellitelinks, switches and other telecom gear.

To outsiders, the offshored group assignedto handle Nortel projects looked very much as ifthey were part of Nortel’s global workforce, andthe R&D units became known as dedicatedoffshore software development centres. Infosysand Wipro would eventually set up many suchcentres on behalf of dozens of the world’s largestTNCs.

The Indian firms learned quickly andgradually won the confidence of their Nortelcolleagues in North America. Indian programmersbegan getting international experience, particularlyduring the initial stages of most projects, whenthey, along with managers, spent time in NorthAmerica on customer sites to gain a detailedunderstanding of what was required. Most wouldthen return to India to write the necessaryprogrammes. Only a small part of this workinvolved leading-edge technology; when the NorthAmerican firms moved from one generation oftechnology to the next, they would hand overresponsibility for the older part to India andconcentrate on the newest products.

Box IV.5. Nortel Networks’ offshoring to India

Source: Bajpai et al. 2004.

172 World Investment Report 2004: The Shift Towards Services

whole, this figure is about 68 persons, and it is88 for content development and 79 for customercare. Thus, employment generation in softwareis only about half of that in IT-enabled services.

The services offshored to India appearto be moving towards higher value-added levels.Although it has been argued that Indian firms,by and large, still operate at a relatively low endof the value chain (Arora et al. 2000; D’Costa2003), some evidence suggests that they aremoving up fast (Joseph and Abraham 2002;

Kumar 2001b). Still, India is yet to make itspresence felt in the growing area of embeddedsoftware. Significant opportunities for upgradingalso exist in IT-enabled services. The earliestservices offshored by a company tend to berelatively standardized and of limited strategicimportance, but if the first attempts succeed, moresophisticated tasks tend to follow. For instance,in the processing of insurance claims, the firststep is to enter simple information into a standardform. The next step is to take over someinvestigation and valuation of claims. Later,

Table IV.10. Leading foreign affiliates in India’s IT-enabled service industry, 2003-2004

Number ofCompany Service lines employees

Accenture Pharmaceutical and insurance back-office functions, HR and procurementmanagement, IT support and customer relationship management 4 300

American Express Financial accounting, data management, information analysis and control,administration, staffing, payroll services 4 000

AOL Customer support, back-office operations 1 500-1 900AXA Business Services Claims processing, accounting, telemarketing, tax consulting, compliance,

financial analysis 800Convergys India Call centre services 3 000+Dell Customer support services 3 000EDS Data entry, phone-based marketing, payroll, credit cards, loans and mortgages,

medical and insurance claims 700Ford Business Services Center CAD, CAM, e-mail support services 500GE Capital Client services; remote IT help desk, software distribution; server services;

remote service support, data centre; network services; remote network support;application services; software quality assurance; payment services 11 500

Healthscribe India Medical transcription, data processing, hospital information services, customersupport, billing, claims processing, account receivable 1 200-1 250

HP Global eBusinessOperations Internal financial back-office for HP 1 500HSBC Electronic Data Account transactions, general accounting, credit/debit card services, cheque 4 500 Processing India processing, benefits administration, recruiting and staffing, payroll servicesJP Morgan Chase Transaction processing 1 200Sitel India Private Limited Customer support services 1 000Standard Chartered Banking operations, global HR support, software development and maintenance,

global treasury operations support, IT helpdesks 3 000

Source: UNCTAD, based on company interviews and press releases.

Table IV.11. Service lines in IT-enabled services in India, 2001-2004(Number of employees and millions of dollar)

2001-2002 2002-2003 2003-2004

Service line Employment Revenue Employment Revenue Employment Revenue

Customer care 30 000 400 65 000 810 95 000 1 200Finance 15 000 300 24 000 510 40 000 820Human resources 1 500 30 2 100 45 3 500 70Payment services 7 000 110 11 000 210 21 000 430Administration 14 000 185 25 000 310 40 000 540Content development 39 000 450 44 000 465 46 000 520Total 106 000 1 475 171 100 2 350 245 500 3 580

Source: NASSCOM 2004.

173CHAPTER IV

accountants or engineers are allowed to identify“unusual” (fraudulent or exaggerated) claims(Dossani and Kenney 2004, p. 12). Theexperience of GE points in the same direction(box IV.6). Some Indian companies – such as

Kale Consultants, a Mumbai-based company –have diversified from software development intoIT-enabled services and deepened theirrelationships with foreign clients (Dossani andKenney 2004, p. 33).

In seeking to leverage its position as aleading destination for offshored services, Indiais seeking to diversify its exports. Currently, twocountries (the United States and the UnitedKingdom) account for 82% of the country’sexports of software and IT-enabled services. But,India may be in the process of harnessing itsgrowing trade relations with other economies inAsia, such as the ASEAN countries. To enhancethe productivity, efficiency and competitivenessof domestic users, to realize the potential forlinkages and spillovers and to promote economicgrowth, including at the regional level,70 astronger domestic market-orientation would help.Another related challenge is that the boom in thesoftware and IT-enabled service industry maylead potentially to adverse effects on other partsof the economy that compete with the IT industryfor skilled manpower (Desai 2000).

Table IV.12. Export intensity of foreign andlocal firms in India’s software industry,

by state, 2002/03(Per cent)

Location Foreign Local

Delhi 95 72W.Bengal 98 85Gujarat 0 74Maharashtra 85 76Andhra Pradesh 98 87Karnataka 94 76Tamil Nadu 89 77Kerala 0 84Others 80 70Total 93 70

Source: RIS 2004, based on data compiled from theNASSCOM Directories.

GE Capital International Services (GECIS)started operations in India in 1997 by providingcall centre customer support and back-officeservices, such as data entry and transactionprocessing to other GE companies. Sinceinception, the Indian operations havecontributed to cost savings of 40-50% (orabout $300 million annually) for GE.Employment in India has grown to more than11,500 jobs, and annual revenues stand at about$1 billion. India is now hosting the globalcompany headquarters of GECIS, which alsohas operations in China, Hungary and Mexico.

Gradually, GECIS India has generatedinternal pull from other GE companies bydemonstrating cost and quality benefits,investing in infrastructure and implementing so-called “six-sigma processes” to deliver improvedquality. GECIS India now provides services tonearly 300 processes from 30 internal GEbusinesses worldwide. For instance, 30% of allaccount closings for GE are done in India; thetarget is 100%.

In 2000, GECIS India started adding high-value products to its portfolio. At present, itoffers, for example, IT helpdesk, riskmanagement, actuarial services and loans andclaim processing, making it one of India’s largestproviders of back-office services. Continuedsuccess has led to ambitious plans for the future:GECIS plans to set up three new contact centresin addition to the present facilities at Hyderabadand Delhi, at an estimated investment of $83million. The company aims to become the largestprovider of remote services by capturing a 10%market share of global remote services.

GE has also offshored R&D work to India;it has leveraged the scientific talent pool of thecountry in its John F. Welch Technology Centerin Bangalore. Indian scientists and engineers areworking on R&D in such areas as electronic andelectrical systems technology, ceramics andmetallurgy, catalysis and advanced chemistry,polymer science and new synthetic materials andpower electronics. The centre, where two-thirdsof the employees have advanced educationdegrees, has already filed for more than 17patents.

Box IV.6. Upgrading offshored service operations in India: the case of GECIS

Source: NASSCOM 2004.

174 World Investment Report 2004: The Shift Towards Services

2. Other Asian locations

Apart from India, offshored services areplaying a growing role in several Asianeconomies. The Philippines is an attractivecountry for offshoring of business processesthanks partly to its cultural affinity to the UnitedStates and American-style English speakers. Italso enjoys a reputation as a stable, fast-growingeconomy with rapid telecommunication andtechnological advances.71 Although the labourpool is smaller than in India and costs aresomewhat higher, it is, nevertheless, frequentlyregarded as the closest competitor to India. Itscall centre industry in 2003 employed more than27,000 people, a figure that is expected to doublein 2004. Intel, Microsoft, Safeway and Kodakare among companies that have opened Filipinocall centres, most of which are located in Manila.There has also been rapid growth in sharedservice centres, due to a highly skilled workforcein accounting, software writing, architecturalservices, telemarketing and graphic design. AIG,Caltex, Procter & Gamble and HSBC operateamong the largest shared service or call centresin the country. Foreign companies have in thisway created many new jobs for college graduatesand boosted the country’s exports of services.72

In Malaysia, third-party call and contactcentres are growing at the rate of 100-200% since2000. One of the country’s strengths is theavailability of workers speaking English, Malay,Mandarin, Cantonese, Hindi and Tamil (MIGA2003). BMW, Citigroup, Dell, DHL, Ericsson,Hewlett Packard, HSBC, IBM and Royal DutchShell have all set up regional service hubs inMalaysia, while AIG and Motorola are amongcompanies with software development centresin the country.73 Singapore offers strong financialservice skills and excellent infrastructure, buthigh salary and real estate costs. It also targetsleading-edge offshore functions such as remoterobotics management, healthcare and geneticdiagnostics (A.T. Kearney 2004) and has becomeone of the key hubs for regional headquarters.Of the 7,000 foreign affiliates in Singapore, morethan 4,000 have been assigned regionalresponsibilities.

China may well be the next majordestination for the offshoring of services. Thecountry is becoming a key product-developmentcentre for GE, Intel, Microsoft, Philips and otherelectronics TNCs. Call centres for clients in Japan

and the Republic of Korea are springing up incoastal cities. Many industries are clustered incertain areas, with high-tech centres in Beijingand Shenzhen, financial services in Shanghai andHong Kong (China) as a global financial centre.A large pool of skilled people and low costs areChina’s key advantages, but language skills andcultural factors tend to tilt the scales in theopposite direction.

3. Latin America and the Caribbean

Brazil, Chile, Costa Rica and Mexicohave attracted some service production withrelatively low labour costs and proximity(important due to similar time zones) to theUnited States. Some 8% of all large EuropeanTNCs with offshoring experience have activitiesin this region (UNCTAD and RBSC 2004). AOLTime Warner, Unisys and Xerox are examples ofcompanies that are taking advantage of highinvestments in telecoms and IT infrastructure anda large and relatively low-cost labour pool.Procter & Gamble’s shared service centre in CostaRica provides support to 28 countries (box IV.7). Chilehas attracted FDI in shared services by, for example,BHP Billiton, Nestlé, Shell,74 Sodexo and Unilever.Advanced telecommunications at competitive costsare important strengths for Chile. The data on FDIprojects in export-oriented services showed that,for IT services, Mexico has attracted projects insoftware development and Brazil in advancedR&D production. A number of countries in theCaribbean have successfully attracted offshoredservices.75

4. Africa

In Africa, export-oriented FDI in serviceshas mainly been in call centres. South Africa isthe most prominent player, although countriessuch as Ghana, Mauritius, Morocco, Senegal andTunisia have also received investments linkedto offshore services. In 2003, there were morethan 400 call centres in South Africa, employingclose to 80,000 people. It is estimated that thenumber of work stations related to call centresand back-office services will increase by morethan 200% until 2007. To date, FDI in the SouthAfrican call centre industry has been quite limited(CM Insight et al. 2004), but EDS, Sykes andMerchants are among the largest call centreemployers in the country.76

175CHAPTER IV

5. Central and Eastern Europe

Several CEE countries offer a well-educated, multilingual workforce, competitivelabour and property costs, central location andgood infrastructure. For a number of Europeancompanies, offshoring in the same time zone isa more attractive option than shifting activitiesfurther away. With EU enlargement, some of thenew EU member countries also offer attractivelocations for regional headquarters. Accordingto one ranking, the Czech Republic offers themost attractive conditions for offshoring to CEE

(A.T. Kearney 2004). Among the largerinvestments in the Czech Republic in 2003 wereDHL’s decision to set up a European IT centre,creating 500 jobs; Accenture’s expansion of itsservice centre that could increase from 300employees in 2003 to 1,500 in 2008; and thetransfer of Philips’ European accounting servicesfrom Dublin to Lódz, creating 400 jobs.77 Polandwas the second most attractive CEE location,followed by Hungary (A.T. Kearney 2004).78 InIT services, countries such as the RussianFederation and Romania are emerging on theinvestors’ list.

Global Business Services is Procter &Gamble’s (P&G’s) worldwide shared servicesorganization. It provides back-office support tonearly 98,000 employees in over 80 countriesand comprises three centres: Manila (Philippines),Newcastle (United Kingdom) and San José (CostaRica). In the process of selecting these three citiesas locations for its Global Business Servicescentres, the company reviewed more than 120cities worldwide. The key reasons for choosingCosta Rica were the pool of highly educated andskilled labour, the country’s long-standingdemocratic tradition, an attractive cost structureand an investment-friendly approach to foreigninvestors.

The San José service center startedoperations in late 1999. By 2004, it was providing28 different services to 63,000 P&G employeesin 22 countries in North and South America. Thisincludes serving 58 plants and 15,000 retirees.Services delivered from Costa Rica includeemployee services such as payroll, benefits,relocation, travel expense accounting andcompensation; and accounting and financialservices such as cost accounting, banking,treasury and affiliate accounting, purchasing, andIT support.

Some of the main activities undertaken bythe Costa Rican centre include:

• Closing the books for 132 legal entities andmanaging 310 bank accounts in 35 differentbanks across 22 countries.

• Payroll and salary planning and compensationfor 57,000 P&G employees.

• Annual processing of some 2.5 millioninvoices and managing accounts payables inthe order of $24 billion.

• IT support to 5,000 sales representatives inthe United States.

Global Business Services has created 1,300high value-added service jobs in Costa Rica,thereby helping to mitigate the risk for brain-drain from the country. The local operation hasalso promoted the transfer of skills throughintensive training programmes. The company has“raised the bar” on recruiting and educationalstandards, reviewing over 12,000 résumés andrequiring applicants to demonstrate proficiencyin English and international accounting standards.

The company has recently become involvedin global negotiations with strategic partnersconcerning the outsourcing of some functionspreviously handled by P&G Global BusinessServices. The first strategic partnershipimplemented was with Hewlett Packard withregard to IT support services starting 1 August2003. From 1 August 2004, Hewlett Packard willalso handle the accounts payable services. InNovember 2003, a real estate company, JonesLang LaSalle, took charge of the facilitiesservices and, since 1 January 2004, IBM hasprovided employee services to P&G. Thesepartnerships will allow the centre in Costa Ricato attract higher value added work moreconcentrated in its core business activities. P&Gexpects more and more sophisticated services tobe handled by its Global Business Servicescentres in the future.

Box IV.7. Procter & Gamble’s shared service operations for the Americas

Source: Procter & Gamble.

176 World Investment Report 2004: The Shift Towards Services

FFFFF. Implica. Implica. Implica. Implica. Implications ftions ftions ftions ftions for homeor homeor homeor homeor homecountriescountriescountriescountriescountries

What is the likely impact of servicesoffshoring on home countries? In response to theexpansion of offshoring of services, there havebeen vocal reactions in both the United Statesand Europe. Concerns have been expressed thatthe growth of white-collar jobs in export-orientedservices in countries such as India, thePhilippines and the Caribbean signalsemployment losses in developed countries andpotential harm to their economies. Proponents,on the other hand, argue that the offshoring ofservices will be beneficial to developed countries.As one observer put it (Drezner 2004, p. 23):“believing that offshore outsourcing causesunemployment is the economic equivalent ofbelieving that the sun revolves around the earth:intuitively compelling but clearly wrong”.

It should be reiterated that this is notsimply a North-South issue. As noted above, asignificant share of offshoring takes place amongdeveloped countries. For example, Canada,Ireland and various Western European countriesremain among the most attractive locations forshared service centres in Europe (IBM andOxford Intelligence 2004), and more than halfof all FDI projects related to call centres in 2002-2003 went to developed countries. Lower wagesare thus not the only driver of services offshoring,and rich countries gain as well as lose jobs ina narrow sense.

Offshoring is essentially a manifestationof a shift in production in response tocomparative advantage. It offers all theadvantages – and costs – of such a shift. It is nota “zero sum game”, in which one party (thecountries receiving service work) gains at theexpense of the other party. On the contrary, itoffers three main benefits to developed countries.

• Offshoring, undertaken by companies toreduce costs and/or improve quality anddelivery, enhances their competitivenessand, by extension, benefits the homecountry. Conversely, companies that refuseto offshore, risk losing competitiveness tothose that undertake it.

• It enables the home (or importing) countryto shift to more productive and higher valueactivities. Economic dynamism depends onadaptation to changing comparativeadvantages, and offshoring is no exception.

As long as resources are mobile and workersmove to new jobs, such changes are not justbeneficial but also necessary for long-termprosperity. The impact is no different fromthat of technical change that makes somejobs redundant and creates others, generallyat higher wage levels. And it is no differentfrom the constant shifts in patterns ofcomparative advantage in manufactures thathave driven trade growth in the past.79

• Exporting host countries use some of theirexport revenues on imports of advancedproducts exported by the industrializedcountries.

At the same time, the current size of theoffshoring phenomenon needs to be kept inperspective. First, whereas offshoring is likelyto grow over time, most outsourcing remainspredominantly a domestic affair; only a smallproportion of all business-process outsourcingis international and, within that segment, muchis outsourced among developed countries (Schollet al. 2003). Second, there is no sign of offshoringleading to a decline of similar services in homecountries. Recent estimates undertaken on behalfof the United Kingdom Department of Trade andIndustry show that the number of call centres inthat country is likely to increase over the nextthree years, and that associated employment willincrease from below 500,000 in 2003 to 650,000by 2007.80 In the United States, employment incall centres is expected to grow from 3% in 2001to 5% of the workforce by 2010 (Mosher and Gist2002). Moreover, in both these economies,employment in those industries that are expectedto be the most affected by offshoring is in factshowing the fastest growth. Indeed, the numberof IT-related jobs in the United States is expectedto grow by 43% by 2010 (Mann 2003) – anexample of restructuring.81 Moreover, the 3.4million service jobs that are forecasted to beoffshored from the United States until 2015 (orabout 300,000 annually over the next 11 years)seem insignificant compared with the averagenormal turnover of some 4 million jobs everymonth.82

Jobs created in exporting locationsthrough offshoring do not equal jobs lost inimporting countries. As mentioned above, theoffshoring of services is sometimes done to copewith excess demand and in response to a shortageof adequately trained people at home. Amonglarge European TNCs, 79% of those withexperience in offshoring identified several ways

177CHAPTER IV

in which home countries benefit , includingthrough lower prices, improved competitiveness,increased skills and higher employment(UNCTAD and RBSC 2004).

Interesting parallels can be drawn withthe relocation of jobs in ICT-relatedmanufacturing, when assembly operations shiftedto East Asia. Together with technical progress,the globalization of hardware production cut theprices of ICT products, increased investment inICT hardware and contributed to higherproductivity and growth. Many new jobs emergedin the United States to integrate ICT equipmentinto the workplace and such jobs grew twice asfast as overall employment (Mann 2003). Theglobalization of IT-based services is likely to besimilar. In fact, it may diffuse higher productivityto activities and firms that did not share in theproductivity revolution of the 1990s (e.g.healthcare and SMEs). Services are morepervasive in their effects, and their benefits arelikely to be widespread. IT jobs are predicted togrow three times faster than total employmentin the United States, and the “second wave” ofproductivity growth based on IT-services couldeven exceed that in the 1990s. Lower cost ofinputs boosts economic activity, investment and,eventually, job creation. According to a recentstudy, the offshoring of IT services in this wayhelped create 90,000 net new jobs in the UnitedStates in 2003, and more than 300,000 net newjobs could be created by 2008 (ITAA and GlobalInsight 2004).

What about the “jobless recovery” in theUnited States? Employment in white-collarservice activities has not increased since 2001,as compared with an average annual gain of 5.5%over the past six cycles (Roach 2004). Isoffshoring to blame? Only to a very small extent.It may have affected some white-collar jobs butother factors are far more significant. Only 2.8%of all IT software and service jobs thatdisappeared in the United States between 2000and 2003 were lost due to offshoring (ITAA andGlobal Insight 2004). Data from the LaborDepartment in the United States show that only2.5% of all job losses during the first quarter of2004 (or 4,600 out of a total of 182,000redundancies) were the result of offshoring.83

Technical change is a far more important causeof job losses. Bank tellers, answering servicesand secretaries are replaced by automated tellermachines, voice-answering technologies andword-processing software. Further jobs will be

lost as software is developed to undertakecomputer programming and financial analysis.

Thus, somewhat paradoxically, aconsiderable part of the gains from offshoringwill be reaped by the importing countries, notablydeveloped economies. This conclusion wasconfirmed in another recent study that found thatmost of the benefits from offshoring flow backto the United States (Agrawal et al . 2003;McKinsey Global Institute 2003). Benefitsinclude lower prices to consumers, expandingmarkets for exports and higher corporate profits.This study concluded that the United States gainstwice as much as India from offshoring. For everydollar spent on offshoring to India, it found thatfirms in the United States reaped $1.12-$1.14 inbenefits.84

However, even if long-term benefits aresubstantial, there are short-term challenges toconsider. All shifts in comparative advantageentail adjustments at the micro level. Somepeople do lose jobs, and there is likely to be atransition period in which they search for newemployment opportunities. Countries with moreflexible labour markets stand a better chance toadapt. People may have to acquire new skills ormove to new locations to become employable.There are, in other words, real adjustment costs– the role of the Government is precisely tominimize or ameliorate such costs and make thetransition smoother and more efficient. Theinstitutional challenge for home countries is toease the transition process for those directlyaffected by offshoring, upgrade skills andincrease innovation. This does not requiremeasures to force service jobs to stay at home,but rather more constructive policies thatencourage education, training and R&D.Protectionist measures aimed at arresting theoffshoring trend would likely destroy rather thansave jobs in developed countries.

Countries need to prepare for suchadjustment policies. The tradability revolutionhas fundamentally changed the environment fordoing business and opened completely newopportunities for restructuring the production ofcorporate service functions across borders. Thisnew international division of labour has thepotential for producing considerable welfaregains for the world economy as a whole –possibly, in the longer-term, even moreconsiderable than in the case of manufacturingactivities.

178 World Investment Report 2004: The Shift Towards Services

1 See IDA Ireland, http://www.idaireland.com/news/showRelease.asp? storyid=205.

2 The centres, employing about 2,200 people,strengthened BT’s competitiveness and improvedcustomer services. “BT Retail announces extrainvestment in UK contact centres and confirms plansfor two centres in India”. Press release from BT, 7March 2003, http://www.bt.com/index.jsp.

3 “ACS announces creation of new technology centerin Ghana to support expanding local workforce”,www.prnewswire.com, 29 May 2003.

4 “Bank of America sets up Indian outsourcingsubsidiary”, IDG News Service, 18 February 2004.

5 Information here includes voice, words, data, picturesand any combination of these.

6 For early treatment of increased trans-border data flows,see UNCTC 1983a, b; UNCTC 1984a, b; Robinson etal. 1989; Sauvant 1986a, b.

7 The cost of one megahertz of processing power fellfrom $7,600 in 1970 to 17 cents by 1999. The cost ofsending 1 trillion bits of data plummeted from $150,000in 1970 to 12 cents by 1999. The entire contents ofthe United States Library of Congress can now betransmitted across the United States for $40, and soonit may be storable on one computer chip. In 1930, thecost of a minute’s telephone call from New York toLondon was $300 at today’s prices; today it is a fewcents (UNIDO 2002). It has also been estimated thatthe cost of an international 2Mbps fibre leased linein India dropped by up to 80% between 1997 and 2001(McKinsey Global Institute 2003, exhibit 5).

8 “Outsourcing: the myths and facts”, Wall Street JournalEurope, 1 March 2004.

9 On fragmentation of manufacturing, see Arndt andKierzkowski, eds. 2001. The trends in manufacturingare carried much further in services because they offergreater scope for separating processes.

10 For example, once the “expert system” for answeringquestions is written, anyone anywhere with sufficientskills can navigate through the decision tree on thecomputer screen and act like an expert. Spreadsheetsoftware with embedded equations and the ability todownload data implies that anyone with the requisiteskills can provide analysis for a financial enterprise.Computer programming, at one time akin to an art, hasbeen modularized and decomposed into three stages:design, implementation in computer code andmaintenance and repair (e.g. debugging). This is similarto accelerating the standardization of manufacturingprocesses in the traditional product cycle, allowingits diffusion to new locations.

11 Cultural factors may also inhibit trade. A case in pointis the disparate growth of home-working via e-mailin different countries and institutions, illustrating howsocial and work traditions can hinder the externalizationof services beyond a single company.

12 Data on trade in services, and especially intra-firmtrade, suffer from serious shortcomings (Kirkegaard2004).

13 During the same period, the shares of Germany andJapan, two countries in which the private sector hasundertaken less offshoring, fell by 0.6 and 2.7percentage points, respectively (WTO 2004a).

14 However, in the import statistics of the United States,India and Ireland do not feature among the top 10source countries. The leading suppliers of “other privateservices” in 2002 were the United Kingdom, Bermuda,Canada, Germany and Japan (Borga and Mann 2003).According to data from the United States Departmentof Commerce, Bureau of Economic Analysis, totalimports of (mode 1) services from India was only $80million in 2002, as compared to the $6.4 billionreported by IndiaStat as total services exports (mode1 and 3) to the United States and Canada (Kirkegaard2004).

15 See, for example, “Companies finding some computerjobs best done in U.S.”, New York Times, 28 April 2004.

16 This has long been true in insurance and banking. Inthe former case, it has been justified by consumerprotection. The quality of an insurance policy can bedetermined only when damage occurs (e.g. to a caror to health), while the premium payment takes placeat the time of purchasing a policy. In banking, it maybe justified by the need for prudential supervision toguarantee the safety and stability of financial systems.

17 According to the company: “The best outcome for ourstaff, shareholders and customers is to continue toemploy people in countries in which we operate,provided the fiscal and regulatory climate is supportiveof business”, The Guardian, 18 October 2003 (http:// w w w . g u a r d i a n . c o . u k / b u s i n e s s / s t o r y /0,3604,1065770,00.html).

18 For more on the educational profile of workers in IT-enabled services, see United States, Department ofCommerce 2003b, 2004b; Kirkegaard 2003.

19 Early examples include offshoring of data entry to Indiaand the Caribbean (UNCTC 1989c).

20 Y2K is short for “Year 2000”. Many computers neededupgrading of their software programmes to cope withthe change from year “99” to “00”.

21 See Forrester Research, 8 December 2003( w w w . f o r r e s t e r . c o m / E R / P r e s s / R e l e a s e /0,1769,867,00.html).

22 Forrester Research, cited in “Growth of offshoring mayaccelerate”, CNNMoney, 17 May 2004.

23 Deloitte Research, “The cusp of a revolution: howoffshoring will transform the financial servicesindustry”, www.deloitte.com/dtt/cda/doc/content/The-Cup-of-a-revolution-2003.pdf.

24 For “other private services” as a whole, thecorresponding figure was 47%.

25 Managers unfamiliar with (outsourcing and) offshoringmay also feel more comfortable with an in-housesolution (Kobayashi-Hillary 2004).

26 Some large financial service TNCs have establishedsubsidiaries in India, which export services. Theseinclude American Express, Citigroup, Fidelity, GECapital, HSBC and JP Morgan (Dossani and Kenney2004; “More ‘Can I help you?’ jobs migrate from U.Sto India”, New York Times, 11 May 2003).

27 “Is your job next?”, Business Week, 3 February 2003.28 “Protectionism hits the outsourcing industry”, IDG

News Service, 15 April 2003; “Opportunity on the line:the promise of business-process outsourcing istempered by questions of security, technology, andculture”, Information Week, 20 October 2003.

Notes

179CHAPTER IV

29 It can be demonstrated theoretically that adisproportionate improvement of skills and investmenttechnology in developing countries (compared within developed countries) will bring about a shift insourcing of services from developed to developingcountries (Grossman and Helpman 2002).

30 See also “Global designs for India’s tech king”,Business Week, 13 October 2003.

31 “On runway, will take off: airlines BPO has contributed$30 million to the total earnings of WNS”, IndianBusiness Insight, 31 August 2003.

32 Sitel is also considering new offshore centres in China,South Africa and certain CEE and Central Americancountries (company interview, March 2004).

33 “EDS opens offshore facility in India”, IT Management:Outsourcing , 18 June 2003.

34 See www.top-consultant.com.35 “India’s outsourcing firms have a new target: Europe’s

expanding eastern rim”, Dow Jones Newswire, 30 April2004.

36 Additional examples include Wipro, Birlasoft and HCLTechnologies all with operations in the United Kingdomand the United States; Datamatics Technologiesacquired CorPay Solutions (United States) for $9million in 2003 and is planning to acquire morecompanies in the United States, Europe and Canada.

37 In India, four trends towards industry-wideconsolidation have been noted (“Outsourcing in India:growing up”, The Economist, 22 May 2004). First, someforeign affiliates are thinking of selling some of theiroperations. Second, fast-growing Indian firms seeacquisitions – inside and outside India – as a way tosustain growth. Third, some contract service providerTNCs, such as IBM and Accenture, are acquiring localservice providers in the Indian market. Finally, thereis consolidation among Indian companies.

38 For example, in the case of India, average FDI intoservices offshoring totalled $300 million in 2001, orjust over 10% of the country’s total inflows of FDIthat year (McKinsey & Co. 2003).

39 The data used here are from LOCOmonitor, a databasedeveloped by OCO Consulting covering over 21,000greenfield and expansion projects (but not cross-borderM&As). While the database does not claim to becomprehensive, information on these FDI projectscomes from over 6,000 sources including companies’press releases, government websites and the media.

40 Examples of takeovers include Hinditron, acquired byTAIB Bank (Bahrain), and IIS Infotech, bought by FIGroup (United Kingdom). Joint ventures have beenestablished between British Aerospace and HindustanAeronautics; Bell South and TelecommunicationCorporation of India; and British Telecom andMahindra Group (Kumar 2000).

41 “IBM buys Indian back-office service firm”, Reuters(www.reuters.com), 7 April 2004.

42 “Call centre firm eyes expansion with new owner”,Budapest Business Journal, 3 May 2004.

43 Some 95% of all shared service centres serving theEuropean market have some type of financial servicefunctions and 23% provide an IT service (IBM andOxford Intelligence 2004).

44 More than 60 companies (mainly from the UnitedStates) use Ireland as a base for their European callcentres, employing 12,000 people.

45 “US firms saved $8 bn via local outsourcing”, BusinessStandard, 16 April 2003.

46 Ibid.47 Data from NASSCOM suggest that the direct cost per

employee in an Indian call centre are about $5.20 perbillable hour as compared with $27.80 in the UnitedStates (Dossani and Kenney 2004).

48 The Philippines Board of Investment, for example,actively uses the country’s large pool of trainedaccountants in its marketing efforts. According to theGovernment, the country boasts a larger number ofaccountants than India (information provided by thePhilippines Board of Investment). Companies such asProcter & Gamble and Caltex have selected thePhilippines as a base for shared services related tofinance and accounting.

49 France Telecom, SNCF (the French Railway company)and Altitude Marketing are examples of companies thathave set up call centres in Morocco (see Belghazi2000). Atento, of Spanish Telefonica, has set up callcentres with several hundred employees in Tangiers.

50 Ireland and the Netherlands, at an early stage,successfully established themselves as leading locationsfor pan-European call centres, leveraging theavailability of the many languages represented in theirpopulation, including foreign students. However, withincertain language regions, such as Scandinavia, manycompanies have set up local operations.

51 Low labour costs in India have made it viable forcompanies to import all their own telecom technologyfor the large call centres that have been established,while still operating at a far lower cost than indeveloped countries. For smaller countries, where thecapital outlay for telecommunications would beproportionately higher (because the centres would besmaller) an insufficient telecoms infrastructure couldhave a prohibitive effect on potential investors (Cohen2003).

52 See, e.g. “Online extra: the good life in a Bombay callcenter”, Business Week, 3 February 2003.

53 “Call centres to be India’s biggest job-maker”, TimesNews Network, 18 December 2003.

54 For example, Changi International Airport in Singapore,one of the largest air hubs in the Asia-Pacific region,handled more than 25 million passengers in 2003. InApril 2004, it was linked to 152 cities in 51 countries,with more than 3,400 weekly flights(www.chiangi.airport.com.sg).

55 See also IBM and Oxford Intelligence 2004.56 Some 7% of all pan-European shared service centres

are part of TNCs from the United Kingdom (IBM andOxford Intelligence 2004).

57 In terms of outsourcing, the United Kingdom aloneaccounts for 35% of the European market(“Outsourcing embraced in Europe as well”, CIOInformation Network, www.cioupdate.com, 18 March2004).

58 A few cases of offshore services have received attentionin Germany. For example, Siemens has located around2,700 software and accountancy jobs in CEE, and hasannounced that it will offshore 10,000 of a total of30,000 software development operations to low-wagecountries; SAP has opened R&D centres (productdevelopment and customer support) in China and India.It has established a presence in India where it is

180 World Investment Report 2004: The Shift Towards Services

planning to employ nearly 2,000 people by the endof 2004 (“Siemens to move 10,000 jobs to India, China,Russia”, Rediff.com India (www.rediff.com), 16December 2003). The accountancy arm of Infineonplans to expand its services activities in China in thenext five year from 800 to 3,300 employees (“Infineonbaut Werk und Entwicklungszentren in China”, HeiseZeitschriften Verlag (www.heise.de), 26 July 2003).

59 See footnote 17. Other examples are Northern Rockand Alliance & Leicester.

60 AND Publishers (electronic mapping), Philips, AtosOrigin, Logica CMG, ABN AMRO, Reed Elsevier andthe Dutch affiliate of EDS have all offshored services(article in Intermediair (www.intermediair.nl),November 2003).

61 Interview with Paul Tjia, GPI Consultancy, February2004.

62 See “Down and out in white-collar America”, Fortune,23 June 2003, pp. 43-47; “Commentary: outsourcingjobs: is it bad?” Business Week, 25 August 2003.

63 The share of Asian countries is estimated at about 8%,of which the Japanese market accounts for almost threepercentage points.

64 “A shadow called ‘outsourcing’”, Indiabiz News andResearch Services, Volume 1, Issue 13, June 2003, p.3.

65 Detailed data on FDI in the software and IT-enabledservices are not available. NASSCOM publishes adirectory of firms with details of software and servicefirms related to ownership, sales, employment, export,location, etc. It also publishes a directory of firms inIT-enabled services. The directory of software firmsincludes all the major firms, accounting for about 90%of the total software exports. The coverage of the IT-enabled services directory is about 60% of total exports.The analysis of the role of the FDI in the software andIT-enabled services is mainly based on the firm leveldata compiled from the two directories mentionedabove.

66 Based on information from NASSCOM directories.67 The operations in the United States of the best Indian

IT companies have shown productivity levels of 150%the United States average – comparable to the levelsof large United States service companies such asAccenture and EDS (McKinsey & Co. 2003, p. 11).

68 Some 60 IT companies in India currently hold so-calledCMM level 5 certification; this represents 72% of allIT companies with such certification in the world.

69 See NASSCOM-BPO Forum (http://bpo.nasscom.org/download/BPO_Captives_ GoodOmen_4_3rdParties.pdf).

70 As mentioned earlier, the software and IT-enabledservice industry remains confined to a few cities,

despite various state governments’ initiatives to attractsoftware investment to less developed regions.

71 See, for example, CM Insight 2004; Bajpai et al. 2004;A.T. Kearney 2004.

72 Information provided by the Board of Investment,March 2004.

73 A.T. Kearney 2004; MIGA 2003; “Why Malaysia”,Sigmax-E, 2003 (http://www.sigmax-e.com/).

74 For example, Shell has decided to locate its regionalcustomer service centre for Latin America in Santiago.The aim is further improvements in customer servicesand to reduce costs by centralizing and optimizingoperations. The centre in Chile will provide back-officeadministration and front-office (call centre) functionsto Argentina, Chile, Paraguay and Uruguay. Thecompany estimates that the centre will receive around75,000 calls per month relating to its fuel, lubricants,retail and asphalt businesses Invest@Chile (http://w w w . h i g h t e c h c h i l e . c o m / i n v e r s i o n i s t a s /last_investors.htm).

75 For example, Sykes has set up a call centre in ElSalvador employing some 500 people, and West Corp.employs 400 people in a call centre in Jamaica.

76 Information provided by Gauteng EconomicDevelopment Agency, South Africa, January 2004.

77 “Subcontracting and location decision in 2003”, RevueRégionale, 9 February 2004.

78 Hungary has attracted shared services FDI by suchcompanies as Alcoa, Avis, Diageo, ExxonMobil, GEand General Motors.

79 When Delta Airlines offshored services by setting upa 1,000-person call centre in India in 2003, thecompany saved $25 million and facilitated an additionof 1,200 reservation and sales positions in the UnitedStates (Drezner 2004, p. 27).

80 CM Insight 2004.81 In the United Kingdom, according to data from the

Office for National Statistics, employment in banking,insurance and other financial services – the industriesmost affected by offshoring – has increased steadilyover the past decade. Real value added in the businessservices and finance industries of the United Kingdomhas also increased and the balance of trade in computerand information services is positive and growing.

82 Data for the 12-month period ending June 2004 (http://bls.gov/news.release/pdf/jolts.pdf).

83 See http://www.bls.gov/news.release/pdf/reloc.pdf.Similar findings have been noted for Europe(Kirkegaard 2004).

84 An Indian study reached similar conclusions(NASSCOM and Evalueserve 2003).

PART THREE

NATIONAL AND INTERNATIONALPOLICY CHALLENGES

Policies are critical to FDI of all kinds:the policy framework affects how much FDI takesplace and in what forms. More importantly, itinfluences the development effects of FDI – howeffectively resources flow to and are absorbedby host countries and how its potential costs arecontained. The policy challenge is complex inthat services range over a large field of activities,each with its own technologies, scope and needs.

Three types of policies affecting FDI canbe distinguished: two are national (host and homecountry) and one is international (internationalinvestment agreements, or IIAs). The first twoare the focus of chapter V. It addresses the extentto which companies have opened up to FDI inservices, the challenge of regulating serviceactivities open to FDI – especially in the contextof privatization – and the role of investmentpromotion. In light of the recent developments,the chapter pays particular attention to theoffshoring of services – as an area offering

development opportunities for both home andhost countries.

Chapter VI recognizes that nationalpolicy-making is increasingly affected byinternational rule-making. IIAs – which embodylegal commitments undertaken by sovereignstates that pursue their national interests –provide the framework within which allgovernments make policies, and the interactionbetween national and international policiesbecomes more important as IIAs proliferate atall levels.1 Potential benefits of IIAs are that theycan offer more universal, transparent and stablerules for investors. At the same time, the risk isthat IIAs may constrain host governments frompursuing development-oriented policies.

Note1 WIR03 provided a detailed analysis of the interaction

between national investment policies and IIAs.

INTRODUCTION

A. Host-country policiesA. Host-country policiesA. Host-country policiesA. Host-country policiesA. Host-country policieson seron seron seron seron services arvices arvices arvices arvices are ke ke ke ke keeeeey toy toy toy toy to

dededededevvvvvelopment gelopment gelopment gelopment gelopment gainsainsainsainsainsNational policy-making in services

affects the ability of a country to attract desiredtypes of FDI and to extract benefits from it. MostFDI in services is market-seeking in nature, butas services become more tradable, the scope forefficiency-seeking FDI – and thus for associatedpolicies – is expanding. A general challengefacing policy-makers is to strike the right balancebetween economic efficiency and other policyconcerns. Whereas a case can often be made onefficiency grounds for l iberalizing FDI inservices, market failures as well as broaderdevelopmental objectives often justify restrictionsor national regulations on the provision of variousservices. At the same time, in areas in whichcountries seek to promote a stronger presenceof FDI, proactive measures may be necessary,for example, through privatization programmesor investment promotion. Given the intensity ofthe use of human resources in servicesproduction, skills development and educationpolicies are key to attracting and leveraginginward FDI in this sector.

1. Countries are opening up to FDIin services

Mirroring the overall tendency amongcountries to liberalize the entry of foreign firmsin the primary and manufacturing sectors, theliberalization of services has also come a longway. While FDI in services remains morerestricted, both developed and developingcountries have taken steps to open up theirservice industries. In fact, starting from a higherlevel of restrictiveness, developing countries mayhave liberalized their service industries at an evenmore rapid pace than developed countries overthe past decade.

Whereas comprehensive data onrestrictions to FDI in services do not exist, it ispossible to draw some deductions fromreservation lists in various internationalagreements that deal with investment. Non-

CHAPTER VCHAPTER VCHAPTER VCHAPTER VCHAPTER V

NATIONAL POLICIES

conforming measures listed in such agreements– especially those with a negative list ofreservations – provide one useful proxy of areasthat host countries deem particularly sensitiveor of strategic importance.1 Beyond lists of non-conforming measures, some information can alsobe obtained from national sources. Thesubsequent discussion is based on studies thathave drawn on both international and nationalsources.

Based on the lists of a total of 4,886 non-conforming measures included in seven IIAs,71% were related to investment in services, 15%to horizontal restrictions that apply to all sectorsand 14% concerned investment in the primaryand manufacturing sectors (figure V.1).2 Withinthe services sector, four industries –transportation, banking and insurance, businessservices and communications – accounted for85% of all non-conforming measures (figureV.2).3 A study of restrictions in the OECD areaconcluded that most countries are today quiteopen to FDI in hotels and restaurants,construction and business services, whereas thelevel of restrictiveness rises considerably in thetransportation, telecom and electricity industries(Golub 2003).4

In general, developed countries are moreopen than developing countries to FDI in services(OECD 2003, p. 23); however, there is greatvariation across industries and countries. Adetailed analysis suggests a rather complexpattern. For example, even liberal and matureeconomies such as the United States, open to FDIin most activities, retain entry restrictions onservices such as media and air transportation.Moreover, whereas low- and middle-incomeeconomies on average are more protected thanhigh-income economies in distribution industries,Belgium, France, Italy and Switzerland wereamong the most restrictive in a sample ofcountries, while Singapore, South Africa andUruguay were among the most liberal (Kalirajan2000). In a study related to telecommunications,Argentina, Brazil and Chile were among the leastrestrictive countries, while Burkina Faso, CostaRica, Ethiopia, Malta, the Syrian Arab Republicand Tunisia were the most restrictive (Warren

186 World Investment Report 2004: The Shift Towards Services

Figure V.1. Reservations by sector in selected IIAs

Source: UNCTAD.

2000; McGuire 2002). Similarly, otherresearch shows that the most open economiesin maritime services included a mix ofdeveloped and developing countries, whilecountries as diverse as Brazil, Chile, Indiaand the United States had the highest barriersto foreign service providers (McGuire et al.2000).

Various measures are used to restrictFDI in services. Restrictions can be formal(e.g. legislations and decisions) or informal;specific (applying at the level of firms orindustries at large) or general (e.g. economicneeds test and national interest criteria). Theymay seek to influence the allocation of capitalbetween countries, between foreign anddomestic investment and between direct andportfolio investment. Some measures apply at thepoint of entry, stretching from mere notificationrequirements to outright prohibition of FDI; otherstarget the operations of firms; while a thirdcategory is related to restrictions in the area ofownership and control. The nature of restrictionsand the purpose for which they are introducedvaries by industry. In distribution services,restrictions are often used to maintain health andsafety standards and limit urban sprawl (Kalirajan2000). Common examples include performancerequirements, zoning regulations, operating hoursand advertising restrictions. In professionalservices, they are mainly introduced to ensurestandards and the quality level of services, as wellas the integrity of service providers (Nguyen-Hong2000). Examples include nationality and residencerequirements, l imitations on business formsaccepted and lack of recognition of foreignqualifications. In telecom, licensing requirements,limits on foreign equity participation and priceregulating are frequent.

A further l iberalization of servicesinvolves potential advantages and disadvantages.Benefits can stem from increased competition,lower prices and better quality of services(McGuire 2002; OECD 2003 for a review).Moreover, a larger number of suppliers of servicesfurthermore enhances consumer choice. Finally,allowing foreign companies to establish a presencein services that are key inputs to other productiveactivities may help improve the systemiccompetitiveness of an economy.

But there are several reasons whydeveloping countries, on average, remain morerestrictive on FDI in services than developed ones.It is partly due to the particular nature of services.Apart from the sensitivity of services with cultural,social, distributional or strategic significance, thereare economic concerns. First, countries restrictFDI to avoid the risk of foreign investors killingoff fledgling domestic enterprises (i.e. the infant-industry argument).5 Second, entry by large serviceTNCs involves competition policy considerations,and many host countries may not feel ready to dealwith the technical and legal issues involved.Industries that are characterized by a lack ofcompetition are also likely to be subject to moreregulations. Third, services FDI that involves thesale of public utilities to foreign firms raisescomplex issues related to privatization and theregulation of natural monopolies. Countrieswithout the necessary regulatory framework maylose by rushing into liberalization, particularlywhen a reversal of the liberalization is hard toachieve or when liberalization has “systemicimplications”, as in the case of the financialindustry. Fourth, some services may not appearto offer significant technical skill creation,linkages or other benefits (reflecting partly a lack

Figure V.2. Reservations on investment inservices, by industry, selected IIAs

Source: UNCTAD.

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of understanding of the indirect impact ofservices on productivity), and governments maywonder why they should promote entry by TNCs.Finally, since a number of services are closedto foreign investors, are monopolies and, in anyevent, need to be regulated, it is frequentlydifficult to predict as well as to assess the effectsof an opening up to FDI (e.g. on prices); andgetting the right regulation in place is a challenge.

These concerns are often valid, and thereare trade-offs involved in liberalizing FDI entry.Where local enterprises are capable but arethreatened by the TNCs’ size, resources or links,a case can be made for gradual liberalization andfor measures to ensure that local enterprisesreceive support and do not face anti-competitivepractices. Governments need to tailor theirpolicies to the specific conditions prevailing intheir countries and in each activity. The complexpattern of liberalization to date in countries atvarying levels of development indicates that “themore liberalization the better” is too simple apolicy prescription. Rather, it is preferable to findan appropriate balance between possibleefficiency gains from opening up and otherbroader development objectives: “In practice,liberalization is l ikely to be a step-by-step,industry-by-industry endeavour…. The selectionof industries in the context of a programme ofgradual liberalization requires that policy-makersbe able to evaluate how particular industries willperform when their environment is liberalized….Adaptation takes time, thus providing the basisfor an argument for a gradual liberalization ofservices” (UNCTAD and World Bank 1994, p.58). The need for appropriate regulation whenliberalizing is well illustrated by the financialindustry (box V.1).

The liberalization of services hascontributed to the boom in FDI (chapter III).Much of the impetus for liberalization has comefrom developing and transition economiesseeking to improve the efficiency of theirservices, reduce the financial burden of State-owned services by selling them to foreigninvestors, and boost exports by attracting FDIrelated to services offshoring. As many servicesare essential inputs for manufactures, and sincemany restrictions to trade in manufactures havebeen removed, the liberalization of services hasalso become more important. Unless countriesoffer internationally competitive service inputslocally, they may not be able to retainmanufacturing activities that use these services.Moreover, international rules and pressures have

reinforced the liberalization trend, but theappropriate scope, speed and nature of furtherliberalization continues to be debated.

In open and contestable markets, thereis generally little reason to fear that greatercompetition will lead to a deterioration in thequality of services, but only so long as thecompetition and regulatory framework is strongand effective. In many services, conditionsimposed on FDI can be seen as an integral partof such a framework. Services with built-inmonopoly elements (power, water, telecoms) needstrong legal and regulatory systems to ensureefficient pricing, investment and delivery.Policies may also need to reflect the possiblydifferent effects from FDI depending on whetherit takes the form of acquisitions or greenfieldinvestment (Mattoo et al. 2001). Services thatare widespread or raise particular governance orstability concerns (like finance) need appropriateregulatory systems to ensure that they conformto social interests. Similarly, the entry of FDIvia privatization raises complex issues (discussedbelow). In services with implications for thelabour market (e.g. employment conditions in callcentres) or the environment (e.g. tourism),governments need to define socially acceptablenorms of behaviour. There is also a crucial rolefor competition policies in ensuring the benefitsof FDI in services (WIR97). However, many ofthese policies are not specific to FDI, but applygenerally to all forms of investment.

In view of the complex nature of servicesand the variation in national priorities and values(whether economic, social and environmentalconcerns, consumer interests or otherdevelopment considerations), there is a need forpolicy space in regulating service industries toallow governments the flexibility necessary toimplement their national objectives – an issuetaken up in the next chapter.

2. Benefits from FDI ininfrastructure-related services:the case of privatization

Basic infrastructure services are key toeconomic and social development. At the sametime, they are capital-intensive, oftencharacterized by natural monopoly and difficultto regulate. As indicated in chapter III, theopening up of various infrastructure servicesthrough privatization programmes triggeredunprecedented increases in FDI, especially in

188 World Investment Report 2004: The Shift Towards Services

The extent to which countries have chosento allow foreign banks to enter differs considerably(chapter III). Opening up to foreign banks entailsbenefits and risks, which implies the need forappropriate government regulation. This usuallymeans not simply deregulation, but also thereplacement of existing regulations with moremarket-friendly ones, and that focus on prudentialobjectives.

Due to the high incidence of market failure,notably imperfect and asymmetric information,regulation is essential in financial services (Stiglitz1994). Imperfect information can lead to adverseselection and moral hazard, making it difficult forbanks successfully to allocate financing to goodinvestments. Weak regulation can exacerbate theproblem, potentially leading to inadequate capitalpositions, fraudulent behaviour, excessive creditgrowth and risk-taking at individual banks. Anyof these can undermine an institution’s health,perhaps even the health of the banking system, andpossibly induce wider financial instability.a

Even the most developed regulation andsupervision cannot always prevent banking distressin the case of major economic shocks (Calomiris1992). On the other hand, a well-designedframework (with supporting legal, accounting,disclosure and auditing infrastructure), includingappropriate prudential regulations, well trained andexperienced supervisors and proper enforcement,can discourage imprudent behaviour by weak bankswithout unduly constraining the operations ofstrong banks (Rojas-Suarez and Weisbrod 1996).It can also make a banking system more resilientto volatility and economic shocks and promotefinancial stability.b

The entry of foreign banks into developingcountries and transition economies raises concerns

that regulators in these countries may find itdifficult to supervise properly foreign “largecomplex banking organizations” operating in theirmarkets (Mathieson and Roldos 2001). There areworries that foreign banks ignore domesticborrowers, and be less prone to respond to domesticcredit needs; that regulatory authorities are not ableto exercise adequate control over these banks; andthat domestic banks are unable to compete (Peekand Rosengren 2000).

On the other hand, the entry of foreign bankscan contribute to the development of domesticregulation, to the extent that they abide byinternational regulatory standards (Mathieson andRoldos 2001). Foreign branches of a foreign bankare supervised on a consolidated basis by the parentbank’s regulator. Thus, their presence in a countrywith weak regulatory structures may contributeindirectly to promoting harmonization of itsregulatory standards with those in more developedmarkets. However, it does not absolve domesticauthorities from responsibility for regulating andmonitoring the activities of banks, whether theybe banks with minority foreign stakes, jointventures between domestic and foreign investors,or domestic banks that adopt more sophisticatedfinancial instruments in a liberalized financialsystem.

Countries must decide to what extentregulation and supervision must be developedbefore undertaking financial liberalization –including opening up to FDI – or whether thesemeasures can be adequately addressed in parallel.The issue of the appropriate sequencing, speed andbreadth of financial liberalization – and indeed thedesirability of external financial liberalization –remains controversial, and needs carefulconsideration by national authorities.

Box V.1. Prudential regulation of the entry of foreign banks

Source: UNCTAD.

a Poor regulation has been found to be one of the leading causes of banking crises in both developed and developingbanking markets (Caprio and Klingebiel 1997). See also Goldstein and Turner 1996; Basel Committee on BankingSupervision 2004.

b In fact, the development of an adequate regulatory and supervisory framework can be seen as a necessary conditionfor both domestic and external financial liberalization (Goldstein and Turner 1996; Mishkin 1997).

telecommunications and electricity. Given thepressing need for capital to meet the projecteddemand for infrastructure investment, coupledwith low savings rates in many developingcountries, as well as poorly developed localcapital markets, FDI is likely to continue to playa major role in the financing of projects related

to telecommunications, electricity, water,railroads and other utilities. In order to mobilizeforeign investment into these highly capital-intensive industries, developing-country,governments will need to pay attention to howtheir policy, legal and regulatory frameworksaffect investment risk and how barriers to

189CHAPTER V

international investment can be lowered in adevelopment-enhancing way.

Involving foreign companies ininfrastructure services can bring importantbenefits, especially in terms of inflows of capital,enhanced supply of services and increasedefficiency. However, benefits are not automaticand various costs can arise (chapter III). Adequatepolicies are needed to address concerns relatedto market failures, the risk of crowding out localplayers and potential job losses. Some servicessuch as the distribution of electricity and water,are particularly sensitive, since they havetraditionally been run as public monopolies andmay be of strategic importance – not only froman economic but also social, national securityor cultural perspectives. FDI in services throughprivatization poses a special challenge in termsof regulation and governance. The outcome ofsuch FDI is affected by the way in whichprivatizations are undertaken, the nature ofcompetition in privatized industries and thequality of the national regulatory framework andinstitutions.

To the extent that governments do decideto open up services to foreign investors, a numberof factors need to be considered (box V.2provides a checklist; see also Odle 1993).Governments first need to establish clearobjectives for involving FDI in privatization anddetermine whether those objectives could beachieved by domestic investors; they then needto prioritize these and other objectives not wellserved by FDI, and adapt the privatization methodaccordingly. Typical objectives include raisinggovernment revenue, expanding the supply ofservices and improving the efficiency of serviceprovision. While certain objectives can be wellserved through sale to a specific “strategic”foreign buyer, others may be better met throughinitial public offerings in the domestic andforeign stock markets, sale to employees of thefirm to be privatized or l iquidation andsubsequent sale of assets. For example, inaddition to firm-specific objectives ofprivatization involving FDI (such as enhancingits competitiveness), governments might seek toachieve economy-wide objectives, such asmacroeconomic stabilization (focusing on therevenue aspect) or capital market development,for which an initial public offering may be astronger candidate.

The situation of the State as a seller ofassets confers a special responsibility on policy-

makers in negotiating individual privatizationtransactions. It is particularly important to strikea balance between budgetary and otherconsiderations. Policy-makers also have tobalance the need to allow the service producerto be profitable with the need to supply servicesat affordable prices to the poor and/or in sparselypopulated areas. Budgetary considerations mayprompt governments to negotiate the highest pricepossible and use the revenues for social purposes,neglecting the competitiveness aspect. Otherconsiderations, such as employment preservationor regional policy concerns, may call for thenegotiation of specific commitments by investors.Similarly, if governments focus too much on thesale price of a State-owned company to maximizerevenues, neglecting the regulatory frameworkand institutions needed to maintain or improvethe efficiency of natural-monopoly-typeindustries, privatization may have an adverseimpact on the host country. Controversiessurrounding the privatization of electricity andwater are a case in point (Lamech and Saeed2003; Ugaz and Waddams Price 2003).

Given the political and sensitive natureof large privatizations, it is also important tobuild an appropriate institutional environmentthat guarantees policy consistency, coherence andefficiency. A privatization programme involvingFDI presents specific problems. TNCs are legallyand financially powerful private institutions.Transactions and related contracts tend to betechnical in nature and involve the impositionand monitoring of numerous post-privatizationobligations. Most countries that have sought FDIin this context have opted for specializedprivatization agencies. This can help provide aone-stop shop for investors, facili tate therecruitment of adequate expertise, l imit thepossibili ty of buyers capturing sellers andregulators, and maintain independence fromgovernments and vested interests in State-ownedenterprises. The agency should also beaccountable to parliament and adequately audited.

From the perspective of optimizing thebenefits from the sale of a State-ownedenterprise, pricing of the assets is critical. Amajor risk for a host country is that, if anenterprise is sold at a price below its “correct”(social) price, there is a loss to the budget andthe economy. And, under certain conditions – forexample, when equity markets areunderdeveloped or economic systems are intransition – it may be difficult to price assetscorrectly. The possibili ty of undervaluation

190 World Investment Report 2004: The Shift Towards Services

Economic justification for privatizing services

• What is the underlying reason for privatization:is it symbolic (the retreat of the State), for raisingfunds for the budget, or for improving the cost,quality or availability of services? Only the lastis a valid economic reason.

• Are the reasons for privatization clearly statedand are they realistic?

• Does the privatization authority have theinformation, skills and independence to negotiateeffectively?

• What is the experience of other countries (atsimilar levels of development) in privatizing thesame services? (The experience would have tobe in the same services, as conditions andimpacts would differ.)

• Is there only one bidder for the project or canseveral be attracted?

• Should the government target a strategicinvestor? If so, what effect will this have on theprice and the bargaining power of thegovernment?

• What conditions (performance requirements)should be set on the buyer? Given the difficultiessometimes associated with monitoring andenforcing performance requirements, should theybe imposed at all? If so, what is the trade-offwith the price offered?

• Has the government considered alternatives toprivatization (such as management contracts orconcessions)?

• Are subsidies involved? Are they justified? Arethey affordable in terms of the budget? If not,can they be financed by aid or other means?

• What is the prevailing market structure beforeprivatization? Is the industry potentiallycontestable and competitive?

• Are appropriate regulatory mechanisms,institutions and skills in place, if marketmechanisms are insufficient to yield sociallyefficient prices and quality of product? If not,privatization may lead to a private monopolywith a “licence to print money”.

• Do the regulatory mechanisms have provisionsfor subsequent expansion, upgrading andmodernization?

Political feasibility of privatization

• Does privatization have broad political support?• If there is significant opposition, is the

motivation for the opponents primarilyideological, social, political or economic?

• Are there particular social sensitivities involved,for example, as regards water or the media?

• Should the government retain a “golden share”in the privatized company? If so, has the trade-off vis-à-vis economic efficiency beenconsidered?

Form of privatization

• What form should the privatization take: assetsale, public share offering or partial sale toforeign interests?

• Which technique for selling to foreign interestsis best (for example, auction, directnegotiations)?

• Should the asset be restructured beforeprivatization to raise its price? To what extent?

• Should the privatization take place all at onceor in tranches?

• Is the bidding process transparent andaccountable?

• What role should foreign consultants and advisersplay in the privatization process? How can theirimpartiality and competence be assured?

Regulatory considerations

• If the regulatory framework exists, is it consistentwith the long-term contractual arrangements ofthe privatization?

• How are legitimate consumer interests (prices,availability, quality) taken into account?

• What is the appropriate scope of regulation interms of prices, delivery, investment andtechnical efficiency?

• How will the regulatory authority be staffed andfunded? What is its role in the governmenthierarchy or is it autonomous?

• How is the operational independence of theregulator ensured? What safeguards are in placeto prevent it from being captured by large firms?

• Can competition be introduced into parts of theprivatized service? If so, how?

• How is corporate governance enforced? Areminority shareholders protected? Are accountsaudited in accordance with international norms?

Social issues

• How can the provision of services to remote and/or poor areas of the country best be ensured?

• Is there a social safety net for staff maderedundant on efficiency grounds? Who financesand administers the safety net?

• Is there a case for seeking job protectionguarantees? What would be the cost of suchguarantees in terms of the price of sale or thecost of services to the consumer?

• Have environmental issues been taken intoaccount? Who will finance safeguards, if needed?

Box V.2. Check-list for privatizing services through FDI

Source: UNCTAD, based on Megginson forthcoming.

191CHAPTER V

increases if the negotiating position of a hostcountry vis-à-vis foreign investors is weak, orif a host country does not make potentialinvestors compete through a bidding process. Theeconomic and political setting can also influencepricing. Broadly speaking, a clear polit icalcommitment to strong rules of the game mayresult in higher prices.

The privatization process itself alsoaffects the sales price. One approach is to geta large number of competitive bids from a varietyof (domestic and foreign) firms and, if foreignfirms are the only contenders, from well-reputedTNCs. Where the objective is to get a strategicpartner with specific technological or otherassets, there may be a need for a trade-offbetween the upfront price and other conditions.6

An important institutional requirement in thiscontext is the establishment of a competitiveselection process. It is only by ensuring theparticipation of a maximum number of foreigninvestors in the bidding that a government willobtain a competitive price for its assets andsecure the highest level of post-privatizationcommitment by the buyer. It is also importantto make the rules and selection criteria clearlyknown in advance to potential bidders.

In some industries (such as electricity andwater), the number of potential investors may betoo small to secure a sufficient number of bidders.This puts governments in a weak bargainingposition and lowers the chances of getting a goodprice. The situation is aggravated by greaterperceptions of regulatory risks related to FDI inutil i t ies in a number of countries, mostsignificantly in Latin America (CMCG 2003). Itmay become necessary to find ways ofencouraging an expansion of the pool of strategicinvestors, with special efforts to attract investorsin these industries not only from Europe and theUnited States, but also from other developed anddeveloping countries. One possibility might beto focus on local and regional TNCs that haveappropriate technical or managerial cooperationagreements with qualified util i t ies or theiraffiliates.

The regulation of privatized services isanother challenging task. While foreign investorsare often attracted to assets that enjoymonopolistic or oligopolistic rents, it is in theinterest of host countries to minimize those rents,for example by regulating the relevant industries.Difficult questions arising in this context relateto the degree to which a temporary monopoly can

be tolerated in exchange for the modernizationof technology and equipment, what techniquesshould be used to circumscribe monopolies, howto decide on an adequate time frame, thesequencing of regulation and privatization andthe relationship between competition authoritiesand sectoral regulations.

A well-designed regulatory regime, aimedat ensuring the quality, scope and availability ofa given service, contributes to improvementsexpected from FDI, just as it contributes toimprovements under local (public or private)owners. A country’s ability to enforce laws andcontracts and honour commitments it has enteredinto are perceived by investors in infrastructureto be key elements of an attractive and stableinvestment environment (Lamech and Saeed2003). The transparency of the decision-makingprocess is an associated aspect. In Colombia, forexample, regulatory decisions are made publicon the Internet; this, in turn, reduces corruptionand leaves the door open to other interestedparties such as consumer associations (Jamasb2002, p. 49).

In network industries, clear principles fortariff setting are important elements of regulatorypolicy. In a survey of power sector internationalequity investors, 65% of the respondentsconsidered the tariff level as critical for thesuccess or failure of their investments (ibid., pp.9-10). Inadequate policies in this area can leadto unwanted consequences,7 especially whenpolicies are affected by political opportunism andcorruption. Opposition to tariff adjustments iscompounded in countries where basic serviceshave been provided at unsustainably low tariffs.Successful tariff reforms have often been gradual,with proposed changes taking place accordingto a reasonable time scheduled. Householdincome surveys can also help to identify groupsin a society that need special attention, as wellas the levels of electricity consumption neededby such households and at affordable tariff levels.

The regulatory framework also needs toaddress the ability of investors to collect paymentfor the services they provide.8 In some countries,service providers do not have the right to denyservices to those who do not pay their electricitybills.9 Transferring assets into the hands offoreign investors may create a stronger incentiveto the provider to ensure payment, but it is notsufficient to improve discipline with payments.If FDI in utilities is to be sustainable, a solutionthat is acceptable to the Government, customers

192 World Investment Report 2004: The Shift Towards Services

and investors is needed concerning the tariffregime and enforcing the collection of payment.In this context, the situation of those who do nothave the means to pay for basic services has tobe addressed, for example, through social policies

and special provisions related to universal accessto services (box V.3).10

In the telecom industry, regulators alsohave to deal with the international dimension ofservices such as international agreements fixing

An important objective in any nationaltelecom policy is to make services available to agreater proportion of the population. The problemof access is particularly acute in many developingcountries, where large regions may have little orno basic telephone infrastructure. Similar situationsarise also in other services, such as provision ofelectricity or Internet connections. The issue isimportant when private companies are responsiblefor the provision of the service, since the servicingof regions with low population densities, lowpurchasing power or difficult terrain tends to beunprofitable. Some of the policies that have beenused by developing countries to address thequestion of universal provision oftelecommunication services are discussed below.

Government-managed funds for universalservice. Universal service funds can be used tosubsidize a commercial provider’s expansion intocertain regions. The resources needed for suchfunds can be raised through taxes on the telecomindustry (e.g. Ghana, Peru and the United States),from general tax funds (e.g. Chile and ElSalvador), or from a one-time sale of resources,as occurs when a carrier is privatized (as inGuatemala) (Peha 1999). For example, Chileestablished a temporary fund in 1994 to extendaccess to rural and low-income regions througha series of auctions. Regulators selected a set ofregions for universal service auctions in whichoperators had to bid for subsidies. Concessionsare awarded to the company offering the largestreduction to the maximum allowable subsidy. Statecontributions are justified by the fact that theprojects identified have positive social returns.As a result of this programme, about 80% of therural population had gained access to publictelephony by 2002 (Estache et al. 2002, p. 34).

It is important that universal service funds“augment market mechanisms” rather than replacethem (ITU 2003). In this context, policy-makersand regulators have to make a series of choices.Should the financial resources come only from thegovernment, or also from the private sector? Ifthe private sector contributes, should all telecom/

IT service providers contribute, or only some ofthem? Who should administer the fund? Shouldit be a separate agency, the national telecomregulatory authority or some other entity? Howshould universal service projects be identified andwhat services should be funded?

Rural cooperatives can be an importantsource of network development. In Poland, forexample, the Government mobilized the reservesof local communities through cooperatives to raisefunds for building rural networks. Thesecooperatives operate under the equivalent of abuild-operate-transfer (BOT) agreement, thatwould ultimately return control to the monopolyundertaking, but providing for compensation.Nearly 60% of the new main lines in rural areaswere developed according to this type ofarrangement (Hudson 1997; Prössdorf 1997;Kubasik 1997; Petrazinni 1995).

“Franchising” by a monopoly undertakingis an option applied in wireless services when localentrepreneurs buy and operate mobile phones fora village. In Bangladesh, for example, a companysells airtime at wholesale rates to a non-profitorganization that helps rural women entrepreneursestablish village pay phones and obtain financingfrom micro-credit banks to purchase cellularhandsets. A pilot programme has shown thatwomen net an average $2 a day or $700 a yearfrom the village pay-phone operations – more thantwice the country’s average annual per capitaincome (World Bank Operation EvaluationDepartment 2002).

Funding consumers, not carriers. Oneproblem of universal service provision, once anetwork is built, is income-related. Householdscan make their own decisions about spendingpriorities. Vouchers for telephone services –whether they are used for prepaid calling cardsor home phones – provide greater consumerchoice, and they eliminate the distortion frompricing local services below cost to make themaffordable. The problem is to identify the poorand the cost of implementing targetingmechanisms.

Box V.3. Policies to promote universal access to services in telecommunications

Source: UNCTAD, based on Peha 1999, World Bank Operation Evaluation Department 2002 and World Bank 2001.

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the prices of international calls or internationalcross-subsidies. The more international theoperators become, the greater the need for cross-border cooperation between regulators. However,as far as international arrangements areconcerned, regulators with regional mandates arerare, the EU being an important exception. Inutili t ies, the establishment of independentregulatory agencies helps to secure benefits fromprivatization. If possible, a relatively independentstatus helps to minimize regulatory risk andmakes implementation more predictable. Theregulatory authority needs to have adequatefinancial and human resources to protectconsumer interests. Independent agencies are alsooften better positioned to attract qualifiedprofessionals (Krishnaswamy and Stuggins 2003,p. 10).11

At the same time, as most developingcountries suffer from a shortage of adequatehuman resources, expertise and financialresources, it may be difficult to establish andmaintain such strong regulatory agencies tooversee the generation of services, regulatenetworks and award concessions and licenses.One way to address scarcities in qualifiedpersonnel and limited financial resources is toestablish regulatory agencies that oversee severalinfrastructure industries such as electricity, gas,telecommunications and transportation. Suchmulti-utility regulators have been set up by, e.g.Botswana, Chile, Colombia and Mexico(Samarajiva et al. 2002; World Bank 2001).International organizations can play an importantrole by sponsoring cooperation, training and theexchange of experience among regulators(Jamasb 2002).

A difficult issue relates to the extent towhich countries should require specificcommitments from investors when privatizingservices. One of the most importantconsiderations in an FDI privatization isinvestors’ continuing engagement in a countryin terms of investment, employment, etc. Somegovernments have specified future investmentlevels and even mandated contractually certaininvestments at specific times (see e.g. Odle1993).12 Performance requirements (orobligations) may be needed to ensure theuniversal provision of services to remote areasor to the poor (box V.3). There is typically atrade-off between the amount of commitmentsattached and the sales price of the company tobe privatized. In the case of network/infrastructure industries, commitments built into

a regulatory framework may be preferable tonegotiating specific performance requirementsand including them in privatization covenants.Chile and Peru, for example, built detailedrequirements into their electricity regulatoryframework (Nestor and Mahboobi 2000).

A proper regulatory framework should becomplemented by an appropriate policy toencourage competition. The only credible threatof potential competition to large TNC incumbentscomes from other TNCs. In a developing-countrycontext, foreign investors often achieve (orconsolidate) a dominant position more quicklyand more forcefully than in developed economies.As already noted, sometimes there are few TNCswith the expertise to compete globally. In othercases, such as the telecom market in LatinAmerica, the development of regional hegemonyin some markets may reduce the scope forcompetition in national markets (box II.14). Inthe electricity sector, for example, it has beensuggested, as a rule of thumb, that no singleentity should operate or control more than 20-25% of generation or distribution (Krishnaswamyand Stuggins 2003).

One way to further consumer welfare andthe public interest in this context is a competitiverestructuring of the relevant industry beforeprivatization. In the telecom industry, undertakingprivatization before introducing competitiontends to affect adversely the number of mainlinescreated (Fink et al. 2002). The purpose of pre-privatization competitive restructuring is tointroduce competition in the upstream/downstream segments through the break-up ofvertically integrated firms. In the Chileanelectricity industry, for example, the two maincompanies – Endesa and Chilectra – were brokenup into seven generating and eight distributioncompanies, which were privatized separately(Nestor and Mahboobi 2000). In Bolivia, theGovernment broke up its main generationcompany into separate parts and sold them todifferent foreign investors (box V.4).Alternatively, competitive restructuring can beinitiated through horizontal break-up alonggeographical and functional lines, as was donein Brazil with Telebras. There, the Governmentsplit the incumbent holding into threegeographical markets/companies, one long-distance operator and eight cellular operators(ECLAC 2001).

The procedures for dispute settlementalso have an impact on the regulatory framework

194 World Investment Report 2004: The Shift Towards Services

as they can help mitigate perceived levels ofrisks. In Bolivia, for example, a new authoritywas established specifically to resolve disputesbetween regulatory agencies and companies(Jamasb 2002, p. 46). Sometimes disputesconcerning major contracts related to FDI ininfrastructure services have been referred tolitigation at the international level. In Argentina,in particular, a number of disputes betweenforeign investors and the Government haverecently emerged. As of early 2004, 28proceedings against Argentina were pendingunder the International Convention for Settlementof Investment Dispute (ICSID Convention). Thevast majority of them were initiated in the monthsfollowing the December 2001 devaluation of theArgentine peso. Most of the disputes concern

public utilities and related services (water andsewer services, electricity generation anddistribution, telecommunications) or theextractive sector (oil and gas concessions).

3. Promotion of FDI in services

a. Investment promotion agenciesincreasingly target services

Apart from opening up to FDI andinviting foreign investors to participate in theprivatization of certain services, a growingnumber of countries actively promote FDI inservices. Effective promotion can be essentialto attract high quality investors. TNCs aimingat domestic markets or buying State-owned

Bolivia pursued an innovative approach toprivatization: the “capitalization” method. Itsdistinguishing feature is that the sale proceedsstayed within the privatized company to financefuture investment and improve efficiency. Anotherfeature of the approach was that the Government’s50% ownership of the shares in the privatizedcompanies was transferred to a national pensionfund.

Bolivian electricity reform involved theprivatization of transmission and distribution,while public-private co-ownership throughcapitalization was chosen for the generationsegment. To encourage competition, the generationcapacity of the State utility, ENDE, was split intothree separate companies and the assets werecapitalized in 1995. Strategic foreign investors(Dominion Energy, Constellation Energy, GPUInternational – all based in the United States)invested approximately $1.6 billion. This capitalwas earmarked for modernization and furtherefficiency improvements of the industry. Themanagement of the companies was transferred tothe private investors. Another important elementof the Bolivian strategy was the establishment ofan independent but accountable regulator. Thishelped improve the coverage, quality andproductivity of electricity. Moreover, allowing theelectricity generating TNCs to compete kept thewholesale price of electricity down.

The Bolivian model of privatization appearsto have generated a number of positive effects.

Fiscal revenues from the power sector (sales andprofit taxes) increased from $17 million in 1994to approximately $42 million in 1997, and theservicing of ENDE’s debt of approximately $61million was transferred to the private companies.FDI in the electricity industry rose from $2.2million in 1995 to a peak of $51.9 million in 1998.Subsequently, however, it fell to $1.4 million in2001, following the completion of thecapitalization process. Moreover, competitionamong the four post-reform generating companiescaused the spot price of electricity to fall by 22%between 1996 and 2000, and consumers gainedbetter access to the power companies through newconsumer offices to resolve grievances. While theaverage consumption price has increasedsomewhat (ranging from $5.55-$6.67 per kWh in1994 to $5.82-$7.88 in 2001) (www.superele.gov.bo), electricity coverage has improved: by2001, urban electrification had reached 78% andrural electrification had grown from 11.8% in 1992to 25.5 % (www.ine.gov.bo).

In order to promote rural electrification, theBolivian Electricity Law encourages distributionutilities to expand coverage by allowing for theinclusion of the immediate 100 meters surroundingthe lines to companies’ concession areas. Inaddition, the proceeds from the award ofconcessions to distribution utilities are used forexpanding the electrification of rural areas.

Box V.4. FDI-related privatization and electricity reform in Bolivia

Source: UNCTAD, based on Jamasb 2002 and World Bank 2000, 2003b.

195CHAPTER V

utilities may not need persuasion to enter, butthey may lack information on economic and otherconditions in the host country. Those aiming atexport markets have more locations to choosefrom and are therefore particularly demanding.Effective FDI promotion requires a capacity toassess national strengths, global investmenttrends and the strategies of potential investors– and then match all three. They should be ableto target activities, countries and investors andgear their promotion to these, rather than mountdiffuse publicity campaigns.13 Successfulinvestment promotion involves not just sellingthe existing advantages of a country but alsocreating new advantages.14

What are investment promotion agencies(IPAs) targeting in the area of services? In asurvey conducted by UNCTAD in January-April2004, 61 national IPAs responded to thisquestion. All respondents reported that they targetFDI in some industry and/or activity, but primeattention was given to services that can helpgenerate export revenues. The service industriesthat are most often targeted by IPAs are computerand related services, tourism, and hotels andrestaurants. The least common service industriestargeted are retail and wholesale trade, water andinsurance (table V.1). However, there are notableregional differences. IPAs in developed countriesand in CEE most often target FDI in computerservices, but a few of them target FDI in tourism.Conversely, almost 80% of all IPAs in Africa and

Latin America target tourism-related FDI. In Asiaand the Pacific, greater importance is given toFDI in transport and water services than by IPAselsewhere.

The increased tradability of services(chapter IV) makes it possible for companies inall sectors to relocate various service functionsabroad. In order to assess the extent to whichinvestment promotion activities reflect the newopportunities in this area, IPAs were askedwhether they target certain corporate servicefunctions. Indeed, IT and call centre servicesare the most sought-after service functions in allregions (table V.2). For example, more than halfof all IPAs in Africa are already actively seekingFDI in these areas. In developed countries andCEE, R&D activities, call centres, shared servicecentres and regional headquarters functions arealso targeted by at least 50% of the IPAs. Incontrast, less than 20% of the IPAs in developingcountries seek to attract FDI in R&D.

The general principles for promotingservices FDI are similar to those inmanufacturing.15 However, some services are arelatively new to FDI promotion. IPAs havetherefore to learn their particular characteristics,corporate strategies, intellectual propertyimplications, value chain organization and marketleaders, to be effective. Moreover, while it maybe relatively easy to identify the target companiesin service industries, targeting service functionsthat can be offshored by firms from all sectors

Table V.1. Service industries targeted by IPAs, 2004(Per cent; number of responses)

All Developed Developing Latin Asia-Service industry countries countries CEE countries Africa America Pacific

Computer and related services 72 100 80 65 58 62 82Hotels and restaurants 57 13 50 67 63 77 64Tourism 57 25 30 70 79 77 45Transport 39 25 40 42 42 23 64Energy 34 25 20 40 58 23 27Health and social services 30 25 - 37 47 15 45Other business services 28 38 60 19 11 15 36Banking 26 25 20 28 42 8 27Construction 26 - 10 35 42 31 27Education 26 25 10 30 42 8 36Real estate 20 13 30 19 26 15 9Water 18 - 10 23 32 15 18Wholesale trade 16 13 20 16 16 - 36Insurance 15 13 - 19 26 8 18Retail trade 13 - 10 16 16 8 27Others 30 25 20 33 26 38 36

No. of responses 61 8 10 43 19 13 11

Source: UNCTAD survey of IPAs, conducted January-April 2004.

196 World Investment Report 2004: The Shift Towards Services

is a real challenge. UNCTAD’s survey of IPAsshowed that various tools are used to promoteFDI in services. General promotion (e.g.missions, seminars, websites) and tax incentivesare widely applied through the range of services.For export-oriented FDI related to tourism, callcentres (see box V.5 for an example), computer-related services, health and social services,regional headquarters and R&D and differentforms of free zone incentives (free trade zone,export processing zone, free economic zone) areused. A few IPAs also mentioned direct grants.

As with attracting FDI into other sectors,a generally favourable investment climate isimportant. This implies a welcoming regime forprivate investors, stable and transparent policies,competitive tax rates and low transaction costs(WIR02, Part III). Attracting export-oriented FDIgenerally requires a higher quality of relevantproduction factors. In services, locationaldeterminants may be related to a more narrowrange of factors than in manufacturing.16 Inparticular, skill and infrastructure must meet theneeds of TNCs and match those offered bycompeting locations. Countries seeking to attracthigh value services FDI such as R&D,architectural design, medical testing or regionalheadquarters functions have to match carefullytheir locational assets with the specific needs andstrategies of investors. (Boxes V.6 and V.7explain the strategies of Singapore and theRepublic of Korea, respectively, in attractingheadquarters and other high-value-added servicefunctions.)

An important area of investmentpromotion that generally remains poorlydeveloped is after-care services. This promotionalactivity may be particularly relevant in the

context of the offshoring of services. As manyas 40% of the largest European TNCs stated thatfactors beyond pure benchmarking affect theiroffshoring decisions, including internal lobbyingby their own foreign affiliates (UNCTAD andRBSC 2004). Many foreign investors feel thatIPAs focus on attracting new investors, but notenough on taking care of existing ones (IBM andOxford Intelligence 2004).

Having discussed the need for anappropriate investment environment, thefollowing sections focus on the role of incentives,export processing zones, infrastructure and skillsdevelopment and, finally, the protection of dataand intellectual property rights, in promotinglocations for FDI in services.

b. The role of incentives

As part of their investment promotionefforts, many countries use various fiscal,financial and other incentives to attract foreigninvestors,17 in manufacturing, and increasinglyso in services. A recent analysis of WTO TradePolicy Reviews showed that both developed anddeveloping countries apply a wide range ofsubsidies to either attract (or retain) theproduction of services or to influence thebehaviour of companies in certain industries(WTO 2004b).18

Subsidies are used in the whole range ofservice industries, but are most common intourism, transport and financial services. ManyWTO members also provide subsidies in thetelecom industry, often in the form of grants tofulfil universal service obligations. A significantnumber of members allow duty-free inputs andprovide subsidies linked to special zones of

Table V.2. Services functions targeted by IPAs, 2004(Percentage; number of responses)

All Developed Developing Latin Asia-Service function countries countries CEE countries Africa America Pacific

IT services 75 100 80 70 63 77 73Call centers 61 75 70 56 53 62 55Shared services centers 43 63 60 35 26 38 45Regional headquarters 38 63 50 30 21 38 36R&D 33 75 60 19 26 8 18Offshore banking 15 - - 21 26 23 9Others 21 25 30 19 26 8 18

No. of responses 61 8 8 43 19 13 11

Source: UNCTAD survey of IPAs conducted January-April 2004.

197CHAPTER V

various kinds (table V.3). Tax incentives are morecommon than direct grants, but there are certaindifferences between countries at different levelsof development: developed countries rely moreon direct grants than on tax incentives, and theyrarely allow duty-free inputs and free zoneincentives.

Incentives in service industries areprovided for various purposes. They are often

granted to induce domestic or foreign investmentinto service industries that are important forboosting systemic competitiveness and economicgrowth, such as infrastructure or other strategicindustries. For example, in Sri Lanka, incometax holidays for 5-10 years are offered forpioneering investments in energy, transportationand water services; the Thai Board of Investmentgrants import-duty exemptions on certainmachinery and an 8-year tax holiday to industries

The Canadian province of New Brunswickhas attracted customer contact centres since thebeginning of the 1990s. Aliant Inc., the regionaltelecom provider, was an early investor in fibre-optics and digital switching technologies. Aliant’searly entrance was driven by the need to createnetwork-based solutions for distributed centres.It succeeded in rapid implementation of anadvanced province-wide telecom infrastructure.This infrastructure, together with the province’sbusiness investment strategy, a skilled labour force,the province’s bilingualism, proximity to the UnitedStates, political stability and a favourable currencyexchange rate, were identified as location assetsby the local government.

The development strategy was, and remains,successful. By 2004, more than 100 contact centreshad been established in New Brunswick, employingan estimated 18,000 workers, equivalent to 4.6%of the provincial labour force. Initially, theinvestors were mainly of Canadian origin, althoughcompanies from the United States weresubsequently targeted. Fibre-optic backboneconnections to major United States telecomnetworks made possible a seamless integration ofNew Brunswick operations for internationalcompanies.

During the 1990s, educational initiatives weresought to support the industry. Computer literacybecame mandatory for high school graduates, andboth public and private institutions began to offercontact centre and IT training programmes. Thistraining has evolved to include technical assistance/helpdesk operations as well as business-to-businesssales, applications development and sophisticatedcustomer service courses. Diversification into otherback-office functions such as accounts receivables,human resource management and accountsmanagement has also occurred, and the workforcecontinues to be trained in the skills and

technologies required to handle effectively skilledtransactional work.

Career websites, electronic job fairs, toll-free numbers and electronic databases have beenestablished to gather information on people withthe skills and interests to work in the industry.There have also been efforts to draw on non-traditional labour pools, such as students, disabledpersons and seniors, made possible in part by atargeted wage/training subsidy programme. Finally,so-called “virtual contact centres” – where peoplecan work from smaller satellite operations or fromhome – have been tested and are operating in theprovince.

The provincial government continues tosupport the contact centre strategy as part of its“Prosperity Plan”, while other partners have alsobecome more visible. Partnerships with localeconomic development agencies, federal andmunicipal governments, chambers of commerce,industry organizations and educational facilitiesare now in place. An industry association sharesbest practices and addresses broader concerns suchas quality standards, industry image and trainingto ensure a continued supply of qualified workers.

The customer contact centre industry remainsa growing facet of the New Brunswick economy.From its early start in traditional telemarketing,the industry has grown to include web-basedcustomer care (e-government) and advancedtraining technologies (e-learning) – the fastestgrowing subclusters of the province’s knowledgeindustry. The industry now encompassescompanies providing Internet solutions (e-business); software development; systemsintegration and support services; and consultingservices, including knowledge-based services,engineering, environmental, architectural, oceantechnologies and remote monitoring services.

Box V.5. New Brunswick: an early mover in attracting call centres

Source: UNCTAD, based on information provided by Business New Brunswick.

198 World Investment Report 2004: The Shift Towards Services

that include high-skill services; the Governmentof Morocco exempts offshore banks from variousduties and taxes; and the Australian filmproduction industry received government supportin several ways, including grants for post-production and low-budget production funding.

Subsidies are sometimes used to promotethe universal provision of services or regionaldevelopment. In Bulgaria, Canada, Chile, ElSalvador, Namibia, the United States andVenezuela, they are granted to infrastructure

industries (e.g. transportation, energy,telecommunication). In Chile, the Fund for thePromotion and Development of Remote Areasaims at the development of various provinces inChile’s extreme north and south by providingassistance to SMEs investing there.19

Many countries use incentives toencourage production that generates exportrevenues (e.g. tourism, ship repair services,software development, call centres) (box V.8presents the example of the Gambia). In

The Economic Development Board (EDB)seeks to establish Singapore as a premierinternational hub for all types of headquarters(HQs) – big and small, from all industries andgeographic regions. Its goal is to attract 500 world-class regional and international HQs by 2010 thatwill receive the prestigious EDB HQ award.

The HQ Programme started in 1986 with thelaunch of the Operational Headquarters Programmeaward to firms that provide management and otherHQ-related services to foreign affiliates or relatedcompanies in other countries. The Programme hasevolved over time to include the BusinessHeadquarters Programme, ManufacturingHeadquarters Programme and Global HeadquartersProgramme awards.

In January 2003, the HQ Programme wasstreamlined and enhanced. A new scheme, theRegional Headquarters award, was introduced forcompanies conducting exploratory forays into theAsia-Pacific using Singapore as a base. Companiesunder this scheme enjoy a preferential tax rate of15% for a period of three years if they meet certaininvestment and operational commitments. In thiscase, the EDB leverages external partners, suchas the accounting, legal and business associationsbased in Singapore, to take the lead in promotingthe award.

In parallel, EDB announced that it would bestepping up its initiatives to promote companiesin areas such as lifestyle, retail and hospitality,and international business-related organizationsand foundations, to create an HQ “eco-system”of small, medium and large HQs from all over theworld, collectively building depth and diversityinto economic activity in Singapore. By end-2003,around 280 companies had been granted HQ status.

EDB estimates that over 4,000 of the 7,000 TNCsin Singapore have some form of regional mandate.

In its budget for 2004, the Governmentannounced enhancements to the Regional HQAward. Effective from February 2004, themaximum number of years for the Award wasincreased from 3 to 5 years and it was opened upto all companies in Singapore.

HQs established under the Programmerepresent various industries, most of whichconcern electronics and precision engineering andvarious services (box table V.6.1). In terms ofhome countries, 38% of the HQs are controlledfrom North America, 33% from Europe and 29%from Asia, New Zealand or Australia. Accordingto the EDB, the HQ Award has helped create 1,600new high-skilled jobs and the value added isestimated at about $600 million. In 2003, TNCsattracted under the scheme included NEC, Seagate,Scandent Group and Tata Consultancy Services.

Box table V.6.1. Industry breakdown of theSingapore EDB cluster HQs, January 2004

(Per cent)

Industry Share

Electronics and precision engineering 22Servicesa 20Chemicals 19Infocomms and media 19Logistics and transport 15Biomedical sciences 5Total 100

Source: EDB.

a The services cluster encompasses HQs fromemerging areas such as professional services, retailand hospitality, as well as established areas such aseducation and environmental engineering services.

Source: UNCTAD, based on information provided by the EDB.

Box V.6. Singapore: going for headquarters

199CHAPTER V

The economic success of the Republic ofKorea has traditionally been linked tomanufacturing. To face growing competition fromcountries offering lower costs, the Governmentis searching for new sources of growth. On theone hand, it pursues technological upgrading(implying higher value added and knowledge-intensity) of current manufacturing industries. Onthe other, more attention is being given to serviceindustries. One area in which the Governmentseeks to attract FDI is business services, as thecountry aims to become a regional businessservices hub for North-East Asia.

In 2002, it was decided to develop theRepublic of Korea as a regional logistics centreand business hub for high-value-added services(headquarters functions, trade, finance, IT, design,R&D, leisure and tourism). The plan is to developthree free economic zones around the Incheoninternational airport and the Busan andGwangyang ports. These zones will be providedwith state-of-the-art infrastructure (bridges,highways, railroads, ports, utilities,communications, IT) and an advanced businessenvironment. Benefits include:

• New tax incentives: income and corporate taxexemptions for the first three years and 50%reduction for the two subsequent years; a flat17% income tax rate for CEOs and otheremployees of foreign companies; import-tariffexemptions on capital goods for three years;and acquisition, registration, property andaggregate land-tax exemptions for the first threeyears and 50% reduction for the two subsequentyears.

• Financial support: exemption or reduction ofpublic land fees; and preferential assistance inthe construction of infrastructure.

• Deregulation: minimal application of land-useregulations governing factory construction andenlargement applicable to the Greater SeoulArea; lifting of restrictions on businessesreserved for SMEs; and streamlining of 34different types of permission related toconstruction activities.

• More flexible labour market regulations:unpaid weekly and monthly leaves; exemptionfrom obligatory employment of veterans, thedisabled and the elderly; and permission foroutsourcing of highly skilled and professionalwork.

• Administrative support: one-stop services for30 administrative areas; Foreign InvestmentOmbudsman Office established; port-to-portservice managers assigned to foreign investors.

The Government also aims at improving theliving environment for foreigners. In the freeeconomic zones, there will be more green areasand recreation facilities, guaranteed allotment ofhousing, use of English in government services,permission to pay in foreign currency up to a limitof $10,000 and establishment of world-classforeign schools, hospitals and pharmacies. Theratio of cable network foreign broadcastingretransmission channels will be expanded fromthe current 10% to 20%. The Government hopesthat the business-friendly environment created inthe zones will eventually spread to the rest of thecountry.

Box V.7. The Republic of Korea: a regional business services hub for North-East Asia?

Source: UNCTAD, based on information from the Government of the Republic of Korea.

Mauritius, the Government, under i ts ICTscheme, offers a tax holiday until 2008 and a 15%corporate tax thereafter; companies investing incall centre and back-office services can opt fora uniform corporate tax rate of 5%. In addition,the Government provides for duty-free importsof specified equipment, accelerated depreciationfor ICT equipment, electricity tariffs atcompetitive rates, a 50% reduction in personalincome tax for foreign IT specialists and fast-track processing of work visas and residencepermits for expatriates.20 Similar schemes arefound in many other locations. For instance, inCroatia an amount of approximately $2,100 isgranted for each new employee recruited;

Shanghai (China) and Singapore use taxincentives to attract regional headquarters; inMalaysia, the Multimedia Super Corridor ’sincentives seek to attract call centres and regionalheadquarters; and Ghana offers call centrecompanies a corporate tax holiday for ten yearsand a maximum rate of 8% corporate tax plusduty-free imports.

In order to increase the effectiveness ofincentives offered to export-oriented FDI inservices, the forms of financial assistance mayhave to be different from those used to attractinvestment in manufacturing. In the CzechRepublic, for example, the IPA found that the

200 World Investment Report 2004: The Shift Towards Services

existing incentive scheme in 2000 was ill adaptedto the needs of services investors. It had beendesigned principally for investment inmanufacturing and, given the relatively highdependence of fixed capital investment inmanufacturing, it was inappropriate for business-support services. As a consequence, and as partof a broader programme to attract such servicesand technology centres, a new scheme was

initiated, which focused on human (rather thanphysical) capital. Investors who qualify can nowreceive a subsidy of up to 50% of eligiblebusiness expenses (i .e. wage or capitalexpenditures on tangible and intangible assets),along with a subsidy covering 35% of specialtraining (i .e. skills that are not readilytransferable from investors’ projects) and 60%of general training (table V.4).

Table V.3. Subsidies used in different service industries(Number of WTO members)

Number of WTOPreferential Duty-free Other & members

Tax Direct credit & Equity inputs & unspecified (counting theIndustry incentives grants guarantees injections free zones measures EU as one)

Tourism 41(2) 12(4) 15(2) 2(-) 30(-) 11(1) 63(6)Banking 13(2) 4(1) 6(1) 9(1) 10(-) 6(-) 33(4)Maritime transport 10(4) 6(1) 3(1) - 9(-) 6(3) 25(4)Transport, general or unspecified 9(1) 8(4) 2(-) - 5(-) 7(-) 24(4)Telecoms 3(-) 10(3) 1(-) - 5(-) 4(-) 18(3)Other financial services 9(3) 1(1) 3(1) 2(-) 9(-) - 17(2)Software, ICT and information processing 9(2) 3(2) 1(-) - 8(-) 2(-) 15(2)Construction 11(1) 3(2) 2(-) - 4(-) - 15(2)Air transport 7(-) 2(2) 1(-) 1(-) 4(-) 5(4) 14(4)Rail transport 4(1) 6(1) - - - 6(1) 13(3)Energy 7(1) 2(1) - - 1(-) 7(1) 14(2)Recreation, culture & sports 7(1) 4(3) 1(-) - 5(1) - 12(4)Audiovisual services 5(1) 6(4) - - 3(-) - 11(4)Wholesale & retail trade, distribution 6(1) 1(1) 1(-) - 6(-) - 11(1)Real estate 3(3) 1(1) 1(-) - 1(-) - 5(3)Other & unspecified sectors 11(1) 4(2) 5(1) 1(1) 12(-) 6(-) 28(3)No. of subsidy programmes 165(24) 74(33) 44(6) 15(2) 112(1) 60(10) ..

Source: UNCTAD, based on WTO 2004b.

Note: The table includes subsidy programmes that are envisaged. Figures inside parenthesis indicate the number of developedcountries.

Under the Investment Promotion Act ofGambia, various tax incentives are available toencourage investment in priority industries andactivities. These include tourism, transportation,energy, financial services, skills development,health services and IT services. Investment hasto be undertaken by a company or partnershipregistered under Gambian law, and the investmentmust amount to at least $100,000.

In awarding investment incentives, aninvestment’s contribution to the followingobjectives are considered:

- generation of foreign-exchange through exportsor import substitution;

- use of local materials, suppliers and services;- creation of employment opportunities;

- introduction of advanced technology, orupgrading of indigenous technology;

- contribution to locally or regionally balancedsocioeconomic development.

Free zone incentives are available to servicessuch as packaging, labelling, warehousing,transportation, energy, telecommunications,financial services, information technology andhealth services. To benefit from free zoneincentives, an investment must generateemployment and include the training of nationals.Moreover, a substantial portion of output(currently 70%) must be exported. The incentivesprovided to free zone investors take the form oftax and duty concessions or exemptions.

Box V.8. Investment subsidies in the Gambia

Source: WTO 2004b.

201CHAPTER V

Table V.4. Specific conditions of the Czech incentives scheme for business-support services andtechnology centres, 2004

Type of project

Technology centres,headquarters, software Call centres, high-tech

development centres, expert repair centres,Condition solution centres shared service centres

Minimum investment CZK15 million (€0.5 million) CZK30 million (€1 million)Minimum number of new jobs 15 50Amount recipient must finance with own resources CZK7.5 million (€0.25 million) CZK15 million (€0.5 million)Linkage with production (relevant for technology The technology centre’s centres only) work should link up with

production

General conditions: minimum 50% of the earnings must be realized abroad; investment and jobs must be sustained for 5years; project must be environmentally friendly.

Source: UNCTAD, based on information from CzechInvest.

Few studies have been undertaken toanalyse the impact of incentives on FDI inservices. Studies of their use in manufacturingsuggest that the effectiveness of incentiveprogrammes depends on the market orientationof the foreign investor (WIR03). Whereasincentives tend to have little or no impact on thelocation decisions of firms oriented towardsproducing for the domestic market, they caninfluence those aiming at export-orientedinvestment. Technological developments haveexpanded the possibilities for attracting outward-oriented services FDI as illustrated by offshoringof services. Behavioural incentives, i.e. incentivesthat are linked to some kind of performancerequirement, are more likely to affect bothmarket-seeking and efficiency-seeking FDI. Ingeneral, the effectiveness of incentives dependson the ability of a host economy to providematching human resources, technology andproduction inputs (WIR03; UNCTAD 2003h)

As in the case of manufacturing, there isrisk of a “race to the top” in the use of incentives,especially for export-oriented FDI. The risk isaccentuated by the footloose nature of manyexport-oriented services projects – if one countryoffers financial assistance, others may feelobliged to do the same. The experience of Indiashows that there can also be intense incentive-based competition within a country (Kumar2001a). Excessive use of incentives is likely tobe particularly difficult for developing countriesto sustain, and resources that could have beenused more productively may be diverted. Theinherent “prisoner’s dilemma” in incentive-basedcompetition is a classic case for internationalcooperation. However, whereas the WTO

Agreement on Subsidies and CountervailingMeasures (SCM Agreement) prohibits the use ofexport subsidies in the goods area, there are nosimilar restrictions at the multilateral level inservices (box VI.4).

c. EPZs in developing countries seepotential in services 21

Export processing zones (EPZs) havetraditionally been used to attract FDI in theexport-oriented production of goods.Manufacturing activities carried out in EPZs wereoriginally largely limited to garments and theassembly of electronic components. The servicesactivities involved were mostly warehousing andtrade facili tation. Information from EPZauthorities suggests that services are now gainingin importance. More than 90 of the 116 countrieswith EPZs covered by the ILO’s databasepromote a range of service activities (annex tableV.1), with India (table V.5) and Kenya (box V.9)being good examples.

The types of services located in EPZshave expanded rapidly, from commercial servicesand simple data entry to call centres, medicaldiagnoses, architectural, business, engineeringand financial services. A regional breakdown ofservices shows that most EPZs with serviceindustries are located in developing countries(table V.6). There are some EPZs in developedcountries, but these tend to be of a differentnature, resembling industrial and/or technologyparks and customs warehouses.

In India, many of the offshored serviceshave been attracted to various dedicated

202 World Investment Report 2004: The Shift Towards Services

technology parks for IT services that were setup by individual states. The first softwaretechnology parks were established in 1990 inBangalore, Pune and Bhubaneshwar, and anotherfour were set up in 1991. In some cases, theprivate sector engaged directly in thedevelopment of technology parks.22 As of 2003,there were 39 such parks with about 7,000 unitsregistered. In 2002/03, these parks accounted for80% of all software exports from India. Inaddition to providing modern computers andcommunication technologies, they offer suchincentives as approvals under a “single windowclearance” mechanism; permission for 100%foreign ownership; five-year tax holiday with novalue addition norms; duty free imports; andpermission to subcontract software developmentactivity (India, Department of InformationTechnology 2004).

Another example is Mauritius, which isseeking to position the country as a location forFDI in offshoring. To this end, it has initiatedthe “Cyber City” project to attract call centres,back-office services and programming especiallyto serve francophone Africa, France and partsof Canada. It aims to make Cyber City a state-

of-the-art technology park with officebuildings and a world-class telecomnetwork. An important feature is i tscomputing-on-demand facilities that canaccommodate back-up centres for disasterrecovery services, where the data can bestored and call centres can respond ondemand.23 The Government of Dubaiadopted a similar strategy in the 1990s,creating an Internet City to become a hubfor regional headquarters.24 In Jamaica, thetransformation of manufacturing free-zonesinto “teleports” has successfully attractedconsiderable offshored services (box V.10).

EPZs seeking to attract services generallyadvertise the availability of high-qualitytelecommunications, a stable power supplyand well developed technology supportinfrastructure. In addition, they offer arange of incentives such as 100% exemptionof import duties and general sales tax, fullrepatriation of earnings and preferentialcustoms clearance. From the informationpublished by zone authorities, theavailability of a highly skilled workforceis considered an important determinant ofinvestment in services. Many of them

advertise an educated workforce and some offerjoint training. Some even provide details on theactual level of education of workers, includingdetails on the types of degrees obtained, numberof graduates, and number of universities andtraining institutes in the vicinity and enrolmenttherein. Various zone authorities also emphasizethe linguistic capabilities of their workforce. Thisemphasis on the availabili ty of knowledgeworkers differs from what the more traditionalassembly EPZs emphasize, such as theavailability of low-wage, low- or semi-skilledworkers.

Table V.5. Types of service activities attracted by anEPZ in India, 2004

Advertising & marketing Leasing servicesArchitecture & interior design Legal & licensingBrokers/commission agents Logistic servicesBuying & sourcing agents Marketing/distribution agents & servicesCatering Media, entertainment & related servicesClearing & forwarding Medical & HealthcareCommunication MiscellaneousComputers, software & Internet PhotographyConsultancy Plantation managementContent providers Printing & packagingCourier Production & distributionEducation & training Public relationsEnergy/power Real estate & constructionEnvironmental/pollution control Recruitment & manpowerEvents management services Redundant & surplus stock marketingExtraction & mining RefiningFabrication & designing Repair & maintenanceFarming services Research & developmentFinancial & banking Safety & securityFishery services Shipping, air, cargo & railwaysHospitality TailoringImmigration Tours & travelImport/export Trade promotionIndustrial processes TranslationInformation directory Transporters, packers, moversInspection & testing WarehousingInstallation & de-installation Waste managementInsurance

Source: UNCTAD, based on www.indiatradezone.com.

Table V.6. Regional distribution of EPZstargeting services, 2004

(Number)

No. of countriesRegion with EPZs for services

European Union 5Other developed countries 1Africa 20Latin America and the Caribbean 26Asia and the Pacific 26Central and Eastern Europe 13Total 91

Source: ILO, www.ilo.org/epz.

203CHAPTER V

d. Infrastructure and skillsdevelopment

As noted in chapter IV, adequateinfrastructure and appropriate skills are importantdeterminants in firms’ decisions on where toinvest in export-oriented service production. Ofcourse, the appropriate infrastructure for servicessuch as telecoms, power generation anddistribution, financial services and distribution/logistics services are essential, not only forcreating an environment conducive to IT-enabled

services, but for the conduct of business activitiesin general. From the perspective of attractingFDI, the importance of the type of infrastructurevaries,25 but for most types of IT-enabledservices, the role of telecommunications deservesspecial attention.

Competitive telecom services are thebackbone of the new services economy, and theyare also a requirement for attracting IT-enabledservices production for exports. No country canhope to succeed in this area without a high

Kenya’s EPZs target various export-orientedservice ventures, such as back-office operations,software development and other IT services,printing services, transport and logistical servicesand audio-visual services related to soundrecording, TV transmission and motion pictures.A number of professional and educational servicesare also promoted. The Kenya EPZ Authority hasbeen targeting these export services since 1993,three years after the enactment of the EPZ Act.Companies in a range of industries have investedin the EPZs (box table V.9.1).

In order to attract investment in suchservices, EPZ exporters are offered a high qualityzone infrastructure in the form of office buildings,serviced land and common services. They alsoenjoy attractive fiscal and regulatory incentivesestablished under EPZ Act:

Fiscal incentives:

• 10-year corporate tax holiday and 25% incometax thereafter

• 10-year withholding tax holiday on dividends• Duty and value-added tax (VAT) exemption on

raw materials, machinery and other inputs• Stamp duty exemption• 100% investment deduction on capital

expenditure within 20 years.

Procedural incentives:

• Rapid project approval and essentially onelicence

• No minimum investment level and unrestrictedinvestment by foreigners

• Access to offshore borrowing• No exchange controls• Autonomous control of investment proceeds• Exemption from the Industrial Registration Act,

Factories Act, Statistics Act, Trade LicensingAct, Imports, Exports and Essential SuppliesAct

• Work permits for senior expatriate staff• On-site customs documentation and inspection• One-stop-shop service by the EPZ Authority

for facilitation and aftercare.

Box V.9. Services sought by Kenya’s EPZs

Box table V.9.1. Selected companies engaged in EPZ export services, April 2004

Company Service activity Country of origin

Logistic container centre Ltd Repair of containers DenmarkAl-borj (Kenya) Ltd Brokerage, training and after-sales

services for garments PakistanHong Kong Garments Ltd Brokerage services for garments IndiaShipmark Ltd Brokerage and ship management,

repair and operation of marine vessels Denmark/United Kingdom Film Studios Ltd Film production services KenyaBluesky Films Ltd Film production services Croatia/KenyaPontact Productions Ltd Film production services Kenya/NetherlandsKencall Ltd Call centre services Kenya/United Kingdom Tibbet & Britten Ltd Warehousing United Kingdom/ Kenya Kenya Marine Contractors Ltd United Kingdom/ Kenya / Denmark

Source: UNCTAD, based on information provided by Export Processing Zones Authority, Kenya.

204 World Investment Report 2004: The Shift Towards Services

quality and efficient telecom system, but onceit is in place, many opportunities are created (boxV.11). The transmission of voice-based data is

particularly demanding in terms of bandwidth andinstantaneous transfer. Ensuring competitivetelecommunications and Internet access typically

Between 1998 and 2003, Jamaicasuccessfully took advantage of the acceleratingpace of offshoring from the United States. In sodoing, it has become a leading Caribbean recipientof FDI in the fast-growing offshoring of services.An important factor in this process has been theconversion of the country’s manufacturing EPZsinto modern teleports: corporate parks wired withfibre-optics and satellite technology.

Currently, Government-owned and privateEPZs house 15 communication-based companiesproviding 5,000 jobs. Office space built orreallocated to facilitate helpdesks, debt collectionand travel reservations, along with softwaredevelopment and back-office processing primarilyfrom the United States, grew by an average of 30%a year, from 89,000 sq.ft. in 1998 to 210,000 sq.ft.in 2003.

This rapid success is the result of a strategythat began in the late 1980s. In an attempt todevelop Jamaica’s service industries, theGovernment created the Jamaica Digiport inconjunction with telecom companies (Cable &Wireless and AT&T) to provide satellite-basedtelecommunications primarily for the fledglingdata-processing industry. As the offshoring ofservices increased in sophistication, Jamaica’sInvestment Promotions Agency (www.investjamaica.com) developed a targeting programmebased on:

• competitively priced EPZ space (originallycreated for the apparel industry);

• competitive telecommunications with fibre-optic capacity supported by satellite capability;

• an ample supply of highly literate English-speaking people;

• a human resource development programme tosupport the types of companies being targeted

• targeted tax and duty incentives; and• proximity to the eastern part of the United

States.

These locational advantages have attractedmany companies, resulting in positive impacts forthe Jamaican economy. Today, Jamaica has fivemain corporate zones: the Cazoumar, Garmex,Kingston and Montego Bay EPZs and the

Portmore Informatics Park. IT office space in allzones is almost at full capacity. This has promptedthe Government to create a “single entity” EPZlegislation to provide the same benefits to stand-alone and independently owned facilities. Thelegislation, coupled with high-capacity telecomsbecoming accessible island-wide, has set the stagefor more broad-based development, and is openingup possibilities for a new wave of wired zones.

Efforts to attract and upgrade offshoredservices involve various initiatives to ensure theneeded human resources for the full gambit of IT-enabled industries. A number of government andprivate institutions are involved:

• HEART NTA is a government organization thatfocuses on the training and certification ofstudents in customer service skills. It alsopartners with Cisco and Microsoft to providetraining courses.

• The Caribbean Institute of Technology createdin 1998 focuses on providing certification anddiplomas in web-based software languages,software design and development and webdesign and programming. The curriculum andcertification is also offered at eight satellitecolleges on the island.

• The University of the West Indies, whichprovides degree courses in IT, has produced1,741 graduates in computer programming since2001, and the University of Technology andNorthern Caribbean Universities also providedegree courses in IT.

Jamaica has recognized the need to ensurethat the IT industry develops local capacity withthe potential to export services. An incubatorfacility to support the development of technology-related companies was established by theUniversity of Technology in 1999. The TechnologyInnovation Centre currently houses 32 IT-focusedclients. Various technology funds are availableto qualified clients, including a 140-millionJamaican dollar fund administered by the NationalExport-Import Bank and a Young EntrepreneurialScheme administered by the Innovation Centre. TheUniversity of the West Indies has also establisheda science park and has funded Mona Infomatics,an IT company that currently provides servicesto Boeing and several other aerospace companies.

Box V.10. Jamaica’s teleports

Source: UNCTAD, based on information provided by Jamaica Promotions Corporation.

205CHAPTER V

requires liberalization and a regulatoryframework that spurs competition among serviceproviders. In mobile telephony, the bargainingposition of governments vis-à-vis potentialinvestors is better than in fixed-line services:through licensing/bidding for l icences,governments can negotiate more competitivearrangements with foreign operators whotypically undertake greenfield investment.

There are many examples showing theimportance of competitive telecoms. In India,while the domestic telecom infrastructure is stillweak in many parts of the country, the supplyof lines in key locations has greatly improved.Various policy reforms since 1994 – when theNational Telecom Policy took the first majorsteps to open up the industry to competition –have contributed to a rapid expansion of thetelecom network. Except for the cellular mobilephone segment, there are no restrictions on thenumber of telecom operators. In international,long-distance and local services, unrestrictedcompetition is now allowed, and fibre-optic linksconnect the country to major external markets.Private sector investment has helped bridge theresource gap to a considerable extent (India,Department of Telecommunications 2003).26 Inthe Philippines, expansion of the multimediainfrastructure and reregulation of

telecommunications have led to better services,more stable and reliable fibre-optic links as wellas a 70% drop in the costs of bandwidth over thepast four years. There are currently nine majorplayers in the Filipino industry and there is fullcompetition in all segments of the telecomservices market.27 Good and low-costtelecommunications suited to data and voicetransmission have been an important factor inthe location of shared service centres in Chile.The industry was privatized and liberalized inthe 1980s, and the telephone network wasdigitalized in the 1990s.28

To attract offshored services,international connections are a vital element ofthe telecoms infrastructure. In the case of India,Mumbai and the southern states – which havebeen the most successful in attracting offshoredservices – had an early advantage of being inclose proximity of the landings of two submarinefibre-optic cables.29 Fibre-optics are generallycheaper and more efficient than satellite links.Whereas there is a range of cables between themain markets, many developing countries remaindelinked from such international networks, whichlimits their ability to develop competitive basesfor services exports. (Figure V.3 shows the globalnetwork of interregional submarine fibre-opticcables as of 2004). Whereas the United States,Europe and East and South-East Asia are wellsupplied in terms of cable capacity, only onemajor cable connects parts of Africa to the restof the world – the SAT-3 cable. In sub-SaharanAfrica, for example, Angola, Benin, Cameroon,Gabon, Ghana, Côte d’Ivoire, Mauritius, Nigeria,Senegal and South Africa are directly linked tothis cable.

Skills development is another key policyarea. The knowledge-intensity of servicesproduction places basic education and skillsdevelopment at the centre of the policy challengeto attract FDI and to extend the benefits of IT-enabled services more broadly throughout theeconomy. The types of skills required differ bythe kind of service. Most offshored servicesessentially process information of various kinds.Some of the skills needed are general in nature,whereas others are specific to the activity beingundertaken. Host countries have to ensure thatthe skills base is adequate to the services beingpromoted.

India’s software export performance ispartly a reflection of its large pool of English-speaking and technically trained manpower, the

Box V.11. Digital networks in Ireland:a locational advantage

About two decades ago, the phone systemwas a weak link in Ireland’s efforts to attract FDI.When the Industrial Development Agency soughtto raise the issue directly with the Departmentof Posts and Telegraphs, the response was notencouraging. Shortly thereafter, however, a newState agency was established to run the serviceon a commercial basis, and an investment planwas announced to build a digital network. Thisallowed the Irish IPA to claim in its promotionalefforts that, apart from France, Ireland had themost advanced digital-based telecom system inEurope. A new set of industries, for which first-class international telecommunications are a keyfactor, could now be targeted. These ranged fromsoftware development to call centres, customersupport and data-related services. For Ireland,these new knowledge-based industries becamea major source of job creation.

Source: MacSharry and White 2000.

206 World Investment Report 2004: The Shift Towards Services

result of decades of education and training(Kumar 2001a).30 The concentration of exportactivity reflects the agglomeration of skilledmanpower: most software companies are inMumbai and Bangalore, where the softwareindustry originally developed.31 Delhi and itssurroundings host a number of software firms,while Andhra Pradesh and Tamil Nadu aregrowing rapidly. These five states account fornearly half the diploma-granting technicalinstitutions in India and two-thirds of alldiplomas awarded by private training institutions(D’Costa 2003, p. 216). Some 850 privatetraining institutions had been accredited by theGovernment as of January 2004 for IT diplomasat four different levels (India, Department ofInformation Technology 2004).32 Currently, theannual turnover of engineering degree anddiploma holders is estimated at 150,000 and140,000 respectively. In addition, some 2.2million arts and science graduates are addedevery year to the existing stock. Nonetheless,there are concerns that the quality and supplyof middle-level manpower is insufficient.33

But less sophisticated services also needspecial skills. While call centres require customersupport and telesales skills, a shared service

centre typically needs staff with financial, dataentry and processing skills. Language skills areequally important. Even developed countries suchas Canada (box V.5), the United States, the UnitedKingdom and Sweden have launched universitylevel programmes to improve the supply ofmanagement skills.34 Among developingcountries, the Industrial Vocational TrainingBoard of Mauritius provides training to callcentre and other services agents; and Hungaryis developing specialized vocational trainingprogrammes for both shared services andcustomer services. To maintain the readyavailability of a large pool of college/universitygraduates who are customer-oriented, fluent inEnglish and familiar with western businesspractices, various efforts have been made in thePhilippines. The Government has reaffirmed,through a Presidential instruction, the use ofEnglish as the medium of instruction. Moreover,in partnership with industry and largeuniversities, i t has conceptualized andimplemented training and bridging programmestailor-fitted to the needs of the contact centreindustry. The private sector has also contributedby establishing call centre academies that offershort courses to prospective call centre agents.35

Figure V.3. Interregional submarine cable capacity, March 2004

Source: TeleGeography research, PriMetrica, Inc., www.primetrica.com.

207CHAPTER V

e. Regulatory issues related to dataprotection and intellectualproperty

Services offshoring raises a number ofregulatory issues, particularly with regard to datasecurity and intellectual property protection.Some developed countries prohibit the exchangeof data with countries that do not have adequatedata protection legislation.36 For example,European firms are restricted under the DataProtection Directive of 1995 as to what data canbe transferred or stored in countries withoutequivalent rules and enforcement procedures.37

The largest recipient country of offshoredservices, India, currently does not have suchnational regulations,38 although the IT Act 2000(Chapter 11 Article 72) deals with the penaltyfor breach of confidentiality and privacy, whichcould go a long way towards addressing someof the data protection issues.39 At present,individual contracts between a main company andits Indian contractor are used to address dataprotection issues.40 A weak regulatory frameworkin some developing countries may be a factorlimiting the extent to which certain services areoffshored from Europe or North America (chapterIV).

In a few cases, companies have decidedto terminate contracts with providers of offshoredservices due to customer complaints or tomisconduct on the part of the local serviceprovider.41 Various observers suggest that stricterregulations in developing countries (notablyIndia) are necessary to avoid a backlash. In thefinancial industry, the need for data securitymeasures may be particularly high to ensureconsumer confidence. Indeed, some countriesview concerns of this kind as an opportunity tocompete successfully with lower cost locations.Singapore, for example, which is no longerperceived to be a low-cost location for export-oriented services, seeks to attract additional FDIin services on the basis of i ts regulatoryframework. Its FTA with the United States setshigh standards of protection and enforcement ofintellectual property; the country has also signeda memorandum of understanding with the EU inthis area (A.T. Kearney 2004).42 Suchcommitments are followed up by an activeIntellectual Property Office to formulate andimplement laws related to intellectual propertyprotection. Developed countries such as Canadaand Ireland also emphasize strong regulatoryframeworks.

4. Benefiting more from servicesFDI: upgrading and linkages

Policies to attract FDI in services needto be supported by various initiatives aimed ataddressing possible concerns related to inwardservices FDI and at maximizing the benefits fromthe presence of foreign companies. Beyond theregulatory needs arising in the context ofsequencing FDI liberalization and privatization(dealt with above), two additional issues deserveattention: how to promote closer interactionbetween local and foreign affil iates in theservices sector; and how to facili tate theupgrading of existing investment into highervalue-added activities.

The main rewards of FDI are realized inthe longer term, when TNCs strike local roots,expand operations, improve local skills, establishlinkages with local institutions and upgradetechnology. Governments can induce market-seeking TNCs to deepen and extend theiroperations; they can also induce export-orientedones to stay and upgrade when wages increaseand cheaper competitors appear. This does nothappen automatically. Policies are needed toimprove local capabilities (skills, institutions,infrastructure), in l ine with changingtechnological and market realities.

The potential for linkages in the servicessector differs by industry. Foreign affiliates ininfrastructure services establish forward linkageswith their clients and channel know-how andmanagement expertise. Foreign affiliates thatprovide intermediate service inputs can transfertechnology to their local customers in the sameway as foreign affiliate producers of intermediategoods have done (Vangstrup 1999). While someservice industries offer l imited scope forfragmenting production into discrete stages andsubcontracting out parts to domestic suppliers,some service industries (such as construction andretailing) present important potential for linkageswith suppliers of physical inputs (WIR01, p. 139).The tourism industry also offers a considerable(but often not realized) potential for backwardlinkages, especially in the hotel industry, in whichforeign affiliates can make sizeable purchasesof foodstuffs, furniture and fittings (Dunning1993).

In the production of services exports (e.g.call centres, back-office functions), foreignaffil iates outsource some work to local

208 World Investment Report 2004: The Shift Towards Services

companies. However, evidence from Indiasuggests that most export-oriented softwarecompanies operate as “export enclaves” with fewlinkages with the domestic economy (Kumar2001a). Foreign affil iates in softwaredevelopment derive most of their income fromexports to their parent companies. The enclavenature of their operation generates fewknowledge spillovers for the domestic economy.Otherwise, in the area of R&D, foreign affiliatesmay engage in cooperative projects with localcompanies, universities or technologyinstitutions. Such collaboration can beencouraged, for example, by the establishmentof technology and science parks.

The promotion of backward linkages withforeign affiliates in the services sector is inprinciple no different from manufacturing.Government intervention can seek to bridgeinformation market failures by disseminatinginformation on the availability of local suppliersas well as on the specific procurement needs offoreign affiliates. But matchmaking initiativesare typically not effective without complementaryefforts to raise the capabilit ies of domesticsuppliers to the standards required by foreignaffiliates. The provision of training, assistancein technology upgrading and financial supportcan help overcome this constraint. An extensivediscussion on such policy initiatives can be foundin WIR01.

For most services activities, upgradingis closely linked to ensuring an adequate supplyof skills. Where requirements from industry areevolving fast, such as in offshored services, acase can be made for close interaction betweenthe public and private sectors. In the Philippines,for example, the Government collaborates withindustry associations and other stakeholders indeveloping training and certification programmes.Various projects are also being implemented toencourage and assist firms in acquiringinternationally recognized third-partycertification.43 In Europe, a consortium of ninemajor ICT companies (including non-Europeanfirms such as Cisco Systems, IBM, Intel,Microsoft) and the European Information,Communications and Consumer ElectronicsIndustry Technology Association is exploringways of addressing skill shortages with thesupport of the European Commission. It hasdeveloped generic skill profiles for key ICT jobsand created a dedicated website (www.career-

space.com).44 Ireland has a similar initiative: theGovernment has established the Expert Groupon Future Skills Needs to develop strategies onskills, manpower planning and training forbusiness and education (www.skillsireland.ie).The Group includes representatives of industry,trade unions, training institutions, governmentdepartments and State agencies.

Some countries encourage private sectortraining with the provision of grants and taxincentives. In Jamaica, for example, employersare eligible for a reimbursable training grant,which is administered by the State agencyresponsible for vocational training. Companiesmay access training grants up to a maximum of20,000 Jamaican dollars per employee.45 TheGovernment of Croatia offers incentives forvocational training or retraining of employees(of up to 50% of related costs). Skill levies arein wide use in many countries (e.g. Malaysia,Singapore, South Africa), while tax incentivesto encourage training are offered in Chile,Hungary and Thailand (WIR01; UNCTAD2003h).

BBBBB. Home countries: the. Home countries: the. Home countries: the. Home countries: the. Home countries: theccccchallenghallenghallenghallenghallenge ofe ofe ofe ofe of ada ada ada ada adaptingptingptingptingpting

Home countries use various policies thatinfluence the ability of host countries to attractand benefit from FDI. Some home-countrymeasures seek to facilitate – partly in the interestof the home countries themselves – FDI flowsinto developing countries. Many industrializedcountries already have in place a wide range ofpolicies and measures in this area, for example,to provide information, encourage technologytransfer, offering incentives and mitigating risk.Meanwhile, other measures – such as certaintrade policies – may limit the ability of othercountries to attract FDI.46

In light of the development opportunitiescreated by the increased tradability of services(chapter IV), this section focuses on responsesof governments in developed countries to thegrowth of offshoring of services. During the pastyear, concerns regarding the potential loss of jobsin some countries through offshoring havetriggered a range of reactions by policy-makersas well as trade unions. The chapter reviewsreactions to date mainly in the United States andthe United Kingdom, the two countries that have

209CHAPTER V

so far been the most affected. It concludes bydiscussing the need for government interventionto ensure a win-win outcome as a result ofservices offshoring.

1. The reaction to offshoring in theUnited States

The offshoring of services has promptedintense debate in the United States on the issueof white-collar jobs lost through offshoring.47

The “jobless recovery”, which some observerslink to offshoring, has further intensified thedebate. That certain services are seen as the topend of the value-added ladder has added touncertainties for developed-country workers oncetheir jobs are offshored. The offshoring ofgovernment jobs has evoked particularly stronginterest.48 But concerns about offshoring gobeyond job losses. One relates to the loss (orreduction) of control of States over sensitiveissues. It has been argued that foreign serviceproviders are outside the legal system of theUnited States and cannot be held accountableunder the laws of that country. This is particularlysensitive if the work is associated with securityand privacy issues. Another objection is that theactual savings for public institutions are not clear.Government agencies often outsource to a localservice provider, who in turn offshores theactivity.49 Various steps have been taken at bothfederal and state levels that seek to limit theextent to which companies shift serviceproduction abroad.

At the federal level, the President signeda bill in January 2004 prohibiting privatecompanies that win government contracts in thefederal transport and treasury departments frommoving the work offshore (Financial Times, 28January 2004). This so-called Thomas–VoinovichAmendment is to date the only federal legislationto be adopted in this area. It provides that an“activity or function of an Executive agency …may not be performed by a contractor outside ofthe United States” unless the activity or functionwas previously performed by federal employeesoutside of the United States (Klinger and Sykes2004).50 Various other bills have been proposedwith a view to limiting the transfer of dataoverseas, providing preferential treatment forbusiness in the United States, obliging federalGovernment contractors to use domestic workersor to observe minimum domestic requirements

and/or prohibiting federal contract work frombeing performed overseas (ibid., pp. 16-17).Initiatives have also been taken that make it moredifficult for IT firms to get visas for foreignprofessionals to work in the United States.51 Thismay in effect lead to even more offshoring.

At the state level, more than 100 billshave been introduced in at least 36 states torestrict offshoring of services (table V.7).52 Mostof the proposals aim at two aspects: prohibitingcompanies on state contracts from using foreignworkers in the United States and prohibitingcompanies from moving jobs overseas.53 Anothertype of legislation proposed by some states doesnot prohibit the movement of jobs overseas butseeks to introduce more transparency by requiringforeign call-centre employees to say where theyare located. Yet other bills propose to regulatethe extent to which financial, medical or otherpersonal data are sent overseas by private sectorcall centres. As of May 2004, at least two relatedbills had become public law.54 In Alabama,Senate Joint Resolution 63 was introduced inApril 2004 to encourage state and local entitiesto use Alabama-based professional services. InIndiana, House Bill 1080, which was signed intolaw in March 2004, provides for price preferencesbetween 1% and 5% for Indiana companies inthe awarding of state contracts.

The eventual impact of this kind oflegislation – if and when it is enacted – isunknown.55 The economic impact may not be tooimportant as the volume involved is small: it isestimated that government offshoring at both thestate and federal levels accounts for less than 3%of software exports from India (Chandran2002),56 and forecasts suggest that the share ofoffshored technology spending by states couldincrease from 5% in 2003 to about 10% by2006.57 Rather, the significance of suchlegislation lies in its possible symbolic impacton liberalization and globalization by setting aprecedence.

Trade unions in the United States havealso expressed concern about services offshoring.The Communication Workers of America, forexample, are lobbying Congress on this issue(Agrawal and Farrell 2003). The number ofwhite-collar staff joining trade unions isincreasing: WashTech, a Seattle-based unionformed in 1998 to organize high-tech employees,saw its membership grew from 2,000 to 16,000during the first 10 months of 2003.58

210 World Investment Report 2004: The Shift Towards Services

2. The European response

a. The United Kingdom

In comparison with the United States,policy-makers in the EU generally have notreacted much to the offshoring of services, thoughsome have initiated research. This may partly bebecause offshoring in Europe is still only aboutto take off. Trade unions have been more active,calling for protection and strikes, and sometimesthey have entered into partnerships withoutsourcing companies.

In general, the most intense debate inEurope occurred in the United Kingdom, which

among the EU countries (as noted in chapter IV),has the highest number of cases of offshoring todate. However, the Government has not movedtowards protectionism and, judging fromstatements by various ministers, there are noplans to do so. For example, Prime Minister Blairsaid in relation to offshoring that it is “the waythe world is today”;59 the Trade and IndustrySecretary said that “however strong the short-term case for protectionism appears to be, thelong-term costs are far greater for consumers andjobs. We cannot preach liberalisation to the restof the world and practise protectionism athome.”60 One of the most explicit remarks wasmade by the Minister for Energy, E-Commerceand Postal Services, Stephen Timms:

Table V.7. Summary list of United States states with proposed legislationrestricting offshoring, 2004

State Proposed legislation

Alabama State contract restrictions on overseas work; call centre restrictions Arizona Ban on state contracts with foreign call centres, call centre and data transfer restrictions, ban on state contracts

for foreign call centresCalifornia State contract ban, call centre, personal data and health-care information restrictions, outsourcing notification

requirementColorado State contract ban, data transfer restrictions, ineligibility for state contracts and development assistance if

outsourcing causes job losses

Connecticut State contract ban, call centre, personal data and health care information restrictions, development assistancerestriction for outsourcing companies, ban on state contracts for call centres, in-state preference

Florida In-state resident requirement for state contractors Georgia State contract ban and call centre restriction, including state contract ban on foreign call centresHawaii Ban on state contracts with foreign call centres, call centre and data restrictions Idaho Employment preference for state residents Illinois State contract ban, in-state preferencesIndiana State contract ban, in-state contract preferenceIowa State contract ban Kansas State contract ban, call centre and data transfer restrictions Kentucky State contract banLouisiana State contract ban, in-state contract preferenceMaryland State contract banMichigan State contract banMinnesota State contract ban, call centre restrictions, including state contract ban on foreign call centresMississippi State contract ban, call centre restrictionsMissouri State contract ban, data transfer and call centre restrictions, including state contract ban on foreign call centres,

in-state preferenceNebraska State contract ban New Jersey State contract ban, data transfer and call centre restrictionsNew Mexico State contract banNew York State contract ban, call centre restrictions, development assistance restricted for companies that outsource

overseasNorth Carolina Call center restrictions, including state contract ban on foreign call centresPennsylvania Legislative investigation of offshore outsourcing from stateSouth Carolina Call centre restrictions, including state contract ban on foreign call centresSouth Dakota State contract banTennessee State contract ban, call centre restrictionsVermont State contract ban and ban on state contracts for foreign call centresVirginia State contract ban, in-state preferenceWashington State contract ban, call centre and data restrictionsWest Virginia Call centre restrictions, seven-year ban on state contracts and assistance to companies that outsource overseas

and have 100-person job lossWisconsin State contract ban, call centre restrictions

Source: Klinger and Sykes 2004.

211CHAPTER V

“recourse to protectionism is not the rightway forward. … Closing our marketswould also be inconsistent with our aimof helping developing countries out ofpoverty through trade. Indeed, it wouldbe perverse to do so when countries suchas India are growing through the sort ofinternational trade that we in the UnitedKingdom have encouraged.”61

While the Government has said that itdoes not intend to limit offshoring to protect jobs,there may be some consideration that have thiseffect. For example, the Office of GovernmentCommerce has stressed that some governmentjobs would not be offshored for securityreasons,62 and incentives are being offered toattract call centres to certain parts of the country.In addition, there are calls for voluntary actionsuch as that by the Employment RelationsMinister, who said: “We cannot do anything tostop these companies, but they have to look athow these decisions affect their customer base”.63

The Government has also underlined the needfor policies to help those affected by theoffshoring of services.64

In general, trade unions in the UnitedKingdom do not appear to take a protectionistapproach. The largest private sector union,AMICUS, has expressed concern about theimpact of offshoring, but it does not proposeprotectionist measures due to the risk of beggar-thy-neighbour reactions and xenophobia.65

UNIFI, Europe’s largest specialist finance-industry trade union, with 158,000 members,regards offshoring as a growing issue and favoursa three-pronged approach: early consultation toinfluence decisions; questioning of the case foroffshoring; and avoidance of compulsoryredundancies if a decision is taken to offshore.Where possible, UNIFI also engages inpartnership framework agreements withemployers (box V.12). It argues that theGovernment could contribute in three ways:funding local initiatives, emphasizing dataprotection issues and highlighting corporatesocial responsibility.

b. Other European responses

There does not seem to be strongsentiment against offshoring in other EUcountries either. The main response from theGovernment of Ireland, for example, has beento promote the upgrading of existing services.

The Government of the Netherlands is lookinginto the issue of offshoring, although its mainfocus is on relocation of manufacturing to CEEcountries. In Germany, the Government has notannounced any measures related to servicesoffshoring, although, in an interview, theChancellor called the transfer of jobs to lowercost locations “unpatriotic”.66 The IG Metallunion at Siemens advocates the use of industrialand trade policy to control the informationinfrastructure, and a green card system for skilledworkers.

At the EU level, The EuropeanCommission has taken note of services offshoringnotably from the angle of data protection. TheEuropean Data Protection Directive (data onindividuals) prohibits data on individualEuropeans from leaving the EU unless it goesto countries with full data-protection laws. Someinternational agreements (e.g. between the EUand Chile, Mexico and Singapore, respectively)also deal with data-protection issues. TheEuropean Parliament has begun to examine thepossible consequences and the need for a policyresponse. The Union Network International (UNI)coordinates the trade union response to offshoringat the European level.67 A UNI-Europe offshoreoutsourcing charter is under development, but

Box V.12. Social dialogues in the financeindustry

One of the ways in which banks and tradeunions are addressing job redundancies resultingfrom offshoring is through social dialogue.Examples include the recent agreementsconcluded between one of the United Kingdom’smain financial services trade union, UNIFI, andtwo transnational banks, Barclays and HSBC.The Barclays Group Globalization HumanResource Framework agreement seeks to avoidor contain compulsory redundancies as a resultof offshoring. It provides for measures such asvoluntary redundancy registers, job search andredeployment and funding for external trainingsupport. The Agreement with HSBC Bank plcon the Management of Change Arising fromGlobal Resourcing covers such issues as theprovision of information, a consultativeframework, redeployment processes, terms forvoluntary early retirement and voluntaryredundancy, lifelong learning and outplacement.

Source: www.union-network.org/UNIFinance.nsf.

212 World Investment Report 2004: The Shift Towards Services

UNI Europe’s position is that offshoring shouldbe tolerated if certain conditions apply, notablythose highlighted by AMICUS in the UnitedKingdom.

3. Reactions in other developedcountries

In Australia, the offshoring of servicesto India has provoked responses by both tradeunions and politicians. A decision by the telecomfirm, Telstra, to outsource certain IT services toIBM Global Services, which subsequently placedsome 450 jobs in India, sparked particularcriticism. The Community and Public SectorUnion, the Association of Professional Engineers,Scientists and Managers and the AustralianComputer Society have been among the mostvocal opponents of offshoring. Meanwhile, theAustralian Labor Party’s national conference haspassed a resolution forbidding governmentdepartments and related entities from having anywork done overseas if it could be done efficientlyin Australia.68 There has also been some concernin Japan over the increased direct competitionfrom overseas IT workers through offshoring ofservices, but no measures have been taken in aprotectionist direction (Sasaki 2004).

4. Meeting the challenge ofadapting

As pointed out in chapter IV, there arereasons for developed countries to welcomeoffshoring, and it is in the interest of all partiesconcerned to consider how best developedcountries can meet the challenge of adapting. Asin manufacturing, a case can be made thatinternational trade based on comparativeadvantage results in gains for all partiesconcerned. This does not mean this process willnecessarily be smooth; there are bound to beshort-term challenges for policy-makers,especially in terms of adjusting to therestructuring taking place in response to shiftingcomparative advantage. Given that the pace ofchange may be higher for services offshoring ascompared to the relocation of manufacturing jobs,appropriate policy responses are particularlyimportant.

White-collar workers in developedcountries threatened with job losses could receiveassistance (for example, for retraining and

seeking new jobs), similar to the trade adjustmentassistance provided to vulnerable manufacturingfirms. Workers moving to new careers could beoffered “wage insurance”, covering part of thedifference between their former and new wages.Such programmes would encourage workers toget back to work as soon as possible, withouthaving to reject new careers that require learningor on-the-job training.69 Public-privatepartnerships could play a role in skillsdevelopment, for instance, through the use offiscal incentives for employee training. Such ascheme would be similar to tax credits offeredfor investment in physical capital.

Adjustment to any change in employmentpatterns needs greater labour mobility andchanges in skill profiles. Preventing adjustmentbecause of i ts costs may be a short-sightedresponse, as i t could handicap income andemployment growth in the longer term. Inprinciple, the challenge for developed countriesis the same as that facing developing countries:given the footloose nature of some services, evencountries that attract offshored services face therisk of activities relocating to even morecompetitive sites. However, industrializedcountries generally have more resources andbetter institutions to make the adjustment andmove up the technology and skills ladder.

The international community can also aidthis process by enhancing the understanding ofthe implications of the current internationalrestructuring in services. The ILO, for example,has launched a programme to this end (box V.13).

CCCCC. Conc. Conc. Conc. Conc. Conclusionslusionslusionslusionslusions

Services are globalizing rapidly. Theimpact of this process on development dependson policies in both host and home countries. Thisis as true for market-seeking (like infrastructureservices) as it is for efficiency-seeking investment(like the offshoring of call centres, sharedservices, software development), although thechallenges differ.

To benefit fully from the globalizationof services, governments must start with a clearidea of what they expect from FDI in services.They must then regulate the industry or activityaccordingly. There are no clear-cut or uniformpolicy recipes that apply to all industries, allcountries and at all times: policies must reflectthe nature of the service industry and conditions

213CHAPTER V

and priorities of each country. This is why thereare large differences in the extent to whichcountries allow FDI in services and in the waythey regulate them.

The regulation of (some) services is acomplex and demanding task, and there are manybest practice models in use in developedcountries. It is important to diffuse knowledgeabout these models to developing countries.Donors and the international community shouldhelp governments design and implement themeasures that best suit their needs. In addition,policy needs to take into account the emerginginternational rules of the game, whichincreasingly are becoming the parameters ofnational policy-making (an issue examined inchapter VI).

International competition for export-oriented FDI in services is particularly intenseand growing, especially for FDI involvingoffshoring. However, the process, despite theamount of attention it has attracted, is still in itsinfancy. While there is much to be learnt in thisarea, it is clear that attracting offshoring FDI hastwo basic preconditions: infrastructure and skills.The infrastructure needs – apart, obviously, frommodern ICTs – include power and data protectionrules. The skill needs vary by the complexity ofthe offshored activity. Simple services need basiceducation and familiarity with the relevantlanguage. Advanced services require different

kinds of specialized skills; some call for aminimum critical mass of skills across differentareas to provide an attractive cluster of serviceactivities.

Governments also need to build anefficient regulatory structure in services for whichmarket forces cannot ensure optimal socialoutcomes. “Lumpy” infrastructure services likepower, telecoms and water are good examples.Finally, there is a need to promote and targetforeign investors in desirable activities. Asprevious WIRs have argued, effective promotionis now an indispensable tool in the armoury ofFDI policies, but it should not be undertaken ata scale that drains the government budget.

As far as offshoring is concerned, theevidence suggests that it will continue to grow.In fact, it is likely to accelerate as its benefitsbecome more evident, technologies improve andmore companies and countries join the earlymovers. The process involves countries at alllevels of development. The bulk of offshoringto date has in fact taken place among developedcountries. The economic benefits – the outcomeof specialization based on comparative advantage– accrue to all who participate: exportingcountries gain employment, foreign exchange andskills while importing countries become morecompetitive, have better and cheaper services andcan move up the skill and technology ladder. Thisis an irreversible shift in the global division oflabour, in a segment of productive activity that

The ILO is developing an ActionProgramme to address worldwide financialservices restructuring resulting from workrelocation and offshoring. The Action Programmewill initially cover four pairs of source destinationcountries: France-Mauritius, Spain-Argentina,Sweden-Estonia and United Kingdom-India. Itsfocus is to identify and promote appropriatestrategies, to address the social consequences ofrestructuring and promote decent workthroughout the global supply chain for financialservices. The role that social dialogue plays inthis regard will also be examined. Theprogramme will assist ILO member States andthe social partners in target countries, throughprocesses of social dialogue, to:

• develop and implement decent-work basedstrategies to maximize the employmentopportunities of offshore outsourcing and workrelocation in destination countries; and

• devise and apply negotiated socially-sensitivesolutions to mitigate the negative impact ofoffshoring and work relocation in sourcecountries.

The programme includes a researchcomponent, the first results of which will bepresented towards the end of 2005 in subregionaland/or national seminars, and a capacity-buildingcomponent to support processes of socialdialogue during financial-sector enterpriserestructuring.

Box V.13. ILO Action Programme on Financial Services Restructuring:promoting best practices

Source: Information provided by the ILO, March 2004.

214 World Investment Report 2004: The Shift Towards Services

has only recently been given the technologicalmeans to globalize in a similar way asmanufacturing production. The full effects aredifficult to forecast, but they are likely to beconsiderable.

This is not to deny that there are lags,frictions and costs involved in offshoring. Onthe side of developing countries, offshoring isconcentrating in a few sites and is likely to carryon doing so until new aspirants improve theirinvestment climate and create competitivecapabilities. Successful exporters cannot standstill: they have to invest in new skills to moveup the value chain as wages rise and cheapercompetitors emerge. There is also a regionaldimension: given the need for high qualityinfrastructure and skills, there is a risk thatoffshoring will stay in a few urbanagglomerations with first-mover advantages.Finally, developing countries themselves will alsooffshore services to other locations, to takeadvantage of skills and markets.

In rich countries, adjustments will beneeded to labour markets and education systemsto create new, higher value jobs as the simplerones move abroad. There will be transition coststhat governments and enterprises will have tobear. The process is not new, of course – it hasbeen happening in manufacturing for some time(box V.14). As in manufacturing, the competitivegains offered by offshoring should more thanoffset the loss of particular jobs and theadjustment costs. But targeted policies are neededto allow the process to continue smoothly andto ease the hardship for affected employees.

Should developing countries try and buildcompetitiveness in trade in IT-enabled services?The answer is clearly yes. But the export ofservices as such is not the final goal. Suchexports help the development process morebroadly, creating not just jobs and foreignexchange but also supporting competitiveness in

other activities. They help to upgrade the physicalinfrastructure. They create new skills, technicalas well as managerial. They improve theinternational image of the exporting country andso can make it easier to sell other productsabroad. They can help improve the financialsystem and the investment climate. And they canraise the efficiency of domestic services,spreading new ICT technologies and skills. If acountry can provide these services broadly to itscitizens and local producers, the gains in GDPgrowth and human development will far exceedthe export revenues. These broad-based gainscome as a result of cheaper services inputs to allforms of productive activity, as well as to thetransformation of business activities that resultswhen resources are freed up to be used in newbusiness endeavours throughout the economy.

Realizing all these benefits and spreadingthem through out the economy is not automatic.Governments have to support competitivenessin services, by providing a conducive climate forprivate sector – local and foreign – activity andthe necessary infrastructure, skills andinstitutions.

It is vital that developing countries beallowed to benefit from the globalization of IT-based services. The importing economies needto defuse growing fears of permanent job lossesand make their populations aware of thecompetitive benefits of offshoring. They need toease the transition costs and meet the retrainingneeds of displaced workers. It may be temptingto hold back offshoring to avoid adjustment costs.This would be short-sighted polit ically andeconomically. It would strengthen the critics ofglobalization who would argue that the richcountries only support globalization when theygain immediately. It would hold back the growthof poor countries and cost more in terms of otherforms of aid. The challenge is to create acompetitive environment that allows a win-winsituation for all parties from FDI in services.

215CHAPTER V

It is not the first time that concerns have beenvoiced about foreign competition destroying thejobs and standard of living of workers in homecountries. In fact, the current debate on theoffshoring of services resembles earlier debatesin developed countries. In the late 1960s and1970s, for example, worries in the United Statesabout job growth were combined with those aboutthe widening trade deficit and the apparent declinein its competitiveness. This decline wasexemplified by rising imports of cars andmachinery – first from Europe and then from Japan– and the falling share of the United States in worldexports of manufactured products. In the 1980s,the focus was the threat from Japanese companiesto the semiconductor industry of the United States.

This led to protectionist calls. For example,a labour union official complained in 1978 that“…imports are flooding the country…Americanworkers are losing their jobs…something has tobe done…”. Industries affected included textilesand clothing, the shoe industry, which “…has beenall but destroyed” and “…Black and white TVs-the industry has been wiped out by imports…”.Productivity growth was declining because“…technology is more readily applied tomanufacturing…than it is to the production ofservices” (Finley 1978, pp. 129-130). Proposedsolutions included the discouragement of outwardFDI from the United States (as in the proposedBurke-Hartke bill), subsidies for domesticemployment and “orderly marketing agreements”.The last of these would “…set a base level forimports and … thereafter allows imports to varyaccording to the level of demand or sales. It allowsimports to participate proportionately in thebenefits of expanding markets but does not allowthem to be disruptive in static or contractingmarkets” (Ruttenberg 1978, p. iv-17).

As it turned out, manufacturing prosperedin the United States and employment levelsremained high. The absolute number ofmanufacturing jobs fell only marginally, and muchless than in countries like Germany and Japan. Inthe export arena, the share of the United Statesat the end of the 1990s was similar to that of theearly 1970s, in spite of the growth of othercountries’ manufacturing capabilities. Real percapita output in the United States, despite thesupposed loss of high-wage jobs, has remainedsteadily at 35% to 45% above the level of the EU.

The United States managed to absorb competitivethreats without losing ground to its maincompetitors in terms of per capita output. Thewage system continues to reward high skills witha larger premium than in most other developedcountries.

Adjustment to foreign competition tookvarious forms. Some foreign firms expanded inthe United States (e.g. in automobiles andsemiconductors). In manufacturing, whileemployment in parent companies of United StatesTNCs fell by two million from 1977 to 1990, 75%of the decline was offset by the growth of foreign-owned manufacturing operations in the country.A further decline of 600,000 jobs in parent firmsin the 1990s was almost entirely offset by thegrowth of foreign firms’ operations in the UnitedStates. Exchange rate changes also helped theadjustment process by reversing some losses ofcompetitiveness for the economy as a whole. Thecomposition of production changed, usually fromolder, less complex or less sophisticated productsto newer, more sophisticated ones. Insemiconductors, the complaints of downstreamindustries that their competitiveness was beingundermined by measures protecting semiconductorproducers shortened the lives of restrictivemeasures or softened their application.

The recent growth in the offshoring ofservices has revived similar fears, even thoughimports are negligible relative to the total volumeof business services. One possible reason for thestrong reaction is that it coincides with the collapseof the information technology boom. Another isthat most of the imports are coming from India,a developing country with low wage levels anda large educated population. A third is that theseare by definition labour-intensive industries, inwhich the “relocation of jobs” is more obviousthan in manufactures. Finally, offshoring affectswhite collar jobs rather than blue collar ones, andcreates a more vocal opposition. It also raises thefear that it is affecting the higher level jobs thathigh wage countries are supposed to be movinginto.

However, in economic terms the offshoringof services is no different from that ofmanufacturing. The main driver in both istechnological change, making it possible torelocate processes or functions economically. Themain permissive factor is the liberalization of trade

Box V.14. The debate on offshoring – a case of déjà vu?

/...

216 World Investment Report 2004: The Shift Towards Services

1 Under the negative list approach, the principle is thatall industries are open unless a specific reservationis taken. Hence, reservations in this case indicate areasin which countries prefer to restrict or condition FDIaccess in some way. Under a positive list approach,the non-listing of specific industries suggests that theremay be sensitivities. An important limitation of lookingat selected IIAs is that it only produces informationon restrictions maintained by countries that are partiesto the relevant agreements. Another is that “merecounting” does not control for the nature of the non-conforming measures.

2 The basis for figures V.1-V.2 are reservations of non-conforming measures lodged in negative lists of sevenIIAs or drafts thereof: the Andean Pact (1991); theCanada – Chile Free Trade Agreement (1996); the G3Free Trade Agreement between Colombia, Mexico andVenezuela (1990); NAFTA (1992); the draft MultilateralAgreement on Investment negotiated at the OECD(negotiations were abandoned in 1998); the OECD’sNational Treatment Instrument (2000); and the UnitedStates – Chile Free Trade Agreement (2003).

3 The figures on transportation relate to modes other thanaviation (i.e. concern maritime and land transportation– buses, trucks, rail services), the bulk of which (i.e.hard rights and services involved in the exercise ofsuch rights) are specifically carved out from all of theagreements under review (as they are from the coverageof the GATS).

4 The indicator of restrictiveness applied in the studyby Golub used data on GATS commitments,reservations under the OECD Code of Liberalisation,information from the United States Special TradeRepresentative (USTR) and several other sources.

5 For services that are crucial inputs to other industries,infant industry/national champion considerations mayaffect the competitiveness of other segments of theeconomy. If it implies keeping FDI out, the nurturingof the local providers is paid by the users of theservices. Similarly, if the role of a national champion

is given to a foreign investor without checks andbalances, it is again the local economy that will paythe price of a virtual monopoly.

6 For example, the privatization of telecom companiesto foreign strategic investors has generally been doneby means of “controlled auctions”, designed to achievethe highest possible price for the shares sold fromamong a limited number of pre-selected candidates thatmeet pre-established criteria.

7 In one country in Latin America, inadequate tariff andpricing policies applied in its privatization of electricityapparently contributed to a slowdown of the expansionof existing generation capacity and allowedmonopolistic rents to be captured by distributioncompanies (Gabriele 2004).

8 A World Bank survey found that payment disciplineamong customers in Brazil and China was the mostimportant factor in the success of investments in thosecountries. Conversely, non-payment by customers andweak enforcement of collection in the DominicanRepublic, India and Pakistan had contributed to thedissatisfaction of investors (Lamech and Saeed 2003,pp. 10-11).

9 In the Russian Federation, for example, the Civil Code,until recently, did not allow utilities providers todisconnect supplies to physical persons for paymentdefault. In respect of legal persons (e.g. industries,companies), disconnection for payment default wasnot possible without their consent (Krishnaswamy andStuggins 2003, p. 8).

10 Hungary, Poland and Turkey have focused onimproving their laws on electricity supply and theftwith some measure of success (Krishnaswamy andStuggins 2003, p. 9).

11 The GATS recognizes the importance of having anindependent regulator. The TelecommunicationsServices Reference paper (which WTO members canadopt via additional commitments in their schedules)sets out definitions and principles of regulatoryframeworks for basic telecommunication services,

and FDI, and the main determinant of location isthe availability of competitive sites (in turndependent on infrastructure, skills and a goodinvestment climate).

In services, rapid falls in communicationcosts make it possible for poor countries to exploitlatent competitive advantages. As these countriesbuild new skills and capabilities, their comparativeadvantages also grow, and they encroach more onthe former comparative advantages of developedcountries, forcing them to adapt by innovating orby shifting the composition of their production.

But this has been the case through the entirehistory of trade and production – and in economicdevelopment.

If the past experience of manufacturing isany guide, domestic producers of related serviceactivities will adapt by shifting their specializationsto higher skill segments of their industries. Justas the fears raised in previous periods ofinternational restructuring proved exaggerated, thepresent ones are likely to be unfounded. The finaloutcome should again be a win-win situation forthe parties involved.

Source: UNCTAD.

Box V.14. The debate on offshoring – a case of déjà vu? (concluded)

Notes

217CHAPTER V

including for independent regulators. It recommendsthat “[t]he regulatory body is separate from, and notaccountable to, any supplier of basictelecommunications services. The decisions of and theprocedures used by regulators shall be impartial withrespect to all market participants” (Section 5).

12 Such commitments are widespread, although, in manycountries (such as the former German DemocraticRepublic, Hungary, Poland), the enforcement ofcontractual commitments and penalties often provedto be ineffective.

13 See WIR02, chapter VIII, for a discussion on targetedinvestment promotion.

14 Singapore and Ireland show that, where an IPA is ableto coordinate the strengthening of domestic capabilitiesin parallel with attracting FDI, it can transform thedevelopment prospects of the host country. Both theseeconomies have targeted high-value services (as wellas manufacturing) and ensured that new skills, state-of-the-art infrastructure, support institutions andpolicies have evolved in line with the needs of theseactivities.

15 See WIR02; Loewendahl 2001.16 In business-process outsourcing, for instance, the

physical infrastructure for transportation, the qualityof local input suppliers or the availability of long-terminvestment capital does not matter as much as theavailability of specialized skills and technologyinstitutions, and IT infrastructure and reliable powersupplies.

17 Investment incentives are intended to induce investorsto establish a presence, to expand an existing businessor not to relocate elsewhere. They may also be providedto increase the benefits from FDI by stimulating foreignaffiliates to operate in desired ways (WIR03).Governments may offer enterprises measurableeconomic advantages in order to attract investment intocertain industries or regions or to influence thecharacter of an investment. Incentives may be grantedunconditionally or conditionally (by linking them toperformance requirements), and addressed to foreigncompanies, local companies or both.

18 The WTO review covers subsidies given to domesticand/or foreign firms. As subsidies directed only todomestic firms are likely to represent a minor share,it gives an indication of the use of FDI incentives inservice industries. The definition of “subsidy” in Article1 of the WTO Agreement on Subsidies andCountervailing Measures contains three basic elements:(i) a financial contribution (ii) by a Government orany public body within the territory of a WTO member(iii) which confers a benefit. All three of these elementsmust be satisfied in order for a subsidy to exist.

19 Other subsidies have been used to cope with variouscrises. Many countries extended financial support totheir air carriers in the aftermath of the attacks on 11September 2001; and a number of Asian economiessupported their banking industries after the Asianfinancial crisis towards the end of the 1990s. But mostof these subsidies have been provided only to domesticfirms.

20 Information from the Board of Investment of Mauritius.21 This section draws on information provided by the

International Labour Organization (ILO) database onEPZs (www.ilo.org/epz), which links the websites of

EPZ authorities in 116 countries. However, since therehas been no attempt to verify the accuracy of the publicinformation provided by these authorities, it shouldbe viewed only as indicative.

22 For example, a Singapore consortium and the TataCorporation established an IT park in Bangalore;Infosys, ICICI Financial Services & Hughes Softwareset up software parks in Karnataka; and QuarkInfrastructure set up a technology park in the Punjabin collaboration with Punjab State ElectronicsDevelopment and Production Corporation (Kumar2000).

23 For example, in 2002, the Indian company, Infosys,established a disaster recovery centre in Mauritius.Complete with infrastructure, network connections,telecommunication facilities as well as back-up clientdata, this centre will be on standby to take over clientprojects from across the globe in case of an emergency.Serving as an alternative location in case of a disasterin other Infosys centre, it will have a capacity toaccommodate 1,500 people (http://www.infy.com/media/disaster_recovery_Mauritius_28oct_02.pdf).

24 The Internet City is located in the Dubai Technologyand Media Free Zone and provides a high bandwidthtechnology platform. Its services include web hostinge-mails, various internet services, a data centre anda content and security network. The Internet City offerstax privileges, full repatriation of capital and profitswithout currency restrictions, easy registration andlicensing, stringent cyber regulation, 50-year landleases and protection of intellectual property in additionto facilities for financing, training, education andresearch.

25 For example, in the case of FDI in regionalheadquarters, excellent air connections and competitivereal estate conditions are key requirements.

26 Recent initiatives include allowing private operatorsto offer Internet telephony, and opening up of theNational Long Distance Service to private operatorsby abolishing the monopoly of the national telecomoperator, VSNL. Moreover, the Indian policy onInternet services envisages no restriction on the numberof service providers, operations can be on a national,regional or district basis, the services provider candecide whether to build or lease capacity frominfrastructure owners (railways, energy utilities),foreign equity participation is capped at 49%, licencesare issued for a period of 15 years (extendable by 5years), no licence fee is charged for the first 5 yearsand telephony on Internet is permitted. At the end of2002, 24 Internet service providers had been givenclearance for the commissioning of 55 internationalgateways for Internet using satellite systems, while4 providers had applied for the setting up of submarinecable landing stations for international gateways forthe Internet (India, Department of Telecommunications2003).

27 Communication from the Board of Investment of thePhilippines, May 2004.

28 Recently, the Government permitted networkunbundling, obliging telecom companies to allowcompetitors access to their infrastructure; this was akey step in the development of a competitive broadbandmarket. In 2001, it awarded licences for wireless localloop services (that allow deployment in remote areas,

218 World Investment Report 2004: The Shift Towards Services

increased access to broadband services and high-speeddata transmission).

29 The SEA-ME-WE3 docks with India in two places:Mumbai and Cochin; the SAFE cable has a landingin Cochin.

30 Ever since the early 1970s, the Government of Indiahas taken steps to promote the development of skilledmanpower needed in the software and service industry.Key elements have included careful and regularanalysis of expected needs for engineers at the bachelor,masters and PhD levels, the establishment of newcourses in computer science, computer applications,new polytechnic diplomas and mathematics andprovision of training in software development (RIS2004).

31 The strong position of Mumbai has also been associatedwith its role as a financial and commercial centre, thepresence of a few large software firms, as well asconsiderable software development to cater for the in-house needs of major financial firms such as Citibank.Mumbai has also been able to tap other parts of Indiafor talent (D’Costa 2003).

32 The levels are O – foundation course, A – advanceddiploma, B – MCA level, and C – M.Tech level.

33 See www.mit.gov.in/studyteam.ppt.34 Invest in Sweden Agency 2000.35 Information provided by the Board of Investment of

the Philippines, May 2004.36 These issues emerged first in the 1980s in the context

of trans-border data flows (see UNCTC 1983a,b;UNCTC 1984a,b; Robinson et al. 1989; Sauvant 1986a,1986b).

37 Directive 95/46/EC of the European Parliament andof the Council of 24 October 1995 on the Protectionof Individuals with Regard to the Processing ofPersonal Data and on the Free Movement of Such Data(Official Journal L 281, 23 November 1995, pp. 0031- 0050).

38 See “Indian BPO firms constrained by lack of dataprotection”, Express Computer, 26 April 2004 (http://www.expres scompute ron l ine . com/20040426 /coverstory01.html)

39 The Act stipulates that any person who has securedaccess to any electronic record, book, register,correspondence, information, document or othermaterial without the consent of the person concerned,and discloses such material to any other person, shallbe punished with imprisonment for a term that mayextend to two years, or with a fine that may extendto one lakh rupees, or with both. Yet to address thespecific issues of concern with respect to businessprocess outsourcing business, the IT Act is beingreviewed at the national level (see http://www.ap-it.com/itact.pdf).

40 Most of the state governments of India have soughtto address IT security and data protection issues. Forexample, the state of Andhra Pradesh is developinga data protection and consumer privacy act to assurethe companies in IT-enabled services and theircustomers of the safety of their data, and to specifythe nature of information protected under the law. Italso plans to set up a regulatory authority for enforcingthis act, and to specify the consequences of violation(for details see http://itfriend.mit.gov.in/stateit/andhrait.asp).

41 Well-known examples include Littlewoods (UnitedKingdom) as well as Dell and Lehman Brothers (UnitedStates), both of which repatriated service productionfrom India. Moreover, in March 2004, the credit cardcompany Capital One (United States) decided to ceaseits cooperation with the Indian call centre company,Wipro Spectramind (“Credit card chaos in India”, BBCNews, 25 March 2004).

42 Many recent FTAs, including the Chile–United StatesAgreement or various European agreements, containstrong provisions on the protection of intellectualproperty rights.

43 Information provided by the Board of Investment ofthe Philippines, May 2004.

44 The generic skills profiles cover the main job areasin which the ICT industry is experiencing skillsshortages, and describe the jobs associated with them.The specific technology areas and tasks associated witheach job are also outlined, as well as the skills required.

45 A call centre curriculum has been introduced in itstraining programmes, with modules entitled as follows:Orientation to the Occupation, Customer Service,Developing Telephone Skills, Selling Products &Services, Basic Computer Technology and Introductionto Database Management (of approximately 280 hoursduration). Additional support modules includeLanguage and Communication, Calculations andComputations and General Studies (EmployabilitySkills) (approximately 100 hours) (Jamaica PromotionsCorporation, www.investjamaica.com).

46 For a detailed review of such measures, see WIR03,part III, UNCTAD 2001b.

47 See, for example, Herbert Bob, “Outsourcing jobs isa threat to the United States economy”, InternationalHerald Tribune , 27 January 2004; “White Houseeconomist gets lesson in politics”, International HeraldTribune, 26 February 2004; Paul Krugman, “Free tradeand jobs”, International Herald Tribune, 28-29February 2004; Douglas A, Irwin, “Outsourcing is goodfor America”, Wall Street Journal, 28 June 2004;Charles Schumer and Paul Craig Roberts, “Secondthoughts on free trade”, New York Times, 6 January2004; “The great hollowing-out myth”, The Economist,19 February 2004.

48 Government work that has been offshored so farincludes food stamps programmes, human resourcefunctions, insurance programmes and some IT work,particularly software development, upgrading ofexisting systems and integrating systems with otherstate and federal electronic systems.

49 For example, the state of Georgia’s department ofhuman resources pays Citigroup $8 million a year tomanage phone inquiries from its 438,000 stamprecipients. Citigroup in turn outsources the work toan Indian call centre run by an independent Indiancompany (“Job loss creates political stir”, The AtlantaJournal, 15 October 2003).

50 See Consolidation Appropriations Act of 2004, P.L.108-199, II8 Stat. 3 6 647 (e) (2004).

51 For instance, the number of H1-B visas (that give workpermits for professionals for up to six years) wasreduced from 195,000 in 2000 to 65,000 in 2003(Business Week, 2003). Bills pending in Congresspropose to reduce the number of L-1 visas by 50%;these visas allow companies to transfer their own

219CHAPTER V

employees from overseas to the United States for upto seven years.

52 The New Jersey state authorities were the first to doso in September 2002, by proposing to prohibit theshift of state services work to cheap foreign locations.The bill was a reaction to a discovery that a localcontractor hired by the state to manage the welfareand food stamp programme had moved its customerservice operations to Mumbai.

53 See also “Unions and states aspire to block joboutsourcing”, Wall Street Journal, 3 June 2003.

54 See www.nfap.net, visited 11 June 2004.55 In at least one case (in Indiana), a law proposal

triggered the cancellation of an offshoring contract.The official explanation for this move was irregularitiesin the way in which the contract had been awarded(Business Week, 2003). In Utah, the company eFundswas planning to recall jobs at an Indian call centretaking calls for the Utah Department of WorkforceServices, resulting in higher costs. The eFunds’ Indiancentre handles calls about the department’s electronicHorizons welfare benefits cards (see www.callcentres.net/callcentres/Live/me.get?SITE.HOME).

56 See also “Protectionism hits the outsourcing industry”,IDG News Service. www.idg.net, 15 April 2003.

57 “Calling New Jersey via New Delhi”, Business Week,29 September 2003.

58 “Job loss creates political stir”, The Atlanta Journal,15 October 2003.

59 The Guardian, 6 December 2003 (http://www.guardian.c o . u k / g u a r d i a n _ j o b s _ a n d _ m o n e y / s t o r y /0,3605,1100689,00.html).

60 See The Guardian (http://www.guardian.co.uk/business/story/0,3604,1087381,00.html).

61 Statement made in a Westminster Hall debate on callcentres, 3 March 2004.

62 See Financial Times, 16 December 2003.63 See The Guardian (http://www.guardian.co.uk/business/

story/0,3604,1098529,00.html).64 The Minister of State for Industry and the Regions has

argued that “where jobs are lost, we must do everythingthat we can to help people to find new jobs, and newskills, if necessary, as quickly as possible. We shallcall on the services of the reformed Jobcentre Plus,particularly its rapid response service, which focuseson redundancies where particularly intensive work isneeded” (Debate in the House of Commons, (http://www.parliament.the-stationery-office.co.uk/pa/c m 2 0 0 3 0 4 / c m h a n s r d / c m 0 3 1 2 1 0 / h a l l t e x t /31210h01.htm#31210h01_head0).

65 AMICUS argues that employers should adhere to fivepoints: consultation, no redundancies, reinvestmentof profits in worker skills, protecting careers andcompliance with labour standards. It believes theGovernment should act by investing in skills orproviding incentives for R&D (interview withAMICUS).

66 “Schröder condemns job offshoring as unpatriotic”,Financial Times, 23 March 2004.

67 Gerhard Rohde “Jobs with no frontiers global mobility:a challenge to unions and researchers”, WSIMitteilungen, 10/2003.

68 “Australia: campaign to halt job flight gathers steam”,IPS/Kalinga Seneviratne , 24 February 2004,www.ipsnews.net.

69 For a discussion of how this policy is implementedin the United States, see Kletzer and Litan 2001.

220 World Investment Report 2004: The Shift Towards Services

Over the past decade, the number ofinternational agreements covering FDI in serviceshas increased substantially, both in number andgeographical scope. They reflect the negotiatingparties’ interests, bargaining power, technicalcapabilities, levels of liberalization and specificeconomic, social and other circumstances. Theresult is a multilayered and multifaceted networkof international rules, with obligations differingin scope and content. Within the context of abroad liberalization trend, these agreementsincreasingly set the parameters for nationalpolicies on services through interaction betweennational and international policies on FDI inservices. This interaction can either be led byautonomous liberalization or driven by IIAs. Thiscomplex and dynamic interaction poseschallenges for development: while IIAs andautonomous liberalization create an enablingframework for FDI, the former also limit nationalpolicy space. This raises questions of how bestto achieve development goals and how tostrengthen the development dimension of IIAs.

At the bilateral level, the number of BITscovering FDI in services reached 2,265 by theend of 2003, and involved 175 countries. Otheragreements covering services FDI include FTAs,RTAs and various types of economic partnershipagreements. Services IIAs1 can be found in allgeographical regions, and there are also someinter-regional ones (e.g. the OECD LiberalisationCodes) as well as one at the multilateral level(i.e. the 1994 General Agreement on Trade inServices (GATS)). Reasons of why they areconcluded are the desire to attract FDI to advancedevelopment (box VI.1), to protect FDI (i.e. toassure foreign investors that their investments,and the environment in which they invest, arereasonably secure) and, increasingly, to facilitatemarket access and the operations of foreignaffiliates.

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The discussion here uses a broaddefinition of international investment agreements(IIAs) as “agreements at the bilateral, regionaland multilateral levels that address investmentissues” (WIR03, p. 88) with the qualification thatthe IIAs under review cover, in varying degrees,FDI in services (“service IIAs”). While some ofthe IIAs deal only with investment (e.g. BITs),others cover a broader range of issues, investmentbeing one of them. Most recent FTAs fall intothe second category.

1. The evolving nature ofapproaches covering FDI inservices

Three approaches for IIAs’ coverage ofFDI in services can be distinguished.2

• The investment-based approach, wherebyFDI is exclusively covered by the disciplinesof the investment chapter of an agreement(e.g. the 1992 North American Free TradeAgreement (NAFTA)3) or where anagreement deals exclusively with investment(e.g. BITs). In both cases, the agreement orthe specific chapter covers services and non-services investments without differentiatingbetween them.4 (As seen earlier, most FDIis in the services sector.)

• The services-based approach , wherebyservices FDI is exclusively covered by thedisciplines of the services chapter of anagreement or by an agreement as a whole(if the latter deals exclusively with trade in

CHAPTER VICHAPTER VICHAPTER VICHAPTER VICHAPTER VI

NATIONAL AND INTERNATIONAL POLICIES:A COMPLEX AND DYNAMIC INTERACTION

222 World Investment Report 2004: The Shift Towards Services

services) and which covers commercialpresence as one of the four modes of tradingservices. Besides the GATS (box VI.2), the1998 Andean Community Decision 439 andthe 1995 ASEAN Framework Agreement onServices are examples of this approach.

• The mixed approach, whereby services FDIis covered by both the investment andservices chapters of an agreement. Anexample is the 2002 Japan–SingaporeAgreement. Under this approach, in certaincases, a special provision in the investmentchapter may rule out the applicability of aparticular investment discipline, or moregeneral investment disciplines, to servicesFDI (see below).

To some extent, these three approaches canbe viewed as reflecting the evolution over timeof IIAs in relation to services. Thus, the first andearliest approach, the investment-based approach,does not make a distinction between services andnon-services investments. This approach isquantitatively dominant, all the more so as BITs– while otherwise following different approaches(box VI.3) – continue to be concluded in largenumbers. It can be explained, first, by the absenceof any express desire by policy-makers to treatinvestment in services as conceptually differentfrom investment in other sectors and, second, bythe wide coverage of the definition and scope ofprovisions of such agreements. The secondapproach reflects the manner in which international

What is the impact of services IIAs in termsof attracting investment in services and benefitingfrom it? IIAs can have an impact on FDI flows byinfluencing one of the principal determinants of FDI– the regulatory framework. These agreements tendto make the regulatory framework more enabling,opening space for the decisive economicdeterminants to assert themselves. IIAs achieve thisby:

• reducing obstacles to FDI through the removalof restrictions on admission, establishment andon the operations of foreign affiliates;

• improving standards of treatment of foreigninvestors (e.g. by granting them non-discriminatory treatment vis-à-vis domestic orother foreign investors);

• protecting foreign investors through provisionson compensation in the event of nationalizationor expropriation, by stipulating procedures fordispute settlement as well as guaranteeing thetransfer of funds; and

• providing for a transparent, stable and predictableregulatory framework.

To the extent that the enabling framework isenhanced (be it because of autonomous or of IIA-driven regulatory action) and the economicdeterminants are attractive to investors, FDI is likelyto flow to this sector. By the same token, when theeconomic determinants are not favorable, substantialinvestment flows are not likely to materialize.Indeed, as discussed in chapter III, a good part ofthe growth of services FDI during the past decade

or so has been due to an improved enablingregulatory environment. Most of the improvementshave been the result of autonomous decisions, ratherthan the result of services IIAs (but these decisionstend to become more credible in the eyes ofinvestors through commitments in IIAs).

In contrast to FDI in goods for which RTAsexpand the market by facilitating trade among theparticipating members of the region and henceencourage FDI, market size plays less of a role inthe case of services, as most of them are lesstradable. By the same token, FDI in services maybe less subject to regional strategies ofrationalization whereby goods firms consolidateproduction into one or a few foreign affiliates toservice the regional area as a whole, thus reducingFDI.a Services FDI (like goods FDI) may, however,benefit if a RTA stimulates economic growth.

Thus, it is difficult to ascertain to what extentservices IIAs contribute to increased FDI flows inservices.b

And what about the benefits and costs? Asdiscussed in chapter III, services FDI can involvea range of benefits and costs. In most cases, thesecan be enhanced or mitigated, as the case may be,through appropriate government policies. The issuethen becomes whether IIAs enhance or restrict theability of governments to pursue development-oriented policies – an issue taken up in some detailin WIR03 (chapters III to VI). From a services-specific perspective, it is discussed further belowin this chapter.

Box VI.1. What difference do services IIAs make?

Source: UNCTAD.

a This situation may, however, change with the increasing tradability of services (see chapter IV).b For a further discussion, see WIR03, chapter III.

223CHAPTER VI

The GATS is unique in that it establishesthe only set of multilateral rules for services FDIin the context of international servicestransactions in general. All 147 members of theWTO are bound by the rules of the GATS insofaras they apply specifically to that country. TheAgreement covers four modes of services supply,one of which is the supply of services through“commercial presence”, defined as “any type ofbusiness or professional establishment, includingthrough (i) the constitution, acquisition ormaintenance of a juridical person, or (ii) thecreation or maintenance of a branch or arepresentative office, within the territory of aMember for the purpose of supplying a service”(Article XXVIII, lit. d).a “Commercial presence”is therefore akin to FDI. (The other modes ofsupply are cross-border supply, consumptionabroad and the presence of natural persons.)

The definition of commercial presence inthe GATS is narrower than the asset-basedapproach commonly found in IIAs entered intoby both developed and developing countries(UNCTAD 1999b). Also, unlike other servicesIIAs, the GATS does not contain those disciplineson investment protection that typically constitutecentral tenets of other IIA regimes (e.g. the GATSdoes not contain rules that assure foreigninvestors compensation in the case ofexpropriation or set the minimum standard oftreatment).b Nor does it explicitly prohibitperformance requirementsc or provide forinvestor–State dispute settlement.

Two key GATS obligations are found inArticles XVI (market access) and XVII (national

treatment). They apply only to those serviceindustries (“sectors” in WTO parlance) andmodes of supply in respect of which a WTOmember has made “specific commitments” in itsschedule. When making a commitment, a membermay set out limitations, conditions andqualifications on market access and nationaltreatment with respect to listed industries andmodes of supply. Such conditions may includethe ability to place restrictions on foreign equityparticipation, to require joint ventures (or otherspecific types of legal entity), to require thepayment of taxes on the remittances of foreignaffiliates, to be able to grant subsidies to domesticservice suppliers in specific industries, to limitthe use of land by foreign affiliates, to placegeographical restrictions on the supply of certainservices by foreign affiliates, or to limit the totalnumber of (natural) persons employed in aparticular service industry. Accordingly, theimpact of the GATS is to a large extent dependentupon the content of members’ commitments andany limitations attached to them.

In pursuance of the objective of the GATS,the Agreement provides for the periodicnegotiation of specific commitments throughsuccessive rounds of negotiations. The first ofthese rounds was mandated by the Agreementand subsequently incorporated into thenegotiations launched by the 2001 WTO DohaMinisterial Meeting. The process of requests andoffers of commitments was underway in mid –2004. By 9 July 2004, 44 offers (counting theEuropean Communities (15) as one) have beenreceived by the WTO Secretariat.d

Box VI.2. The GATS and FDI in services

Source: UNCTAD.a Note that GATS Article XXVIII also sets out equity thresholds, establishing when juridical persons are “owned” by

persons of a member. Specifically, lit. (n) states: “a juridical person is: (i) ‘owned’ by persons of a Member if morethan 50 per cent of the equity interest in it is beneficially owned by persons of that Member; (ii) ‘controlled’ bypersons of a Member if such persons have the power to name a majority of its directors or otherwise to legally directits actions; (iii) ‘affiliated’ with another person when it controls, or is controlled by, that other person; or when it andthe other person are both controlled by the same person”.

b Note, however, that the GATS contains certain disciplines related to investment protection, for example, rules onpayments and transfers (i.e. Article XI), rules on the “reasonable, objective and impartial” administration of measuresof general application in committed sectors (i.e. Article VI, para.1) or provisions addressing certain cross-bordermovements of capital (i.e. those set out in footnote 8 to Article XVI).

c This does not exclude, that members commit themselves in this respect in their schedules. At the same time, ArticleXIX, para. 2 allows performance requirements attached as conditions to market access and national treatmentcommitments.

d “Trade talks on services ‘may last years’”, Financial Times, 6 July 2004. For the initial offers, to the extent that theyare publicly available, see http://www.wto.org.

224 World Investment Report 2004: The Shift Towards Services

transactions in services (including commercialpresence) were addressed in the context of theGATS negotiations in the Uruguay Round.

The third approach blends the other twoapproaches by addressing investment, typicallyin a separate chapter, while simultaneously

enshrining special rules for services FDI (in thecontext of international service transactions ingeneral) in another chapter. These agreementsalso increasingly cover a host of other issues,including some that have implications forinvestment (e.g. competition). A growing numberof recent FTAs and RTAs adopt this approach.

In BITs, services FDI is subject to the samerules as all other types of investment.a However,not all BITs are identical, although they have muchin common (UNCTAD 1998). There appear to bethree main approaches: the first could be calledthe broad, Western Hemisphere approach,promoted most actively by the United States andCanada; the second is the more narrow Europeanapproach, mostly followed by European countries;b

and the third is the South-South approach (whichis close to the European approach).c

The Western Hemisphere approach extendsnational treatment and MFN obligations to thepre-establishment phase of investment (whileaccommodating country-specific exceptions tothese obligations), while the other approaches tendto cover only the post-establishment phase.Similarly, the Western Hemisphere approach tendsto contain a specific article on prohibitedperformance requirements , while the otherapproaches may deal implicitly with suchrequirements, e.g. in so far as they might violatethe national treatment or MFN obligations.d Onedistinguishing feature of the 2004 United Statesand Canadiane model BITs is that they containprovisions not to lower environmental and labourstandards to attract investment. Further, with

respect to transparency, the United States andCanadian model BITs include so-called a prioricomment and publication procedures, whereas thefew European treaties containing transparencyrequirements limit their applicability to the stageafter the adoption of laws and regulations. Someof the distinctive features of the South-Southapproach involve that they put more emphasis onexceptions (e.g. for balance-of-payments orprudential measures) and the so-called fork-in-the-road clause, i.e. investors must choose betweenthe litigation of their claims in a host country’sdomestic courts or international arbitration: oncemade, the choice is final.

Learning from investor-State litigation underNAFTA, the most recent United States andCanadian model BITs clarify the meaning of thearticles on minimum standard of treatment(including fair and equitable treatment and fullprotection and security) and expropriation.f Sofar, this has not been done in European anddeveloping-country BITs, perhaps in part becauseEuropean and developing countries either havenot yet been extensively involved in high profileinvestor-State litigation, or because awarenessabout the implications of such cases is only justbeginning to emerge.

Box VI.3. Approaches to BITs and FDI in services

Source: UNCTAD.a However, the 2004 United States model BIT, for example, contains specific obligations for certain service industries

(i.e. financial services). See the Treaty between the Government of the United States of America and the Governmentof [Country] Concerning the Encouragement and Reciprocal Protection of Investment, 2004; http://www.state.gov/documents/organization/29030.doc.

b Since the European Commission does not have a mandate to negotiate investment issues on behalf of the members ofthe Union, European countries continue to conclude separate BITs, which, nevertheless, possess the same basicfeatures.

c Given the great number of developing countries, it is, of course, difficult to speak about a developing-country approach,especially as far as a number of Latin American countries are concerned. The matter is further complicated by mostdeveloping countries having BITs with either North American or European countries.

d Rules on performance requirements are, however, set out in the 1994 WTO Agreement on Trade-Related InvestmentMeasures (TRIMs).

e See the 2004 Canadian model BIT, Agreement between Canada and ___ for the Promotion and Protection ofInvestments, 2004; http://www.dfait-maeci.gc.ca/tna-nac/documents/2004-FIPA-model-en.pdf.

f The relevant rules can be found in Articles 5 and 6 and Annexes A and B of the United States model BIT. Morespecifically, Annex A emphasizes the parties’ shared understanding of customary international law for minimumstandard of treatment and expropriation, while Article 5 and Annex B spell out in more detail the meaning of customaryinternational law for “fair and equitable treatment”, “full protection of security” and “expropriation”.

225CHAPTER VI

This mixed approach raises the question of therelationship between the two chapters in anagreement – an issue discussed below.

Naturally, such a categorization must betreated with caution since it looks only at aparticular agreement in isolation from otheragreements, which together form the legal regimefor investment, both in services and non-services,between two or more countries. For example, aservices-based approach in a RTA may becomplemented by a BIT that also covers servicesFDI; taken together, they constitute a mixedapproach of a different nature. To take anotherexample, this time from the Andean Community,the 1991 Decision 2915 deals with investmentin general, thereby also covering services FDI;it is complemented by Decision 439 which takesa services-based approach (i .e. covers onlyservices FDI). A similar situation arises in thecontext of ASEAN. Here, the ASEAN FrameworkAgreement on Services is complemented by the1998 (as amended in 2001) FrameworkAgreement on the ASEAN Investment Area(AIA). While the AIA in its original form did notcover services FDI, in its current form it coversFDI in services incidental to manufacturing,agriculture, fishery, forestry, mining andquarrying.6 In parallel, the 1987 (as amended in1996) ASEAN Agreement for the Promotion andProtection of Investments7 applies to servicesFDI. Together, these agreements, too, constitutea mixed approach. Thus, ultimately, i t isnecessary to look not only at individualagreements, but also at the overall legal regimeestablished between countries.

2. Salient features

A number of issues arise in light of thethree approaches identified above. The treatmentof these issues – many of which also apply togoods FDI but are particularly relevant toservices FDI – differs across agreements.However, certain tentative general observationscan be made.

Structure and organization

As regards structure andorganization, agreements following theinvestment-based approach raise few problems,given that services and non-services investmentsare not differentiated for the purposes of theinvestment provisions of the agreements.

Agreements adopting a services-based approachallow addressing the specificities of services FDI.However, this approach requires a determinationof whether an investment is a services or a non-services investment, which is sometimes difficult,even for statistical agencies.8 Agreementsadopting a mixed approach, too, need todetermine whether an investment is a servicesinvestment or not, and what that means in eachcase. This can give rise to inconsistencies – anissue discussed below.

Definition of investment

Traditionally, IIAs either contain broad,asset-based or narrow, enterprise-baseddefinitions of investment, with the large majority(especially BITs and FTAs) adopting the former(UNCTAD 1998).10 IIAs taking the services-based approach (i.e. the ones that cover servicesinvestment as “Mode 3/commercial presence” inservices trade) are more likely to adopt narrower,enterprise-based definitions than IIAs that do notcontain a services chapter. The GATS and theAndean Community Decision 43911 are examples.In addition, some agreements using the mixedapproach, for example the 2002 EFTA –SingaporeFTA and the Japan–Singapore Agreement, adoptboth a narrower, enterprise-based definition ofinvestment in their services chapter12 and abroader, asset-based definition in their investmentchapter.13 The implication is that, in spite of theservices chapter’s narrower definition of whatan investment is, the investment may actuallybenefit from the broader definition of theinvestment chapter (e.g. when it comes to theprotection of intellectual property rights oftencovered by the asset-based definition), unlessthere are specific provisions that provide for adifferent approach. While this may have far-reaching implications for the scope and breathof an IIA as well as for the obligations countriesaccept thereunder, i t has, thus far, receivedcomparatively little attention from policy-makers,particularly in developing countries.

Linked to the definition and scope ofinvestment covered by an IIA is the question ofwho should benefit from its provisions. Most ofthe services IIAs contain special clausesregarding the beneficiaries under the respectiveagreements, frequently entitled “Denial ofBenefits”.14 These clauses identify thoseinvestors and investments that are not eligiblefor the benefits provided by the respectiveagreement. Generally, these are enterprises in the

226 World Investment Report 2004: The Shift Towards Services

territory of a party but owned or controlled byinvestors of a non-party.15 Frequently, theseclauses, which identify non-eligible investorsthrough a so-called “substantial businessoperations test”, state that benefits can be deniedto an enterprise that is owned and controlled bypersons of a non-party, if the enterprise has nosubstantial business activities in the territory ofthe party under whose laws it is constituted.16

The 2003 Mainland–Hong Kong Closer EconomicPartnership Arrangement,17 for example, sets outin detail the criteria for determining whether ornot an enterprise has substantive businessoperations (box II.7). The GATS, too, refers tosubstantive business operations, but withoutdefining them. While one of these references isin the Article containing definitions for thepurpose of the GATS (Article XXVIII, lit. m(i)),18 the other one refers to economicintegration (Article V, para. 6). This provisionentitles those service suppliers of WTO membersthat are established in an economic integrationagreement area to the benefits of that agreementif they engage in substantive business operationsin one of the parties to that agreement.19 Thus,it refers to the extension of benefits to third-partycompanies conducting “substantive businessoperations” in the context of a very specific setof circumstances (i.e. derogations from GATSdisciplines permitted as a result of entering intoeconomic integration agreements).20

Investment liberalization

The principal issue here is whether anagreement covers both pre- and post-entryinvestment, or post-entry investment only. Certainrecent FTAs contain the right of establishment(i.e. cover pre-entry investment), while mostBITs, except for recent ones signed by somecountries in the Western Hemisphere, apply topost-entry investment only (UNCTAD 1999b).Where the right to establishment is granted (insome BITs and a number of FTAs), this istypically done by extending national treatmentcommitments at the pre-entry stage. At theregional level, NAFTA takes this approach. Whilethe approach is different in the GATS, theagreement also allows members to grant pre-establishment rights in the context of thecommitments they undertake. (Note also thedefinition of commercial presence under theGATS, which includes the words “establishment”and “acquisition”.) Overall, where countries grantpre-establishment rights, they tend to complement

them with a high number of conditions orlimitations.

There are instances in regional groupings,including those comprising developing countries,in which parties agree, in principle, to negotiatefuture liberalization of services to a degree thatgoes beyond what has been agreed in theGATS.21 The ASEAN Framework Agreement onServices is an example (box II.8).

Investment protection

Most agreements taking the investment-based approach contain core protectiondisciplines, including national treatment, MFNand fair and equitable treatment. In someagreements, these may be linked to theobservance of the international minimum standardof treatment. Equally, agreements normally covercompensation for loss and expropriation, andprovide for the free transfer of funds. Agreementstaking the services-based approach tend to be lessfar-reaching as regards investment protection.For example, the GATS does not contain a setof investment protection rules, though it has, forexample, a general MFN obligation (subject toexemptions), rules on transfers and payments(Article XI), and other capital transactions(footnote 8 to Article XVI22), as well as nationaltreatment (the latter subject to limitations) (Sauvéand Wilkie 2000). Agreements not containingstrong rules on protection may, however, becomplemented by agreements focusing onprotection, for example, BITs. On the other hand,agreements taking a mixed approach are likelyto contain all the main investor-protectionstandards and guarantees typically covered ininvestment-based IIAs. For example, the NewZealand–Singapore and the Japan–Singaporeagreements contain the usual liberalization rulesin the services trade chapters23 and the usualinvestment protection rules in the investmentchapter, both of which apply to services FDI.

Performance requirements

The GATS does not explicitly prohibitperformance requirements, and the TRIMsAgreement does not apply to services.24

However, since the middle of the 1990s, a numberof services IIAs explicitly prohibit the use ofcertain performance requirements geared towardsservices (table VI.1), including requirementspertaining to exports, local content, employment,

227CHAPTER VI

the supply of a specific region of the worldmarket exclusively from a given territory, thelocation of regional headquarters and R&D. Suchprovisions are generally found in IIAs concludedby countries in the Western Hemisphere, startingwith NAFTA. Some agreements only prohibit theuse of mandatory requirements, while allowingrequirements linked to the granting of incentives(box VI.4).25 Sometimes, services IIAs allowcountries to retain their ability to use otherwiseprohibited performance requirements by enteringinto reservations.26 However, even in the absenceof specific disciplines, national treatment rulesand other disciplines (such as those ontransparency or MFN treatment) may apply toservices-related performance requirements. Thus,

if a party wishes to continue applyingperformance requirements to foreign affiliatesonly, it would need to make a specific reservationin its national treatment commitment as well asin relevant annexes dealing with MFNexemptions.27

In some countries, a specific requirement,arising out of the particular nature of someservices, is the local presence requirement. Thisis a kind of duty of establishment which requiresa firm to place the business itself within a locallyregistered and licensed corporate entity. This canbe the case, for example, with respect to financialservices, where, the need for prudentialsupervision is difficult to achieve without the

Insofar as subsidies affect trade in services,they are measures covered by the generalobligations of the GATS, such as MFN and theindividual countries’ specific commitments,including national treatment. In addition, ArticleXV of the GATS specifically deals with subsidies.This provision notes that, “…in certaincircumstances, subsidies may have distortiveeffects on trade in services.” Negotiations havebegun (but with little progress) with the aim ofdeveloping “…the necessary multilateraldisciplines to avoid such trade-distortive effects.”Furthermore, “[s]uch negotiations shall recognizethe role of subsidies in relation to the developmentprogrammes of developing countries and take intoaccount the needs of Members, particularlydeveloping country Members, for flexibility inthis area” (Article XV, para. 1).

The GATS thus permits subsidies as such,including subsidies contingent upon the exportof services and other investment incentives.However, the MFN obligation applies to subsidies

because they are covered by the definition of“measure”. In scheduled industries, nationaltreatment commitments also apply, unless theyspecifically exclude subsidies. In the serviceindustries for which commitments have beenmade, and subject to any conditions orqualifications set out in its schedule, a WTOmember must administer its subsidy schemesin a manner that accords the services and servicesuppliers of other members treatment no lessfavourable than that accorded to its own likeservices and service suppliers.

However, the fact that a subsidy pertainsto a service industry does not necessarily meanthat other WTO agreements, and in particularthe Agreement on Subsidies and CountervailingMeasures (SCM) (WTO 1994d) and theAgreement on Agriculture (WTO 1994a),a donot apply. For example, the provision by agovernment of certain subsidized services toproducers of goods can also be relevant underthe SCM Agreement.

Box VI.4. The GATS and subsidies

Source: WIR02, p. 210.

a Annex 2, para. 2 of the Agreement on Agriculture refers to “… expenditures (or revenues foregone) in relation toprogrammes which provide services or benefits to agriculture or the rural community…”. Such programmes “…shallnot involve direct payments to producers or processors…”. They shall include but not be restricted to: research, pestand disease control, training services, extension and advisory services, inspection services, marketing and promotionservices, infrastructural services (including electricity reticulation, roads, market and port facilities, water supplyfacilities, dams and drainage schemes and infrastructural works associated with environmental programmes). Thesesubsidies fall under the so-called “green box”, with the additional requirement (set out in para. 1) that they have“…no, or at most minimal, trade-distorting effects…”. While the GATS and the Agreement on Agriculture addressdifferent situations, there might be subsidy regimes that can fall under both Agreements (because one and the samesubsidy might affect both, trade in services and trade in agricultural products). In such a case, the subsidy – or aspecific aspect of a subsidy regime – that is allowed under one Agreement, could still be found to be in violation of theother.

228 World Investment Report 2004: The Shift Towards ServicesTa

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229CHAPTER VI

physical presence of the related assets of thebusinesses in the markets they serve. A furtherreason concerns the regulatory authorities’ abilityto recover assets of suppliers, should the needto do so arise.28 Finally, local presencerequirements may be introduced to ensure moredevelopmental benefits for the host country, forexample, in terms of creating new jobs. A numberof Canadian and United States FTAs, in theirservices chapters, prohibit signatories fromrequiring a service provider of the party toestablish or maintain a representative office orany form of enterprise in the territory of the otherparty as a condition of providing services in theterritory of that latter party.29

Dispute settlement procedures

There are differences in the types ofdispute settlement systems applying to servicesFDI. While a number of IIAs, in particular BITsand most recent FTAs, contain mechanisms forinvestor-State dispute settlement, such amechanism is generally not found in those IIAs– or chapters within them – that take a services-based approach.

To the extent that services FDI is coveredby the investment chapter, it may well be subjectto investor-State dispute settlement if theobligations of the investment chapter are subjectto such a mechanism. This may be the case forinvestment-based agreements as well as mixedagreements. The 2003 Chile–United States FTAand the 2003 Singapore–United States FTA (bothinvestment-based agreements) have investor-Statedispute settlement systems that apply to servicesFDI (as part of the investment chapter).30 In thecase of the 2003 Australia–Singapore FTA31 (amixed agreement), investor-State disputesettlement applies to the investment chapter(covering services FDI), but not to the serviceschapter (also covering services FDI). Thus, tothe extent that services FDI is covered as “Mode3/commercial presence” in the chapter on tradein services, it may be subject only to the State-State dispute settlement process (or arbitrationprocedures), as this is the typical disputesettlement mechanism for most such chapters.Slightly different, but related, the GATS, as partof the WTO, contains a mechanism for State–State dispute settlement only.32 The same appliesto the 2000 Jordan–United States FTA and theASEAN Framework Agreement on Services.33

Thus, as with many other issues, where, or inwhich chapter, services FDI is covered candetermine the type of dispute settlementmechanism applying to it.

Another interesting feature is that someagreements require specific expertise for disputesettlement (panels or other arbitral) tribunals asthey deal with industry-specific issues. Financialservices are a case in point. Paragraph 4 of theGATS Annex on Financial Services stipulates that“[p]anels for disputes on prudential issues andother financial mattes shall have the necessaryexpertise relevant to the specific financial serviceunder dispute.”34

Approaches to negotiatingcommitments

Services IIAs can differ in the methodnegotiating parties use to arrive at their individualcommitments for services FDI. Under thenegative list approach, countries agree on a seriesof general obligations, and then individually listall of those areas in which non-conformingmeasures are maintained. For example, NAFTA(in its investment chapter, which also coversservices FDI) and a number of agreementsinvolving countries of the Western Hemisphereas well as BITs take this approach. In contrast,under the positive list approach, certainobligations apply only to the industries (alongwith relevant limitations) listed by each country.For example, the GATS, the 1997 MERCOSURProtocol of Montevideo and the ASEANFramework Agreement on Services take thisapproach.35 While, in theory, both approachescan arrive at the same results, and both grantflexibili ty, there are important differencesbetween them. For example, in terms of thenegotiating process, the negative list approachcan be administratively burdensome, particularlyfor developing countries with limited resources.In terms of outcomes, the negative list approachcan result in a situation in which future measuresmay, due to lack of foresight, be inadvertentlybound. This could also happen in industries inwhich, at a later date, governments may need totake development-oriented measures. Given thatin many countries certain service industries areyet to be developed and the regulatory frameworkfor the services sector is still evolving, this may,in certain cases, forestall policy flexibility.36

230 World Investment Report 2004: The Shift Towards Services

Provisions covering specificservice industries

Services IIAs can contain rules forspecific service industries. In the WTO, forexample, separate texts have been negotiatedsince the adoption of the GATS ontelecommunications, financial services andaccountancy services (box VI.5). However, sincethe completion of negotiations on these threeissues, no new texts have been agreed upon.37

While discussions on industry-specificcommitments continue, proposals on horizontalapproaches cutting across industries have gainedprominence in negotiations on domesticregulation (for the European Communities, seeWTO Working Party on Domestic Regulation2003) to allow for a wider and more coherentdevelopment of benchmarks.38 NAFTA containsa separate chapter for financial services that alsocovers FDI, and so do some bilateral UnitedStates FTAs.39 Some EU agreements incorporateprovisions to allow establishment in maritimetransport.40 Another industry becomingincreasingly prominent is energy-related services.At the same time, agreements tend to exclude (inwhole or in part) certain industries from theircoverage. Much of air transport, which isgoverned by long-standing bilateral agreementspre-dating the GATS by many years, is a casein point.41

Follow-up procedures

Frequently, the conclusion of servicesIIAs results in the establishment of “groundrules” with several aspects left for furtherdevelopment. In the GATS, this is the case withrespect to areas such as domestic regulation,subsidies, government procurement andsafeguards, as well as the negotiation of specificcommitments. The same applies to services IIAsmodelled on the GATS,43 and also to some UnitedStates FTAs.43 Also, the ASEAN FrameworkAgreement on Services contains a commitmenttowards further liberalization, which is carriedout in three-year negotiation cycles (box II.8).Some services IIAs establish commissions orother bodies charged with monitoring theimplementation and functioning of theagreements.44 They provide a platform to reviewtheir implementation and to recommend actionif needed. In the case of the GATS, an

“assessment of trade in services” is mandated,45

and negotiations would need to be adjusted inlight of the results thereof.46 Along similar lines,there can be a monitoring of negotiations and theprogress undertaken therein. Again, WTOservices negotiations serve as an example.47

* * *

As observed in chapter V, FDIliberalization in the secondary and primarysectors has advanced considerably. The servicessector continues to be characterized by a rangeof restrictions related to FDI. Services IIAs, in

Box VI.5. Individual service industries inthe WTO

WTO texts applying to services havedifferent characteristics and serve various policypurposes. In some instances, such rules elaborateon the obligations of the GATS according to thespecificities of individual service industries; thisis notably the case of the GATS Annexes onFinancial Services and on Telecommunications,whose provisions apply irrespective of anyspecific commitments. In other cases, for examplein telecom services, sectoral disciplines alsoaddress matters such as competition-relatedaspects of trade in services. Such rules can befound in the Reference Paper forTelecommunications, which features a numberof pro-competitive regulatory disciplines forvoluntary adoption by WTO members throughArticle XVIII (Additional Commitments). In thecase of financial services, sectoral rules addressthe need to undertake measures for prudentialreasons. Some, such as the Understanding onFinancial Services, provide a voluntary modelfor scheduling commitments aimed at a higheroverall level of liberalization. In the accountancysector, provisions negotiated under Article VI,para. 4 (Domestic Regulation) spell outdisciplines relating to licensing, qualificationsand professional standards. Such disciplines,which, under certain conditions, are scheduledto enter into force at the end of the current roundof negotiations, would apply only to thosecountries that undertake commitments inaccountancy services.

Source: UNCTAD, based on various WTOdocuments.

231CHAPTER VI

and by themselves, often reflect only the statusquo of l iberalization at the national level.However, a number of them can lead to changesin national policies, for example, when theyprohibit services-specific performancerequirements. Moreover, a few can accommodatefurther liberalization, by establishing the groundrules for future negotiations. This can go hand-in-hand with efforts to negotiate industry-specificrules, making the international framework forservices FDI (and other international servicestransactions) increasingly complex.

BBBBB. Comple. Comple. Comple. Comple. Complexities andxities andxities andxities andxities andccccchallenghallenghallenghallenghallengeseseseses

The adoption of multilateral rules onservices FDI has not halted – or diminished themomentum – for regional or bilateral treatymaking. Rather, subsequent to the negotiationof the GATS, services provisions appearincreasingly in IIAs across all regions.

This multilayered and multifaceted realityraises a number of policy challenges. Whileagreements may generally be consistent with orcomplement each other, there may also be casesof overlap, inconsistencies and gaps that,potentially, give rise to conflicts. Furthermore,in some cases, the complexity and, at times,ambiguity of the rules applicable to services FDImight compromise the clarity of the system,making it difficult to navigate through theresulting web of rules. This is particularly truefor countries with insufficient human andinstitutional capacity to formulate and implementservices IIAs.

A specific example of difficulties arisingfrom complexity and ambiguity relates to thescheduling of commitments and reservations.Frequently, negotiations cannot produce thenecessary clarity, certainty and comparability interm of commitments; this leaves lacunae that,eventually, may be fil led through disputesettlement. A recent example of this is the 2004WTO case Mexico–Telecommunications withrespect to telecom services (WTO DisputeSettlement Body 2004). Amongst other issues,this case dealt with the exact meaning ofMexico’s entries in its schedule of commitments(particularly, as to what extent Mexico was boundby the Reference Paper). This underlines the

importance of scheduling carefully thecommitments that are being made. But this maybe a challenge in light of the emergence of newservices – an issue of particular relevance in thecontext of this WIR.

The complex network of IIAs also raisesquestions concerning the coexistence ofmultilateral, regional and bilateral services IIAs,as well as the challenges resulting therefrom(WIR03, pp. 93-97). There is, indeed, a need toensure that rules are consistent with each otherand that they complement each other in amutually supportive way. This is a problem notonly of consistency between differentinternational treaty obligations accepted bycontracting parties, but also one of consistencyin national legal and policy changes made in theprocess of implementing internationalobligations.

To avoid the adoption of inconsistentinternational obligations, a number of servicesIIAs mirror the provisions of the GATS,48

incorporating – by reference – existing or futureGATS obligations or, more broadly, affirm theircomplementarity with the GATS regime.49

However, negotiating outcomes can result ininconsistent obligations, possibly leading to aconflict between them. In such a case, conflictshave to be dealt with in accordance with generalrules of international treaty interpretation.50

When the parties wish to ensure that certaininconsistent obligations remain in force ordetermine which provisions, in the case ofconflict , should prevail , they can expresslyprovide for this in a conflict-clause provision ofthe treaty.51

Inconsistencies can arise, for example,when bilateral or regional agreements coveringservices investment contain rules granting morefavourable treatment to their constituent membersas opposed to their external investment partners,thereby deviating from the WTO MFN principle.The GATS (like the GATT) contains a provisionpermitting economic integration agreements(Article V), provided they meet a series ofconditions: for example, that they havesubstantial sectoral coverage (meaning, amongother things, that no mode of supply is excludeda priori), and that they provide for the absenceor elimination of substantially all discriminationthrough the elimination of existing discriminatorymeasures and/or the prohibition of new or more

232 World Investment Report 2004: The Shift Towards Services

discriminatory measures. To a certain extent,however, the meaning of this clause isambiguous.52 According to this provision, therequirement to eliminate “substantially” alldiscrimination (specified in paragraph 1(b)(i) and1(b)(ii)) depends on the substantial sectoralcoverage of a services agreement; this, in turn,depends on the number of industries, the volumeof trade affected and the modes of supply. Fordeveloping countries, paragraphs 3 (a) and (b)of Article V provide additional flexibility withrespect to these compatibility requirements.53

In addition to Article V on economicintegration agreements, the GATS allows WTOmembers to list exemptions to the MFNobligation contained in Article II. Listing MFNexemptions was possible only at the conclusionof negotiations during the Uruguay Round or, forthose members that joined later, at the time ofaccession to the WTO.54 The Annex on ArticleII specifies, however, that exemptions should,in principle, not exceed a period of ten years.55

In fact, as of 2001, the list of exemptions fromthe GATS MFN obligation contained 232exemptions relating to other IIAs, of which 13(or 3.1%) pertain to BITs (OECD 2001b).56

Besides BITs and investment guaranteeagreements, MFN exemptions also cover othermeasures and policy goals (e.g. health oraudiovisual services).

Besides the GATS, virtually all otherservices IIAs contain MFN obligations. MFNclauses can differ, including in their scope ofcoverage or in the number of beneficiaries ofMFN rights. While the GATS grants MFN rightsto all other WTO members, subject to MFNexemptions, under a bilateral IIA only thecountries party to the agreement enjoy this right.Note, however, that there may be questions asto which investors are considered investors ofa party. Ultimately, the question of MFNconsistency is dependent on the type of measureas well as on the breadth of coverage of an MFNclause against which a measure is scrutinized.57

In addition to potential conflicts betweenIIAs arising from the MFN obligation, there canbe other inconsistencies between IIAs. It maywell be that a country is party to an IIA adoptinga positive list approach for services FDI, and isalso party to an IIA adopting a negative listapproach for services FDI. While i t can beassumed that parties intend to negotiate theirinternational commitments for services FDI ina manner consistent with each other,

inconsistencies may still arise. Some IIAs addressthis by including specific provisions regulatingthe relationship between the IIA and otherinternational agreements.58

Apart from the issue of inconsistencybetween IIAs, inconsistencies can also arisewithin agreements, especially in those taking amixed approach. To guard against such potentialproblems, the Australia–United States FTA, forexample, explicitly states (Article 11, para.2):“in the event of any inconsistency between thisChapter [the investment chapter] and anotherChapter, the other Chapter shall prevail to theextent of the inconsistency”.59 Anotheralternative is to identify specific provisions ofthe investment chapter that do not apply to FDIin services.60

In addition to inconsistencies, themultilayered network of services IIAs may alsoentail a specific type of externality: certainobligations provided for in bilateral or regionalagreements may have effects that go beyond theparties to such agreements. For example, anybenefits from an obligation (included in a BITor a FTA) to publish laws and regulations relatingto services FDI are automatically enjoyed by allother interested parties, since the States boundby the transparency requirement in the BIT ora FTA will not typically be able (or willing) tolimit the beneficial effects of such an obligationto the other contracting partie(s). Similarly, anobligation setting forth certain general regulatorystandards (whether procedural or substantive innature) may have spillover effects that go beyondthe bilateral or regional agreements throughwhich they are undertaken. For example, therequirement that domestic regulations affectingtrade in services (including services FDI) beadministered in a reasonable, objective andimpartial manner (as included, for example, inArticle 28 of the EFTA–Singapore FTA, or inGATS Article VI, para. 4) can benefit allcountries,61 even if they are not parties to therelevant agreements.62

Another example is that some IIAsincorporate obligations whose benefits are notlimited to (investors of) the parties to theagreements, but rather extend to investmentindependently of its origin. In NAFTA-typeagreements, the prohibition of certainperformance requirements applies to all foreignaffil iates in the territories of the parties,irrespective of the nationality of their parentfirms.

233CHAPTER VI

CCCCC. Na. Na. Na. Na. National andtional andtional andtional andtional andinternainternainternainternainternational policies: ational policies: ational policies: ational policies: ational policies: acomplecomplecomplecomplecomplex and dynamicx and dynamicx and dynamicx and dynamicx and dynamic

interinterinterinterinteractionactionactionactionaction

The interaction between services IIAsand national regulations for services is dynamicand complex. This is because rules for FDI inservices are constantly evolving, both at theinternational and national levels. Unlike theliberalization of conditions for FDI in themanufacturing and primary sectors that hasalready progressed significantly, liberalizationin the area of services has only relatively recentlybegun to play an important policy role (chapterV). In developed countries, services regimes areundergoing significant changes. In particular,such changes result in a further opening ofservice industries and increased privateparticipation in the provision of what werepreviously treated as public services (box VI.6).In developing countries, this process is generallyless advanced. Many of the rules and regulationsfor services are not yet fully established, withregulators experimenting, adopting differentmethods, and ultimately seeking the regulatoryapproach that best suits the developmental needsof their countries. At the same time, newinternational disciplines on services are beingadopted that serve as parameters for domesticregulatory action. The result of these nationaland international policy trends is a complexinteraction, whereby some of the issues addressregulation and go beyond the question ofdiscrimination between foreign and domesticservice providers.

Two forms of interaction betweenservices IIAs and national policies areparticularly noteworthy. One form is anautonomous–liberalization led interaction,whereby the degree of FDI liberalization andprotection in an IIA is determined mainly by thescope and extent of the countries’ nationalpolicies on services as they appear at the timeof negotiations. Thus, the actual level ofliberalization inscribed in an IIA reflects eitherthe level of openness already existing in nationallaws and policies at the time of negotiation, ora level that is below the national regulatory statusquo. The results of the services negotiationsduring the Uruguay Round are an example.During these negotiations, many countries made

commitments (frequently qualified throughlimitations) that were less open than the levelof services liberalization that actually existed atthat t ime in their national policies.63 Othercommitments reflected the status quo, such assome of those made during the extendednegotiations on financial services and telecoms.But, of course, even such a cautious approachof making commitments at or below the actuallevel of openness locks in the existing (or partof the existing) national autonomousliberalization. The large majority of services IIAsare of this nature.

Box VI. 6. IIAs and public services

IIAs appear to recognize the need toaccommodate the particularities of “public”services (sometimes also referred to as “essential”services). The reason is that many of theseservices raise special issues of market failure andequitable provision and some are deeplyembedded in a country’s social, cultural andpolitical fabric. Several services are in the generalinterest of the public and, indeed, essential forhuman life (e.g. health and provision of water).Thus, governments face the challenge of ensuringthat these services are adequately provided,including to the poor and marginalized membersof society. In certain cases, this challenge mayeven be accompanied by a government’sobligation to ensure the progressive realizationof certain human rights (UNHCHR 2002, 2003).In their public services policies, governmentsfrequently pursue a number of objectives, e.g.to improve the accessibility and affordability ofa given service and to increase the efficiency withwhich it is supplied, while limiting the expensesto the government and taxpayers. At the sametime, however, there is no widely accepteddefinition of public services. Rather, countriesand societies differ in their perception about whatare public services.

Some services IIAs seek specifically toaccommodate the particularities of public servicesby explicitly carving out some of them from theirscope of application.

The GATS, for example, adopts the notionof “services supplied in the exercise ofgovernmental authority”, excluding these fromits scope of application.a Under GATS ArticleI, para. 3(c), such services are defined as services

/...

234 World Investment Report 2004: The Shift Towards Services

that are neither supplied on a commercial basis,nor in competition with other services.b Thus,while there might be important overlaps, thenotion of “services supplied in the exercise ofgovernmental authority” might differ from whatsome understand as “public services”. Given thisambiguity,c a number of WTO members haveadded limitations, either of a horizontal or of anindustry-specific nature, to their servicescommitments, possibly with a view to retainingpolicy space for those services that they wantto reserve for public or quasi-publicmanagement.d They have chosen to do so, despitethe fact that the text of the Agreement does notrefer to privatization, nor does it explicitlyprevent governments from supplying services tothe poor or marginalized or from requiring thisof a private operator. It should be noted that therehas been no WTO dispute settlement case relatingto Article I, para. 3 (c), nor has any membersuggested amendment or other modification ofthat provision.e

NAFTA, like many other IIAs, alsoaddresses issues related to public services in its

investment chapter.f More specifically, Article1101, para. 4 refers to functions and services suchas “…law enforcement, correctional services,income security or insurance, social security orinsurance, social welfare, public education, publictraining, health and child care”. Thus, unlike theGATS, NAFTA more specifically lists certainservice industries. At the same time, NAFTA stopsshort of the GATS insofar as it does not excludethese services from its scope of application.Rather, the relevant provision in NAFTA statesthat “[n]othing in this Chapter shall be construedto prevent a Party from providing a service orperforming a function such … as in a manner thatis not inconsistent with this Chapter”. TheNAFTA parties can enter country-specific carve-outs and reservations. The Canadian reservationin the social services sector, which also coversfuture measures, is an example.g

Thus, IIAs differ in their approachestowards public services. Countries need to becareful when negotiating obligations relating topublic services, so that their own policy objectivesare served best.

Box VI. 6. IIAs and public services (concluded)

Source: UNCTAD.

a The MERCOSUR Protocol of Montevideo, the CARICOM Agreement, the EFTA–Singapore FTA, the Japan–Singapore Agreement and, to some extent, the Andean Community Decision 439 match the language of the GATS.

b The GATS does not further define these terms. At the same time, the academic and policy debate hasseen considerable discussion about the possible meaning of Article I, para. 3 (c) (e.g. Krajewski 2003).

c For a discussion of these ambiguities as they may arise in the health sector, and the challenges they bring about, seeMashayekhi, Julsaint and Tuerk (forthcoming).

d Liechtenstein, Norway, Sweden and Switzerland, for example, exclude the “public works function” from theirsanitation services commitments. Similarly, the European Communities, in its schedule, reserves the right to make“services considered public utilities” subject to exclusive rights (emphasis added). Also, the European Communities’schedule states that “the supply of a service, or its subsidization, within the public sector is not in breach of thiscommitment”. Similarly, in its 2003 initial offer, the European Communities states that “[t]his offer cannot beconstrued as offering in any way the privatisation of public undertakings nor as preventing the Community and itsMember States from regulating public services in order to meet national policy objectives” (TN/S/O/EEC). Similarly,Brazil makes clear that its “…offer cannot be construed as offering in any way the privatisation of public undertakingsnor as preventing Brazil from regulating public and private services in order to meet national policy objectives”(TN/S/O/BRA). Also, the United States states in its initial offer that,”[c]onsistent with GATS Article I.3(b) and (c),this offer applies only to services open to private sector participants, unless otherwise indicated, in the attached draftschedules, and does not include the right to acquire or invest in government monopolies supplying services includedwithin any of the sectors or sub-sectors covered by this offer” (TN/S/O/USA).

e Note, however, that several other stakeholders have made requests to that effect. See, for example, various motionspassed in the United Kingdom by several trade unions, members of Parliament and local authorities http://www.wdm.org.uk/presrel/current/ukgatspublic.htm.

f The 1996 Canada–Chile FTA matches the language of NAFTA.g More specifically, Canada’s Annex II reservation (for national treatment, MFN, local presence of senior management

and boards of directors, that apply to both cross border services and investment) in the social services industry reads:“Canada reserves the right to adopt or maintain any measure with respect to the provision of public law enforcementand correctional services, and the following services to the extent that they are social services established or maintainedfor a public purpose: income security or insurance, social security or insurance, social welfare, public education,public training, health, and child care.”

235CHAPTER VI

A second form is an IIA-driveninteraction. In such a case, it is the IIA thatprompts FDI liberalization and domestic reformsin the services area. Sometimes this is the resultof built-in commitments to engage in futurerounds of negotiations in which one (if not theonly) principal objective is market opening. TheGATS provides an example,64 as do agreementspatterned on it (e.g. the EFTA–Singapore FTA,Article 27, para. 5). Time-bound reservations inIIAs can also drive this interaction: once theyexpire, domestic regulations need to be adapted.Similarly, pre-commitments under the GATS areexamples of the time-bound nature of limitationsinscribed in commitments.65 The special case ofWTO accession agreements can involvecommitments to take certain liberalizing stepsat a future date. The GATS commitments of Chinaand Taiwan Province of China are examples.

IIA-driven interaction betweeninternational and national policies for servicesFDI can also manifest itself in other areas ofpolicy for services FDI, for example, with regardto transparency. Recent services IIAs tend tocontain obligations to publish and make availablecertain laws and regulations pertaining to FDI(e.g. Article III, para. 1 of the GATS66 or Article192 of the 2002 Chile–EU AssociationAgreement), as well as obligations to notify theother party (parties) or relevant internationalbodies of certain new laws and regulations (e.g.Article III, para. 3 of the GATS67 or Article L-03 of the Canada–Chile FTA). IIAs can alsoinclude obligations requiring independent reviewof administrative decisions affecting individualinvestors through judicial, arbitral oradministrative tribunals or procedures (e.g.Article VI, para. 2 of the GATS or Article 64,para. 2 of the Japan–Singapore Agreement). Inaddition, some of the more recent IIAs containalso so-called “a-priori” comment or consultationprocesses (e.g. Article 19.3, para. 2 of theSingapore–United States FTA).68

In some of these scenarios, IIAs mayrequire policy changes at the national level, thusconstituting an example of IIA-driven interactionbetween national and international servicespolicies. However, in other situations suchinteraction is sought, especially when agovernment wants to use its membership in anIIA, and the policy changes this requires, as ameans of overcoming domestic resistance to

reform, and to make it difficult for subsequentgovernments to reverse such commitments.69

Overall , however, the two types ofinteraction, whether driven by IIAs or led byautonomous liberalization , cannot always beclearly distinguished for individual agreements.In fact, there may be a situation in which a certainset of transactions is not constrained, and theissue becomes to maintain openness; this maybe the case for offshoring. In the end, the specificimpact of interaction is usually country-specificand context-specific.

DDDDD. Conc. Conc. Conc. Conc. Conclusion: striklusion: striklusion: striklusion: striklusion: striking aing aing aing aing adededededevvvvvelopment-orientedelopment-orientedelopment-orientedelopment-orientedelopment-oriented

balancebalancebalancebalancebalance

IIAs covering services FDI areproliferating at the bilateral, regional andmultilateral levels. The resulting network ofinternational rules on FDI in services is multi-faceted, multilayered and constantly evolving,with obligations differing in geographical scopeand substantive coverage. These rules areincreasingly setting the parameters for nationalpolicies in the services sector.

Services IIAs differ in their approachtowards covering services FDI (investment-based,services-based or mixed) and in their substantiveprovisions. Several services IIAs contain follow-up procedures and separate chapters for certainservice industries. While these issues inthemselves pose challenges for policy-makersdealing with services, additional challenges arisefrom the multilayered network of rules, includingthe need to ensure that rules are consistent with,or complementary to, each other in order to avoidconflicts.

Services IIAs can offer a series ofpotential benefits. They can provide a stable,predictable and transparent enabling frameworkfor attracting investment and benefiting from it.At the same time, the optimal realization of thesepotential benefits remains a challenge.Specifically, the challenge is to strike a balancebetween using IIAs for attracting FDI andbenefiting from it on one hand, and preservingthe flexibility needed for the pursuit of nationaldevelopment strategies in the services sector onthe other.

236 World Investment Report 2004: The Shift Towards Services

This challenge is particularly crucial fordeveloping countries for a number of reasons.First, in many of these countries, the servicessector is at an early stage of development andrapidly evolving. Second, certain serviceindustries are particularly sensitive, as they aredeeply embedded in a country’s social, culturaland political fabric. Third, some developingcountries do not yet have optimal regulatorysystems in place, and policy-makers areexperimenting with liberalization and regulation,with a view to building a more competitiveservices sector through FDI and other means. Inthe case of the GATS, this challenge is reflectedin Article XIX, which sets out the mandate forthe negotiation of specific commitments and –in that context – specifically provides that“[t]here shall be appropriate flexibility forindividual developing country Members foropening fewer sectors, liberalizing fewer typesof transactions [and] progressively extendingmarket access in line with their developmentsituation…”.70 For LDCs, such flexibility is alsoaffirmed in GATS Article IV, para. 3, which statesthat “[p]articular account shall be taken of theserious difficulty of the least-developed countriesin accepting negotiated specific commitments inview of their special economic situation and theirdevelopment, trade and financial needs.”71

In light of the above, it is important thatservices IIAs retain a degree of flexibility thatallows countries to face the specific challengesarising at the interface of the liberalization andregulation of services. IIAs should alsoaccommodate developing countries’ efforts toachieve their development-oriented policyobjectives. In this context, it is also importantto leave room for the sort of trial-and-errorprocess regulators may need in order to identifythe policy options best suited to their countries’levels of development. The importance ofnational policy space has been affirmed in theSao Pãulo Consensus, as adopted at the UNCTADXI Conference.72

In that context, economic needs testscome into play. For example, when attached toMode 3 commitments, they could be viewed asa policy tool to achieve an appropriate level ofsupply, regardless of the origin of the servicesupplier (OECD 2000b, p. 8). In the context ofthe GATS, individual countries have used

economic needs tests in connection with certainservice industries. There, they are found incommitments in distribution, telecoms, rentalservices, transport, financial services, courier,medical, dental, environmental, testing andanalysis, social and education services (OECD2000b, p. 7). (However, the absence of agreedcriteria for an economic needs test also raiseschallenges as regards transparency andobjectivity.) Similarly, it has been suggested thatemergency safeguard mechanisms can providean additional policy tool. They can give countriesthe necessary flexibili ty to respond tounanticipated events devastating to hosteconomies, an issue whose relevance washighlighted by the Asian and Argentinean crises.Such mechanisms can put countries in a comfortzone when locking in international commitmentsunder IIAs.73

IIAs can allow governments to liberalizeat a pace and sequence appropriate to theirdevelopment strategies and to the rapiddevelopment of the services economy. Flexibilitycan be built into an IIA by various means (WIR03,chapter V). In particular, the objectives, structure,content and implementation processes of anagreement can be designed in a way that ensuresa proper balance between the right to regulatein the interest of development on the one hand,and the progressive liberalization and protectionof FDI in the services sector on the other (seealso WIR03, chapter VI).

The overriding challenge for countriesis to find such a development-oriented balancewhen formulating international policies forservices FDI. In the final analysis, the merits ofservices IIAs from a developing-countryperspective must be judged by their ability tocreate an enabling environment for competitiveservice industries that help developing countriesto integrate in a beneficial manner into theinternational economic system, with a viewtowards advancing their development. For thisreason, GATS Article IV calls for increasing theparticipation of developing countries in trade inservices, including through “…the liberalizationof market access in sectors and modes of supplyof export interest to them.” The developmentdimension has to be an integral part ofinternational agreements covering services – insupport of national policies to attract servicesFDI and to benefit more from it.

237CHAPTER VI

* * *

In conclusion, to benefit from anincreasingly globalized and interdependent worldeconomy, countries need to strengthen theircapabilit ies for the supply of competitiveservices. If conditions are right, FDI can helpto achieve this. Its most important contributionis in bringing the capital, skills and technologycountries need to set up competitive serviceindustries. This applies not only to the new IT-enabled services, but also to traditional servicessuch as infrastructure and tourism. Moreover,as services become more tradable, FDI can helplink developing countries to global value chainsin services. Such chains comprise internationalservice production networks that are increasinglyimportant to access international markets. At thesame time, caution is necessary when attractingFDI in services. For instance, some services(especially basic utilities and infrastructure) maybe natural monopolies and hence susceptible to

abuses of market power (whether firms aredomestic or foreign). Others are of considerablesocial and cultural significance; the whole fabricof a society can be affected by the involvementof FDI in those industries. Hence, countries needto strike a balance between economic efficiencyand broader developmental objectives.

This is why it matters to have the rightmix of policies. In light of the shift towards FDIin services, developing countries face a doublechallenge: to create the necessary conditions –domestic and international – to attract servicesFDI and, at the same time, to minimize itspotential negative effects. In each case, the keyis to pursue the right policies within a broaderdevelopment strategy. Basic to them is theupgrading of the human resources and physicalinfrastructure (especially in information andcommunication technology) required by mostmodern services. An internationally competitiveservices sector is, in today's world economy,essential for development.

1 Unless otherwise indicated, all agreements mentionedin this chapter can be found in UNCTAD 1996b, 2000b,2001c, 2002c, forthcoming f, and, together with BITs,also at http://www.unctad.org/iia. Intra-European Unionagreements are not considered here, given the suigeneris nature of the European integration process.

2 For a discussion of similar issues, in the context ofidentifying the implications that possible negotiationson a multilateral investment framework in the WTOwould have for the GATS, see Roy 2003.

3 Note that NAFTA, while signed in 1992, entered intoforce in 1994.

4 Such agreements may also contain a chapter on cross-border trade in services, but by virtue of an expressprovision, this chapter does not cover the “commercialpresence” mode (e.g. NAFTA).

5 Andean Community, Decision 291, Regime for theCommon Treatment of Foreign Capital and Trademarks,Patents, Licensing Agreements and Royalties, 1991,http://www.sice.oas.org/Trade/Junac/decisiones/dec291e.asp; it does not, however, contain many ofthe typical investment obligations.

6 In addition, Article 2 provides that the AIA “…shallfurther cover direct investments in such other sectorsand services incidental to such sectors as may be agreedupon by all Member States.”

7 Agreement for the Promotion and Protection ofInvestments, http://www.aseansec.org/6464.htm andhttp://www.aseansec.org/6465.htm.

8 This is also evident in the GATS, e.g., in the contextof “services related to manufacturing consulting” or“services incidental to manufacturing”.

10 Also, there are differences about whether an investmentdefinition covers both pre- and post-establishment, andrelates to both existing and de novo investment(UNCTAD 1998 and 1999b).

11 Article 2 of the Andean Community Decision 439 reads“Commercial presence: Any kind of business orprofessional establishment in the territory of a MemberCountry for the purpose of providing a service through,for example: The establishment, acquisition ormaintenance of a juridical person; or The creation ormaintenance of a branch or a representative office”(emphasis in the original).

12 The relevant provisions in Article 22 (d) of the EFTA–Singapore FTA and Article 58, para. 6 (d) of the Japan–Singapore Agreement (similar in language) read:“‘Commercial presence’ means any type of businessor professional establishment, including through (i)the constitution, acquisition or maintenance of ajuridical person; or (ii) the creation or maintenanceof a branch or a representative office; within theterritory of a Party for the purpose of supplying aservice”. Note that the 2000 EFTA–Mexico FTA isdifferent in that its Article 20 defines “commercialpresence” as follows: “(i) as regards nationals, the rightto set up and manage undertakings, which theyeffectively control. This shall not extend to seekingor taking employment in the labour market or confera right of access to the labour market of another Party;(ii) as regards juridical persons, the right to take upand pursue the economic activities covered by theSection by means of the setting up and management

Notes

238 World Investment Report 2004: The Shift Towards Services

of subsidiaries, branches or any other form of secondaryestablishment” (footnotes omitted).

13 See, for example, Article 37 (b) of the EFTA–SingaporeFTA and Article 72 (a) of the Japan–SingaporeAgreement.

14 Alternatively, they are included in the “Definitions”section. While addressing the same issue, these clausesvary in their nature (discretionary or mandatory) andin the criteria they establish for an investment to enjoythe benefits of an agreement. Although the discussionbelow focuses on cases relating to (non-) substantialbusiness operations, benefits can also be denied forother reasons, e.g. by virtue of the country in whicha parent firm is established (for example, because thehost country has no diplomatic relations with it).

15 Some IIAs also allow parties to deny benefits not onlyto non-party enterprises in the territory of a party, butalso to that party’s enterprises in the territory of theother party, if they do not have substantive businessoperations in the other party. Examples include Article10.11, para. 2 of the 2003 Chile–United States FTAand Article 11.12, para. 2 of the Australia–United StatesFTA. In the absence of such a clause there is apossibility for investors’ round-tripping to benefit froman IIA, even if they have no substantive businessoperations in the other party. This issue was – in part– addressed in the recent 2004 Tokios Tokelés v. Ukrainearbitral decision (ICSID 2003).

16 See, for example, Article 1113.2 of the NAFTA. Aninteresting example is provided by the New Zealand–Singapore Agreement, which requires an enterprise toengage in substantive business operations in theterritory of one or both parties (Article 25). The textualinterpretation of this provision leads to the conclusionthat, for example, a non-party enterprise formallyestablished in Singapore but not engaged in substantivebusiness operations there, would still enjoy benefitsafforded by the Agreement if it engages in substantivebusiness operations in New Zealand. It appears thatthis formulation leaves room for a circumvention ofthe denial-of-benefits clause.

17 Mainland and Hong Kong Closer Economic PartnershipArrangement, 2003, http://www.tid.gov.hk/english/cepa/fulltext.html.

18 GATS Article XXVIII, lit. m reads: “ ‘juridical personof another Member’ means a juridical person whichis either: (i) constituted or otherwise organized underthe law of that other Member, and is engaged insubstantive business operations in the territory of thatMember or any other Member; or (ii) in the case ofthe supply of a service through commercial presence,owned or controlled by: 1. natural persons of thatMember; or 2. juridical persons of that other Memberidentified under subparagraph (i).”

19 More specifically, para. 6 of Article V reads: “[a]service supplier of any other Member that is a juridicalperson constituted under the laws of a party to anagreement referred to in paragraph 1 shall be entitledto treatment granted under such agreement, providedthat it engages in substantive business operations inthe territory of the parties to such agreement.”

20 For agreements involving only developing countries,para. 3 (b) of Article V grants some flexibility, allowingmore favourable treatment to be provided to juridical

persons owned and controlled by natural persons ofthe parties. Para. 3 (a) of this Article also provides someflexibility for economic integration agreementsinvolving a developing country, when it comes tomeeting the conditions of para. 1. There are, however,questions whether such agreements would at all needto meet the Article V, para. 1, criteria or whetheradditional flexibility would be granted by the enablingclause (GATT 1979).

21 Note that regional agreements typically involve trade-offs across a number of issues.

22 There is, however, some concern raised in theCommittee on Trade in Financial Services as regardsthe possible consequences of further liberalization inModes 1 and 2, combined with footnote 8 to ArticleXVI, in particular, whether this could lead to capitalaccount liberalization.

23 In the Japan–Singapore Agreement, for example, themarket access provision (Article 59) is phrased similarto the one in the GATS (Article XVI). The same appliesto the Agreement’s national treatment provision.Depending upon the scope of the commitments of thecountries, the Agreement could be viewed as grantinga right to establishment.

24 Note, however, that, depending upon a member ’scommitments, the GATS market access provision(Article XVI, para. 2 lit. e) may rule out joint-venturerequirements or requirements for other specific typesof legal entities. Note also that the TRIMs Agreementmay apply to measures regulating services FDI, forexample, when performance requirements applied toservices investors affect trade in goods. Requirementsfor a service provider to source locally the material(goods) needed for the provision of services may serveas an example (e.g. food in the tourism industry, ortelecom material for telecom providers).

25 For example, this approach has been followed in manyof the BITs entered into by the United States andCanada.

26 See, for example, Articles 1106 and 1108 of theNAFTA. Article 1106 sets out NAFTA’s rules onperformance requirements with an exhaustive list ofprohibited performance requirements (e.g. exportrequirements, local content requirements, technologytransfer requirements, exclusive services supplierrequirements) (para. 1); it clarifies that certainperformance requirements are not only prohibited frombeing mandatory, but also from being linked to thegranting of an incentive (para. 2); and it sets out certainexceptions (including environmental exceptions) tothese prohibitions (para. 6). Article 1108, in turn,addresses reservations (for non-conforming measures)and exceptions to four of NAFTA’s core investmentobligations (i.e. national treatment, MFN treatment,rules relative to performance requirements and seniormanagement and boards of directors). Amongst others,Article 1108 sets out in which Schedules/Annexes tolist non-conforming measures. It also states that certainobligations (including performance requirements) shallnot apply to existing non-conforming measuresmaintained by a local government (without the needto list them in a schedule). Note that Annex II NAFTAreservations are broad, including with respect to futuremeasures.

239CHAPTER VI

27 This was done by several WTO members under theGATS, e.g. with respect to employment requirements,export requirements, local content, technology ortraining requirements (Ortega 2004).

28 As an alternative to local establishment, a country mayallow foreign suppliers of services to operate in itsmarkets as long as they provide a suitably large depositto cover their potential liabilities with an institutionwithin the host country, as determined by the host-country government or a regulatory authority.

29 See, for example, Article 1205 of NAFTA and ArticleH-05 of the 1996 Canada–Chile FTA. As noted above,the Canadian and United States FTAs tend to adoptan investment-based approach and, in their serviceschapters, to exclude the “commercial presence” modefrom their coverage. Nevertheless, even if the saidprohibition were to be included in a chapter that doesnot cover services FDI, it would be relevant for servicesFDI by its very nature, as it has the potential to affectservices FDI.

30 Both agreements explicitly state that specific provisionsof the services chapter (i.e. market access, domesticregulation, transparency) also apply to services FDIas it is covered by the investment chapter, but – as setout in a footnote to the relevant provision – theseobligations are not subject to investor–State disputesettlement (Article 8.2, para. 2 in the case of theSingapore–United States FTA and Article 11.1, para.3 in the case of the Chile–United States FTA).

31 Australia–United States Free Trade Agreement, http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/index.html.

32 This mechanism is set out in the Understanding onRules and Procedures Governing the Settlement ofDisputes, Annex 2 to the Marrakesh AgreementEstablishing the World Trade Organization (WTO1994b).

33 Note that also the Framework Agreement on theASEAN Investment Area (AIA) (while, as mentionedabove, not applying to services FDI apart from certainindustries) only provides for State–State disputesettlement procedures, despite the fact that it does nottake a services-based approach. Article 17 of theAgreement provides additionally that a special disputesettlement mechanism may be established for thepurpose of this Agreement.

34 Other examples (with respect to financial services)include Article 6 of the Australia–Singapore FTA andArticle 25 of the European Union–Mexico DecisionNo 2/2001 of the EU–Mexico Joint Council of 27February 2001, Implementing Articles 6, 9, 12(2)(b)and 50 of the Economic Partnership, PoliticalCoordination and Cooperation Agreement between theEuropean Community and Its Member States, of theOne Part, and the United Mexican States, of the OtherPart (hereinafter EU–Mexico Agreement).

35 Note that, strictly speaking, the GATS adopts a “hybridapproach”. The negative list features of the GATS canbe found in members’ right to enter MFN exemptions,and their right to qualify their (positive list) specificcommitments with conditions and limitations.

36 In this context, it is interesting to note that someNAFTA reservations (e.g. Annex II) carve out futuremeasures.

37 In light of the 2004 WTO case Mexico–Telecommunications (WTO Dispute Settlement Body2004), some countries might become more cautiousabout developing industry-specific texts.

38 This raises the question of whether certain specificindustries would benefit from specific benchmarks.

39 See Chile–United States FTA (chapter 12 on financialservices) and Singapore–United States FTA (chapter10 on financial services).

40 See, for example, Article 10 of the EU–MexicoAgreement. Article 10, para. 4 in Chapter II states that“[e]ach Party shall permit to service suppliers of theother Party to have a commercial presence in itsterritory under conditions of establishment andoperation no less favourable than those accorded toits own service suppliers or those of any third country,whichever are the better, and this in conformity withthe legislation and regulations applicable in each Party.”

41 In the case of the GATS, certain services related toair transport, as defined in the Annex on Air TransportServices, are excluded from the Agreement. Paragraph2 of the Annex states that the GATS Agreement “…shallnot apply to measures affecting: (a) traffic rights,however granted; or (b) services directly related to theexercise of traffic rights, except as provided inparagraph 3 of this Annex.” Paragraph 3 states that“[t]he Agreement shall apply to measures affecting:(a) aircraft repair and maintenance services; (b) theselling and marketing of air transport services; (c)computer reservation system (CSR) services.”

42 For example, the ASEAN Framework Agreement onServices, the 2001 CARICOM Agreement (RevisedTreaty of Chaguaramas Establishing the CaribbeanCommunity Including the CARICOM Single Marketand Economy) and the 1996 Euro-MediterraneanAgreement establishing an association between theEuropean Communities and Morocco.

43 With respect to domestic regulation, for example, theservices chapter of the United States–Singapore FTAcontains language similar to the GATS (Article 8.8,para. 2): “With a view to ensuring that measuresrelating to qualification requirements and procedures,technical standards and licensing requirements do notconstitute unnecessary barriers to trade in services,each Party shall endeavor to ensure, as appropriate forindividual sectors, that such measures are: (a) basedon objective and transparent criteria, such ascompetence and the ability to supply the service; (b)not more burdensome than necessary to ensure thequality of the service; and (c) in the case of licensingprocedures, not in themselves a restriction on the supplyof the service.”

44 An example of such a follow-up mechanism is NAFTA.In July 2001, the trade ministers from the three NAFTAcountries, sitting as the “NAFTA Free TradeCommission”, issued a statement on the “interpretation”of provisions, including the minimum standard oftreatment, as contained in NAFTA Chapter 11. Morespecifically, the interpretative statement clarifies inpara. 1 of Section B that “[a]rticle 1105(1) prescribesthe customary international law minimum standard oftreatment of aliens as the minimum standard oftreatment to be afforded to investments of investorsof another Party”. It also states in para. 2 that “[t]he

240 World Investment Report 2004: The Shift Towards Services

concepts of ‘fair and equitable treatment’ and ‘fullprotection and security’ do not require treatment inaddition to or beyond that which is required by thecustomary international law minimum standard oftreatment of aliens.” See NAFTA Free TradeCommission, “Notes of Interpretation of CertainChapter 11 Provisions”, 31 July 2001; http://www.dfait-maeci.gc.ca/tna-nac/NAFTA-Interpr-en.asp. Based onthe experience gained with the application of theminimum standard of treatment provision, some morerecent IIAs specifically contain language similar tothe interpretative statement. Article 10.4 of the Chile–United States FTA is an example. Indeed, this mayreflect a learning process in the formulation of IIAs.

45 More specifically, GATS Article XIX, para. 3, statesthat: “[f]or each round, negotiating guidelines andprocedures shall be established. For the purposes ofestablishing such guidelines, the Council for Trade inServices shall carry out an assessment of trade inservices in overall terms and on a sectoral basis withreference to the objectives of this Agreement, includingthose set out in paragraph 1 of Article IV [on increasingparticipation of developing countries].” Such anassessment could also include questions related to theimpact the GATS has had, so far, on attractinginvestment flows. In fact, in a 2001 communication(WTO Council for Trade in Services 2001a) a seriesof developing countries raised specific questions tobe addressed in the assessment exercise. These includedthe question of whether developing countries haveexperienced investments in new sectors or whetherinvestments flow only to sectors that have already beendeveloped.

46 See para. 14 of the GATS Negotiating Guidelines(WTO Council for Trade in Services 2001b), whichstates, amongst others, that the assessment “…shallbe an ongoing activity of the Council and negotiationsshall be adjusted in the light of the results of theassessment. In accordance with Article XXV of theGATS, technical assistance shall be provided todeveloping country Members, on request, in order tocarry out national/regional assessments.”

47 In para. 15, the Negotiating Guidelines mandate theCouncil for Trade in Services (in Special Session),when reviewing progress in negotiations, to considerthe extent to which Article IV (on increasingparticipation of developing countries in trade inservices) is being implemented and to suggest waysand means of promoting the goals established therein.

48 The ASEAN Framework Agreement on Services, theCARICOM Agreement and several EuropeanAgreements (e.g. the 1997 Euro-MediterraneanAssociation Agreement establishing the associationbetween the European Union and Jordan) are cases inpoint.

49 Recital 7 in the Preamble of the ASEAN FrameworkAgreement on Services reads: “REITERATING theircommitments to the rules and principles of the GeneralAgreement on Trade in Services (hereinafter referredto as “GATS”) and noting that Article V of GATSpermits the liberalising of trade in services betweenor among the parties to an economic integrationagreement”. The Singapore–United States FTA states,in para. 3 of Article 8.8 in the services chapter, that:

“[i]f the results of the negotiations related to ArticleVI, para. 4 of GATS (or the results of any similarnegotiations undertaken in other multilateral fora inwhich both Parties participate) enter into effect, thisArticle shall be amended, as appropriate, afterconsultations between the Parties, to bring those resultsinto effect under this Agreement.”

50 At least two principles should be mentioned in thisregard: (1) the principle according to which, withrespect to successive treaties relating to the samesubject-matter, the earlier treaty applies only to theextent that its provisions are compatible with thoseof the later treaty (lex posterior derogate legi priori,see Article 30 Vienna Convention on the Law ofTreaties (United Nations 1969); (2) the principleaccording to which the more specific norm prevailsover the more general norm (lex specialis).

51 While such a provision may not be contained in theservices chapter, it may be, nevertheless, relevant forservices FDI. Article 4 of the EFTA–SingaporeAgreement, for example, specifically, states that “[t]heprovisions of this Agreement shall be without prejudiceto the rights and obligations of the Parties under theMarrakesh Agreement Establishing ‘the World TradeOrganization’ and the other agreements negotiatedthereunder (hereinafter referred to as “the WTOAgreement”) to which they are a party and any otherinternational agreement to which they are a party.” Aslightly different approach is taken by the Japan–Singapore Agreement. Its Article 6, “Relation to OtherAgreements”, provides in para.1 that “[i]n the eventof any inconsistency between this Agreement and anyother agreement to which both Parties are parties, theParties shall immediately consult with each other witha view to finding a mutually satisfactory solution,taking into consideration general principles ofinternational law”.

52 It would appear that BITs are not considered economicintegration agreements. But it appears that agreementscovering all modes (in one chapter or more) need tobe notified. On the broader problematique of the clauserelating to regional economic integration organizations(REIO clause), see UNCTAD forthcoming g.

53 Article V, para. 3(a) states: “[w]here developingcountries are parties to an agreement of the typereferred to in paragraph 1, flexibility shall be providedfor regarding the conditions set out in paragraph 1,particularly with reference to subparagraph (b) thereof,in accordance with the level of development of thecountries concerned, both overall and in individualsectors and subsectors.” Para. 3(b) of the sameprovision then states: “[n]otwithstanding paragraph6, in the case of an agreement of the type referred toin paragraph 1 involving only developing countries,more favourable treatment may be granted to juridicalpersons owned or controlled by natural persons of theparties to such an agreement.”

54 Some MFN exemptions might still be taken with regardto certain maritime transport services, before the endof the current negotiations.

55 Para. 6 of the GATS Negotiating Guidelines provides,however, that: “MFN Exemptions shall be subject tonegotiation according to paragraph 6 of the Annex onArticle II (MFN) Exemptions. In such negotiations,

241CHAPTER VI

appropriate flexibility shall be accorded to individualdeveloping-country Members.”

56 Canada or Poland, for example, are countries that havetaken MFN exemptions in the GATS regarding BITs.

57 For example, it may be open to discussion whether aninvestor from country A that has no BIT with countryB should be able to benefit from protection under aBIT between country B and country C, where theinvestor from A establishes a legal presence throughan affiliate in C set up specifically to benefit from thatBIT, but undertakes no business operations in C.

58 Note that, in some cases, such clauses also address therelationship of the IIA with WTO Agreements. Forexample, Article 4 of the EFTA–Singapore FTA states:“[t]he provisions of this Agreement shall be withoutprejudice to the rights and obligations of the Partiesunder the Marrakesh Agreement Establishing the WorldTrade Organization and the other agreements negotiatedthereunder (hereinafter referred to as ‘the WTOAgreement’) to which they are a party and any otherinternational agreement to which they are a party.”Some agreements also contain clauses regulating therelationship between themselves and other non-trade-related agreements, for example environmental andconservation agreements. Article A-04 of the Canada–Chile FTA is an example.

59 The same Agreement also addresses this issue in Article11.2, para. 3, which states that “[t]his Chapter [theservices chapter] does not apply to measures adoptedor maintained by a Party to the extent that they arecovered by Chapter Thirteen (Financial Services).”

60 An example is the EFTA–Singapore FTA, in whichArticle 38, para. 2 in the investment chapter states:“Article 40 (1) [national treatment, MFN] shall notapply to measures affecting trade in services whetheror not a sector concerned is scheduled in Chapter III[dealing with “services”].” Article 38, para. 2 sets outwhich of the national treatment and MFN obligations(those of the services or those of the investmentchapter) apply to measures affecting services (includingFDI in services) as well as investors and investmentsin the services area. While several reasons may explainthe need to do so, they all relate to the objective toavoid overlap and inconsistencies between chaptersin the Agreement. This is particularly important in thecase of the national treatment obligation, which differsbetween the investment and the services chapters, forexample in content (“like services” as opposed toinvestment in “like circumstances”) and in approachto making commitments (positive or negative lists).In fact, in light of the latter, having the investmentchapter’s national treatment obligation apply to servicesinvestment would nullify the positive list approachadopted in the services chapter.

61 These parties will, however, not be able to claim aviolation of such obligations.

62 This may be true even for an obligation to institutejudicial, arbitral or administrative tribunals orprocedures, thus providing for prompt review and

appropriate remedies for administrative decisionsaffecting, inter alia, services FDI.

63 A similar phenomenon exists in traditional tradenegotiations where bound tariffs are frequently higherthan actual tariffs.

64 A perusal of a number of initial requests submitted bysome WTO members in the current round ofnegotiations reveals that several of the conditions andlimitations attached to members’ previous commitments(either on a horizontal or on a Mode-3-specific basis)are requested to be liberalized further.

65 By entering into pre-commitments, countries committhemselves today to implement market access and/ornational treatment commitments by a pre-determineddate in the future.

66 GATS Article III, para. 1 reads in part: “[e]ach Membershall publish promptly and, except in emergencysituations, at the latest by the time of their entry intoforce, all relevant measures of general applicationwhich pertain to or affect the operation of thisAgreement.”

67 GATS Article III, para. 3 reads: “[e]ach Member shallpromptly and at least annually inform the Council forTrade in Services of the introduction of any new, orany changes to existing, laws, regulations oradministrative guidelines which significantly affecttrade in services covered by its specific commitmentsunder this Agreement.”

68 On transparency, see UNCTAD 2004h.69 Note, however, that some IIAs, for example the GATS,

contain provisions allowing for the modification ofcommitments (e.g. GATS Article XXI). It is interestingto note that the European Communities has utilizedArticle XXI in the context of its enlargement process.

70 Para. 2 of this provision continues, stating thatdeveloping countries, when making access to theirmarkets available to foreign services suppliers, mayattach to such access conditions aimed at achievingthe objectives referred to in Article IV.

71 Note, that this point is reiterated in the LDC modalities(WTO Council for Trade in Services 2003).

72 More specifically, para. 8 of the São Paulo Consensusstates: “The increasing interdependence of nationaleconomies in a globalizing word and the emergenceof rule-based regimes for international economicrelations have meant that the space for nationaleconomic policy, i.e. the scope for domestic polices,especially in the areas of trade, investment andindustrial development, is now often framed byinternational disciplines, commitments and globalmarket considerations. It is for each Government toevaluate the trade-off between the benefits of acceptinginternational rules and commitments and the constraintsposed by the loss of policy space. It is particularlyimportant for developing countries, bearing in minddevelopment goals and objectives, that all countriestake into account the need for appropriate balancebetween national policy space and internationaldisciplines and commitments” (UNCTAD 2004i).

73 For a discussion of safeguards, see WIR03, box V.3.

242 World Investment Report 2004: The Shift Towards Services

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ANNEXES

262 World Investment Report 2004: The Shift Towards Services

263ANNEX A

Annex figure A.I.1. FDI flows, by sector, 1989-1991 and 2001-2002

Source: UNCTAD.a Or the latest three year period average available.

264 World Investment Report 2004: The Shift Towards Services

Annex figure A.I.2. FDI inflows as a percentage of GDP in selected developed, developing and CEEeconomies, by sector, 1992-2002

265ANNEX A

Annex figure A.I.2. FDI inflows as a percentage of GDP in selected developed, developing and CEEeconomies, by sector, 1992-2002 (continued)

266 World Investment Report 2004: The Shift Towards Services

Annex figure A.I.2. FDI inflows as a percentage of GDP in selected developed, developing and CEEeconomies, by sector, 1992-2002 (continued)

267ANNEX A

Annex figure A.I.2. FDI inflows as a percentage of GDP in selected developed, developing and CEEeconomies, by sector, 1992-2002 (continued)

Source: UNCTAD, FDI/TNC database for FDI and IMF for GDP data.

268 World Investment Report 2004: The Shift Towards Services

Annex figure A.III.1. Services FDI inflows as a percentage of GDP in selected host developing andCEE economies, by individual service industry, 1992-2002

269ANNEX A

Annex figure A.III.1. Services FDI inflows as a percentage of GDP in selected host developing andCEE economies, by individual service industry, 1992-2002

Source: UNCTAD, based on FDI/TNC database (www.unctad.org/fdistatistics) for FDI and UN Statistical Office for GDP data.

270 World Investment Report 2004: The Shift Towards Services

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272 World Investment Report 2004: The Shift Towards Services

An

ne

x t

ab

le A

.I.I

. C

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s.

273ANNEX A

Annex table A.I.2. Number of parent corporations and foreign affiliates, by region and economy, latest available year

(Number)

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Developed economies 45 077 b 102 560 b

Western Europe 36 133 75 664

European Union 30 709 b 64 464 b

Austria 2002 955 2 633 c

Belgium 1997 988 d 1 504 d

Luxembourg 2001 16 764Denmark 1998 9 356 2 305 e

Finland 2001 900 f 2 030 c, e

France 2002 1 267 10 713Germany 2002 6 069 9 268 g

Greece 2003 170 750Ireland 2001 39 h 1 225 i

Italy 1999 1 017 j 1 843 j

Netherlandsk 1998 1 608 3 132 c

Por tugal 2002 600 l 3 000Spain 1998 857 m 7 465Sweden n 2002 4 260 4 656 c

United Kingdom o 2003 2 607 13 176

Other Western Europe 5 424 b 11 200 b

Gibraltar 2003 .. 129Iceland 2000 18 55Malta 2003 .. 137Norway 1998 900 5 105 p

Switzerland 1995 4 506 5 774

North America 4 674 b 19 437 b

Canada 1999 1 439 3 725 c

United States 2000 3 235 q 15 712 r

Other developed countries 4 270 b 7 459 b

Australia 2001 682 2 352Israel 2003 .. 131Japan 2001 3 371 s 3 870 t

New Zealand 1998 217 1 106

Developing economies 14 192 b 580 638 b

Africa 1 163 b 6 849 b

Algeria 2003 .. 45Angola 2003 1 59Benin 2003 .. 19Botswana 2003 .. 6Burkina Faso 2003 1 20Burundi 2003 .. 3Cameroon 2003 .. 90Central African Republic 2003 .. 8Chad 2003 .. 9Comoros 2003 5 2Congo 2003 .. 44Côte d’Ivoire 2003 .. 212Democratic Republic of the Congo 2003 1 1Djibouti 2003 1 u 6Egypt 1999 .. 99Equatorial Guinea 2003 .. 7Ethiopia 2003 4 u 21

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Gabon 2003 .. 53Gambia 2003 .. 13Ghana 2003 .. 76Guinea 2003 .. 27Guinea-Bissau 2003 .. 3Kenya 2003 .. 170Lesotho 2003 .. 1Liberia 2003 .. 18Madagascar 2003 .. 47Malawi 2003 .. 15Mali 2003 1 19Mauritania 2003 2 u 4Mauritius 2003 16 75Morocco 2003 3 288Mozambique 2003 5 u 51Namibia 2003 .. 6Niger 2003 2 8Nigeria 2003 2 116Rwanda 2003 .. 3Senegal 2003 5 65Seychelles 1998 - 30Sierra Leone 2003 1 u 7Somalia 2003 1 u ..South Africa 1998 941 2 044Sudan 2003 2 u 5Swaziland 2002 12 61Togo 2003 3 14Tunisia 2003 142 v 2 616United Republic of Tanzania 2003 2 59Uganda 2001 .. 255Zambia 2003 2 x 13Zimbabwe 1998 8 36

Latin America and the Caribbean 2 475 b 46 117 b

Antigua and Barbuda 2003 .. 13Argentina 2003 .. 1 263Aruba 2003 .. 33Bahamas 2003 .. 145Barbados 2003 .. 126Belize 2003 .. 12Bermuda 2003 .. 332Bolivia 1996 .. 257Brazil 1998 1 225 8 050British Virgin Islands 2002 .. 129Cayman Islands 2003 .. 392Chile 1998 478 y 3 173 z

Colombia 1995 302 2 220Costa Rica 2003 .. 307Dominica 2003 .. 8Dominican Republic 2003 .. 137Ecuador 2003 .. 199El Salvador 2003 .. 304Grenada 2003 .. 11Guatemala 1985 .. 287Guyana 2002 4 f 56Haiti 2003 1 12Honduras 2003 .. 59Jamaica 1998 .. 177

/...

274 World Investment Report 2004: The Shift Towards Services

Annex table A.I.2. Number of parent corporations and foreign affiliates, by region and economy, latest available year (concluded)

(Number)

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Mexico 2002 .. 25 708Netherlands Antilles 2003 201 150Nicaragua 2003 1 47Panama 2003 211 412Paraguay 1995 .. 109Peru 1997 10 aa 1 183 ab

St. Kitts and Nevis 2003 8 8Saint Lucia 2003 1 21Saint Vincent and the Grenadines 2003 2 10Suriname 2003 .. 12Trinidad & Tobago 1999 .. 65 ac

Uruguay 2002 .. 164 ad

Venezuela 2003 31 526

Asia 10 535 b 527 119 b

South, East and South-East Asia 9 614 b 505 763 b

Afghanistan 2003 .. 2Bangladesh 2003 4 25Bhutan 1997 .. 2Brunei Darussalam 2003 1 23Cambodia 1997 .. 598 ae

China 2002 350 af 424 196 ag

Hong Kong, China 2001 948 ah 9 132India 1995 187 ai 1 416Indonesia 1995 313 2 241 aj

Lao People’s Democratic Republic 1997 .. 669 ak

Macao, China 2002 34 715Malaysia 1999 .. 15 567 al

Maldives 2003 1 2Mongolia 1998 .. 1 400Myanmar 2003 .. 8Nepal 2003 1 u 11Pakistan 2001 59 am 582Philippines 1995 .. 14 802 an

Republic of Korea 2002 7 460 ao 12 909Singapore 2002 .. 14 052 ap

Sri Lanka 1998 .. 305 aq

Taiwan Province of China 2001 606 ar 2 841Thailand 1998 .. 2 721 as

Viet Nam 1996 .. 1 544

West Asia 919 b 13 639 b

Bahrain 2003 18 86Cyprus 2002 .. 3 185Iran, Islamic Republic of 2003 36 60Jordan 2003 11 34Kuwait 2003 24 50Lebanon 2003 22 91

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Oman 1995 92 at 351 at

Qatar 2003 5 30Saudi Arabia 1989 .. 1 461Syrian Arab Republic 2003 1 13Turkey 2003 682 7 435United Arab Emirates 2003 22 839

Yemen 2002 6 u 4

Central Asia 2 7 717 b

Armenia 1999 .. 1 604 au

Azerbaijan 2003 .. 27Georgia 1998 .. 190 av

Kazakhstan 1999 .. 1 865 aw

Kyrgzstan 1998 .. 4 004 ax

Uzbekistan 2003 2 27

The Pacific 19 b 553 b

Fiji 2002 2 151 x

Kiribati 2003 .. 1New Caledonia 2003 .. 3Papua New Guinea 1998 .. 345 ay

Samoa 2003 4 12Solomon Islands 2003 7 u 18Tonga 2003 .. 5Vanuatu 2003 6 18

Central and Eastern Europe 2 313 b 243 750 b

Albania 1995 .. 2 422 az

Belarus 1994 .. 393Bosnia & Herzegovina 2003 7 39Bulgaria 2000 26 h 7 153 ba

Croatia 1997 70 353Czech Republic 1999 660 x 71 385 bb

Estonia 2003 351 2 858Hungary 2000 .. 26 645 bc

Latvia 2003 10 401Lithuania 2003 150 2 652Poland 2001 58 h 14 469 bd

Republic of Moldova 2002 951 2 670Romania 2002 20 h 89 911 be

Russian Federation 1994 .. 7 793Serbia and Montenegro 2003 10 61Slovakia 1997 .. 5 560 bf

Slovenia 2000 .. 1 617 bg

TFYR Macedonia 2002 .. 6Ukraine 1999 .. 7 362

World 61 582 926 948

Source: UNCTAD, based on national sources.a Represents the number of parent companies/foreign affiliates in the economy shown, as defined by that economy. Deviations

from the definition adopted in the WIR (see section on definitions and sources in annex B) are noted below. The data for Afghanistan,Algeria, Angola, Antigua and Barbuda, Argentina, Aruba, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belize, Benin, Bermuda,Bosnia and Herzegovina, Botswana, British Virgin Islands, Brunei, Burkina Faso, Burundi, Cameroon, Cayman Islands, Central AfricanRepublic, Chad, Congo, Costa Rica, Côte d’Ivoire, Democratic Republic of the Congo, Djibouti, Dominica, Dominican Republic,Ecuador, Equatorial Guinea, Ethiopia, Gabon, Gambia, Ghana, Gibraltar, Grenada, Guinea-Bissau, Haiti, Honduras, Islamic Republicof Iran, Israel, Jordan, Kenya, Kiribati, Kuwait, Latvia, Lebanon, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Malta, Mauritania,Mauritius, Morocco, Mozambique, Myanmar, Namibia, Nepal, Netherlands Antilles, New Caledonia, Nicaragua, Nicaragua, Niger,Nigeria, Panama, Qatar, Rwanda, Samoa, Senegal, Sierra Leone, Solomon Islands, Somalia, St. Lucia, St. Kitts and Nevis, St.Vincent and the Grenadines, Sudan, Suriname, Syrian Arab Republic, Togo, Tonga, Uganda, United Arab Emirates, United

275ANNEX A

Republic of Tanzania, Uzbekistan, Vanuatu, Venezuela and Western Samoa are from Who Owns Whom CD-Rom 2003 ( London,Dun & Bradstreet).

b Includes data only for the countries shown below.c Majority-owned foreign affiliates.d Provisional figures by Banque Nationale de Belgique.e Directly and indirectly owned foreign affiliates (subsidiaries and associates), excluding branches.f As of 1999.g 2001; does not include the number of foreign-owned holding companies in Germany which, in turn, hold participating interests

in Germany (indirect foreign participating interests).h As of 1994.i Refers to the number of foreign-owned affiliates in Ireland in manufacturing and services activities which receive assistance

from the Investment and Development Authority (IDA).j Relates to parent companies and foreign affiliates industrial activities (based on Consiglio Nazionale dell’Economia e del Lavoro,

“Italia Multinazionale, 2000, inward and outward FDI in the Italian industry in 1998 and 1999” April 2002.k Data for parent corporations, as of October 1993; data for foreign affiliates refer to majority-owned foreign affiliates and are

taken from OECD.l 2001.m Includes those Spanish parent enterprises which are controlled, at the same time, by a direct investor.n Data provided by Sveriges Riksbank. Includes those Swedish parent companies which are controlled, at the same time, by a

direct investor.o Data on the number of parent companies based in the United Kingdom, and the number of foreign affiliates in the United Kingdom

are based on the register of companies held for inquiries on the United Kingdom FDI abroad, and FDI into the United Kingdomconducted by the Central Statistical Office. On that basis, the numbers are probably understated because of the lags in identifyinginvestment in greenfield sites and because some companies with small presence in the United Kingdom and abroad have notyet been identified.

p Refers to Norwegian non-financial joint-stock companies with foreign shareholders owning more than 10 per cent of total sharesin 1998.

q Represents a total of 2,557 non-bank parent companies in 1999 and 60 bank parent companies in 1994 with at least one foreignaffiliate whose assets, sales or net income exceeded $3 million, and 709 non-bank and bank parent companies in 1994 whoseaffiliate(s) had assets, sales and net income under $3 million. Each parent company represents a fully consolidated United Statesbusiness enterprise, which may consist of a number of individual companies.

r Represents a total of 438 bank affiliates in 1997 and 9,368 non-bank affiliates in 2000 whose assets, sales or net income exceeded$3 million, and 5,906 bank and non-bank affiliates in 1996 with assets, sales, net income less than or equal to $3 million. Eachaffiliate represents a fully consolidated United States business entreprise, which may consist of a number of individual companies.

s Japanese firms with at least two foreign affiliates that have a more than 20 per cent equity share. Source: Toyokeizai, Kaigai ShinshutsuKigyo Soran 2003 (Tokyo: Toyokeizai Shinposha, 2003).

t Number of foreign affiliates in late 2002. Source: Toyokeizai, Gaishikei Kigyo Soran 2003 ( Tokyo: Toyokeizai Shimposha, 2003).u 2001. v 1999.w Provisional. x 1997.y Estimated by Comite de Inversiones Extranjeras.z Number of foreign companies registered under DL600. aa Less than 10.ab Out of this number, 811 are majority-owned foreign affiliates, while 159 affiliates have less than 10 per cent equity share.ac An equity stake of 25 per cent or more of the ordinary shares or voting power.ad Number of enterprises included in the Central Bank survey (all sectors).ae Number of projects approved, both domestic and foreign, since August 1994.af In 2002, 350 companies invested abroad. The cumulative number of companies that invested abroad was 6,960.ag Data refer to the cumlative number of approved FDI projects.ah Number of regional headquarters as at 1 June 2002.ai As of 1991. aj As of 1996.ak Number of projects licensed since 1988 up to end 1997.al May 1999. Refers to companies with foreign equity stakes of 51 per cent and above. Of this, 3,787 are fully owned foreign affiliates.am 1998.an This figure refers to directly and indirectly owned foreign affiliates.ao As of 1999. Data refer to the number of investment projects abroad.ap Number of wholly owned foreign companies.aq Number of projects approved under section 17 of the BOI law which provides for incentives.ar Number of approved new investment projects abroad in 1998.as Data refer to the number of BOI-promoted companies which have been issued promotion certificates during the period 1960-

1998, having at least 10 per cent of foreign equity participation.at As of May 1995.au Accumulated number of joint ventures and foreign enterprises registered as of 1 November 1999.av Number of cases of approved investments of more than 100,000 dollars registered during the period of January 1996 up to

March 1998.aw Joint ventures and foreign firms operating in the country.ax Joint venture companies established in the economy.ay Number of applications received since 1993.az 1,532 joint ventures and 890 wholly-owned foreign affiliates.ba The number refers to registered investment projects between 1992 and 2000, Bulgarian Foreign Investment Agency, January

2002.bb Out of this number 53,775 are fully-owned foreign affiliates. Includes joint ventures.bc Source: Hungary Statistics Office.bd Cumulative number of companies with foreign capital share which participated in the statistical survey.be Data refer to the cumulative number of companies with FDI as at end-December 2002.bf Includes joint ventures with local firms.bg Source: Bank of Slovenia.

Note: The data can vary significantly from preceding years, as data become available for countries that had not been coveredbefore, as definitions change, or as earlier data are updated.

276 World Investment Report 2004: The Shift Towards ServicesA

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277ANNEX A

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.

278 World Investment Report 2004: The Shift Towards ServicesA

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NC

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th

an 1

0 p

er

cen

t.

279ANNEX A

Annex table A.I.4. The world’s 100 largest non-financial TNCs by country of origin and industry:number of host countries, Network Spread Index (NSI) and Internationalization Index (II), 2002

No. of hostCompany Country of ownership Industry countries NSIa IIb

Deutsche Post World Net Germany Transport and storage 97 49.74 84.34Ford Motor Company United States Motor vehicles 96 49.23 83.46Nestlé Sa Switzerland Food & beverages 92 47.18 93.67Siemens AG Germany Electrical & electronic equipment 78 40.00 66.08BASF AG Germany Chemicals 74 37.95 75.00Royal Dutch/Shell Group United Kingdom/Netherlands Petroleum expl./ref./distr. 72 36.92 78.93Astrazeneca Plc United Kingdom Pharmaceuticals 70 35.90 79.59Unilever Netherlands/United Kingdom Diversified 64 32.82 73.52Total Fina Elf France Petroleum expl./ref./distr. 62 31.79 68.17Bayer AG Germany Pharmaceuticals/chemicals 61 31.28 73.55ABB Switzerland Machinery and equipment 59 30.26 93.18IBM United States Electrical & electronic equipment 58 29.74 91.25Aventis SA France Pharmaceuticals 54 27.69 86.96Philip Morris Companies Inc United States Diversified 54 27.69 82.30Novartis Switzerland Pharmaceuticals 52 26.67 88.58Pinault-Printemps Redoute SA France Retail 52 26.67 60.04Abbott Laboratories United States Pharmaceuticals 50 25.64 83.17Procter & Gamble United States Diversified 50 25.64 80.48Publicis Goupe SA France Business services 50 25.64 83.26British Petroleum Company Plc United Kingdom Petroleum expl./ref./distr. 49 25.13 64.46Nokia Finland Machinery and equipment 49 25.13 94.00DaimlerChrysler Ag Germany/United States Motor vehicles 48 24.62 55.15ExxonMobil Corporation United States Petroleum expl./ref./distr. 48 24.62 72.17Roche Group Switzerland Pharmaceuticals 48 24.62 87.56GlaxoSmithKline Plc United Kingdom Pharmaceuticals 46 23.59 69.26Johnson & Johnson United States Pharmaceuticals 46 23.59 69.82Lvmh Moët-Hennessy Louis Vuitton SA France Luxury goods 46 23.59 73.71British American Tobacco Group United Kingdom Tobacco 45 23.08 58.51Hewlett-Packard United States Electrical & electronic equipment 45 23.08 77.54Philips Electronics Netherlands Electrical & electronic equipment 45 23.08 66.31Alcatel France Machinery and equipment 44 22.56 79.72Compagnie De Saint-Gobain SA France Construction materials 44 22.56 76.76General Motors United States Motor vehicles 43 22.05 58.56Pfizer Inc United States Pharmaceuticals 43 22.05 84.83France Telecom France Telecommunications 42 21.54 58.37Mitsui & Co Ltd Japan Wholesale trade 42 21.54 53.26Volvo Group Sweden Motor vehicles 42 21.54 70.00General Electric United States Electrical & electronic equipment 41 21.03 69.95Hitachi Ltd Japan Electrical & electronic equipment 40 20.51 46.10Sony Corporation Japan Electrical & electronic equipment 40 20.51 78.48Thyssenkrupp AG Germany Metal and metal products 40 20.51 56.50Stora Enso OYJ Finland Paper 39 20.00 79.93Matsushita Electric Industrial Co. Ltd. Japan Electrical & electronic equipment 38 19.49 62.69Danone Groupe SA France Food & beverages 35 17.95 84.09Eni Group Italy Petroleum expl./ref./distr. 35 17.95 70.31Bertelsmann Germany Media 34 17.44 54.18Coca-Cola Company United States Beverages 33 16.92 69.05Dow Chemical Company United States Chemicals 32 16.41 78.97Du Pont (E.I.) de Nemours United States Chemicals 32 16.41 69.33Motorola Inc United States Machinery and equipment 32 16.41 68.81Holcim AG Switzerland Construction materials 30 15.38 81.68Mitsubishi Corporation Japan Wholesale trade 30 15.38 49.50RWE Group Germany Electricity, gas and water 29 14.87 60.98Alcan Inc. Canada Metal and metal products 28 14.36 83.65Diageo Plc United Kingdom Beverages 28 14.36 32.04Honda Motor Co Ltd Japan Motor vehicles 28 14.36 76.00Suez France Electricity, gas and water 28 14.36 63.30Volkswagen Group Germany Motor vehicles 27 13.85 69.57

/...

280 World Investment Report 2004: The Shift Towards Services

Annex table A.I.4. The world’s 100 largest non-financial TNCs by country of origin and industry:number of host countries, Network Spread Index (NSI) and Internationalization Index (II),

2002 (concluded)

No. of hostCompany Country of ownership Industry countries NSIa IIb

Anglo American United Kingdom Mining & quarrying 26 13.33 22.99ChevronTexaco Corp. United States Petroleum expl./ref./distr. 26 13.33 45.41Merck & Co United States Pharmaceuticals 26 13.33 83.64Metro AG Germany Retail 26 13.33 32.16Alcoa United States Metal and metal products 25 12.82 50.50BHP Billiton Group Australia Mining & quarrying 25 12.82 61.46Fiat Spa Italy Motor vehicles 25 12.82 77.62Nortel Networks Canada Machinery and equipment 25 12.82 91.43Toyota Motor Corporation Japan Motor vehicles 25 12.82 31.72AOL Time Warner Inc United States Media 24 12.31 54.31Deutsche Telekom AG Germany Telecommunications 24 12.31 54.55Renault SA France Motor vehicles 24 12.31 64.80Samsung Elec tronics Co., Ltd. Republic of Korea Electrical & electronic equipment 24 12.31 79.31ConocoPhillips United States Petroleum expl./ref./distr. 22 11.28 52.50E.On Germany Electricity, gas and water 22 11.28 58.02News Corporation Australia Media 20 10.26 94.47Telefonica SA Spain Telecommunications 20 10.26 62.96Vodafone Group Plc United Kingdom Telecommunications 20 10.26 40.74BMW AG Germany Motor vehicles 19 9.74 75.83Repsol YPF SA Spain Petroleum expl./ref./distr. 19 9.74 56.70Thomson Corporation Canada Media 19 9.74 95.03Carrefour SA France Retail 18 9.23 42.68Vivendi Universal France Media 17 8.72 44.14CRH Plc Ireland Lumber and other building materials dealers 16 8.21 90.63Electricité de France France Electricity, gas and water 16 8.21 73.31Interbrew SA Belgium Beverages 16 8.21 86.41Telecom Italia Italy Telecommunications 16 8.21 38.89AES Corporation United States Electricity, gas and water 14 7.18 40.32McDonald’s Corporation United States Retail 14 7.18 45.45Reed Elsevier United Kingdom/Netherlands Publishing and printing 13 6.67 28.38Verizon Communications United States Telecommunications 13 6.67 6.58Cemex S.A. Mexico Construction materials 11 5.64 74.47Endesa Spain Electricity, gas and water 11 5.64 29.22Royal Ahold NV Netherlands Retail 10 5.13 47.64Wal-Mart Stores United States Retail 9 4.62 79.27Duke Energy Corporation United States Electricity, gas and water 6 3.08 43.02National Grid Transco United Kingdom Energy 5 2.56 19.46NTL Inc United States Telecommunications 4 2.05 97.18Hutchison Whampoa Limited Hong Kong, China Diversified 3 1.54 36.84Scottish Power United Kingdom Electric utilities 3 1.54 21.60Canadian National Railway Company Canada Transportation 2 1.03 48.15Average 35 17.93 65.46

Source: UNCTAD.a NSI = Number of host economies / number of potential host economies. The latter is taken to be the number of economies

which were in receipt of stock of inward FDI in 2002, 195 (WIR03). On the development of this index, see Ietto-Gillies 1998and WIR98, box II.2.

b II = number of foreign affiliates / number of all affiliates *100.

Note: Singtel Ltd. has been excluded from the analysis, because it is mainly state owned.

281ANNEX A

An

ne

x t

ab

le A

.I.5

. In

wa

rd F

DI

Pe

rfo

rma

nce

In

de

x r

an

kin

gs,

19

88

-20

03

a

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

2000

-200

220

01-2

003

Alba

nia

....

4515

2232

3648

6892

8465

5244

Alge

ria10

299

114

118

130

130

125

120

112

112

109

102

9491

Ango

la10

634

317

128

1718

92

23

55

Arge

ntin

a39

4344

4854

5653

4762

4342

4785

118

Arm

enia

....

7079

114

9995

6321

1718

3130

30Au

stra

lia15

2439

4450

4651

5887

9789

9071

79Au

stria

7680

8384

7986

7488

8291

7873

7578

Azer

baija

n..

....

..10

724

41

11

1035

133

Baha

mas

6610

113

398

9460

5433

3948

5364

5456

Bahr

ain

234

34

1045

12

237

4354

7251

Bang

lade

sh10

410

812

612

612

912

713

113

113

112

412

012

712

813

3Be

laru

s..

..12

511

711

312

111

392

9274

9092

104

99Be

lgiu

m a

nd Lu

xem

bour

g8

69

1014

2225

2722

31

11

1Be

nin

165

718

4410

699

111

109

105

9487

8892

Boliv

ia29

2835

3734

2622

107

812

119

11Bo

tsw

ana

2447

7113

613

913

889

7681

9410

311

565

57Br

azil

7790

9595

104

103

9181

6552

4537

3746

Brun

ei D

arus

sala

m10

310

611

710

811

517

74

34

77

42

Bulg

aria

....

104

9189

9587

6144

3228

2725

21Bu

rkin

a Fa

so93

9812

111

410

310

110

111

612

812

912

512

312

413

1Ca

mer

oon

114

117

136

122

124

128

129

127

124

119

122

122

106

93Ca

nada

3855

6573

6969

6575

6763

3234

3270

Chile

1016

3032

2321

1817

1616

2018

3434

Chin

a46

5043

199

1115

2031

4251

5650

37Co

lom

bia

4245

5250

4865

5539

3860

8178

6964

Cong

o84

6573

1213

534

3263

1415

1741

22Co

ngo,

Dem

ocra

tic R

epub

lic o

f11

111

012

711

913

113

313

413

613

413

211

611

498

74Co

sta

Rica

1821

2328

3037

3341

4049

6472

6748

Côte

d’Iv

oire

7987

8570

6653

5750

5766

7981

8266

Croa

tia..

..11

080

8490

6964

4940

3124

2619

Cypr

us27

3342

5263

7992

5255

3027

2120

24Cz

ech

Repu

blic

....

4131

3228

3140

3722

1612

1013

Denm

ark

5552

6365

4542

5883

7331

1110

1140

Dom

inic

an R

epub

lic26

3238

3841

4056

5761

3634

3336

38Ec

uado

r32

4050

3628

3438

4954

5552

3831

28Eg

ypt

1430

5846

4250

7399

103

106

102

110

113

123

El S

alva

dor

8985

101

9711

711

412

812

536

4548

8691

88Es

toni

a..

..15

1618

1420

2115

1819

2221

10Et

hiop

ia99

9711

212

112

011

611

968

5662

8310

410

211

1 /...

282 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

A.I

.5.

Inw

ard

FD

I P

erf

orm

an

ce I

nd

ex

ra

nk

ing

s, 1

98

8-2

00

3a

(co

nti

nu

ed

)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

2000

-200

220

01-2

003

Finl

and

6588

102

9672

7581

9397

7855

4633

43Fr

ance

4549

5356

6467

7178

8577

7266

5850

Gabo

n36

114

6713

313

713

914

014

014

013

913

713

911

795

Gam

bia

97

1423

2630

2724

2820

1713

147

Geor

gia

....

....

119

117

8234

2527

3961

4527

Germ

any

8784

113

123

123

113

116

115

115

9649

4040

102

Ghan

a90

8698

6836

3942

7910

285

8676

9594

Gree

ce37

4856

6168

8290

102

117

121

119

113

118

127

Guat

emal

a22

5764

6375

9410

711

390

9092

9899

100

Guin

ea60

6069

7710

912

512

412

211

911

111

111

612

512

5Gu

yana

5936

11

11

25

823

2119

1826

Haiti

8282

105

110

136

135

135

132

135

123

121

124

129

134

Hond

uras

3337

4745

6059

6156

7067

6055

6159

Hong

Kon

g, C

hina

315

1814

813

1415

1412

32

29

Hung

ary

6326

178

157

97

1015

2326

2733

Icel

and

8581

107

125

134

132

118

9786

9398

9587

89In

dia

9810

311

811

311

210

810

410

311

111

611

812

112

111

4In

done

sia56

5659

5965

5850

5477

118

138

138

139

139

Iran,

Isla

mic

Rep

ublic

of

112

116

130

127

132

124

132

133

137

136

134

132

135

136

Irela

nd51

3528

2635

4840

4223

94

53

4Is

rael

8089

9790

9077

7070

8080

6963

6660

Italy

6479

9399

106

110

120

124

130

125

117

108

100

98Ja

mai

ca25

128

1319

3637

4543

3529

2322

20Ja

pan

105

105

119

124

128

129

133

134

136

134

129

130

131

132

Jord

an75

9281

130

127

134

127

6552

5338

5357

84Ka

zakh

stan

....

9125

2916

1916

2425

2415

128

Keny

a74

6894

111

126

120

126

128

132

130

124

125

126

129

Kore

a, R

epub

lic o

f81

8399

105

116

118

121

121

113

102

9597

107

120

Kuw

ait

101

107

116

115

125

126

112

118

123

133

130

133

136

137

Kyrg

yzst

an..

....

6631

2024

2533

3465

106

132

115

Latv

ia..

..22

2716

1813

1213

2433

4947

41Le

bano

n94

9510

610

911

111

511

410

510

610

399

9696

90Li

byan

Ara

b Ja

mah

iriya

6974

8910

312

213

613

613

713

813

813

513

513

711

6Li

thua

nia

....

7867

8080

6851

2928

3557

4655

Mad

agas

car

7366

7482

100

111

123

129

127

115

101

9410

110

5M

alaw

i43

102

135

135

9588

8811

011

699

9385

110

109

Mal

aysia

43

43

56

1013

1933

5071

7075

Mal

i86

9313

413

113

351

4446

9610

910

884

6352

/...

283ANNEX A

An

ne

x t

ab

le A

.I.5

. In

wa

rd F

DI

Pe

rfo

rma

nce

In

de

x r

an

kin

gs,

19

88

-20

03

a (

con

tin

ue

d)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

2000

-200

220

01-2

003

Mal

ta21

1733

3021

1911

2217

105

644

81M

exic

o35

4254

5839

3830

3750

6473

6764

61M

oldo

va, R

epub

lic o

f..

..13

2238

3343

3846

4730

2015

25M

ongo

lia..

7690

8182

8179

8278

7362

4528

15M

oroc

co62

5961

4746

6375

6979

7610

058

6232

Moz

ambi

que

8872

6857

5254

5262

4226

2625

3523

Mya

nmar

2825

2641

6152

3219

2038

6783

8485

Nam

ibia

7829

1620

2729

2835

5987

7432

1918

Nepa

l97

100

111

112

118

122

122

123

126

128

132

131

134

130

Neth

erla

nds

1314

2539

4341

3536

2619

98

716

New

Zea

land

610

1011

1112

2126

4868

6150

5365

Nica

ragu

a96

4436

2933

3526

1411

1113

1417

17Ni

ger

5763

4669

7812

311

010

912

912

713

112

011

910

7Ni

geria

78

2417

710

1628

3559

8082

7969

Norw

ay50

6412

812

977

6160

6066

5758

6993

108

Oman

3441

5760

7397

115

126

121

120

127

129

130

126

Paki

stan

7269

7576

8385

7791

104

108

114

117

116

97Pa

nam

a11

631

3234

2425

2311

613

2241

6845

Papu

a Ne

w G

uine

a2

26

2425

95

818

4646

4386

80Pa

ragu

ay58

5148

5355

7067

7164

7085

103

108

106

Peru

9196

131

7420

1512

2334

5877

7977

63Ph

ilipp

ines

3046

5142

3743

4866

7279

8289

9096

Pola

nd10

094

8262

4944

3944

4750

4748

5668

Port

ugal

1211

2133

4771

7884

7483

6651

4371

Qata

r11

091

8775

6768

4543

4171

9699

8167

Rom

ania

....

109

104

8584

8367

5151

6374

7362

Russ

ian

Fede

ratio

n..

..10

810

711

010

910

610

110

710

410

410

711

111

9Rw

anda

6177

100

102

108

119

130

130

133

131

128

128

127

128

Saud

i Ara

bia

8373

7793

9913

113

813

599

101

126

136

138

138

Sene

gal

6775

8611

691

9194

7783

6991

9110

510

3Si

erra

Leo

ne48

2349

132

138

137

105

100

110

126

133

119

123

122

Sing

apor

e1

12

54

23

35

56

46

6Sl

ovak

ia..

..72

6457

6463

8576

8141

288

12Sl

oven

ia..

..84

7176

8996

9410

110

711

210

959

53So

uth

Afric

a10

810

912

212

012

110

710

390

100

9811

380

7877

Spai

n19

2227

3540

5772

9595

8459

4229

36Sr

i Lan

ka68

7066

5553

7286

8089

8910

611

111

210

4Su

dan

109

113

132

128

102

102

108

117

9172

6860

4829

Surin

ame

117

118

1113

714

014

013

713

888

135

140

140

140

140 /..

.

284 World Investment Report 2004: The Shift Towards Services

An

ne

x t

ab

le A

.I.5

. In

wa

rd F

DI

Pe

rfo

rma

nce

In

de

x r

an

kin

gs,

19

88

-20

03

a (

con

clu

de

d)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

2000

-200

220

01-2

003

Swed

en52

3960

5151

2329

2932

78

923

42Sw

itzer

land

3138

5592

9696

8486

6956

3636

3949

Syria

n Ar

ab R

epub

lic53

6788

8870

7485

112

122

113

105

105

114

121

Taiw

an P

rovi

nce

of C

hina

4958

7686

9810

010

010

612

011

711

010

110

311

7Ta

jikist

an..

..92

8381

5562

7384

8687

9383

82TF

YR M

aced

onia

....

....

105

112

117

119

9488

7029

2431

Thai

land

1719

2940

5873

7674

5344

4459

8087

Togo

4461

9613

413

578

6689

105

100

8868

4954

Trin

idad

and

Toba

go20

1319

96

48

64

614

1616

14Tu

nisia

5453

3421

1731

4772

7175

7175

6058

Turk

ey70

7179

8910

110

410

911

412

512

212

311

210

911

0Ug

anda

107

111

129

7856

4746

5360

6156

5242

35Uk

rain

e..

..62

7286

9897

9698

9597

8889

73Un

ited

Arab

Em

irate

s92

112

124

8593

9210

210

711

813

713

613

412

010

1Un

ited

King

dom

1118

3749

6266

6459

4541

2530

3883

Unite

d Re

publ

ic o

f Tan

zani

a95

104

115

106

8862

4955

7554

5739

5547

Unite

d St

ates

4162

8087

9293

9398

9382

7577

9211

2Ur

ugua

y71

7810

394

8787

9810

411

411

410

710

097

86Uz

beki

stan

....

120

101

7410

511

110

810

811

011

511

812

211

3Ve

nezu

ela

4027

4043

7176

5931

2739

5470

7472

Viet

Nam

4720

126

33

69

1221

3744

5139

Yem

en11

554

52

227

139

139

139

140

139

137

115

124

Zam

bia

59

2054

5949

4130

3029

4062

7676

Zim

babw

e11

311

512

310

097

8380

8758

6576

126

133

135

Sou

rce:

UN

CTA

D.

No

te:

Co

veri

ng

14

0 e

con

om

ies.

aTh

ree

-ye

ar m

ovi

ng

ave

rag

es.

285ANNEX A

An

ne

x t

ab

le A

.I.6

. R

aw

da

ta a

nd

sco

res

for

the

va

ria

ble

s in

clu

de

d i

n t

he

UN

CTA

D I

nw

ard

FD

I P

ote

nti

al

ind

ex

, 20

00

-20

02

Impo

rts o

f par

ts/

Expo

rts

acce

ssor

ies o

fSt

uden

ts a

t the

of n

atur

alel

ectro

nics

and

Expo

rts i

nRe

al G

DP g

row

thGD

P pe

r cap

itaTo

tal e

xpor

tsTe

leph

one

mai

nlin

esM

obile

pho

nes

En

ergy

use

R&D

expe

nditu

res

tert

iary

leve

lCo

untr

y risk

reso

urce

s au

tom

obile

sse

rvice

sIn

war

d FD

I sto

ck A

vera

ge 1

992-

2002

A

vera

ge 2

000-

2002

2000

As o

f Dec

embe

r 200

2

Av

erag

e 20

00-2

002

(per

100

0(p

er 1

000

(As a

%Co

mpo

-(A

s a %

(As a

%(A

s a %

(As a

%Sc

ore

Scor

e(A

s a %

Scor

ein

habi

-Sc

ore

inha

bi-

Scor

ePe

rSc

ore

(As a

%Sc

ore

of to

tal

Scor

esit

e ris

kSc

ore

of w

orld

Scor

eof

wor

ldSc

ore

of w

orld

Scor

eof

wor

ldSc

ore

Econ

omy

(%)

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atab

ase

(exp

ort

s o

f n

atu

ral

reso

urc

es, i

mp

ort

s o

f p

arts

an

d a

cce

sso

rie

s o

f e

lect

ron

ics

and

au

tom

ob

ile

s an

d e

xpo

rts

in s

erv

ice

s); U

NC

TAD

FD

I d

atab

ase

(in

war

d F

DI

sto

ck).

No

te:

For

dat

a fo

r e

ne

rgy

use

, re

fer

to t

he

pe

rio

d a

vera

ge

19

99

-20

01

.

289ANNEX A

Annex table A.I.7. Inward FDI Potential Index rankings, 1988-2002a

Economy 1988-1990 1989-1991 1990-1992 1991-1993 1992-1994 1993-1995 1994-1996 1995-1997 1996-1998 1997-1999 1998-2000 1999-2001 2000-2002

Albania .. .. 125 122 120 125 119 131 121 108 104 90 76Algeria 54 61 79 87 93 97 75 87 88 88 82 79 75Angola 72 76 97 118 119 102 103 119 109 115 103 102 86Argentina 60 58 56 49 48 49 53 46 42 47 48 52 77Armenia .. .. 124 133 122 118 127 127 122 122 125 110 99Australia 14 14 13 9 11 12 7 10 15 14 19 21 22Austria 19 19 20 19 19 18 21 22 22 23 23 23 24Azerbaijan .. .. .. .. 135 132 132 125 127 123 108 99 96Bahamas 28 30 32 31 33 35 36 36 38 38 38 38 40Bahrain 26 28 30 29 29 30 33 31 30 27 33 31 29Bangladesh 108 105 112 105 111 117 112 112 113 112 110 121 117Belarus .. .. 28 32 31 72 78 72 73 72 71 66 56Belgium and Luxembourg 10 10 9 11 9 10 9 9 8 9 9 6 6Benin 112 113 131 134 136 135 134 132 135 135 134 133 132Bolivia 84 79 91 95 91 90 91 83 81 78 78 83 85Botswana 32 32 50 48 47 46 54 49 58 55 58 60 55Brazil 47 48 69 70 72 74 71 75 76 77 70 73 68Brunei Darussalam 31 31 24 23 22 27 32 27 27 29 30 27 35Bulgaria .. .. 42 56 63 48 65 76 59 65 69 65 64Burkina Faso 96 98 114 114 118 122 120 124 120 113 122 128 130Cameroon 81 99 119 124 132 130 128 126 119 117 123 114 116Canada 2 2 2 2 2 2 2 2 4 5 5 5 5Chile 41 41 49 43 42 41 40 40 46 48 46 47 48China 45 43 55 61 60 57 47 41 43 41 43 44 39Colombia 59 56 71 72 79 86 84 101 90 90 88 101 101Congo 75 87 111 116 108 105 99 123 108 109 105 100 95Congo, Dem. Rep. of 101 111 129 135 139 138 139 139 137 137 139 139 140Costa Rica 51 47 58 57 57 63 62 60 66 64 66 70 69Côte d’Ivoire 98 95 106 110 115 112 105 106 101 99 111 111 123Croatia .. .. .. 117 109 85 96 93 65 68 60 53 51Cyprus 33 33 37 35 38 36 38 38 40 40 41 45 43Czech Republic .. .. 61 54 50 39 44 43 44 42 42 42 42Denmark 16 16 14 15 16 16 17 16 16 16 15 18 19Dominican Republic 67 68 73 67 69 68 63 62 62 59 56 62 62Ecuador 69 71 82 86 87 96 94 90 97 105 106 104 107Egypt 68 65 88 83 80 83 90 88 64 69 72 71 70El Salvador 82 77 86 76 74 51 87 79 80 80 79 80 91Estonia .. .. 76 89 83 67 66 59 49 43 40 40 38Ethiopia 113 115 135 130 129 126 124 115 130 130 121 125 122Finland 8 9 11 14 15 15 15 15 13 10 10 12 13France 6 7 5 6 6 7 10 8 10 11 12 15 14Gabon 61 63 80 77 84 79 72 69 72 75 83 76 80Gambia 63 66 84 75 95 98 86 80 87 84 93 94 97Georgia .. .. .. .. 130 136 138 138 139 138 136 131 121Germany 7 6 4 3 3 3 5 5 6 6 6 7 9Ghana 93 89 104 103 105 110 111 110 110 114 116 112 111Greece 34 34 34 37 39 38 39 37 37 35 37 37 36Guatemala 106 100 110 111 110 109 101 94 99 97 92 97 102Guinea 91 91 108 109 112 115 113 113 105 106 112 108 109Guyana 104 101 93 88 71 66 60 56 57 58 59 63 65Haiti 115 116 130 132 134 133 135 134 133 133 135 135 137Honduras 86 82 96 97 100 100 102 97 94 86 91 98 103Hong Kong, China 17 17 18 16 13 13 13 13 14 12 11 11 12Hungary 46 49 63 64 66 60 61 53 48 45 45 43 41Iceland 15 15 17 18 18 19 20 20 19 19 17 16 15India 74 72 99 94 97 93 92 98 96 94 97 91 89Indonesia 43 44 57 55 55 64 42 61 79 70 75 81 82Iran, Islamic Rep. of 52 46 53 50 51 59 43 57 61 71 67 59 61Ireland 24 24 29 28 28 22 22 21 18 15 14 10 7Israel 27 26 31 30 30 26 29 26 25 24 24 24 23Italy 18 18 19 20 20 23 24 23 23 25 26 26 26Jamaica 62 62 74 73 68 69 70 70 70 74 77 75 79Japan 13 12 12 10 8 8 11 7 12 13 13 14 16Jordan 65 69 67 68 67 65 37 35 36 37 39 41 45Kazakhstan .. .. 54 78 86 94 98 99 98 98 94 84 78Kenya 87 90 105 107 104 101 104 114 115 124 124 127 131Korea, Republic of 20 20 26 25 21 17 19 18 21 18 21 20 18Kuwait 48 51 43 39 32 32 30 32 34 36 32 32 28Kyrgyzstan .. .. .. 127 133 134 136 135 132 126 117 118 118Latvia .. .. 46 66 90 88 97 91 71 66 64 56 49Lebanon 83 75 59 52 54 75 81 64 52 50 49 57 60

/...

290 World Investment Report 2004: The Shift Towards Services

Annex table A.I.7. Inward FDI Potential Index rankings, 1988-2002a (concluded)

Economy 1988-1990 1989-1991 1990-1992 1991-1993 1992-1994 1993-1995 1994-1996 1995-1997 1996-1998 1997-1999 1998-2000 1999-2001 2000-2002

Libyan Arab Jamahiriya 56 50 48 46 43 50 46 68 41 46 47 39 46Lithuania .. .. 70 90 94 92 93 81 63 62 62 61 52Madagascar 102 103 123 120 126 127 125 122 116 120 119 116 125Malawi 89 92 107 113 117 111 107 104 107 104 113 122 127Malaysia 37 36 40 38 36 31 34 33 32 32 31 33 32Mali 107 107 120 101 102 108 115 109 103 100 107 117 113Malta 35 39 38 36 35 33 31 30 35 34 35 35 34Mexico 44 45 44 41 44 54 49 51 53 52 50 49 50Moldova, Republic of .. .. 33 33 37 43 100 102 111 128 131 113 110Mongolia 53 57 90 91 89 84 73 73 69 61 63 68 63Morocco 73 74 81 80 77 91 89 96 91 89 98 96 93Mozambique 114 110 128 128 127 129 129 133 125 125 126 119 108Myanmar 118 118 126 126 128 120 118 108 106 101 99 77 74Namibia 88 83 89 82 75 76 68 67 75 76 80 82 84Nepal 110 108 127 129 131 131 130 129 134 134 132 132 133Netherlands 9 8 8 7 10 11 8 11 9 7 7 8 11New Zealand 23 25 25 26 25 25 26 28 29 28 28 30 30Nicaragua 97 97 115 123 121 121 122 120 129 118 114 109 115Niger 109 109 121 121 125 128 126 128 128 121 115 126 126Nigeria 70 60 77 84 88 99 80 89 93 93 86 87 98Norway 4 4 6 5 5 5 3 4 3 4 2 2 2Oman 36 38 45 47 49 52 50 48 55 56 55 50 53Pakistan 94 88 109 106 103 113 110 116 126 129 129 129 128Panama 55 55 68 58 52 44 51 42 47 49 51 51 58Papua New Guinea 78 80 92 69 62 56 55 63 78 83 85 103 105Paraguay 71 67 75 74 78 82 82 84 95 92 95 107 114Peru 79 85 95 99 96 95 85 86 82 81 76 78 81Philippines 77 78 78 71 73 71 57 52 54 53 57 55 57Poland 50 52 62 59 59 58 59 54 45 44 44 46 44Portugal 39 35 36 34 34 34 35 34 33 33 34 34 37Qatar 22 22 16 17 17 20 25 19 20 21 18 13 8Romania .. .. 85 92 98 89 95 103 102 103 100 95 83Russian Federation .. .. 35 40 40 37 27 39 39 39 36 36 33Rwanda 117 117 133 137 140 140 140 140 140 139 138 138 135Saudi Arabia 30 29 22 21 26 29 14 29 28 30 27 28 31Senegal 95 96 116 119 124 123 123 121 118 119 118 115 119Sierra Leone 105 112 132 131 137 137 133 137 138 140 140 140 139Singapore 12 13 15 13 7 4 4 3 2 2 3 3 4Slovakia .. .. 52 51 64 47 56 55 51 54 52 48 47Slovenia .. .. 117 112 53 40 48 45 31 31 29 29 27South Africa 49 53 60 62 58 61 58 58 68 63 68 69 66Spain 25 23 21 22 27 28 28 25 26 26 25 25 25Sri Lanka 100 93 113 115 106 104 108 100 100 110 109 120 112Sudan 116 114 134 136 138 139 137 136 131 132 127 124 120Suriname 42 42 64 65 61 53 52 47 74 87 84 86 92Sweden 5 5 7 8 12 9 12 12 7 8 8 9 10Switzerland 11 11 10 12 14 14 18 17 17 17 16 17 20Syrian Arab Republic 76 73 87 81 76 73 69 71 83 85 90 93 100Taiwan Province of China 21 21 27 24 23 21 23 24 24 22 22 22 21Tajikistan .. .. 94 104 113 114 131 130 136 136 137 137 136TFYR Macedonia .. .. .. .. 114 106 114 111 112 107 102 105 106Thailand 40 40 51 45 46 42 45 50 50 51 53 54 54Togo 92 94 118 125 123 124 117 95 114 116 120 123 124Trinidad and Tobago 58 64 72 79 82 80 74 66 67 67 65 64 59Tunisia 66 70 83 85 81 78 76 74 77 73 74 74 71Turkey 64 59 65 60 70 77 77 78 85 82 81 89 72Uganda 103 104 122 108 116 107 106 105 104 102 101 106 104Ukraine .. .. 39 53 56 55 83 85 92 96 96 92 94United Arab Emirates 29 27 23 27 24 24 16 14 11 20 20 19 17United Kingdom 3 3 3 4 4 6 6 6 5 3 4 4 3United Republic of Tanzania 90 86 98 98 101 116 116 118 123 131 128 130 129United States 1 1 1 1 1 1 1 1 1 1 1 1 1Uruguay 57 54 66 63 65 70 67 65 60 60 61 67 90Uzbekistan .. .. 47 44 41 62 88 77 89 91 87 88 88Venezuela 38 37 41 42 45 45 41 44 56 57 54 58 73Viet Nam 80 81 101 93 92 87 64 82 86 79 73 72 67Yemen 111 106 100 96 85 81 79 92 84 95 89 85 87Zambia 99 102 102 102 107 119 121 117 124 127 130 134 134Zimbabwe 85 84 103 100 99 103 109 107 117 111 133 136 138

Source: UNCTAD.

Note: Covering 140 economies and based on 12 economic and policy variables.a Three-year moving averages.

291ANNEX A

An

ne

x t

ab

le A

.I.8

. O

utw

ard

FD

I P

erf

orm

an

ce I

nd

ex

ra

nk

ing

s, 1

98

8-2

00

3a

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

2000

-200

220

01-2

003

Alba

nia

....

1412

2940

5349

6267

7476

8185

Alge

ria74

6067

7085

8998

101

106

9694

9082

81An

gola

7575

8182

102

101

116

109

108

115

117

116

115

115

Arge

ntin

a63

6143

4547

4244

3035

3950

5985

83Ar

men

ia..

....

....

..1

..42

4949

4850

57Au

stra

lia20

2826

2226

3230

2225

4358

3725

16Au

stria

2423

2229

3738

3933

3329

2124

2221

Azer

baija

n..

....

....

..2

..13

1019

1918

5Ba

ham

as95

8998

105

9597

112

105

105

108

106

111

112

113

Bahr

ain

2524

2020

1118

1616

1521

2827

278

Bang

lade

sh85

8689

9699

9610

210

010

411

111

210

010

310

2Be

laru

s..

....

....

..3

9910

110

910

810

712

712

6Be

lgiu

m a

nd Lu

xem

bour

g10

84

48

919

910

11

11

1Be

nin

....

....

..82

5850

5452

5149

7282

Boliv

ia66

6570

7276

8192

9297

102

9895

9792

Bots

wan

a49

4644

4851

4156

5890

8992

2119

19Br

azil

4442

5158

6659

7974

7161

5478

7091

Brun

ei D

arus

sala

m..

6473

3421

3341

4552

5867

6375

69Bu

lgar

ia..

..85

9094

112

123

118

123

9388

8277

74Bu

rkin

a Fa

so79

7796

7659

6175

9580

7980

8610

197

Cam

eroo

n38

4146

5054

7082

7381

9599

9495

94Ca

nada

2120

2423

2314

2113

1215

1414

1413

Chile

6147

3626

1819

2620

2319

1716

1725

Chin

a36

3935

3035

3960

6061

6469

6059

58Co

lom

bia

5157

5759

5653

6243

4350

5266

4945

Cong

o58

5862

6877

106

118

9712

112

512

473

6773

Cost

a Ri

ca54

5566

7175

7787

8492

9995

9176

67Cô

te d

’Ivoi

re41

3325

1522

3051

5460

5560

6810

510

4Cr

oatia

....

..56

6473

7853

5053

6258

3634

Cypr

us59

4849

4957

5459

4847

3829

2320

18Cz

ech

Repu

blic

....

6353

5255

6665

6975

7265

6259

Denm

ark

1715

1513

1212

2215

2011

85

712

Dom

inic

an R

epub

lic..

..10

167

6963

7475

9110

676

8889

121

Ecua

dor

8385

7178

6151

6438

5960

126

114

114

114

Egyp

t60

5365

6471

7284

6878

8290

9396

100

El S

alva

dor

8990

9310

210

410

394

9810

372

7375

123

119

Esto

nia

....

5960

6867

5423

2826

3622

2322

Ethi

opia

....

....

....

47

1120

3577

5446

Finl

and

1214

3755

1410

1712

68

68

423

/...

292 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

A.I

.8.

Ou

twa

rd F

DI

Pe

rfo

rma

nce

In

de

x r

an

kin

gs,

19

88

-20

03

a (

con

tin

ue

d)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

2000

-200

220

01-2

003

Fran

ce14

129

1010

1723

1718

129

1010

10Ga

bon

3337

4147

4947

6161

120

8571

6164

99Ga

mbi

a22

2219

1920

1625

1826

3032

3634

27Ge

orgi

a..

....

....

..5

..1

100

109

105

9479

Germ

any

1818

1618

3222

2414

1616

1618

2644

Ghan

a..

....

....

..20

1932

4744

3939

39Gr

eece

7891

7897

8991

104

8276

6342

4040

51Gu

atem

ala

8180

8795

9811

111

911

594

105

9698

9310

1Gu

inea

....

....

....

101

9498

9086

8586

84Gu

yana

....

....

101

6212

011

612

212

612

311

979

103

Haiti

9498

107

110

112

113

121

8996

110

107

109

107

108

Hond

uras

8079

8293

9694

107

103

110

116

116

117

116

116

Hong

Kon

g, C

hina

55

21

11

82

33

22

26

Hung

ary

..52

6973

7468

7751

4845

4142

4235

Icel

and

5238

4551

5349

4336

3732

2017

1517

Indi

a82

8486

9491

8790

8695

107

9171

6361

Indo

nesia

7173

4846

2827

3555

7088

8581

8080

Iran,

Isla

mic

Rep

ublic

of

..67

8499

103

109

9378

8862

5534

3226

Irela

nd13

1334

4239

2933

2619

1413

1316

20Is

rael

3430

2724

3131

3837

3836

2529

2836

Italy

2927

3236

4036

4034

3641

4033

3029

Jam

aica

2321

1816

1920

2828

3131

3335

3737

Japa

n16

1721

3748

4648

3946

5148

4641

41Jo

rdan

9288

104

109

113

115

126

122

125

9793

8471

72Ka

zakh

stan

....

....

100

9811

010

410

210

410

012

245

54Ke

nya

7278

9283

8671

8987

116

114

115

113

102

95Ko

rea,

Rep

ublic

of

3234

4041

4237

3732

3433

3444

4447

Kuw

ait

1519

135

4111

712

712

112

812

812

880

121

128

Kyrg

yzst

an..

....

....

..6

..27

3745

5555

56La

tvia

....

4710

811

511

612

812

355

5453

6773

63Le

bano

n90

9510

344

5860

113

7286

9159

5146

48Li

byan

Ara

b Ja

mah

iriya

3535

5311

111

411

468

4744

4247

5356

52Li

thua

nia

....

....

..86

105

6675

7789

8783

71M

adag

asca

r91

7077

9179

8096

114

117

122

101

101

108

111

Mal

awi

....

....

....

7376

7374

6564

6665

Mal

aysia

2831

4228

138

1411

1722

2430

2932

Mal

i84

9280

8784

9986

6953

3537

4351

49M

alta

....

..74

7065

7059

5646

4341

5253

Mex

ico

5654

5565

6075

7671

6557

6154

5855

/...

293ANNEX A

An

ne

x t

ab

le A

.I.8

. O

utw

ard

FD

I P

erf

orm

an

ce I

nd

ex

ra

nk

ing

s, 1

98

8-2

00

3a

(co

nti

nu

ed

)

Eco

nom

y19

88-1

990

1989

-199

119

90-1

992

1991

-199

319

92-1

994

1993

-199

519

94-1

996

1995

-199

719

96-1

998

1997

-199

919

98-2

000

1999

-200

120

00-2

002

2001

-200

3

Mol

dova

, Rep

ublic

of

....

....

628

5210

211

912

112

210

210

610

5M

oroc

co43

5058

6267

7480

8187

9281

7068

75M

ozam

biqu

e88

7691

8910

9..

9710

710

911

311

311

011

311

2Na

mib

ia55

4460

5793

105

124

120

126

124

110

124

124

124

Neth

erla

nds

32

33

33

114

54

33

34

New

Zea

land

117

1721

1513

122

124

127

3422

4757

125

Nica

ragu

a..

....

8492

9212

511

910

771

6669

6968

Nige

r46

5629

2730

5249

4145

5670

123

120

120

Nige

ria7

47

1124

2555

6367

6563

6265

66No

rway

1916

2332

3615

1810

1417

1820

2133

Oman

7372

8810

187

7888

9011

311

712

111

211

811

8Pa

kist

an53

6999

106

106

100

106

113

115

123

104

9992

88Pa

nam

a1

11

24

79

12

210

159

2Pa

pua

New

Gui

nea

3732

108

924

3435

4148

5731

3531

Para

guay

6474

9410

755

5667

7783

8784

8387

86Pe

ru47

5164

100

107

102

115

8382

7379

7488

78Ph

ilipp

ines

6259

5643

4443

6364

6681

102

125

122

96Po

land

6571

7985

8383

9191

7984

8312

098

76Po

rtug

al40

3633

3946

4542

2922

1815

1213

15Qa

tar

....

....

..44

5056

6369

6456

5350

Rom

ania

5763

7281

9093

109

112

118

118

120

121

119

89Ru

ssia

n Fe

dera

tion

....

..75

7266

6946

4944

3938

3838

Rwan

da69

8397

103

108

108

100

7989

9497

9291

87Sa

udi A

rabi

a26

9310

586

6369

7167

7486

8797

9910

7Se

nega

l50

9654

5243

6472

111

7778

7811

861

60Si

erra

Leo

ne86

6868

6680

9011

110

611

211

911

811

511

711

7Si

ngap

ore

99

57

22

103

47

126

53

Slov

akia

....

6163

6558

6557

5112

712

712

878

77Sl

oven

ia..

..10

098

111

110

117

8084

8068

5248

42So

uth

Afric

a48

4930

3333

2632

2430

2838

127

128

127

Spai

n30

2528

3538

3436

2521

1311

1112

11Sr

i Lan

ka68

6274

6973

7685

8585

8382

8910

093

Swed

en2

36

1417

615

89

97

98

7Sw

itzer

land

46

86

54

125

76

54

69

Taiw

an P

rovi

nce

of C

hina

610

1217

2523

2921

2425

2725

2424

TFYR

Mac

edon

ia..

....

....

..7

108

111

112

119

104

111

106

Thai

land

4545

5054

5048

4542

5759

7772

8462

Togo

4240

3838

4550

4744

4027

3045

125

123 /..

.

294 World Investment Report 2004: The Shift Towards Services

An

ne

x t

ab

le A

.I.8

. O

utw

ard

FD

I P

erf

orm

an

ce I

nd

ex

ra

nk

ing

s, 1

98

8-2

00

3a

(co

ncl

ud

ed

)

Eco

nom

y19

88-1

990

1989

-199

119

90-1

992

1991

-199

319

92-1

994

1993

-199

519

94-1

996

1995

-199

719

96-1

998

1997

-199

919

98-2

000

1999

-200

120

00-2

002

2001

-200

3

Trin

idad

and

Toba

go77

8783

8888

8899

117

124

2323

2643

28Tu

nisia

7066

7579

7884

9593

100

103

103

103

110

109

Turk

ey87

8176

8081

7983

7072

6856

5760

64Ug

anda

9397

106

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vin

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vera

ge

s.

295ANNEX A

Annex table A.I.9. Outward FDI Performance Index of the top 20 economies, based on stock ,1988-2003a

Rank Economy 1988-1990 1993-1995 1999-2001 2000-2002 2001-2003

1 Hong Kong, China 1.859 4.717 11.699 11.210 10.7502 Switzerland 3.671 4.464 4.929 5.132 5.1423 Singapore 2.590 3.656 3.864 4.019 4.4794 Belgium and Luxembourg 2.378 2.854 3.604 3.648 4.0295 Netherlands 4.469 4.149 4.283 4.151 3.8476 United Kingdom 2.936 2.731 3.046 2.993 2.8837 Panama 8.919 6.272 2.340 2.407 2.8458 Sweden 2.509 2.867 2.670 2.756 2.8369 Finland 0.892 1.204 2.012 2.226 2.107

10 Denmark 0.620 1.330 1.988 2.141 1.94811 France 0.959 1.353 1.699 1.868 1.82312 Canada 1.824 1.918 1.767 1.727 1.69713 Spain 0.369 0.589 1.405 1.559 1.40414 Ireland 3.376 2.276 1.861 1.669 1.38415 Malaysia 0.725 1.081 1.341 1.339 1.36416 Germany 1.086 1.036 1.326 1.433 1.36117 Bahrain 2.270 1.851 1.306 1.195 1.29918 Bahamas 2.659 3.652 1.625 1.378 1.29819 Portugal 0.166 0.287 0.827 1.058 1.17220 Australia 1.243 1.417 1.321 1.226 1.123

Source: UNCTAD.

Notes: Economies are ranked in descending order of their performance index in 2001-2003. Figures were calculated based onoutward stock.

a Three-year moving averages.

296 World Investment Report 2004: The Shift Towards Services A

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297ANNEX A

An

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x t

ab

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1. S

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fric

a: s

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nv

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298 World Investment Report 2004: The Shift Towards Services

Annex table A.I.12. China's approved FDI outflows, top 30 destinations, 1979-2002(Millions of dollars)

1999 2000 2001 2002 1979-2002Cumulative Cumulative

Number of Number of Number of Number of number of investmentRanka Economy projects b Value projects b Value projects b Value projects b Value projects b value

Total 220 590.6 243 551.0 232 707.5 350 982.7 6 960 9 340.0

1 Hong Kong, China 24 24.5 15 17.5 26 200.7 40 355.6 2 025 4 074.32 United States 21 81.1 15 23.1 19 53.7 41 151.5 703 834.53 Canada 1 0.1 8 31.7 4 3.5 4 1.2 144 436.04 Australia 3 1.7 13 10.2 6 10.1 15 48.6 215 431.05 Thailand 3 2.0 6 3.3 9 121.3 5 3.9 234 214.76 Russian Federation 12 3.8 14 13.9 12 12.4 27 35.5 482 206.67 Peru 1 75.7 1 0.001 2 3.1 .. .. 20 201.28 Macao, China 3 0.2 4 0.5 6 2.4 2 2.0 229 183.79 Mexico 2 97.0 1 19.8 1 0.2 1 2.0 45 167.4

10 Zambia 4 6.7 3 11.6 3 4.3 1 0.3 18 134.411 Cambodia 13 32.8 7 17.2 7 34.9 3 5.1 61 125.012 Brazil 1 0.5 3 21.1 4 31.8 8 9.3 67 119.713 South Africa 14 12.8 17 31.5 2 12.4 3 1.7 98 119.314 Republic of Korea 1 0.1 5 4.2 2 0.8 7 83.4 62 107.815 Viet Nam 2 6.6 17 17.6 12 26.8 20 27.2 73 85.016 Japan 1 0.5 2 0.3 6 1.7 11 18.2 236 82.117 Singapore 6 2.9 6 1.0 3 0.4 6 2.1 172 71.718 Myanmar 1 6.6 7 32.9 3 1.8 5 15.8 38 66.119 Indonesia 0 18.9 1 8.0 2 0.6 6 3.7 59 65.020 Mali 1 1.2 1 28.7 .. .. .. .. 5 58.121 Mongolia 15 40.3 12 5.4 7 4.5 7 3.4 69 56.622 Germany 1 0.3 1 1.6 3 3.5 6 2.8 150 51.523 New Zealand .. .. .. .. 2 0.9 2 0.9 26 48.724 Egypt 5 3.8 3 9.7 2 1.4 3 16.3 27 48.525 Oman .. .. .. .. .. .. 1 17.5 70 47.226 Papua New Guinea .. .. 1 0.9 .. .. .. .. 20 44.727 Nigeria 2 1.6 1 2.6 8 6.4 9 11.4 49 44.328 Tanzania, United Rep. of 3 16.3 1 1.0 .. .. 2 0.4 19 41.329 Kazakhstan 7 17.2 5 7.7 1 0.3 3 26.9 51 39.630 Lao PDR 1 2.0 2 24.4 1 1.2 2 61 18 36.6

Source: China, Ministry of Commerce, various years.a Ranked by cumulative investment value.b The number of projects refers to approved investment projects involving Chinese enterprises.

299ANNEX A

Annex table A.I.13. Geographical distribution of approved Indian outward FDI,fiscal years 1996-2003

(Millions of dollars; percentage)

Fiscal year TotalEconomy 1996-2000 2000/01 2001/02 2002/03 2003/04a FY 1996-2003 Share

United States 378.5 734.2 428.1 185.3 138.7 1 864.8 18.8Russian Federation 3.3 3.5 1 741.9 0.1 .. 1 748.8 17.6Mauritius 221.6 242.3 154.5 133.3 160.9 912.6 9.2Sudan .. .. .. 750.0 162.0 912.0 9.2British Virgin Islands 752.1 18.0 6.4 3.3 2.2 782.0 7.9United Kingdom 269.8 55.3 85.5 34.5 98.1 543.2 5.5Hong Kong, China 391.4 37.6 16.1 14.8 13.1 473.1 4.8Bermuda 156.9 0.7 75.0 28.9 14.7 276.3 2.8Viet Nam 0.4 0.1 228.2 0.1 0.0 228.9 2.3Singapore 88.5 39.4 25.0 46.8 13.5 213.2 2.1Oman 139.8 64.9 0.2 0.4 1.5 206.7 2.1Netherlands 49.1 65.7 43.1 15.9 29.9 203.7 2.1United Arab Emirates 87.2 11.3 11.8 12.6 29.5 152.3 1.5Australia 2.6 2.5 1.9 95.0 41.3 143.3 1.4Iran, Islamic Republic of 59.1 .. .. 43.6 0.1 102.9 1.0China 17.1 7.9 13.3 29.6 19.8 87.7 0.9Kazakhstan 3.2 .. 1.3 0.1 75.0 79.5 0.8Nepal 45.5 10.9 10.6 5.7 5.1 77.8 0.8Austria 26.3 0.5 50.9 .. .. 77.6 0.8Sri Lanka 51.8 8.4 1.4 6.6 6.0 74.2 0.7Malta .. .. 21.7 24.4 21.0 67.0 0.7Ireland 31.8 0.2 11.4 0.0 43.5 0.4Italy 11.7 30.5 0.0 0.1 0.0 42.3 0.4Malaysia 33.0 4.8 1.4 0.8 1.4 41.5 0.4Thailand 22.1 0.4 2.6 7.7 7.3 40.2 0.4Indonesia 7.8 .. 12.4 0.1 19.3 39.6 0.4Morocco 32.5 .. .. .. .. 32.5 0.3Libyan Arab Jamahiriya .. .. 30.0 .. .. 30.0 0.3Others 255.7 42.9 52.4 32.5 45.7 428.5 4.3

All countries 3 138.9 1 382.2 3 027.0 1 472.2 906.1 9 925.6 100.0

Memorandum:Developed countries 809.0 913.3 651.5 367.6 346.2 3 086.9 31.1Developing countries 2 329.9 468.8 2 375.5 1 104.6 560.0 6 838.7 68.9

Source: UNCTAD, based on data from India, Ministry of Finance.a Covers April-December 2003.

Note: Data consists of equity, loans and guarantees.

300 World Investment Report 2004: The Shift Towards Services

Annex table A.I.14. Industry distribution of approved Indian outward FDI, fiscal years 1999-2003(Millions of dollars and per cent)

Industry Manufacturing Financial services Non-financial services Trading Others TotalFiscal yeara Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage

1999/00 535.8 30.9 4.3 0.2 1 130.7 65.3 58.3 3.4 2.3 0.1 1 731.52000/01 370.7 26.8 16.6 1.2 876.5 63.4 89.2 6.5 29.1 2.1 1 382.22001/02 2 210.9 73.0 48.6 1.6 565.5 18.7 139.2 4.6 62.3 2.1 3 027.02002/03 1 056.7 71.8 1.8 0.1 280.2 19.0 69.9 4.7 63.7 4.3 1 472.22003/04b 504.5 55.7 35.1 3.9 223.3 24.6 37.0 4.1 106.3 11.7 906.3Total

1999/03 4 678.7 54.9 106.4 1.2 3 076.2 36.1 393.5 4.6 263.7 3.1 8 519.2

Source: UNCTAD, based on data from India, Ministry of Finance.a Fiscal year covers April of current year to March of following year.b Covers April-December 2003.

Note: Data include equity, loans and guarantees.

Annex table A.I.15. Top 15 IT software and service exporters from India, fiscal year 2002-2003(Millions of dollars)

Rank Company Export value Selected locations of affiliates

1 Tata Consultancy Services 963.0 Belgium, China, Germany, Japan, Netherland, Singapore2 Infosys Technologies Ltd 750.7 Australia, Canada, China, Singapore, United States3 Wipro Technologies 590.5 Japan, Sweden, United Kingdom, United States4 Satyam Computer Services Ltd 424.4 Germany, United Kingdom5 HCL Technologies Ltd 324.3 Bermuda, Ireland, Netherlands, United States6 Patni Computer Systems Ltd 193.6 United Kingdom, United States7 Mahindra British Telecom Ltd 134.5 United States8 iFlex Solutions 125.7 United States9 HCL Perot Systems Ltd 95.1 ..

10 NIIT Ltd 90.3 Germany, Switzerland, United States11 Polaris Software 77.8 Germany, United States12 Birlasoft Ltd 73.4 United Kingdom, United States13 Mphasis BFL Ltd 71.1 China14 Pentafoft Technologies Ltd 62.8 Indonesia, United States15 Hexaware Technologies Ltd 54.6 Germany, Singapore, United Kingdom, United States

Source: UNCTAD, based on National Association of Software and Service Companies, India and various media sources.

Note: Companies such as Cognizant Technology Solutions, Syntel and others that are registered in the United States but offerIndia-based services delivery, are not included in the ranking.

301ANNEX A

Annex table A.I.16. Outward FDI stock of Brazil, by sector and industry, 2002(Millions of dollars)

Sector/industry Value

Total 43 396.7Primary 119.3

Agriculture, hunting, forestry and fishing 37.3Mining, quarrying and petroleum 82.0

Manufacturing 1 732.1Food, beverages and tobacco 145.8Textiles, clothing and leather 28.0Wood and wood products 33.2Publishing, printing and reproduction of record -Coke, petroleum products and nuclear fuel 227.9Chemicals and chemical products 15.9Rubber and plastic products 548.0Non-metallic mineral products 269.8Metal and metal products 150.7Machinery and equipment 179.6Electrical and electronic equipment 22.2Precision instruments -Motor vehicles and other transport equipment 111.0Other manufacturing -Recycling -

Services 41 545.3Electricity, gas and water 129.3Construction 1 504.2Trade 1 845.5Hotels and restaurants 7.5Transport, storage and communications 254.3Finance 23 596.7Business activities 14 129.3Public administration and defence -Education 1.0Health and social services 0.1Community, social and personal service activiti 77.4Other services -

Source: Data from Central Bank of Brazil.

Annex table A.I.17. Principal location targets of Brazilian firmsplanning to invest abroad, 2001

(Percentage)

Economy Share

Europe 21.6United States 20.4Mexico 10.0MERCOSUR 9.3Chile 6.2Venezuela 3.7Equador 2.5China 2.0Bolivia 2.0Colombia 2.0India 2.0

Panama 2.0

Source: Brazil, Development Bank (BNDES), 2002.

302 World Investment Report 2004: The Shift Towards Services

Annex table A.I.18. Estimated world inward FDI stock, by sector and industry, 1990, 2002(Millions of dollars)

1990 2002

Central andDeveloped Developing Developed Developing Eastern

Sector/industry countries economies World countries economies Europe World

Primary 159 432 23 068 182 500 297 165 144 800 6 936 448 901Agriculture, hunting, forestr y and fishing 3 647 3 951 7 598 7 578 18 979 907 27 464Mining, quarrying and petroleum 155 786 16 774 172 560 289 587 125 821 6 029 421 437Unspecified primar y - 2 343 2 343 - - - -

Manufacturing 650 974 155 941 806 915 1 601 944 750 221 90 398 2 442 563Food, beverages and tobacco 73 142 10 108 83 249 143 825 29 235 18 978 192 038Textiles, clothing and leather 24 371 5 426 29 797 41 286 9 087 1 965 52 338Wood and wood products 20 943 4 811 25 755 53 137 16 729 8 187 78 054Publishing, printing and reproduction of recorded media 15 829 499 16 328 70 721 273 510 71 504Coke, petroleum products and nuclear fuel 56 307 3 450 59 757 33 177 10 116 901 44 194Chemicals and chemical products 126 362 49 146 175 508 338 468 70 874 8 848 418 189Rubber and plastic products 13 384 2 659 16 044 26 207 4 632 3 185 34 024Non-metallic mineral produc ts 17 540 3 038 20 578 49 044 6 544 8 556 64 144Metal and metal produc ts 51 947 16 537 68 483 119 653 26 426 4 304 150 382Machiner y and equipment 48 984 9 803 58 788 98 378 24 492 4 441 127 311Electrical and electronic equipment 74 747 18 981 93 729 216 554 62 093 9 290 287 937Precision instruments 12 391 524 12 915 25 151 2 441 287 27 879Motor vehicles and other transport equipment 49 242 8 907 58 149 214 499 21 315 15 927 251 741Other manufacturing 19 377 2 852 22 229 52 896 10 615 614 64 125Unspecified secondar y 46 408 19 199 65 606 118 947 455 350 4 405 578 703

Ser vices 784 758 163 348 948 106 3 130 002 1 098 544 134 824 4 363 371Electricity, gas and water 7 021 3 051 10 072 89 921 45 463 8 467 143 851Construction 17 452 5 157 22 609 35 577 33 632 6 227 75 436Trade 209 168 24 159 233 327 617 058 148 293 28 373 793 724Hotels and restaurants 22 188 3 193 25 382 53 031 19 825 2 478 75 334Transpor t, storage and communications 16 677 12 313 28 990 338 152 105 716 32 214 476 082Finance 289 508 92 945 382 453 963 542 246 299 39 133 1 248 975Business activities 117 459 8 298 125 756 703 053 434 109a 13 514 1 150 676a

Public administration and defence - - - 6 524 88 5 6 617Education 99 - 99 370 16 15 400Health and social ser vices 1 044 - 1 044 8 364 4 067 123 12 553Community, social and personal ser vice activities 14 026 3 14 029 62 926 5 427 1 130 69 483Other ser vices 75 681 13 074 88 755 63 652 38 235 3 144 105 032Unspecified tertiar y 14 435 1 156 15 591 187 832 17 375 - 205 207

Private buying and selling of property - - - 1 218 - 665 1 884Unspecified 9 187 3 595 12 782 37 365 69 174 8 296 114 835

Source: UNCTAD.

a A considerable share of investment in this industry is in Hong Kong (China), accounting for 40% of developing economiesand 15% of the world total. Hong Kong (China) data include investment holding companies.

Notes: Data should be interpreted with caution. The world total was extrapolated on the basis of data covering 48 countriesin 1990 and 61 countries in 2002, or latest year available. They account for over four-fifths of world inward FDI stock in1990 and 2002. Only countries for which data for the three main sectors were available, were included. The distributionshare of each industry of these countries was applied to estimate the world total in each sector and industry. As a result,the sum of the sectors for the individual economy groups is different from the totals shown in annex table B.3. Approvaldata were used for Mongolia in 1992 and Sri Lanka in 1990. However in the case of Cambodia, China, Indonesia, Lao People'sDemocratic Republic, Mongolia (2002), Myanmar, Nepal, Taiwan Province of China and Viet Nam, the actual data was estimatedby applying the implementation ratio of realized FDI to approved FDI to the latter (33% in 1994 for Cambodia, 54% in2002 for China, 30% in 1997 for Indonesia, 10% in 1990 and 7% in 1999 for Lao People's Democratic Republic, 44% in 2002for Mongolia, 39% in 1990 and 45% in 2002 for Myanmar, 41% in 1990 and 47% in 1999 for Nepal, 74% in 1990 and 63%in 2002 for Taiwan Province of China and 15% in 1990 for Viet Nam). The world total in 1990 includes the countries ofCentral and Eastern Europe, although data by sector and industry are not available for that region.

303ANNEX A

Annex table A.I.19. Estimated world outward FDI stock, by sector and industry, 1990, 2002(Millions of dollars)

1990 2002

Central andDeveloped Developing Developed Developing Eastern

Sector/industry countries economies World countries economies Europe World

Primary 156 913 862 157 775 259 782 3 450 79 263 311Agriculture, hunting, forestr y and fishing 5 096 283 5 379 4 878 627 13 5 518Mining, quarrying and petroleum 151 817 579 152 396 254 904 2 823 66 257 793

Manufacturing 770 491 6 075 776 566 1 922 143 83 311 1 470 2 006 925Food, beverages and tobacco 73 666 418 74 084 223 585 1 467 176 225 228Textiles, clothing and leather 19 009 186 19 195 96 976 1 541 46 98 563Wood and wood products 20 926 80 21 006 69 459 915 39 70 413Publishing, printing and reproduction of recorded media 2 200 - 2 200 11 078 - 8 11 086Coke, petroleum products and nuclear fuel 39 215 - 39 215 24 447 302 11 24 760Chemicals and chemical products 146 262 758 147 020 416 750 2 563 423 419 736Rubber and plastic products 14 155 100 14 255 21 859 1 139 6 23 004Non-metallic mineral produc ts 12 826 182 13 008 16 000 712 57 16 769Metal and metal produc ts 65 106 84 65 190 206 351 1 606 93 208 050Machiner y and equipment 40 723 22 40 744 82 342 324 114 82 780Electrical and electronic equipment 94 933 1 012 95 945 187 608 8 735 32 196 375Precision instruments 13 164 - 13 164 21 627 218 14 21 859Motor vehicles and other transport equipment 58 620 10 58 630 316 623 909 174 317 706Other manufacturing 34 828 10 34 838 25 474 261 42 25 778Unspecified secondar y 134 859 3 213 138 072 201 966 62 619 234 264 818

Ser vices 809 037 11 286 820 323 4 267 506 491 076 4 089 4 762 672Electricity, gas and water 9 396 - 9 396 92 085 170 97 92 351Construction 17 594 177 17 770 30 429 7 735 87 38 250Trade 135 637 1 826 137 463 420 738 59 370 688 480 796Hotels and restaurants 6 902 - 6 902 77 683 8 429 - 86 112Transpor t, storage and communications 38 587 498 39 085 465 500 33 573 755 499 829Finance 387 646 6 988 394 633 1 496 998 106 701 1 587 1 605 286Business activities 52 029 1 275 53 304 1 434 435 264 680 791 1 699 906Public administration and defence - - - 3 791 - - 3 791Education 419 - 419 6 063 1 - 6 065Health and social ser vices 834 - 834 574 - 1 575Community, social and personal ser vice activities 3 019 - 3 019 14 653 122 6 14 781Other ser vices 108 252 523 108 775 89 558 10 295 79 99 933Unspecified tertiar y 48 722 - 48 722 134 999 - - 134 999

Private buying and selling of property - - - 2 405 - - 2 405Unspecified 3 314 238 3 552 123 153 51 049 66 174 269

Source: UNCTAD.

Notes: Data should be interpreted with caution. The world total was extrapolated on the basis of data covering 23 countriesin 1990 and 35 countries in 2002, or latest year available. They account for around four-fifths of world outward FDI stockin 1990 and in 2002. The distribution share of each industry of these countries was applied to estimate the world totalin each sector and industry. As a result, the sum of the sectors for the individual economy groups is different from thetotals shown in annex table B.4. Approval data were used for Taiwan Province of China. For 1990, the world total includesthe countries of Central and Eastern Europe although data by sector and industry were not available for that region. Moreover,as major home developing economies were not covered due to lack of data, the respective shares for developing economieswere underestimated in that year.

304 World Investment Report 2004: The Shift Towards Services

Annex table A.I.20. Inward FDI in services,a 1990-2002(Millions of dollars)

Flows StockAverage Average Average

Economy 1990-1994 1995-1999 2000-2002 2001 2002 1990 1995 2000 2001 2002

Developed countriesAustralia 1 560 3 627 3 154 b - 3 115 .. .. 49 067 55 982 47 816 ..Austria .. 2 611 4 548 4 869 310 4 162 11 423 21 852 25 359 ..Belgium .. 4 267 .. .. .. .. .. .. .. ..Canada 1 827 5 306 2 744 1 606 3 038 37 152 41 833 62 692 69 457 69 808Denmark 956 5 078 14 584 9 552 5 054 .. .. 58 635 58 696 ..Finland 303 2 519 6 086 3 956 7 188 .. 3 294 12 997 13 616 ..France 8 244 20 512 35 398 42 338 36 749 48 448 129 098 198 884 231 761 ..Germany 5 016 20 340 91 495 27 792 42 433 51 654 92 044 183 791 176 093 ..Iceland 2 36 81 158 59 44 46 171 327 371Ireland 11 3 483 9 820 4 650 11 235 .. .. .. .. ..Israelc 43 .. .. .. .. .. .. .. .. ..Italy 2 193 3 128 7 668 b 8 279 .. 35 745 37 107 62 565 59 473 ..Japancc 2 005 6 073 18 442 b 15 222 .. .. .. .. .. ..Luxembourg .. .. .. .. .. .. 15 926 18 643 .. ..Netherlands 4 167 13 527 37 604 b 32 461 .. 35 188 61 866 158 693 181 414 ..Nor way 61 1 661 2 738 1 364 494 4 181 7 454 14 522 15 591 19 223Portugal 569 1 463 3 101 5 045 1 803 .. 11 230 13 392 .. ..Spain 4 195 5 446 23 014 b 12 656 .. .. .. .. .. ..Sweden 1 186 4 850 6 721 3 888 8 403 .. 10 063 28 107 27 842 ..Switzerland 1 250 4 524 8 346 9 878 5 604 .. 48 889 71 456 73 653 107 123United Kingdom 8 549 32 410 51 477 30 176 26 853 83 766 93 164 295 480 309 135 361 591United States 23 867 73 901 108 175 100 085 25 532 196 113 281 007 734 134 822 337 826 447

Developing economiesArgentina 1 618 3 272 1 658 1 260 - 1 036 .. 11 451 22 989 24 524 8 095Armenia .. 127 88 65 94 .. .. 360 425 519Bangladesh .. 81 165 54 189 .. 19 674 728 ..Bolivia 21 377 355 302 434 124 .. .. .. ..Brazil .. 14 786 15 757 12 547 10 585 9 322 12 864 65 888 .. ..Brunei Darussalam .. 3 199 6 586 .. .. .. .. ..Cambodia 425 c 508 c 95 c 65 c 86 c .. .. 627 659 648Chile 329 3 330 2 221 3 063 1 176 .. .. .. 24 379 ..China .. 15 760 12 805 13 210 13 014 .. .. .. 242 334 c 259 689 c

Colombia 707 1 837 1 299 1 224 915 .. .. 6 435 8 417 8 925Costa Rica 55 131 163 215 163 .. .. .. .. ..Cyprus 8 420 726 b 572 .. .. .. .. .. ..Dominican Republic .. 570 901 976 899 .. .. .. .. ..Ecuador 14 112 101 132 141 .. .. .. .. ..Egypt .. .. .. .. .. .. 6 479 .. .. ..El Salvador .. 562 145 159 143 .. .. .. 1 628 1 771Ethiopia 7 41 10 d .. .. .. .. .. .. ..Fiji .. 13 7 5 0.2 .. .. .. .. ..Guyana 24 20 .. .. .. .. .. .. .. ..Honduras 22 55 109 123 121 .. .. .. .. ..Hong Kong, China .. 16 540 30 647 24 101 7 757 .. 65 093 418 998 387 631 312 580India 52 725 .. .. .. .. .. .. .. ..Indonesia .. - 726 - 699 - 1 098 - 61 .. 6 415 .. .. ..Iran, Islamic Rep. ofc 185 173 .. .. .. .. .. .. .. ..Jamaica .. 128 .. .. .. .. .. .. .. ..Jordan 6 .. .. .. .. .. .. .. .. ..Kazakhstan 119 328 652 671 897 .. 96 .. 2 888 3 759Kenyac 28 8 .. .. .. .. .. .. .. ..Kyrgyzstan .. 30 - 3 - 6 - 1 .. .. .. .. ..Lao People’s Dem. Rep. .. 25 10 6 16 .. .. .. .. ..Macao, China .. .. 123 e 123 .. .. .. .. 2 497 ..Malaysia .. 115 12 b 13 .. 1 997 4 893 .. .. ..Mauritius 16 22 103 21 12 .. .. .. .. ..

/...

305ANNEX A

Annex table A.I.20. Inward FDI in services,a 1990-2002 (concluded)(Millions of dollars)

Flows StockAverage Average Average

Economy 1990-1994 1995-1999 2000-2002 2001 2002 1990 1995 2000 2001 2002

Mexico 4 344 3 565 10 785 20 498 5 508 .. .. .. .. ..Mongoliac 4 18 56 38 102 1 39 141 179 281Morocco .. 487 1 103 2 661 271 .. .. .. .. ..Myanmar .. 26 50 48 40 168 c 1 032 c 2 599 c 2 599 c 2 599 c

Namibia .. .. .. .. .. 361 .. .. .. ..N epalc 14 19 .. .. .. 12 60 .. .. ..Nicaragua 21 126 207 d .. .. .. .. .. .. ..Nigeria .. 437 .. .. .. 297 .. .. .. ..Oman 11 50 .. .. .. .. .. .. .. ..Pakistan 271 304 227 99 411 1 277 3 989 .. .. ..Papua New Guinea 366 c 234 c .. .. .. 55 52 .. .. ..Paraguay 19 131 53 b 34 .. .. 400 863 715 ..Peru 649 647 806 529 534 369 3 233 7 528 8 057 8 591Philippinesf 110 710 607 529 315 768 1 701 5 791 6 309 6 624Republic of Korea 289 1 708 2 232 1 568 1 903 1 961 3 847 14 879 16 447 18 350Singapore .. 9 067 5 716 6 004 4 426 17 824 g 40 515 g 71 393 g .. ..Solomon Islandsc 13 42 .. .. .. .. .. .. .. ..Sri Lanka .. 306 c 81 c 40 c 85 c .. 901 c 1 017 959 2 643 c

Taiwan Province of Chinac 662 1 565 3 176 3 119 1 828 3 607 7 001 18 499 21 619 23 446Thailand 1 220 3 004 830 983 154 3 923 10 235 18 725 19 308 19 941Trinidad and Tobago 3 16 .. .. .. .. .. .. .. ..Tunisia 10 31 38 70 14 .. .. .. .. ..Turkey .. .. 1 601 b 2 439 .. .. .. .. 8 870 ..United Rep. of Tanzania .. 68 .. .. .. .. .. .. .. ..Vanuatu .. 8 9 8 6 .. .. .. .. ..Venezuela 452 500 366 118 377 630 2 252 4 854 4 972 5 349Viet Nam .. 561 291 384 111 369 c 8 456 c .. .. ..Zambia 60 42 .. .. .. .. .. .. .. ..Zimbabwec 65 80 .. .. .. .. .. .. .. ..

Central and Eastern EuropeBulgaria .. 326 672 522 766 .. .. 3 062 .. ..Croatia .. .. .. .. .. .. 1 019 1 598 1 356 2 258Czech Republic .. 10 266 b 402 .. .. .. .. .. ..Estonia .. 289 748 d .. .. .. .. .. .. ..Hungary 326 1 962 4 743 3 923 7 456 .. .. 12 952 16 402 24 375Latvia 91 216 334 453 230 .. .. 2 015 2 470 3 391Lithuania .. 1 444 1 033 d .. .. .. .. 11 383 12 026 15 811Poland .. .. .. .. .. .. .. 1 675 1 810 ..Russian Federation .. 425 322 d .. .. .. .. 1 627 .. ..Slovakia .. 2 699 7 220 d .. .. .. .. 20 720 31 143 ..Slovenia .. 1 361 2 045 1 996 1 725 .. .. 7 457 8 501 9 452TFYR of Macedonia .. .. .. .. .. .. .. 1 710 .. ..

Source: UNCTAD, FDI database (www.unctad,org/fdistatistics).

a Includes industries classified under ISIC codes 40,45,50,51,52,55,60,61,62,63,64,65,66,67,70,71,72,73,74,75,80,85,91,92 and 93.b 2000-2001 average.c Approval data.d 2000 only.e 2001 only. f Data refer only to equity.g Data for 1990-1996 refer only to equity, while data for 1997-2000 refer to total direct investment.

306 World Investment Report 2004: The Shift Towards Services

Annex table A.I.21. Outward FDI in services,a 1990-2002(Millions of dollars)

Flows StockAverage Average Average

Economy 1990-1994 1995-1999 2000-2002 2001 2002 1990 1995 2000 2001 2002

Developed countriesAustralia 1 363 1 302 3 996 b 5 112 .. .. 18 780 29 076 29 696 ..Austria .. 1 556 4 127 2 279 4 738 1 645 8 184 18 686 20 959 ..Belgium .. 2 483 .. .. .. .. .. .. .. ..Canada 1 781 7 558 15 120 20 420 17 341 44 048 63 682 126 306 144 920 166 493Denmark 694 4 694 12 332 11 030 4 205 .. .. 50 805 54 700 ..Finland 398 2 462 3 872 885 876 .. 1 457 13 844 14 102 ..France 10 360 36 976 90 344 74 090 44 382 52 032 262 999 325 987 371 581 ..Germany 9 438 32 562 31 841 40 373 18 538 67 541 151 186 333 855 422 931 ..Iceland 7 34 228 221 147 14 64 407 505 671Ireland .. .. 980 c 235 1 725 .. .. .. .. ..Israel 95 .. .. .. .. .. .. .. .. ..Italy 4 319 4 572 6 685 b 7 904 .. 37 062 62 914 95 279 91 416 ..Japand 35 884 27 554 27 049 b 17 336 .. .. .. .. .. ..Luxembourg .. .. .. .. .. .. 1 365 .. .. ..Netherlands 7 124 21 802 40 206 b 32 395 .. 48 090 84 985 173 295 185 687 ..Nor way 533 1 696 1 165 - 3 669 1 700 3 402 7 992 14 421 .. ..Portugal 192 1 195 3 636 7 411 3 138 .. .. 10 894 .. ..Spain 2 634 10 146 34 983 b 19 988 .. .. .. .. .. ..Sweden 2 628 3 548 11 371 1 793 10 415 .. 23 129 46 356 46 871 ..Switzerland 2 906 11 979 13 958 11 488 - 238 27 073 71 130 156 748 176 601 197 391United Kingdom 10 285 46 844 88 580 25 492 36 974 96 053 122 170 573 435 496 109 575 822United States 30 868 84 194 79 226 60 006 81 426 212 283 392 540 902 952 941 738 1 049 943

Developing economiesBrazil .. .. .. .. .. .. .. .. 38 742 41 545Colombia 59 465 158 - 131 80 301 690 3 340 .. ..Cyprus 8 80 163 b 196 .. .. .. .. .. ..Hong Kong, China .. 14 382 25 745 12 623 11 194 .. .. 333 483 303 838 254 514Kazakhstan .. 3 9 25 - 1 .. 0.3 .. 38 36Macao, China .. .. 17 e 17 .. .. .. .. 106 ..Mauritius 25 3 6 b 2 .. .. .. .. .. ..Nigeria .. 3 .. .. .. .. .. .. .. ..Republic of Korea 419 1 379 1 339 653 815 633 3 337 11 442 12 095 12 910Singapore .. .. .. .. .. 6 275 25 881 38 396 .. ..Taiwan Province of Chinad 745 1 736 2 989 2 377 2 497 1 101 4 971 16 968 19 345 21 842Thailand 131 363 - 6 64 17 246 1 474 1 615 1 645 1 702Turkey .. .. 419 b 323 .. .. .. .. .. ..

Central and Eastern EuropeBulgaria .. 10 4 f .. .. .. .. 36 .. ..Croatia .. .. .. .. .. .. .. 150 .. ..Czech Republic .. 58 130 134 235 .. .. 637 1 019 1 208Estonia 1 46 115 166 137 .. .. 216 362 591Hungary .. 84 168 f .. .. .. .. 993 1 227 1 525Poland .. 25 4 f .. .. .. .. 878 .. ..Russian Federation .. .. .. .. .. .. .. 381 .. ..Slovakia .. .. .. .. .. .. .. 195 .. ..Slovenia .. .. .. .. .. .. 257 321 424 649TFYR of Macedonia .. .. 0.5 b 1 .. .. .. .. .. ..

Source: UNCTAD, FDI database (www.unctad.org/fdistatistics).a Includes industries classified under ISIC codes 40,45,50,51,52,55,60,61,62,63,64,65,66,67,70,71,72,73,74,75,80,85,91,92 and 93.b 2000-2001 average.c 2001-2002 average.d Approval data.e 2001 only.f 2000 only.

307ANNEX A

Annex table A.I.22. Share of services in total inward FDI,a 1990-2002(Percentage)

Flows StockAverage Average Average

Economy 1990-1994 1995-1999 2000-2002 2001 2002 1990 1995 2000 2001 2002

Developed countriesAustralia 31.1 52.3 36.2 b - 70.7 .. .. 47.1 51.2 44.9 ..Austria .. 77.1 84.0 82.8 20.4 42.1 65.2 71.8 73.9 ..Belgium .. 77.7 .. .. .. .. .. .. .. ..Canada 32.5 34.0 7.1 5.6 14.7 32.9 34.0 30.6 33.2 31.6Denmark 46.6 78.9 87.1 83.2 84.9 .. .. 91.1 89.2 ..Finland 31.9 59.9 89.5 106.0 91.7 .. 38.9 53.5 56.6 ..France 69.5 73.0 70.8 76.7 71.4 55.8 67.4 76.6 80.2 ..Germany 191.4 91.2 107.2 129.5 126.5 46.4 55.5 67.7 66.4 ..Iceland 31.3 41.5 52.7 91.6 49.6 30.1 35.9 34.8 48.4 46.3Ireland 3.4 60.9 50.7 48.2 46.1 .. .. .. .. ..Israelc 20.7 .. .. .. .. .. .. .. .. ..Italy 61.6 64.3 57.0 b 58.4 .. 61.6 58.5 57.0 57.0 ..Japancc 53.3 63.4 78.6 b 84.9 .. .. .. .. .. ..Luxembourg .. .. .. .. .. .. 86.1 80.5 .. ..Netherlands 57.8 57.1 67.7 b 59.5 .. 52.5 55.2 65.6 65.0 ..Nor way 5.0 40.0 85.6 67.9 72.8 33.7 39.6 48.0 47.9 45.1Portugal 45.4 81.3 65.6 85.6 97.8 .. 62.7 47.6 .. ..Spain 40.9 66.4 85.5 b 69.7 .. .. .. .. .. ..Sweden 32.1 21.7 43.7 33.0 75.8 .. 33.0 29.9 30.3 ..Switzerland 76.2 69.4 74.2 111.5 99.2 .. 85.7 82.3 83.0 85.6United Kingdom 50.4 67.5 77.5 57.3 96.7 41.1 46.6 67.4 61.0 63.6United States 64.1 52.5 66.5 69.5 85.0 49.7 52.5 58.4 60.7 61.3

Developing economiesArgentina 44.7 30.9 37.2 58.2 - 133.8 .. 40.9 33.9 35.6 23.3Armenia .. 68.4 73.2 74.3 62.8 .. .. 72.6 72.8 70.8Bangladesh .. 28.5 45.7 58.0 68.5 .. 5.3 27.7 28.9 ..Bolivia 18.1 51.6 39.4 36.3 41.5 15.4 .. .. .. ..Brazil .. 69.5 64.6 59.6 56.4 25.0 30.9 64.0 .. ..Brunei Darussalam .. 0.4 28.3 1.2 56.6 .. .. .. .. ..Cambodia 84.2 c 57.6 c 59.2 c 44.7 c 55.6 c .. .. 39.7 38.1 36.4Chile 21.8 59.1 60.4 64.7 35.4 .. .. .. 51.9 ..China .. 36.1 27.4 28.2 24.7 .. .. .. 32.5 c 31.4 c

Colombia 48.9 65.7 57.1 49.2 44.8 .. .. 59.1 55.9 50.6Costa Rica 24.9 27.3 32.1 47.4 24.6 .. .. .. .. ..Cyprus 13.1 87.5 99.6 b 87.8 .. .. .. .. .. ..Dominican Republic .. 96.0 90.3 90.5 93.6 .. .. .. .. ..Ecuador 4.7 17.5 9.1 9.9 11.1 .. .. .. .. ..Egypt .. .. .. .. .. .. 48.5 .. .. ..El Salvador .. 85.2 68.8 63.4 68.6 .. .. .. 73.3 72.8Ethiopia 97.3 25.5 7.7 d .. .. .. .. .. .. ..Fiji .. 39.5 51.3 65.6 47.2 .. .. .. .. ..Guyana 22.7 31.7 .. .. .. .. .. .. .. ..Honduras 46.6 44.4 50.1 63.5 69.2 .. .. .. .. ..Hong Kong, China .. 84.1 96.4 101.4 80.1 .. 91.7 92.0 92.4 93.0India 10.5 28.3 .. .. .. .. .. .. .. ..Indonesia .. 28.5 22.4 33.5 4.0 .. 17.2 .. .. ..Iran, Islamic Rep. ofc 89.2 16.8 .. .. .. .. .. .. .. ..Jamaica .. 28.7 .. .. .. .. .. .. .. ..Jordan 41.7 .. .. .. .. .. .. .. .. ..Kazakhstan 12.3 27.1 29.3 23.8 35.0 .. 3.3 .. 22.4 24.5Kenyac 47.6 11.2 .. .. .. .. .. .. .. ..Kyrgyzstan .. 40.0 - 106.8 - 116.0 - 14.6 .. .. .. .. ..Lao People’s Dem. Rep. .. 48.9 34.6 24.0 62.7 .. .. .. .. ..Macao, China .. .. 93.1 e 93.1 .. .. .. .. 87.4 ..Malaysia .. 3.0 0.6 b 2.4 .. 35.4 33.5 .. .. ..Mauritius 73.9 64.4 91.5 64.4 43.7 .. .. .. .. ..

/...

308 World Investment Report 2004: The Shift Towards Services

Annex table A.I.22. Share of services in total inward FDI,a 1990-2002 (concluded)(Percentage)

Flows StockAverage Average Average

Economy 1990-1994 1995-1999 2000-2002 2001 2002 1990 1995 2000 2001 2002

Mexico 28.9 30.3 64.1 80.9 56.8 .. .. .. .. ..Mongoliac 54.7 36.0 43.4 30.1 59.1 100.0 51.4 37.0 35.3 41.3Morocco .. 53.6 86.5 92.6 56.5 .. .. .. .. ..Myanmar .. 8.7 28.3 24.8 31.1 23.0 c 31.9 c 35.1 c 35.1 c 34.7 c

Namibia .. .. .. .. .. 17.7 .. .. .. ..Nepalc 52.7 68.3 .. .. .. 44.2 48.2 .. .. ..Nicaragua 50.3 76.2 78.1 d .. .. .. .. .. .. ..Nigeria .. 29.5 .. .. .. 25.6 .. .. .. ..Oman 3.3 14.6 .. .. .. .. .. .. .. ..Pakistan 64.6 69.1 56.6 72.8 51.5 67.5 73.4 .. .. ..Papua New Guinea 26.3 c 22.0 c .. .. .. 3.4 3.1 .. .. ..Paraguay 21.0 70.2 56.0 b 45.1 .. .. 62.3 71.3 69.2 ..Peru 82.1 64.4 86.4 76.0 79.8 28.3 63.9 69.0 69.4 70.0Philippinesf 25.0 57.8 49.3 61.6 22.0 23.5 28.0 45.2 46.2 43.9Republic of Korea 38.3 41.9 44.2 42.9 64.8 37.8 35.2 34.9 34.7 42.0Singapore .. 70.7 58.1 54.8 72.6 58.5 g 61.7 g 63.3 g .. ..Solomon Islandsc 5.4 29.8 .. .. .. .. .. .. .. ..Sri Lanka .. 75.4 c 48.1 c 42.6 c 50.9 c .. 43.2 c 63.7 63.2 59.0 c

Taiwan Province of Chinac 39.4 44.4 59.5 60.8 55.9 27.2 31.4 41.5 43.5 44.3Thailand 61.8 68.6 30.3 25.7 15.7 47.6 57.9 62.2 58.0 56.8Trinidad and Tobago 1.1 2.7 .. .. .. .. .. .. .. ..Tunisia 2.4 7.6 5.8 14.5 2.0 .. .. .. .. ..Turkey .. .. 75.4 b 74.7 .. .. .. .. 50.6 ..United Rep. of Tanzania .. 13.2 .. .. .. .. .. .. .. ..Vanuatu .. 46.6 90.5 85.9 87.0 .. .. .. .. ..Venezuela 53.7 12.9 11.8 3.4 27.6 16.3 27.3 17.2 15.7 16.2Viet Nam .. 37.8 23.0 29.6 9.2 20.6 c 45.8 c .. .. ..Zambia 25.2 21.5 .. .. .. .. .. .. .. ..Zimbabwec 21.4 33.9 .. .. .. .. .. .. .. ..

Central and Eastern EuropeBulgaria .. 48.0 74.1 64.2 84.7 .. .. .. .. ..Croatia .. 84.7 .. .. .. .. .. 59.0 .. ..Czech Republic 42.8 64.0 74.5 b 69.5 87.9 .. .. 59.8 60.5 63.0Estonia 41.8 72.1 82.0 d 84.0 79.6 .. .. 76.2 78.2 80.2Hungary .. 72.3 62.8 .. .. .. .. 58.1 53.3 50.9Latvia .. .. .. .. .. .. .. 80.4 77.2 ..Lithuania .. 72.1 85.0 d .. .. .. .. 69.7 .. ..Poland .. 46.8 77.3 .. .. .. .. 60.5 54.8 ..Russian Federation .. 35.7 49.4 d 50.2 43.1 .. .. 46.2 46.8 46.4Slovakia .. .. .. d .. .. .. .. 45.8 .. ..Slovenia .. .. .. .. .. .. 57.8 56.9 52.1 55.0TFYR Macedonia .. 17.1 85.9 90.7 .. .. .. .. .. ..

Source: UNCTAD, FDI database(www.unctad.org/fdistatistics).a Includes industries classified under ISIC codes 40,45,50,51,52,55,60,61,62,63,64,65,66,67,70,71,72,73,74,75,80,85,91,92 and 93.b 2000-2001 average.c Approval data.d 2000 only.e 2001 only.f Data refer only to equity.g Data for 1990-1996 refer only to equity while data for 1997-2000 refer to total direct investment.

309ANNEX A

Annex table A.I.23. Share of services in total outward FDI,a 1990-2002(Percentage)

Flows Stock

Average Average AverageEconomy 1990-1994 1995-1999 2000-2002 2001 2002 1990 1995 2000 2001 2002

Developed countriesAustralia 40.7 33.5 65.7 b 44.0 .. .. 35.4 34.9 32.5 ..Austria .. 58.1 85.2 72.6 83.9 38.5 69.9 75.3 73.5 ..Belgium .. 61.6 .. .. .. .. .. .. .. ..Canada 30.0 38.1 40.5 55.7 60.2 51.9 53.9 53.7 59.2 60.9Denmark 49.6 75.2 86.3 85.1 86.9 .. .. 79.3 78.4 ..Finland 24.1 34.5 28.9 10.6 11.3 .. 9.7 26.6 27.0 ..France 57.9 69.3 81.4 79.7 71.0 47.2 67.6 73.2 75.9 ..Germany 46.2 49.5 83.2 124.2 68.6 44.6 56.3 61.6 68.7 ..Iceland 48.6 50.8 75.4 64.3 84.6 19.0 35.4 61.4 59.9 62.5Ireland .. .. 26.4 c 5.8 55.9 .. .. .. .. ..Israel 14.5 .. .. .. .. .. .. .. .. ..Italy 68.7 55.0 43.0 b 37.4 .. 66.1 64.8 59.5 56.3 ..Japand 68.3 52.5 65.7 b 53.3 .. .. .. .. .. ..Luxembourg .. .. .. .. .. .. 29.0 .. .. ..Netherlands 53.3 63.7 69.2 b 72.8 .. 46.9 50.9 58.0 58.1 ..Nor way 25.4 38.1 33.3 277.4 40.5 31.3 35.5 42.8 .. ..Portugal 67.8 57.4 58.9 98.0 95.4 .. .. 61.3 .. ..Spain 84.0 66.0 88.4 b 78.5 .. .. .. .. .. ..Sweden 43.4 23.6 58.8 27.2 95.8 .. 32.2 38.5 39.2 ..Switzerland 37.7 61.0 59.4 63.0 - 3.1 41.0 49.9 67.2 69.7 66.8United Kingdom 46.6 50.5 81.2 43.3 105.1 41.9 40.1 63.9 57.0 62.5United States 60.1 68.7 65.0 57.8 68.0 49.3 56.2 68.6 68.1 69.0

Developing economiesBrazil .. .. .. .. .. .. .. .. 91.0 95.7Colombia 54.9 94.6 68.7 148.3 52.7 74.9 67.2 87.3 .. ..Cyprus 13.1 95.4 84.4 b 89.0 .. .. .. .. .. ..Hong Kong, China .. 79.1 87.6 111.3 64.1 .. .. 85.9 86.2 82.3Kazakhstan .. 95.3 6.1 92.1 - 0.2 .. 100.0 .. 89.1 7.7Macao, China .. .. 102.3 e 102.3 .. .. .. .. 77.5 ..Mauritius 85.8 40.3 104.5 b 79.4 .. .. .. .. .. ..Nigeria .. 0.9 .. .. .. .. .. .. .. ..Republic of Korea 35.1 45.7 51.7 29.9 39.1 27.5 32.6 42.6 41.7 41.5Singapore .. .. .. .. .. 80.4 73.8 72.3 .. ..Taiwan Province of Chinad 50.5 66.9 69.8 54.1 74.1 35.8 48.5 62.9 61.7 62.9Thailand 55.6 67.9 - 15.2 71.4 30.8 59.0 64.8 62.6 63.0 62.4Turkey .. .. 62.0 b 67.3 .. .. .. .. .. ..

Central and Eastern EuropeBulgaria .. 57.3 129.0 f .. .. .. .. 41.4 .. ..Croatia .. .. .. .. .. .. .. 37.2 .. ..Czech Republic .. 64.5 93.9 80.9 114.0 .. .. 86.3 89.7 82.0Estonia 22.2 85.1 87.6 82.0 103.8 .. .. 83.2 82.0 87.5Hungary .. 32.8 30.2 f .. .. .. .. 80.4 83.0 76.3Poland .. 57.8 25.9 f .. .. .. .. 86.2 .. ..Russian Federation .. .. .. .. .. .. .. 99.7 .. ..Slovakia .. .. .. .. .. .. .. 60.4 .. ..Slovenia .. .. .. .. .. .. 52.4 40.4 42.3 43.7TFYR Macedonia .. .. 344.8 b 97.6 .. .. .. .. .. ..

Source: UNCTAD, FDI database (www.unctad.org/fdistatistics).a Includes industries classified under ISIC codes 40,45,50,51,52,55,60,61,62,63,64,65,66,67,70,71,72,73,74,75,80,85,91,92 and 93.b 2000-2001 average.c 2001-2002 average.d Approval data.e 2001 only.f 2000 only.

310 World Investment Report 2004: The Shift Towards Services

Annex table A.I.24. Network Spread Index (NSI) and Internationalization Index (II) of the world’s100 largest non-financial TNCs, by home economy, 2002

(Averages)

Number of TNCs Number of hostHome economy in the economy economies NSI II

United States 27 35 17.74 66.41France 14 38 19.49 68.52Germany 13 45 22.84 62.76United Kingdom 12 37 18.85 49.12Japan 7 35 17.80 56.82Netherlands 5 41 20.92 58.96Switzerland 5 56 28.82 88.93Canada 4 19 9.49 79.57Italy 3 25 12.99 62.27Spain 3 17 8.55 49.63Australia 2 23 11.54 77.97Finland 2 44 22.57 86.97Belgium 1 16 8.21 86.41Hong Kong, China 1 3 1.54 36.84Ireland 1 16 8.21 90.63Mexico 1 11 5.64 74.47Republic of Korea 1 24 12.31 79.31Sweden 1 42 21.54 70.00Average 6 35 17.93 65.46

Source: UNCTAD.

Note: NSI and II as for annex table A.I.4. The total number of TNCs is 104, because there are 5 TNCs with double nationality. Theseare counted in two countries each. They are: Daimler Chrysler (Germany/United States), Royal Dutch/Shell Group, ReedElsevier and Unilever (United Kingdom/Netherlands) and Rio Tinto (United Kingdom/Australia). Singtel Ltd. has been excludedfrom the analysis.

Annex table I.25. Network Spread Index (NSI) and Internationalization Index (II) of the world’s 100largest non-financial TNCs, by industry, 2002

(Averages)

Number of TNCs Number of hostHome economy in industry economies NSI II

Chemicals and pharmaceuticals 13 49 25.01 79.25Retail, trading and services 10 30 15.23 56.70Automotive 10 38 19.33 66.27Electronics and electronic equipment 9 45 23.30 70.86Utility 9 15 7.64 45.47Petroleum expl./ref./distr. 8 42 21.35 63.58Telecommunications 7 20 10.18 51.32Food, beverages and tobacco 6 42 21.28 70.63Metals and mining 5 29 14.77 55.02Construction and building materials 4 25 12.95 80.88Diversified 4 43 21.92 68.29Machinery and equipment 5 42 21.44 85.43Media 5 23 11.69 68.42Paper, publishing and printing 2 26 13.33 54.15Transportation 2 50 25.38 66.24Average 7 35 17.93 65.46

Source: UNCTAD.

Note: NSI and II as in annex table A.I.4.

311ANNEX A

Annex table A.I.26. The world's largest non-financial TNCs: percentage share of foreign affiliatesin each region, by home economy, 2002

Region

Home economy

United States 27 52.61 4.41 7.39 5.19 1.02 1.99 6.34 5.95 1.73 0.14 9.00 0.22 4.00 100

France 14 61.08 3.88 10.04 3.00 1.00 1.91 4.35 1.32 0.88 - 7.97 0.26 4.32 100

Germany 13 58.56 4.55 10.97 2.90 0.38 1.50 3.40 2.53 1.36 0.15 5.54 - 8.16 100

United Kingdom 12 45.77 2.93 26.32 3.87 0.62 4.25 2.91 2.31 1.79 0.06 5.18 0.14 3.85 100

Japan 7 35.39 1.50 25.98 2.85 0.10 1.19 5.56 3.66 1.11 - 19.79 - 2.85 100

Netherlands 5 36.83 2.17 34.75 5.17 0.90 2.43 5.33 2.07 1.05 - 4.94 0.13 4.24 100

Switzerland 5 51.06 1.11 9.67 3.71 1.00 2.48 5.58 7.61 1.69 0.37 8.18 0.23 7.30 100

Canada 4 43.01 5.27 35.44 1.71 - 0.29 3.26 3.86 0.68 0.29 4.11 - 2.11 100

Italy 3 66.66 5.24 6.56 0.62 - 0.80 10.11 4.15 0.81 0.16 1.58 0.16 3.15 100

Spain 3 40.37 0.85 15.21 - 1.46 - 32.43 9.69 - - - - - 100

Australia 2 59.09 1.29 22.42 2.32 - 4.86 1.83 0.89 - - 5.74 1.59 - 100

Finland 2 51.00 4.40 4.99 1.52 0.53 0.53 4.40 1.74 2.36 - 15.63 - 12.95 100

Belgium 1 77.53 - 11.24 - - 1.12 - - - - 2.25 - 7.87 100

Hong Kong, China 1 71.43 - 14.29 - - - - 14.29 - - 0.00 - 0.00 100

Ireland 1 67.14 7.71 22.11 - - - 0.41 - - - 0.00 - 2.64 100

Mexico 1 31.43 2.86 42.86 - 2.86 - 5.71 11.43 - - 2.86 - - 100

Rep. of Korea 1 34.78 - 17.39 2.17 - - 2.17 4.35 - - 30.43 - 8.70 100

Sweden 1 59.52 2.86 14.29 0.48 0.48 1.90 6.67 4.76 0.95 - 1.43 - 6.67 100

Average 6 51.96 3.51 15.09 3.28 0.70 1.89 5.58 4.03 1.26 0.10 7.82 0.16 4.60 100

Source: UNCTAD.

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312 World Investment Report 2004: The Shift Towards Services

Annex table A.I.27. The world's 100 largest non-financial TNCs: percentage share offoreign affiliates in each region, by industry, 2002

Region

Industry

Chemicals and pharmaceuticals 13 46.64 4.10 7.40 4.89 0.90 2.94 6.76 4.73 2.46 0.04 15.12 0.22 3.80 100

Retail, trading and services 12 50.32 6.26 17.27 3.42 0.31 1.75 3.47 4.29 0.97 0.02 7.34 0.19 4.39 100

Automotive 10 57.77 4.23 11.13 3.32 1.27 2.39 6.00 2.03 2.32 0.13 3.58 0.04 5.78 100

Electronics and electronic equipment 9 46.17 1.89 12.57 4.02 0.55 0.44 3.67 3.38 0.89 0.02 20.95 - 5.44 100

Utility 9 49.93 0.50 30.94 0.09 0.12 1.01 7.53 4.34 0.50 - 2.11 0.06 2.87 100

Petroleum expl./ref./distr. 8 55.55 2.37 17.08 2.81 0.96 2.54 7.09 3.41 1.45 0.33 3.85 0.46 2.09 100

Telecommunications 7 60.72 2.51 6.90 3.41 0.40 0.60 10.05 6.43 0.49 - 3.67 0.11 4.69 100

Food, beverages and tobacco 6 56.05 2.94 8.72 3.32 1.42 2.57 5.97 3.68 0.82 0.20 6.19 0.28 7.85 100

Metals and mining 5 51.85 5.52 14.47 3.77 0.34 6.06 3.65 2.40 0.43 0.23 5.10 0.63 5.54 100

Construction and building materials 4 54.76 3.19 19.98 0.31 0.99 0.59 5.30 6.83 0.51 0.23 1.80 - 5.52 100

Diversified 4 51.95 6.43 7.32 5.44 0.94 2.49 5.51 6.92 1.74 0.14 5.36 0.16 5.62 100

Machinery and equipment 4 39.52 4.83 8.81 4.39 0.89 0.56 6.53 4.58 2.42 - 21.12 - 6.37 100

Media 4 73.51 1.36 17.39 2.81 0.70 0.42 1.10 0.37 - - 1.77 - 0.59 100

Paper, publishing and printing 2 48.01 2.46 31.56 5.21 - - 1.87 0.68 0.23 - 2.39 - 7.63 100

Transportation 2 25.74 2.93 50.39 1.31 0.17 2.28 1.96 7.10 1.79 0.65 1.31 - 4.40 100

Average 7 51.96 3.51 15.09 3.28 0.70 1.89 5.58 4.03 1.26 0.10 7.82 0.16 4.60 100

Source: UNCTAD.

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313ANNEX A

An

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of TN

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314 World Investment Report 2004: The Shift Towards Services

Annex table A.II.1. Selected bilateral, regional and inter-regional agreements containing FDIprovisions concluded or under negotiation, 2003-2004 a

Year Title Setting Level Status

Developing countries

Africa2003 ECOWAS Energy Protocol Benin, Burkina Faso, Cape Verde, Cote d'Ivoire, Regional Signed

Gambia, Ghana, Guinea, Guinea-Bissau, Liberia,Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo

2004 CEMAC-European Union Economic Partnership Agreement CEMAC (Central African Economic and Inter-regional Under negotiationMonetary Community - Cameroon, Gabon,Chad, Equatorial Guinea, Central AfricanRepublic, Congo)-European Community

2004 Economic Partnership Agreement between ECOWAS ECOWAS (Economic Community of West Inter-regional Under negotiationand the European Union African States-Benin, Burkina Faso, Côte

d'Ivoire, Gambia, Ghana, Guinea, Liberia,Mali, Niger, Senegal, Sierra Leone andTogo)-European Community

2004 Egypt-Singapore Free Trade Agreement Egypt-Singapore Bilateral Under negotiation

2004 Economic Partnership between ESA and the European Union ESA (Eastern and Southern Africa - Burundi, Inter-regional Under negotiationComoros, Democratic Republic of the Congo,Djibouti, Eritrea, Ethiopia, Kenya, Madagascar,Malawi, Mauritius, Rwanda, Seychelles, Sudan,United Republic of Tanzania, Uganda, Zambia,Zimbabwe)-European Community

2004 Free Trade Agreement between SACU and the United States SACU (Southern African Customs Union - Bilateral Under negotiationBotswana, Lesotho, Namibia, South Africa,Swaziland)-United States

2004 SADC-European Union Economic Partnership Agreement SADC (Southern African Development Inter-regional Under negotiationCommunity-Angola, Botswana, DemocraticRepublic of the Congo, Lesotho, Malawi, Mauritius,Mozambique, Namibia, South Africa, Swaziland,United Republic of Tanzania, Zambia,Zimbabwe)-European Community

Asia and the Pacific2003 Framework for Comprehensive Economic Partnership Between ASEAN - Japan Bilateral Signed

the Association of Southeast Asian Nations and Japan

2003 Chile-Republic of Korea Free Trade Agreement Chile – Republic of Korea Bilateral Signed

2003 Mainland China and Hong Kong Closer Economic China-Hong Kong (China) Bilateral SignedPartnership Arrangement

2003 Mainland and Macao (China) Closer Economic China-Macao (China) Bilateral SignedPartnership Arrangement

2003 Framework Agreement on Comprehensive Economic Cooperation India-ASEAN Bilateral SignedBetween the Republic of India and the Association ofSouth East Asian Nations

2003 Framework Agreement for Establishing Free Trade Area Between India-Thailand Bilateral Signedthe Republic of India and the Kingdom of Thailand

2003 Singapore-Australia Free Trade Agreement Singapore-Australia Bilateral Signed

2004 Bahrain-United States Free Trade Agreement Bahrain-United States Bilateral Signed

2004 Framework Agreement on the BIMST-EC Free Trade Area b Bhutan, India, Myanmar, Nepal, Sri Lanka, Thailand RegionalSigned

2004 Singapore-Jordan Free Trade Agreement Singapore-Jordan Bilateral Signed

2004 Framework Agreement on South Asian Free Trade Area SAARC (South Asian Association for Regional Regional SignedCooperation-Bangladesh, Bhutan, India, Maldives,Nepal, Pakistan, Sri Lanka)

2004 ASEAN-Republic of Korea ASEAN-Republic of Korea Bilateral Under consultation/...

315ANNEX A

Annex table A.II.1. Selected bilateral, regional and inter-regional agreements containing FDIprovisions concluded or under negotiation, 2003-2004 a (continued)

Year Title Setting Level Status

2004 ASEAN - Closer Economic Relations (CER) countries ASEAN-Australia-New Zealand Inter-regional Under negotiation

2004 Bahrain-Singapore Free Trade Agreement Bahrain-Singapore Bilateral Under negotiation

2004 India-Singapore Comprehensive Economic Cooperation Agreement India-Singapore Bilateral Under negotiation

2004 Free Trade Agreement between India and the Gulf Cooperation India- GCC (Bahrain, Kuwait, Oman, Qatar, Bilateral Under negotiationCouncil countries (GCC) Saudi Arabia, United Arab Emirates)

2004 Comprehensive Economic Cooperation Agreement between India-China Bilateral Under discussionIndia and China

2004 Comprehensive Economic Cooperation Agreement between India-Mauritius Bilateral Under discussionIndia and Mauritius

2004 Republic of Korea-Singapore Free Trade Agreement Republic of Korea-Singapore Bilateral Under negotiation

2004 SAARC agreement on the promotion and protection of investment SAARC member States Regional Under negotiation

2004 Sri Lanka-Singapore Comprehensive Economic Partnership Agreement Sri Lanka-Singapore Bilateral Under negotiation

2004 Thailand-United States Free Trade Agreement Thailand-United States Bilateral Under negotiation

Latin America and the Caribbean2003 Free Trade Agreement Between the Government of the Republic Uruguay-Mexico Bilateral Signed

of Uruguay and the Government of the United Statesof Mexico

2004 Central American Free Trade Agreement Central America (Costa Rica, El Salvador, Bilateral SignedHonduras, Guatemala, plus DominicanRepublic)-United States

2004 Agreement Between the Caribbean Community (CARICOM), CARICOM-Costa Rica Bilateral SignedActing on Behalf of the Governments of Antigua and Barbuda,Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kittsand Nevis, Saint Lucia, St. Vincent and the Grenadines,Suriname and Trinidad and Tobago and the Government ofthe Republic of Costa Rica

2004 Free Trade Agreement between Andean Community – Mercosur Mercosur (Argentina, Brazil, Paraguay, Inter-regional SignedUruguay)- Andean countries (Bolivia, Colombia,Ecuador and Peru)

2004 Free Trade Agreement of the Americas All countries of the Western Hemisphere, Regional Under negotiationexcept Cuba

2004 Andean countries-United States Free Trade Agreement Andean countries-United States Bilateral Under negotiation

2004 Brazil-Russian Federation Brazil-Russian Federation Bilateral Under negotiation

2004 CARICOM-EFTA CARICOM- EFTA (Iceland, Liechtenstein, Norway, Inter-regional Under negotiationSwitzerland)

2004 CARICOM-European Union Agreement CARICOM-European Community Inter-regional Under negotiation

2004 Costa Rica-Panama Free Trade Agreement Costa Rica-Panama Bilateral Under negotiation

2004 Mexico – Singapore Free Trade Agreement Mexico – Singapore Bilateral Under negotiation

2004 Peru-Thailand Free Trade Agreement Peru-Thailand Bilateral Under negotiation

Developed countries

2003 Australia-China Trade and Economic Framework Agreement Australia-China Bilateral Signed

2003 Association Agreement Between the European Union and European Community - Syrian Arab Republic Bilateral Concludedthe Syrian Arab Republic

2003 Free Trade Agreement between the Government of the United States United States-Chile Bilateral Signedof America and the Government of the Republic of Chile

2003 Agreement between the Government of the United States of United States-Pakistan Bilateral SignedAmerica and the Government of Pakistan Concerning theDevelopment of Trade and Investment Relations

/...

316 World Investment Report 2004: The Shift Towards Services

Annex table A.II.1. Selected bilateral, regional and inter-regional agreements containing FDIprovisions concluded or under negotiation, 2003-2004 a (concluded)

Year Title Setting Level Status

2003 Agreement between the Government of the United States of United States-Saudi Arabia Bilateral SignedAmerica and the Government of the Kingdom of Saudi ArabiaConcerning the Development of Trade and Investment Relations

2003 United States - Singapore Free Trade Agreement United States-Singapore Bilateral Signed

2003 Political Dialogue and Cooperation Agreement Between the European Community-Andean countries Inter-regional ConcludedEuropean Community and Its Member States of the One Part, andthe Andean Community and Its Member Countries (Bolivia,Colombia, Ecuador, Peru And Venezuela), of the Other Part

2004 Australia-Thailand Free Trade Agreement Australia-Thailand Bilateral Signed

2004 Agreement between the Government of the United States of United States- Qatar Bilateral SignedAmerica and the Government of the State of Qatar Concerningthe Development of Trade and Investment Relations

2004 Agreement between the Government of the United States of United States- United Arab Emirates Bilateral SignedAmerica and the Government of the United Arab EmiratesConcerning the Development of Trade and Investment Relations

2004 United States - Australia Free Trade Agreement United States-Australia Bilateral Signed

2004 Agreement between the United States and Central Asian Countries United States-Kazakhstan, Kyrgyzstan, Tajikistan, Bilateral SignedConcerning Regional Trade and Investment Framework Turkmenistan, and Uzbekistan

2004 Agreement between the Government of the United States of United States-Kuwait Bilateral SignedAmerica and the Government of the State of Kuwait Concerningthe Development of Trade and Investment Relations

2004 Malaysia-United States Trade and Investment Framework Agreement United States-Malaysia Bilateral Signed

2004 United States-Morocco Free Trade Agreement United States-Morocco Bilateral Signed

2004 Agreement between the Government of the United States of United States-Yemen Bilateral SignedAmerica and the Government of the Republic of Yemen Concerningthe Development of Trade and Investment Relations

2004 Japan-Chile Free Trade Agreement Japan-Chile Bilateral Under consideration

2004 Japan-Philippines Economic Partnership Agreement Japan-Philippines Bilateral Under consideration

2004 Japan-Thailand Economic Partnership Agreement Japan-Thailand Bilateral Under consultation

2004 Canada-Andean countries Free Trade Agreement Canada-Andean countries Bilateral Under discussion

2004 Canada-CARICOM Free Trade Agreement Canada-CARICOM Bilateral Under consideration

2004 Canada-Central America Free Trade Agreement Canada-Central America (Costa Rica, Bilateral Under negotiationEl Salvador, Guatemala, Honduras)

2004 Agreement between Canada-Dominican Republic Canada-Dominican Republic Bilateral Under consideration

2004 Canada-European Free Trade Association (EFTA) Free Trade Canada-EFTA Bilateral Under negotiationAgreement

2004 Canada-Singapore Free Trade Agreement Canada-Singapore Bilateral Under negotiation

2004 EFTA and SACU Free Trade Agreement EFTA-SACU Bilateral Under negotiation

2004 European Union–MERCOSUR European Community-Mercosur Inter-regional Under negotiation

2004 Japan- Republic of Korea Free Trade Agreement Japan- Korea Bilateral Under negotiation

2004 Pacific Three Free Trade Agreement New Zealand-Chile-Singapore Pluraliteral Under negotiation

2004 United States-Uruguay Free Trade Agreement United States-Uruguay Bilateral Under negotiation

Source: UNCTAD.a Excluding BITs and DTTs.b BIMST-EC comprises Bangladesh, India, Myanmar, Sri Lanka and Thailand. Bhutan and Nepal joined in February 2004. In the same

month, the members of the association, except Bangladesh, signed the Framework Agreement.Note: Every instrument is mentioned only once. The listing is made on the basis of the first regional/country partner name

mentioned in the official or current (in the case of "under negotiation") title of the agreements. For example, in the agreementbetween the United States and Pakistan, the United States is mentioned first. Thus, this agreement is listed under "Developedcountries", and not under Asia and the Pacific.

317ANNEX A

An

ne

x t

ab

le A

.II.

2. T

he

to

p 2

5 n

on

-fin

an

cia

l TN

Cs

fro

m C

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l a

nd

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ste

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ign

ass

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, 20

02

(Mill

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318 World Investment Report 2004: The Shift Towards Services

Annex table A.III.1. Estimated world inward FDI, average annual flows, by sector and industry,1989-1991 and 2001-2002

(Millions of dollars)

1989-1991 2001-2002

Central andDeveloped Developing Developed Developing Eastern

Sector/industry countries economies World countries economies Europe World

Primary 8 805 3 689 12 494 46 218 19 290 923 66 431Agriculture, hunting, forestr y and fishing - 23 634 612 81 1 694 110 1 885Mining, quarrying and petroleum 8 788 3 054 11 842 46 091 17 596 813 64 499Unspecified primar y 40 - 40 47 - - 47

Manufacturing 51 033 17 045 68 078 90 156 76 578 6 965 173 699Food, beverages and tobacco 6 291 2 529 8 820 7 969 3 222 1 825 13 016Textiles, clothing and leather 2 354 283 2 637 88 442 122 652Wood and wood products 2 602 262 2 864 3 001 178 546 3 726Publishing, printing and reproduc tion of recorded media 945 - 945 1 589 117 1 1 707Coke, petroleum products and nuclear fuel - 1 104 246 - 858 377 677 137 1 191Chemicals and chemical products 12 716 2 280 14 996 11 466 3 902 554 15 922Rubber and plastic products 1 319 35 1 355 346 291 421 1 058Non-metallic mineral produc ts 1 309 249 1 559 2 895 294 102 3 290Metal and metal produc ts 4 548 1 391 5 939 4 872 1 636 470 6 978Machiner y and equipment 5 181 3 202 8 383 13 349 4 451 696 18 495Electrical and electronic equipment 4 317 876 5 194 10 090 3 762 446 14 298Precision instruments 909 1 910 2 971 126 37 3 134Motor vehicles and other transport equipment 4 829 321 5 150 7 577 2 363 665 10 605Other manufacturing 3 861 1 057 4 918 12 668 1 820 940 15 428Rec ycling - - - - 22 1 22Unspecified secondar y 956 4 311 5 267 10 899 53 277 2 64 177

Ser vices 83 157 11 232 94 389 371 190 97 139 19 905 488 235Electricity, gas and water 844 1 288 2 132 15 120 6 261 721 22 102Construction 446 554 1 000 3 248 2 108 421 5 776Trade 16 557 2 467 19 025 42 375 14 322 3 614 60 311Hotels and restaurants 3 903 957 4 860 1 398 900 167 2 465Transpor t, storage and communications 1 190 1 349 2 540 51 514 15 408 7 708 74 630Finance 34 201 2 252 36 453 81 354 22 204 5 191 108 749Business activities 11 602 1 272 12 874 109 888 24 581 1 732 136 201Public administration and defence 2 516 - 2 517 3 334 7 - 3 341Education 8 5 12 - 8 31 6 29Health and social ser vices 74 24 98 108 166 - 274Community, social and personal ser vice activities 2 468 4 2 472 14 793 3 948 37 18 777Other ser vices 8 461 727 9 187 42 586 4 613 307 47 506Unspecified tertiar y 887 332 1 219 5 480 2 591 - 8 071

Private buying and selling of property 124 - 124 308 - - 308Unspecified 7 571 4 031 11 602 12 941 4 674 1 875 19 490

Source: UNCTAD.

Note: Data should be interpreted with caution. The world total was extrapolated on the basis of data covering 63 countriesin the period 1989-1991 and 84 countries in the period 2001-2002 (or latest three-year/two-year period available), accountingrespectively for 89% and 81% of world inward FDI flows. Only those economies for which data for the three main sectorswere available, were included. The distribution share of each industry of these economies is applied to estimate the worldtotal in each sector and industry. As a result, the sum of the sectors for the individual economy groups is different fromthe totals shown in annex table B.1. Approval data were used for Israel in 1994 and Myanmar in 1990-1992. Howeverin some countries, the actual data was estimated by applying the implementation ratio of realized FDI to approved FDIto the latter (9% in 1994-1995 and 98% in 2001-2002 for Cambodia, 47% in 1989-1991 for China, 15% in 1989-1991 forIndonesia, 17% in 1993-1995 for the Islamic Republic of Iran, 21% in 1989-1991 and 31% in 2000-2001 for Japan, 7% in1992-1994 for Kenya, 1% in 1989-1991 for Lao People's Democratic Republic, 40% in 2001-2002 for Mongolia, 30% in 1989-1991 and 56% in 1997-1998 for Nepal, 20% in 1993-1995 and 13% in 1997-1998 for Papua New Guinea, 1% in 1994-1995and 3% in 1996 for the Solomon Islands, 47% in 1995 for Sri Lanka, 65% in 1989-1991 and 66% in 2001-2002 for TaiwanProvince of China, 40% in 1989-1991 for Turkey, 20% in 1989-1991 for Viet Nam and 23% in 1993-1995 for Zimbabwe).The world total in 1989-1991 includes the countries of Central and Eastern Europe, although data by sector and industryare not available for that region.

319ANNEX A

Annex table A.III.2. Estimated world outward FDI, average annual flows, by sector and industry,1989-1991 and 2001-2002

(Millions of dollars)

1989-1991 2001-2002

Central andDeveloped Developing Developed Developing Eastern

Sector/industry countries economies World countries economies Europe World

Primary 11 623 79 11 702 45 644 447 1 46 091Agriculture, hunting, forestr y and fishing 683 42 725 298 - 0 - 3 295Mining, quarrying and petroleum 10 789 37 10 826 45 174 447 4 45 625Unspecified primar y 151 - 151 171 - - 171

Manufacturing 81 349 1 497 82 846 137 240 5 269 332 142 840Food, beverages and tobacco 13 979 136 14 115 23 274 63 22 23 359Textiles, clothing and leather 1 979 61 2 040 - 1 054 69 2 - 983Wood and wood products 5 356 40 5 396 7 748 12 6 7 766Publishing, printing and reproduc tion of recorded media 156 - 156 1 446 - - 1 446Coke, petroleum products and nuclear fuel 122 - 122 120 - 212 332Chemicals and chemical products 12 945 212 13 157 17 480 166 68 17 714Rubber and plastic products 588 35 623 1 548 17 5 1 570Non-metallic mineral produc ts 1 194 70 1 264 773 3 - 776Metal and metal produc ts 6 214 168 6 381 17 706 27 2 17 735Machiner y and equipment 7 310 7 7 317 7 876 6 6 7 887Electrical and electronic equipment 9 997 305 10 302 12 573 1 231 - 12 13 792Precision instruments 655 - 655 1 469 37 - 1 505Motor vehicles and other transport equipment 5 498 - 5 498 23 544 70 - 23 614Other manufacturing 8 430 5 8 435 - 2 296 8 3 - 2 285Unspecified secondar y 6 926 460 7 386 25 032 3 562 18 28 612

Ser vices 116 955 1 019 117 974 432 214 19 486 603 452 303Electricity, gas and water 1 021 - 1 021 8 639 103 10 8 753Construction 2 396 31 2 426 3 178 - 50 7 3 135Trade 18 922 270 19 192 54 009 4 272 164 58 445Hotels and restaurants 413 4 417 8 030 - 61 22 7 991Transpor t, storage and communications 7 445 33 7 478 61 924 - 946 63 61 041Finance 48 466 446 48 912 154 730 2 282 246 157 258Business activities 24 472 19 24 490 124 460 12 776 67 137 303Public administration and defence - - - 762 - - 762Education 20 - 20 18 - - 18Health and social ser vices - 124 - - 124 81 - - 81Community, social and personal ser vice activities 568 - 568 305 3 1 308Other ser vices 8 856 217 9 073 10 056 1 109 23 11 187Unspecified tertiar y 4 501 - 4 501 6 021 - - 6 021

Private buying and selling of property 25 - 25 130 - - 130Unspecified 10 070 90 10 160 15 174 2 415 41 17 630

Source: UNCTAD.

Note: Data should be interpreted with caution. The world total was extrapolated on the basis of data covering 25 countriesin the period 1989-1991 and 37 countries in the period 2001-2002 (or latest three-year/two-year period available), accountingrespectively for 94% and 78% of world outward FDI flows. The distribution share of each industry of these countrieswas applied to estimate the world total in each sector and industry. As a result, the sum of the sectors for the individualeconomy groups is different from the totals shown in annex table B.2. Approval data was used for Taiwan Province ofChina. However in the case of Japan, the actual data was estimated by applying the implementation ratio of realizedFDI to approved FDI to the latter (65% in 1989-1991 and 85% in 2000-2001). The world total in 1989-1991 includes thecountries of Central and Eastern Europe, although data by sector and industry are not available for that region.

320 World Investment Report 2004: The Shift Towards Services

Annex table A.III.3. Comparison of values of services delivered by foreign affiliates and by trade inselected countries, various years(Billions of dollars and percentage)

Services delivered by Ser vices delivered byforeign affiliates of home- Exports of affiliates of foreign- Impor ts of

Countr y Year based TNCs a (S) services(X) S/X (%) Country Year based TNCs b (S) services(M) S/M (%)

Austria 2000 2.0 c 31.0 6.5 Austria 2001 38.3 c 31.5 121.6Canada 1999 77.1 c 34.8 221.5 China 2002 12.8 44.2 29.0Finland 2002 13.9 c 6.0 231.7 Czech Republic 1999 10.8 5.8 186.0Japan 1999 110.6 60.3 183.4 Finland 2001 9.0 8.0 112.5Germany 2001 227.2 83.2 273.1 Japan 1999 10.1 114.2 8.8Por tugal 2001 5.6 c 8.7 64.4 Germany 2001 122.3 137.2 89.1United States 2001 456.1 259.4 175.8 Hungary 2000 0.01 4.4 0.2

Portugal 2001 6.8 c 6.0 113.3Sweden 2001 42.3 22.9 184.7United States 2001 474.0 192.7 246.1

Source: UNCTAD, based on data on sales by affiliates from UNCTAD FDI/TNC database (www.unctad.org/fdistatistics) and dataon services trade from WTO.

a Except for the United States, the data refer to sales by service foreign affiliates of home-based TNCs less those by trading foreignaffiliates, as sales of the latter are mainly of goods. For the United States the data refer to sales of services by all foreign affiliatesof United States TNCs.

b Except for China and the United States, the data refer to sales by service affiliates of foreign-based TNCs less those by tradeaffiliates, as sales of the latter are mainly of goods. For China the data refer to sales by all service affiliates. For the United Statesthe data refer to sales of services by all affiliates of foreign-based TNCs in the United States.

c Majority-owned foreign affiliates only.

321ANNEX A

Annex table A.III.4. Penetration ratiosa of majority-owned foreign bank affiliates in banking,b byhost economy, 2001

(Per cent)

Developing economies Latin America and

Developed countries CEE Africa Asia and the Pacific the Caribbean

New Zealand 99.1 Estonia 98.9 Botswana 100.0 Tonga 100.0 Belize 94.6United Kingdom 46.0 Czech Republic 90.0 Guinea-Bissau 100.0 Fiji 98.9 Aruba 92.3United Statesc 20.2 Croatia 89.3 Lesotho 100.0 Vanuatu 94.1 Grenada 88.7Nor way 19.2 Hungary 88.8 Gambia 95.8 Singaporeg 76.0 Mexico 82.7Portugal 17.7 Slovakia 85.5 Benin 91.0 Bahrain 72.0 Panama 59.3Australia 17.0 Lithuania 78.2 Guinea 90.0 Hong Kong, Chinag 72.0 Chile 46.8Greece 10.8 Bulgaria 74.6 Côte d’Ivoire 84.2 Cambodiaf 71.0 Jamaicaf 44.0Switzerland 10.7 Bosnia and Herzegovina 73.0 Senegal 78.7 Jordan 64.3 Uruguay 43.3Spain 8.5 Poland 68.7 Niger 73.4 Armenia 59.0 Venezuela 43.2Japand 6.7 Latvia 65.2 Madagascar 67.8 Nepalf 35.0 Peru 42.5Finland 6.2 Macedonia 51.1 Mali 67.0 Korea, Republic of 29.5 Bolivia 36.3Italy 5.7 Romania 47.3 Zambiaf 64.0 United Arab Emirates 27.0 Argentina 31.8Canada 4.8 Albania 46.0 Seychelles 60.2 S audi Arabia 20.7 Brazil 29.8Germany 4.3 Moldova, Republic of 36.7 Ghana 53.5 Pakistan 20.1 Costa Rica 23.3Netherlands 2.2 Belarus 26.0 Kenya 39.3 Malaysia 19.0 Columbia 21.5Swedenf 1.8 Slovenia 20.6 Zimbabwe 28.0 Kazakhstan 17.9 Hondura 18.5Denmark - Ukraine 10.5 Mauritius 24.5 Lebanon 15.9 ElSalvador 12.3Iceland - Russian Federation 8.8 Morocco 20.8 Philippines 15.0 Guatemala 9.0

Tunisia 15.7 Oman 11.9 Ecuador 7.0Egypt 13.3 Indiae 7.3 Trinidad and Tobago 2.4Malawif 8.3 Indonesiaf 7.0South Africa 7.7 Thailand 6.8Sudan 4.0 Bangladeshf 6.4Algeria 3.9 Turkey 3.5Burundif - Chinag 2.0Nigeriaf - Kuwait -Rwanda -

Source: UNCTAD, based on World Bank database on bank regulation and supervision (2002 and 1998 surveys) (www.worldbank.org/research/projects/bank_regulation.htm), United States Federal Reserve (www.federalreserve.gov/releases/iba) and Committeeon the Global Financial System (CGFS) (2004).

a Ratios of assets of majority-owned foreign bank affiliates to total bank assets.b All banking affiliates with more than 50% foreign ownership, including branches and representative offices.c Data from United States Federal Reserve.d 31 March 2002 (commercial banks only).e 31 March 2002.f Data from the World Bank 1998 survey – data relate to 1998 or 1999 (not specified in the database).g Data from CGFS (2004), p. 9.

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nn

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cco

rdin

g t

o t

he

follo

win

g c

rite

ria:

fir

st, l

arg

e TN

Cs

are

sele

cted

by

the

volu

me

of

fore

ign

ass

ets,

th

en b

y fo

reig

n e

mp

loym

ent

and

fin

ally

by

the

nu

mb

ero

f fo

reig

n a

ffil

iate

s. T

he

y ar

e ra

nke

d a

cco

rdin

g t

o t

he

vo

lum

e o

f fo

reig

n a

sse

ts, t

he

n f

ore

ign

em

plo

yme

nt

and

fin

ally

th

e n

um

be

r o

f fo

reig

n a

ffil

iate

s.a

“TN

I” is

th

e a

bb

revi

atio

n f

or “

Tran

snat

ion

alit

y In

de

x”. T

he

Tra

nsn

atio

nli

ty I

nd

ex is

cal

cula

ted

as

the

ave

rag

e o

f th

e f

oll

ow

ing

th

ree

rat

ios:

fo

reig

n a

sse

ts t

o t

ota

l ass

ets

, fo

reig

n s

ale

s to

to

tal

sale

s an

d f

ore

ign

em

plo

yme

nt

to t

ota

l e

mp

loym

en

t. Fo

r th

e T

NC

s fo

r w

hic

h a

ll o

f th

ese

rat

ios

are

no

t av

aila

ble

, on

e o

r tw

o r

atio

s ar

e u

sed

to

cal

cula

te T

NI.

bD

ata

refe

r to

20

02

.c

Esti

mat

ed

by

app

lyin

g t

he

sh

are

of

fore

ign

sal

es

in t

ota

l as

sets

to

to

tal

asse

ts.

dEs

tim

ate

d b

y ap

ply

ing

th

e s

har

e o

f fo

reig

n s

ale

s in

to

tal

sale

s to

to

tal

em

plo

yme

nt.

eEs

tim

ate

d b

y ap

ply

ing

th

e a

vera

ge

of

the

sh

are

of

fore

ign

ass

ets

in

to

tal

asse

ts a

nd

th

e s

har

e o

f fo

reig

n s

ale

s in

to

tal

sale

s to

to

tal

em

plo

yme

nt.

fH

old

ing

co

mp

any.

gEs

tim

ate

d b

y ap

ply

ing

th

e a

vera

ge

of

the

sh

are

of

fore

ign

sal

es

in t

ota

l sa

les

and

th

e s

har

e o

f fo

reig

n e

mp

loym

en

t in

to

tal

em

plo

yme

nt

to t

ota

l as

sets

.h

Esti

mat

ed

by

app

lyin

g t

he

sh

are

of

fore

ign

ass

ets

in

to

tal

asse

ts t

o t

ota

l sa

les.

iEs

tim

ate

d b

y ap

ply

ing

th

e s

har

e o

f fo

reig

n a

sse

ts i

n t

ota

l as

sets

to

to

tal

em

plo

yme

nt.

jM

anag

em

en

t d

eci

sio

n i

s u

nd

ert

ake

n i

n U

nit

ed

Kin

gd

om

.k

Esti

mat

ed

by

app

lyin

g t

he

ave

rag

e o

f th

e s

har

e o

f fo

reig

n a

sse

ts i

n t

ota

l as

sets

an

d t

he

sh

are

of

fore

ign

em

plo

yme

nt

in t

ota

l e

mp

loym

en

t to

to

tal

sale

s.l

Incl

ud

es

po

stal

an

d c

ou

rie

r se

rvic

es, t

ruck

ing

wit

ho

ut

sto

rag

e a

nd

fre

igh

t fo

rwar

din

g.

mIn

clu

de

s ra

dio

, TV,

pri

nti

ng

an

d p

uli

shin

g.

nO

n 1

6 O

cto

be

r 2

00

3, A

OL

Tim

e W

arn

er

Inc.

ch

ang

ed

its

nam

e t

o T

ime

War

ne

r In

c.o

Incl

ud

es

eat

ing

an

d d

rin

kin

g p

lace

s, c

ate

rin

g s

erv

ices

.p

Incl

ud

es

trav

el

and

tra

nsp

ort

atio

n a

ge

nci

es,

to

ur

op

era

tors

, re

tal

cars

,pas

sen

ge

r ti

cke

t o

ffic

es.

qO

n 1

Ap

ril

20

03

, Nic

him

en

an

d N

issh

o I

wai

Co

rpo

rati

on

wer

e m

erg

ed

to

est

abli

sh a

par

en

t h

old

ing

co

mp

any,

Nis

sho

Iw

ai -

Nic

him

en

Ho

ldin

gs

Co

rpo

rati

on

.

326 World Investment Report 2004: The Shift Towards Services

Annex table A.III.6. The 20 largest legal TNCs, ranked by number of lawyers, 2002(Millions of dollars and number)

Growth in no. of Fee income,No. of No. of lawyers, 1993-2002 No. of No. of latest year

Rank Name Home country partners lawyers (Per cent) countries locations (Million dollars)

1 Baker & McKenzie United States 621 3 141 61 38 68 1 1342 Clifford Chance/Punder/Rogers & Wells United Kingdom 580 2 600 125 24 33 1 5203 Skadden Arps Slate Meagher & Flom United States 314 1 366 35 14 22 1 3104 Freshfields United Kingdom 277 1 327 103 20 28 1 2005 Jones Day Reavis & Pogue United States 416 1 319 24 13 29 9086 Allen & Overy United Kingdom 265 1 285 128 20 25 1 1557 Eversheds United Kingdom 386 1 062 51 12 21 4258 Linklaters United Kingdom 229 1 036 51 22 30 ..9 White & Case United States 218 1 017 127 28 39 67510 Latham & Watkins United States 322 984 79 10 21 1 03211 Morgan Lewis & Bockius United States 313 964 62 7 17 55812 Mallesons Stephen Jaques Australia 192 922 - 4 .. ..13 Sidley & Austin United States 412 886 23 8 .. 83114 Holland & Knight United States 533 859 - 6 34 53215 Shearman & Sterling United States 178 849 41 10 18 70016 McDermott Will & Emer y United States 480 849 81 3 8 62817 Akin Gump Strauss Hauer & Feld United States 298 836 - 8 17 57518 Mayer Brown & Platt United States 317 827 44 9 16 70519 CMS Cameron McKenna United Kingdom 185 822 - 37 .. ..20 Lovells Boesebeck Droste United Kingdom 227 801 21 23 26 ..

Source: UNCTAD, based on International Financial Law Review, January 2000 (www.iflr.com); and company websites.

327ANNEX A

An

ne

x t

ab

le A

.III

.7.

Th

e 3

0 l

arg

est

te

leco

m T

NC

s in

th

e w

orl

d, r

an

ke

d b

y t

he

nu

mb

er

of

ho

st e

con

om

ies,

20

02

(Bill

ion

s o

f d

olla

rs a

nd

nu

mb

ers

of

emp

loye

es)

Ass

ets

Sal

es

Em

ploy

men

t

Num

ber o

f aff

iliat

esTN

IaNu

mbe

r of

Rank

Corp

orat

ion

Hom

e ec

onom

yFo

reig

nTo

tal

Fore

ign

Tota

lFo

reig

nTo

tal

(Per

cen

t)To

tal a

ffili

ates

Fore

ign

affil

iate

sho

st c

ounr

ies

1Fr

ance

Tele

com

Fran

ce73

112

2049

102

016

243

573

50

220

129

422

Tele

com

Ital

iaIt

aly

..85

630

20 3

3410

6 62

0 2

034

319

241

3De

utsc

he T

elek

omGe

rman

y37

121

1751

78 1

4625

5 96

9 3

216

386

284

AT &

T C

orp.

Unite

d St

ates

..55

238

..71

000

414

251

285

Cabl

e &

Wire

less

PLC

Unite

d Ki

ngdo

m4

265

8..

35 5

61 3

713

047

276

Telia

sone

ra A

BSw

eden

1824

17

16 5

0429

173

75

154

9326

7BT

Gro

up P

LCUn

ited

King

dom

243

229

9 00

010

7 40

0 8

237

8426

8Te

le2

ABSw

eden

56

45

..3

274

77

....

239

Tele

fóni

ca S

ASp

ain

3671

1127

88 4

0115

2 84

5 5

022

214

619

10Ni

ppon

Tel

egra

ph a

nd T

elep

hone

Cor

p.Ja

pan

..15

8..

99..

213

062

..35

372

1911

Voda

fone

Gro

up P

LCUn

ited

King

dom

207

233

3442

56 6

6766

667

85

196

6519

12Kd

di C

orp.

Japa

n..

24..

21..

13 5

75..

6028

1913

Colt

Tele

com

Gro

up P

LCUn

ited

King

dom

24

12

..5

005

57

3317

1314

SBC

Com

mun

icat

ions

Inc

Unite

d St

ates

..95

..43

..17

5 98

0..

218

1612

15Da

tate

c Li

mite

dSo

uth

Afric

a..

12

2..

3 02

3 9

630

2612

16Ve

rizon

Com

mun

icat

ions

Inc

Unite

d St

ates

1416

73

6719

513

229

497

721

813

1117

TDC

A/S

Denm

ark

..13

47

..22

263

55

6328

1018

Bells

outh

Cor

p.Un

ited

Stat

es3

492

22..

77 0

00 8

6712

1019

Roya

l KPN

Neth

erla

nds

..26

312

..38

118

24

129

399

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vel 3

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mun

icat

ions

Inc

Unite

d St

ates

19

13

..6

275

16

4917

921

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tar C

orp.

Unite

d St

ates

....

22

..1

100

75

1711

922

Swis

scom

RSw

itze

rland

212

311

..20

470

23

4019

823

Iber

drol

aSp

ain

424

110

..14

285

12

6912

624

Sing

apor

e Te

leco

mm

unic

atio

ns L

td.

Sing

apor

e16

193

69

877

21 7

16 6

243

86

25Am

éric

a M

óvil

Mex

ico

211

26

6 62

914

572

31

98

626

MTN

Gro

up L

imite

dSo

uth

Afric

a1

41

2..

4 19

2 3

612

66

27NT

L In

cUn

ited

Stat

es13

133

315

130

14 9

22 1

0016

015

55

28Te

lstr

a Co

rpor

atio

nAu

stra

lia3

211

11..

40 4

27 1

227

84

29Te

leko

m M

alay

sia

Berh

adM

alay

sia

..9

..3

..33

726

..69

54

30BC

E In

cCa

nada

139

120

.. 6

6 26

63

9014

3

Sou

rce:

UN

CTA

D, b

ased

on

UN

CTA

D/E

rasm

us

Un

iver

sity

dat

abas

e o

n la

rges

t TN

Cs;

Th

omso

n O

NE

Ban

ker (

htt

p:/

/ban

ker.a

nal

ytic

s.th

om

son

ib.c

om

); W

ho

Ow

ns

Wh

om, 2

003

(Lo

nd

on

: Du

n a

nd

Bra

dst

reet

).a

The

“Tra

nsn

atio

nlit

y In

de

x” (

TNI)

is c

alcu

late

d a

s th

e av

erag

e o

f th

e fo

llow

ing

th

ree

rati

os:

fo

reig

n a

sset

s to

to

tal a

sset

s, fo

reig

n s

ales

to

to

tal s

ales

an

d fo

reig

n e

mp

loym

ent

to t

ota

l em

plo

ymen

t.Fo

r th

e T

NC

s fo

r w

hic

h t

he

se t

hre

e r

atio

s ar

e n

ot

avai

lab

le, o

ne

or

two

rat

ios

are

use

d t

o c

alcu

late

th

e I

nd

ex.

328 World Investment Report 2004: The Shift Towards Services

An

ne

x t

ab

le A

.III

.8.

Th

e w

orl

d’s

la

rge

st

ele

ctr

icit

y T

NC

s,

ran

ke

d b

y f

ore

ign

as

se

ts,

20

02

(Mill

ion

s o

f d

olla

rs a

nd

nu

mb

er o

f em

plo

yees

)

Ass

ets

Sal

es

Em

ploy

men

t

Num

ber o

f aff

iliat

esTN

IaNu

mbe

r of

Rank

Corp

orat

ion

Hom

e ec

onom

yFo

reig

nTo

tal

Fore

ign

Tota

lFo

reig

nTo

tal

(Per

cen

t)To

tal a

ffili

ates

Fore

ign

affil

iate

sho

st c

ounr

ies

1E.

OnGe

rman

y 5

2 29

4 1

18 5

26 1

3 10

4 3

5 05

4 4

2 06

3 1

07 8

5640

.266

338

523

2RW

EGe

rman

y 5

0 69

9 1

05 1

16 1

7 62

2 4

4 11

0 5

5 56

3 1

31 7

6543

.470

940

031

3El

ectr

icité

de

Fran

ceFr

ance

47

385

151

835

12

552

45

743

50

437

171

995

29.3

247

185

204

Suez

Fran

ce 3

8 73

9 4

4 80

5 3

4 16

5 4

3 59

6 1

38 2

00 1

98 7

5078

.149

427

726

5Ko

rea

Elec

tric

Pow

erRe

publ

ic o

f Kor

ea..

32

808

6 5

42 8

632

.. 3

6 00

075

.812

22

6AE

S Co

rp.

Unite

d St

ates

22

784

33

776

6 5

42 8

632

24

284

36

000

70.2

6025

147

Ende

saSp

ain

22

460

50

503

5 5

28 1

6 30

5 1

2 33

4 2

6 35

441

.714

943

108

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aFr

ance

.. 3

0 81

2 5

271

8 6

73..

50

147

60.8

202

8129

9Na

tion

al G

rid Tr

ansc

oUn

ited

King

dom

16

541

35

574

6 1

69 1

3 47

3 9

975

27

308

42.9

235

395

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otti

sh P

ower

PLC

Unite

d Ki

ngdo

m 1

2 97

1 1

9 90

3 3

992

7 5

596

291b

13

825

54.5

b11

027

211

Duke

Ene

rgy

Corp

.Un

ited

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es 1

2 24

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181

15

663

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019

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376

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rtum

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p.Fi

nlan

d..

18

847

7 4

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13

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63.8

9578

1213

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on In

tern

atio

nal I

ncUn

ited

Stat

es 7

864

33

284

1 1

57 1

1 48

8..

15

038

16.8

201

617

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ion

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sa S

ASp

ain

.. 1

5 69

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048

6 1

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121

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blic

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vice

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erpr

ise

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p In

cUn

ited

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es 4

186

25

414

526

8 3

90..

12

911

11.4

192

216

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tric

idad

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Port

ugal

Port

ugal

.. 1

8 44

6 1

243

6 7

02..

18

455

18.5

6910

317

Cine

rgy

Corp

.Un

ited

Stat

es 3

216

19

398

1 3

00 6

436

.. 7

000

18.4

3610

418

Dom

inio

n Re

sour

ces

Unite

d St

ates

3 1

72 3

1 11

2 8

60 1

0 03

4..

14

600

9.4

424

219

TXU

corp

.Un

ited

Stat

es 3

172

30

794

860

11

571

.. 1

1 85

58.

962

124

20CL

P Ho

ldin

gsHo

ng K

ong,

Chi

na 1

905

7 7

93 1

30 3

350

37

4 3

039.

710

31

21CM

S En

ergy

Cor

p.Un

ited

Stat

es 1

857

17

634

637

11

558

.. 6

002

8.0

457

322

Mot

or-C

olum

bus

Swit

zerla

nd 1

751

3 6

71 2

050

2 6

77 5

175

7 8

7963

.349

1811

23Ce

nter

poin

t Ene

rgy

Inc

Unite

d St

ates

1 4

56 1

3 71

2 2

60 8

687

.. 1

0 47

76.

825

11

24Ho

ng K

ong

Elec

tric

Hol

ding

s Lt

d.Ho

ng K

ong,

Chi

na 1

023

7 2

61 3

1 5

22..

2 2

047.

110

32

25EG

Lau

fenb

urg

Swit

zerla

nd..

1 0

20 1

690

1 8

97..

232

89.1

62

2

Sou

rce:

UN

CTA

D, b

ased

on

UN

CTA

D/E

rasm

us

Un

iver

sity

dat

abas

e o

n t

he

larg

est

TNC

s; T

ho

mso

n O

NE

Ban

ker

(htt

p:/

/ban

ker.

anal

ytic

s.th

om

son

ib.c

om

); W

ho

Ow

ns

Wh

om

, 200

3 (L

on

do

n, D

un

an

dB

rad

stre

et,

20

03

); co

mp

any

we

bsi

tes.

aTh

e “T

ran

snat

ion

lity

Ind

ex” (

TNI)

is c

alcu

late

d a

s th

e av

erag

e o

f th

e fo

llow

ing

th

ree

rati

os:

fo

reig

n a

sset

s to

to

tal a

sset

s, fo

reig

n s

ales

to

to

tal s

ales

an

d f

ore

ign

em

plo

ymen

t to

to

tal e

mp

loym

ent.

For

the

TN

Cs

for

wh

ich

th

ese

th

ree

rat

ios

are

no

t av

aila

ble

, on

e o

r tw

o r

atio

s ar

e u

sed

to

cal

cula

te t

he

In

de

x.b

As

of

31

Mar

ch 2

00

3.

329ANNEX A

Annex table A.III.9. The world’s 10 largest insurance and reinsurance TNCs,ranked by foreign income, 2003

(Millions of dollars and number of employees)

Number Insurance income Employment TNIb of host

Corporation Businessa Home country Total assets Foreign Total Foreign Total (Per cent) countries

Allianz I Germany 1 168 000 74 550 106 200 90 350 173 750 61.1 60AXA I France 967 000 69 700 89 390 85 490 117 113 75.5 50Zürich Financial Services I Switzerland 317 900 44 520 48 920 .. 62 000 91.0 50INGc I Netherlands 972 500 ..d 66 420 80 000 115 200 69.4 48Generali I Italy 287 100 37 890 61 920 .. 58 000 61.2 42AIG I United States 678 350 31 980 92 700 .. 86 000 34.5 95Munich Re R Germany 261 400 27 640 50 436 11 060 41 430 40.7 30Aviva I United Kingdom 370 650 26 640 53 280 .. 56 000 50.0 27Swiss Re R Switzerland 130 540 24 826 25 646 .. 7 949 96.8 30

Prudentiale I United Kingdom 287 250 12 975 24 480 9 540 21 000 49.2 18

Source: UNCTAD, based on company websites.a I = Insurance; R = Reinsurance.b The “Transnationlity Index” (TNI) in this table is calculated as the average of the following two ratios: foreign insurance income

to total insurance income and foreign employment to total employment. For the TNCs for which these two ratios are not available,only one ratio is used.

c Employment figures refer to global activities.d Figure is not available, but the estimated amount is in the order of $44 billion.e Foreign income and foreign employment cover non-European business only.

330 World Investment Report 2004: The Shift Towards Services

An

ne

x t

ab

le A

.III

.10

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f

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ance

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ence

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21 7

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19Ra

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Fran

ceCa

sh &

car

ry, c

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epar

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ice,

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lity,

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a17

728

15

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ars,

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uck

and

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men

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ialit

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com

mer

ce4

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41 3

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481

a50

409

2

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rce:

UN

CTA

D, b

ase

d o

n C

oe

20

03

, p. 1

2, a

nn

ual

re

po

rts,

Th

om

son

ON

E B

an

ker

(h

ttp

://b

anke

r.an

alyt

ics.

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.co

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, an

d 2

004

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l Po

wer

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f R

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g (

htt

p:/

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ece

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er

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uar

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00

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bru

ary

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.

331ANNEX A

An

ne

x t

ab

le A

.III

.11

. Tra

din

g f

or

Jap

an

: th

e s

eve

n s

og

o s

ho

sha

, ra

nk

ed

by

fo

reig

n s

ale

s, 2

00

3(M

illio

ns

of

do

llars

an

d n

um

ber

of

emp

loye

es)

Ass

ets

Sal

es

Em

ploy

men

tTN

I bEx

port

s fr

om

Num

ber o

f aff

iliat

esNu

mbe

r of

Rank

Corp

orat

ion

Fore

ign

Tota

lFo

reig

n a

Tota

lFo

reig

nTo

tal

(Per

cen

t) p

aren

t firm

sTo

tal a

ffili

ates

Fore

ign

affil

iate

sho

st c

ount

ries

1M

aru

be

ni C

orp

ora

tio

n 2

0 6

20

c 4

0 7

88

35

36

0 6

9 9

43

12

59

3c

24

90

95

0.6

10

51

62

63

13

13

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itsu

i &

Co

Ltd

11

73

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64

39

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8 6

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00

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04

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on

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n C

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51

11

96

32

4

Sou

rce:

UN

CTA

D, b

ase

d o

n c

om

pan

ies’

an

nu

al r

ep

ort

s an

d W

ho

Ow

ns

Wh

om

(Lo

nd

on

: Du

n a

nd

Bra

dst

ree

t, 2

00

3).

aD

efi

ne

d a

s th

e s

um

of:

(1)

exp

ort

s fr

om

par

en

t fi

rms,

(2

) e

xpo

rts

fro

m f

ore

ign

aff

ilia

tes

less

th

ose

to

Jap

an, (

3)

exp

ort

s b

etw

ee

n f

ore

ign

aff

ilia

tes,

an

d (

4)

do

me

stic

sal

es

of

fore

ign

aff

ilia

tes.

b“T

NI”

is

the

ab

bre

viat

ion

fo

r “T

ran

snat

ion

alit

y In

de

x”. T

he

Tra

nsn

atio

nli

ty I

nd

ex i

s ca

lcu

late

d a

s th

e a

vera

ge

of

the

fo

llo

win

g t

hre

e r

atio

s: f

ore

ign

ass

ets

to

to

tal

asse

ts, f

ore

ign

sal

es

to t

ota

lsa

les

and

fo

reig

n e

mp

loym

en

t to

to

tal

em

plo

yme

nt.

For

the

TN

Cs

for

wh

ich

all

of

the

se r

atio

s ar

e n

ot

avai

lab

le, o

ne

or

two

rat

ios

are

use

d t

o c

alcu

late

TN

I.c

Esti

mat

ed

by

app

lyin

g t

he

sh

are

of

fore

ign

sal

es

in t

ota

l sa

les

to t

ota

l as

sets

.d

Esti

mat

ed

by

app

lyin

g t

he

ave

rag

e o

f th

e s

har

e o

f fo

reig

n s

ale

s in

to

tal

sale

s an

d t

he

sh

are

of

fore

ign

em

plo

yme

nt

in t

ota

l e

mp

loym

en

t to

to

tal

asse

ts.

eEs

tim

ate

d b

y ap

ply

ing

th

e a

vera

ge

of

the

sh

are

of

fore

ign

ass

ets

in

to

tal

asse

ts a

nd

th

e s

har

e o

f fo

reig

n s

ale

s in

to

tal

sale

s to

to

tal

em

plo

yme

nt.

fO

n 1

Ap

ril 2

00

3, N

ich

imen

an

d N

issh

o Iw

ai C

orp

ora

tio

n f

orm

ed a

ho

ldin

g c

om

pan

y, N

issh

o Iw

ai-N

ich

imen

Ho

ldin

gs

Co

rpo

rati

on

. On

1 A

pri

l 20

04

, th

e co

mp

any

was

ren

amed

So

jitz

Co

rpo

rati

on

.

332 World Investment Report 2004: The Shift Towards Services

Annex table A.III.12. The world’s 20 largest TNBs, ranked by number of host countries, 2002(Millions of dollars and number)

Rank bynumber Rank by Numberof host total Subsidiariesa of hostcountries assets Corporation Home economy Total assets Employees Total Foreign countries

1 1 Citigroup United States 1 097 190 250 000 1 237 662 732 13 JP Morgan Chase Bank United States 622 388 72 000 1 095 584 523 5 HSBC Bank plc United Kingdom 758 605 192 000 1 411 1 028 514 3 Deutsche Bank Germany 795 839 94 782 1 276 981 455 17 Crédit Agricole SA France 530 715 93 244 338 157 456 11 Barclays Bank plc United Kingdom 637 125 77 200 627 192 427 18 Société Générale France 526 042 39 102 380 257 408 8 Credit Suisse Switzerland 691 152 79 699 244 196 369 6 BNP Paribas SA France 745 429 45 870 208 142 34

10 19 ING Bank NV Netherlands 500 694 9 000 269 191 3411 15 ABN AMRO Bank NV Netherlands 583 501 106 438 154 137 3212 4 UBS Switzerland 769 489 68 395 168 145 3113 16 Bank of America NA United States 565 382 133 500 1 003 171 3114 10 The Royal Bank of Scotland plc United Kingdom 663 232 23 382 891 313 2515 9 The Bank of Tokyo-Mitsubishi Ltd.c Japan 668 723b 37 125 129 104 2016 7 Bayerische Hypo-und Vereinsbank AG Germany 725 320 65 926 97 77 1917 20 Commerzbank AG Germany 442 999 36 566 99 52 1818 12 UFJ Bank Ltd.c Japan 625 306b 17 565 61 39 1419 2 Sumitomo Mitsui Banking Corporationc Japan 860 315b 22 348 36 26 1220 14 Mizuho Bank Ltd.c Japan 584 665b 16 090 74 52 12

Source: UNCTAD, based on Bankers Almanac database and individual bank internet websites.a Includes all TNB subsidiaries.b Data refer to March 2003.c This bank is part of a much larger financial group.

333ANNEX A

Annex table A.III.13. Cross-border M&A sales and purchases in the services sector and their sharein totals, by group of economies, 1987-2003

(Mllions of dollars and per cent)

Sector 1987-1990 1991-1995 1996-2000 2001-2003 1987-2003

(a) SalesAll sectors

Total world 481 096 556 761 2 973 379 1 260 736 5 271 973Developed countries 455 080 484 599 2 598 441 1 044 371 4 582 490Developing countries 25 705 59 772 330 034 172 475 587 985Central and Eastern Europe 312 12 260 42 078 43 889 98 539

Ser vicesTotal world 178 068 257 233 1 873 014 747 690 3 056 004Developed countries 162 135 214 845 1 618 255 620 388 2 615 623Developing countries 15 873 36 753 221 600 102 677 376 903Central and Eastern Europe 61 5 634 30 580 24 625 60 901

Share of servicesTotal world 37.0 46.2 63.0 59.3 58.0Developed countries 35.6 44.3 62.3 59.4 57.1Developing countries 61.7 61.5 67.1 59.5 64.1Central and Eastern Europe 19.6 46.0 72.7 56.1 61.8

(b) PurchasesAll sectors

Total world 481 096 556 761 2 973 379 1 260 736 5 271 972Developed countries 463 800 508 122 2 763 372 1 130 553 4 865 847Developing countries 16 308 48 038 198 474 114 538 377 359Central and Eastern Europe 14 537 5 030 13 780 19 361

Ser vicesTotal world 172 684 251 321 1 869 157 811 199 3 104 360Developed countries 162 789 220 544 1 735 165 737 783 2 856 280Developing countries 9 847 30 598 125 369 67 757 233 570Central and Eastern Europe 6 179 2 365 3 795 6 345

Share of servicesTotal world 36 45 63 64 59Developed countries 35 43 63 65 59Developing countries 60 64 63 59 62Central and Eastern Europe 44 33 47 27 33

Source: UNCTAD, cross-border M&A database.

Note: Figures for the groups of economies may not add up to the world total due to inclusion of deals involving sales to, orpuchases from, more than two countries in the world total.

334 World Investment Report 2004: The Shift Towards Services

An

ne

x t

ab

le A

.III

.14

. Th

e t

op

10

0 M

&A

de

als

, by

ho

me

an

d h

ost

co

un

try

or

reg

ion

, 19

87

-20

03

(N

um

ber

of

dea

ls, m

illio

ns

of

do

llars

an

d p

er c

ent)

198

7 -

1995

199

6 -

2003

Hom

e ec

onom

yHo

st e

cono

my

Num

ber o

f dea

ls

Val

ue

S

hare

in v

alue

Num

ber o

f dea

ls

V

alue

S

hare

in v

alue

Tota

lSe

rvic

esTo

tal

Serv

ices

Tota

lSe

rvic

esTo

tal

Serv

ices

Tota

lSe

rvic

esTo

tal

Serv

ices

Wes

tern

Eur

ope

Wes

tern

Eur

ope

287

73 1

9116

042

2517

3222

587

455

473

222

4350

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tern

Eur

ope

Unite

d St

ates

3611

111

983

33 7

1238

3528

1843

1 16

024

9 93

231

26W

este

rn E

urop

eOt

her d

evel

oped

cou

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833

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368

286

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83

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her d

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oped

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ntrie

sUn

ited

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es9

535

260

20 3

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216

445

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28 7

833

3Un

ited

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esW

este

rn E

urop

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118

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1 63

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496

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ited

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esOt

her d

evel

oped

cou

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51

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ped

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11 1

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her

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d to

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100

3629

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978

100

100

100

6413

80 5

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010

0

Sou

rce:

UN

CTA

D, c

ross

-bo

rde

r M

&A

dat

abas

e.

aTh

ree

of

the

pu

rch

ase

s w

ere

fro

m B

erm

ud

a.

No

te:

Incl

ud

ing

pu

rch

ase

s o

f lo

cal c

om

pan

ies

by

fore

ign

aff

ilia

tes

of

fore

ign

TN

Cs.

335ANNEX A

Annex table A.III.15. Cross-border M&A sales in services, by industry, 1988-2003(Millions of dollars)

Sector/industr y 1988-1990 1991-1994 1995-1997 1998-2000 2001-2003

Ser vices 156 748 163 600 398 608 1568 038 747 690Elec tric, gas, and water distribution 1 753 7 212 63 135 119 803 98 528

Electricity and related ser vices 300 5 319 56 558 93 840 70 626Water supply and services 617 217 1 705 13 541 12 117Gas production and/or distribution 835 1 676 4 756 11 076 15 785Combination utilities, nec - - 115 1 346 -

Construction firms 1 641 2 099 6 750 9 809 4 721Hotels, casinos, restaurants and drinking places 24 826 7 971 16 232 32 346 18 532

Hotels and casinos 17 408 6 447 10 108 18 051 12 841Restaurants and drinking places 7 418 1 524 6 124 14 295 5 691

Trade 24 067 28 373 53 627 103 418 53 201Wholesale trade-durable goods 4 986 9 560 16 569 15 368 14 816Wholesale trade-nondurable goods 2 961 9 324 7 635 24 509 9 866Retail trade-general merchandise and apparel 12 011 1 395 9 140 2 456 2 772Retail trade-home furnishings 223 1 972 320 2 857 1 308Retail trade-food stores 990 3 481 6 757 24 916 9 420Miscellaneous retail trade 2 562 1 839 9 178 30 627 13 440Repair ser vices 333 803 4 028 2 685 1 579

Transport, storage and communications 20 220 26 892 43 484 584 841 187 038Air transportation and shipping 1 022 2 859 3 156 17 933 6 384Transportation and shipping (except air) 5 474 7 361 12 168 31 189 25 366Telecommunications 13 723 16 671 28 160 535 719 155 289

Finance 50 809 50 103 118 588 393 807 218 698Credit institutions 2 197 2 489 4 737 22 291 33 458Savings and loans, mutual savings banks 1 117 1 209 1 352 942 1 370Commercial banks, bank holding companies 12 912 9 078 36 266 101 713 73 275Holding companies, except banks 1 446 1 255 6 632 15 714 4 040Investment & commodity firms,dealers,exchanges 10 857 12 209 35 160 111 307 47 379Other financial 350 266 169 229 464Insurance 21 931 23 599 34 271 141 612 58 711

Business ac tivities 20 104 20 978 49 350 232 661 125 132Prepackaged software 1 309 2 756 4 381 32 931 9 399Real estate; mor tgage bankers and brokers 4 984 6 590 12 491 39 048 40 640Business services 11 358 11 283 30 309 149 265 70 608Advertising ser vices 2 452 349 2 169 11 416 4 485

Public administration - - 715 2 172 459Educ ational services 12 471 183 327 522Health and social ser vices 1 014 3 044 4 678 2 116 3 772

Health services 1 014 3 044 4 637 1 892 3 451Social services - - 41 224 321

Community, social and personal ser vice activities 12 205 15 751 38 260 86 555 36 942Amusement and recreation ser vices 2 392 994 2 446 3 486 1 210Motion picture production and distribution 8 813 10 076 7 875 47 949 2 228Radio and television broadcasting stations 483 2 972 20 277 28 924 31 453Personal ser vices 107 69 4 302 859 653Sanitar y services 410 1 640 3 360 5 336 1 397

Miscellaneous ser vices 99 707 3 607 184 145

Source: UNCTAD, cross-border M&A database.

Note: The data cover only deals involving the acquisition of an equity stake of more than 10%.

336 World Investment Report 2004: The Shift Towards Services

Annex table A.III.16. Cross-border M&A sales/purchases in services, by region, 1987-2003(Average annual value in millions of dollars)

Other Western Other developed Developing Central andSeller/Purchaser United States European Union Europe countries countries Eastern Europe Total worlda

1987-1990United States 7 111 7 612 714 4 836 966 - 21 247European Union 1 662 8 703 438 3 036 550 - 14 392Other Western Europe 657 459 - 88 2 - 1 205Other developed countries 819 407 8 479 132 1 1 845Developing countries 871 2 420 4 451 222 - 3 968Central and Eastern Europe - 31 - - - - 31Total worlda 11 939 20 023 1 172 9 369 2 002 2 44 517

1991-1994United States 2 377 5 907 59 3 480 815 - 12 638European Union 4 292 11 022 289 1 251 866 10 17 730Other Western Europe 44 595 2 47 35 - 724Other developed countries 482 363 1 364 217 - 1 426Developing countries 1 639 1 385 67 623 2 854 1 6 570Central and Eastern Europe 68 191 6 32 62 25 388Total worlda 9 383 19 826 424 6 160 5 066 36 40 900

1995-1997United States 8 093 17 528 2 204 7 814 1 201 - 36 840European Union 12 256 29 264 4 226 691 4 321 3 50 761Other Western Europe 195 1 448 250 7 349 - 2 249Other developed countries 3 654 1 416 23 2 166 620 - 7 878Developing countries 7 705 6 490 204 983 8 869 - 24 261Central and Eastern Europe 491 1 711 29 7 714 20 3 001Total worlda 36 047 59 273 6 958 13 834 16 695 22 132 869

1998-2000United States 17 441 87 852 7 899 13 966 8 080 19 135 257European Union 38 899 205 618 15 318 4 826 4 207 71 270 685Other Western Europe 1 448 6 098 117 302 777 - 8 742Other developed countries 8 148 10 482 51 2 877 1 185 - 22 743Developing countries 11 378 29 846 775 1 778 9 091 33 53 097Central and Eastern Europe 414 7 411 161 28 36 504 8 553Total worlda 86 097 358 428 24 372 26 654 24 561 627 522 679

2001-2003United States 6 673 45 360 1 030 14 402 5 992 - 73 458European Union 19 364 74 106 1 736 5 113 1 899 52 102 270Other Western Europe 1 169 4 848 414 4 811 33 7 280Other developed countries 4 664 2 754 47 2 732 1 697 - 11 894Developing countries 8 303 8 922 578 2 439 13 789 12 34 226Central and Eastern Europe 415 6 056 626 7 18 1 086 8 208Total worlda 45 252 144 801 4 478 27 428 25 904 1 184 249 230

Source: UNCTAD, cross-border M&A database.

Note: The data cover deals involving the acquisition of an equity stake of more than 10% only. For sales/purchases made bythe United States with itself, the ultimate seller/acquiror is a country other than the United States.

a Totals include sales/purchases involving more than two economies.

337ANNEX A

Annex table A.III.17. Profit remittances to parent firmsa by Japanese and United States foreignaffiliates, by sector, 1994-2002

(Millions of dollars)

Countr y/industry of foreign affiliates 1994 1995 1996 1997 1998 1999 2000 2001 2002

JapanAll industries .. 2 870 .. .. 3 333 .. .. 3 559 ..Mining .. 24 .. .. 179 .. .. 51 ..Manufacturing .. 2 072 .. .. 1 764 .. .. 2 167 ..Ser vices .. 774 .. .. 1 390 .. .. 1 341 ..

Construction .. 24 .. .. 14 .. .. 14 ..Information, telecommunications, transpor t .. .. .. .. .. .. .. 52 ..Trade .. 682 .. .. 1 062 .. .. 1 151 ..Ser vices .. 19 .. .. 183 .. .. 69 ..Other ser vices .. 49 .. .. 130 .. .. 54 ..

United StatesAll industries 44 899 40 113 46 361 55 816 58 154 65 640 56 674 51 214 47 830Mining 7 684 8 712 6 649 8 315 6 715 6 745 5 234 4 833 3 581Manufacturing 14 179 11 893 16 709 19 878 19 593 21 304 14 967 13 667 15 677Ser vices 23 037 19 511 23 004 27 625 31 847 37 593 36 473 32 716 28 575

Utilities .. .. .. .. .. 608 479 226 298Wholesale trade 4 853 4 371 5 166 7 790 4 972 6 102 4 758 5 552 5 514Information .. .. .. .. .. 1 488 1 412 1 357 1 412Depositor y institutions 3 020 3 111 2 445 3 772 4 183 5 834 3 700 3 977 3 970Finance (except depositor y institutions) and insurance 11 600 9 064 11 507 10 970 16 448 5 474 6 291 5 034 3 929Professional scientific and technical ser vices 2 160 1 553 1 447 3 085 4 204 1 949 1 695 1 568 968Other industries 1 404 1 412 2 439 2 008 2 040 16 138 18 138 15 002 12 484

Source: UNCTAD, based on data from United States, Department of Commerce and Japan, Ministry of Industry, Economy and Trade.a Dividends paid to parent firms.

338 World Investment Report 2004: The Shift Towards Services

Annex table A.III.18. Profit remittancesa as a percentage of total income of foreign affiliates ofJapanese and United States TNCs, by sector, 1994-2002

(Per cent)

Countr y/industry of foreign affiliates 1994 1995 1996 1997 1998 1999 2000 2001 2002

JapanAll industries .. 32 .. .. 46 .. .. 52 ..Mining .. 3 .. .. 67 .. .. 6 ..Manufacturing .. 36 .. .. 56 .. .. 62 ..Ser vices .. 42 .. .. 36 .. .. 53 ..

Construction .. -8 .. .. -2 .. .. 18 ..Information, telecommunications, transpor t .. .. .. .. .. .. .. -2 ..Trade .. 41 .. .. 29 .. .. 30 ..Ser vices .. 7 .. .. 46 .. .. 9 ..Other ser vices .. 21 .. .. 28 .. .. 22 ..

United StatesAll industries 65 46 50 53 64 57 42 48 39Mining 112 96 55 67 93 80 40 48 35Manufacturing 55 35 49 52 66 60 35 42 50Ser vices 63 44 49 51 59 55 46 51 35

Utilities 41 30 14 19Wholesale trade 58 48 57 86 55 49 34 43 42Information 198 -147 -39 596Depositor y institutions 78 96 73 115 570 603 169 149 175Finance (except depositor y institutions) and insurance 60 37 40 34 47 42 41 60 28Professional scientific and technical services 76 38 40 51 69 65 48 75 33Other industries 84 49 110 59 64 42 43 37 26

Source: UNCTAD, based on data from United States, Department of Commerce and Japan, Ministry of Industry, Economy and Trade.a Dividends paid to parent firms.

339ANNEX A

Annex table A.IV.1. Sources of export-oriented FDI projects in services in 2002-2003(Number and per cent)

Call centres SSC IT services RHQ

Region/economy No. of Share No. of Share No. of Share No. of Shareprojects of total projects of total projects of total projects of total

World 513 100 138 100 632 100 566 100Developed countries 468 91 128 93 562 89 523 92Western Europe 141 27 46 33 105 17 208 37EU 127 25 43 31 99 16 188 33

Austria - - - - 1 - 3 1Belgium 3 - 1 1 - - 5 1Denmark 3 - 1 1 1 - 4 1Finland 2 - - - 4 1 4 1France 16 3 - - 11 2 24 4Germany 27 5 9 7 11 2 54 10Greece - - - - - 1 -Iceland - - - - 1 1 2 -Ireland 4 - 1 1 5 - 2 -Italy 3 - - - 2 - 6 1Luxembourg 5 - - - - - - -Netherlands 9 - 8 6 2 - 11 2Portugal 1 - - - - - 1 -Spain 4 - - - 3 - 4 1Sweden 12 2 - - 11 2 12 2United Kingdom 38 7 23 17 47 7 55 10

Other Western Europe 14 3 3 2 6 1 20 4North America 309 60 76 55 428 68 253 45

Canada 2 - - - 14 2 15 3United States 307 60 76 55 414 66 238 42

Other developed economies 18 4 6 4 29 5 62 11Australia 4 - 2 1 6 1 11 2Israel - - - - 3 - 3 -Japan 14 3 4 3 19 3 47 8New Zealand - - - 1 - 1 -

Developing economies 43 9 10 7 65 10 41 8Africa 2 - - - 8 1 3 -Latin America and the Caribbean 8 - 4 3 7 1 5 -Asia and the Pacific 33 6 6 4 50 8 33 6

Central and Eastern Europe 2 - - - 5 1 2 -

Source: UNCTAD, based on data from OCO Consulting

340 World Investment Report 2004: The Shift Towards Services

Annex table A.IV.2. Top investors in export-oriented FDI projects in services,by number of projects, 2002-2003

Call centres

Company name Economy of origin Industry Jobs createda

ICT Group United States Business services 30/70Net Screen United States IT and software ..Hewlett Packard United States IT and software ..IBM United States IT and software 1 130Dell Computer United States Electronics 1 670Siemens Germany Telecom equipment ..Transcom Worldwide Luxembourg Business services 558EADS France Aerospace ..ExxonMobil United States Energy 350General Electric United States Heavy industry 1 200

Shared service centres

Accenture Bermuda IT and software 2 050American Express United States Financial services 350Conseco United States Business services 6 800General Electric United States Heavy industry 2 800HSBC United Kingdom Financial services 8 100Philips Netherlands Electronics 1 050Logica CMG United Kingdom IT and software 1 940ING Groep Netherlands Financial services 650ExxonMobil United States Energy 850Aviva United Kingdom Financial services 3 300

IT services

IBM United States IT and software 2280Microsoft United States IT and software 510Oracle United States IT and software 5 362Hewlett Packard United States IT and software 360NetScreen United States IT and software ..Tata Group India IT and software 600Honeywell United States IT and software 1 495I-flex Solutions India IT and software 100Intel United States IT and software 2 535Motorola United States IT and software 470

Regional HQs

Siemens Germany Telecom services 300Ford United States Automotive OEM ..General Electric United States IT and software ..Hyundai Korea, Republic of Automotive OEM 700Toyota Japan Automotive OEM 135Deutsche Post Germany Logistics and distribution 600IBM United States IT and software 1 000Microsoft United States IT and software 215EADS France Aerospace ..Hitachi Japan Electronics ..

Source: UNCTAD, based on data from OCO Consulting.a Information on jobs created is not captured for each project.

341ANNEX A

Annex table A.V.1. Service activities in EPZs

Economy No. of EPZs Other types of zones Main activity/industry

Developed economies

Greece 3 Tourism, packaging

Ireland National Technical Aircraft maintenance, repair, overhaul, R&D, software,Park Shannon FZ international financial ser vices, call centres, distribution

Japan 2 IT international and financial centre division, planning anddevelopment, tourism

Malta 10 Warehousing, packaging, IT ser vices, financial ser vices

Portugal 4 Commercial services, warehousing

Spain Cadiz free zone, Stand-alone plants TradeBarcelona free zone,

Vigo free zone

Turkey 20 Trade, storage, assembly-disassembly, maintenance-repair,rentals, banking, insurance, engineering,consultancy,transportation and representation

Developing economies

Africa

Nor th Africa

Egypt 7 19 industrial parks Warehousing, media production

Morocco 2 Call centres, software development

Sudan 3 Duty free shop Commercial activities

Tunisia 2 Call centres, tourism

O ther Africa

Cape Verde 2 Tourism, data processing and telecommunication, banking, storage

Cameroon 1 Stand -alone plants Distributing finished products

Gabon 1 Storage, distributing finished products, designing

Ghana 4 Produc tion of goods and ser vices, packaging

Kenya 6 11 industrial parks Financial, marketing, technology and management services

Madagascar Industrial free zone Call centres, tourism

Maldives Duty free areas and exclusive Tourism, fisherieseconomic zone

Mali 3 Tourism

Mauritius Whole island Call centres, tourism, financial and business services,insurance, consultanc y, aircraft financing and leasing

Namibia 11 Warehousing

Nigeria 5 Offshore banking, insurance and re-insurance,international stock, commodities and mercantileexchanges, commercial industrial research, internationaltourist resort development and operations

Senegal 1 Industrial free zone Call centres, fisheries

Seychelles 1 Tourism

South Africa 6 Call centres, catering

Tanzania, United Rep. of 1 Repackaging, relabelling and trading, consultancy,information, brokerage and repair services

Togo 1 Offshore banking, data processing

/...

342 World Investment Report 2004: The Shift Towards Services

Annex table A.V.1. Service activities in EPZs (continued)

Economy No. of EPZs Other types of zones Main activity/industry

Asia and the Pacific

West Asia

Bahrain 1 Financial and insurance, packing

Cyprus 1 Onshore, offshore Tourism, trade, warehouse

Iran, Islamic Rep. Of 4 Commerce, financial, consultative, marketing, legal,advertising, engineering

Jordan 11 Trade, tourism

Kuwait 1 Banking and financial, consulting, assembly, packing,auditing, legal and/or engineering

Oman 2 Commercial centres, exhibition centres and stores, transportation

Saudi Arabia 8 S audi por ts of authority Warehousing

Syrian Arab Republic 6 Packaging, warehouse, banking ser vices, insurance, duty-free shops

United Arab Emirates 16 Design, development, e-commerce, telecommunication andmedia, banking, financial, insurance, educational, callcentres, marketing operations, logistics, warehousing,trade, data software

Yemen 1 Banking, financial, insurance, warehousing

South, East and South-East Asia

China 15 5 special economic zones, Market intelligence and human resources, hi-tech15 coastal zones, 32 economic- development, consulting and information, data entrytechnological development zones,53 national hi-tech industrialdevelopment zones

Hong Kong, China Industrial estates, Financial, R&D, telecommunications, warehousingcyberpor t science park professional design

India 5 IT ser vices, chip design, call centres, business back-office,software, trade, financial and insurance ser vices, tourismand travel, warehouse, others

Indonesia Bonded zone Construction designing, engineering activity, sor ting,preliminar y and final inspection and packing

Macao, China Por t franc Warehousing

Malaysia 14 200 industrial parks Telecom network, shopping centres, hospitals, educationalinstitutions, recreational facilities, R&D, financial ser vices

Pakistan 22 Financial business, trade, transpor t, software ser vices, webdevelopment, graphics and multimedia, IT ser vices

Philippines 34 9 info-tech parks and buildings Software writers, architects, telemarketers, graphic design,call centres, data entry

Republic of Korea 2 free economic Professional design, R&D centresand trade zones

Singapore 5 35 industrial parks Education and training, telecom ser vices, financial ser vices,media industries, R&D, refining and petrochemicals (plantsand construction), wholesale and retail trade, hotels andrestaurants, transpor t

Taiwan Province of China 8 Scientific and industrial park Warehouses, trans-shipments, repair ser vices, logisticscentres

Thailand Zone-like industrial estates Warehousing, packaging, commercial ser vices

Viet Nam 10 173 Call centres, consulting and information, hospital,insurance, data processing

/...

343ANNEX A

Annex table A.V.1. Service activities in EPZs (continued)

Economy No. of EPZs Other types of zones Main activity/industry

The Pacific

Fiji 1 Telemarketing, computer aided designs, enhancement ofarchitectural, engineering blue prints, health insurance, others

Latin America and the Caribbean

South America

Argentina 4 Industrial parks Packaging, commercial services

Brazil 1 R&D

Chile 2 Telecommunications, audiovisual, construction andengineering, tourism, bank, security and related ser vices

Peru 1 Tourism, information, commercial services

Uruguay 9 Tourism, storage, logistics and distribution, softwaredevelopment, call centres, consulting, banking

Venezuela 3 Trade, packaging, customs agenc y

O ther Latin America and the Caribbean

Antigua and Barbuda Free trade plus Data processing, trade call centres, financial ser vicesprocess zone

Bahamas 3 Financial and security ser vices, insurance

Barbados Bonded Software development, medical records processing,publishing, banking, telemarketing/call centres, healthinsurance, computer-aided design

Belize 1 Santa Elena Corozal district Processing, packaging, warehousing, distribution of goodsand services, data processing, business-support services, tourism

Costa Rica 12 Call centres, software and IT suppor t, bookkeepingoperations, tourism, logistic and distribution centre,financial services

Cuba 4 Tourism

Netherlands Antilles 3 Trading, distribution, warehousing, call centres

Dominican Republic 53 Banking, insurance, call centres, packaging, tourism

El Salvador 17 Financial and insurance ser vices, tourism and travel,leasing, multimedia, courier

Guatemala 20 Commercial ser vices

Honduras 28 Call centres, financial and security ser vices

Jamaica 5 Warehousing and storing,redistribution, data processing,refining, assembling, packaging

Mexico Maquiladoras IT and engineering outsourcing, call centres, professional design

Nicaragua 2 Call centres, trade, telecommunications

Panama 1 Storing, assembling, repackaging and reexportingproducts, financial and insurance ser vices, tourism

Puerto R ico 4 Industrial parks Warehousing, packaging, financial and insurance ser vices

Saint Kitts and Nevis 4 industrial parks Packaging, tourism, financial ser vices, customer ser vice callcentres, telemarketing, database conversion, health-careclaims processing, software development, magazinesubscriptions, data entry

Trinidad and Tobago 17 designated Single entity zones Data processing, trade, call centres, software development,free zone areas networking systems, database management, multimedia,

telemarketing / teleser vicing, financial ser vices

/...

344 World Investment Report 2004: The Shift Towards Services

Annex table A.V.1. Service activities in EPZs (concluded)

Economy No. of EPZs Other types of zones Main activity/industry

Central and Eastern Europe

Albania 4 Industrial parks Ser vices, trade

Bulgaria 6 IT workshops

Bosnia 8 --

Croatia 8 Wholesale trade and trade commission, offering ofser vices, banking business and other financial dealings,insurance and reinsurance regarding people andproperties

Czech Republic 11 IT ser vices, call centres

Hungary 1 Offshore Warehousing, IT services, call centres

Lithuania 3 Warehousing, lobbying and representation, land andutilities management, construc tionmanagement, financialser vices, consultating, facilities management

Poland 14 Storing and cargo handling, transpor t and for wardingser vices, IT ser vices, trade, tourism, call centres

Romania 7 Stock exchange operations, commercial-financialoperations, domestic or international transport, brokerage,agency and shipping

Russian Federation Nakhodka FEZ Software ser vices, R&D centres

Slovenia 2 Wholesale trade, banking and other financial services,insurance and reinsurance

Ukraine 11 Tourism

Yugoslavia 12 Warehousing

Source: ILO, www.ilo.org/epz.

DEFINITIONS AND SOURCES

A. GenerA. GenerA. GenerA. GenerA. General defal defal defal defal definitionsinitionsinitionsinitionsinitions

1. Transnational corporations

Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprisingparent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise thatcontrols assets of other entities in countries other than its home country, usually by owning a certainequity capital stake. An equity capital stake of 10% or more of the ordinary shares or voting powerfor an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally consideredas the threshold for the control of assets.1 A foreign affiliate is an incorporated or unincorporatedenterprise in which an investor, who is a resident in another economy, owns a stake that permits alasting interest in the management of that enterprise (an equity stake of 10% for an incorporatedenterprise, or its equivalent for an unincorporated enterprise). In WIR, subsidiary enterprises, associateenterprises and branches – defined below – are all referred to as foreign affiliates or affiliates.

• A subsidiary is an incorporated enterprise in the host country in which another entity directlyowns more than a half of the shareholder’s voting power, and has the right to appoint or removea majority of the members of the administrative, management or supervisory body.

• An associate is an incorporated enterprise in the host country in which an investor owns a totalof at least 10%, but not more than half, of the shareholders’ voting power.

• A branch is a wholly or jointly owned unincorporated enterprise in the host country which isone of the following: (i) a permanent establishment or office of the foreign investor; (ii) anunincorporated partnership or joint venture between the foreign direct investor and one or morethird parties; (iii) land, structures (except structures owned by government entities), and /orimmovable equipment and objects directly owned by a foreign resident; or (iv) mobile equipment(such as ships, aircraft, gas- or oil-drilling rigs) operating within a country, other than that ofthe foreign investor, for at least one year.

2. Foreign direct investment

Foreign direct investment (FDI) is defined as an investment involving a long-term relationshipand reflecting a lasting interest and control by a resident entity in one economy (foreign direct investoror parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor(FDI enterprise or affiliate enterprise or foreign affiliate).2 FDI implies that the investor exerts asignificant degree of influence on the management of the enterprise resident in the other economy.Such investment involves both the initial transaction between the two entities and all subsequenttransactions between them and among foreign affiliates, both incorporated and unincorporated. FDImay be undertaken by individuals as well as business entities.

Flows of FDI comprise capital provided (either directly or through other related enterprises)by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreigndirect investor. FDI has three components: equity capital, reinvested earnings and intra-companyloans.

• Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a countryother than its own.

• Reinvested earnings comprise the direct investor’s share (in proportion to direct equity participation)of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor.Such retained profits by affiliates are reinvested.

• Intra-company loans or intra-company debt transactions refer to short- or long-term borrowingand lending of funds between direct investors (parent enterprises) and affiliate enterprises.

World Investment Report 2004: The Shift Towards Services346

FDI stock is the value of the share of their capital and reserves (including retained profits)attributable to the parent enterprise, plus the net indebtedness of affiliates to the parent enterprise.FDI flow and stock data used in WIR are not always defined as above, because these definitions areoften not applicable to disaggregated FDI data. For example, in analysing geographical and industrialtrends and patterns of FDI, data based on approvals of FDI may also be used because they allow adisaggregation at the country or industry level. Such cases are denoted accordingly.

3. Non-equity forms of investment

Foreign direct investors may also obtain an effective voice in the management of another businessentity through means other than acquiring an equity stake. These are non-equity forms of investment,and they include, inter alia, subcontracting, management contracts, turnkey arrangements, franchising,licensing and product-sharing. Data on these forms of transnational corporate activity are usuallynot separately identified in the balance-of-payments statistics. These statistics, however, usually presentdata on royalties and licensing fees, defined as “receipts and payments of residents and non-residentsfor: (i) the authorized use of intangible non-produced, non-financial assets and proprietary rightssuch as trademarks, copyright, patents, processes, techniques, designs, manufacturing rights, franchises,etc., and (ii) the use, through licensing agreements, of produced originals or prototypes, such asmanuscripts and films.”3

BBBBB. A. A. A. A. Avvvvvailaailaailaailaailabilitybilitybilitybilitybility, limita, limita, limita, limita, limitations and estimations and estimations and estimations and estimations and estimates oftes oftes oftes oftes of FDI da FDI da FDI da FDI da FDI datatatatataprprprprpresented in esented in esented in esented in esented in WIRWIRWIRWIRWIR

FDI data have a number of limitations. This section therefore spells out how UNCTAD collectsand reports such data. These limitations need to be kept in mind also when dealing with the sizeof TNC activities and their impact (box 1).

1 . FDI flows

Data on FDI flows in annex tables B.1 and B.2, as well as in most of the tables in the text,are on a net basis (capital transactions’ credits less debits between direct investors and their foreignaffiliates). Net decreases in assets (outward FDI) or net increases in liabilities (inward FDI) are recordedas credits (recorded with a positive sign in the balance of payments), while net increases in assetsor net decreases in liabilities are recorded as debits (recorded with a negative sign in the balanceof payments). In the annex tables, as well as in the tables in the text, the negative signs are deletedfor practical purposes. Hence, FDI flows with a negative sign in WIR indicate that at least one ofthe three components of FDI (equity capital, reinvested earnings or intra-company loans) is negativeand is not offset by positive amounts of the other components. These are instances of reverse investmentor disinvestment.

UNCTAD regularly collects published and unpublished national official FDI flows data directlyfrom central banks, statistical offices or national authorities on an aggregated and disaggregated basisfor its FDI/TNC database. These data constitute the main source for reported data on FDI flows.These data are further complemented by data obtained from: (i) other international organizationssuch as the International Monetary Fund (IMF), the World Bank and the Organisation for EconomicCo-operation and Development (OECD); (ii) regional organizations such as the ASEAN Secretariatand the European Bank for Reconstruction and Development (EBRD); and (iii) UNCTAD’s ownestimates.

For those economies for which data were not available from national official sources, or forthose for which data were not available for the entire period of 1980-2003 covered in the WorldInvestment Report 2004 (WIR04), data from the IMF were obtained using the IMF’s CD-ROM onInternational Financial Statistics and Balance of Payments, June 2004. If the data were not availablefrom the above IMF data source, data from the IMF’s Country Report, under Article IV of the IMF’sArticles of Agreements, were used.

DEFINITIONS AND SOURCES 347

For those economies for which data were not available from national official sources and theIMF, or for those for which data were not available for the entire period of 1980-2003, data fromthe World Bank’s World Development Indicators 2004 CD-ROM were used. This report covers dataup to 2003 and reports data on net FDI flows (FDI inflows less FDI outflows) and inward FDI flowsonly. Consequently, data on FDI outflows, which are reported as World Bank data, are estimatedby subtracting inward FDI flows from net FDI flows.

Data from the EBRD were utilized for those economies in Central Asia for which data werenot available from one of the above-mentioned sources.

Furthermore, data on the FDI outflows of the OECD, as presented in its publication, GeographicalDistribution of Financial Flows to Developing Countries, and as obtained from its online databank,were used as a proxy for FDI inflows. As these OECD data are based on FDI outflows to developing

Box 1. What do changes in FDI mean?

Trends in FDI often differ greatly from indicators of economic performance such as fixed investmentflows or stocks, sales and employment in parent firms and/or their foreign affiliates. Nonetheless, FDIis a commonly used indicator of economic activity in TNCs primarily because it is the most widelyavailable indicator published in a timely fashion. Thus, changes in flows or stocks of FDI are ofteninterpreted to signal changes in real economic activity of TNCs, even when there may be no major changes,or vice versa.

The major reason for differences in trends in FDI and trends in the indicators of economic activity,such as those indicated above, is conceptual. When examining investment trends, the net stock of fixedassets (cumulative fixed investment less depreciation) is used as one of the most common measuresof capital. On the other hand, FDI flows are a source, not a use, of corporate finance, which makesthem different from fixed investment flows conceptually. FDI flows are the sum of equity, reinvestedearnings and loans remitted from the parent firm and related firms abroad to an affiliate in which itcontrols an ownership share above a certain threshold (i.e. 10%). Using the corporate balance sheetthat shows total liabilities (equity + loans) equals total assets, FDI stock can then be related to morecommon measures of capital such as fixed asset stocks as follows:a

FDI stock = FDI equity + FDI reinvested earnings + FDI loans = fixed assets

+ non-fixed assets – (non-FDI equity + non-FDI loans)

In short, an increase in FDI stock (positive net FDI flows) can be used to finance purchases offixed assets, non-fixed assets (of which the majority are usually financial assets), or a reduction in non-FDI liabilities (equity and/or loans). Thus, to the extent that FDI is used to purchase non-fixed assetsor finance reductions in non-FDI liabilities, trends in FDI stock can easily diverge from trends in theaccumulation of fixed capital. Moreover, trends in fixed assets may also differ from trends in other measuresof real activity, which makes it very important to use the indicator that best describes the activity ofconcern in a given case.

For example, in both Japan and the United States, FDI flows have increased much more rapidlythan fixed investment flows of foreign-owned affiliates, but the reverse is true in China. In China, fixedinvestment flows of affiliates have always been smaller than FDI flows, but this has not been the casefor several years in Japan and the United States when FDI flows were relatively small. In contrast, FDIstocks have increased much more rapidly than measures of real activity, such as fixed asset stocks, salesand employment in China and the United States, but this has not necessarily been the case in Japanwhere FDI stock, fixed asset stock and employment have all increased rapidly, but sales have grownmuch more slowly. Finally, in the United States, the rapid growth of FDI stock has been accompaniedby much more rapid growth in total assets than in fixed assets, indicating that large portions of the rapidgrowth in FDI were used to finance the purchase of non-fixed assets. Thus, even these three examplesshow a great variety of experience, and underline the importance of choosing the indicator that mostclosely reflects the activity of concern when analyzing TNC activities.

Source: UNCTAD, based on communications by Eric D. Ramstetter.

a This discussion ignores valuation changes and the like, which affect more sophisticated measures of FDI stock.However, this is another potential source of differences in trends of FDI stock and other indicators.

World Investment Report 2004: The Shift Towards Services348

economies from the member countries of the Development Assistance Committee (DAC) of OECD,4

inflows of FDI to developing economies may be underestimated. In some economies, FDI data fromlarge recipients and investors are also used as proxies.

Finally, in those economies for which data were not available from either of the above-mentionedsources, or only partial data (quarterly or monthly) were available, estimates were made by: annualizingthe data, if they are only partially available (monthly or quarterly) from either the IMF or nationalofficial sources; and using data on cross-border mergers and acquisitions (M&As) and their growthrates.

The following sections give details of how data on FDI flows for each economy used in theReport were obtained.

a. FDI inflows

Those economies for which data from national official sources were used for the period 1980-2003, or part of it, are listed below.

Period Economy

1980-2003 Brazil, Bolivia, Canada, Chile, Finland, Japan, Mexico, Peru, Republicof Korea, South Africa, Taiwan Province of China, Tunisia, Turkey,United States and Venezuela

1980-1993 and 1995-2003 Congo1982-2003 Sweden1983-2003 China1985-2003 Austria, Burundi, Denmark, Papua New Guinea, Senegal and United Kingdom1986-2003 Ecuador, France, Hungary, Ireland, Norway, Swaziland and Switzerland1987-2003 Germany and the Netherlands1988-2003 Iceland, Lesotho and Mauritius 1988-1991 and 1994-2003 Slovenia 1989-2003 Armenia and Myanmar1990-2003 Algeria, Angola, Anguilla, Antigua and Barbuda, Aruba; Bahamas, Bahrain,

Benin, Botswana, Bulgaria, Colombia, Costa Rica, Côte d’Ivoire, CzechRepublic, Dominica, Dominican Republic, Egypt, Ghana, Greece, Grenada,Guatemala, Haiti, Honduras, Indonesia, Israel, Italy, Kenya, Kuwait, Malaysia,Malta, Montserrat, Morocco, Mozambique, Namibia, Oman, Philippines,Portugal, Romania, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincentand the Grenadines, Seychelles, Singapore, Slovakia, Sri Lanka, Togo,Trinidad and Tobago and United Republic of Tanzania

1990-1991 and 1994-2003 Zambia1991-2003 Djibouti, India, Nicaragua and Uganda1991-2001 and 2003 Cyprus1992-2003 Argentina, Belarus, Burkina Faso, Cambodia, Estonia, Guyana, Kazakhstan,

Latvia, Lithuania, Mongolia, Níger, Republic of Moldova, Serbia andMontenegro and Spain

1992-1993 and 1996-2003 Russian Federation1992-1993 and 1999-2003 Ukraine1993-2003 Croatia, Mali and Uruguay1994-2003 Cape Verde and the TFYR Macedonia1995-2003 Central African Republic, Chad, Equatorial Guinea, Gabon and Yemen1996-2003 Bosnia and Herzegovina1997-2003 Guinea-Bissau1998-2003 El Salvador, Hong Kong (China) and Solomon Islands1999-2003 Comoros2000-2003 Jordan, the Netherlands Antilles2002-2003 Belgium, Luxembourg and Poland

/...

DEFINITIONS AND SOURCES 349

Period Economy

1980-2002 Barbados1980-1985 and 1990-2002 Paraguay1984-2002 Belize1985-2002 Pakistan1989-2002 Australia1990-2002 Fiji, Gambia, Jamaica, Madagascar, Nigeria and Zimbabwe1994-2002 Albania1995-2002 Kyrgyzstan2001-2002 Macao (China)2002 Vanuatu1990-2001 Suriname1992-2001 Ethiopia1996-2001 Sudan1999-2001 Belgium and Luxembourg2000-2001 Libyan Arab Jamahiriya2001 Tajikistan1994-1999 Azerbaijan1980-1994 Thailand1990-1994 Viet Nam1990-1993 Malawi

Those economies for which national official sources provided either preliminary or estimateddata are listed below.

Period Economy

2003 Djibouti and Switzerland

As mentioned above, one of the main sources for annex table B.1 is the IMF. Those economiesfor which IMF data were used for the period 1980-2003, or part of it, are listed below.

Period Economy

1980-2003 New Zealand and Panama1980-1988 and 2003 Australia1984-1985, 1989 and2002-2003 Sudan1990-2003 Algeria, Côte d’Ivoire, Egypt, Israel, Malta, Morocco and Portugal1997-2003 Georgia2000-2003 Azerbaijan and Tajikistan1980-2002 Saudi Arabia1980-1989 and 2002 Suriname1980-1990 and 2002 Cyprus1980-1981, 1983, 1985,1987 and 1994-2002 Malawi1983-1984 and 1986-2002 Bangladesh1986-2002 Maldives1998-2002 São Tomé and Principe1980-2001 Poland1982-2001 Vanuatu1984-1993 and 2000-2001 Tonga1986-2001 Guinea1995-2001 The occupied Palestinian territory1994-2000 Islamic Republic of Iran1996-2000 Eritrea and Nepal1980-1999 Jordan, Libyan Arab Jamahiriya and the Netherlands Antilles1980 and 1982-1999 Bahrain

/...

World Investment Report 2004: The Shift Towards Services350

Period Economy

1980-1998 Belgium and Luxembourg 1980-1995 and 1998 Mauritania1994-1998 Ukraine1980-1997 Solomon Islands1980-1993 and 1995-1997 El Salvador1996-1997 Turkmenistan1980-1995 Cameroon and Sierra Leone1987-1995 Comoros1994-1995 Russian Federation1980-1994 Central African Republic and Gabon1980-1987 and 1990-1994 Yemen1983 and 1985-1994 Kiribati1984-1989 and 1991-1994 Chad1986-1994 Paraguay1988-1994 Lao People’s Democratic Republic1989-1994 Equatorial Guinea 1993-1994 Kyrgyzstan1994 New Caledonia1986-1993 Cape Verde1990-1993 Brunei Darussalam1992-1993 Albania and Slovenia1980-1992 Mali1980-1991 Argentina, Niger and Spain1980-1989 Antigua and Barbuda, Bahamas, Botswana, Burkina Faso, Colombia, Costa

Rica, Dominican Republic, Fiji, Ghana, Greece, Guatemala, Haiti, Honduras,Italy, Jamaica, Kenya, Malaysia, Nigeria, Oman, Philippines, Rwanda, SaintKitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Seychelles,Singapore, Sri Lanka, Togo, Trinidad and Tobago, Zambia and Zimbabwe

1980-1984 and 1988-1989 Benin1981-1989 Indonesia1981 and 1987-1989 Gambia1982-1989 Dominica and Grenada1985-1989 Angola1986-1989 Montserrat, Mozambique and Paraguay1989 Madagascar and Nicaragua1980-1981, 1986-1988 Uruguay1980-1987 Iceland, Lesotho and Mauritius1982-1987 Liberia1980-1986 Germany and the Netherlands1980-1985 Ecuador, France, Ireland, Guyana, Norway and Swaziland1982-1985 Somalia1983-1985 Switzerland1980-1984 Austria, Pakistan, Papua New Guinea, Senegal and United Kingdom1981-1984 Denmark1980-1981 Sweden1980 and 1982 China

Those economies for which the IMF’s Country Report data were used for the period 1980-2003, or part of it, are listed below.

Period Economy Country Report

1999-2003 Liberia March 2004, No. 04/842002-2003 Cameroon December 2003, No. 03/4012001-2003 Democratic Republic of Congo April 2004, No. 04/97

Eritrea June 2003, No. 03/165Sierra Leone March 2004, No. 04/49

2000-2003 Mauritania October 2003, No. 03/3142003 Barbados May 2004, No. 04/1541988 Comoros March 2004, No. 04/77

DEFINITIONS AND SOURCES 351

Those economies for which World Bank data were used for the period 1980-2003, or part ofit, are listed below.

Period Economy

1992-1994, 1998-1999 and 2001 Samoa1995-2001 Lebanon1996-2001 Cameroon1995-1999 Tonga1993-1997 Somalia1997 Kiribati1992-1995 Nepal1992-1993 Zambia1993 Guinea-Bissau1989-1991 Ethiopia1990 Chad1989 Czech Republic1988 Djibouti1982 Guinea1981 China1980-1981 Hungary1980 Indonesia

Those economies for which data from the ASEAN Secretariat were used for the period 1995to 2003, or part of it, are listed below. The data are on a balance-of-payments basis.

Period Economy

1995-2003 Brunei Darussalam, Thailand and Viet Nam1995-2002 Lao People’s Democratic Republic

Those economies for which data from EBRD’s Transition Report 2003 were used for the period1980-2003, or part of it, are listed below.

Period Economy

1992-2003 Uzbekistan1993-1995 and 1998-2003 Turkmenistan1992-2000 Tajikistan1993-1996 Georgia1994 Bosnia and Herzegovina1991-1993 TFYR Macedonia1993 Azerbaijan1992 Croatia

For those economies in which FDI inflows data were unavailable from the above-mentionedsources, UNCTAD’s estimates were made on the following basis:

Net foreign direct investment flows

Estimates were applied by using the net FDI flows from either national official sources orthe IMF for the economies and the years listed below.

(a) National official sources

Year Economy

2002-2003 Equatorial Guinea2003 Bolivia1994-1999 TFYR Macedonia

World Investment Report 2004: The Shift Towards Services352

(b) IMF

Year Economy

1993-1999 Syrian Arab Republic1988 São Tomé and Principe1982-1985 Uruguay1980-1983 Chad1983 Nicaragua

Annualized data

Estimates were applied by annualizing quarterly data obtained from either national officialsources or the IMF for the economies and the years listed below.

(a) National official sources

Year Latest quarter/month Economy

2003 Third quarter Pakistan and ParaguaySecond quarter Nepal

2001 August Ethiopia

(b) IMF

Year Latest quarter/month Economy

2003 Third quarter Bangladesh and Suriname1994 Second quarter Tonga

Proxy

In estimating FDI inflows for some economies for which data were not available, OECD dataon outward flows from DAC member countries were used as proxies for FDI inflows. These economiesfor which this methodology was applied for the period 1980-2002, or part of it, are listed below; thesedata were available only until 2002 at the time of the compilation of inflow data.

Period Economy

1980-2002 Bermuda, Cayman Islands, Democratic Republic ofCongo, Gibraltar and United Arab Emirates

1980-1981, 1986-1992 and 1998-2002 Somalia1980, 1982-1989 and 1998-2002 British Virgin Islands1980-1981 and 1988-1998 Liberia1980, 1983, 1985-1986, 1988-1993, 1995-1996and 1998-2002 New Caledonia1980-1993 and 2001-2002 Islamic Republic of Iran1980-1991 and 2001-2002 Nepal1980 and 1982-2002 Cuba1980 and 1983-2002 Qatar1980-1983, 1987, 1991-1994 and 1996-2002 Afghanistan1980-1995 and 1997-2002 Iraq1994, 1996, 1998-1999 and 2001-2002 Tuvalu1983-1988, 1990-1991, 1995-1997, 2000 and 2002 Samoa1982-1983 and 1985-2000 Macao (China)1990-1991, 1995-1997 and 2000 Bhutan1987-2002 Democratic People’s Republic of Korea 1996-2000 Sierra Leone1996-1997 and 1999 Mauritania1982 and 1996-1997 Comoros1987, 1989, 1993 and 1995-1997 São Tomé and Principe1984-1992 and 1994-1996 Guinea-Bissau

/...

DEFINITIONS AND SOURCES 353

Period Economy

1980-1983, 1986-1988 and 1990-1995 Sudan1995 Bosnia and Herzegovina1980-1994 Lebanon1980, 1982-1988 and 1994 Brunei Darussalam1994 Congo and El Salvador1980-1981 and 1983-1992 Syrian Arab Republic1989-1992 Uruguay1986-1991 Guyana1990-1991 Burkina Faso1986 and 1991 Mongolia1980-1990 India1980-1987 and 1989-1990 Djibouti1980, 1982, 1985 and 1988-1990 Uganda1981, 1985-1988 and 1990 Nicaragua1980-1989 Kuwait and United Republic of Tanzania1981-1982,1985-1986 and 1988-1989 Viet Nam1982, 1984, 1986 and 1988-1989 Malawi1985 and 1987-1989 Namibia1988-1989 Yemen1989 Aruba1980-1988 Ethiopia and Madagascar1981-1988 Equatorial Guinea1980, 1983-1984 and 1986-1987 Myanmar1985-1987 Benin1980 and 1982-1986 Gambia1980-1981 and 1983-1985 Guinea1980-1982 and 1985 Bangladesh1980-1985 Maldives and Mozambique1985 Lao People’s Democratic Republic1980-1984 Angola and Burundi1980-1981 Vanuatu1981 Bahrain, Belize and Dominica1980 Cambodia and Grenada

Estimates of UNCTAD

Estimates of UNCTAD based on national and secondary information sources were applied to thefollowing economies and periods where FDI inflows data were not available:

Period Economy Methodology

1980-1982, 1989 and 2003 Samoa1981-1982, 1984, 1987, 1997 and 2003 New Caledonia1981-1982 and 2003 Qatar1982 and 2003 Syrian Arab Republic1995-1996 and 1998-2003 Kiribati1995, 1997, 2000 and 2003 Tuvalu1995 and 2003 Afghanistan1998-1999 and 2001-2003 Bhutan2002-2003 Ethiopia, Lebanon, Libyan Arab

Jamahiriya and Tonga Estimated by projecting2003 Albania, Belize, Fiji, Gambia, investment trend.

Jamaica, Lao People’s DemocraticRepublic, Macao (China),Madagascar, Malawi, Maldives,Nigeria, São Tomé and Principe,Somalia, Vanuatu and Zimbabwe

/...

World Investment Report 2004: The Shift Towards Services354

Period Economy Methodology

1996 Iraq1981 and 1989 Brunei Darussalam1980, 1983-1984 and 1987 Viet Nam1986 Namibia1980, 1982 and 1984 Nicaragua1980 Denmark and Equatorial Guinea Estimated by 2003 Bermuda, British Virgin Islands, monitoring investment

Cayman Islands, Cuba, Gibraltar, situation using secondaryIslamic Republic of Iran, Saudi sources and investmentArabia and United Arab Emirates reported by major

investor economies.1980-1997 Hong Kong (China) Investments reported by

major investoreconomies were used.

b. FDI outflows

Those economies for which national official sources’ data were used for the period, 1980-2003,or part of it, are listed below.

Period Economy

1980-2003 Brazil, Canada, Chile, Finland, Japan, Malaysia, Republic of Korea, SouthAfrica, Taiwan Province of China, United Kingdom and United States

1981-2003 Tunisia1982-2003 Sweden1984-2003 Turkey1985-2003 Austria and Denmark 1986-2003 France, Norway, Swaziland and Switzerland1986-1989 and 1991-2003 Poland1987-2003 Germany and the Netherlands1988-2003 Iceland and Mauritius1988-1992 and 2002-2003 Papua New Guinea1989-2003 Australia1990-2003 Bahrain, Botswana, Burundi, Colombia, Costa Rica, Egypt, Ireland,

Israel, Italy, Kenya, Kuwait, Morocco, Namibia, Philippines, Portugal,Romania, Seychelles, Singapore and Venezuela

1991 and 1993-2003 Hungary1992-2003 Argentina, Aruba, Estonia, Latvia and Slovakia1992-1998 and 2001-2003 Mexico1993-2003 Croatia, Czech Republic, India, Malta and Russian Federation1994-2003 Kazakhstan, Republic of Moldova, Slovenia, Spain and Ukraine 1995-2003 Bulgaria, Central African Republic, Chad, Congo, Equatorial Guinea,

Gabon, Lithuania and Peru1997-2003 Belarus, TFYR Macedonia and Uruguay1998-2003 Algeria, Cambodia, El Salvador, Greece and Hong Kong (China)1999-2003 Trinidad and Tobago2000-2003 Jordan and the Netherlands Antilles2002-2003 Belgium, Lesotho and Luxembourg 2003 China1980-2002 Barbados and Thailand1983-2002 Zimbabwe1984-2002 Belize1989-2002 Nigeria1990-2002 Bahamas, Côte d’Ivoire, Fiji, Gambia, Jamaica, Senegal and Togo 1990-1996 and 2000-2002 Bangladesh

/...

DEFINITIONS AND SOURCES 355

Period Economy

1992-2002 Niger1993-2002 Burkina Faso and Mali1994-1999 and 2002 Cape Verde1995-2002 Paraguay1996-1999 and 2001-2002 Benin1999-2002 Ecuador2000-2002 Guinea-Bissau2001-2002 Macao (China) and Madagascar2002 Serbia and Montenegro1985-2001 Pakistan1990-2001 Indonesia and Sri Lanka1992-2001 Albania1994-2001 Libyan Arab Jamahiriya1999-2001 Belgium and Luxembourg 2000 Brunei Darussalam1980-1999 Bolivia1998-1999 Azerbaijan1999 Armenia1992 and 1995-1997 Bosnia and Herzegovina1990-1991 Haiti

Those economies for which national official sources provided either preliminary or estimateddata are listed below.

Period Economy

2003 Switzerland2002 Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Madagascar, Mali,

Niger, Senegal and Togo

As mentioned above, one of the main sources for annex table B.2 is the IMF. Those economiesfor which IMF data were used for the period 1980-2003, or part of it, are listed below.

Period Economy

1980-2003 New Zealand1980-1988 and 2000-2003 Australia1984 and 2002-2003 Pakistan1985 and 1987-2003 Cyprus1999-2003 Georgia2000 and 2002-2003 Azerbaijan2003 Thailand1982-2002 China1985-1989 and 2002 Sri Lanka2000-2002 Bolivia1988-1993 and 2000-2001 Cape Verde1995-2001 The occupied Palestinian territory1998-2001 Kyrgyzstan1981-1984, 1995 and 2000 Benin1980-1999 The Netherlands Antilles1980-1996 and 1999 Jordan1997-1999 Bangladesh1980-1998 Belgium and Luxembourg1998 Armenia1993-1996 Dominican Republic1996 El Salvador and Guinea

/...

World Investment Report 2004: The Shift Towards Services356

Period Economy

1980-1995 Cameroon1980-1983, 1985-1989 and 1991-1994 Chad1982-1994 Central African Republic1990 and 1993-1994 Angola1994 Kiribati1980-1993 Gabon and Spain1980-1982 and 1987-1993 Libyan Arab Jamahiriya1990-1993 Tonga1992-1993 Slovenia1992 Humgary1980-1991 Algeria and Niger1989-1991 Equatorial Guinea1990 Comoros1980-1989 Colombia, Costa Rica, Egypt, Fiji, Israel, Italy, Kenya, Kuwait,

Portugal, Senegal, Seychelles and Singapore 1982 and 1984-1989 Venezuela1989 Bahamas and Burundi1982-1988 Uruguay1986-1988 Mauritania1988 Lesotho, São Tomé and Principe1980-1987 Papua New Guinea1983-1987 Trinidad and Tobago1986-1987 Iceland1980-1986 Burkina Faso, Germany and the Netherlands1982-1986 Yemen1980-1985 France, Norway, Poland and Swaziland1980-1981 and 1983-1985 Botswana1983-1985 Switzerland1980-1984 Austria1981-1984 Denmark1980-1983 Argentina1980-1981 Sweden

Where data were unavailable from the above-mentioned sources, estimates were applied byannualizing quarterly data obtained from either national official sources or the IMF for the economiesand years listed below.

(c) National official sources

Year Latest quarter/month Economy

2003 Third quarter Ecuador and Paraguay

(d) IMF

Year Latest quarter Economy

2003 Third quarter Bangladesh

The World Bank reports only data on net FDI flows and FDI inward flows. Therefore, forselected economies, FDI outward flows were estimated by subtracting FDI inflows from net FDI flows.This methodology was used for the economies and years listed below.

Period Economy

1985, 1988-1989 and 1992-2000 Uganda1990-2000 Saint Kitts and Nevis 1990-1991 and 1995-2000 Saint Lucia1990-1992 and 1996-2000 Mozambique

/...

DEFINITIONS AND SOURCES 357

Period Economy

1990-1993 and 1997-2000 Grenada1997-2000 Ethiopia1984, 1987, 1990-1991and 1999 Honduras1991, 1995-1997 and 1999 Angola1991; 1995 and 1998-1999 Lao People’s Democratic Republic1992-1993, 1998 United Republic of Tanzania1995 and 1998 Papua New Guinea1980-1984, 1990-1991 and 1993-1994 Paraguay1991 and 1993-1994 Sierra Leone1993-1994 Uruguay1989-1993 El Salvador1993 Nicaragua1990-1992 Guatemala and Solomon Islands1991-1992 Trinidad and Tobago1992 Bulgaria and Lesotho1991 Comoros1986-1988 and 1990 Saint Vincent and the Grenadines1990 Mauritania1984 and 1986-1989 Bangladesh1986-1989 Tonga1980-1981, 1983, 1985 and 1987 Togo1984-1987 Mauritius1980-1983 Pakistan

In the case of economies for which FDI outflows data were unavailable from the above-mentionedsources, three methodologies were used to calculate UNCTAD’s estimates.

Proxy

Inflows of FDI to large recipient economies were used as a proxy. Those economies for whichthis methodology was used for the period 1980-2003, or part of it, are listed below.

Economy Period Proxy countries/region

Algeria 1992-1996 Belgium and Luxembourg and France1997 Belgium and Luxembourg, France and United States

Anguilla 1997-2000 United StatesAntigua and Barbuda 1992-1996 and 1998 Belgium and Luxembourg and United States

1997 and 1999-2000 United StatesArgentina 1984-1986 United States and Venezuela

1987-1988 Brazil, Chile, France, Germany, United States andVenezuela

1989-1991 Belgium and Luxembourg, Bolivia, Brazil, Chile,Colombia, Ecuador, France, Germany, the Netherlands,United States and Venezuela

Bahamas 1980-1985 United States1986-1988 Belgium and Luxembourg, France and United States

Bahrain 1982 United States1985-1989 Belgium and Luxembourg, France and United States

Bermuda 1980-1984 Brazil, Colombia, United States and Venezuela1985-1999 Belgium and Luxembourg, Brazil, Colombia, France,

United States and Venezuela2000-2001 Belgium and Luxembourg, France and United States

Bosnia and Herzegovina 1993-1994 United StatesBritish Virgin Islands 1993-2001 United StatesBurkina Faso 1987-1990 Belgium and Luxembourg and FranceCameroon 1996-1999 Belgium and Luxembourg, France and United StatesCayman Island 1980-1987 Belgium and Luxembourg, Brazil, Chile, Colombia and

Venezuela

/...

World Investment Report 2004: The Shift Towards Services358

Economy Period Proxy countries/region

1988-2000 Belgium and Luxembourg, Brazil, Chile, Colombia,France, Mexico, Sweden and Venezuela

Congo 1988-1994 Belgium and Luxembourg and FranceCôte d’Ivoire 1989 Belgium and Luxembourg and FranceDominican Republic 1992 and 1997-2001 United StatesEcuador 1980-1983 Brazil, Colombia, Peru and United States

1984-1998 Belgium and Luxembourg, Brazil, Colombia, Peru andUnited States

Equatorial Guinea 1993 Belgium and Luxembourg, France and United StatesGreece 1987-1994 Belgium and Luxembourg, Denmark, France, Germany,

the Netherlands, Spain and United States1995-1997 Belgium and Luxembourg, Denmark, France, Germany,

Italy, the Netherlands, Portugal, Spain and United StatesGuatemala 1995-2001 Colombia, Honduras and United StatesGuinea 1997-1999 Belgium and Luxembourg, France and United StatesGuyana 1992-1993, 1996

and 1999-2000 United StatesHaiti 1993 and 1995-2000 United StatesHong Kong (China) 1980-1997 China, European Union and United StatesIndia 1980-1992 European Union and United StatesIndonesia 1980-1989 European Union and United StatesIslamic Republic of Iran 1991-1994 and

2000-2001 Belgium and Luxembourg, France and Germany1995-1999 Belgium and Luxembourg, France, Germany and

United StatesIreland 1987-1989 Belgium and Luxembourg, France, Germany,

the Netherlands, United Kingdom and United StatesJordan 1997-1998 United StatesLao People’s Democratic 2000-2001 Thailand RepublicLebanon 1982-2000 Belgium and Luxembourg, France and United States

2000-2001 FranceLiberia 1980-2001 Belgium and Luxembourg, France and United StatesMadagascar 1986-1996 Belgium and Luxembourg and France

1997-2000 Belgium and Luxembourg, France and United StatesMali 1986-1992 Belgium and Luxembourg and FranceMexico 1980-1991 and Belgium and Luxembourg, Colombia, Ecuador, France,

1990-2000 United States and VenezuelaNicaragua 1996-2001 Belgium and Luxembourg, Costa Rica, El Salvador and

United StatesNigeria 1980-1982 and

1986-1988 Belgium and Luxembourg, Brazil and United StatesOman 1985-1986 and

1988-2000 Belgium and Luxembourg and United StatesPanama 1980-2001 Bolivia, Brazil, Chile, Colombia, Peru, United States

and VenezuelaPhilippines 1980-1989 European Union and United StatesQatar 2000-2001 France and United StatesRwanda 1985-1998 Belgium and LuxembourgSaudi Arabia 1980-2001 Belgium and Luxembourg, France, Morocco and

United StatesSierra Leone 1985, 1988-1990,

1992, 1995-1996and 1998 Belgium and Luxembourg

Togo 1986 and 1988-1989 Belgium and Luxembourg and FranceTrinidad and Tobago 1988-1990, 1993-1994

and 1997-1998 United StatesUnited Arab Emirates 1980-1984 United States

1985-2002 Belgium and Luxembourg, France, the Netherlandsand United States

United Republic of Tanzania 2000 United States

DEFINITIONS AND SOURCES 359

Cross-border M&As

Data on cross-border M&As and their growth rates were used to estimate FDI outflows forthe following economies:

Period Economy

1996 and 1998 Ghana1995-1998 Qatar1991, 1993 and 1995-1996 Brunei Darussalam1993 Cambodia

Estimates of UNCTAD

Estimates of UNCTAD based on national and secondary information sources are applied tothe following economies and periods where FDI inflows data are not available:

Period Economy Methodology

1982, 1984 and 2003 Togo1983-1985 and 2003 Nigeria1985-1986, 1988-1989, 1992-1998 and 2000-2003 Honduras1986-1987, 1997 and 1999-2003 Sierra Leone1986-1987, 1990-1991 and 2001-2003 Uganda1991-1992 and 2003 Burkina Faso1992-1994 and 2001-2003 Saint Lucia1992, 1994 and 2001-2003 Haiti1993-1994 and 2002-2003 Guatemala1994-1995, 1997-1998 and 2001-2003 Guyana Estimated by projecting 1994-1997, 1999 and 2001-2003 United Republic of Tanzania investment trend.1994-1996 and 2001-2003 Grenada1997-1999 and 2001-2003 Brunei Darussalam1997 and 1999-2002 Ghana1998 and 2000-2003 Angola1999-2003 Malawi1999 and 2002-2003 Qatar2000-2003 Guinea2001-2003 Ethiopia, Mozambique and

Saint Kitts and Nevis2002-2003 Albania and Kyrgyzstan 2003 Benin, Bolivia, Cape Verde, Côte

d’Ivoire, Fiji, Gambia,Guinea-Bissau, JamaicaMadagascar, Mali, Niger,Senegal, Sri Lanka and Zimbabwe

2000-2002 Armenia2001 Azerbaijan1993-1994, 1996-1997 and 1999 Papua New Guinea1997 El Salvador1989-1992, 1995-1996 Uruguay1995-1996 Trinidad and Tobago Estimated by projecting1994 Gabon investment trend.1985-1989 and 1992 Paraguay1984 and 1990 Chad1990 Poland1980-1989 Morocco1989 Saint Vincent and the Grenadines1982 and 1986-1989 Botswana1986 Cyprus

/...

World Investment Report 2004: The Shift Towards Services360

Period Economy Methodology

1985 Bangladesh1983 Venezuela1980-1981 Central African Republic 1980 Denmark Estimated by calculating the1996-1998 Malawi difference in stock.1981-1994 Peru1992 Czech Republic1983-1986 and 2002-2003 Libyan Arab Jamahiriya1987 and 2001-2003 Oman1992-1994, 1996-1997 and 2002-2003 Lao People’s Democratic Republic1999-2003 Rwanda2000-2003 Cameroon Estimated by monitoring2001-2003 Anguilla, Antigua and Barbuda investment situation using

and Cayman Islands secondary sources and2002-2003 Bermuda, British Virgin Islands, investments reported by

Indonesia, Islamic Republic of Iran, major investment recipients.Lebanon, Liberia, Nicaragua,Panama and Saudi Arabia

2003 Barbados, Belize, Macao (China)and United Arab Emirates

1999 and 2002 Dominican Republic

c. Notes on FDI flows

Up to 2001, the Belgium National Bank reported FDI data for the Belgium and LuxembourgEconomic Union. As of 2002, this economic union is no longer in effect. Consequently, FDI dataare reported separately by the respective national authorities. Therefore, data for 2002 onwards arenot comparable to the combined flows as reported in previous years because of different methodologies.

In the case of Egypt, inflow data do not include investment in the petroleum sector and freezones.

In the case of Lesotho, the Lesotho Highland Water Project, is excluded from its FDI as itis not considered as foreign investment.

In this year’s Report, data from the Republic of Korea’s Ministry of Commerce, Industry andEnergy (MOCIE) were used for FDI inflows in that country for the entire period 1980-2003, insteadof those from the Bank of Korea. The MOCIE’s data series include equity, long-term loans, investmentin technology and capital goods and conversion of convertible bonds.

The United States data on FDI used in this Report do not include current cost adjustments,in other words they are on a historical-cost basis.

Data for Malaysia and Singapore are based on surveys of companies.

2. FDI stoc2. FDI stoc2. FDI stoc2. FDI stoc2. FDI stockkkkk

Annex tables B.3 and B.4, as well as some tables in the text, present data on FDI stock atbook value or historical cost, reflecting prices at the time when the investment was made.

UNCTAD regularly collects published and unpublished national official FDI stock data directlyfrom central banks, statistical offices and/or national authorities on an aggregated and disaggregatedbasis for its FDI/TNC database. These data constitute the main source for the reported data on FDIstock. They are further complemented by the data obtained from the IMF.

As for economies for which data were not available from national official sources, or for thosefor which data were not available for the entire period of 1980-2003, data on International InvestmentPosition assets and liabilities from the IMF’s CD-ROMs on International Financial Statistics andBalance of Payments, June 2004, were used instead.

DEFINITIONS AND SOURCES 361

For a large number of economies (as indicated in the footnotes to annex tables B.3 and B.4),FDI stocks were estimated by either adding up FDI flows over a period of time, or adding or subtractingflows to an FDI stock that had been obtained for a particular year from national official sources, orthe IMF data series on assets and liabilities of direct investment.

Data for the Republic of Korea were obtained from the Ministry of Commerce, Industry andEnergy. Inward stock refers to implemented FDI accumulated since 1962, whereas outward stockrefers to actual investment outflows less withdrawals, accumulated since 1968.

Inward FDI for Egypt does not include investment in petroleum and free zones.

In the case of the Hong Kong (China), stock data are based on market value.

In the case of Belgium and Luxembourg, stock data for 2003 are estimated by adding the 2003flows of Belgium and of Luxembourg to the 2002 stock.

Those economies for which national official sources’ data were used for the period 1980-2003,or part of it, are listed below.

Country/economy Inward stock Outward stock

Australia 1980-1985 and 1989-2003 1980-2003Austria 1990-2003 1990-2003Argentina 1980-1989 and 1991-2002 NoneAzerbaijan 1995-2002 NoneBahrain 1990-2003 1990-2003Bangladesh 1995-2001 NoneBarbados 1980-2002 1980-2002Belgium and Luxembourg 1980 1980Bolivia 1980-1999 1986-1999Bosnia and Herzegovina 1998 NoneBotswana 1990-2003 1990-2003Brazil 1980-1992 and 1995-2003 2001-2003Cambodia 1994-2003 NoneCanada 1980-2003 1980-2003Chile 1980-2002 1980-1992 and 1996-2002China 1997 and 2000-2002 1981-1989Colombia 1980-2003 1980-2003Costa Rica 1980-1990 NoneCroatia 1996-1997 1992-1997Czech Republic 1992-2002 1992-2002Denmark 1980-2002 1980-2002Dominican Republic 1980-1990 NoneEcuador 1980-1990 and 1993-2002 NoneEl Salvador 1980-1990, 1993-1995 and 1998-2003 1998-2003Estonia 1996-2003 1996-2003Fiji 1980-1989 NoneFinland 1980-2003 1980-2003France 1989-2002 1989-2002Gambia 1990-2001 1990-2001Georgia 1995-1998 NoneGermany 1980-2002 1980-2002Greece 1980-1989 and 1999-2003 1999-2003Guatemala 1990-2002 NoneHong Kong (China) 1997-2003 1997-2003Hungary 1990-2003 1990-2003Iceland 1988-2003 1988-2003India 1997-2003 1997-2003Indonesia 1980-1999 1993-1999Ireland 1999-2002 1999-2002Israel 1990-2003 1990-2003Italy 1980-2003 1990-2003Japan 1990-2003 1990-2003Kazakhstan 1993-2003 1995-2003

/...

World Investment Report 2004: The Shift Towards Services362

Country/economy Inward stock Outward stock

Republic of Korea 1980-2002 1980-2002Kuwait None 1990-2003Latvia 1991-2003 1991-2003Lithuania 1991-2003 1994-2003Macao (China) 2001-2002 2001-2002Malawi None 1996-1998Malaysia None 1980-2002Malta 1994-2001 1994-2001Mexico 1990-2001 2001-2002Republic of Moldova 1992-2003 1994-2003Myanmar 1990-2003 NoneNamibia 1990-2002 1990-2003Nepal 2001 NoneThe Netherlands 1980-2002 1980-2002New Zealand 1980-1988 NoneNorway 1987-2002 1988-2000Pakistan 1980-2001 1980-2001Papua New Guinea 1980-1997 1980-1989Paraguay 1995-2002 1995-2002Peru 1980-2003 1980-2003Philippines 1980-2002 1980-1988 and 1990-2002Poland 1990-2000 1990-2000Portugal 1990-2003 1990-2003Romania 1990-2003 1990-2003Russian Federation 1993-1999 1992-1999Singapore 1980-2003 1990-2003Slovakia 1990-2003 1991-2003Slovenia 1993-2002 1990-2002South Africa 1980-2002 1980-2002Spain 1980-1991 and 1993-2003 1990-2003Sri Lanka 1980-1988 NoneSwaziland 1986-2003 1986-2003Sweden 1986-2003 1986-2003Switzerland 1980-2003 1980-1983 and 1986-2003Taiwan Province of China 1980-1988 1980-1988Thailand 1980-2002 1980-2002Trinidad and Tobago 1980-1990 NoneTunisia 1980-2003 1980-2003Turkey 2000-2002 2000-2002Ukraine 1991-2002 1993-2002United Kingdom 1980-2003 1980-2003United States 1980-2003 1980-2003Uruguay 1996-2002 1996-1999Venezuela 1980-2002 1980-1982 and 1990-2002Yemen 1990-2002 None

Those economies for which national official sources provided either preliminary or estimateddata are listed below.

Country/economy Inward stock Outward stock

2003 Austria, Canada, Iceland, Portugal, Austria, Canada, Iceland, Sweden andSweden and Switzerland Switzerland

2002-2003 None Portugal1990-2002 Yemen None1990-1993 Israel None

Those economies for which IMF data were used for the period 1980-2003, or part of it, arelisted below.

DEFINITIONS AND SOURCES 363

Country/economy Inward stock Outward stock

Australia 1986-1988 NoneAustria 1980-1989 1980-1989Argentina None 1991-2002Armenia 1997-2002 NoneAzerbaijan 2003 2003Bahrain 1989 1989Belarus 1996-2003 1997-2003Belgium and Luxembourg 1981-2002 1981-2002Bolivia 2000-2002 2000-2002Bulgaria 1998-2001 1998-2001Cambodia None 1998-2002Costa Rica None 1996-2002Croatia 1998-2003 1998-2003Cyprus 2002 2002Dominican Republic 1996-1997 NoneEl Salvador 1996-1997 1996-1997France None 1987-1988Greece 1998 NoneItaly None 1980-1989Japan 1980-1989 1980-1989Kyrgyzstan 1993-2002 1998-2002Malaysia 1980-1994 NoneNew Zealand 1989-2003 1992-2003Norway None 1980-1987Panama 1995-2002 NonePoland 2001-2002 2001-2002Portugal 1992 NoneRussian Federation 2000-2002 2000-2002Spain None 1980-1989Swaziland 1981-1985 1981-1985Sweden 1982-1985 1982-1985Switzerland None 1984-1985Venezuela None 1983-1989

CCCCC. Da. Da. Da. Da. Data rta rta rta rta reeeeevisions and updavisions and updavisions and updavisions and updavisions and updatestestestestes

All FDI data and estimates in WIR are continuously revised. Because of ongoing revisions,FDI data reported in WIR may differ from those reported in earlier Reports or other publications ofUNCTAD. In particular, recent FDI data are being revised in many economies according to the fifthedition of the Balance-of-Payments Manual of the IMF. Because of this, the data reported in last year’sReport may be completely or partly changed in this Report.

DDDDD. Da. Da. Da. Da. Data vta vta vta vta veriferiferiferiferificaicaicaicaicationtiontiontiontion

In compiling data for this year’s Report, requests were made to national official sources ofvirtually all economies for verification and confirmation of the latest data revisions and accuracy.In addition, websites of certain national official sources were consulted. This verification processcontinued until end June 2004. Any revisions made after this process are not reflected in the Report.Below is a list of economies for which data were checked using either of these methods. For theeconomies which are not mentioned below, the UNCTAD secretariat could not have the data verifiedor confirmed by their respective governments.

World Investment Report 2004: The Shift Towards Services364

Official verification

Algeria, Angola, Aruba, Australia, Austria, ASEAN Secretariat, Bahamas, Bahrain, Barbados, BanqueCentrale de l’Afrique de l’Ouest, Banque des Etats de l’Afrique Centrale, Belarus, Belgium, Belize,Botswana, Brazil, Burundi, Cambodia, Canada, Colombia, Comoros, Denmark, Djibouti, Egypt, ElSalvador, Estonia, Fiji, France, Gabon, Gambia, Germany, Greece, Guatemala, Guyana, Haiti, Hungary,Iceland, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kuwait, Latvia,Lesotho, Lithuania, Luxembourg, Macao (China), Madagascar, Malaysia, Malta, Mauritius, Mexico,Myanmar, Namibia, Nicaragua, Norway, Oman, Papua New Guinea, Peru, Philippines, Portugal, Republicof Korea, Republic of Moldova, Romania, Rwanda, Seychelles, Singapore, Slovakia, South Africa,Swaziland, Sweden, Switzerland, Trinidad and Tobago, Tunisia, Turkey, United Kingdom, UnitedRepublic of Tanzania and Zambia

Web sites

Albania, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bahamas, Barbados, Bahrain,Bangladesh, Belarus, Belgium, Belize, Bolivia, Brazil, Bosnia and Herzegovina, Bulgaria, Canada,Cape Verde, China, Chile, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, DominicanRepublic, Eastern Caribbean Central Bank, Ecuador, Egypt, El Salvador, Estonia, Fiji, Finland, France,Germany, Ghana, Greece, Guatemala, Haiti, Honduras, Hong Kong (China), Hungary, Iceland, India,Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Kuwait, Latvia, Lithuania, Luxembourg,Macao (China), Malta, Mauritius, Mexico, Mongolia, Morocco, Mozambique, Namibia, Nepal, theNetherlands, the Netherlands Antilles, New Zealand, Norway, Nicaragua, the occupied Palestinianterritory, Oman, Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Republic of Korea, Republicof Moldova, Romania, Russian Federation, Rwanda, Serbia and Montenegro, Seychelles, Slovakia,Slovenia, Solomon Islands, South Africa, Spain, Sudan, Swaziland, Sweden, Switzerland, Tajikistan,Taiwan Province of China, TFYR Macedonia, Trinidad and Tobago, Thailand, Tunisia, Turkey, Uganda,Ukraine, Uruguay, United Kingdom, United Republic of Tanzania, United States, Vanuatu, Venezuelaand Yemen

E. DefE. DefE. DefE. DefE. Definitions and sourinitions and sourinitions and sourinitions and sourinitions and sources ofces ofces ofces ofces of the da the da the da the da the data in anneta in anneta in anneta in anneta in annexxxxxtatatatatabbbbbles Bles Bles Bles Bles B.5 and B.5 and B.5 and B.5 and B.5 and B.6.6.6.6.6

These two annex tables show the ratio of inward and outward FDI flows to gross fixed capitalformation (annex table B.5) and inward and outward FDI stock to GDP (annex table B.6). All ofthese data are in current prices.

The data on GDP were obtained from the UNCTAD secretariat, the IMF’s CD-ROM onInternational Financial Statistics, June 2004 and the IMF’s World Economic Outlook, April 2004. Forsome economies, such as Taiwan Province of China, data are complemented by official sources.

The data on gross fixed capital formation were obtained from the IMF’s CD-ROM onInternational Financial Statistics, June 2004. For some economies, for which data are not availablefor the period 1980-2003, or part of it, data are complemented by data on gross capital formation.These data are further complemented by data obtained from: (i) national official sources; and (ii)World Bank data on gross fixed capital formation or gross capital formation, obtained from WorldDevelopment Indicators 2004 CD-ROM.

For annex table B.5, figures exceeding 100% may result from the fact that, for some economies,the reported data on gross fixed capital formation do not necessarily reflect the value of capital formationaccurately, and FDI flows do not necessarily translate into capital formation.

Data on FDI are from annex tables B.1-B.4.

DEFINITIONS AND SOURCES 365

FFFFF. Def. Def. Def. Def. Definitions and sourinitions and sourinitions and sourinitions and sourinitions and sources ofces ofces ofces ofces of the da the da the da the da the data on crta on crta on crta on crta on cross-oss-oss-oss-oss-borborborborborder M&As in anneder M&As in anneder M&As in anneder M&As in anneder M&As in annex tax tax tax tax tabbbbbles Bles Bles Bles Bles B.7-B.7-B.7-B.7-B.7-B.10.10.10.10.10

FDI is a balance-of-payments concept involving the cross-border transfer of funds. Cross-border M&A statistics shown in the Report are based on information reported by Thomson Financial.In some cases, these include M&As between foreign affiliates and firms located in the same host economy.Therefore, such M&As conform to the FDI definition as far as the equity share is concerned. However,the data also include purchases via domestic and international capital markets, which should not beconsidered as FDI flows. Although it is possible to distinguish types of financing used for M&As(e.g. syndicated loans, corporate bonds, venture capital), it is not possible to trace the origin or country-sources of the funds used. Therefore, the data used in the Report include the funds not categorizedas FDI.

FDI flows are recorded on a net basis (capital account credits less debits between direct investorsand their foreign affiliates) in a particular year. On the other hand, M&A data are expressed as thetotal transaction amount of particular deals, and not as differences between gross acquisitions anddivestment abroad by firms from a particular country. Transaction amounts recorded in the UNCTADM&A statistics are those at the time of closure of the deals, and not at the time of announcement.The M&A values are not necessarily paid out in a single year.

Cross-border M&As are recorded in both directions of transactions. That is, when a cross-border M&A takes place, it registers as both a sale in the country of the target firm (annex table B.7),and as a purchase in the home country of the acquiring firm (annex table B.8). Data showing cross-border M&A activities on an industry basis are also recorded as sales and purchases (annex tablesB.9-B.10). Thus, if a food company acquires a chemical company, this transaction is recorded in thechemical industry in the table on M&As by industry of seller (annex table B.9), it is also recordedin the food industry in the table on M&As by industry of purchaser (annex table B.10).

Notes1 In some countries, an equity stake of other than 10% is still used. In the United Kingdom, for example, a stake of

20% or more was the threshold used until 1997.2 This general definition of FDI is based on OECD, Detailed Benchmark Definition of Foreign Direct Investment, third

edition (OECD 1996) and International Monetary Fund, Balance of Payments Manual, fifth edition (IMF 1993).3 International Monetary Fund, op. cit., p. 40.4 Includes Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Spain,

Sweden, United Kingdom and United States.

World Investment Report 2004: The Shift Towards Services366

367ANNEX B

Annex table B.1. FDI inflows, by host region and economy, 1992-2003 (Millions of dollars)

Host region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

World 310 879 690 905 1 086 750 1 387 953 817 574 678 751 559 576

Developed countries 180 750 472 545 828 352 1 107 987 571 483 489 907 366 573

Western Europe 100 796 263 016 500 045 697 436 368 828 380 245 310 234

European Union 95 845 249 931 479 372 671 417 357 441 374 000 295 154

Austria 2 276 4 533 2 975 8 840 5 919 952 6 855Belgium and Luxembourg 11 217 22 691 119 693 88 739 88 203 .. ..

Belgium .. .. .. .. .. 14 759 29 484Luxembourg .. .. .. .. .. 116 984 87 557

Denmark 2 582 7 730 16 700 33 818 11 525 6 637 2 608Finland 1 190 2 040 4 581 8 015 3 732 7 920 2 765France 19 779 30 984 46 545 43 250 50 476 48 906 46 981Germany 6 042 24 593 56 077 198 276 21 138 36 014 12 866Greece 1 033 85 571 1 089 1 560 51 47Ireland 1 694 8 579 18 218 25 843 9 659 24 486 25 497Italy 3 523 2 635 6 911 13 375 14 871 14 545 16 421Netherlands 9 978 36 964 41 205 63 854 51 927 25 571 19 674Portugal 1 554 3 144 1 234 6 787 5 892 1 844 962Spain 8 615 11 797 15 758 37 523 28 005 35 908 25 625Sweden 6 835 19 835 60 926 23 242 11 910 11 647 3 296United Kingdom 19 527 74 321 87 979 118 764 52 623 27 776 14 515

Other Western Europe 4 950 13 086 20 673 26 019 11 387 6 245 15 080

Gibraltar 39a - 162a 17a 138a 12a 27a 20a

Iceland 35 146 69 175 176 126 147Malta 126 267 822 622 281 - 428 380Norway 2 145 3 893 8 046 5 829 2 062 872 2 372Switzerland 2 605 8 941 11 719 19 255 8 856 5 648 12 161

North America 68 280 197 243 308 119 380 798 186 948 83 900 36 352

Canada 8 012 22 809 24 743 66 791 27 487 21 030 6 580United States 60 268 174 434 283 376 314 007 159 461 62 870 29 772

Other developed countries 11 675 12 286 20 188 29 752 15 707 25 761 19 986

Australia 6 797 6 015 2 924 13 071 4 006 13 978 7 900Israel 1 069 1 887 3 111 5 011 3 549 1 721 3 745Japan 1 225 3 192 12 741 8 323 6 241 9 239 6 324New Zealand 2 583 1 191 1 412 3 347 1 911 823 2 017

Developing economies 118 596 194 055 231 880 252 459 219 721 157 612 172 033

Africa 5 936 9 114 11 590 8 728 19 616 11 780 15 033

North Africa 1 926 2 904 3 032 2 918 5 490 3 631 5 784

Algeria 93 501 507 438 1 196 1 065 634Egypt 820 1 076 1 065 1 235 510 647 237

/...

368 World Investment Report 2004: The Shift Towards Services

Annex table B.1. FDI inflows, by host region and economy, 1992-2003 (continued) (Millions of dollars)

Host region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Libyan Arab Jamahiriya - 31 - 128 - 128 - 142 - 101 - 96a 700a

Morocco 551 417 850 215 2 825 481 2 279Sudan 35 371 371 392 574 713 1 349Tunisia 457 668 368 779 486 821 584

Other Africa 4 010 6 209 8 558 5 810 14 126 8 149 9 250

Angola 304 1 114 2 471 879 2 146 1 643 1 415Benin 21 33 38 56 41 41 51Botswana - 10 96 37 57 31 405 86Burkina Faso 10 4 8 23 8 9 11Burundi - 2 - 12 - - -Cameroon 19 50 40 31 75 176 215Cape Verde 12 9 53 34 9 12 14Central African Republic - 8 4 1 5 6 4Chad 27 22 25 116 453 1 030 837Comoros - - - - 1 - 1Congo 94 34 491 168 76 152 386Congo, Democratic Republic of - 6 61a 11a 23a 82 117 158Côte d’Ivoire 210 380 324 235 273 230 389Djibouti 2 3 4 3 3 4 11Equatorial Guinea 67 306 238 109 931 323 1 431Eritrea 39b 149 83 28 12 20 22Ethiopia 58 261 70 135 20 75a 60a

Gabon - 201 104 - 205 - 43 - 88 251 53Gambia 14 24 49 44 35 43 60Ghana 115 56 267 115 89 59 137Guinea 11 18 63 10 2 30a 8a

Guinea-Bissau 4 4 9 1 1 1 2Kenya 18 11 14 111 5 28 82Lesotho 25 27 33 31 28 27 42Liberia 7 190a 27 21 8 3 -Madagascar 13 16 58 69 84 8 50a

Malawi 10 12 59 26 19 6 23a

Mali 37 9 1 78 104 102 129Mauritania 6 - 1a 40 92 118 214Mauritius 27 12 49 277 32 33 70Mozambique 46 235 382 139 255 155 337Namibia 106 77 20 186 365 181 84Niger 13 - 1 - 9 26 8 31Nigeria 1 402 1 051 1 005 930 1 104 1 281 1 200a

Rwanda 3 7 2 8 4 7 5São Tomé and Principe -c 4 3 4 3 3 10a

Senegal 51 60 142 62 39 54 78Seychelles 30 55 60 56 65 48 58Sierra Leone 2 - 10a 6a 5a 2 4 8Somalia 1 -a - 1a -a -a -a 1a

South Africa 1 045 561 1 502 888 6 789 757 762Swaziland 45 109 100 91 51 47 44Togo 10 19 29 41 71 53 20Uganda 95 210 222 275 229 249 283United Republic of Tanzania 90 172 542 282 467 240 248Zambia 93 198 163 122 72 82 100Zimbabwe 72 444 59 23 4 26 20a

/...

369ANNEX B

Annex table B.1. FDI inflows, by host region and economy, 1992-2003 (continued) (Millions of dollars)

Host region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Latin America and the Caribbean 38 167 82 491 107 406 97 537 88 139 51 358 49 722

South America 22 136 52 715 69 677 57 852 38 771 26 788 21 268

Argentina 5 430 7 291 23 988 10 418 2 166 785 478Bolivia 339 1 023 1 010 822 832 1 044 160Brazil 6 615 28 856 28 578 32 779 22 457 16 590 10 144Chile 2 932 4 628 8 761 4 860 4 200 1 888 2 982Colombia 2 129 2 829 1 508 2 395 2 525 2 115 1 762Ecuador 486 870 648 720 1 330 1 275 1 555Guyana 90 47 48 67 56 44 26Paraguay 133 342 95 104 85 11 82Peru 2 023 1 644 1 940 810 1 144 2 156 1 377Suriname - 20 38 - 24 - 97 - 27 - 74 - 92Uruguay 115 164 235 273 320 175 263Venezuela 1 864 4 985 2 890 4 701 3 683 779 2 531

Other Latin America and the Caribbean 16 031 29 776 37 729 39 684 49 367 24 570 28 454

Anguilla 18 28 38 38 33 37 28Antigua and Barbuda 22 23 31 28 44 48 57Aruba 28 84 - 425 117 - 261 289 165Bahamas 76 147 149 250 101 200 145Barbados 13 16 17 19 19 17 121Belize 17 19 60 30 60 25 40a

Bermuda 2 426 5 399a 9 470a 10 627a 13 346a 2 711a 8 500a

Cayman Islands 898 4 354a 6 569a 6 922a 4 356a 2 509a 4 600a

Costa Rica 324 612 620 409 454 662 587Cuba 8 15a 9a - 10a 4a 3a 3a

Dominica 25 7 18 11 12 14 17Dominican Republic 251 700 1 338 953 1 079 917 310El Salvador 21 1 104 216 173 279 208 157Grenada 22 49 42 37 59 58 59Guatemala 90 673 155 230 456 110 104Haiti - 11 30 13 4 6 8Honduras 72 99 237 282 193 176 198Jamaica 166 369 524 469 614 479 520a

Mexico 9 619 12 332 13 206 16 586 26 776 14 745 10 783Montserrat 4 3 8 3 1 2 2Netherlands Antilles - 38 - 53 - 22 - 63 - 5 8 - 81Nicaragua 78 195 300 267 150 204 201Panama 442 1 296 652 603 405 78 792Saint Kitts and Nevis 20 32 58 96 88 82 53Saint Lucia 34 83 83 55 22 31 32Saint Vincent and the Grenadines 43 89 56 29 21 32 38Trinidad and Tobago 454 730 643 680 835 791 616Virgin Islands (British) 899a 1 362a 3 648 830 222 132 400

Asia and the Pacific 74 494 102 449 112 884 146 195 111 966 94 474 107 278

Asia 74 090 102 209 112 588 146 067 111 854 94 383 107 120

West Asia 2 929 7 060 961 1 494 6 099 3 554 4 132

/...

370 World Investment Report 2004: The Shift Towards Services

Annex table B.1. FDI inflows, by host region and economy, 1992-2003 (continued) (Millions of dollars)

Host region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Bahrain 602 180 454 364 81 217 517Cyprus 150 264 685 804 652 614 830Iran, Islamic Republic of 52 24 35 39 55a 276a 120a

Iraq 2 7a - 7a - 3a - 6a - 2a ..Jordan 67 310 158 787 100 56 379Kuwait 70 59 72 16 - 147 7 67Lebanon 52 200 250 298 249 257a 358a

Oman 79 101 39 16 83 23 138Occupied Palestinian Territory 154d 218 189 62 20 .. ..Qatar 182 347a 113a 252a 296a 631a 400a

Saudi Arabia 280 4 289 - 780 - 1 884 20 - 615 208a

Syrian Arab Republic 108 82 263 270 110 115 150a

Turkey 750 940 783 982 3 266 1 038 575United Arab Emirates 254 258a - 985a - 515a 1 184a 834a 480a

Yemen 203 - 219 - 308 6 136 102 - 89

Central Asia 1 551 3 013 2 511 1 890 3 527 4 503 6 073

Armenia 18 237 135 124 88 150 155Azerbaijan 419c 1 023 510 130 227 1 392 3 285Georgia 62c 265 82 131 110 165 338Kazakhstan 909 1 151 1 472 1 283 2 835 2 590 2 068Kyrgyzstan 55c 109 44 - 2 5 5 25a

Tajikistan 13 25a 21a 24a 9 36 32Turkmenistan 126c 62a 125a 126a 170a 100a 100a

Uzbekistan 61 140a 121a 75a 83a 65a 70a

South, East and South-East Asia 69 609 92 136 109 115 142 683 102 228 86 326 96 915

Afghanistan - -a 6a -a 1a 1a 1a

Bangladesh 31 190 180 280 79 52 121Bhutan -d -a -a -a -a -a -a

Brunei Darussalam 327 573 748 549 526 1 035 2 009Cambodia 128 243 230 149 149 145 87China 32 799 45 463 40 319 40 715 46 878 52 743 53 505a

Hong Kong, China 7 781 14 766 24 580 61 939 23 775 9 682 13 561India 1 676 2 633 2 168 2 319 3 403 3 449 4 269Indonesia 3 518 - 241 - 1 866 - 4 550 - 2 977 145 - 597Korea, Democratic People’s Republic of 53 31a - 15a 5a - 4a - 15a - 5a

Korea, Republic of 1 298 5 039 9 436 8 572 3 683 2 941 3 752Lao People’s Democratic Republic 67 45 52 34 24 25 19a

Macao, China - 2 - 18a 9a - 1a 160 382 350a

Malaysia 5 816 2 714 3 895 3 788 554 3 203 2 474Maldives 8 12 12 13 12 12 12a

Mongolia 11 19 30 54 43 78 132Myanmar 359 684e 304e 208e 192e 191e 128e

Nepal 11 12 4 - 21a 2a 30Pakistan 577 507 530 305 385 823 1 405Philippines 1 343 2 212 1 725 1 345 982 1 792 319Singapore 8 295 7 690 16 067 17 217 15 038 5 730 11 409Sri Lanka 186 150 201 175 82 197 229Taiwan Province of China 1 474 222 2 926 4 928 4 109 1 445 453Thailand 2 269 7 491 6 091 3 350 3 813 1 068 1 802Viet Nam 1 586 1 700 1 484 1 289 1 300 1 200 1 450

/...

371ANNEX B

Annex table B.1. FDI inflows, by host region and economy, 1992-2003 (concluded) (Millions of dollars)

Host region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

The Pacific 404 240 297 128 113 91 158

Fiji 44 103 - 4 - 16 42 26 20a

Kiribati - 1a 1a 1a 1a 1a 1a

New Caledonia 7 -a 4a 22a - 1a 2a 8a

Papua New Guinea 301 110 296 96 63 21 101Samoa 6 3 2 - 2a 1 -a -a

Solomon Islands 14 2 - 19 1 - 12 - 1 - 2Tonga 2 2 2 5 1 2a 3a

Tuvalu -h -a -a 1a 1a 26a 9a

Vanuatu 29 20 13 20 18 15 19a

Central and Eastern Europe 11 533 24 305 26 518 27 508 26 371 31 232 20 970

Albania 56 45 41 143 207 135 180Belarus 84 203 444 119 96 247 171Bosnia and Herzegovina -h 56 154 147 130 265 381Bulgaria 149 537 819 1 002 813 905 1 419Croatia 235 932 1 467 1 089 1 561 1 124 1 713Czech Republic 1 304 3 700 6 310 4 984 5 639 8 483 2 583Estonia 180 581 305 387 542 284 891Hungary 2 924 3 828 3 312 2 764 3 936 2 845 2 470Latvia 229 357 347 411 163 384 360Lithuania 108 926 486 379 446 732 179Moldova, Republic of 35 76 38 134 146 117 58Poland 2 889 6 365 7 270 9 341 5 713 4 131 4 225Romania 402 2 031 1 041 1 037 1 157 1 144 1 566Russian Federation 2 018 2 761 3 309 2 714 2 469 3 461 1 144Serbia and Montenegro 178 113 112 25 165 475 1 360Slovakia 235 707 428 1 925 1 584 4 123 571Slovenia 166 218 106 137 369 1 606 181TFYR Macedonia 12 128 33 175 442 78 95Ukraine 328 743 496 595 792 693 1 424

Memorandum

Least developed countries g 1 930 4 541 5 675 3 802 6 454 5 763 7 356Oil-exporting countries h 9 659 13 852 5 453 2 170 8 212 8 636 10 937All developing economies, excluding China 85 798 148 592 191 562 211 744 172 843 104 869 118 528

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Estimates. For details, see “Definitions and Sources” in annex B.b Annual average from 1996 to 1997.c Annual average from 1993 to 1997.d Annual average from 1995 to 1997.e Data are on a fiscal year basis.f Annual average from 1994 to 1997.g Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia,Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali,Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia. Timor-Leste is not includeddue to unavailability of data.

h Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Gabon, Indonesia, Islamic Republic of Iran,Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates, Venezuela and Yemen.

372 World Investment Report 2004: The Shift Towards Services

Annex table B.2. FDI outflows, by home region and economy, 1992-2003 (Millions of dollars)

Home region/economy 1992-1997 1998 1999 2000 2001 2002 2003(Annual average)

World 328 248 687 240 1 092 279 1 186 838 721 501 596 487 612 201

Developed countries 275 716 631 478 1 014 331 1 083 885 658 094 547 603 569 577

Western Europe 161 720 436 521 763 868 859 432 447 033 364 507 350 281

European Union 146 882 415 362 724 312 806 151 429 159 351 181 336 994

Austria 1 533 2 745 3 301 5 740 3 137 5 252 7 083Belgium and Luxembourg 7 427 28 845 122 304 86 362 100 646 .. ..Belgium .. .. .. .. .. 12 355 36 646Luxembourg .. .. .. .. .. 126 116 95 991

` Denmark 2 928 4 477 16 943 26 558 13 374 5 686 1 158Finland 2 554 18 647 6 605 22 572 8 362 7 622 - 7 370France 26 045 48 611 126 856 177 449 86 767 49 434 57 279Germany 31 051 88 823 108 692 56 557 36 855 8 622 2 560Greece 35 262 539 2 102 616 655 586Ireland 573 3 906 6 111 4 640 4 069 3 099 1 911Italy 7 142 12 407 6 722 12 316 21 472 17 123 9 121Netherlands 19 518 36 669 57 610 75 635 47 968 34 554 36 092Portugal 753 3 847 3 168 7 512 7 564 3 289 95Spain 5 235 18 936 42 084 54 675 33 093 31 512 23 373Sweden 6 226 24 370 21 928 40 662 6 380 10 683 17 375United Kingdom 35 861 122 816 201 451 233 371 58 855 35 180 55 093

Other Western Europe 14 838 21 159 39 555 53 282 17 874 13 326 13 288

Iceland 30 71 121 390 344 215 168Malta 6a 15 45 26 24 - 4 24Norway 2 853 2 306 6 113 8 193 - 734 5 537 2 176Switzerland 11 949 18 767 33 276 44 673 18 240 7 578 10 919

North America 88 605 165 362 226 638 187 301 160 986 141 749 173 426

Canada 11 036 34 358 17 247 44 675 36 113 26 409 21 542United States 77 569 131 004 209 391 142 626 124 873 115 340 151 884

Other developed countries 25 391 29 595 23 825 37 151 50 075 41 348 45 869

Australia 4 477 3 352 - 688 829 12 228 7 576 15 108Israel 636 1 163 967 3 465 630 1 115 1 774Japan 20 232 24 152 22 743 31 558 38 333 32 281 28 800New Zealand 46 928 803 1 300 - 1 116 376 188

Developing economies 51 351 53 438 75 488 98 929 59 861 44 009 35 591

Africa 2 228 1 982 2 564 1 319 - 2 535 115 1 288

North Africa 54 367 313 227 202 266 148

Algeria 7 1 47 18 9 100 14Egypt 49 46 38 51 12 28 21Libyan Arab Jamahiriya - 29 299 208 98 84 110b 100b

Morocco 21 20 18 58 97 28 12Tunisia 5 2 3 2 - - 1

Other Africa 2 174 1 614 2 252 1 092 - 2 738 - 152 1 140

Angola - -b -b -b -b -b - b

/...

373ANNEX B

Annex table B.2. FDI outflows, by home region and economy, 1992-2003 (continued) (Millions of dollars)

Home region/economy 1992-1997 1998 1999 2000 2001 2002 2003(Annual average)

Benin 8c 2 23 8 2 - 3 b

Botswana 12 4 1 2 381 43 40Burkina Faso 2 5 5 - - 1 - b

Burundi - - - - - - -Cameroon 13 -b 3b 4b 3b 3b 3 b

Cape Verde - - - 1 - - - b

Central African Republic 4 - - - - 1 -Chad 4 - - 2 - - - -Congo - - 9 2 4 6 7 -Côte d’Ivoire 76 36 57 - 2 2 2 b

Equatorial Guinea -c - 2 - 4 4 - -Ethiopia 228d 254b - 46b - 1b 69b 7b 25 b

Gabon 14 - 15 12 26 4 - -Gambia 5 6 4 5 5 5 7 b

Ghana 100e 30b 77b 52b 53b 61b 55 b

Guinea -e -b 3b 2b 2b 2b 2 b

Guinea-Bissau .. .. .. - - - - b

Kenya 2 - - - - 7 2Lesotho .. .. .. .. .. - -Liberia 98 - 731b 310b 608b - 167b - 50b 130 b

Madagascar - 1b -b 1b - - - b

Malawi 1e 6b 3b 3b 4b 3b 3 b

Mali 2 27 50 4 17 19 13 b

Mauritius 15 14 6 13 3 9 41Mozambique -e -b -b -b -b -b - b

Namibia - 4 - 1 - 3 - 13 - 5 - 6Niger 13 10 - - - 4 - - 1 b

Nigeria 174 107 92 85 94 101 93 b

Rwanda - -b -b -b -b -b - b

Senegal 11 10 6 - - 7 39 11 b

Seychelles 9 3 9 7 9 9 8Sierra Leone - -b -b -b -b -b - b

South Africa 1 561 1 779 1 580 271 - 3 180 - 399 720Swaziland 13 23 12 17 - 18 - 9 -Togo 7 22 41 - - 7 - - 2 b

Uganda 47 20b - 8b - 28b - 5b - 14b - 15 b

United Republic of Tanzania - -b -b 1b -b -b - b

Zimbabwe 19 9 9 8 4 3 5 b

Latin America and the Caribbean 9 509 19 865 31 279 13 738 11 971 6 009 10 666

South America 3 767 8 497 7 097 8 026 - 178 4 080 4 559

Argentina 1 606 2 325 1 730 901 161 - 627 774Bolivia 2 3 3 3 3 3 3 b

Brazil 510 2 854 1 690 2 282 - 2 258 2 482 249Chile 848 1 483 2 558 3 987 1 610 294 1 395Colombia 285 796 116 325 16 857 926Ecuador 68 - 84b - - - - -Guyana - -b - 2b 2b -b -b - b

Paraguay 9 6 6 6 6 - 2 5Peru 11 62 128 - 74 - 60Uruguay 3 9 - 3 - 6 54 3Venezuela 426 1 043 872 521 204 1 020 1 143

Other Latin America and the Caribbean 5 743 11 368 24 182 5 712 12 149 1 929 6 107

Anguilla 1d 1b 1b 1b 1b 1b 1 b

Antigua and Barbuda - - 1b -b 1b -b -b - b

/...

374 World Investment Report 2004: The Shift Towards Services

Annex table B.2. FDI outflows, by home region and economy, 1992-2003 (continued) (Millions of dollars)

Home region/economy 1992-1997 1998 1999 2000 2001 2002 2003(Annual average)

Aruba 1 1 4 13 - 15 3 12Bahamas - 1 - - - - - b

Barbados 2 1 1 1 1 - - b

Belize 3 6 - 6 - - 2 b

Bermuda 875 2 980b 18 137b 2 426b - 5 407b - 1 823b - 1 601 b

Cayman Islands 1 174 4 452b 2 187b 1 795b 2 811b 967b 1 858 b

Costa Rica 5 5 5 9 9 34 47Dominican Republic 9 2b 6b 61b - 33b -b ..El Salvador - 1 54 - 5 - 10 - 26 19Grenada - - -b -b -b -b - b

Guatemala - 2 8b - 3b 16b 1b 5b 7 b

Haiti - 2 1b - 1b 1b -b -b - b

Honduras - -b -b -b -b -b - b

Jamaica 63 82 95 74 89 74 79 b

Mexico 413 1 363 1 475b 984b 4 404 930 1 390Netherlands Antilles - - 2 - 1 - 2 - 1 -Nicaragua - 3e 7b 3b 4b 5b 4b 4 b

Panama 908 3 289b 356b - 839b 1 902b 1 861b 975 b

Saint Kitts and Nevis - -b -b -b -b -b - b

Saint Lucia - -b -b -b -b -b - b

Trinidad and Tobago - 2 1b 364 25 58 106 225Virgin Islands (British) 2 757a - 830b 1 500b 1 141b 8 333b - 209b 3 088 b

Asia and the Pacific 39 613 31 591 41 645 83 872 50 425 37 885 23 637

Asia 39 554 31 647 41 668 83 805 50 309 37 884 23 608

West Asia 543 - 1 020 2 093 3 757 5 096 2 460 - 701

Bahrain 104 181 163 10 216 190 741Cyprus 24 69 146 202 218 299 345Iran, Islamic Republic of 19 10b 738b 348b 2 812b 1 299b 1 486 b

Jordan - 25 2b 5 5 9 25 3Kuwait 16 - 1 867 23 - 303 365 - 155 - 4 989Lebanon 11 - 1b 5b 125b 92b 74b 97 b

Oman 3 - 5b 3b - 2b - 1b -b - 1 b

Occupied Palestinian Territory 142c 160 169 213 380 .. ..Qatar 30c 20b 30b 41b 112b 61b 71 b

Saudi Arabia 153 74b 50b 155b - 44b 50b 54 b

Turkey 100 367 645 870 497 175 499United Arab Emirates 51 - 30b 115b 2 094b 441b 442b 992 b

Central Asia - 179 360 17 149 772 822

Armenia .. 12 13 8b 11b 11b - Azerbaijan .. 137 336 - 158b 326 933 Georgia .. .. 1 - - 4 4 Kazakhstan -f 8 4 4 - 26 426 - 120 Kyrgyzstan .. 23 6 5 6 6b 5 b

South, East and South-East Asia 39 010 32 487 39 216 80 031 45 063 34 652 23 487

Bangladesh 3 3 - 2 21 4 8Brunei Darussalam 30a 10b 20b - 3 9b 8b 5 b

Cambodia .. 20 9 7 7 6 10China 2 846 2 634 1 775 916 6 884 2 518 1 800 b

Hong Kong, China 20 557 16 985 19 358 59 375 11 345 17 463 3 769India 96 47 80 509 1 397 1 107 913Indonesia 1 096 44 72 150 125 116b 130 b

/...

375ANNEX B

Annex table B.2. FDI outflows, by home region and economy, 1992-2003 (concluded) (Millions of dollars)

Home region/economy 1992-1997 1998 1999 2000 2001 2002 2003(Annual average)

Korea, Republic of 2 939 4 740 4 198 4 999 2 420 2 617 3 429Lao People’s Democratic Republic - -b -b 168b 3b 57b 76 b

Macao, China .. .. .. .. 11 62 24 b

Malaysia 2 073 863 1 422 2 026 267 1 904 1 370Maldives -g .. .. .. .. .. ..Pakistan - 5 5 1 11 31 28 19Philippines 199 160 - 29 - 108 - 160 59 158Singapore 5 419 2 996 7 517 5 298 17 063 3 699 5 536 b

Sri Lanka 6 13 24 2 - 11 4 b

Taiwan Province of China 3 215 3 836 4 420 6 701 5 480 4 886 5 679Thailand 546 132 349 - 22 162 106 557

The Pacific 59 - 56 - 24 67 116 - 29

Fiji - 16 - 56 - 58 69 7 - 25 b

Papua New Guinea 75 -b 35b - 2b 109b - 3

Central and Eastern Europe 1 182 2 324 2 460 4 024 3 546 4 876 7 034

Albania 11 1 7 6 - 4b 3 b

Belarus 2d 2 - - - - 206 2Bosnia and Herzegovina 6 .. .. .. .. .. ..Bulgaria - 9 - 17 3 10 28 22Croatia 48a 98 47 4 155 533 62Czech Republic 74 125 90 43 165 206 232Estonia 32 6 83 63 200 132 148Hungary 96 319 250 620 368 275 1 581Latvia - 21 54 17 10 12 8 32Lithuania 9c 4 9 4 7 18 37Moldova, Republic of 5f - - - - - -Poland 33 316 31 17 - 90 230 386Romania - - 9 16 - 11 - 17 16 56Russian Federation 1 027a 1 270 2 208 3 177 2 533 3 533 4 133Serbia and Montenegro .. .. .. .. .. 5 ..Slovakia 39 147 - 371 21 35 5 22Slovenia 2 - 5 48 66 144 93 304TFYR Macedonia -e 1 1 - - - - b

Ukraine 14f - 4 7 1 23 - 5 13

Memorandum

Least developed countries h 238 - 342 400 780 - 53 83 273Oil-exporting countries i 2 068 - 135 2 810 3 265 4 493 3 455 64All developing economies, excluding China 48 505 50 804 73 713 98 013 52 977 41 490 33 791

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Annual average from 1993 to 1997.b Estimates. For details, see “Definitions and Sources” in annex B.c Annual average from 1995 to 1997.d 1997.e Annual average from 1996 to 1997.f Annual average from 1994 to 1997.g Annual average from 1994 to 1996.h Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia,Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali,Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia. Timor-Leste is not includeddue to unavailability of data.

i Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Gabon, Indonesia, Islamic Republic of Iran,Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates, Venezuela and Yemen.

376 World Investment Report 2004: The Shift Towards Services

Annex table B.3. FDI inward stock, by host region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2002 2003a

World 692 714 972 205 1 950 303 2 992 068 6 089 884 7 371 554b 8 245 074b

Developed countries 390 740 569 696 1 399 509 2 035 799 4 011 686 5 049 786b 5 701 633b

Western Europe 231 544 285 006 795 808 1 213 003 2 378 173 3 070 966b 3 538 135b

European Union 216 296 267 073 748 298 1 136 017 2 257 701 2 899 795b 3 335 454b

Austria 3 163 3 762 9 884 17 532 30 431 43 508 60 100c

Belgium and Luxembourg 7 306 18 447 58 388 112 960 195 219 .. ..Belgium .. .. .. .. .. .. ..Luxembourg .. .. .. 18 504d 23 492d .. ..

Denmark 4 193 3 613 9 192 23 801 66 701 73 587 76 195e

Finland 540 1 339 5 132 8 465 24 272 34 007 46 400France 25 927f 36 701f 86 845 191 434 259 775 386 540 433 521e

Germany 36 630 36 926 119 618 192 898 470 933 531 738 544 604e

Greece 4 524 8 309 5 667g 10 957g 12 499 15 560c 17 000c

Ireland 31 281h 32 181h 33 826h 40 024h 136 921 167 945 193 442e

Italy 8 892 18 976 57 985 63 456 113 047 126 481 173 630Netherlands 19 167 24 921 68 731 116 049 241 328 316 475 336 149e

Portugal 3 665i 4 599i 10 571 18 381 29 040 43 197 53 525c

Spain 5 141 8 939 65 916 109 200 144 934 236 267 230 332Sweden 2 852j 4 333 12 636 31 089 93 970 117 960 143 230c

United Kingdom 63 014 64 028 203 905 199 772 438 631 568 260 672 015

Other Western Europe 15 248 17 933 47 511 76 986 120 471 171 171 202 681

Gibraltar k 33 98 263 432 529 568 588Iceland ..l,m 71l 147 129 499 779 872c

Malta 156n 286n 465n 562 2 374 2 110o 2 490o

Norway 6 584p 7 419p 12 391 18 800 30 265 42 637 45 010e

Switzerland 8 506 10 058 34 245 57 063 86 804 125 076 153 721

North America 137 209 249 272 507 793 658 843 1 427 069 1 726 340 1 829 734

Canada 54 163 64 657 112 882 123 290 212 815 221 169 275 779c

United States 83 046 184 615 394 911 535 553 1 214 254 1 505 171 1 553 955

Other developed countries 21 988 35 417 95 908 163 954 206 445 252 479 333 764

Australia q 13 173 25 049 73 644 95 878 108 687 121 915 174 240Israel 3 181i 3 586i 4 476 5 844c 24 319c 24 807c 31 827c

Japan 3 270 4 740 9 850 36 658 50 322 78 140 89 729New Zealand 2 363 2 043 7 938 25 574 23 116 27 616 37 968

Developing economies 301 974 402 460 547 965 916 697 1 939 926 2 093 569 2 280 171

Africa 32 045 33 811 50 854 77 334 140 886 149 919 167 111

North Africa 4 322 8 242 16 915 26 338 37 438 47 767 55 473

Algeria k 1 320 1 281 1 355 1 465 3 441 5 702 6 336Egypt k 2 260 5 703 11 043 14 690 19 589 20 746 20 983Libyan Arab Jamahiriya k ..m ..m ..m ..m ..m ..m ..m

Morocco k 189 440 917 3 032 6 023 9 329 11 608Sudan k 28 76 54 164 1 396 2 684 4 033Tunisia 3 341 4 917 7 615 10 967 11 545 14 061 16 567

/...

377ANNEX B

Annex table B.3. FDI inward stock, by host region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (continued)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2002 2003a

Other Africa 27 724 25 569 33 939 50 996 103 449 102 152 111 638

Angola k 63 677 1 027 2 923 7 979 11 768 13 182Benin k 32 34 159 381 535 617 668Botswana 698i 947i 1 309 1 126 1 821 854 1 080Burkina Faso k 18 24 39 74 135 152 163Burundi k 7 24 30 34 48 48 48Cameroon k 330 1 125 1 044 1 062 1 263 1 515 1 730Cape Verde r .. .. 4 38 174 195 209Central African Republic k 50 77 95 80 104 116 119Chad k 121 184 249 331 576 2 059 2 895Comoros s 2 2 17 19 21 22 23Congo k 315 485 575 1 024 1 865 2 093 2 480Congo, Democratic Republic of k 709 620 546 541 617 816 974Côte d’Ivoire k 530 699 975 1 567 3 191 3 694 4 083Djibouti t 4 4 6 17 34 40 52Equatorial Guinea u .. 6 25 177 1 123 2 377 3 808Eritrea v .. .. .. .. 301 333 355Ethiopia k 110 114 124 165 941 1 036 1 096Gabon k 512 833 1 208 745 ..m ..m 20Gambia 127i 127i 157 185 216 264o 324o

Ghana k 229 272 315 822 1 462 1 610 1 746Guinea t 1 2 69 131 263 295 303Guinea-Bissau w - 4 8 20 46 48 50Kenya k 386 476 668 732 931 964 1 046Lesotho x 5 25 83 179 330 385 427Liberia k 868 1 260 2 454 2 419 2 739 2 750 2 750Madagascar k 40 51 107 172 340 432 482Malawi k 113 151 198 201 328 353 376Mali y 16 37 42 154 356 562 692Mauritania k ..m 39 57 92 139 348 562Mauritius k 26 43 169 256 687 751 822Mozambique k 15 17 42 201 1 094 1 505 1 842Namibia 1 994i 2 010i 2 047 1 708 1 230 1 092 1 176e

Niger k 190 206 286 362 389 423 454Nigeria k 2 405 4 417 8 072 14 065 20 184 22 570 23 770Rwanda k 54 133 213 231 252 263 268São Tomé and Principe r .. .. - - 11 18 28Senegal k 150 188 258 374 821 913 992Seychelles k 54 105 204 321 577 690 748Sierra Leone k 79 68 ..m ..m 19 25 33Somalia k 34 10 ..m 2 4 4 5South Africa 16 519 9 024 9 221 15 016 43 462 29 611 30 373e

Swaziland 150z 104 336 535 537 579 719Togo k 176 210 268 301 424 548 567Uganda k 10 8 5 276 1 281 1 759 2 042United Republic of Tanzania k 47 91 93 325 1 627 2 335 2 583Zambia y 355 450 1 012 1 281 2 088 2 241 2 341Zimbabwe k 186 187 124 342 1 085 1 114 1 134

Latin America and the Caribbean 50 412 80 113 116 866 200 081 512 455 581 939 647 678

South America 29 345 42 207 66 617 111 253 280 656 259 516 296 801

Argentina 5 344 6 563 8 778aa 27 991 67 601 34 622 35 100e

Bolivia 420 592 1 026 1 564 5 188 6 570 6 730e

Brazil 17 480 25 664 37 143 41 696 103 015 100 847 128 425b

Chile 886 2 321 10 067 15 547 45 418 43 861 46 843e

/...

378 World Investment Report 2004: The Shift Towards Services

Annex table B.3. FDI inward stock, by host region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (continued)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2002 2003a

Colombia 1 061 2 231 3 500 6 407 10 895 17 626 19 063ac

Ecuador 719 982 1 626 3 619 7 081 9 686 11 240e

Guyana k 25 39 42 452 759 859 885Paraguay 212ad 301ad 399ad 705 1 325 804 886e

Peru 898 1 152 1 330 5 510 11 062 12 460 12 745Suriname k ..m 52 ..m ..m ..m ..m ..m

Uruguay 727ae 763ae 976ae 1 432ae 2 088 1 291 1 554e

Venezuela 1 604 1 548 2 260 6 975 26 944 31 710 34 241e

Other Latin America and the Caribbean 21 067 37 906 50 250 88 828 231 799 322 423 350 877

Anguilla af .. .. 11 68 226 295 324Antigua and Barbuda x 23 94 292 438 561 653 710Aruba ag .. .. 132 204 259 287 452Bahamas k 547 543 586 742 1 587 1 888 2 033Barbados 104 125 171 227 308 344 465e

Belize k 12 20 89 175 312 397 437Bermuda k 5 131 8 053 13 849 23 997 56 393 72 449 80 949Cayman Islands ah 222 1 479 1 749 2 745 24 973 31 838 36 438Costa Rica 672 957 1 447 2 733ai 5 206ai 6 322ai 6 909ai

Cuba k - - 2 40 74 81 84Dominica x - 11 71 197 271 297 314Dominican Republic 239 265 572 1 707ai 5 214ai 7 210ai 7 520ai

El Salvador 154 181 212 293 1 973 2 460 2 617Grenada x 1 13 70 168 346 462 522Guatemala 701aj 1 050aj 1 734 2 202 3 420 4 155 4 259Haiti k 79 112 149 153 215 226 233Honduras k 92 172 383 652 1 488 1 857 2 055Jamaica k 564 522 790 1 568 3 317 4 410 4 930Mexico 8 105aj 18 797aj 22 424 41 130 97 170 155 121o 165 904o

Montserrat ak .. .. 40 68 84 87 89Netherlands Antilles k 770 257 408 364 78 81 -Nicaragua k 116 120 126 365 1 397 1 751 1 952Panama 2 461al 3 142al 2 198al 3 245 6 744 7 314 8 105e

Saint Kitts and Nevis am 1 32 160 244 484 654 707Saint Lucia an 94 197 319 517 804 858 890Saint Vincent and the Grenadines s 1 9 48 179 489 542 580Trinidad and Tobago 976 1 719 2 093 3 634ai 7 042ai 8 667ai 9 283ai

Virgin Islands (British) an 1 39 126 776 11 363 11 717 12 117

Asia and the Pacific 219 516 288 536 380 244 639 282 1 286 585 1 361 711 1 465 382

Asia 218 320 287 330 378 002 636 465 1 283 082 1 358 005 1 461 518

West Asia 7 281 37 370 40 920 51 457 70 418 73 940 78 072

Bahrain 61f 399f 552 2 403 5 906 6 203 6 720Cyprus 173ao 502ao 859ao 1 293ao 3 591ao 4 856o 5 686o

Iran, Islamic Republic of k 2 962 2 780 2 039 2 297 2 474 2 805 2 925Iraq k ..m ..m ..m ..m ..m ..m ..m

Jordan ap 155 493 615 627 2 258 2 414 2 793Kuwait k 30 33 37 94 608 468 535Lebanon y 20 34 53 138 1 116 1 623 1 981Oman k 483 1 201 1 723 2 210 2 490 2 597 2 735Occupied Palestinian Territory aq .. .. .. .. 809 829 829Qatar k 83 93 71 451 1 920 2 847 3 247Saudi Arabia k ..m 21 828 22 500 22 423 25 963 25 368 25 576Syrian Arab Republic k - 37 374 915 1 699 1 924 2 074

/...

379ANNEX B

Annex table B.3. FDI inward stock, by host region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (continued)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2002 2003a

Turkey 8 845ar 9 253ar 11 194ar 14 977ar 19 209 17 621 18 196e

United Arab Emirates k 409 482 751 1 770 1 061 3 080 3 560Yemen 195i 283i 180 1 882 1 336 1 336 1 247e

Central Asia .. .. .. 3 997 16 977 24 930 31 037

Armenia .. .. .. 34as 513 684 840e

Azerbaijan .. .. .. 330at 3 735 5 354 8 639Georgia .. .. .. 32 423au 698au 1 036au

Kazakhstan .. .. .. 2 895 10 078 15 464 17 567Kyrgyzstan .. .. .. 144 439 476 501e

Tajikistan av .. .. .. 40 146 192 223Turkmenistan aw .. .. .. 415 944 1 214 1 314Uzbekistan av .. .. .. 106 699 847 917

South, East and South-East Asia 211 039 249 960 337 082 581 012 1 195 687 1 259 136 1 352 409

Afghanistan k 11 11 12 12 17 19 19Bangladesh 308al 313al 324al 356 2 429 2 574o 2 695o

Bhutan af .. .. 2 2 3 4 4Brunei Darussalam k 19 28 23 631 3 856 5 418 7 427Cambodia 38ax 38ax 38ax 356 1 549 1 843 1 930China 1 077as 6 063as 20 694as 134 869as 348 346 447 966 501 471e

Hong Kong, China 177 755ay 183 219ay 201 652ay 227 532ay 455 469 366 278 375 048India 452az 747az 1 657az 5 641az 17 517 25 408 30 827Indonesia 10 274 24 971 38 883 50 601 60 638ba 57 806ba 57 209ba

Korea, Democratic People’s Republic of r .. .. 572 716 1 046 1 027 1 022Korea, Republic of 1 327 2 160 5 186 9 451 37 120 43 713 47 465e

Lao People’s Democratic Republic k 2 1 13 205 550 599 618Macao, China 2 800ao 2 809ao 2 809ao 2 802ao 2 801ao 3 390 3 740e

Malaysia 5 169 7 388 10 318 28 731bb 52 747bb 56 505bb 58 979b

Maldives t 5 3 25 61 119 142 154Mongolia ak .. .. - 38 182 302 434Myanmar q 1i 1i 281 1 210 3 865 4 248 4 376Nepal 1bc 2bc 12bc 39bc 97bc 118o 148o

Pakistan 691 1 079 1 928 5 552 6 912 6 359o 7 764o

Philippines 1 281 2 601 3 268 6 086 12 810 11 148c 11 467e

Singapore 6 203 13 016 30 468 65 644 112 571 135 890c 147 299Sri Lanka 231 517 681bd 1 297bd 2 389bd 2 668bd 2 897d

Taiwan Province of China 2 405 2 930 9 735bd 15 736bd 27 924bd 33 478bd 33 931d

Thailand 981 1 999 8 242 17 684 30 106 35 108 36 910e

Viet Nam k 9 64 260 5 760 14 624 17 124 18 574

The Pacific 1 196 1 207 2 243 2 816 3 502 3 706 3 864

Fiji 358 393 394be 627be 754be 821be 841e

Kiribati bf .. - 1 - 1 5 6 6New Caledonia ap 28 35 76 110 146 146 154Papua New Guinea 748 683 1 582 1 667 2 007bg 2 090bg 2 192g

Samoa k 1 2 9 29 53 54 54Solomon Islands y 28 32 70 126 150 137 135Tonga x - - 1 8 21 25 27Tuvalu bh .. .. .. - 1 27 36Vanuatu y 33 62 110 249 366 399 418

Central and Eastern Europe .. 49 2 828 39 573 138 271 228 199 263 270

Albania av .. .. .. 201 568 910 1 091

/...

380 World Investment Report 2004: The Shift Towards Services

Annex table B.3. FDI inward stock, by host region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (concluded)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2002 2003a

Belarus .. .. .. 50bi 1 306 1 646 1 897Bosnia and Herzegovina .. .. .. 20ay 376au 772au 1 153au

Bulgaria .. .. 112ay 445ay 2 257 3 662o 5 082o

Croatia .. .. .. 478bj 3 560 6 711 11 351Czech Republic .. .. 1 363bk 7 350 21 644 38 450 41 033e

Estonia .. .. .. 688bj 2 645 4 226 6 511Hungary .. 49i 569 11 304 22 870 35 890 42 915Latvia .. .. .. 615 2 084 2 751 3 320Lithuania .. .. .. 352 2 334 3 981 4 960Moldova, Republic of .. .. .. 94 459 727 789Poland .. .. 109 7 843 34 227 47 900 52 125e

Romania .. .. - 821 6 480 8 873 12 693Russian Federation .. .. .. 5 465 25 226 51 374 52 518e

Serbia and Montenegro av .. .. .. 329 1 319 1 959 3 319Slovakia .. .. 81 810 3 738 7 800 10 248Slovenia .. .. 594bl 1 763 2 894 4 109 4 290e

TFYR Macedonia bh .. .. .. 33 410 929 1 024Ukraine .. .. .. 910 3 875 5 529 6 953e

Memorandum

Least developed countries bj 4 119 5 778 8 949 16 518 37 503 49 465 56 821Oil-exporting countries bk 12 759 58 870 79 627 112 505 170 630 187 544 198 481All developing economies, excluding China 300 897 396 397 527 271 781 828 1 591 580 1 645 603 1 778 700

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Estimates. For details, see “Definitions and Sources” in annex B. For the countries for which the stock data are estimated by

either accumulating FDI flows or adding or subtracting flows to FDI stock in a particular year, notes are given below.b Data on Belgium and on Luxembourg are included. Stock data for 2002 ($ 238,270 million) as reported by the International

Moneraty Fund (IMF) Balance of Payment CD-ROM, June 2004, for the Belgium and Luxembourg Monetary Union were used. Stockdata for 2003 ($ 335,311 million) are estimated by adding the 2003 flows of Belgium and of Luxembourg to the 2002 stock reportedby the IMF for the Union .

c Preliminary data.d Data as reported to UNCTAD by the Central Service for Statistics and Economic Studies (STATEC). For details, see “Definitions

and Sources” in annex B. Data are available from 1995 to 2001 only.e Stock data after 2002 are estimated by adding flows.f Stock data prior to 1989 are estimated by subtracting flows.g Stock data from 1990 to 1997 are estimated by subtracting flows from the stock of 1998.h Stock data prior to 1999 are estimated by subtracting flows.i Stock data prior to 1990 are estimated by subtracting flows.j Stock data prior to 1982 are estimated by subtracting flows.k Stock data are estimated by accumulating flows since 1970.l Stock data prior to 1988 are estimated by subtracting flows.m Negative stock value. However, this value is included in the regional and global total.n Stock data prior to 1994 are estimated by accumulating flows since 1970.o Stock data are estimated by adding flows to the stock of 2001.p Stock data prior to 1987 are estimated by subtracting flows.q Data on a fiscal year basis.r Stock data are estimated by accumulating flows since 1987.s Stock data are estimated by accumulating flows since 1978.t Stock data are estimated by accumulating flows since 1973.u Stock data are estimated by accumulating flows since 1982.v Stock data are estimated by accumulating flows since 1997.w Stock data are estimated by accumulating flows since 1975.x Stock data are estimated by accumulating flows since 1977.y Stock data are estimated by accumulating flows since 1971.z Stock data prior to 1981 are estimated by subtracting flows.aa Stock data for 1990 is estimated by subtracting flows from the stock of 1991.ab Data as of September 2003.ac Data as of June 2003.

381ANNEX B

ad Stock data prior to 1995 are estimated by accumulating flows since 1970.ae Stock data prior to 1996 are estimated by accumulating flows since 1970.af Stock data are estimated by accumulating flows since 1990.ag Stock data are estimated by accumulating flows since 1989.ah Stock data are estimated by accumulating flows since 1974.ai Stock data after 1990 are estimated by adding flows.aj Stock data prior to 1990 are estimated by accumulating flows since 1970.ak Stock data are estimated by accumulating flows since 1986.al Stock data prior to 1995 are estimated by subtracting flows.am Stock data are estimated by accumulating flows since 1980.an Stock data are estimated by accumulating flows since 1976.ao Stock data prior to 2001 are estimated by subtracting flows.ap Stock data are estimated by accumulating flows since 1972.aq Stock data are estimated by accumulating flows since 1996.ar Stock data prior to 2000 are estimated by subtracting flows.as Stock data prior to 1997 are estimated by subtracting flows.at Stock data up to 1998 are estimated by accumulating flows since 1994.au Stock data after 1998 are estimated by adding flows.av Stock data are estimated by accumulating flows since 1992.aw Stock data are estimated by accumulating flows since 1993.ax Stock data prior to 1994 are estimated by subtracting flows.ay Stock data prior to 1998 are estimated by subtracting flows.az Stock data prior to 1997 are estimated by accumulating flows since 1970.ba Stock data after 1999 are estimated by adding flows.bb Stock data after 1994 are estimated by adding flows.bc Stock data prior to 2001 are estimated by accumulating flows since 1972.bd Stock data after 1988 are estimated by adding flows.be Stock data after 1989 are estimated by adding flows.bf Stock data are estimated by accumulating flows since 1983.bg Stock data after 1997 are estimated by adding flows.bh Stock data are estimated by accumulating flows since 1994.bi Stock data up to 1995 are estimated by accumulating flows since 1992.bj Stock data prior to 1996 are estimated by subtracting flows.bk Stock data prior to 1992 are estimated by subtracting flows.bl Stock data prior to 1993 are estimated by subtracting flows.bm Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia,Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali,Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia. Timor-Leste is not includeddue to unavailability of data.

bo Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Gabon, Indonesia, Islamic Republic of Iran,Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates, Venezuela and Yemen.

Note: For data on FDI stock which are calculated as an accumulation of flows, price changes are not taken into account.

382 World Investment Report 2004: The Shift Towards Services

Annex table B.4. FDI outward stock, by home region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2002 2003a

World 559 629 738 809 1 758 216 2 897 574 5 983 342 7 209 582b 8 196 863

Developed countries 499 390 664 856 1 629 040 2 582 789 5 163 815 6 355 130b 7 272 319

Western Europe 237 694 330 592 874 148 1 463 253 3 238 830 3 831 361b 4 421 992

European Union 215 582 304 346 797 102 1 298 043 2 970 938 3 496 148b 4 035 610

Austria 530 1 343 4 273 11 702 24 820 42 485 59 100c

Belgium and Luxembourg 6 037 9 551 40 636 80 690 179 773 .. .. Belgium .. .. .. .. .. .. .. Luxembourg .. .. .. 4 703d 7 927d .. ..Denmark 2 065 1 801 7 342 24 703 66 217 75 913 77 071e

Finland 737 1 829 11 227 14 993 52 109 63 923 68 702France 24 281f 37 753f 110 125 204 431 445 091 586 119 643 398Germany 43 127 59 909 148 456 258 142 483 942 619 939 622 499e

Greece 2 923g 2 923g 2 948g 3 004g 5 861 9 000c 10 000c

Ireland .. 8 619g 11 355g 13 240g 32 253 31 616 33 527e

Italy 7 319 16 600 57 261 97 042 180 275 194 498 238 877Netherlands 42 116 47 898 106 899 172 672 302 448 348 312 384 404e

Portugal 512h 583h 900 3 173 17 170 31 872c 38 541c

Spain 1 931 4 455 15 652 36 243 159 904 225 201 207 530Sweden 3 572i 10 768 50 720 73 143 123 230 144 363 189 278c

United Kingdom 80 434 100 313 229 307 304 865 897 845 921 446 1 128 584

Other Western Europe 22 112 26 245 77 046 165 210 267 892 335 213 386 382

Iceland 59j 59j 75 179 663 1 113 1 374c

Malta .. .. .. 32 203 246k 270k

Norway 561 1 093 10 884 22 519 33 655 38 458l 40 635l

Switzerland 21 491 25 093 66 087 142 479 233 370 295 396 344 104c

North America 239 158 281 512 515 358 817 224 1 531 181 2 112 328 2 376 868

Canada 23 783 43 143 84 837 118 209 237 750 272 333 307 855c

United States 215 375 238 369 430 521 699 015 1 293 431 1 839 995 2 069 013

Other developed countries 22 538 52 753 239 534 302 312 393 804 411 440 473 459

Australia m 2 260 6 653 30 507 52 768 98 781 89 673 117 091e

Israel 140h 622h 1 188 3 462 9 353 10 622 12 131Japan 19 610 43 970 201 441 238 452 278 442 304 237 335 500New Zealand 529n 1 508n 6 398n 7 630 7 229 6 909 8 737

Developing economies 60 239 73 952 128 561 308 624 793 297 796 503 858 681

Africa 6 871 10 960 20 940 32 873 45 558 38 138 39 459

North Africa 460 872 1 473 1 528 2 998 3 470 3 623

Algeria o 98 156 183 266 343 452 466Egypt p 39 91 163 350 655 695 716Libyan Arab Jamahiriya q 162 287 623 278 1 230 1 424 1 524Morocco p 155 333 489 603 736 862 874Tunisia 6 6 15 30 33 37 44

Other Africa 6 412 10 088 19 467 31 345 42 560 34 668 35 836

Benin r - 2 2 2 60 62 66Botswana 438h 439h 447 650 517 1 260 1 304

/...

383ANNEX B

Annex table B.4. FDI outward stock, by home region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (continued)

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2002 2003a

Burkina Faso s 3 3 4 13 24 26 27Burundi t .. .. - 1 2 2 2Cameroon u 23 53 150 227 255 261 264Cape Verde v .. .. 1 5 7 7 8Central African Republic w - 1 17 40 42 44 44Chad x 1 1 48 81 81 81 81Comoros y .. .. 1 2 2 2 2Côte d’Ivoire y .. .. 31 517 677 682 683Equatorial Guinea t .. .. - - ..z 3 3Ethiopia aa .. .. .. .. 435 511 536Gabon s 78 103 164 254 284 287 287Gambia .. .. 22 36 44 46k 53k

Ghana ab .. .. .. .. 359 472 528Guinea ab .. .. .. .. 8 12 14Kenya w 18 60 99 116 113 121 123Lesotho v .. .. - - - - 1Liberia ac 48 361 453 1 113 1 524 1 307 1 437l

Madagascar ad .. .. 1 5 4 4 4Malawi .. .. .. .. 15ae 22ae 25ae

Mali w 22 22 22 23 112 148 161Mauritania ad .. .. 3 3 3 3 3Mauritius af .. - 2 94 133 145 186Mozambique ag .. .. .. - 1 1 1Namibia .. .. 80 15 45 19 31Niger s 2 8 54 109 145 141 140Nigeria x 9 ..z 2 586 3 975 4 358 4 553 4 646Rwanda y .. .. - ..z 3 5 5Senegal q 7 43 49 96 116 148 159Seychelles ah 14 44 61 94 136 154 162South Africa 5 722 8 963 15 027 23 305 32 333 23 475 24 195e

Swaziland 19ai 9 38 135 95 54 57Togo aj 10 10 16 44 125 118 116Uganda ak .. .. .. 255 265 246 230Zimbabwe al .. 10 88 137 241 249 253

Latin America and the Caribbean 46 915 50 914 58 754 86 263 155 477 173 987 183 843

South America 45 028 46 299 50 410 63 564 94 199 99 083 102 744

Argentina 5 997am 5 944am 6 106am 10 696 21 118 20 529 21 303e

Bolivia 1an 1an 9 18 29 34 37e

Brazil 38 545ao 39 439ao 41 044ao 44 474ao 51 946ao 54 423 54 646ap

Chile 42 102 178 2 425aq 11 154 12 389 13 784e

Colombia 136 301 402 1 027 2 989 3 553 3 520ar

Ecuador as .. .. .. 73 270 270 270Guyana at .. .. .. 2 - - 1Paraguay 113au 128au 137au 179 214 145 150e

Peru 3 38 112 567 505 666 814Uruguay 169av 181av 183av 186av 208aw 268aw 271w

Venezuela 23 165 2 239 3 918 5 766 6 807 7 950e

Other Latin America and the Caribbean 1 887 4 614 8 344 22 699 61 279 74 905 81 099

Aruba at .. .. .. 10 28 15 27Bahamas ac 285 154 614 1 286 1 385 1 385l 1 385l

Barbados 6 13 23 33 41 42 43e

Belize ax .. 11 20 28 50 50 52Bermuda ac 727 1 691 1 550 2 626 14 942 7 712l 6 110l

/...

384 World Investment Report 2004: The Shift Towards Services

Annex table B.4. FDI outward stock, by home region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (continued)

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2002 2003a

Cayman Islands ay 5 85 694 1 984 16 247 20 026 21 884Costa Rica 7az 27az 44az 66az 86 126 173e

Dominica aa .. .. .. .. - - -Dominican Republic at .. .. .. 38 122 89 89El Salvador .. .. 54av 53av 74 39 146Grenada y .. .. - - 1 1 1Guatemala ab .. .. .. .. 31 36 43Haiti as .. .. .. 1 4 4 5Jamaica o 5 5 42 308 709 872 951Mexico 31ao 399ao 1 070ao 2 572ao 7 540ao 12 425 13 815e

Netherlands Antilles ah 9 10 21 24 11 12 12Nicaragua at .. .. .. - 8 17 21Panama ac 811 2 204 4 188 4 939 4 004 7 767l 8 742l

Saint Kitts and Nevis y .. .. - - - - -Saint Lucia y .. .. - 1 1 - -Saint Vincent and the Grenadines ba .. .. 1 1 1 1 1Trinidad and Tobago al .. 15 22 24 397 562 787Virgin Island (British) at .. .. .. 8 704 15 598 23 722 26 810

Asia and the Pacific 6 453 12 079 48 868 189 489 592 262 584 378 635 379

Asia 6 440 12 041 48 783 189 064 591 821 583 820 634 792

West Asia 1 925 2 753 7 741 7 251 13 504 21 386 25 641

Bahrain 600bb 599bb 719 1 044 1 752 2 158 2 899Cyprus .. 133bc 141bc 216bc 715bc 1 232 1 577e

Iran, Islamic Republic of ak .. .. .. ..z 1 207 5 318 6 804Jordan q 35 38 28 ..z ..z ..z ..z

Kuwait 1 046h 1 408h 3 662 2 804 1 427 1 635 1 603Lebanon bd .. 42 49 94 248 414 510Oman af .. 2 7 23 23 22 21Qatar as .. .. .. 30 181 353 424Saudi Arabia be 239 508 1 873 1 621 2 120 2 126 2 180Turkey .. .. 1 157bf 1 425bf 3 668 5 047 5 546e

United Arab Emirates ac 5 19 99 98 2 253 3 136l 4 129l

Yemen bd .. 4 5 5 5 5 5

Central Asia .. .. .. - 555 1 468 1 663

Armenia bg .. .. .. .. 33 55 54Azerbaijan .. .. .. .. 474bh 957bh 1 260Kazakhstan .. .. .. - 16 417 305Kyrgyzstan .. .. .. .. 33 39 45e

South, East and South-East Asia 4 515 9 288 41 042 181 812 577 763 560 966 607 488

Bangladesh ad .. .. 6 9 29 54 62Brunei Darussalam ag .. .. .. 71 148 165 169Cambodia .. .. .. 139bi 193 229 238e

China .. 131 2 489bj 15 802bj 25 804bj 35 206bj 37 006bj

Hong Kong, China 148bk 2 344bk 11 920bk 78 833bk 388 380 309 430 336 098India 4bl 19bl 50bl 264bl 1 859 4 006 5 054Indonesia .. 55bm 77bm 1 295 2 339aw 2 580aw 2 710w

Korea, Republic of 127 461 2 301 10 231 26 833 31 102 34 531e

Lao People’s Democratic Republic ag .. .. .. 1 169 229 305Macao, China .. .. .. .. .. 465 489e

Malaysia 197 1 374 2 671 11 042 21 276 28 316 29 686e

/...

385ANNEX B

Annex table B.4. FDI outward stock, by home region and economy, 1980, 1985, 1990,1995, 2000, 2002, 2003a (concluded)

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2002 2003a

Maldives y .. .. .. - - - -Mongolia as .. .. .. .. - - -Myanmar bn .. .. .. - - - -Pakistan 40 127 250 403 521 616k 635k

Philippines 171 171 155 1 220 1 597 815 973Singapore 3 718h 4 387h 7 808 35 050 56 766 85 374 90 910Sri Lanka af .. 1 8 35 86 97 102Taiwan Province of China 97 204 12 888bo 25 144bo 49 187bo 59 553bo 65 232bo

Thailand 13 14 418 2 274 2 575 2 729i 3 287

The Pacific 13 37 85 426 440 558 586

Fiji ay 2 15 70 43 ..z ..z ..z

Kiribati bn .. .. .. - - - -Papua New Guinea 10 22 15bj 383bj 519bj 629bj 632bj

Solomon Islands y .. .. - - - - -Tonga ad .. .. - - - - -

Central and Eastern Europe .. .. 616 6 161 26 230 57 949 65 863

Albania ak .. .. .. 48 82 86 90Belarus .. .. .. .. 6 4 6Bosnia and Herzegovina at .. .. .. 13 40 40 40Bulgaria .. .. .. 105bi 87 125k 147k

Croatia .. .. .. 703 875 1 818 2 295Czech Republic .. .. .. 346 738 1 496 1 727e

Estonia .. .. .. 69az 259 676 1 021Hungary .. .. 197 278 1 280 2 162 3 921e

Latvia .. .. .. 231 241 67 105Lithuania .. .. .. 1 29 60 120Moldova, Republic of .. .. .. 18 23 23 23Poland .. .. 95 539 1 025 1 453 1 839e

Romania .. .. 66 121 142 155 211Russian Federation .. .. .. 3 015 20 141 47 676 51 809e

Slovakia .. .. .. 87 325 479 562Slovenia .. .. 258 490 768 1 486 1 790e

TFYR Macedonia ab .. .. .. .. - 1 1Ukraine .. .. .. 97 170 144 157e

Memorandum

Least developed countries bp 92 456 704 1 980 3 415 3 459 3 732Oil-exporting countries bq 2 260 3 276 12 260 15 663 23 832 31 583 36 605

All developing economies, excluding China 60 239 73 821 126 073 292 823 767 493 761 297 821 675

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a Estimates. For details, see “Definitions and Sources” in annex B. For the countries for which the stock data are estimated by

either accumulating FDI flows or adding or subtracting flows to FDI stock in a particular year, notes are given below.b Data on Belgium and on Luxembourg are included. Stock data for 2002 ($ 201,461 million) as reported by the International

Moneraty Fund (IMF) Balance of Payment CD-ROM, June 2004, for the Belgium and Luxembourg Monetary Union were used. Stockdata for 2003 ($ 334,099 million) are estimated by adding the 2003 flows of Belgium and of Luxembourg to the 2002 stock reportedby the IMF for the Union .

c Preliminary data.d Data as reported to UNCTAD by the Central Service for Statistics and Economic Studies (STATEC). For details, see “Definitions

and Sources” in annex B. Data are available from 1995 to 2001 only.e Stock data after 2002 are estimated by adding flows.f Stock data prior to 1987 are estimated by subtracting flows.g Stock data prior to 1999 are estimated by subtracting flows.h Stock data prior to 1990 are estimated by subtracting flows.

386 World Investment Report 2004: The Shift Towards Services

i Stock data prior to 1982 are estimated by subtracting flows.j Stock data prior to 1988 are estimated by subtracting flows.k Stock data after 2001 are estimated by adding flows.l Stock data after 2000 are estimated by adding flows.m Data on a fiscal year basis.n Stock data prior to 1992 are estimated by subtracting flows.o Stock data are estimated by accumulating flows since 1970.p Stock data are estimated by accumulating flows since 1977.q Stock data are estimated by accumulating flows since 1972.r Stock data are estimated by accumulating flows since 1979.s Stock data are estimated by accumulating flows since 1974.t Stock data are estimated by accumulating flows since 1989.u Stock data are estimated by accumulating flows since 1973.v Stock data are estimated by accumulating flows since 1988.w Stock data are estimated by accumulating flows since 1975.x Stock data are estimated by accumulating flows since 1978.y Stock data are estimated by accumulating flows since 1990.z Negative stock value. However, this value is included in the regional and global total.aa Stock data are estimated by accumulating flows since 1997.ab Stock data are estimated by accumulating flows since 1996.ac Stock data are estimated by using the inward stock of the United States from 1980 to 2000 as a proxy.ad Stock data are estimated by accumulating flows since 1986.ae Stock data after 1998 are estimated by adding flows.af Stock data are estimated by accumulating flows since 1985.ag Stock data are estimated by accumulating flows since 1991.ah Stock data are estimated by accumulating flows since 1976.ai Stock data prior to 1981 are estimated by subtracting flows.aj Stock data are estimated by accumulating flows since 1971.ak Stock data are estimated by accumulating flows since 1992.al Stock data are estimated by accumulating flows since 1983.am Stock data prior to 1991 are estimated by subtracting flows.an Stock data from 1980 to 1985 are estimated by accumulating flows since 1980.ao Stock data prior to 2001 are estimated by subtracting flows.ap Data as of September 2003.aq Stock data from 1993 to 1995 are estimated by subtracting flows from 1996 stock.ar Data as of June 2003.as Stock data are estimated by accumulating flows since 1995.at Stock data are estimated by accumulating flows since 1993.au Stock data prior to 1995 are estimated by subtracting flows.av Stock data prior to 1996 are estimated by subtracting flows.aw Stock data after 1999 are estimated by adding flows.ax Stock data are estimated by accumulating flows since 1984.ay Stock data are estimated by accumulating flows since 1980.az Stock data prior to 1996 are estimated by adding flows since 1978.ba Stock data are estimated by accumulating flows since 1987.bb Stock data prior to 1989 are estimated by subtracting flows.bc Stock data prior to 2002 are estimated by subtracting flows.bd Stock data are estimated by accumulating flows since 1982.be Stock data are estimated by using the inward stock of Canada and the United States from 1980 to 1991 and France, Netherlands

and the United States from 1995 to 1997 as a proxy. Stock data after 1997 are estimated by adding flows.bf Stock data prior to 2000 are estimated by subtracting flows.bg Stock data are estimated by accumulating flows since 1998.bh Stock data prior to 2003 are estimated by subtracting flows.bi Stock data prior to 1998 are estimated by subtracting flows.bj Stock data after 1989 are estimated by adding flows.bk Stock data prior to 1997 are estimated by using the inward stock of the United States from 1980 to 1983 and by using the inward

stock of the United States and China as a proxy from 1984 to 1997 as a proxy.bl Stock data prior to 1997 are estimated by subtracting flows.bm Stock data are estimated by using the inward stock of Germany and the United States from 1984 to 1992 as a proxy.bn Stock data are estimated by accumulating flows since 1994.bo Stock data after 1988 are estimated by adding flows.bp Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia,Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali,Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia. Timor-Leste is not includeddue to unavailability of data.

bq Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Gabon, Indonesia, Islamic Republic of Iran,Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates, Venezuela and Yemen.

Note: For data on FDI stock which are calculated as an accumulation of flows, price changes are not taken into account.

387ANNEX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Worldinward 5.2 10.6 16.0 19.8 12.0 10.1 7.5outward 5.5 10.7 16.1 17.1 10.8 9.0 8.4

Developed countriesinward 4.2 9.9 16.2 21.3 11.5 10.0 6.7outward 6.4 13.2 19.9 20.8 13.2 11.1 10.3

Western Europeinward 6.0 14.8 27.4 40.8 21.9 21.5 14.8outward 9.6 24.6 41.9 50.2 26.5 20.6 16.7

European Unioninward 6.0 14.8 27.7 41.3 22.3 22.3 14.7outward 9.2 24.7 41.8 49.6 26.8 20.9 16.8

Austriainward 4.7 9.1 6.0 19.3 13.4 2.1 12.0outward 3.3 5.5 6.7 12.5 7.1 11.6 12.4

Belgium and Luxembourginward 21.3 40.6 208.9 168.8 169.6 .. ..outward 13.9 51.6 213.5 164.3 193.5 .. ..

Belgiuminward .. .. .. .. .. 30.4 50.1outward .. .. .. .. .. 25.4 62.3

Luxembourginward .. .. .. .. .. 2462.7 1539.1outward .. .. .. .. .. 2655.0 1687.3

Denmarkinward 8.8 21.7 48.8 106.7 35.6 18.7 6.2outward 9.8 12.6 49.5 83.8 41.4 16.0 2.8

Finlandinward 6.3 8.5 18.3 33.8 15.0 31.7 9.5outward 13.7 77.3 26.4 95.1 33.7 30.5 -25.3

Franceinward 7.3 11.6 16.8 16.4 19.0 17.6 13.9outward 9.7 18.2 45.7 67.1 32.7 17.7 17.0

Germanyinward 1.2 5.4 12.3 48.9 5.6 9.8 3.0outward 6.3 19.4 23.9 14.0 9.8 2.3 0.6

Greeceinward 4.9 0.3 2.1 4.2 5.6 0.2 0.1outward 0.2 1.0 2.0 8.2 2.2 2.1 1.3

Irelandinward 14.8 45.4 79.7 112.5 40.0 90.8 74.7outward 4.8 20.7 26.7 20.2 16.9 11.5 5.6

Italyinward 1.7 1.2 3.1 6.3 6.9 6.2 5.8outward 3.5 5.6 3.0 5.8 10.0 7.3 3.2

Netherlandsinward 14.0 48.9 45.9 77.9 62.4 29.5 19.2outward 27.4 48.5 64.2 92.3 57.6 39.8 35.1

Portugalinward 6.7 11.3 3.8 21.9 19.1 5.9 2.9outward 3.1 13.9 9.7 24.2 24.5 10.5 0.3

Spaininward 7.6 8.8 10.8 26.4 18.9 21.8 12.0outward 4.5 14.1 29.0 38.4 22.3 19.1 10.9

/...

388 World Investment Report 2004: The Shift Towards Services

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Swedeninward 19.2 48.6 140.5 54.7 31.1 29.0 7.0outward 17.1 59.7 50.6 95.8 16.7 26.6 36.7

United Kingdominward 10.4 29.7 35.1 48.7 21.9 10.9 5.0outward 19.3 49.1 80.4 95.7 24.5 13.8 19.0

Other Western Europeinward 5.5 14.2 23.1 30.9 13.8 7.2 16.6outward 16.8 22.7 44.2 63.6 21.7 15.4 14.7

Icelandinward 2.4 7.4 3.6 8.6 10.4 7.9 6.5outward 2.3 3.6 6.4 19.2 20.3 13.6 7.4

Maltainward 14.2 31.1 96.5 66.5 33.3 -53.0 34.2outward 0.7a 1.7 5.3 2.8 2.8 -0.5 2.1

Norwayinward 7.1 10.3 23.1 18.8 6.6 2.6 6.3outward 9.2 6.1 17.5 26.4 -2.4 16.4 5.8

Switzerlandinward 4.7 17.1 22.6 38.7 18.1 11.2 24.4outward 21.3 35.8 64.0 89.7 37.2 15.0 21.9

North Americainward 5.5 10.8 15.6 17.9 8.9 4.1 1.7outward 7.4 9.1 11.5 8.8 7.7 6.9 8.0

Canadainward 7.3 18.6 19.0 47.2 19.4 14.5 4.6outward 9.8 28.1 13.2 31.6 25.4 18.2 15.1

United Statesinward 5.4 10.3 15.4 15.8 8.1 3.3 1.5outward 7.1 7.7 11.3 7.2 6.4 6.0 7.5

Other developed countriesinward 0.8 1.0 1.6 2.2 1.3 2.4 1.6outward 1.8 2.5 1.8 2.7 4.2 3.8 3.7

Australiainward 8.7 7.1 3.1 15.1 5.1 14.8 6.3outward 5.7 3.9 -0.7 1.0 15.7 8.0 12.0

Israelinward 4.9 8.4 14.0 22.0 16.7 9.3 20.1outward 3.3 5.2 4.3 15.2 3.0 6.1 9.5

Japaninward 0.1 0.3 1.1 0.7 0.6 1.0 0.6outward 1.6 2.3 1.9 2.5 3.6 3.4 2.6

New Zealandinward 24.5 11.3 12.7 34.2 19.4 7.0 12.5outward 1.1 8.8 7.2 13.3 -11.3 3.2 1.2

Developing economiesinward 7.9 12.3 14.7 14.9 13.1 9.9 10.0outward 3.4 3.3 3.8 6.1 3.6 3.0 2.1

Africainward 6.5 8.3 11.6 8.8 20.7 12.3 13.9 outward 2.5 2.6 2.3 0.8 -2.6 0.2 1.1

/...

389ANNEX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

North Africainward 5.0 6.1 6.2 5.9 11.7 7.8 11.7outward 0.1 0.8 0.7 0.5 0.5 0.6 0.3

Algeriainward 0.8 4.0 4.3 3.7 9.6 7.7 3.9outward 0.1 - 0.4 0.2 0.1 0.7 0.1

Egyptinward 8.9 5.9 5.7 6.7 3.2 4.3 2.0outward 0.4 0.3 0.2 0.3 0.1 0.2 0.2

Libyan Arab Jamahiriyainward -0.9 -4.3 -3.9 -3.3 -2.8 -3.6 19.9outward -0.2 10.0 6.3 2.3 2.3 4.2 2.8

Moroccoinward 8.3 5.3 10.2 2.7 37.4 5.8 22.2outward 0.3 0.3 0.2 0.7 1.3 0.3 0.1

Sudaninward 2.2 29.3 30.2 27.8 27.7 45.4 80.1outward .. .. .. .. .. .. ..

Tunisiainward 10.6 13.6 7.0 15.2 9.3 15.5 9.6outward 0.1 - - - - - -

Other Africa inward 7.5 10.1 16.7 11.6 29.6 16.6 15.8outward 4.5 4.1 4.0 1.0 -5.6 -0.2 1.8

Angolainward 41.8 48.6 86.8 28.0 66.7 49.7 43.9outward - - - - - - -

Benininward 6.8 7.7 8.5 13.2 9.1 7.5 10.8outward 2.1b 0.5 5.2 1.9 0.5 - 0.7

Botswanainward -1.1 7.8 2.7 4.3 2.6 33.1 6.9outward 1.1 0.3 0.1 0.2 32.3 3.5 3.2

Burkina Fasoinward 2.0 0.7 1.2 4.0 1.3 1.3 1.4outward 0.4 0.8 0.7 - 0.1 0.2 0.1

Burundiinward 0.4 3.7 0.3 21.8 - - -outward 0.1 0.7 1.3 - - - -

Camerooninward 1.2 3.3 2.3 2.1 4.9 10.5 13.8outward 0.8 0.1 0.2 0.2 0.2 0.2 0.2

Cape Verdeinward 8.4 8.2 43.4 31.1 9.0 10.5 12.8outward 0.4 - 0.3 1.3 0.5 - 0.6

Central African Republicinward 3.1 5.6 2.3 0.9 3.8 4.1 2.8outward 3.2 0.2 - - - 1.0 -

Chadinward 17.5 9.3 9.9 48.5 68.0 97.4 127.9outward 4.2 -0.1 -0.8 - - - -

Comorosinward 0.4 1.2 1.0 0.4 4.9 1.2 3.8outward .. .. .. .. .. .. ..

/...

390 World Investment Report 2004: The Shift Towards Services

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Congoinward 15.6 3.6 59.0 22.3 9.6 17.7 37.5outward 0.1 -0.9 0.2 0.5 0.7 0.8 -0.1

Congo, Democratic Republic ofinward -1.5 13.5 1.2 1.8 25.6 29.0 23.6outward .. .. .. .. .. .. ..

Côte d’Ivoireinward 17.0 19.2 17.7 20.3 26.3 18.8 34.2outward 8.3 1.8 3.1 - 0.2 0.2 0.1

Djiboutiinward 6.7b 4.4 8.9 4.6 5.2 5.7 17.2outward .. .. .. .. .. .. ..

Equatorial Guineainward 33.1 73.3 49.8 21.7 199.8 67.1 295.9outward - - 0.3 -0.7 0.9 - -

Eritreainward 16.5d 56.4 27.7 12.5 5.0 7.4 8.9outward .. .. .. .. .. .. ..

Ethiopiainward 5.2 24.1 7.1 13.8 1.9 5.6 5.4outward 19.9 23.4 -4.7 -0.1 6.7 0.5 2.3

Gaboninward -16.9 7.3 -16.8 -3.3 -6.6 17.8 4.0outward 1.2 -1.0 1.0 2.0 0.3 - -

Gambiainward 19.2 30.9 64.4 60.7 50.8 58.1 83.6outward 6.9 7.3 5.8 6.6 7.3 6.5 9.4

Ghanainward 8.6 3.3 16.1 9.6 7.1 4.3 10.7outward 6.8d 1.8 4.6 4.4 4.2 4.4 4.3

Guineainward 1.7 2.8 8.3 1.5 0.3 3.7 1.1outward 0.1d 0.2 0.4 0.3 0.3 0.3 0.3

Guinea-Bissauinward 7.1 18.8 22.9 2.0 1.6 5.6 6.5outward .. .. .. - - - -

Kenyainward 1.0 0.6 0.9 7.3 0.3 1.7 5.2outward 0.1 - - - - 0.5 0.1

Lesothoinward 4.8 6.1 7.5 8.2 8.6 8.8 9.6outward 0.1e .. .. .. .. - -

Madagascarinward 3.4 3.3 10.9 11.0 10.3 1.4 5.3outward 0.1 0.2 - 0.2 - - -

Malawiinward 4.1 6.2 26.1 11.4 10.1 4.3 12.4outward 0.6d 2.9 1.3 1.4 2.1 2.5 1.9

Maliinward 6.3 1.7 0.3 15.4 17.7 16.2 22.4outward 0.3 5.2 9.8 0.8 2.9 3.0 2.3

Mauritaniainward 4.0 0.1 0.5 13.5 34.3 48.4 79.5outward .. .. .. .. .. .. ..

Mauritiusinward 2.6 1.3 4.2 25.9 3.1 3.1 5.5outward 1.6 1.4 0.5 1.2 0.3 0.9 3.2

/...

391ANNEX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Mozambiqueinward 8.8 33.1 47.9 7.5 33.1 20.8 29.9outward - - - - - - -

Namibiainward 15.3 9.9 2.5 29.0 53.0 26.0 12.3outward -0.5 -0.2 -0.1 0.4 -1.8 -0.7 -0.9

Nigerinward 6.1 -0.4 0.2 4.4 13.3 3.1 14.3outward 5.6 3.3 0.1 -0.3 -1.8 - -0.6

Nigeriainward 28.4 11.9 52.1 49.4 31.3 37.8 36.0outward 4.3 1.2 4.7 4.5 2.6 3.0 2.8

Rwandainward 1.2 2.4 0.5 2.6 1.3 2.4 1.6outward 0.1 0.1 0.3 0.2 0.2 0.3 0.2

São Tomé and Principeinward -0.2 28.7 16.2 18.8 14.8 13.8 45.7outward .. .. .. .. .. .. ..

Senegalinward 8.0 7.8 15.4 8.2 4.8 5.2 9.0outward 1.6 1.3 0.6 0.1 -0.9 3.7 1.3

Seychellesinward 20.6 26.3 31.7 30.9 30.7 23.0 28.9outward 6.1 1.4 4.8 4.0 4.3 4.3 4.0

Sierra Leoneinward 1.7 -25.9 21.0 12.2 4.9 7.1 5.7outward 0.3 -0.1 - - - - -

South Africainward 4.4 2.5 7.5 4.7 40.9 4.8 3.0outward 6.9 7.8 7.9 1.4 -19.1 -2.5 2.9

Swazilandinward 18.5 36.1 38.8 32.8 22.3 22.4 18.2outward 5.5 7.6 4.8 6.0 -8.0 -4.4 -0.3

Togoinward 5.9 9.0 14.7 21.5 33.8 20.3 9.0outward 3.9 10.3 20.9 0.3 -3.4 - -1.0

Ugandainward 10.6 18.2 18.7 25.5 20.2 20.2 20.9outward 5.8 1.7 -0.7 -2.6 -0.5 -1.1 -1.1

United Republic of Tanzaniainward 8.3 12.8 40.8 17.8 29.8 14.9 15.6outward -f - - 0.1 - - -

Zambiainward 10.8 41.3 32.5 21.8 10.5 13.4 16.2outward .. .. .. .. .. .. ..

Zimbabweinward 4.6 33.8 6.7 2.5 0.5 3.5 2.5outward 1.3 0.7 1.0 0.8 0.6 0.4 0.6

Latin America and the Caribbeaninward 10.1 17.4 25.6 21.1 19.8 14.9 11.2outward 1.6 3.2 2.8 2.2 1.8 2.3 2.3

South Americainward 8.7 17.7 32.2 25.7 19.0 17.2 12.0outward 1.6 2.9 3.3 3.6 -0.1 2.6 2.6

/...

392 World Investment Report 2004: The Shift Towards Services

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Argentinainward 11.2 12.2 46.9 22.6 5.7 6.4 1.9outward 3.3 3.9 3.4 2.0 0.4 -5.1 3.1

Boliviainward 28.2 52.0 63.8 54.7 71.5 84.2 15.4outward 0.2 0.1 0.2 0.2 0.2 0.2 0.3

Brazilinward 4.7 18.6 28.2 28.2 22.7 19.6 11.4outward 0.4 1.8 1.7 2.0 -2.3 2.9 0.3

Chileinward 17.5 22.3 57.6 31.2 28.4 13.2 19.6outward 5.4 7.2 16.8 25.6 10.9 2.1 9.1

Colombiainward 12.3 15.2 13.2 22.8 21.8 17.7 15.5outward 1.6 4.3 1.0 3.1 0.1 7.2 8.2

Ecuadorinward 13.8 18.8 22.9 22.1 29.3 23.0 25.1outward 1.7 -1.8 - - - - -

Guyanainward 36.1 22.5 29.7 41.6 36.7 27.4 16.5outward -0.1f -0.2 -1.2 1.2 -0.1 - 0.4

Paraguayinward 7.1 18.0 5.5 6.4 6.6 1.1 6.3outward 0.5 0.3 0.3 0.4 0.4 -0.2 0.4

Peruinward 18.0 12.3 17.3 7.5 11.5 21.6 13.5outward 0.1 0.5 1.1 - 0.7 - 0.6

Surinameinward -669.6 14.5 -12.8 -73.5 -22.2 -49.9 -69.3outward .. .. .. .. .. .. ..

Uruguayinward 4.3 4.8 7.8 10.3 13.8 14.1 24.3outward 0.1 0.3 -0.1 - 0.3 4.3 0.3

Venezuelainward 13.4 27.3 17.8 27.3 17.8 5.7 14.7outward 3.4 5.7 5.4 3.0 1.0 7.4 6.6

Other Latin America and the Caribbeaninward 14.0 16.7 14.2 14.3 20.8 12.6 10.2

outward 1.6 4.3 1.9 0.2 4.2 2.0 1.9

Anguillainward 94.3g 101.6 109.3 110.0 101.0 107.6 83.6outward 4.5 3.6 2.9 2.9 3.1 2.9 2.9

Antigua and Barbudainward 12.6 8.5 10.4 8.8 23.6 17.9 22.3outward 0.4f -0.4 -0.3 0.3 -0.2 - 0.1

Arubainward 45.3 17.6 -84.7 26.5 -62.8 67.5 38.5outward -0.4 0.3 0.8 3.0 -3.7 0.6 2.8

Bahamasinward 11.9 22.6 23.5 38.9 15.7 31.2 22.6outward - 0.2 - - - - -

Barbadosinward 5.6 3.6 3.6 3.8 3.5 3.4 24.0outward 0.9 0.2 0.3 0.2 0.2 0.1 0.2

/...

393ANNEX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Belizeinward 12.3 14.7 33.2 12.4 27.4 11.8 18.0outward 2.0 4.2 - 2.6 - - 0.9

Costa Ricainward 15.7 21.3 21.8 14.4 15.1 20.8 19.5outward 0.2 0.2 0.2 0.3 0.3 1.1 1.6

Dominicainward 39.4 9.2 24.3 14.2 18.7 25.3 23.6outward .. .. .. .. .. .. ..

Dominican Republicinward 10.7 19.1 32.2 20.5 22.1 18.8 6.5outward 0.4f 0.1 0.1 1.3 -0.7 - ..

El Salvadorinward 1.4 55.2 10.8 7.8 12.3 8.9 6.9outward - 0.1 2.7 -0.2 -0.4 -1.1 0.8

Grenadainward 24.2 38.2 27.5 22.3 46.1 38.7 40.1outward 0.1 0.2 0.3 -0.2 0.1 - -0.1

Guatemalainward 4.6 20.8 4.7 7.4 14.0 3.0 2.9outward -0.1 0.2 -0.1 0.5 - 0.1 0.2

Haitiinward -0.9 1.1 2.6 1.3 0.5 0.7 0.9outward -1.9 0.1 -0.1 0.1 - - 0.1

Hondurasinward 7.2 6.7 14.6 17.9 12.7 12.0 12.2outward - - - - - - -

Jamaicainward 11.1 18.6 27.8 22.2 26.1 17.7 21.8outward 4.1 4.1 5.0 3.5 3.8 2.7 3.3

Mexicoinward 14.4 14.0 13.0 13.4 21.5 11.8 8.9outward 0.5 1.5 1.4 0.8 3.5 0.7 1.1

Montserratinward 13.4g 10.4 37.7 19.7 4.5 10.3 10.7outward .. .. .. .. .. .. ..

Nicaraguainward 16.0 28.2 31.5 31.2 17.9 22.8 23.3outward -0.4a 1.0 0.3 0.5 0.6 0.5 0.5

Panamainward 22.2 49.4 22.4 22.9 13.0 2.4 27.5outward 48.1 125.3 12.2 -31.8 61.2 58.1 33.8

Saint Kitts and Nevisinward 19.6 25.9 53.1 58.9 45.0 52.4 30.7outward - 0.1 0.2 -0.1 - - -

Saint Luciainward 24.5 52.0 44.7 30.2 13.1 20.4 19.0outward 0.1 -0.2 - - -0.1 - -

Saint Vincent and the Grenadinesinward 56.6 78.5 49.1 31.9 20.5 30.0 37.3outward .. .. .. .. .. .. ..

Trinidad and Tobagoinward 41.8 38.5 45.9 42.3 41.7 47.4 36.9outward -0.1 0.1 26.0 1.6 2.9 6.4 13.5

/...

394 World Investment Report 2004: The Shift Towards Services

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Asia and the Pacificinward 7.4 10.6 11.3 13.3 10.2 8.3 9.3outward 4.1 3.4 4.3 7.9 4.7 3.4 2.1

Asiainward 7.3 10.6 11.3 13.3 10.2 8.3 9.3outward 4.1 3.4 4.3 7.9 4.7 3.4 2.1

West Asiainward 1.7 4.6 0.7 1.0 4.6 2.7 2.9outward 0.2 -0.7 1.7 2.8 4.0 2.0 -0.5

Bahraininward 72.9 20.7 50.5 33.8 7.7 23.0 50.4outward 11.9 20.8 18.2 0.9 20.4 20.1 72.2

Cyprusinward 9.0 14.8 39.7 51.0 40.4 32.1 48.8outward 1.4 3.9 8.5 12.8 13.5 15.6 20.3

Iran, Islamic Republic ofinward 0.3 0.1 0.2 0.1 0.2 0.8 0.4outward - - 3.8 1.3 8.1 4.0 4.7

Iraqinward -h .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Jordaninward 3.6 18.5 8.3 44.2 5.7 2.3 19.2outward -1.3 0.1 0.2 0.3 0.5 1.0 0.1

Kuwaitinward 1.7 1.2 1.6 0.6 -5.0 0.2 2.2outward -0.8 -39.3 0.5 -10.7 12.3 -4.8 -166.0

Lebanoninward 1.5 4.2 7.0 10.0 8.9 8.3 12.1outward 0.4 - 0.1 4.2 3.3 2.4 3.3

Omaninward 3.7 3.0 1.7 0.7 3.3 0.9 5.5outward 0.2 -0.1 0.1 -0.1 - - -

Occupied Palestinian Territoryinward 11.8d 14.5 11.2 4.3 1.3 .. ..outward 10.8 10.7 10.0 15.0 24.6 .. ..

Qatarinward 6.8 11.0 5.0 7.3 7.6 19.7 11.4outward 1.0b 0.6 1.3 1.2 2.9 1.9 2.0

Saudi Arabiainward 1.0 14.2 -2.5 -5.7 0.1 -1.9 0.6outward 0.6 0.2 0.2 0.5 -0.1 0.2 0.2

Syrian Arab Republicinward 0.9 0.6 1.9 1.9 2.7 2.2 1.9outward .. .. .. .. .. .. ..

Turkeyinward 1.8 1.9 1.9 2.2 12.4 3.4 1.6outward 0.2 0.7 1.6 2.0 1.9 0.6 1.3

United Arab Emiratesinward 2.4 1.9 -7.8 -3.9 9.1 6.5 3.7outward 0.4 -0.2 0.9 16.0 3.4 3.4 7.6

Yemeninward 4.8 -11.1 -18.0 0.4 8.7 6.4 -5.7outward .. .. .. .. .. .. ..

/...

395ANNEX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Central Asiainward 14.9 30.6 26.1 19.8 29.0 34.6 42.5outward -g 3.2 7.1 0.3 2.0 8.2 8.0

Armeniainward 7.1 77.2 44.6 35.2 23.4 29.8 22.9outward .. 3.8 4.3 2.3 2.9 2.1 -0.1

Azerbaijaninward 49.4 64.8 39.1 10.7 18.7 54.2 197.0outward .. 8.7 25.7 0.1 13.0 12.7 56.0

Georgiainward 22.2 65.8 16.2 25.5 19.8 29.6 62.2outward .. .. 0.2 -0.1 - 0.7 0.7

Kazakhstaninward 22.2 33.1 53.9 40.5 53.9 46.9 29.1outward -g 0.2 0.1 0.1 -0.5 7.7 -1.7

Kyrgyzstaninward 24.7a 51.7 22.6 -1.0 2.3 1.7 10.0outward .. 10.7 3.1 1.8 2.8 2.0 2.2

Tajikistaninward 6.2 28.4 21.2 25.8 11.6 73.6 42.4outward .. .. .. .. .. .. ..

Turkmenistaninward 10.7 4.9 8.4 7.4 7.9 5.6 5.3outward .. .. .. .. .. .. ..

Uzbekistaninward 1.7f 5.6 4.0 3.3 3.6 3.7 3.3outward .. .. .. .. .. .. ..

South, East and South-East Asiainward 8.5 11.5 12.9 15.2 10.8 8.7 9.7outward 4.9 4.2 4.7 8.7 4.8 3.6 2.4

Bangladeshinward 0.4 2.1 1.8 2.7 0.7 0.5 1.1outward - - - - 0.2 - 0.1

Bhutaninward 0.2 0.2 0.2 - 0.1 0.1 0.1outward .. .. .. .. .. .. ..

Cambodiainward 35.0 65.7 48.3 29.1 21.0 16.0 12.3outward 0.8i 5.4 1.9 1.3 1.0 0.7 1.4

Chinainward 13.7 13.6 11.3 10.3 10.5 11.5 12.4outward 1.3 0.8 0.5 0.2 1.5 0.5 0.4

Hong Kong, Chinainward 18.4 29.4 58.6 138.9 55.7 25.8 38.4outward 48.7 33.8 46.2 133.2 26.6 46.5 10.7

Indiainward 2.0 2.9 2.2 2.3 3.2 3.0 4.0outward 0.1 0.1 0.1 0.5 1.3 1.0 0.8

Indonesiainward 6.4 -1.0 -6.6 -13.9 -9.7 0.4 -1.8outward 2.2 0.2 0.3 0.5 0.4 0.3 0.4

Korea, Republic ofinward 0.8 4.8 7.1 5.4 2.6 1.8 2.1outward 1.7 4.5 3.2 3.1 1.7 1.6 1.9

/...

396 World Investment Report 2004: The Shift Towards Services

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Lao People’s Democratic Republicinward 26.7b 14.4 15.7 9.1 6.2 6.9 5.2outward -b - - 45.0 0.8 15.7 20.3

Macao, Chinainward -0.1 -1.5 0.9 -0.1 25.0 55.0 33.4outward .. .. .. .. 1.7 8.9 2.3

Malaysiainward 18.0 14.0 22.5 16.4 2.5 14.5 10.8outward 5.6 4.5 8.2 8.8 1.2 8.6 6.0

Maldivesinward 8.1 7.1 6.7 9.8 8.6 7.8 8.6outward .. .. .. .. .. .. ..

Mongoliainward 5.5a 6.8 11.8 18.4 13.7 27.0 44.2outward .. .. .. .. .. .. ..

Nepalinward 1.2 1.2 0.5 - 2.0 0.2 2.7outward .. .. .. .. .. .. ..

Pakistaninward 6.0 5.7 6.4 3.6 5.0 10.3 15.4outward -0.1 0.1 - 0.1 0.4 0.4 0.2

Philippinesinward 8.5 16.0 11.9 8.4 6.9 11.9 2.2outward 1.3 1.2 -0.2 -0.7 -1.1 0.4 1.1

Singaporeinward 29.3 25.0 57.8 62.8 60.1 25.6 45.7outward 18.1 9.7 27.0 19.3 68.2 16.5 22.2

Sri Lankainward 6.0 3.8 4.7 3.8 2.4 5.7 6.0outward 0.2 0.3 0.6 - - 0.3 0.1

Taiwan Province of Chinainward 2.4 0.4 4.4 6.8 7.8 2.9 0.9outward 5.3 6.1 6.7 9.2 10.4 9.8 11.3

Thailandinward 4.1 29.9 23.8 12.4 14.4 3.7 5.2outward 0.9 0.5 1.4 -0.1 0.6 0.4 1.6

Viet Naminward 34.5 23.1 20.1 15.0 13.6 11.4 15.2outward .. .. .. .. .. .. ..

The Pacificinward 30.2 25.2 34.5 11.6 12.5 7.1 16.0outward 4.9 -7.2 -3.5 8.9 16.0 0.1 4.0

Fijiinward 20.3 42.4 -1.4 -8.3 18.4 11.4 8.9outward -7.2 -23.1 -22.6 36.5 3.2 - 11.3

Kiribatiinward 1.7 2.4 2.4 3.2 2.6 2.4 2.7outward 0.1j .. .. .. .. .. ..

Papua New Guineainward 33.3 20.9 71.7 17.0 12.5 4.3 20.6outward 8.1 0.1 8.4 -0.4 21.8 0.2 0.6

Solomon Islandsinward 20.9 2.8 -28.5 2.1 -17.8 -2.2 -3.1outward -0.3k .. .. .. .. .. ..

/...

397ANNEX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (continued)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Tongainward 8.8 9.3 9.3 21.8 4.7 11.2 12.6outward .. .. .. .. .. .. ..

Vanuatuinward 50.5 31.3 21.4 31.9 28.2 23.7 30.0outward .. .. .. .. .. .. ..

Central and Eastern Europe inward 6.9 15.2 19.3 18.3 15.4 16.8 9.5 outward 0.7 1.5 1.8 2.7 2.1 2.6 3.2

Albaniainward 25.9f 9.2 6.7 20.5 25.9 15.1 22.7outward 11.5f 0.2 1.1 0.9 - 0.5 0.4

Belarusinward 2.4f 5.1 13.9 4.5 3.4 7.7 5.9outward 0.1 0.1 - - - -6.4 0.1

Bosnia and Herzegovinainward -b 4.2 16.5 16.4 12.3 24.1 37.4outward 2.1b .. .. .. .. .. ..

Bulgariainward 11.8 32.4 41.8 50.6 32.8 31.8 36.5outward -0.7f - 0.9 0.2 0.4 1.0 0.6

Croatiainward 6.9a 18.5 31.6 27.1 35.0 20.3 21.8outward 1.2a 1.9 1.0 0.1 3.5 9.6 0.8

Czech Republicinward 9.5 22.3 41.3 32.7 33.6 44.5 11.6outward 0.6f 0.8 0.6 0.3 1.0 1.1 1.0

Estoniainward 23.3f 37.6 23.5 29.6 36.6 15.3 35.2outward 2.7f 0.4 6.4 4.8 13.5 7.1 5.9

Hungaryinward 33.0 34.4 28.8 24.5 32.1 19.1 13.5outward 1.0 2.9 2.2 5.5 3.0 1.8 8.7

Latviainward 27.8f 21.5 20.7 21.6 7.9 17.3 13.7outward -3.5f 3.3 1.0 0.5 0.6 0.4 1.2

Lithuaniainward 5.8f 34.5 20.2 17.7 18.2 25.5 4.7outward 0.4b 0.2 0.4 0.2 0.3 0.6 1.0

Moldova, Republic ofinward 8.1f 20.2 17.5 67.6 73.0 49.8 27.7outward 0.9 g -0.2 - 0.1 - 0.2-

Polandinward 12.2 15.9 18.4 23.8 14.9 11.4 11.1outward 0.1 0.8 0.1 - -0.2 0.6 1.0

Romaniainward 5.8 26.5 16.5 14.8 13.9 11.7 12.2outward - -0.1 0.3 -0.2 -0.2 0.2 0.4

Russian Federationinward 2.7f 6.3 11.7 6.2 4.3 5.6 1.5outward 1.4a 2.9 7.8 7.3 4.4 5.7 5.2

Serbia and Montenegroinward .. .. 8.7 2.0 11.5 20.3 81.1outward .. .. .. .. .. 0.2 ..

/...

398 World Investment Report 2004: The Shift Towards Services

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,by region and economy, 1992-2003 (concluded)

(Per cent)

Region/economy 1992-1997 1998 1999 2000 2001 2002 2003 (Annual average)

Slovakiainward 4.6 8.8 7.1 36.6 26.3 62.2 6.8outward 0.7f 1.8 -6.1 0.4 0.6 0.1 0.3

Sloveniainward 4.9 4.5 1.9 2.8 7.9 32.3 2.9outward -f -0.1 0.9 1.4 3.1 1.9 4.8

TFYR Macedoniainward 2.0g 20.5 5.3 30.0 86.5 12.4 16.5outward -d - - -0.1 0.2 - 0.1

Ukraineinward 3.3f 9.0 8.1 9.6 10.6 8.2 19.3outward 0.1g - 0.1 - 0.3 -0.1 0.2

Memorandum

Least developed countries l

inward 6.1 12.3 16.8 10.5 18.5 15.8 20.5outward 0.9 1.7 0.4 0.6 0.4 0.5 0.5

Oil-exporting countries m

inward 4.5 7.9 3.0 0.9 4.4 4.5 5.0outward 1.1 -0.1 2.0 2.1 2.6 2.1 -

All developing economies, excluding Chinainward 6.8 12.0 15.9 16.4 14.1 9.2 9.1outward 3.9 4.1 4.9 8.1 4.5 4.1 2.8

Source: UNCTAD, FDI/TNC database. (www.unctad.org/fdistatistics)a Annual average from 1993 to 1996.b Annual average from 1995 to 1996.c 1991.d 1996.e 1992.f Annual average from 1992 to 1996.g Annual average from 1994 to 1996.h Annual average from 1991 to 1993.i 1993.j 1994.k Annual average from 1991 to 1992.l Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia,Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali,Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia. Timor-Leste is not includeddue to unavailability of data.

m Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Gabon, Indonesia, Islamic Republic of Iran,Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates, Venezuela and Yemen.

399ANNEX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Worldinward 6.6 8.3 9.3 10.2 19.3 23.0 22.9outward 5.8 6.6 8.6 10.0 19.1 22.6 23.0

Developed countriesinward 4.9 6.2 8.2 8.9 16.6 20.5 20.7outward 6.2 7.3 9.6 11.3 21.4 25.8 26.4

Western Europeinward 6.2 9.3 11.0 13.3 28.5 34.6 33.0outward 6.4 10.8 12.1 16.1 38.9 43.2 41.2

European Unioninward 6.1 9.2 10.9 13.2 28.5 34.6 32.8outward 6.1 10.5 11.6 15.0 37.5 41.7 39.6

Austriainward 4.0 5.6 6.1 7.4 15.9 21.1 23.7outward 0.7 2.0 2.6 5.0 13.0 20.6 23.3

Belgium and Luxembourginward 5.8 21.2 27.8 38.3 78.6 .. ..outward 4.8 11.0 19.4 27.4 72.4 .. ..

Denmarkinward 6.1 6.0 6.9 13.2 42.2 42.7 36.1outward 3.0 3.0 5.5 13.7 41.9 44.0 36.6

Finlandinward 1.0 2.5 3.8 6.5 20.2 25.8 28.6outward 1.4 3.4 8.2 11.5 43.3 48.4 42.4

Franceinward 3.8 6.9 7.1 12.3 19.8 26.9 24.7outward 3.6 7.1 9.1 13.1 33.9 40.7 36.7

Germanyinward 3.9 5.1 7.1 7.8 25.1 26.7 22.6outward 4.6 8.4 8.8 10.5 25.8 31.1 25.8

Greeceinward 9.3 20.2 6.7 9.3 11.0 11.7 9.8outward 6.0 7.1 3.5 2.6 5.1 6.7 5.7

Irelandinward 149.9 157.7 71.5 60.2 144.1 137.5 129.7outward .. 42.2 24.0 19.9 33.9 25.9 22.5

Italyinward 2.0 4.5 5.3 5.8 10.5 10.6 11.8outward 1.6 3.9 5.2 8.8 16.7 16.3 16.2

Netherlandsinward 10.8 18.8 23.3 28.0 64.9 75.4 65.6outward 23.7 36.1 36.3 41.6 81.4 83.0 75.0

Portugalinward 12.3 18.7 14.8 17.1 27.2 35.4 36.3outward 1.7 2.4 1.3 3.0 16.1 26.1 26.1

Spaininward 2.3 5.2 12.8 18.7 25.7 35.9 27.4outward 0.9 2.6 3.0 6.2 28.4 34.3 24.7

Swedeninward 2.2 4.2 5.3 12.5 39.2 48.9 47.5outward 2.8 10.4 21.3 29.5 51.4 59.9 62.7

United Kingdominward 11.8 14.1 20.6 17.6 30.4 36.3 37.4outward 15.0 22.0 23.2 26.9 62.3 58.9 62.7

/...

400 World Investment Report 2004: The Shift Towards Services

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Other Western Europeinward 8.7 10.9 13.4 16.5 28.6 36.3 37.1outward 12.7 16.1 22.0 35.5 63.9 71.2 70.9

Icelandinward ..a 2.4 2.3 1.9 5.9 9.2 8.3outward 1.7 2.0 1.2 2.6 7.9 13.1 13.1

Maltainward 13.8 28.1 20.1 17.3 66.5 54.4 63.5outward .. .. .. 1.0 5.7 6.3 6.9

Norwayinward 10.4 11.7 10.7 12.7 18.1 22.4 20.4outward 0.9 1.7 9.4 15.2 20.2 20.2 18.4

Switzerlandinward 7.9 10.4 15.0 18.6 36.1 46.7 49.7outward 20.0 26.0 28.9 46.4 97.1 110.3 111.2

North Americainward 4.5 5.5 8.0 8.2 13.5 15.4 15.4outward 7.9 6.2 8.1 10.2 14.5 18.8 20.1

Canadainward 20.4 18.4 19.6 20.9 29.4 30.1 31.8outward 8.9 12.3 14.7 20.0 32.8 37.0 35.5

United Statesinward 3.0 4.4 6.9 7.2 12.4 14.4 14.1outward 7.8 5.7 7.5 9.4 13.2 17.6 18.8

Other developed countriesinward 1.7 2.2 2.8 2.8 3.9 5.6 6.7outward 1.8 3.3 6.9 5.2 7.4 9.1 9.5

Australiainward 7.9 14.5 23.7 26.7 28.7 30.5 34.3outward 1.4 3.8 9.8 14.7 26.1 22.5 23.0

Israelinward 14.6 14.9 8.5 6.5 21.2 23.9 29.3outward 0.6 2.6 2.3 3.8 8.1 10.2 11.2

Japaninward 0.3 0.3 0.3 0.7 1.1 2.0 2.1outward 1.8 3.2 6.6 4.5 5.9 7.7 7.8

New Zealandinward 10.3 8.9 18.2 42.7 45.0 47.1 49.1outward 2.3 6.6 14.7 12.7 14.1 11.8 11.3

Developing economiesinward 12.4 16.3 14.7 16.3 29.3 31.9 31.4outward 3.6 3.6 3.8 5.7 12.4 12.6 12.2

Africainward 8.2 9.8 10.9 15.4 24.6 27.0 25.3outward 2.2 4.1 5.3 7.3 8.6 7.6 6.6

North Africainward 3.2 5.3 9.1 13.8 14.8 20.5 21.6outward 0.4 0.6 0.9 0.8 1.2 1.6 1.5

Algeriainward 3.1 2.2 2.2 3.5 6.3 10.2 9.6outward 0.2 0.3 0.3 0.6 0.6 0.8 0.7

/...

401ANNEX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Egyptinward 9.9 16.4 25.6 24.3 19.8 24.3 26.2outward 0.2 0.3 0.4 0.6 0.7 0.8 0.9

Libyan Arab Jamahiriyainward ..a ..a ..a ..a ..a ..a ..a

outward 0.4 1.0 2.2 0.9 3.5 7.3 6.6Morocco

inward 1.0 3.4 3.5 9.2 18.1 25.8 26.0outward 0.8 2.6 1.9 1.8 2.2 2.4 2.0

Sudaninward 0.4 0.6 0.4 2.3 11.5 17.6 23.1outward .. .. .. .. .. .. ..

Tunisiainward 38.2 58.5 62.0 60.8 59.3 66.9 66.0outward 0.1 0.1 0.1 0.2 0.2 0.2 0.2

Other Africainward 10.9 13.5 12.0 16.5 32.4 31.7 27.7outward 3.6 8.2 8.6 11.7 14.8 12.1 9.9

Angolainward 1.8 9.9 10.0 57.7 90.0 105.0 100.0outward .. .. .. .. .. .. ..

Benininward 2.2 3.2 8.6 18.9 23.5 22.8 19.1outward - 0.2 0.1 0.1 2.6 2.3 1.9

Botswanainward 61.8 79.5 34.8 23.6 34.6 16.1 14.6outward 38.7 36.8 11.9 13.6 9.8 23.7 17.6

Burkina Fasoinward 1.0 1.7 1.4 2.8 5.1 4.7 3.9outward 0.2 0.2 0.1 0.5 0.9 0.8 0.6

Burundiinward 0.7 2.1 2.7 3.4 6.7 7.6 7.9outward .. .. - 0.1 0.3 0.3 0.3

Camerooninward 4.9 13.8 9.4 13.3 14.3 15.4 13.9outward 0.3 0.6 1.3 2.9 2.9 2.6 2.1

Cape Verdeinward .. .. 1.1 7.7 32.2 30.2 25.1outward .. .. 0.4 0.9 1.2 1.1 0.9

Central African Republicinward 6.2 8.9 6.4 7.1 10.9 11.0 9.8outward ..a 0.1 1.2 3.6 4.4 4.2 3.6

Chadinward 11.7 17.8 14.3 23.0 41.5 102.8 109.3outward 0.1 0.1 2.7 5.6 5.8 4.0 3.0

Comorosinward 1.6 1.8 6.8 8.3 10.1 9.2 7.4outward .. .. 0.4 0.7 0.8 0.7 0.5

Congoinward 18.5 22.4 20.6 48.4 57.9 69.4 71.3outward .. .. .. .. .. .. ..

Congo, Democratic Republic ofinward 4.9 8.6 5.8 9.6 14.3 14.7 17.4outward .. .. .. .. .. .. ..

/...

402 World Investment Report 2004: The Shift Towards Services

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Côte d’Ivoireinward 5.2 10.0 9.0 14.2 30.0 31.5 29.7outward .. .. 0.3 4.7 6.4 5.8 5.0

Djiboutiinward 1.2 1.1 1.5 3.4 6.1 6.8 8.3outward .. .. .. .. .. .. ..

Equatorial Guineainward .. 7.0 19.2 107.6 87.2 109.3 127.7outward .. .. 0.2 0.2 ..a 0.1 0.1

Eritreainward .. .. .. .. 46.9 51.7 45.4outward .. .. .. .. .. .. ..

Ethiopiainward 2.7 1.7 1.8 2.9 14.8 17.1 16.5outward .. .. .. .. 6.8 8.4 8.1

Gaboninward 12.0 24.9 20.3 15.0 ..a ..a 0.3outward 1.8 3.1 2.7 5.1 5.6 5.8 4.7

Gambiainward 52.7 56.3 49.4 50.2 51.3 71.3 88.0outward .. .. 6.9 9.7 10.4 12.5 14.4

Ghanainward 5.2 6.0 5.4 12.7 29.2 26.2 23.2outward .. .. .. .. 7.2 7.7 7.0

Guineainward 0.1 0.1 2.4 3.5 8.5 9.2 8.4outward .. .. .. .. 0.2 0.4 0.4

Guinea-Bissauinward 0.1 2.7 3.3 7.7 21.3 23.4 21.0outward .. .. .. .. .. .. ..

Kenyainward 5.3 7.8 7.8 8.1 8.9 7.8 7.5outward 0.2 1.0 1.2 1.3 1.1 1.0 0.9

Lesothoinward 1.2 8.5 13.5 18.6 39.3 48.8 38.0outward .. .. - - - 0.1 -

Liberiainward 77.7 115.1 194.9 1794.8 521.2 487.8 478.3outward 4.3 33.0 36.0 825.7 290.0 231.8 249.9

Madagascarinward 1.0 1.8 3.5 5.5 8.8 9.5 8.8outward .. .. - 0.1 0.1 0.1 0.1

Malawiinward 9.2 13.3 10.5 14.1 19.2 18.6 21.6outward .. .. .. .. 0.9 1.1 1.5

Maliinward 0.9 2.8 1.7 5.5 13.3 17.1 16.1outward 1.2 1.7 0.9 0.8 4.2 4.5 3.8

Mauritaniainward ..a 5.7 5.6 8.6 14.5 35.2 51.1outward .. .. 0.3 0.3 0.3 0.3 0.3

Mauritiusinward 2.3 4.0 6.4 6.8 15.6 16.5 16.1outward .. - 0.1 2.5 3.0 3.2 3.7

Mozambiqueinward 0.4 0.4 1.7 8.7 30.2 41.8 42.6outward .. .. .. - - - -

/...

403ANNEX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Namibiainward 86.4 134.2 80.9 48.8 36.0 39.0 39.1outward .. .. 3.1 0.4 1.3 0.7 1.0

Niger inward 7.6 14.3 11.5 19.2 21.6 19.4 16.6outward 0.1 0.6 2.2 5.8 8.0 6.5 5.1

Nigeriainward 3.7 15.5 28.3 50.7 42.4 49.0 42.6outward - ..a 9.1 14.3 9.2 9.9 8.3

Rwandainward 4.6 7.8 8.2 17.8 14.1 15.2 15.9outward .. .. - ..a 0.2 0.3 0.3

São Tomé and Principeinward .. .. 0.7 ..a 24.3 33.2 47.4outward .. .. .. .. .. .. ..

Senegalinward 5.0 7.3 4.5 8.3 18.7 18.1 15.3outward 0.2 1.7 0.9 2.1 2.6 2.9 2.4

Seychellesinward 36.8 62.1 55.4 63.3 93.0 98.8 103.9outward 9.4 25.9 16.6 18.5 22.0 22.1 22.5

Sierra Leoneinward 6.8 5.7 ..a ..a 2.9 3.2 4.1outward .. .. .. .. .. .. ..

Somaliainward 5.6 1.1 ..a 0.2 0.2 0.2 0.3outward .. .. .. .. .. .. ..

South Africainward 20.5 15.8 8.2 9.9 33.9 27.8 18.5outward 7.1 15.7 13.4 15.4 25.2 22.0 14.8

Swazilandinward 41.8 29.1 39.9 39.2 38.5 48.9 40.0outward 3.3 2.4 4.5 9.9 6.8 4.5 3.2

Togoinward 15.5 27.5 16.5 19.5 31.8 37.0 30.8outward 0.9 1.3 1.0 2.9 9.4 8.0 6.3

Ugandainward 0.8 0.2 0.1 4.9 21.8 30.3 32.9outward .. .. .. 4.5 4.5 4.2 3.7

United Republic of Tanzaniainward 0.9 1.4 2.2 5.8 17.9 24.8 26.8outward .. .. .. .. .. .. ..

Zambiainward 9.1 20.0 30.8 36.9 64.5 59.4 55.2outward .. .. .. .. .. .. ..

Zimbabweinward 2.8 3.3 1.4 4.8 15.4 5.8 15.5outward .. 0.2 1.0 1.9 3.4 1.3 3.5

Latin America and the Caribbeaninward 6.5 11.0 10.4 11.7 25.6 34.4 36.8outward 6.5 7.7 5.5 5.2 7.9 10.5 10.7

South Americainward 5.9 8.9 8.5 8.5 22.1 29.0 30.4outward 9.4 10.2 6.5 4.8 7.4 11.1 10.5

Argentinainward 6.9 7.4 6.2 10.8 23.8 37.2 27.1outward 7.8 6.7 4.3 4.1 7.4 22.1 16.4

/...

404 World Investment Report 2004: The Shift Towards Services

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Boliviainward 15.1 19.0 21.1 23.1 62.1 80.1 78.5outward - - 0.2 0.3 0.4 0.4 0.4

Brazilinward 7.4 11.5 8.0 5.9 17.2 22.3 25.8outward 16.4 17.7 8.8 6.3 8.7 12.0 11.0

Chileinward 3.2 14.1 33.2 21.6 60.7 65.1 65.0outward 0.2 0.6 0.6 3.4 14.9 18.4 19.1

Colombiainward 3.2 6.4 8.7 6.9 13.0 21.7 24.5outward 0.4 0.9 1.0 1.1 3.6 4.4 4.5

Ecuadorinward 6.1 6.2 15.2 17.9 44.4 39.9 41.4outward .. .. .. 0.4 1.7 1.1 1.0

Guyanainward 4.2 8.6 10.6 71.6 106.6 121.1 125.9outward .. .. .. 0.3 - - 0.1

Paraguayinward 4.6 9.5 7.6 7.9 17.1 14.3 15.3outward 2.5 4.0 2.6 2.0 2.8 2.6 2.6

Peruinward 4.3 6.1 5.1 10.3 21.0 22.1 21.0outward - 0.2 0.4 1.1 1.0 1.2 1.3

Surinameinward ..a 5.3 ..a ..a ..a ..a ..a

outward .. .. .. .. .. .. ..Uruguay

inward 7.2 16.2 10.5 7.4 10.4 10.5 13.9outward 1.7 3.8 2.0 1.0 1.0 2.2 2.4

Venezuelainward 2.3 2.5 4.7 9.0 22.2 33.6 40.3outward - 0.3 4.6 5.1 4.8 7.2 9.4

Other Latin America and the Caribbeaninward 7.4 14.7 14.7 22.4 31.7 40.5 44.8outward 0.8 2.2 2.8 6.4 8.8 9.8 10.8

Anguillainward .. .. 19.8 90.0 226.2 333.0 357.9outward .. .. .. .. .. .. ..

Antigua and Barbudainward 21.3 46.5 74.5 88.6 84.4 90.6 94.4outward .. .. .. .. .. .. ..

Arubainward .. .. 15.2 15.8 14.0 15.0 23.2outward .. .. .. 0.8 1.5 0.8 1.4

Bahamasinward 41.0 23.4 18.9 21.2 32.3 37.3 39.2outward 21.3 6.6 19.8 36.7 28.2 27.4 26.7

Barbadosinward 12.1 10.5 10.0 12.5 12.3 14.1 18.4outward 0.7 1.1 1.4 1.8 1.6 1.7 1.7

Belizeinward 6.4 9.4 22.1 26.5 38.1 41.6 43.5outward .. 5.2 5.0 4.3 6.1 5.2 5.2

Bermudainward 836.7 774.7 869.7 1181.6 2265.8 2785.7 3051.5outward 118.5 162.7 97.3 129.3 600.3 296.5 230.3

/...

405ANNEX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Cayman Islandsinward 242.8 680.1 353.3 357.5 2398.5 2813.8 3157.2outward 5.6 39.0 140.3 258.4 1560.5 1769.9 1896.2

Costa Ricainward 13.9 24.4 25.3 23.3 32.6 37.5 39.3outward 0.1 0.7 0.8 0.6 0.5 0.7 1.0

Cubainward ..a - - 0.2 0.3 0.3 0.3outward .. .. .. .. .. .. ..

Dominicainward 0.1 10.7 42.9 89.9 100.4 117.0 123.1outward .. .. .. .. - - -

Dominican Republicinward 3.6 5.2 8.1 14.1 26.2 33.9 47.1outward .. .. .. 0.3 0.6 0.4 0.6

El Salvadorinward 4.3 4.8 4.4 3.5 17.3 19.6 20.0outward .. .. 1.1 0.6 0.6 0.3 1.1

Grenadainward 1.5 9.8 31.7 60.7 85.0 111.6 124.5outward .. .. 0.1 - 0.2 0.2 0.2

Guatemalainward 8.9 10.8 22.7 15.0 18.1 21.1 21.8outward .. .. .. .. 0.2 0.2 0.2

Haitiinward 5.4 5.6 5.0 5.4 5.5 6.3 6.0outward .. .. .. - 0.1 0.1 0.1

Hondurasinward 3.6 4.7 12.6 16.5 24.7 28.2 30.1outward .. .. .. .. .. .. ..

Jamaicainward 21.3 25.0 18.6 29.8 45.0 57.3 62.4outward 0.2 0.2 1.0 5.9 9.6 11.3 12.0

Mexicoinward 3.6 10.2 8.5 14.4 16.7 24.3 26.5outward - 0.2 0.4 0.9 1.3 1.9 2.2

Montserratinward .. .. 55.7 105.2 359.8 267.8 268.9outward .. .. .. .. .. .. ..

Netherlands Antillesinward 88.9 24.1 22.4 15.4 2.9 3.0 -outward 1.1 0.9 1.2 1.0 0.4 0.5 0.4

Nicaraguainward 5.4 4.5 12.4 19.3 57.9 67.1 74.7outward .. .. .. - 0.3 0.7 0.8

Panamainward 64.6 58.2 41.4 41.0 56.5 59.5 62.6outward 21.3 40.8 78.8 62.5 33.5 63.2 67.5

Saint Kitts and Nevisinward 2.1 40.5 100.6 105.5 147.2 183.8 189.0outward .. .. 0.1 ..a ..a - ..a

Saint Luciainward 70.1 104.2 80.2 92.1 116.5 126.7 125.7outward .. .. 0.1 0.2 0.1 0.1 0.1

Saint Vincent and the Grenadinesinward 2.0 7.5 24.3 67.9 145.4 150.2 155.4outward .. .. 0.3 0.2 0.2 0.2 0.2

/...

406 World Investment Report 2004: The Shift Towards Services

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Trinidad and Tobagoinward 15.7 23.3 41.3 68.8 85.8 92.5 92.4outward .. 0.2 0.4 0.5 4.8 6.0 7.8

Virgin Islands (British)inward 0.2 3.9 8.0 170.0 1779.7 1763.9 1788.3outward .. .. .. 1906.3 2442.8 3571.0 3956.8

Asia and the Pacificinward 17.6 20.7 17.8 18.7 31.7 31.5 30.3outward 1.0 1.1 2.6 5.8 15.1 14.0 13.6

Asiainward 17.5 20.7 17.8 18.7 31.7 31.5 30.3outward 1.0 1.1 2.6 5.8 15.1 14.0 13.6

West Asiainward 1.5 10.0 8.2 9.1 9.7 10.2 9.2outward 0.9 1.7 2.3 1.4 2.0 3.1 3.2

Bahraininward 2.0 10.9 13.0 41.1 74.1 73.7 72.4outward 19.5 16.4 17.0 17.9 22.0 25.6 31.3

Cyprusinward 8.0 20.8 15.4 14.5 40.5 47.9 44.2outward .. 5.5 2.5 2.4 8.1 12.1 12.3

Iran, Islamic Republic ofinward 3.2 3.7 2.2 2.5 2.5 2.5 2.2outward .. .. .. ..a 1.2 4.7 5.1

Iraqinward ..a ..a ..a ..a ..a .. ..a

outward .. .. .. .. .. .. ..Jordan

inward 3.9 9.6 15.3 9.3 26.7 25.7 28.3outward 0.9 0.7 0.7 ..a ..a ..a ..a

Kuwaitinward 0.1 0.2 0.2 0.3 1.6 1.3 1.2outward 3.7 6.6 19.9 10.3 3.9 4.6 3.7

Lebanoninward 0.5 1.5 1.9 1.2 6.8 9.4 11.0outward .. 2.0 1.7 0.8 1.5 2.4 2.8

Omaninward 8.1 12.0 16.4 16.0 12.5 12.9 12.6outward .. - 0.1 0.2 0.1 0.1 0.1

Occupied Palestinian Territoryinward .. .. .. .. 18.6 27.5 21.9outward .. .. .. .. .. .. ..

Qatarinward 1.1 1.5 1.0 5.5 10.8 16.3 16.0outward .. .. .. 0.4 1.0 2.0 2.1

Saudi Arabiainward ..a 25.2 21.5 17.5 13.8 13.5 12.1outward 0.2 0.6 1.8 1.3 1.1 1.1 1.0

Syrian Arab Republicinward - 0.2 3.0 5.5 9.0 9.5 9.5outward .. .. .. .. .. .. ..

Turkeyinward 12.9 13.8 7.4 8.6 9.4 9.5 7.6outward .. .. 0.8 0.8 1.8 2.7 2.3

/...

407ANNEX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

United Arab Emiratesinward 1.4 1.8 2.2 4.1 1.5 4.3 4.4outward - 0.1 0.3 0.2 3.2 4.4 5.1

Yemeninward 3.7 4.5 3.7 14.7 14.0 13.4 11.0outward .. 0.1 0.1 - 0.1 - -

Central Asiainward .. .. .. 9.9 34.3 44.0 49.3outward .. .. .. - 2.1 4.2 4.1Armenia

inward .. .. .. 2.6 26.8 29.0 31.9outward .. .. .. .. 1.7 2.3 2.1

Azerbaijaninward .. .. .. 13.7 70.8 84.3 117.7outward .. .. .. .. 9.0 15.1 17.2

Georgiainward .. .. .. 1.7 13.9 20.6 26.3outward .. .. .. .. .. .. ..

Kazakhstaninward .. .. .. 17.4 55.1 63.4 60.1outward .. .. .. - 0.1 1.7 1.0

Kyrgyzstaninward .. .. .. 9.7 32.1 29.5 28.6outward .. .. .. .. 2.4 2.4 2.6

Tajikistaninward .. .. .. 7.6 14.7 15.9 14.1outward .. .. .. .. .. .. ..

Turkmenistaninward .. .. .. 7.1 19.1 15.8 16.8outward .. .. .. .. .. .. ..

Uzbekistaninward .. .. .. 1.0 5.1 8.8 10.6outward .. .. .. .. .. .. ..

South, East and South-East Asiainward 27.4 24.6 20.8 20.8 36.6 35.6 34.6outward 1.0 1.0 2.6 6.7 18.1 16.2 15.9

Afghanistaninward 0.3 0.2 0.1 0.1 0.1 0.2 0.2outward .. .. .. .. .. .. ..

Bangladeshinward 1.7 1.5 1.1 0.9 5.2 5.2 5.0outward .. .. - - 0.1 0.1 0.1

Bhutaninward .. .. 0.6 0.8 0.7 0.7 0.7outward .. .. .. .. .. .. ..

Brunei Darussalaminward 0.4 0.8 0.7 12.1 89.4 126.6 156.0outward .. .. .. 1.4 3.4 3.8 3.6

Cambodiainward 2.4 2.0 3.4 10.8 43.3 46.2 46.4outward .. .. .. 4.2 5.4 5.7 5.7

Chinainward 0.5 2.0 5.8 19.3 32.2 35.4 35.6outward .. - 0.7 2.3 2.4 2.8 2.6

/...

408 World Investment Report 2004: The Shift Towards Services

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Hong Kong, Chinainward 623.8 525.5 269.6 160.6 275.4 226.8 236.5outward 0.5 6.7 15.9 55.6 234.9 191.6 211.9

Indiainward 0.2 0.3 0.5 1.6 3.8 5.2 5.4outward - - - 0.1 0.4 0.8 0.9

Indonesiainward 13.2 28.2 34.0 25.0 40.4 33.3 27.5outward .. 0.1 0.1 0.6 1.6 1.5 1.3

Korea, Democratic People’s Republic ofinward .. .. 3.4 13.7 10.0 9.5 9.2outward .. .. .. .. .. .. ..

Korea, Republic ofinward 2.1 2.3 2.1 1.8 7.3 8.0 7.8outward 0.2 0.5 0.9 2.0 5.2 5.7 5.7

Lao People’s Democratic Republicinward 0.3 - 1.5 11.4 31.6 32.9 30.1outward .. .. .. - 9.7 12.6 14.9

Macao, Chinainward .. 203.7 86.4 40.3 45.2 50.1 54.2outward .. .. .. .. .. 6.9 7.1

Malaysiainward 20.7 23.3 23.4 32.3 58.5 59.5 57.2outward 0.8 4.3 6.1 12.4 23.6 29.8 28.8

Maldivesinward 11.4 2.8 12.6 15.3 19.0 22.2 23.0outward .. .. - - - - -

Mongoliainward .. .. - 3.1 19.2 27.7 36.6outward .. .. .. - - - -

Myanmarinward ..a ..a ..a .. .. .. ..outward .. .. .. .. .. .. ..

Nepalinward 0.1 0.1 0.3 0.9 1.8 2.0 2.5outward .. .. .. .. .. .. ..

Pakistaninward 2.9 3.5 4.8 8.8 11.3 10.0 10.7outward 0.2 0.4 0.6 0.6 0.9 1.0 0.9

Philippinesinward 3.9 8.5 7.4 8.1 17.1 14.5 14.5outward 0.5 0.6 0.3 1.6 2.1 1.1 1.2

Singaporeinward 52.9 73.6 83.1 78.2 121.5 153.9 161.3outward 31.7 24.8 21.3 41.8 61.3 96.7 99.5

Sri Lankainward 5.7 8.6 8.5 10.0 14.4 16.1 15.6outward .. - 0.1 0.3 0.5 0.6 0.6

Taiwan Province of Chinainward 5.8 4.7 6.1 5.9 9.0 11.9 11.9outward 0.2 0.3 8.0 9.5 15.9 21.1 22.8

Thailandinward 3.0 5.1 9.7 10.5 24.5 27.7 25.8outward - - 0.5 1.4 2.1 2.2 2.3

Viet Naminward 0.2 1.1 4.0 27.8 48.2 50.2 50.6outward .. .. .. .. .. .. ..

/...

409ANNEX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (continued)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

The Pacificinward 22.5 24.8 28.9 25.1 38.2 42.1 40.6outward 0.3 1.0 1.7 5.9 7.8 10.9 10.2

Fijiinward 29.7 34.4 28.5 31.5 45.8 44.9 47.1outward 0.2 1.3 5.1 2.2 ..a ..a ..a

Kiribatiinward .. ..a 1.2 2.6 9.5 10.4 9.4outward .. .. .. 0.1 0.1 0.1 -

New Caledoniainward 2.4 4.1 3.0 3.0 4.8 4.6 4.7outward .. .. .. .. .. .. ..

Papua New Guineainward 29.4 28.2 49.1 36.1 58.2 75.3 65.0outward 0.4 0.9 0.5 8.3 15.1 22.6 18.7

Samoainward 1.1 2.2 8.1 14.4 22.5 20.6 18.2outward .. .. .. .. .. .. ..

Solomon Islandsinward 24.2 20.3 33.0 35.3 46.8 42.8 37.1outward .. .. ..a ..a ..a ..a ..a

Tongainward 0.2 0.4 0.8 4.9 13.3 18.1 19.8outward .. .. 0.1 0.1 0.1 0.1 0.1

Tuvaluinward .. .. .. 2.7 8.8 189.4 246.4outward .. .. .. .. .. .. ..

Vanuatuinward 29.0 52.3 71.8 109.0 158.9 174.8 176.9outward .. .. .. .. .. .. ..

Central and Eastern Europeinward .. 0.2 1.3 5.4 19.2 24.8 23.7outward .. .. 0.4 0.9 3.7 6.4 6.0

Albaniainward .. .. .. 7.4 15.4 18.8 18.1outward .. .. .. 1.8 2.2 1.8 1.5

Belarusinward .. .. .. 0.5 10.2 11.2 10.8outward .. .. .. .. - - -

Bosnia and Herzegovinainward .. .. .. 1.0 7.9 13.8 16.4outward .. .. .. 0.6 0.8 0.7 0.6

Bulgariainward .. .. 0.5 3.4 17.9 22.6 29.1outward .. .. .. 0.8 0.7 0.8 0.8

Croatiainward .. .. .. 2.5 19.3 31.6 49.6outward .. .. .. 3.7 4.7 8.5 10.0

Czech Republicinward .. .. 3.9 14.1 42.1 55.3 48.0outward .. .. .. 0.7 1.4 2.2 2.0

Estoniainward .. .. .. 19.3 51.4 65.0 77.6outward .. .. .. 1.9 5.0 10.4 12.2

/...

410 World Investment Report 2004: The Shift Towards Services

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995, 2000, 2002, 2003 (concluded)

(Per cent)

Region/economy 1980 1985 1990 1995 2000 2002 2003

Hungaryinward .. 0.2 1.7 25.3 49.3 55.3 51.8outward .. .. 0.6 0.6 2.8 3.3 4.7

Latviainward .. .. .. 13.9 29.1 32.8 35.1outward .. .. .. 5.2 3.4 0.8 1.1

Lithuaniainward .. .. .. 5.7 20.9 28.1 27.2outward .. .. .. - 0.3 0.4 0.7

Moldova, Republic ofinward .. .. .. 6.5 35.6 43.7 40.5outward .. .. .. 1.3 1.8 1.4 1.2

Polandinward .. .. 0.2 5.8 20.6 25.0 24.9outward .. .. 0.2 0.4 0.6 0.8 0.9

Romaniainward .. .. - 2.3 17.5 19.4 23.4outward .. .. 0.2 0.3 0.4 0.3 0.4

Russian Federationinward .. .. .. 1.7 9.7 14.9 12.1outward .. .. .. 1.0 7.8 13.8 11.9

Serbia and Montenegroinward .. .. .. 2.7 15.3 12.5 16.2outward .. .. .. .. .. .. ..

Slovakiainward .. .. 0.5 4.2 18.5 32.2 31.5outward .. .. .. 0.4 1.6 2.0 1.7

Sloveniainward .. .. 3.4 8.9 15.3 18.7 15.6outward .. .. 1.5 2.5 4.0 6.8 6.5

TFYR Macedoniainward .. .. .. 0.8 11.4 24.7 22.1outward .. .. .. .. ..a - -

Ukraineinward .. .. .. 2.5 12.4 13.0 14.1outward .. .. .. 0.3 0.5 0.3 0.3

Memorandum

Least developed countries b

inward 4.0 4.9 5.5 9.3 19.1 23.6 24.5outward 0.6 2.6 1.1 2.1 2.9 2.8 2.7

Oil-exporting countries c

inward 1.8 10.1 12.3 14.6 18.5 20.4 19.0outward 0.5 0.8 2.6 2.2 2.7 3.6 3.7

All developing economies, excluding Chinainward 13.5 18.3 15.6 15.9 28.7 31.0 30.5outward .. 4.2 4.2 6.2 14.4 15.0 14.7

Source: UNCTAD, FDI/TNC database. (www.unctad.org/fdistatistics).a Negative stock value. Stock data are estimated by accumulation or subtraction of flows. However, this value is included in the

regional and global total.b Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia,Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali,Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands,Somalia, Sudan, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia. Timor-Leste is not includeddue to unavailability of data.

c Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Gabon, Indonesia, Islamic Republic of Iran,Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates, Venezuela and Yemen.

411ANNEX B

An

ne

x t

ab

le B

.7. C

ross

-bo

rde

r M

&A

sa

les,

by

re

gio

n/e

con

om

y o

f se

lle

r, 1

98

8-2

00

3 (

Mill

ion

s o

f d

olla

rs)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

TOTA

L W

ORLD

115

623

140

389

150

576

80 7

1379

280

83 0

6412

7 11

018

6 59

322

7 02

330

4 84

853

1 64

876

6 04

41

143

816

593

960

369

789

296

988

Deve

lope

d co

untr

ies

112

749

135

305

134

239

74 0

4868

349

67 6

2211

0 63

216

3 95

018

7 61

623

2 08

544

3 20

067

9 48

110

56 0

5949

6 15

930

7 79

324

0 41

9W

este

rn E

urop

e34

274

48 9

4967

370

38 5

2045

831

40 5

9857

262

79 1

1488

512

121

548

194

391

370

718

610

647

228

995

200

745

138

144

Euro

pean

Uni

on31

012

47 3

5862

133

36 6

7644

761

38 5

3755

280

75 1

4381

895

114

591

187

853

357

311

586

521

212

960

193

942

121

977

Aust

ria 2

53 3

2 1

89 2

44 1

07 4

17 5

40 6

09 8

562

259

3 55

1 3

80 5

749

175

38

2 11

5Be

lgiu

m 7

93 8

054

469

814

493

2 20

11

026

1 71

08

469

5 94

56

865

24 9

847

318

6 89

75

449

3 18

2De

nmar

k 2

18 2

25 4

96 2

72 9

9 5

90 5

70 1

99 4

59 5

663

802

4 61

59

122

2 46

12

014

1 38

4Fi

nlan

d 8

0 2

29 5

1 4

63 2

09 3

91 5

501

726

1 19

9 7

354

780

3 14

46

896

490

8 20

63

557

Fran

ce3

018

3 33

88

183

2 62

39

150

8 49

716

290

7 53

313

575

17 7

5116

885

23 8

3435

018

14 4

2430

122

17 4

95Ge

rman

y1

300

4 30

16

220

3 40

75

521

2 28

54

468

7 49

611

924

11 8

5619

047

39 5

5524

6 99

048

641

46 6

0525

158

Gree

ce 2

2-

115

70

413

52

15

50

493

99

21

191

245

1 85

4 6

5 9

43Ire

land

205

735

595

282

81

1 45

3 2

42 5

87 7

242

282

729

4 73

95

246

6 15

15

241

185

Italy

3 09

53

003

2 16

53

865

3 67

23

754

6 90

94

102

2 76

43

362

4 48

011

237

18 8

779

104

11 6

0815

259

Luxe

mbo

urg

5-

531

82

- 2

54 3

80 2

80 5

063

492

35

7 36

04

210

2 68

12

952

958

Neth

erla

nds

1 18

23

965

1 48

43

490

9 36

24

779

2 78

93

607

3 53

819

052

19 3

5939

010

33 6

5627

628

11 0

379

180

Port

ugal

11

768

213

194

668

356

63

144

793

86

427

211

2 98

0 4

091

132

1 73

2Sp

ain

723

1 59

33

832

5 37

34

668

1 96

73

615

1 25

71

463

4 07

45

700

5 84

122

248

8 71

38

903

5 11

0Sw

eden

192

1 84

94

489

2 47

82

455

1 84

46

016

9 45

13

863

3 32

711

093

59 6

7613

112

5 77

47

614

4 32

1Un

ited

King

dom

19 9

1726

515

29 1

0213

020

7 86

39

699

11 8

0736

392

31 2

7139

706

91 0

8113

2 53

418

0 02

968

558

52 9

5831

397

Othe

r Wes

tern

Eur

ope

3 26

21

591

5 23

71

844

1 07

02

061

1 98

23

971

6 61

76

958

6 53

813

407

24 1

2616

035

6 80

216

168

Ando

rra

--

--

--

--

--

--

6-

--

Gibr

alta

r-

--

4-

--

- 9

--

8 1

6 2

--

Guer

nsey

--

--

--

--

--

- 2

6 8

8 1

57 1

36 1

7Ic

elan

d-

--

1-

--

- 4

--

--

- 2

29 1

42Je

rsey

--

--

--

--

--

- 3

1 1

4 1

81 2

25 4

3Li

echt

enst

ein

--

--

--

--

--

9-

--

--

Mal

ta-

--

--

--

--

- 3

250

--

134

34

Man

Isla

nd-

--

--

--

--

--

- 3

6 8

5 5

2-

Mon

aco

669

21

--

--

- 8

- 7

52-

276

19

22

8 3

82No

rway

239

601

668

843

487

1 88

7 3

97 2

712

198

2 66

01

182

8 70

310

613

3 08

02

162

5 57

9Sw

itzer

land

2 35

3 9

694

569

997

582

174

1 58

53

692

4 40

73

545

5 34

44

113

13 3

3412

508

3 85

69

970

Nort

h Am

eric

a72

641

79 2

3360

427

31 8

8418

393

22 2

9149

093

64 8

0478

907

90 2

1722

5 98

027

5 88

440

1 42

922

6 79

889

549

74 8

27Ca

nada

8 73

710

412

5 73

13

658

2 55

42

313

4 36

411

567

10 8

398

510

16 4

3223

950

77 0

7941

918

16 3

175

157

Unite

d St

ates

63 9

0468

821

54 6

9728

226

15 8

3919

978

44 7

3053

237

68 0

6981

707

209

548

251

934

324

350

184

880

73 2

3369

670

Othe

r dev

elop

ed c

ount

ries

5 83

47

123

6 44

23

644

4 12

54

732

4 27

720

032

20 1

9720

320

22 8

2932

879

43 9

8340

365

17 4

9929

011

Aust

ralia

4 38

04

704

2 54

52

592

2 44

63

191

2 97

517

360

13 0

9914

794

14 7

3711

996

21 6

9916

879

10 6

539

713

Isra

el10

6 1

34 4

4 5

8 2

93 1

8 2

35 3

03 5

411

097

1 75

42

854

2 34

64

452

466

808

Japa

n 2

91

612

148

178

230

93

750

541

1 71

93

083

4 02

216

431

15 5

4115

183

5 68

910

948

New

Zea

land

1 32

0 6

743

704

815

1 15

71

430

317

1 82

84

839

1 34

62

316

1 59

84

397

3 85

1 6

925

979

/…

412 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

B.7

. Cro

ss-b

ord

er

M&

A s

ale

s, b

y r

eg

ion

/eco

no

my

of

sell

er,

19

88

-20

03

(co

nti

nu

ed

)(M

illi

on

s o

f d

oll

ars)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Deve

lopi

ng e

cono

mie

s2

875

5 05

716

052

5 78

68

198

14 2

6515

030

16 4

9335

727

66 9

9982

668

74 0

3070

610

85 8

1344

532

42

130

Afri

ca-

1 03

9 4

85 4

7 3

881

806

342

840

1 80

54

346

2 60

73

117

3 19

915

524

4 68

4 6

427

Nor

th A

fric

a-

24

- 1

139

242

100

10

211

680

456

914

956

2 91

6 5

984

594

Alge

ria-

--

1-

--

--

--

42

127

--

3Eg

ypt

- 2

4-

- 1

31 1

77 1

7 1

0 1

71 1

02 4

8 7

38 5

28 6

60 3

352

200

Mor

occo

--

--

- 6

4 8

3-

40

578

5 1

23-

2 21

1 4

71

624

Suda

n-

--

- 8

--

--

--

--

- 2

5 7

68Tu

nisia

--

--

--

--

--

402

11

301

45

191

-Ot

her A

fric

a-

1 01

5 4

85 4

6 2

491

565

241

830

1 59

53

666

2 15

12

203

2 24

312

608

4 08

61

832

Ango

la-

--

--

--

--

--

--

19

--

Bots

wan

a-

--

--

--

4 1

1 4

--

--

78

20

Cam

eroo

n-

--

--

--

4-

--

--

70

--

Cape

Ver

de-

--

--

--

--

--

83

--

--

Cent

ral A

frica

n Re

publ

ic-

--

--

4-

2 1

--

1-

--

-Ch

ad-

--

--

--

--

--

- 2

1-

--

Cong

o-

--

--

--

61

14

--

--

--

-Cô

te d

’Ivoi

re-

--

--

--

23

15

194

--

8-

--

Dem

. Rep

. of t

he C

ongo

--

--

--

--

89

--

--

--

-Eq

uato

rial G

uine

a-

--

--

--

--

--

--

- 9

93-

Eritr

ea-

--

--

--

--

--

27

--

--

Ethi

opia

--

--

--

--

--

- 3

6-

--

-Ga

bon

--

448

--

--

--

39

--

22

--

-Gh

ana

--

--

--

1 4

48

52

- 3

8 4

1 5

0 5

5Gu

inea

--

--

--

- 3

9 5

0-

--

--

- 1

Keny

a-

15

--

--

--

25

--

- 1

8 3

00-

-M

adag

asca

r-

--

--

--

- 5

8-

- 4

--

- 5

Mal

awi

--

--

--

--

60

- 1

0-

- 1

4 6

-M

ali

--

--

--

- 1

8 1

--

- 1

32-

2-

Mau

ritan

ia-

--

--

--

--

--

--

48

--

Mau

ritiu

s-

--

--

--

--

10

--

261

30

- 3

2M

ozam

biqu

e-

--

--

- 4

0 1

4 1

1-

13

1-

10

- 8

8Na

mib

ia-

--

36

--

--

- 3

--

- 8

- 6

7Ni

geria

-1

000

--

--

--

--

12

18

15

1-

-Rw

anda

--

--

--

--

--

- 2

- 2

--

Sene

gal

--

--

--

--

- 1

07-

66

6-

--

Sier

ra L

eone

--

--

- 3

4-

- 0

--

--

13

--

Sout

h Af

rica

--

- 1

0 2

111

506

187

640

1 10

62

664

1 93

21

902

1 17

111

916

2 93

31

563

Swaz

iland

--

37

--

--

--

387

--

- 4

--

Ugan

da-

--

--

--

- 5

5 2

9 1

1-

32

- 2

0-

Unite

d Re

p. o

f Tan

zani

a-

--

--

21

12

2 1

7 1

23

- 4

15 1

20 1

2 /…

413ANNEX B

An

ne

x t

ab

le B

.7. C

ross

-bo

rde

r M

&A

sa

les,

by

re

gio

n/e

con

om

y o

f se

lle

r, 1

98

8-2

00

3 (

con

tin

ue

d)

(Mil

lio

ns

of

do

llar

s)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Zam

bia

--

--

--

- 1

8 2

7 1

73 1

50 1

133

53

--

Zim

babw

e-

--

- 3

8-

1 1

7 2

- 2

4 5

- 4

- L

atin

Am

eric

a an

d th

e Ca

ribb

ean

1 30

51

929

11 4

943

529

4 19

65

110

9 95

08

636

20 5

0841

103

63 9

2341

964

45 2

2435

837

22 4

3312

085

Sout

h Am

eric

a1

148

322

7 31

92

901

2 10

92

840

7 32

46

509

16 9

1025

439

46 8

3439

033

35 5

8416

174

12 3

958

566

Arge

ntin

a 6

0 2

76

274

302

1 16

41

803

1 31

51

869

3 61

14

635

10 3

9619

407

5 27

35

431

1 20

72

467

Boliv

ia-

15

26

--

--

821

273

911

180

232

19

- 8

0-

Braz

il 2

87 2

217

158

174

624

367

1 76

16

536

12 0

6429

376

9 35

723

013

7 00

35

897

5 27

1Ch

ile 3

8 2

60 4

34 3

38 5

17 2

76 8

91 7

172

044

2 42

71

595

8 36

12

929

2 83

03

783

95

Colo

mbi

a 7

64-

341

49

31

81

248

67

2 39

92

516

1 78

0 3

021

589

170

830

37

Ecua

dor

--

--

49

- 4

4 3

5 1

05 2

7 7

9 2

14 1

53 6

70

273

Guya

na-

- 1

7 7

--

--

- 1

- 2

3-

--

0Pa

ragu

ay-

--

--

--

- 2

7 2

11

- 6

5 6

7-

-Pe

ru-

--

15

174

62

3 08

2 9

45 8

44 9

11 1

62 8

61 1

07 5

55 4

61 2

47Su

rinam

e-

--

--

--

--

--

--

3-

-Ur

ugua

y-

18

--

- 5

40

19

--

36

- 2

7 3

6 5

6 1

2Ve

nezu

ela

--

11

2 03

2-

62

337

278

1 07

21

946

3 22

0 2

762

409

73

10

164

Othe

r Lat

in A

mer

ica

and

Cari

bbea

n 1

571

607

4 17

6 6

282

088

2 27

02

627

2 12

73

598

15 6

6317

089

2 93

19

640

19 6

6310

038

3 51

9An

tigua

and

Bar

buda

--

--

--

--

--

24

- 5

13

- 4

7Ar

uba

--

--

3-

--

- 2

3-

--

--

-Ba

ham

as 8

3 2

7 1

20 2

10 9

15 7

9 2

14 2

104

32

28

- 2

5 1

98 2

8 5

5Ba

rbad

os-

--

189

--

4 6

64

--

--

1 8

14 4

4Be

lize

--

--

--

--

--

62

- 3

62

--

Berm

uda

- 2

141

296

50

4 5

2 5

0 2

511

277

5 60

111

635

924

3 59

6 6

83 2

411

414

Briti

sh V

irgin

Isla

nds

--

143

6-

- 8

9 4

12 2

54 1

9 4

13

284

34

230

150

Caym

an Is

land

s 5

374

170

138

41

--

- 2

45-

- 1

22 5

4 8

- 1

26Co

sta

Rica

- 6

4 3

--

1 1

7 9

6 2

7 2

8 2

71

21

- 2

29 2

3Cu

ba-

--

--

--

299

- 3

00 3

8-

477

8-

-Do

min

ican

Rep

ublic

--

--

--

--

46

- 2

8 6

73 4

64-

--

El S

alva

dor

--

--

--

- 4

0-

41

978

--

168

- 4

17Gr

enad

a-

--

--

--

--

5-

--

--

-Gu

atem

ala

--

3 3

- 2

9-

- 2

6 3

0 5

82 1

01 1

3 1

21-

-Ha

iti-

--

--

--

--

- 2

--

--

-Ho

ndur

as-

--

5-

- 1

--

- 3

67-

314

537

--

Jam

aica

--

108

--

62

262

- 1

2-

34

--

525

214

-M

exico

54

395

2 32

6 1

0 9

611

864

1 91

3 7

191

428

7 92

73

001

859

3 96

517

017

7 13

71

155

Neth

erla

nds A

ntill

es-

533

8-

--

2 2

91-

- 8

6-

- 8

9 3

01-

Nica

ragu

a-

--

--

--

- 2

3 4

2-

11

115

83

53

-Pa

nam

a 1

5-

--

- 6

73

9 1

4 6

52 2

16 1

51 1

30 8

499

-Sa

int K

itts a

nd N

evis

--

--

--

--

78

--

--

--

-Pu

erto

Rico

--

--

142

--

--

--

6 1

74 1

08 2

50-

/…

414 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

B.7

. Cro

ss-b

ord

er

M&

A s

ale

s, b

y r

eg

ion

/eco

no

my

of

sell

er,

19

89

-20

03

(co

nti

nu

ed

)(M

illi

on

s o

f d

oll

ars)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Trin

idad

and

Toba

go-

--

17

22

177

2-

- 2

05-

--

- 4

0 8

7W

est I

ndie

s-

--

--

--

--

760

--

--

--

Asi

a1

569

2 08

94

073

2 18

23

614

7 34

74

701

6 95

013

368

21 2

9316

097

28 8

3922

182

34 4

5217

387

23 5

36W

est

Asia

59

60

113

131

203

71

49

222

403

368

82

335

970

1 32

3 4

581

423

Abu

Dhab

i-

--

- 5

8-

--

--

--

--

--

Bahr

ain

--

--

- 4

--

--

- 3

6 1

61 2

- 9

Cypr

us-

--

--

--

--

--

--

43

- 1

9Jo

rdan

--

--

--

- 2

6-

--

- 5

67 2

0-

990

Kuw

ait

--

--

- 6

--

--

--

- 1

63-

-Le

bano

n-

--

--

--

--

168

11

- 5

4-

- 9

8Om

an-

--

78

- 1

5-

- 7

--

28

--

4-

Qata

r-

--

43

- 1

2-

--

--

--

--

-Sa

udi A

rabi

a-

2-

- 2

4-

- 8

26

--

- 2

--

-Sy

rian

Arab

Rep

ublic

--

--

--

--

--

- 3

--

--

Turk

ey 5

9 5

8 1

13 9

116

35

49

188

370

144

71

68

182

1 01

9 4

27 2

82Un

ited

Arab

Em

irate

s-

--

--

--

--

56

- 2

00 4

76

9 2

6Ye

men

--

--

5-

--

--

--

--

--

Cent

ral A

sia

--

--

- 9

- 4

503

221

2 34

0 1

74 7

3 1

07 1

5 1

221

945

Arm

enia

--

--

--

--

--

173

29

--

52

25

Azer

baija

n-

--

--

--

- 1

--

- 3

6-

52

1 38

7Ge

orgi

a-

--

--

--

--

3 1

40

1-

- 1

Kaza

khst

an-

--

--

--

450

3 21

62

337

--

70

13

1 5

07Uz

beki

stan

--

--

- 9

--

4-

- 4

- 2

11

21

Sout

h, E

ast a

nd S

outh

-Eas

t Asi

a1

510

2 02

93

960

2 05

13

411

7 26

74

652

6 27

89

745

18 5

8615

842

28 4

3121

105

33 1

1416

807

20 1

67Ba

ngla

desh

--

--

--

--

--

33

--

--

437

Brun

ei D

arus

sala

m-

--

--

2-

--

--

--

--

-Ca

mbo

dia

--

--

--

--

- 1

--

--

--

Chin

a-

- 8

125

221

561

715

403

1 90

61

856

798

2 39

52

247

2 32

52

072

3 82

0De

moc

ratic

Peop

le’s

Repu

blic

of K

orea

--

--

--

--

--

- 2

--

90

-Ho

ng K

ong,

Chi

na1

046

826

2 62

0 5

681

674

5 30

81

602

1 70

33

267

7 33

0 9

384

181

4 79

310

362

1 86

56

098

Indi

a-

- 5

- 3

5 9

6 3

85 2

76 2

061

520

361

1 04

41

219

1 03

71

698

949

Indo

nesia

100

150

- 1

49 2

33 1

69 2

06 8

09 5

30 3

32 6

831

164

819

3 52

92

790

2 03

1La

o Pe

ople

’s De

m. R

ep.

--

--

- 1

0-

--

--

--

269

266

-M

acao

, Chi

na-

--

29

--

--

--

--

--

109

-M

alay

sia 2

0 7

01 8

6 1

28 4

6 5

18 4

43 9

8 7

68 3

511

096

1 16

6 4

411

449

485

84

Mon

golia

--

--

--

1-

--

- 1

--

- 7

Mya

nmar

--

--

- 1

0-

9-

260

--

--

- 4

17Ne

pal

--

--

- 2

- 1

3-

--

--

--

-Pa

kist

an-

- 1

- 2

2 5

--

1 12

4 8

02

259

6 6

107

222

-Ph

ilipp

ines

45

161

15

63

404

136

828

1 20

8 4

624

157

1 90

51

523

366

2 06

3 5

44 2

30 /…

415ANNEX B

An

ne

x t

ab

le B

.7. C

ross

-bo

rde

r M

&A

sa

les,

by

re

gio

n/e

con

om

y o

f se

lle

r, 1

98

9-2

00

3 (

con

clu

de

d)

(Mil

lio

ns

of

do

llar

s)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Repu

blic

of K

orea

- 6

8-

673

- 2

1 1

92 5

64 8

363

973

10 0

626

448

3 64

85

375

3 75

7Si

ngap

ore

262

114

1 14

3 2

37 2

76 3

62 3

551

238

593

294

468

2 95

81

532

4 87

1 5

561

766

Sri L

anka

--

1-

- 3

0 1

0 1

26 3

5 2

75 9

6 2

2 2

- 3

76

Taiw

an P

rovi

nce

of C

hina

38

9 1

1-

3 1

6 1

6 4

2 5

0 6

01 2

41

837

644

2 49

3 4

80 4

22Th

aila

nd-

- 7

0 7

9 4

98 4

2 8

9 1

61 2

34 6

333

209

2 01

12

569

957

247

55

Viet

Nam

--

--

--

2 1

6 6

3-

59

19

4 6

18

The

Paci

fic

--

- 2

8-

2 3

7 6

7 4

6 2

57 4

1 1

10 5

- 2

8 8

3Co

ok Is

land

s-

--

--

--

--

--

- 1

--

-Fi

ji-

--

--

--

- 5

--

4-

--

1Fr

ench

Pol

ynes

ia-

--

--

--

- 2

--

--

--

-M

arsh

all I

sland

s-

--

--

--

16

--

--

--

--

Papu

a Ne

w G

uine

a-

--

28

- 2

36

51

39

257

41

106

--

28

82

Solo

mon

Isla

nds

--

--

--

1-

--

--

--

--

Vanu

atu

--

--

--

--

--

--

4-

--

Cent

ral a

nd E

aste

rn E

urop

e-

27

285

880

2 73

31

178

1 41

96

050

3 67

95

764

5 11

610

371

17 1

4711

988

17 4

6314

438

Alba

nia

--

--

--

- 1

--

- 4

16

--

2Bo

snia

and

Her

zego

vina

--

--

--

--

--

--

45

25

19

0Bu

lgar

ia-

--

--

20

90

32

71

497

61

1 13

3 5

82 1

1 1

38 3

83Cr

oatia

--

--

43

23

45

94

48

61

16

1 16

4 1

46 6

76 8

75 6

13Cz

ech

Repu

blic

--

--

- 2

26 4

082

366

507

671

362

2 40

21

924

1 96

85

204

1 75

6Fo

rmer

Cze

chos

lova

kia

--

- 4

77 7

80-

--

--

--

--

--

Esto

nia

--

--

--

- 2

8 2

3 6

4 1

49 1

14 1

31 8

8 1

5 1

4Hu

ngar

y-

24

226

267

392

382

139

2 10

61

594

298

612

537

1 11

71

370

1 27

81

109

Latv

ia-

--

--

- 3

23

57

63

11

20

342

39

4 1

2Li

thua

nia

--

--

--

9-

- 1

2 6

32 4

27 1

73 1

93 2

25 1

35TF

YR o

f Mac

edon

ia-

--

--

--

--

--

45

34

328

5 0

Repu

blic

of M

oldo

va-

--

--

--

--

2-

- 2

7-

- 1

9Po

land

- 4

- 7

41

396

197

357

983

993

808

1 78

93

707

9 31

63

493

3 13

1 8

02Ro

man

ia-

--

--

- 1

81 2

29 9

4 3

911

284

447

536

66

124

493

Russ

ian

Fede

ratio

n-

- 5

9-

33

309

63

100

95

2 68

1 1

47 1

80 7

582

039

1 25

27

880

Slov

akia

--

--

- 2

1 8

3 4

138

38

54

41

1 84

91

194

3 35

0 1

60Sl

oven

ia-

--

--

- 4

1 1

8 3

0 1

33-

14

- 3

811

502

1Uk

rain

e-

--

--

--

66

30

1-

136

151

116

74

194

Serb

ia a

nd M

onte

negr

o-

--

--

--

--

45

--

- 2

268

863

Yugo

slavi

a (fo

rmer

)-

--

62

88

--

--

--

--

--

-M

ulti

nati

onal

a-

--

--

- 3

0 1

00-

- 6

652

162

--

--

Sou

rce

:U

NC

TAD

, cro

ss-b

ord

er

M&

A d

atab

ase

(w

ww

.un

ctad

.org

/fd

ista

tist

ics)

.

aIn

volv

ing

se

lle

rs i

n m

ore

th

an t

wo

eco

no

mie

s.

No

te:

The

dat

a co

ver

the

de

als

invo

lvin

g t

he

acq

uis

itio

n o

f an

eq

uit

y st

ake

of

mo

re t

han

10

pe

r ce

nt.

416 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

B.8

. Cro

ss-b

ord

er

M&

A p

urc

ha

ses,

by

re

gio

n/e

con

om

y o

f p

urc

ha

ser,

19

88

-20

03

(Mil

lio

ns

of

do

llar

s)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

TOTA

L W

ORLD

115

623

140

389

150

576

80 7

1379

280

83 0

6412

7 11

018

6 59

322

7 02

330

4 84

853

1 64

876

6 04

41

143

816

593

960

369

789

296

988

Deve

lope

d co

untr

ies

113

389

135

781

143

070

77 4

3572

995

72 1

5311

2 40

117

3 13

919

6 73

526

9 27

650

8 91

670

0 80

810

87 6

3853

4 15

134

1 11

625

5 28

6W

este

rn E

urop

e49

690

74 2

6592

567

42 4

7349

753

43 0

1675

943

92 5

3911

0 62

815

4 03

632

4 65

853

9 24

685

2 73

534

8 73

823

0 85

212

7 72

2Eu

rope

an U

nion

40 1

4171

365

86 5

2539

676

44 3

9140

531

63 8

5781

417

96 6

7414

2 10

828

4 37

351

7 15

580

1 74

632

7 25

221

3 86

011

9 55

9Au

stria

- 2

1 2

36 2

08 6

2 1

69 2

3 1

57 4

242

302

1 77

12

254

1 17

11

848

1 74

4Be

lgiu

m 1

88 3

09 8

13 2

22 6

25 1

813

107

4 61

13

029

2 05

32

225

13 3

5716

334

16 9

515

474

3 16

6De

nmar

k 6

3 2

61 7

67 5

73 2

58 3

72 1

72 1

52 6

381

492

1 25

05

654

4 59

04

163

2 01

22

724

Finl

and

172

979

1 13

6 5

68 8

98

417

471

1 46

41

847

7 33

32

236

20 1

927

573

5 30

4 6

00Fr

ance

5 48

617

594

21 8

2810

380

12 3

896

596

6 71

78

939

14 7

5521

153

30 9

2688

656

168

710

59 1

6933

865

8 77

7Ge

rman

y1

857

3 46

86

795

6 89

44

409

4 41

27

608

18 5

0917

984

13 1

9066

728

85 5

3058

671

57 0

1145

110

19 6

69Gr

eece

- 1

00 3

16

19

127

21

- 2

2 01

81

439

287

3 93

71

267

139

371

Irela

nd 5

481

174

730

390

358

457

1 44

71

166

2 26

51

826

3 19

64

198

5 57

52

063

4 02

71

702

Italy

1 37

31

961

5 31

4 8

165

167

816

1 62

24

689

1 62

74

196

15 2

0012

801

16 9

3211

135

8 24

24

662

Luxe

mbo

urg

80

- 7

341

023

415

1 55

5 2

44 5

11

037

973

891

2 84

76

040

4 53

73

683

613

Neth

erla

nds

2 35

03

292

5 61

94

251

5 30

42

848

8 71

46

811

12 1

4818

472

24 2

8048

909

52 4

3031

160

14 9

478

506

Port

ugal

- 1

4 1

7 1

81 5

02 1

4 1

44 3

29 9

6 6

124

522

1 43

42

657

668

1 48

1 1

07Sp

ain

582

1 31

84

087

2 77

3 9

831

053

3 82

8 4

603

458

8 03

815

031

25 4

5239

443

11 2

536

276

5 53

8Sw

eden

3 10

42

645

12 5

722

882

1 81

31

923

3 11

85

432

2 05

87

625

15 9

529

914

21 5

597

365

12 2

314

428

Unite

d Ki

ngdo

m24

339

38 2

2925

873

8 50

112

080

19 9

1126

675

29 6

4136

109

58 3

7195

099

214

109

382

422

111

764

69 2

2056

953

Othe

r Wes

tern

Eur

ope

9 54

92

900

6 04

32

797

5 36

22

485

12 0

8611

122

13 9

5411

928

40 2

8522

091

50 9

8921

486

16 9

928

163

Gibr

alta

r-

--

3-

--

--

--

- 1

8-

--

Icel

and

--

--

7-

--

--

--

49

160

358

289

Jers

ey-

--

--

--

--

--

6-

730

236

-Li

echt

enst

ein

--

160

--

- 6

2 1

0-

142

- 8

--

- 1

59M

alta

--

--

- 7

--

--

- 4

- 4

3-

-M

an Is

land

--

--

--

--

--

--

- 5

0..

3M

onac

o-

--

35

113

- 4

--

--

- 3

18 1

02..

77

Norw

ay 1

9 1

261

380

1 30

1 2

70 1

43 6

431

276

3 95

61

212

1 17

01

382

7 37

61

510

6 82

3 3

03Sw

itzer

land

9 53

02

774

4 50

31

458

4 97

32

336

11 3

789

836

9 99

810

574

39 1

1520

691

43 2

2818

892

9 57

56

993

Nort

h Am

eric

a38

577

47 8

6230

766

20 7

0217

190

25 5

3433

610

69 8

3369

501

99 7

0917

3 03

913

8 88

119

8 91

513

5 01

991

419

98 4

36Ca

nada

14 3

979

002

3 13

94

106

2 15

54

129

5 07

912

491

8 75

718

840

35 6

1818

571

39 6

4638

980

12 9

9016

041

Unite

d St

ates

24 1

8138

860

27 6

2716

596

15 0

3521

405

28 5

3157

343

60 7

4480

869

137

421

120

310

159

269

96 0

3978

429

82 3

95Ot

her d

evel

oped

cou

ntri

es25

122

13 6

5519

736

14 2

606

052

3 60

32

848

10 7

6716

606

15 5

3111

219

22 6

8135

988

50 3

9518

845

29 1

28Au

stra

lia9

355

5 56

13

806

1 47

2 6

761

852

1 60

26

145

9 28

311

745

8 14

710

138

10 8

5632

506

8 79

914

549

Isra

el-

- 2

8 2

8 6

1 3

93 1

43 1

06 4

84 2

54 7

91 6

052

361

781

544

1 35

7Ja

pan

13 5

147

525

14 0

4811

877

4 39

21

106

1 05

83

943

5 66

02

747

1 28

410

517

20 8

5816

131

8 66

18

442

New

Zea

land

2 25

3 5

691

854

883

923

252

44

573

1 18

0 7

85 9

971

421

1 91

3 9

76 8

404

780

/…

417ANNEX B

An

ne

x t

ab

le B

.8. C

ross

-bo

rde

r M

&A

pu

rch

ase

s, b

y r

eg

ion

/eco

no

my

of

pu

rch

ase

r, 1

98

8-2

00

3 (

con

tin

ue

d)

(Mil

lio

ns

of

do

llar

s)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Deve

lopi

ng e

cono

mie

s2

204

3 99

57

181

3 25

86

264

10 7

8414

360

13 3

7229

646

35 2

1021

717

63 4

0648

496

55 7

1927

585

31 2

34Af

rica

24

5 1

46 4

301

746

406

4 22

1 6

452

148

2 80

02

678

5 76

26

659

3 04

11

999

1 06

7N

orth

Afr

ica

--

--

309

54

9 1

1 8

- 3

40

213

117

5 4

33Eg

ypt

--

--

- 1

8-

--

--

7 2

13-

- 3

Liby

an A

rab

Jam

ahiri

ya-

--

- 3

09-

5-

--

3-

- 4

5-

430

Mor

occo

--

--

- 3

6 4

- 8

--

10

- 7

2-

-Tu

nisia

--

--

--

- 1

1-

--

23

--

5-

Othe

r Afr

ica

24

5 1

46 4

301

436

352

4 21

2 6

342

140

2 80

02

675

5 72

26

446

2 92

41

994

634

Bots

wan

a-

--

--

--

4-

--

--

--

20

Cent

ral A

frica

n Re

publ

ic-

--

--

--

- 6

3-

--

--

--

Gabo

n-

--

229

--

--

--

--

--

--

Ghan

a-

--

--

--

35

506

- 1

37-

4-

--

Keny

a-

--

--

--

--

--

- 3

9-

2Li

beria

--

--

--

--

15

--

--

--

37

Mau

ritiu

s-

--

--

--

- 4

34

7 7

- 4

40

-Na

mib

ia-

--

--

--

- 1

1-

--

- 8

--

Nige

ria-

--

--

--

2-

--

--

6-

-So

uth

Afric

a 2

4 5

146

201

1 43

6 3

524

196

593

1 52

22

766

2 51

45

715

6 39

32

594

1 94

7 5

68Un

ited

Repu

blic

of T

anza

nia

--

--

--

--

--

--

3-

--

Ugan

da-

--

--

--

--

--

--

--

-Za

mbi

a-

--

--

--

- 1

5-

--

43

--

-Zi

mba

bwe

--

--

--

16

- 4

- 1

6-

- 3

04 7

- L

atin

Am

eric

a an

d th

e Ca

ribb

ean

100

992

1 59

7 3

871

895

2 50

73

653

3 95

18

354

10 7

2012

640

44 7

6718

614

27 3

8011

701

11 4

60So

uth

Amer

ica

10

91

130

269

594

1 79

5 6

823

405

5 93

96

038

9 51

03

874

2 19

13

411

3 64

33

879

Arge

ntin

a-

- 1

0 1

81-

71

62

1 98

4 3

211

170

3 54

51

313

675

343

4 6

79Bo

livia

--

--

--

--

--

--

--

4-

Braz

il 2

2-

45

63

439

158

379

1 16

72

357

3 51

71

908

429

2 77

41

302

3 06

5Ch

ile-

--

- 4

43 8

28 2

93 7

943

827

1 49

7 5

91 3

22 5

07 1

331

744

39

Colo

mbi

a-

--

--

11

10

91

272

157

436

102

203

19

530

2Ec

uado

r-

--

--

- 2

2 5

0 4

5-

--

--

--

Peru

--

--

--

7 6

2 2

37 4

4 4

7 2

20 6

2 2

8 5

9 9

1Su

rinam

e-

--

2-

--

--

--

--

--

-Ur

ugua

y-

--

- 8

- 1

20 3

--

25

- 1

--

3Ve

nezu

ela

7 8

9 1

20 4

1 8

0 4

46 1

0 4

2 7

1 8

131

348

9 3

14 1

15-

-Ot

her L

atin

Am

eric

a an

d Ca

ribb

ean

91

901

1 46

7 1

181

300

712

2 97

1 5

462

415

4 68

23

130

40 8

9316

423

23 9

698

059

7 58

1Ba

ham

as 8

3-

1-

17

- 9

142

344

23

51

459

- 7

48 4

4 8

25Ba

rbad

os-

--

--

--

--

15

2-

49

- 6

71-

/…

418 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

B.8

. Cro

ss-b

ord

er

M&

A p

urc

ha

ses,

by

re

gio

n/e

con

om

y o

f p

urc

ha

ser,

19

88

-20

03

(co

nti

nu

ed

)(M

illi

on

s o

f d

oll

ars)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Beliz

e-

--

--

55

1 2

5-

- 6

3 3

18-

13

--

Berm

uda

- 2

4 4

83 1

15 1

30 1

12 1

89 1

7 7

031

189

2 13

935

151

11 4

9220

792

1 75

0 4

28Br

itish

Virg

in Is

land

s-

--

--

4 4

4 6

2 2

60 5

6-

40

489

473

464

127

Caym

an Is

land

s-

--

--

24

530

- 2

07 9

9 9

9 7

7 2

41

539

83

156

Cost

a Ri

ca-

--

--

--

2 7

3-

--

--

13

Cuba

--

--

--

8-

--

--

--

--

Dom

inic

an R

epub

lic-

--

--

--

--

--

109

- 8

--

El S

alva

dor

--

--

--

--

--

--

1-

--

Guat

emal

a-

--

--

--

--

48

--

--

--

Jam

aica

--

16

- 1

0-

- 4

--

--

--

--

Mex

ico-

837

680

3 8

88 3

092

190

196

867

3 15

4 6

732

216

4 23

1 3

634

664

5 28

2Ne

ther

land

s Ant

illes

8 1

6 2

88-

11

33

- 9

9 7

7-

308

2-

- 6

24Pa

nam

a-

--

--

--

- 1

7 8

9 1

002

215

5 3

3 2

49 1

20Pu

erto

Rico

--

--

--

--

--

--

125

- 1

33 7

Trin

idad

and

Toba

go-

24

--

245

175

--

--

5-

5-

--

Asi

a2

080

2 99

85

438

2 44

12

624

7 84

36

486

8 75

519

136

21 6

906

399

12 8

7322

895

25 2

9813

852

18 7

08W

est

Asia

124

253

2 11

2 1

13 1

051

013

1 19

91

697

1 58

93

797

399

1 53

81

750

454

3 07

41

560

Abu

Dhab

i-

- 5

28-

--

--

--

--

--

201

-Ba

hrai

n-

168

1 53

7-

- 8

11 3

00-

-1

472

45

563

79

274

646

432

Cypr

us-

--

--

--

- 4

11

881

- 7

3 1

5 3

2 3

6 5

Iran,

Isla

mic

Rep

ublic

of

--

--

--

--

--

--

--

--

Jord

an-

--

--

--

--

--

- 2

2-

--

Kuw

ait

- 8

3-

112

--

- 4

648

--

119

32

105

114

441

Leba

non

--

--

- 2

1-

3-

58

--

--

--

Oman

--

--

--

--

- 8

55

--

- 9

125

Qata

r-

--

--

--

- 4

2-

--

2-

- 1

5Sa

udi A

rabi

a-

--

- 1

00 1

82 6

301

671

350

334

217

31

550

39

2 02

0 4

73Tu

rkey

- 2

--

--

11

19

356

43

4 8

8 4

8-

38

7Un

ited

Arab

Em

irate

s 1

24-

48

1-

- 2

57-

153

2 7

7 6

55 2

4 1

0 6

2Ye

men

--

--

5-

--

--

- 3

7-

--

-Ce

ntra

l Asi

a-

--

--

--

450

--

--

6-

- 1

70Ka

zakh

stan

--

--

--

- 4

50-

--

- 6

--

170

Sout

h, E

ast a

nd S

outh

-Eas

t Asi

a1

956

2 74

53

325

2 32

92

518

6 83

05

287

6 60

817

547

17 8

936

001

11 3

3521

139

24 8

4410

778

16 9

78Af

ghan

istan

--

--

13

--

--

--

--

--

-Ba

ngla

desh

--

--

--

- 1

2-

--

--

--

-Br

unei

Dar

ussa

lam

--

--

- 2

02-

31

189

--

--

--

-Ch

ina

17

202

60

3 5

73 4

85 3

07 2

49 4

51 7

991

276

101

470

452

1 04

71

647

Dem

ocra

tic Pe

ople

’s Re

publ

ic of

Kor

ea-

--

--

--

--

--

- 2

--

-/…

419ANNEX B

An

ne

x t

ab

le B

.8. C

ross

-bo

rde

r M

&A

pu

rch

ase

s, b

y r

eg

ion

/eco

no

my

of

pu

rch

ase

r, 1

98

8-2

00

3 (

con

clu

de

d)

(Mil

lio

ns

of

do

llar

s)

Regi

on/e

cono

my

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Hong

Kon

g, C

hina

1 64

9 7

731

198

1 34

21

263

4 11

32

267

2 29

92

912

8 40

22

201

2 32

15

768

3 01

25

062

4 16

8In

dia

22

11

- 1

3 2

19 1

09 2

9 8

01

287

11

126

910

2 19

5 2

701

362

Indo

nesia

260

- 4

9 3

16

50

32

163

218

676

39

243

1 44

5-

197

2M

alay

sia-

27

144

149

148

774

812

1 1

22 9

635

894

1 0

59 1

377

761

1 3

75 9

303

685

Mac

ao,C

hina

--

--

--

--

--

- 4

50-

--

-Ph

ilipp

ines

--

- 1

4-

25

42

153

190

54

1 3

30 7

5 2

54 2

1Pa

kist

an-

--

--

--

--

--

- 6

4 6

3-

Repu

blic

of K

orea

- 2

35 3

3 1

87 7

2 7

4 5

00 1

392

1 6

59 2

379

187

1 0

97 1

712

175

98

662

Sing

apor

e 8

764

438

570

294

849

1 1

74 8

92 2

018

2 8

88 5

30 4

720

8 8

47 1

6 51

6 2

946

5 0

18Sr

i Lan

ka-

--

--

- 2

--

- 2

6 8

--

3-

Taiw

an P

rovi

nce

of C

hina

- 4

64 1

385

- 1

31-

30

122

4 4

33 6

28 4

08 1

138

161

74

253

Thai

land

- 2

69 1

8 5

9 1

38

12

144

180

55

43

154

5 6

99 8

7 1

76Vi

et N

am-

--

- 6

- 1

- 1

1 2

7-

--

--

4 T

he P

acif

ic-

--

--

28

- 2

2 8

--

4 3

28-

33

-Fi

ji-

--

--

--

--

--

4-

--

-Na

uru

--

--

- 2

8-

--

--

--

--

-Pa

pua

New

Gui

nea

--

--

--

- 1

3 8

--

- 3

28-

28

-Va

nuat

u-

--

--

--

9-

--

--

--

-Ce

ntra

l and

Eas

tern

Eur

ope

- 6

- 1

4 2

2 1

13 3

29 5

9 5

04 2

75 1

008

1 5

49 1

694

2 2

25 1

087

10

467

Bulg

aria

--

--

--

--

3 6

0-

797

8-

8-

Croa

tia-

--

--

--

- 1

100

1 3

22

43

42

32

Cze

ch R

epub

lic-

6-

--

19

51

48

176

60

142

13

775

- 3

0 1

41Fo

rmer

Cze

chos

lova

kia

--

--

4-

--

--

--

--

--

Esto

nia

--

--

--

22

- 1

5 1

12

5 2

41

- 1

1Hu

ngar

y-

--

--

62

- 2

- 6

64

118

379

1 3

31 2

42 9

49La

tvia

--

--

- 1

8-

--

--

--

-..

-Li

thua

nia

--

--

--

--

--

- 1

--

..-

TFYR

of M

aced

onia

--

--

--

--

2-

--

--

16

-Po

land

--

- 1

4-

8 1

1 8

23

45

465

132

118

324

58

529

Rom

ania

--

--

--

--

- 0

--

- 1

0 1

9 1

Russ

ian

Fede

ratio

n-

--

- 1

8 6

245

- 2

42 2

301

52

225

371

606

8 7

63Se

rbia

and

Mon

tene

gro

--

--

--

--

--

--

--

- 2

3Sl

ovak

ia-

--

--

- 1

2 4

2 1

- 4

24 2

4 9

1 4

-Sl

oven

ia-

--

--

--

--

--

4 1

0 1

4 6

3 1

5Uk

rain

e-

--

--

--

--

- 2

3-

130

1-

3Un

spec

ifie

d 3

0 6

06 3

25 4

--

10

--

4-

- 7

--

-M

ulti

nati

onal

a-

--

3-

14

10

23

139

83

8 2

81 5

982

1 8

64-

-

Sou

rce

:U

NC

TAD

, cro

ss-b

ord

er

M&

A d

atab

ase

(w

ww

.un

ctad

.org

/fd

ista

tist

ics)

.

aIn

volv

ing

se

lle

rs i

n m

ore

th

an t

wo

eco

no

mie

s.

No

te:

The

dat

a co

ver

the

de

als

invo

lvin

g t

he

acq

uis

itio

n o

f an

eq

uit

y st

ake

of

mo

re t

han

10

pe

r ce

nt.

420 World Investment Report 2004: The Shift Towards ServicesA

nn

ex

ta

ble

B.9

. C

ross

-bo

rde

r M

&A

s, b

y s

ect

or

an

d i

nd

ust

ry o

f se

lle

r, 1

98

8-2

00

3(M

illi

on

s o

f d

oll

ars)

Sect

or/i

ndus

try

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Tota

l11

5 62

314

0 38

915

0 57

680

713

79 2

8083

064

127

110

186

593

227

023

304

848

531

648

766

044

1 14

3 81

659

3 96

036

9 78

929

6 98

8

Prim

ary

3 91

11

941

5 17

01

164

3 63

74

201

5 51

78

499

7 93

58

725

10 5

9910

000

9 81

528

280

12 7

517

714

Agric

ultu

re, h

untin

g, fo

rest

ry, a

nd fi

shin

g1

809

225

221

548

301

406

950

1 01

9 4

982

098

6 67

3 6

561

110

316

265

1 35

0M

inin

g, q

uarr

ying

and

pet

role

um2

102

1 71

74

949

617

3 33

63

795

4 56

87

480

7 43

76

628

3 92

69

344

8 70

527

964

12 4

866

363

Man

ufac

turi

ng73

727

89 5

9675

495

36 1

7643

222

43 2

0469

321

84 4

6288

522

121

379

263

206

288

090

291

654

197

174

137

414

129

713

Food

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421ANNEX B

An

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.10

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1989

1990

1991

1992

1993

1994

1995

1996

1997

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1999

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824

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Ele

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98

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mun

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.

422 World Investment Report 2004: The Shift Towards Services

I. TRENDS IN FDI AND THEI. TRENDS IN FDI AND THEI. TRENDS IN FDI AND THEI. TRENDS IN FDI AND THEI. TRENDS IN FDI AND THEAAAAACTIVITIES OF TNCsCTIVITIES OF TNCsCTIVITIES OF TNCsCTIVITIES OF TNCsCTIVITIES OF TNCs

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UNCTAD, World Investment Report 2003. FDI Policiesfor Development: National and International Perspec-tives (New York and Geneva, 2003). 303 pages. SalesNo. E.03.II.D.8.

UNCTAD, World Investment Report 2003. FDI Policiesfor Development: National and International Perspec-tives. Overview. 42 pages (A, C, E, F, R, S). Documentsymbol: UNCTAD/WIR/2003 (Overview). Available freeto charge.

UNCTAD, World Investment Report 2002:Transnational Corporations and Export Competitive-ness (New York and Geneva, 2002). 350 pages. SalesNo. E.02.II.D.4.

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UNCTAD, World Investment Report 2001: PromotingLinkages (New York and Geneva, 2001). 354 pages.Sales No. E.01.II.D.12.

UNCTAD, World Investment Report 2001: PromotingLinkages. Overview. 63 pages (A, C, E, F, R, S). Docu-ment symbol: UNCTAD/WIR/2001 (Overview). Avail-able free of charge.

UNCTAD, World Investment Report 2000: Cross-borderMergers and Acquisitions and Development (New Yorkand Geneva, 2000). 337 pages. Sales No. E.00.II.D.20.

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UNCTAD, World Investment Report 1999: ForeignDirect Investment and the Challenge of Development(New York and Geneva, 1999). 541 pages. Sales No.E.99.II.D.3.

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UNCTAD, World Investment Report 1998: Trends andDeterminants (New York and Geneva, 1998). 463 pages.Sales No. E.98.II.D.5.

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424 World Investment Report 2004: The Shift Towards Services

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UNCTAD, FDI in Landlocked Developing Countries ata Glance (Geneva, 2003). Document symbol: UNCTAD/ITE/IIA/2003/5. Available free of charge.

UNCTAD, Foreign Direct Investment in the World andPoland: Trends, Determinants and Economic Impact.(Warsaw, 2002). ISBN 83-918182-0-9.

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UNCTAD, Tax incentives and FDI: A Global Survey(Geneva, 2001). Sales No. E.01.II.D.5.

UNCTAD, FDI in Least Developed Countries at a glance:2001 (Geneva, 2001). Document symbol: UNCTAD/ITE/IIA/3. 150 pages. Available free of charge.

UNCTAD, Invest in France Mission, DATAR and ArthurAndersen, International Investment: Towards the Year2002 (Paris, 1998). 167 pages (E,F). Sales No.GV.E.98.0.15. $29.

UNCTAD, Invest in France Mission, DATAR and ArthurAndersen, International Investment: Towards the Year2001 (Paris, 1997). 81 pages. Sales No. GV.E.97.0.5. $35.

UNCTAD, Sharing Asia’s Dynamism: Asian DirectInvestment in the European Union (Geneva, 1997). 143pages. Sales No. E.97.II.D. 1. $26.

UNCTAD and the European Commission, Investing inAsia’s Dynamism: European Union Direct Investmentin Asia (A joint publication with the Office for OfficialPublications of the European Communities, Luxembourg,1996). 124 pages. ISBN 92-827-7675-1. ECU 14.

UNCTAD, Foreign Direct Investment in Africa. CurrentStudies, Series A, No. 28 (Geneva, 1996). 115 pages (E,F). Sales No. E.95.II.A.6. $20.

John H. Dunning and Khalil A. Hamdani (eds.), The NewGlobalism and Developing Countries (United NationsUniversity Press, on behalf of UNCTAD, DITE, 1996).336 pages (E). ISBN 92-808-0944-X. $25.

Karl P. Sauvant, Persephone Economou and FiorinaMugione (eds.) , Companies without Borders:Transnational Corporations in the 1990s (Published byInternational Thomson Business Press, for and on behalfof UNCTAD DITE, 1996). 224 pages. ISBN 0-415-12526-X. E47.50.

UNCTAD, Transnational Corporations and World De-velopment (Published by International Thomson Busi-ness Press, for and on behalf of UNCTAD DITE, 1996).656 pages. ISBN 0-415-08560-8 (hardback), 0-415-08561-6 (paperback). £65.00 (hardback), £20.99 (paperback).

UNCTC, TNCs in South Africa: List of Companies withInvestments and Disinvestments, 1990 (New York, 1991).282 pages. Sales No. E.91.II.A.9. $22.

UNCTC, Transnational Corporations in World Devel-opment: Trends and Prospects (New York, 1988). 630pages (A, C, E, F, R, S). Sales No. E.88.II.A.7. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $650.

UNCTC, Transnational Corporations in World Devel-opment: Trends and Prospects. Executive Summary (NewYork, 1988). 63 pages. Sales No. E.88.II.A.15. Out ofprint. Available on microfiche.

UNCTC, Foreign Direct Investment in Latin America:Recent Trends, Prospects and Policy Issues . CurrentStudies, Series A, No. 3. (New York, 1986). 28 pages.Sales No. E.86.II.A. 14. Out of print. Available on mi-crofiche. Paper copy from microfiche: $40.

UNCTC, Trends and Issues in Foreign Direct Invest-ment and Related Flows: A Technical Paper (New York,1985). 96 pages. Sales No. E.85.II.A.15. Out of print.Available on microfiche. Paper copy from microfiche:$110.

UNCTC, Transnational Corporations in World Devel-opment: Third Survey (New York, 1983). (Also publishedby Grahain and Trotman, London, 1985). 386 pages (A,C, E, F, R, S). Sales No. E.83.II.A. 14 and Corrigendum.Out of print. Available on microfiche. Paper copy frommicrofiche: $400.

UNCTC, Salient Features and Trends in Foreign Di-rect Investment (New York, 1983). 71 pages (A, C, E,F, R, S). Sales No. E.83.II.A.8. Out of print. Availableon microfiche. Paper copy from microfiche: $82.

UNCTC, Transnational Corporations in World Devel-opment: A Re-examination (New York, 1978). 346 pages(E, F, S). Sales No. E.78.1I.A.5. Out of print. Availableon microfiche. Paper copy from microfiche: $360.

United Nations Department of Economic and SocialAffairs, Multinational Corporations in World Develop-ment (New York, 1973). (Also published by Praeger, NewYork, 1974, 200 pages). 196 pages (E, F, R, S). Sales No.E.73.II.A. 11. Out of print. Available on microfiche. Papercopy from microfiche: $204.

United Nations Department of Economic and SocialAffairs, Summary of the Hearings Before the Group ofEminent Persons to Study the Impact of MultinationalCorporations on Development and on InternationalRelations (New York, 1974). 455 pages. Sales No.E.74.II.A.9. Out of print. Available on microfiche. Pa-per copy from microfiche: $450.

United Nations Department of Economic and SocialAffairs, The Impact of Multinational Corporations onDevelopment and on International Relations (New York,1974). 162 pages (E, F, R, S). Sales No. E.74.II.A.5. Outof print. Available on microfiche. Paper copy from mi-crofiche: $160.

The United Nations Library on Transnational Corpo-rations. (The original, hardback version was publishedby Routledge, for and on behalf of UNCTAD, 1994).Twenty volumes, in five boxed sets of four volumes perset, ISBN 0-415-08559-4, £1,750 (£350 per set), can beordered in the U.S.A. and Canada from Routledge, Inc.,29 West 35th Street, New York, NY 1000 1, U. S.A.(U.S.A. Tel.: ++ 1212 244 6412 and Fax: ++ 1212 2689964; Canada Tel.: ++ 1 800 248 4724). In the U.K., bycontacting: Routledge Customer Services Department,FREEPOST, ITPS, Cheriton House, North Way, Andover,Hants SP 10 5BR, U.K. (Tel.: ++44 1264 342811/342939;Fax: ++44 1264 364418).

425Selected UNCTAD Publications on TNCs and FDI

Volume 1: Dunning, John H. (ed.) . The Theory ofTransnational Corporations. 464 pages. Also availablein paperback version (published by InternationalThomson Business Press, for and on behalf of UNCTADDITE). ISBN 0-415-14106-0. £20.99.

Volume 2: Jones, Geoffrey (ed.). Transnational Cor-porations: A Historical Perspective. 464 pages.

Volume 3: Lall, Sanjaya (ed.). Transnational Corpo-rations and Economic Development. 448 pages. Alsoavailable in paperback version (published by Interna-tional Thomson Business Press, for and on behalf ofUNCTAD DITE). ISBN 0-415-14110-9. $29.95.

Volume 4: Lecraw, Donald J. and Allen J. Morrison(eds.). Transnational Corporations and Business Strat-egy. 416 pages. Also available in paperback version(published by International Thomson Business Press,for and on behalf of UNCTAD DITE). ISBN 0-415-14109-5. $29.95.

Volume 5: Stonehill, Arthur I. and Michael H. Moffet(eds.). International Financial Management. 400 pages.Also available in paperback version (published byInternational Thomson Business Press, for and on behalfof UNCTAD DITE). ISBN 0-415-14107-9.; £19.95.

Volume 6: Hedlund, Gunnar (ed.). Organization ofTransnational Corporations. 400 pages. Also availablein paperback version (published by InternationalThomson Business Press, for and on behalf of UNCTADDITE). ISBN 0-415-14108-7. $29.95.

Volume 7: Moran, Theodore H. (ed.). Governments andTransnational Corporations. 352 pages.

Volume 8: Gray, H. Peter (ed.). Transnational Corpo-rations and International Trade and Payments. 320pages.

Volume 9: Robson, Peter (ed.). Transnational Corpo-rations and Regional Economic Integration. 331 pages.

Volume 10: McKern, Bruce (ed.). Transnational Cor-porations and the Exploitation of Natural Resources.397 pages.

Volume 11: Chudnovsky, Daniel (ed.). TransnationalCorporations and Industrialization. 425 pages.

Volume 12: Sauvant, Karl P. and Padma Mallampally(eds.). Transnational Corporations in Services. 437pages.

Volume 13: Buckley, Peter J. (ed.). Cooperative Formsof Transnational Corporation Activity . 419 pages.

Volume 14: Plasschaert, Sylvain (ed.). TransnationalCorporations: Transfer Pricing and Taxation . 330pages.

Volume 15: Frischtak, Claudio and Richard Newfarmer(eds.). Transnational Corporations: Market Structureand Industrial Performance. 383 pages.

Volume 16: Enderwick, Peter (ed.) . TransnationalCorporations and Human Resources. 429 pages.

Volume 17: Cantwell, John (ed.). Transnational Cor-porations and Innovatory Activities. 447 pages.

Volume 18: Chen, Edward (ed.). Transnational Cor-porations and Technology Transfer to DevelopingCountries. 486 pages.

Volume 19: Rubin, Seymour and Don Wallace, Jr. (eds.).Transnational Corporations and National Law. 322pages.

Volume 20: Fatouros, Arghyrios (ed.). TransnationalCorporations. The International Legal Framework. 545pages.

II. DEVELII. DEVELII. DEVELII. DEVELII. DEVELOPMENT ISSUESOPMENT ISSUESOPMENT ISSUESOPMENT ISSUESOPMENT ISSUESAND FDIAND FDIAND FDIAND FDIAND FDI

Transnational Corporations . A refereed journal pub-lished three times a year. (Supersedes the CTC Reporteras of February 1992). Annual subscription (3 issues):$45. Single issue: $20.

UNCTAD, Investment and Technology Policies forCompetitiveness: Review of Successful Country Ex-periences (Geneva, 2003). Document symbol: UNCTAD/ITE/ICP/2003/2.

UNCTAD, The Development Dimension of FDI: Policyand Rule-Making Perspectives (Geneva, 2003). SalesNo. E.03.II.D.22. $35.

UNCTAD, FDI and Performance Requirements: NewEvidence from Selected Countries (Geneva, 2003). SalesNo. E.03.II.D.32. 318 pages. $ 35.

UNCTAD, Measures of the Transnationalization ofEconomic Activity (New York and Geneva, 2001).Document symbol: UNCTAD/ITE/IIA/1. Sales No.E.01.II.D.2.

UNCTAD, FDI Determinants and TNC Strategies: TheCase of Brazil (Geneva, 2000). Sales No. E.00:II.D.2.

UNCTAD, The Competit iveness Challenge:Transnational Corporations and Industrial Restruc-turing in Developing Countries (Geneva, 2000). SalesNo. E.00.II.D.35.

UNCTAD, Foreign Direct Investment in Africa: Per-formance and Potential (Geneva, 1999). Documentsymbol: UNCTAD/ITE/IIT/Misc.15. Available free ofcharge.

UNCTAD, The Financial Crisis in Asia and ForeignDirect Investment An Assessment (Geneva, 1998). 110pages. Sales No. GV.E.98.0.29. $20.

UNCTAD, Handbook on Foreign Direct Investment bySmall and Medium-sized Enterprises: Lessons fromAsia (New York and Geneva, 1998). 202 pages. SalesNo. E.98.II.D.4. $48.

UNCTAD, Handbook on Foreign Direct Investment bySmall and Medium-sized Enterprises: Lessons fromAsia. Executive Summary and Report on the KunmingConference. 70 pages. Document symbol: UNCTAD/ITE/IIT/6 (Summary). Available free of charge.

UNCTAD, Survey of Best Practices in InvestmentPromotion (New York and Geneva, 1997). 81 pages.Sales No. E.97.II.D.11. $35.

426 World Investment Report 2004: The Shift Towards Services

UNCTAD, Incentives and Foreign Direct Investment(New York and Geneva, 1996). Current Studies, SeriesA, No. 30. 98 pages. Sales No. E.96.II.A.6. $25.

UNCTC, Foreign Direct Investment in the People’sRepublic of China (New York, 1988). 110 pages. SalesNo. E.88.II.A.3. Out of print. Available on microfiche.Paper copy from microfiche: $122.

UNCTAD, Foreign Direct Investment, Trade, Aid andMigration Current Studies, Series A, No. 29. (A jointpublication with the International Organization forMigration, Geneva, 1996). 90 pages. Sales No.E.96M.A.8. $25.

UNCTAD, Explaining and Forecasting Regional Flowsof Foreign Direct Investment (New York, 1993). CurrentStudies, Series A, No. 26. 58 pages. Sales No.E.94.II.A.5. $25.

UNCTAD, Small and Medium-sized TransnationalCorporations: Role, Impact and Policy Implications(New York and Geneva, 1993). 242 pages. Sales No.E.93.II.A. 15. $35.

UNCTAD, Small and Medium-sized TransnationalCorporations: Executive Summary and Report of theOsaka Conference (Geneva, 1994). 60 pages. Availablefree of charge.

DESD/TCMD, From the Common Market to EC 92:Regional Economic Integration in the European Com-munity and Transnational Corporations (New York,1993). 134 pages. Sales No. E.93.1l.A.2. $25.

DESD/TCMD, Debt-Equity Swaps and Development(New York, 1993). 150 pages. Sales No. E.93.1l.A.7.$35.

DESD/TCMD, Transnational Corporations from De-veloping Countries: Impact on Their Home Countries(New York, 1993). 116 pages. Sales No. E.93.1l.A.8.$15.

DESD/TCMD, Foreign Investment and Trade Linkagesin Developing Countries (New York, 1993). 108 pages.Sales No. E.93.II.A. 12. Out of print.

UNCTC, Foreign Direct Investment and IndustrialRestructuring in Mexico. Current Studies, Series A, No.18. (New York, 1992). 114 pages. Sales No. E.92.1l.A.9.$12.50.

UNCTC, The Determinants of Foreign Direct Invest-ment: A Survey of the Evidence (New York, 1992). 84pages. Sales No. E.92.1l.A.2. $12.50.

UNCTC and UNCTAD, The Impact of Trade-RelatedInvestment Measures on Trade and Development(Geneva and New York, 1991). 104 pages. Sales No.E.91 II.A. 19. $17.50.

UNCTC, The Challenge of Free Economic Zones inCentral and Eastern Europe: International Perspective(New York, 1991). 442 pages. Sales No. E.90.1l.A.27.$75.

UNCTC, The Role of Free Economic Zones in theUSSR and Eastern Europe. Current Studies, Series A,No. 14. (New York, 1990). 84 pages. Sales No.E.90.1l.A.5. $10.

UNCTC, Foreign Direct Investment, Debt and HomeCountry Policies. Current Studies, Series A, No. 20.(New York, 1990). 50 pages. Sales No. E.90.II.A. 16.$12.50.

UNCTC, News Issues in the Uruguay Round of Mul-tilateral Trade Negotiations. Current Studies, SeriesA, No. 19. (New York, 1990). 52 pages. Sales No.E.90.II.A. 15. $12.50.

UNCTC, Regional Economic Integration andTransnational Corporations in the 1990s: Europe 1992,North America, and Developing Countries. CurrentStudies, Series A, No. 15. (New York, 1990). 52 pages.Sales No. E.90.II.A. 14. $12.50.

UNCTC, Transnational Corporations and InternationalEconomic Relations: Recent Developments and Se-lected Issues. Current Studies, Series A, No. 11. (NewYork, 1989). 50 pages. Sales No. E.89.1l.A.15. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $60.

UNCTC, The Process of Transnationalization andTransnational Mergers. Current Studies, Series A, No.8. (New York, 1989). 91 pages. Sales No. E.89.1l.A.4.Out of print. Available on microfiche. Paper copy frommicrofiche: $106.

UNCTC and ILO, Economic and Social Effects ofMultinational Enterprises in Export Processing Zones(Geneva, International Labour Office, 1988). 169 pages.ISBN: 92-2106194-9. S1727.50.

UNCTC, Measures Strengthening the NegotiatingCapacity of Governments in Their Relations withTransnational Corporations: Regional Integration cum/versus Corporate Integration. A Technical Paper (NewYork, 1982). 63 pages. Sales No. E..82.II.A.6. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $71.

III. SECTIII. SECTIII. SECTIII. SECTIII. SECTORAL STUDIESORAL STUDIESORAL STUDIESORAL STUDIESORAL STUDIES

A. TNCs in the Manufacturing andExtractive Sectors

UNCTC, New Approaches to Best-Practice Manufac-turing: The Role of Transnational Corporations andImplications for Developing Countries. Current Studies,Series A, No. 12. (New York, 1990). 76 pages. SalesNo. E.90.II.A. 13. $20.

Blomström, Magnus, Transnational Corporations andManufacturing Exports from Developing Countries(New York, 1990). 124 pages. Sales No. E.90.II.A.21.$25.

UNCTC, Transnational Corporations in the PlasticsIndustry (New York, 1990). 167 pages. Sales No.90.II.A. 1. $20.

Hoffman, Kurt and Raphael Kaplinsky, Driving Force:The Global pages. ISBN: 0-8133-7502-9. $32.50.

UNCTC, Transnational Corporations in Biotechnology(New York, 1988). 130 pages. Sales No. E.88.II.A.4.$17.

427Selected UNCTAD Publications on TNCs and FDI

UNCTC, Transnational Corporations and Non-fuelPrimary Commodities in Developing Countries (NewYork, 1987). 89 pages. Sales No. E.87.II.A. 17. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $98.

UNCTC and ESCAP Joint Unit, Transnational Corpo-rations and the Electronics Industries ofASEAN Econo-mies. Current Studies, Series A, No. 5. (New York,1987). 55 pages. Sales No. E.87.II.A. 13. $7.50.

UNCTC, Transnational Corporations in the Man-madeFibre, Textile and Clothing Industries (New York,1987). 154 pages. Sales No. E.87.II.A. 11. $19.

UNCTC, Transnational Corporations in the Interna-tional Semiconductor Industry (New York, 1986). 471pages. Sales No. E.86.II.A. 1. $41.

UNCTC, Transnational Corporations in the Pharma-ceutical Industry of Developing Countries (New York,1984). 223 pages. Sales No. E. 84.II.A. 10. Out of print.Available on microfiche. Paper copy from microfiche:$238.

UNCTC, Transnational Corporations in the Interna-tional Auto Industry (New York, 1983). 223 pages. SalesNo. E.83.II.A.6. Out of print. Available on microfiche.Paper copy from microfiche: $242.

UNCTC, Transnational Corporations in the Agricul-tural Machinery and Equipment Industry (New York,1983). 134 pages. Sales No. E.83.II.A.4. Out of print.Available on microfiche. Paper copy from microfiche:$148.

UNCTC, Transnational Corporations in the PowerEquipment Industry (New York, 1982). 95 pages (E,F, S). Sales No.E.82.II.A.1 1. Out of print. Availableon microfiche. Paper copy from microfiche: $108.

UNCTC, Transnational Corporations in the FertilizerIndustry (New York, 1982). 69 pages (E, F, S). SalesNo. E.82.H.A.10. Out of print. Available on microfiche.Paper copy from microfiche: $80.

UNCTC, Transnational Corporations in Food andBeverage Processing (New York, 1981). 242 pages.Sales No. E.8 I.II.A. 12. Out of print. Available onmicrofiche. Paper copy from microfiche: $26 1.

UNCTC, Transnational Corporations in the Bauxiteand Aluminium Industry (New York, 1981). 88 pages(E, F, S). Sales No. E.8 1.II.A.5. Out of print. Avail-able on microfiche. Paper copy from microfiche: $104.

UNCTC, Transnational Corporation Linkages inDeveloping Countries: The Case of Backward Link-ages via Subcontracting (New York, 1981). 75 pages.Sales No. E.8 1.II.A.4. Out of print. Available on mi-crofiche. Paper copy from microfiche:

UNCTC, Transnational Corporations in the CopperIndustry (New York, 1981). 80 pages (E, F, S). SalesNo. E.81.II.A.3. Out of print. Available on microfiche.Paper copy from microfiche: $92.

UNCTC, Transnational Corporations and the Phar-maceutical Industry (New York, 1979). 163 pages. SalesNo. E.79.II.A.3. Out of print. Available on microfiche.Paper copy from microfiche: $160.

B. TNCs in the Services Sector andTransborder Data Flows

UNCTAD, Tradability of Consulting Services and ItsImplications for Developing Countries (New York andGeneva, 2002).189 pages. UNCTAD/ITE/IPC/Misc.8.

UNCTAD and the World Bank, Liberalizing Interna-tional Transactions in Services: A Handbook (New Yorkand Geneva, 1994). 182 pages. Sales No. E.94.II.A. 11.$45.

UNCTAD, Tradability of Banking Services: Impact andImplications. Current Studies, Series A, No. 27. (Ge-neva, 1994). 242 pages. Sales No. E.94.II.A. 12. $50.

UNCTAD, Management Consulting: A Survey of theIndustry and Its Largest Firms (New York, 1993). 100pages. Sales No. E.93.II.A. 17. $25.

UNCTAD, International Tradabili ty in InsuranceServices. Current Studies, Series A, No. 25. (New York,1993). 54 pages. Sales No. E.93.II.A. 11. $20.

UNCTAD, The Transnationalization of Service Indus-tries: An Empirical Analysis of the Determinants ofForeign Direct Investment by Transnational ServiceCorporations. Current Studies, Series A, No. 23. (NewYork, 1993). 62 pages. Sales No. E.93.II.A.3. $15.

UNCTC, Transnational Banks and the External In-debtedness of Developing Countries: Impact of Regu-latory Changes. Current Studies,

Series A, No. 22. (New York, 1992). 48 pages. SalesNo. E.92.1l.A.10. Out of print. Available on microfiche.Paper copy from microfiche: $60.

UNCTC, Transnational Banks and the InternationalDebt Crisis (New York, 1991). 148 pages. Sales No.E.90.II.A. 19. $22.50.

UNCTC, Transborder Data Flows and Mexico (NewYork, 1991). 194 pages. Sales No. E.90.II.A.17. $27.50.

UNCTC and World Bank, The Uruguay Round., Serv-ices in the World Economy (Washington and New York,1990). 220 pages. ISBN: 0-8213-1374-6.

UNCTC, New Issues in the Uruguay Round of Mul-tilateral Trade Negotiations. Current Studies, SeriesA, No. 19. (New York, 1990). 52 pages. Sales No.E.90.II.A. 15. $12.50.

UNCTC, Transnational Corporations, Services and theUruguay Round (New York, 1990). 252 pages. SalesNo. E.90.II.A. 11. $28.50.

UNCTC, Services and Development: The Role ofForeign Direct Investment and Trade (New York, 1989).187 pages. Sales No. E.89.II.A. 17. Out of print. Avail-able on microfiche. Paper copy from microfiche: $200.

(Also published in Spanish as Servicios y el Desarrollo:El Papel de la Inversion y el Commercio, by Junta delAcuerdo de Cartagena (Lima, 1990). 206 pages.)

UNCTC, Transnational Service Corporations andDeveloping Countries: Impact and Policy Issues.Current Studies, Series A, No. 10. (New York, 1989).50 pages. Sales No. E.89.II.A. 14. Out of print. Availableon microfiche. Paper copy from microfiche: $60.

428 World Investment Report 2004: The Shift Towards Services

UNCTC, Transnational Corporations in the Construc-tion and Design Engineering Industry (New York,1989). 60 pages. Sales No. E.89.II.A.6. Out of print.Available on microfiche. Paper copy from microfiche:$74.

Dunning, John H., Transnational Corporations and theGrowth of Services: Some Conceptual and TheoreticalIssues. Current Studies, Series A, No. 9. (New York,1989). 80 pages. Sales No. E.89.II.A.5. Out of print.Available on microfiche. Paper copy from microfiche:$92.

UNCTC, Foreign Direct Investment and TransnationalCorporations in Services (New York, 1989). 229 pages.Sales No. E.89.II.A. 1. Out of print. Available on mi-crofiche. Paper copy from microfiche: $240.

UNCTC, Data Goods and Data Services in the SocialistCountries of Eastern Europe (New York, 1988). 103pages. Sales No. E.88.II.A.20. Out of print. Availableon microfiche. Paper copy from microfiche: $114.

UNCTC, Foreign Direct Investment, the Service Sectorand International Banking. Current Studies, Series A,No. 7. (New York, 1987). (Also published by Grahamand Trotman, Londori , 1988). 71 pages. Sales No.E.87.II.A. 15. $9.

UNCTC, Transborder Data Flows: TransnationalCorporations and Remote-Sensing Data (New York,1984). 74 pages. Sales No. E.84.II .A.11 andCorrigendum. (book reads: E.84.II.A.8). Outofprint.Available on microfiche. Paper copy from microfiche:$82.

UNCTC, Transborder Data Flows and Poland. PolishCase Study. A Technical Paper (New York, 1984). (Alsopublished by North-Holland, Amsterdam, 1984). 75pages. Sales No. E.84.1l.A.8. Out of print. Availableon microfiche. Paper copy from microfiche: $86.

UNCTC, Transborder Data Flows and Brazil (NewYork, 1983). (Also published by NorthHolland, Amster-dam, 1984). 418 pages. Sales No. E.83.II.A.3. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $400.

UNCTC, Transborder Data Flows: Access to the In-ternational On-line Data-base Market (New York,1983). (Also published by North-Holland, Amsterdam,1984.) 140 pages. Sales No. E.83.II.A. 1. Out of print.Available on microfiche. Paper copy from microfiche:S 154.

UNCTC, Transnational Corporations in InternationalTourism (New York, 1982). 113 pages. Sales No.E.82.II.A.9. Out of print. Available on microfiche. Papercopy from microfiche: $123.

UNCTC, Transnational Corporations and TransborderData Flows: A Technical Paper (New York, 1982). 149pages. Sales No. E.82.II.A.4. Out of print. Availableon microfiche. Paper copy from microfiche: $159.

UNCTC, Transnational Banks: Operations, Strategiesand Their Effects in Developing Countries (New York,1981). 140 pages. Sales No. E.8 1.II.A.7. Out of print.Available on microfiche. Paper copy from microfiche:$15 1.

UNCTC, Transnational Reinsurance Operations: ATechnical Paper (New York, 1980). 51 pages. Sales No.E.80.II.A.10. Out of print. Available on microfiche.Paper copy from microfiche: $59.

UNCTC, Transnational Corporations in Advertising.A Technical Paper (New York, 1979). 54 pages (E, F,S). Sales No. E.79.II.A.2. Out of print. Available onmicrofiche. Paper copy from microfiche: $62.

IVIVIVIVIV. TNCs. TNCs. TNCs. TNCs. TNCs, TECHNOL, TECHNOL, TECHNOL, TECHNOL, TECHNOLOGYOGYOGYOGYOGYTRANSFER ANDTRANSFER ANDTRANSFER ANDTRANSFER ANDTRANSFER AND

INTELLECTUINTELLECTUINTELLECTUINTELLECTUINTELLECTUAL PROPERAL PROPERAL PROPERAL PROPERAL PROPERTYTYTYTYTYRIGHTSRIGHTSRIGHTSRIGHTSRIGHTS

UNCTAD, Transfer of Technology for SuccessfulIntegration into the Global Economy (New York andGeneva, 2003). Sales No. E.03.II.D.31. 206 pages.

UNCTAD, Compendium of International Arrangementson Transfer of Technology (Geneva, 2001). Sales No.E.01.II.D.28.

UNCTAD, The TRIPS Agreement and DevelopingCountries (Geneva, 1997). 64 pages. Sales No.E.96.II.13. 10. $22.

UNCTAD, Fostering Technological Dynamism: Evo-lution of Thought and Technological DevelopmentProcess and Competitiveness: A Literature Review(Geneva, 1995). 183 pages. Sales No. E.95.II.D.21. $35.

UNCTAD, Intellectual Property Rights and ForeignDirect Investment . Current Studies, Series A, No. 24.(New York, 1993). 108 pages. Sales No. E.93.II.A. 10.$20.

UNCTC, Foreign Direct Investment and TechnologyTransfer in India (New York, 1992). 150 pages. SalesNo. E.92.II.A.3. $20.

UNCTC, Transnational Corporations and the Transferof New and Emerging Technologies to DevelopingCountries (New York, 1990). 141 pages. Sales No.E.90.II.A.20. $27.50.

UNCTC, Transnational Corporations and the Transferof New Management Practices to Developing Coun-tries (New York, 1993). ST/CTC/153.

UNCTC, New Approaches to Best-Practice Manufac-turing: The Role of Transnational Corporations andImplications for Developing Countries. Current Studies,Series A, No. 12. (New York, 1990). 76 pages. SalesNo. E.90.II.A. 13. $12.50.

UNCTC and ESCAP Joint Unit, Technology Acquisi-t ion under Alternative Arrangements withTransnational Corporations: Selected Industrial CaseStudies in Thailand. Current Studies,

Series A, No. 6. (New York, 1987). 55 pages. Sales No.E. 87.II.A. 14. Out of print. Available on microfiche.Paper copy from microfiche: $64.

UNCTC, Transnational Corporations and TechnologyTransfer: Effects and Policy Issues (New York, 1987).77 pages. Sales No. E.87.II.A.4. Out of print. Avail-able on microfiche. Paper copy from microfiche: $90.

429Selected UNCTAD Publications on TNCs and FDI

UNCTC, Measures Strengthening the NegotiatingCapacity of Governments in Their Relations withTransnational Corporations: Technology Transferthrough Transnational Corporations. A Technical Paper(New York, 1979). 37 pages. Sales No. E.79.II.A.6. Outof print. Available on microfiche. Paper copy frommicrofiche: $43.

United Nations Department of Economic and SocialAffairs, Acquisition of Technology from MultinationalCorporations by Developing Countries (New York,1974). 50 pages. Sales No. E.74.II.A.7. Out of print.Available on microfiche. Paper copy from microfiche:$57.

VVVVV. POLITICAL, SOCIAL AND. POLITICAL, SOCIAL AND. POLITICAL, SOCIAL AND. POLITICAL, SOCIAL AND. POLITICAL, SOCIAL ANDENVIRONMENTENVIRONMENTENVIRONMENTENVIRONMENTENVIRONMENTAL IMPAL IMPAL IMPAL IMPAL IMPAAAAACTSCTSCTSCTSCTS

OF TNCsOF TNCsOF TNCsOF TNCsOF TNCs

UNCTAD, The Social Responsibility of TransnationalCorporations. Document symbol: UNCTAD/ITE/IIT/Misc.21. Available free of charge.

UNCTAD, Self-regulation of Environmental Manage-ment: An Analysis of Guidelines Set by World Industryfor Their Member Firms (Geneva, 1996). 165 pages.Sales No. E.96.II.A.5. $35.

UNCTC, Environmental Management in TransnationalCorporations: Report on the Benchmark CorporateEnvironment Survey (Geneva, 1993). 265 pages. SalesNo. E.94.II.A.2.

UNCTAD, Environmental Management inTransnational Corporations: Report on the BenchmarkCorporate Environment Survey (Geneva, 1994). 278pages. Sales No. E.94.II.A.2. 529.95.

DESD/TCMD, Climate Change and TransnationalCorporations: Analysis and Trends (New York, 1992).110 pages. Sales No. E.92.II.A.7. $16.50.

UNCTC, Transnational Corporations and IndustrialHazards Disclosure (New York, 1991). 86 pages. SalesNo. E.91.II.A.18. $17.50.

UNCTC and DIESA, Consolidated, List of ProductsWhose Consumption and/or Sale Have Been Banned,Withdrawn, Severely Restricted or not Approved byGovernments, Fourth ed. (New York, 1991). 769 pages.Sales No. E.91.1V.4. Out of print. Available on micro-fiche. Paper copy ftom microfiche: $800.

UNCTC, Transnational Corporations in South Africa:Second United Nations Public Hearings, 1989:

Vol. I Report of the Panel of Eminent Persons,Background Documentation (New York, 1990). 162pages. Sales No. E.90.II.A.6. $19.

Vol. II Statements and Submissions (New York, 1990).210 pages. Document symbol: ST/CTC/102. SalesNo.E.90.II.A.12. $21.

UNCTC and DESA, Consolidated List of ProductsWhose Consumption and/or Sale Have Been Banned,Withdrawn, Severely Restricted or Not Approved byGovernment, Second issue. Prepared jointly by the Foodand Agriculture Organization of the United Nations, the

World Health Organization, the International LabourOrganization, the United Nations Centre onTransnational Corporations and other relevant intergov-ernmental organizations (New York, 1987). 655 pages.Sales No. E.87.1V. I. Out of print.

UNCTC, Transnational Corporations in South Africaand Namibia: United Nations Public Hearings, 1986:

Vol. I Reports of the Panel of EminentPersons and of the Secretary-General (New York,1986). 242 pages. Document symbol: ST/CTC/68 (Vol.I). Sales No. E.86.II.A.6. Out of print. Available onmicrofiche. Paper copy from microfiche: $240.

Vol. II Verbatim Records (New York, 1986).282 pages. Document symbol: ST/CTC/68 (Vol. II). SalesNo. E.86.II.A.7. Out of print. Available on microfiche.Paper copy from microfiche: $300.

Vol. III Statements and Submissions (NewYork, 1987). 518 pages. Document symbol: ST/CTC/68 (Vol. III). Sales No. E.86.1I.A.8. Out of print. Avail-able on microfiche. Paper copy from microfiche: $530.

Vol. IV Policy Instruments and Statements(New York, 1987). 444 pages. Document symbol: ST/CTC/68 (Vol. IV). Sales No. E.86.II.A.9. Out of print.Available on microfiche. Paper copy from microfiche:$474.

UNCTC, Activities of Transnational Corporations inSouth Africa and Namibia and the Responsibilities ofHome Countries with Respect to Their Operations inThis Area (New York, 1986). 59 pages (E, F, S). SalesNo. E.85.II.A. 16. Out of print. Available on microfiche.Paper copy from microfiche: $66.

UNCTC, Environmental Aspects of the Activities ofTransnational Corporations: A Survey (New York,1985). 114 pages (E, F, S). Sales No. E.85.II.A. 11. Outof print. Available on microfiche. Paper copy frommicrofiche: $126.

UNCTC and ILO, Women Workers in MultinationalEnterprises in Developing Countries: A Contributionto the United Nations Decade for Women . A jointpublication by the United Nations Centre onTransnational Corporations and the International La-bour Office (Geneva, International Labour Office, 1985).119 pages (E, F, S). ISBN: 92-2-100532-1. SF15.

UNCTC and DIESA, Listé récapitulative desproduitsdont la consommation ou la vente ont été interditesou rigoureusement réglementées, ou qui ont été retiréesdu marché ou n’ont pas été approuvés par lesgouvernements. Première édition révisée (New York,1985). (E, F, S). Sales No. F.85.IV.8. Out of print.Available on microfiche. Paper copy from microfiche:$370.

UNCTC, Policies and Practices of TransnationalCorporations Regarding Their Activit ies in SouthAfrica and Namibia (New York, 1984). 55 pages (E,F, S). Sales No. E.84.1I.A.5.

Out of pnnt. Available on microfiche. Paper copy frommicrofiche: $55.

UNCTC, Transnational Corporations in SouthernAfrica: Update on Financial Activities and Employ-ment Practices (New York, 1982). 44 pages. Sales No.

430 World Investment Report 2004: The Shift Towards Services

E.82.II.A. 12. Out of print. Available on microfiche.Paper copy from microfiche: $62.

UNCTC, Activities of Transnational Corporations inSouthern Africa: Impact on Financial and SocialStructures (New York, 1978). 80 pages. Sales No.E.78.II.A.6. Out of print. Available on microfiche. Papercopy from microfiche: $85.

VI. INTERNVI. INTERNVI. INTERNVI. INTERNVI. INTERNAAAAATIONTIONTIONTIONTIONALALALALALARRANGEMENTS ANDARRANGEMENTS ANDARRANGEMENTS ANDARRANGEMENTS ANDARRANGEMENTS AND

AAAAAGREEMENTSGREEMENTSGREEMENTSGREEMENTSGREEMENTS

A. Series on Issues in InternationalInvestment Agreements (IIAs)

UNCTAD, Glossary of Key Concepts Used in IIAs .UNCTAD Series on Issues in International InvestmentAgreements (New York and Geneva, 2003)

UNCTAD, Incentives UNCTAD Series on Issues inInternational Investment Agreements (New York andGeneva, 2003). Sales No. E.04.II.D.6. $15.

UNCTAD, Transparency. UNCTAD Series on Issues inInternational Investment Agreements (New York andGeneva, 2003). Sales No. E.03.II.D.7. $15.

UNCTAD, Dispute Settlement: Investor-State. UNCTADSeries on Issues in International Investment Agreements(New York and Geneva, 2003). 128 pages. Sales No.E.03.II.D.5. $15.

UNCTAD, Dispute Settlement: State-State. UNCTADSeries on Issues in International Investment Agreements(New York and Geneva, 2003). 109 pages. Sales No.E.03.II.D.6 $16.

UNCTAD, Transfer of Technology. UNCTAD Series onIssues on International Investment Agreements (NewYork and Geneva, 2001). 135 pages. Sales No.E.01.II.D.33. $16.

UNCTAD, Illicit Payments. UNCTAD Series on Issueson IInternational Investment Agreements (New York andGeneva, 2001). 112 pages. Sales No. E.01.II.D.20. $13.

UNCTAD, Home Country Measures. UNCTAD Serieson Issues on International Investment Agreements (NewYork and Geneva, 2001). 95 pages. Sales No.E.01.II.D.19. $12.

UNCTAD, Host Country Operational Measures.UNCTAD Series on Issues on International InvestmentAgreements (New York and Geneva, 2001). 105 pages.Sales No. E.01.II.D.18. $18.

UNCTAD, Social Responsibility. UNCTAD Series onIssues on International Investment Agreements (NewYork and Geneva, 2001). 87 pages. Sales No.E.01.II.D.4.$15.

UNCTAD, Environment. UNCTAD Series on Issues onInternational Investment Agreements (New York andGeneva 2001). 106 pages. Sales No. E.01.II.D.3. $15.

UNCTAD, Transfer of Funds. UNCTAD Series onIssues on International Investment Agreements (NewYork and Geneva 2000). 79 pages. Sales No.E.00.II.D.38. $10.

UNCTAD, Flexibility for Development. UNCTAD Serieson Issues on International Investment Agreements (NewYork and Geneva 2000). 185 pages. Sales No.E.00.II.D.6. $15.

UNCTAD, Employment. UNCTAD Series on Issues onInternational Investment Agreements (New York andGeneva, 2000). 64 pages. Sales No. E.00.II.D.15. $12.

UNCTAD, Taxation. UNCTAD Series on Issues onInternational Investment Agreements (New York andGeneva, 2000). 111 pages. Sales No. E.00.II.D.5. $15.

UNCTAD, Taking of Property. UNCTAD Series onIssues on International Investment Agreements (NewYork and Geneva, 2000). 78 pages. Sales No.E.00.II.D.4. $12.

UNCTAD, Trends in International investment Agree-ments: An Overview. UNCTAD Series on Issues onInternational Investment Agreements (New York andGeneva, 1999). 133 pages. Sales No. E.99.II.D.23. $12.

UNCTAD, Lessons from the MAI. UNCTAD Series onIssues on International Investment Agreements (NewYork and Geneva 1999). 52 pages. Sales No.E.99.II.D.26. $10.

UNCTAD, National Treatment. UNCTAD Series onIssues in International Investment Agreements (NewYork and Geneva, 1999). 88 pages. Sales No. E.99.II.D.16. $12.

UNCTAD, Fair and Equitable Treatment. UNCTADSeries on Issues in International Investment Agreements(New York and Geneva, 1999). 80 pages. Sales No.E.99.II.D.15. $12.

UNCTAD, Investment-Related Trade Measures .UNCTAD Series on Issues in International InvestmentAgreements (New York and Geneva, 1999). 64 pages.Sales No. E.99.II.D.12.$12.

UNCTAD, Most-Favoured-Nation Treatment. UNCTADSeries on Issues in International Investment Agreements(New York and Geneva, 1999). 72 pages. Sales No.E.99.II.D.11. $12.

UNCTAD, Admission and Establishment. UNCTADSeries on Issues in International Investment Agreements(New York and Geneva, 1999). 72 pages. Sales No.E.99.II.D.10. $12.

UNCTAD, Scope and Definition. UNCTAD Series onIssues in International Investment Agreements (NewYork and Geneva, 1999). 96 pages. Sales No.E.99.II.D.9. $12.

UNCTAD, Transfer Pricing. UNCTAD Series on Issuesin International Investment Agreements (New York andGeneva, 1999). 72 pages. Sales No. E.99.II.D.8. $12.

UNCTAD, Foreign Direct Investment and Development.UNCTAD Series on Issues in International InvestmentAgreements (New York and Geneva, 1999). 88 pages.Sales No. E.98.1I.D.15A12.

431Selected UNCTAD Publications on TNCs and FDI

B. Other studies

UNCTAD’s Work Programme on International Invest-ment Agreements: From UNCTAD IX to UNCTAD X.Document symbol: UNCTAD/ITE/IIT/Misc.26. Availablefree of charge.

UNCTAD, Progress Report. Work undertaken withinUNCTAD’s work programme on International Invest-ment Agreements between the 10th Conference ofUNCTAD 10th Conference of UNCTAD, Bangkok,February 2000, and July 2002 (New York and Geneva,2002). UNCTAD/ITE/Misc.58. Available free of charge.

UNCTAD, Bilateral Investment Treaties in the Mid-1990s (New York and Geneva, 1998). 322 pages. SalesNo. E.98.II.D.8. $46.

UNCTAD, Bilateral Investment Treaties: 1959-1999(Geneva and New York, 2000) Sales No. E.92.II.A.16.$22.

UNCTAD, International Investment Instruments: ACompendium (New York and Geneva, 1996 to 2003).12 volumes. Vol. I: Sales No. E.96.A.II.A.9. Vol. II:Sales No. E.96.II.A.10. Vol. III: Sales No. E.96.II.A.11.Vol. IV: Sales No. E.00.II .D.13. Vol. V: Sales No.E.00.II.A.14. Vol. VI: Sales No. E.01.II.D.34. Vol. VII:Sales No. E.02.II.D.14. Vol. VIII: Sales No. E.02.II.D.15.Vol. IX: Sales No. E.02.II.D.16. Vol. X: Sales No.E.02.II.D.21. Vol. XI: Sales No. E.04.II.D.9. Vol. XII:Sales No. E.04.II.D.10. $60.

UNCTC and ICC, Bilateral Investment Treaties. A jointpublication by the United Nations Centre onTransnational Corporations and the International Cham-ber of Commerce (New York, 1992). 46 pages. SalesNo. E.92.II.A. 16. $22.

UNCTC, The New Code Environment. Current Stud-ies, Series A, No. 16. (New York, 1990). 54 pages. SalesNo. E.90.II.A.7. Out of print. Available on microfiche.Paper copy from microfiche: $68.

UNCTC, Key Concepts in International InvestmentArrangements and Their Relevance to Negotiations onInternational Transactions in Services. Current Studies,Series A, No. 13. (New York, 1990). 66 pages. SalesNo. E.90.II.A.3. $9.

UNCTC, Bilateral Investment Treaties (New York,1988). (Also published by Graham and Trotman, London/Dordrecht/Boston, 1988). 188 pages. Sales No.E.88.II.A. 1. $20.

UNCTC, The United Nations Code of Conduct onTransnational Corporations. Current Studies, SeriesA, No. 4. (New York, 1986). 80 pages. Sales No.E.86.II.A. 15. Out of print. Available on microfiche.Paper copy from microfiche: $88.

Vagts, Detlev F., The Question of a Reference to Inter-national Obligations in the United Nations Code ofConduct on Transnational Corporations: A DifferentView. Current Studies,

Series A, No. 2. (New York, 1986). 17 pages. Sales No.E.86.II.A.11. Out of print. Available on microfiche.Paper copy from microfiche: $24.

Robinson, Patrick, The Question of a Reference toInternational Law in the United Nations Code ofConduct on Transnational Corporations. Current Stud-ies, Series A, No.1. (New York, 1986). 22 pages. SalesNo. E.86.II.A.5. $4.

UNCTC, Transnational Corporations: Material Rel-evant to the Formulation of a Code of Conduct (NewYork, 1977). 114 pages (E, F, S). UN Document Symbol:EX. 10/ 10 and Corr. 1. $7.

UNCTC, Transnational Corporations: Issues Involvedin the Formulation of a Code of Conduct (New York,1976). 41 pages (E, F, R, S). Sales No. E.77.II.A.5. Outof print. Available on microfiche. Paper copy frommicrofiche: $41.

VII. NVII. NVII. NVII. NVII. NAAAAATIONTIONTIONTIONTIONAL POLICIESAL POLICIESAL POLICIESAL POLICIESAL POLICIES,,,,,LLLLLAWSAWSAWSAWSAWS, REGUL, REGUL, REGUL, REGUL, REGULAAAAATIONS ANDTIONS ANDTIONS ANDTIONS ANDTIONS ANDCONTRACONTRACONTRACONTRACONTRACTS RELCTS RELCTS RELCTS RELCTS RELAAAAATING TTING TTING TTING TTING TOOOOO

TNCsTNCsTNCsTNCsTNCs

A. Investment Policy Reviews

UNCTAD, Investment Policy Review of Algeria (Ge-neva, 2004). 110 pages. UNCTAD/ITE/IPC/2003/9.

UNCTAD, Investment Policy Review of Sri Lanka(Geneva, 2003). 89 pages. UNCTAD/ITE/IPC/2003/8

UNCTAD, Investment Policy Review of Lesotho (Ge-neva, 2003). 105 pages. Sales No. E.03.II.D.18.

UNCTAD, Investment Policy Review of Nepal. (Geneva,2003). 89 pages. Sales No.E.03.II.D.17.

UNCTAD, Investment Policy Review of Ghana (Ge-neva, 2002). 103 pages. Sales No. E.02.II.D.20.

UNCTAD, Investment Policy Review of Botswana(Geneva, 2003). 107 pages. Sales No. E.03.II.D.1.

UNCTAD, Investment Policy Review of Tanzania(Geneva, 2002). 109 pages. Sales No. E.02.II.D.6. $ 20.

UNCTAD, Investment and Innovation Policy Reviewof Ethiopia (Geneva, 2001). 130 pages. Sales No.E.01.II.D.5.

UNCTAD, Investment Policy Review of Ecuador .(Geneva, 2001). 136 pages. Sales No. E.01.II.D.31. $25.Also available in Spanish.

UNCTAD, Investment Policy Review of Mauritius(Geneva, 2000). 92 pages. Sales No. E.00.II.D.11.

UNCTAD, Investment Policy Review of Peru (Geneva,2000). 109 pages. Sales No. E.00.II.D.7.

UNCTAD, Investment Policy Review of Uganda (Ge-neva, 1999). 71 pages. Sales No. E.99.II.D.24.

UNCTAD, Investment Policy Review of Uzbekistan(Geneva, 1999). 65 pages. Document number: UNCTAD/ITE/IIP/Misc.13.

432 World Investment Report 2004: The Shift Towards Services

UNCTAD, Investment Policy Review of Egypt (Geneva,1999). 119 pages. Sales No. E.99.II.D.20. $19.

B. Investment Guides

UNCTAD and ICC, An Investment Guide to Mauritania(Geneva, 2004). Document symbol: UNCTAD/IIA/2004/4. Free of charge.

UNCTAD and ICC, An Investment Guide to Cambo-dia (Geneva, 2003). 89 pages. Document symbol:UNCTAD/IIA/2003/6. Free of charge.

UNCTAD and ICC, An Investment Guide to Nepal(Geneva, 2003). 97 pages. Document symbol: UNCTAD/IIA/2003/2. Free of charge.

UNCTAD and ICC, An Investment Guide to Mozam-bique (Geneva, 2002). 109 pages. Document symbol:UNCTAD/IIA/4. Free of charge.

UNCTAD and ICC, An Investment Guide to Uganda(Geneva, 2001). 76 pages. Document symbol: UNCTAD/ITE/IIT/Misc.30. Publication updated in 2004. Newdocument symbol UNCTAD/ITE/IIA/2004/3. Free ofcharge.

UNCTAD and ICC, An Investment Guide to Mali (Ge-neva, 2001). 105 pages. Document symbol: UNCTAD/ITE/IIT/Misc.24. Publication updated in 2004. Newdocument symbol UNCTAD/ITE/IIA/2004/1. Free ofcharge.

UNCTAD and ICC, An Investment Guide to Ethiopia(Geneva, 2000). 68 pages. Document symbol: UNCTAD/ITE/IIT/Misc.19. Publication updated in 2004. Newdocument symbol UNCTAD/ITE/IIA/2004/2. Free ofcharge.

UNCTAD and ICC, An Investment Guide to Bangla-desh (Geneva, 2000). 66 pages. Document symbol:UNCTAD/ITE/IIT/Misc.29. Free of charge.

C. Contracts and Agreements

UNCTC and Moody’s Investors Service, Directory ofthe World’s Largest Service Companies: Series I (NewYork, 1991). 834 pages. ISSN 10 14-8507. $95.

(To order and other information, please write to:Moody’s Investors Service, 99 Church St., New York,N.Y. 10003, USA.)

UNCTC, International Hotel Chain ManagementAgreements: A Primer for Hotel Owners in DevelopingCountries . Advisory Studies, Series B, No. 5. (NewYork, 1990). 60 pages. Sales No. E.90.II.A.8. $9.

UNCTC, International Debt Restructuring: SubstantiveIssues and Techniques. Advisory Studies, Series B, No.4. (New York, 1989). 91 pages. Sales No. E.89.II.A.10.$ 10.

UNCTC, Joint Ventures as a Form of InternationalEconomic Co-operation. Background documents of theHigh-Level Seminar organized by the United NationsCentre on Transnational Corporations in co-operationwith the State Foreign Economic Commission, and the

State Committee on Science and Technology of theUnion of Soviet Socialist Republics, Moscow, 10 March1988 (New York, 1988). (Also published by Taylor &Francis, New York, 1989). 205 pages (E, R). Sales No.E.88.II.A.12. Out of print. Available on microfiche.Paper copy from microfiche: $270.

UNCTC, Licence Agreements in Developing Countries(New York, 1987). 108 pages. Sales No. E.87.II.A.21.Out of print. Avaiable on microfiche. Paper copy frommicrofiche: $118.

UNCTC/ESCAP Joint Unit, Technology Acquisitionunder Alternative Arrangements with TransnationalCorporations: Selected Industrial Case Studies inThailand. Current Studies, Series A, No. 6. (New York,1987). 55 pages. Sales No. E.87.II.A. 14. Out of print.Available on microfiche. Paper copy from microfiche:$64.

UNCTC, Financial and Fiscal Aspects of PetroleumExploitation. Advisory Studies, Series B, No. 3. (NewYork, 1987). 39 pages. Sales No. E.87.II.A.10. $6.

UNCTC, Arrangements Between Joint Venture Partnersin Developing Countries. Advisory Studies, Series B,No. 2. (New York, 1987). 43 pages. Sales No.E.87.II.A.5. $6.

UNCTC, Natural Gas Clauses in Petroleum Arrange-ments. Advisory Studies, Series B, No. 1. (New York,1987). 54 pages. Sales No. E.87.II.A.3. $8.

UNCTC, Analysis of Engineering and Technical As-sistance Consultancy Contracts (New York, 1986). 517pages. Sales No. E.86.II.A.4. Out of print. Availableon microfiche. Paper copy from microfiche: $530.

UNCTC, Analysis of Equipment Leasing Contracts(New York, 1984). 138 pages. Sales No. E.84.II.A.4.Out of print. Available on microfiche. Paper copy frommicrofiche: $148.

UNCTC, Measures Strengthening the NegotiatingCapacity of Governments in Their Relations withTransnational Corporations. Joint Ventures AmongFirms in Latin America: A Technical Paper (New York,1983). 97 pages. Sales No. E.83.II.A.19. Out of print.Available on microfiche. Paper copy from microfiche:$ 100.

UNCTC, Issues in Negotiating International LoanAgreements with Transnational Banks (New York,1983). 103 pages. Sales No. E. 83.II.A. 18. Out of print.Available on microfiche. Paper copy from microfiche:$110. ~

UNCTC, Transnational Corporations and ContractualRelations in the World Uranium Industry: A TechnicalPaper (New York, 1983). 167 pages. Sales No. E.83.II.A.17. Out of print. Available on microfiche. Paper copyfrom microfiche: $179.

UNCTC, Features and Issues in Turnkey Contracts inDeveloping Countries: A Technical Paper (New York,1983). 156 pages. Sales No. E.83.II.A.13. Out of print.Available on microfiche. Paper copy from microfiche:$160.

UNCTC, Main Features and Trends in Petroleum andMining Agreements (New York, 1983). 129 pages. SalesNo. E.83.II.A.9. Out of print. Available on microfiche.Paper copy from microfiche: $140.

433Selected UNCTAD Publications on TNCs and FDI

UNCTC, Alternative Arrangements for PetroleumDevelopment (New York, 1982). 70 pages. Sales No.E.82.II.A.22. Out of print. Available on microfiche.Paper copy from microfiche: $82.

UNCTC, Management Contracts in Developing Coun-tries: An Analysis of Their Substantive Provisions (NewYork, 1983). 139 pages (E, F, S). Sales No. E.82.II.A.21.Out of print. Available on microfiche. Paper copy frommicrofiche: $150.

D. Other Studies

UNCTAD, Investment Regimes in the Arab World:Issues and Policies . (Geneva, 2000). Sales No. E/F.00.II.D.32. $39.

UNCTC, Debt Equity Conversions: A Guide for De-cision-makers (New York, 1991). 149 pages. Sales No.E.90.II.A.22. $27.50.

UNCTAD, Comparative Analysis of Petroleum Explo-ration Contracts (New York and Geneva, 1995). Ad-visory Studies, Series B, No. 21. 80 pages. Sales No.E. 96.1l.A.7. $35.

UNCTAD, Administration of Fiscal Regimes for Pe-troleum Exploration and Development (New York andGeneva, 1995). Advisory Studies, Series B, No. 20. SalesNo. E.95.II.A.8. $28.

DESD/TCMD, Formulation and Implementation ofForeign Investment Policies: Selected Key Issues .Advisory Studies, Series B, No. 10. (New York, 1992).84 pages. Sales No. E.92.II.A.21. $12.

UNCTC, Government Policies and Foreign DirectInvestment. Current Studies, Series A, No. 17. (NewYork, 1991). 66 pages. Sales No. E.91.II.A.20. $12.50.

UNCTC, National Legislation and Regulations Relatingto Transnational Corporations:

Vol. VIII (Geneva, 1994), 263 pages. Sales No.E.94.1I.A. 18. $60.

Vol. VII (New York, 1989). 320 pages. Sales No.E.89.II.A.9. Out of print. Available on microfiche. Papercopy from microfiche: $328.

Vol. VI (New York, 1988). (Also published by Grahamand Trotman, London/Dordrecht/Boston, 1988). 322pages (E, F, S). Sales No. E.87.H.A.6. Out of print.Available on microfiche. Paper copy from microfiche:$330.

Vol. V (New York, 1986). 246 pages (E, F, S). SalesNo. E.86.II.A.3. Out of print. Available on microfiche.Paper copy from microfiche: $250.

Vol. IV (New York, 1986). 241 pages (E, F, S). SalesNo. E.85.II.A. 14. Out of print. Available on micro-fiche. Paper copy from microfiche: $250.

Vol. III (New York, 1983). 345 pages (E, F, S). SalesNo. E.83.II.A. 15. Out of print. Available on micro-fiche. Paper copy from microfiche: $360.

Vol. II (New York, 1983). 338 pages (E, F, S). SalesNo. E.83.II.A.7. Out of print. Available on microfiche.Paper copy from microfiche: $340.

Vol. I (Part Two) (New York, 1980). 114 pages (E,F, S). Sales No. E.80.II.A.5 and corrigendum. Out ofprint. Available on microfiche. Paper copy from mi-crofiche: $120.

Vol. I (Part One) (New York, 1978). 302 pages (E,F, S). Sales No. E.78.II.A.3 and corrigendum. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $300.

UNCTC, International Income Taxation and Devel-oping Countries (New York, 1988). 103 pages. SalesNo. E.88.II.A.6. Out of print. Available on microfiche.Paper copy from microfiche: $120.

UNCTC, The Impact of Multinational Corporationson Development and on International Relations. Tech-nical Paper: Taxation (New York, 1974). 111 pages.Sales No. E.74.II.A.6. Out of print. Available on mi-crofiche. Paper copy from microfiche: $110.

VIII. INTERNVIII. INTERNVIII. INTERNVIII. INTERNVIII. INTERNAAAAATIONTIONTIONTIONTIONALALALALALSTSTSTSTSTANDANDANDANDANDARDS OF AARDS OF AARDS OF AARDS OF AARDS OF ACCOUNTINGCCOUNTINGCCOUNTINGCCOUNTINGCCOUNTING

AND REPORAND REPORAND REPORAND REPORAND REPORTINGTINGTINGTINGTING

UNCTAD, International Accounting and ReportingIssues:

2003 Review (Geneva, 2003). UNCTAD/ITE/TEB/2003/4.

2002 Review (Geneva, 2002). UNCTAD/ITE/TEB/2003/9.

2001 Review (Geneva, 2001). 66 pages. Sales No.E.03.II.E.3

1999 Review (Geneva, 1999). 155 pages. Sales No.E.99.II.D.27.

1998 Review (Geneva, 1998). 463 pages. Sales No.E.98.II.D.5. $50.

1996 Review (Geneva, 1997). 175 pages. Sales No.E.97.II.D. 12. $50.

1995 Review (Geneva, 1995). 155 pages. Sales No.E.95.II.A. 11. $47.50.

1994 Review. (Geneva, 1995). 94 pages. Sales No.E.95.II.A.3. $27.50.

1993 Review. (Geneva, 1994). 245 pages. Sales No.E.94.II.A. 16. $25.

1992 Review (Geneva, 1993). 328 pages. Sales No.E.93.II.A.6. $25.

1991 Review (New York, 1992). 243 pages (E, F, S).Sales No. E.92.II.A.8. $25.

1990 Review (New York, 1991). 236 pages (E, F, S).Sales No. E.90.II.A.3. $9.

1989 Review (New York, 1990). 152 pages (E, F, S).Sales No. E.90.II.A.4. $17.

1988 Review (New York, 1989). 95 pages (E, F, S). SalesNo. E.89.1I.A.3.

434 World Investment Report 2004: The Shift Towards Services

Out of print. Available on microfiche. Paper copyfrom microfiche: $165.

1987 Review (New York, 1988). (Also published byGraham and Trotman, London/Dordrecht/Boston,1988). 135 pages. Sales No. E.88.II.A.8. Out of print.Available on microfiche. Paper copy from micro-fiche: $152.

1986 Review (New York, 1986). 158 pages. SalesNo. E.86.II.A.16. Out of print. Available on micro-fiche. Paper copy from microfiche: $162.

1985 Review (New York, 1985). 141 pages (E, F,S). Sales No. E.85.II.A. 13. Out of print. Availableon microfiche. Paper copy from microfiche: $152.

1984 Review (New York, 1985). 122 pages (E, F,S). Sales No. E.85.II.A.2. Out of print. Availableon microfiche. Paper copy from microfiche: $138.

These annual publications report of sessions of theIntergovernmental Working Group of Experts onInternational Standards of Accounting and Reporting(ISAR).

UNCTAD, A Manual for the Preparers and Users ofECO-efficiency Indicators (New York and Geneva,2004). Sales No. E.04.II.D.13

UNCTAD, Selected Issues in Corporate Governance:Regional and Country Experiences (New York andGeneva, 2003). Sales No. E.03.II.D.26

UNCTAD, Accounting and Financial Reporting forEnvironmental Costs and Liabilities (New York andGeneva, 1998).184 pages (A, C, E, F, R, S). Sales No.A/C/E/F/WS.98.II.D. 14. $19.

UNCTAD, Financial Disclosure by Banks: Proceed-ings of an UNCTAD Forum (New York and Geneva,1998). 84 pages. Sales No. E.98.II.D. 13. $13.

UNCTAD, Responsibilities and Liabilities of Account-ants and Auditors: Proceedings of a Forum (Geneva,1995). Sales No. E.95.II.A. 10.

UNCTAD, Accounting for Sustainable Forestry Man-agement: A Case Study (New York and Geneva, 1994).46 pages. Sales No. E.94.II.A. 17. $22.

UNCTAD, Conclusions on Accounting and Reportingby Transnational Corporations (New York and Geneva,1994). 47 pages. Sales No. E.94.II.A.9. $12.

UNCTAD, Accounting, Valuation and Privatization(New York and Geneva, 1994). 190 pages. Sales No.E.94.II.A.3. $25.

UNCTC, Accounting for East-West Joint Ventures (NewYork, 1992). 282 pages. Sales No. E.92.II.A. 13. $25.

DES13/TCMD, Environmental Accounting: CurrentIssues, Abstracts and Bibliography. Advisory Studies,Series B, No. 9. (New York, 1992). 86 pages. Sales No.E.92.II.A.23. $15.

UNCTC, Accountancy Development in Africa: Chal-lenge of the 1990s (New York, 1991). 200 pages (E,F). Sales No. E.91.II.A.2. $25.

UNCTC, Joint Venture Accounting in the USSR: Di-rection for Change. Advisory Studies, Series B, No.7. (New York, 1990). 46 pages. Sales No. E.90.II.A.26.$11.

UNCTC, Curricula for Accounting Education for East-West Joint Ventures in Centrally Planned Economies.Advisory Studies, Series B, No. 6. (New York, 1990).86 pages. Sales No. E.90.II.A.2. $10.

UNCTC, Objectives and Concepts Underlying FinancialStatements (New York, 1989). 32 pages (A, C, E, F, R,S). Sales No. E.89.II.A.18. $8.

UNCTC, Conclusions on Accounting and Reportingby Transnational Corporations: The IntergovernmentalWorking Group of Experts on International Standardsof Accounting and Reporting (New York, 1988). 58pages (A, C, E, F, R, S). Sales No. E.88.II.A.18. $7.50.

UNCTC, International Standards of Accounting andReporting: Report of the Ad Hoc IntergovernmentalWorking Group of Experts on International Standardsof Accounting and Reporting (New York, 1984). 55pages (C, E, F, R, S). Sales No. E.84.II.A.2. Out of print.Available on microfiche. Paper copy from microfiche:$63.

UNCTC, Towards International Standardization ofCorporate Accounting and Reporting (New York, 1982).104 pages (E, F, R, S). Sales No. E.82.II.A.3. Out ofprint. Available on microfiche. Paper copy from micro-fiche: $25.

UNCTC, International Standards of Accounting andReporting for Transnational Corporations: Report ofthe Secretary- General, and Report of the Group ofExperts on International Standards of Accounting andReporting (New York, 1977). 79 pages (E, F, R, S). SalesNo. E.77.II.A.17. Out of print. Available on microfiche.Paper copy from microfiche: $80.

UNCTC, International Standards of Accounting andReporting for Transnational Corporations: TechnicalPapers (New York, 1977). 96 pages (E, F, S). Sales No.E.77.II.A. 15. Out of print. Available on microfiche.Paper copy from microfiche: $ 100.

IX. DIX. DIX. DIX. DIX. DAAAAATTTTTA AND INFORMAA AND INFORMAA AND INFORMAA AND INFORMAA AND INFORMATIONTIONTIONTIONTIONSOURSOURSOURSOURSOURCESCESCESCESCES

UNCTAD, World Investment Directory.

Volume IX: Latin America and the Caribbean (NewYork and Geneva, 2004). Sales No. E.03.II.D.12. $25.

Volume VIII: Central and Eastern Europe (New Yorkand Geneva, 2003). Sales No. E.03.II.D.12. $25.

Volume VII: Asia and the Pacific (New York andGeneva, 2000). 356 pages. Sales No. E.00.II.D.11. $80.

Volume VI: West Asia (New York and Geneva, 1997).138 pages. Sales No. E.97.II.A.2. $35.

Volume V: Africa (New York and Geneva, 1997). 462pages. Sales No. E.97.II.A.1. $75.

435Selected UNCTAD Publications on TNCs and FDI

Volume IV: Latin America and the Caribbean (NewYork, 1994). 478 pages. Sales No. E.94.II.A.10. $65.

Volume III: Developed Countries (New York, 1993).532 pages. Sales No. E.93.II.A.9. $75.

Volume II: Central and Eastern Europe (New York,1992) 432 pages. Sales No. E.93.II.A.1. $65.

Volume I: Asia and the Pacific (New York, 1992). 356 pages. Sales No. E.92.II.A.11. Out of print. Availableon microfiche. Paper copy from microfiche: $370.

The World Investment Directory contains time-seriesdata on FDI, as well as corporate data on the largestforeign affiliates and legal information for the coun-tries of each region. A number of volumes also containanalytical overviews and detailed technical introduc-tions.

UNCTAD, Investment Promotion Agencies: Directoryof Members of the World Association of InvestmentPromotion Agencies 1999, Fifth Edition (Geneva, 1999).An annual publication containing contact addresses ofheads of investment promotion agencies and institutionsworldwide. Available free of charge.

DESD/TCMD, Transnational Corporations: A SelectiveBibliography, 1991-1992 (New York, 1993). 736 pages(E, F). Sales No. E1F.93.II.A. 16. $75.

DESD)/TCMD, The East- West Business Directory1991-1992 (New York, 1992). 567 pages. Sales No.E.92.II.A.20. $65.

UNCTC, Transnational Business Information: AManual of Needs and Sources (New York, 1991). 228pages (E, F, S). Sales No. E.91.II.A. 13. $45.

The manual discusses the needs of developing coun-tries for information in all phases of their relations withTNCs and identifies sources that can help to meet thoseneeds.

UNCTC, University Curriculum on TransnationalCorporations:

Vol. I Economic Development (New York, 1991). 186pages. Sales No. E.91.II.A.5. $20.

Vol. II International Business (New York, 1991).154pages. Sales No. E.9 I.H.A.6. $20.

Vol. III International Law (New York, 1991). 180pages. Sales No. E.91.II.A.7. $20.

(The set: Document Symbol: ST/CTC/62. Sales No.E.91.II.A.8. $50.)

UNCTC, Transnational Corporations: A SelectiveBibliography, 1988-1990 Les Sociétés Transnationales:Bibliographie Sélective, 1988-1990 (New York, 1991).617 pages (E, F). Sales No. E/R9 1.II.A.10. $75.

UNCTC, Workshop Papers of UNCM, Annotated Bib-liography with Indexes, 1978-91 (New York, 1991). 153pages. Free of charge.

UNCTC, Documents of the Joint Units of UNCTC andthe Regional Commissions, 1975-1991 (New York,1991). 33 pages. Free of charge.

UNCTC, Transnational Corporations in South Africaand Namibia: A Selective Bibliography (New York,1989). 98 pages. Sales No. E.89.II.A. 13. Out of print.Available on microfiche. Paper copy from microfiche:$ 100.

UNCTC, Transnational Corporations: A SelectiveBibliography, 1983-1987. Les Sociétés Transnationales:Bibliographie Sélective, 1983-1987:

Main List by Category, Author Index, Title Index1ListePrincipale par Catigorie, Index des Auteurs, Index desTitres. Volume I (New York, 1988). 442 pages. SalesNo. E.88.H.A.9. Out of print. Available on microfiche.Paper copy from microfiche: $450.

Subject Index/Index des Matiéres. Volume II (NewYork, 1988). 458 pages (E, F). Sales No. E/F.88.II.A.10.Two-volume set. Out of print. Available on microfiche.Paper copy from microfiche: $170.

UNCTC, UNCTC Bibliography 1974-1987 (New York,1988). 83 pages. Sales No. E.87.H.A.23. Out of print.Available on microfiche. Paper copy from microfiche:$90.

UNCTC, Publication Reviews: 1975-1987 (New York,1988). 101 pages. Free of charge.

UNCTC, List of Company Directories and Summaryof Their Contents/List d’Annuaires de Sociétés etRésumé de Leurs Données, Second ed . (New York,1983). 160 pages (E, F). Sales No. E/E83.II.A. 10. Outof print. Available on microfiche. Paper copy frommicrofiche: $170.

UNCTC, Users Guide to the Info~tion System onTransnational Corporations: A Technical Paper (NewYork, 1980). 30 pages (E, F, R, S). Sales No. E.80.II.A.6.Out of print. Available on microfiche. Paper copy frommicrofiche: $35.

UNCTC, International Directory of Data Bases Relat-ing to Companies (New York, 1979). 246 pages. SalesNo. E.79.II.A. 1. Out of print. Available on microfiche.Paper copy from microfiche: $260.

UNCTC, Bibliography on Transnational Corporations(New York, 1979). 426 pages (E, F). Sales No. E/E78.II.A.4. Out of print. Available on microfiche. Papercopy from microfiche: $430.

UNCTC, Survey of Research on Transnational Cor-porations (New York, 1977). 534 pages. Sales No.E.77.II.A.16. Out of print. Available on microfiche.Paper copy from microfiche: $530.

UNCTC, List of Company Directories and Summaryof Their Contents (New York, 1977). 60 pages. SalesNo. E.77.1l.A.8. Out of print. Available on microfiche.Paper copy from microfiche: $62.

UNCTC, Establishment of a Comprehensive Informa-tion System on Transnational Corporations: Govern-ment Replies (New York, 1977). 26 pages (E, F, S). SalesNo. E.77.1l.A.7. Out of print. Available on microfiche.Paper copy from microfiche: $30.

UNCTC, Curricula for Accounting Education for East-West Joint Ventures in Centrally Planned Economies.Advisory Studies, Series B, No. 6. (New York, 1990).86 pages. Sales No. E.90.II.A.2. $10.

436 World Investment Report 2004: The Shift Towards Services

HOW TO OBTAIN THE PUBLICATIONS

The sales publications may be purchased from distributors of United Nations publicationsthroughout the world. They may also be obtained by writing to:

United Nations Publications or United Nations PublicationsSales and Marketing Section, Sales and Marketing Section,DC2-853 Rm. C. 113-1United Nations Secretariat United Nations Office at GenevaNew York, N.Y. 100 17 Palais des NationsU.S.A. CH-1211 Geneva 10Tel.: ++1 212 963 8302 or 1 800 253 9646 SwitzerlandFax: ++1 212 963 3489 Tel.: ++41 22 917 2612E-mail: publications@un.org Fax: ++4122 917 0027

E-mail: unpubli@unog.chINTERNET: www.un.org/Pubs/sales.htm

For further information on the work on foreign direct investment and transnational corporations,please address inquiries to:

Karl SauvantDirector

Division on Investment, Technology and Enterprise DevelopmentUnited Nations Conference on Trade and Development

Palais des Nations, Room E-10052CH-1211 Geneva 10 Switzerland

Telephone: ++41 22 907 5007Fax: ++41 22 907 0498

E-mail: karl.sauvant@unctad.org

INTERNET: www.unctad.org/en/subsites/dite

QUESTIONNAIRE

World Investment Report 2004:The Shift Towards Services

In order to improve the quality and relevance of the work of the UNCTAD Division on Investment,Technology and Enterprise Development, it would be useful to receive the views of readers on this andother similar publications. It would therefore be greatly appreciated if you could complete the followingquestionnaire and return it to:

Readership SurveyUNCTAD, Division on Investment,Technology and Enterprise DevelopmentPalais des NationsRoom E-10054CH-1211 Geneva 10SwitzerlandOr by Fax to: (+41 22) 907 04 98

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This questionnaire is alsoavailable to be filled out online at: www.unctad.org/wir.

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If not, please check here if you would like to receive a sample copy sent to the name and addressyou have given above. Other title you would like to receive instead (see list of publications):

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