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F LOWS OF INVESTMENT CAPITAL FROM EXTRA-REGIONAL SOURCES

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  1. FLOWS OF INVESTMENT CAPITAL FROM EXTRA-REGIONAL SOURCES Prepared for Caribbean Connect Barbados: June 28-30, 2006 Evelyn Wayne, CARICOM Secretariat

  2. Overview • Background • Importance of FDI to CARICOM States • Trends in Investment Flows to CARICOM (1990-2006) • Impact • Policy Recommendations.

  3. BACKGROUND • Foreign Direct Investment is considered critical to the growth and development of CARICOM Economies. • National Development Strategies usually treat FDI as a limiting factor and/or a catalyst to growth and development. • Resulted in a significant build-up of stock of foreign capital in CARICOM States

  4. FDI STOCKS % OF GDP (1990-2004)

  5. FDI STOCKS % OF GDP (1990-2004)

  6. Mixed Performance Attracting FDI • UNCTAD FDI Performance Index – • ranked Guyana (#5)and Trinidad (#6) among Top Ten Performers in 1997. • shows the overall performance of CARICOM States declining between 1997-2003. • Improvements in the ranking of individual States.

  7. UNCTAD Inward FDI Performance Index (Ranking)

  8. UNCTAD Inward FDI Potential Index (Ranking)

  9. In Summary…… • Bahamas and Trinidad and Tobago were considered to have high FDI potential and to have performed well. • Guyana and Jamaica were categorized as having low FDI potential but to have performed above average. • Haiti and Suriname were considered to be underperformers.

  10. TRENDS: CARICOM Inflows Relative to Inflows Worldwide

  11. TRENDS: CARICOM FDI Inflows (US$MN.)(1995-2004)

  12. TRENDS: Components and Origin • Equity Capital is the main form of FDI in CARICOM. • However, decline in greenfield projects coming to the Region – 13 in 2002, 8 in 2004. • Main sources of FDI continue to be the USA, UK and Canada. USA was major source for almost all States. • Evidence of some diversification of sources (primarily from other developing countries – Malaysia, Colombia, Dominican Republic and India)

  13. TRENDS: Sectoral Distribution • FDI continue to be concentrated in a few resource-based sectors – primarily mineral extraction and tourism; and agriculture/forestry, to a lesser extent. • Inflows to tourism have overtaken inflows to other major sectors in several States. • Many States recorded declining flows to the manufacturing sector. • Jamaica appeared to be the only CARICOM State where FDI flows exhibited a diversified sectoral distribution between 1998-2003

  14. Evidence of Diversification • Available data show some degree of diversification in inflows to the tertiary (services) reflective of international trends. • Liberalization of telecommunications sector in several States resulted in considerable inflows to this sector and for development of a growing ICT sector. • This is more pronounced in Jamaica which became the primary Caribbean destination for the location of offshore call centres. • New areas of comparative advantage developing viz • Offshore medical and education facilities; • Creative industries – fashion design, film-making and music.

  15. Impact • FDI usually results in the transfer of a bundle of assets which translates into economic growth in recipient countries. • Available data shows that while CARICOM is home to relatively large stocks of FDI leading to sometimes, high levels of economic growth, significant industrial diversification and transformation somewhat lacking.

  16. The Challenge …. • Not only how best to attract foreign capital but how to ensure that the activities of the companies they attract serve the developmental goals of the Community.

  17. Policy Recommendations • A proactive investment promotion strategy. • Proactive efforts to enhance development of domestic and regional private sector.

  18. Proactive Investment Promotion Strategy • CARICOM investment policy and promotion strategy which is broadbased and all encompassing at the regional level and targeted at the national level. • Targeting should focus on attracting investments for production of higher value-added, technology-embedded goods and services.

  19. Elements of IP Strategy • Promote CARICOM as a single investment location. • Role of IPAs should be enhanced to promote Community as a single investment location while targeting desired investments for specific jurisdictions. • Effective use should be made of Community’s arrangements with third States.

  20. Private Sector Development • Entrepreneurial capacity in CARICOM is considered weak • To achieve growth – need to attract new knowledge-based and technology superior investments. • A vibrant and dynamic domestic private sector is important signal that a country is conducive and supportive of private enterprise.

  21. Private Sector Development • Correct deficiencies in business environment • Administrative and regulatory procedures • Physical infrastructural deficiencies. • Address quality of life issues (crime) – personal security and safety, physical protection of assets.

  22. Thank You