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Preliminary version EMBARGO 18 SEPTEMBER 2001 17:00 hrs GMT. World Investment Report 2001. Promoting Linkages 18 September 2001 [ADD VENUE]. UNCTAD. Global inflows of FDI 1993-2000, USD billions, by group of countries. Source: UNCTAD. The 10 largest FDI destinations 2000, USD billions.

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world investment report 2001

Preliminary version

EMBARGO 18 SEPTEMBER 2001

17:00 hrs GMT

World Investment Report 2001

Promoting Linkages

18 September 2001

[ADD VENUE]

UNCTAD

global inflows of fdi 1993 2000 usd billions by group of countries
Global inflows of FDI1993-2000, USD billions, by group of countries

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the 10 largest fdi destinations 2000 usd billions
The 10 largest FDI destinations2000, USD billions

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the 10 largest sources of fdi 2000 usd billions
The 10 largest sources of FDI2000, USD billions

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide5

FDI inflows and outflows by region and economy

USD billions, 2000

Note: Africa includes South Africa; Central and Eastern Europe includes Developing Europe

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

number of cross border mega deals 1995 2000
Number of cross-border “mega deals”* 1995-2000

* Deals with transaction values of more than USD 1 billion

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide7
FDI flows relative to the value of gross fixed capital formation,per cent, 1997-99, developed countries

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide8
FDI flows relative to the value of gross fixed capital formation,per cent, 1997-99, Africa, top 20 countries

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide9
FDI flows relative to the value of gross fixed capital formation,%, 1997-99, Dev. Asia-Pacific, top 20 countries

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide10
FDI flows relative to the value of gross fixed capital formation,per cent, 1997-99, Latin Am./Carribbean, top 20

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide11
FDI flows relative to the value of gross fixed capital formation,per cent, 1997-99, Central and Eastern Europe

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

share of developing countries in world fdi 1980 2000 per cent
Share of developing countries in world FDI1980-2000, per cent

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide13
Outward FDI from some developing countries1997-1999, FDI outflows as a percentage of gross fixed capital formation

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide14

The Geography of

International Production

World Investment Report 2001: Promoting Linkages

tnc activities continue to expand
TNC activities continue to expand

62,000 TNCs

820,000 foreign affiliates

Affiliate sales now almost twice the value of global exports

FDI most important external capital source in developing countries

FDI flows highly concentrated: 10 countries receive 75 % of total inflows

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

changing geography of international production
Changing geography of international production
  • 1985: 17 countries received more than $1 billion of FDI
  • 2000: 51 countries received more than $1 billion of FDI
  • 1985: 13 countries had outflows of more than $1 billion
  • 2000: 33 countries had outflows of more than $1 billion
  • In 2000: top 30 countries accounted for 99% of world outflows
  • In 2000: top 30 countries accounted for 95% of world inflows

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

some key characteristics
Some key characteristics
  • Services are growing in importance
  • Technologically more advanced activities tend to be more concentrated
    • Biotechnology among the most concentrated activities
    • Food and beverages among the most dispersed
  • Specialization and internationalization go hand in hand.
  • Even critical functions such as design, R&D and financial management are becoming more internationalized
  • Innovative clusters attract FDI, e.g.:
    • Silicon Valley, California
    • Silicon Fen, Cambridge
    • Wireless Valley, Stockholm

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

generations of investment promotion policies
Generations of investment promotion policies
  • 1st generation:
    • liberalization of FDI flows
    • opening up of sectors to foreign investors
  • 2nd generation:
    • marketing of countries as locations for FDI
    • setting up of national investment promotion agencies
  • 3rd generation:
    • targeting of foreign investors at the level of industries and clusters
    • marketing of regions and clusters
    • aim: to match the locational advantages of countries with the needs of the foreign investor.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

an increasingly enabling framework for fdi number of national regulatory changes in 1991 2000
An increasingly enabling framework for FDInumber of national regulatory changes in, 1991-2000

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide20

The World’s Top 100 TNCs

World Investment Report 2001: Promoting Linkages

the world s top 100 tncs 1999 some facts
The world’s top 100 TNCs 1999 - some facts
  • 91 are based in the “Triad”
  • 3 firms from developing countries made the list
  • Half of the largest 100 firms are in three industries
    • electrical and electronic equipment
    • motor vehicle
    • petroleum exploration and distribution industries
  • The top 100 accounted for
    • 12 per cent of the foreign assets;
    • 16 per cent of the sales; and
    • 15 per cent of the employment...

...in all TNCs.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the top 10 largest tncs in the world by foreign assets usd billions 1999
The top 10 largest TNCs in the world, by foreign assets, USD billions, 1999

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the top 10 largest tncs in developing countries by foreign assets usd millions 1999
The top 10 largest TNCs in developing countries, by foreign assets, USD millions, 1999

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the top 10 largest tncs in central and eastern europe by foreign assets usd millions 1999
The top 10 largest TNCs in Central and Eastern Europe, by foreign assets, USD millions, 1999

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

slide25

Promoting Linkages

World Investment Report 2001: Promoting Linkages

slide26

Why promote backward linkages?

  • Potential benefits to foreign affiliates, local firms and host countries.
  • Foreign affiliates: using suppliers in a host country way to reduce costs, increase flexibility and expand sales. Outsourcing and sub-contracting raise the need for inter-firm linkages.
  • Local firms: become part of global production networks of TNCs, can increase sales and benefit from productivity-enhancing information and knowledge transmitted from foreign affiliates.
  • Host countries: can benefit when linkages contribute to the upgrading of domestic enterprises and as foreign affiliates become more firmly embedded in the host economy.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

strategic options for obtaining inputs
Strategic options for obtaining inputs

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

many factors affect the linkage creation process
Many factors affect the linkage creation process
  • Industry-specific determinants
  • TNC-specific determinants
    • investment motives and strategies;
    • technology and market position of the TNC;
    • role assigned to a foreign affiliates;
    • age of foreign affiliate;
    • mode of establishment
    • size of affiliate
  • Host-country-specific determinants
    • level of economic development
    • availability of competitive suppliers
    • availability of support institutions
    • legal and economic policy framework

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

supplier development efforts by tncs
Supplier development efforts by TNCs
  • Supply chain management more important.
  • Some TNCs have established special linkage development programmes.
  • Objective: expand the number of efficient suppliers, and/or to help existing suppliers improve their capabilities.
  • Efforts have been made to e.g.:
    • find new suppliers;
    • provide technology and technical assistance;
    • give training;
    • share information; and/or
    • extend financial support.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

policy framework for promoting backward linkages
Policy framework for promoting backward linkages

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the linkages policy environment
The linkages policy environment

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the role of trade and investment measures
The role of trade and investment measures
  • Various performance requirements
    • local content (not permissible under the WTO TRIMs Agreement)
    • joint venture
    • export performance

FDI and trade liberalization, and more intense competition for FDI, have reduced the reliance by countries on many performance requirements.

  • Incentives
    • incentives linked to local content are not permissible under the TRIMs Agreement;
    • the use of incentives must also be compatible with the Agreement on Subsidies and Countervailing Measures;
    • Well targeted incentives to promote the strengthening of linkages can be important. Maybe such development-related subsidies should be rendered non-actionable.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

best practice in linkage promotion the need for public private partnerships
Best practice in linkage promotionThe need for public-private partnerships
  • Role of foreign affiliates
    • indicate scope for local sourcing
    • help identify suppliers with greatest potential
    • specify requirements
    • participate in training, provide information and knowledge
  • Role of government
    • formulate and adopt adequate laws and incentives
    • set up an appropriate institutional framework
    • make sure that support required is provided (by public or private service providers) to the firms targeted
    • policy coherence

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

best practice in linkage promotion some key lessons
Best practice in linkage promotionsome key lessons
  • Matchmaking needs to be complemented by measure to upgrade local supply capacity
  • Supplier development efforts should be selective and target SMEs that show the greatest potential for growth
  • Cooperation and coordination among the various government agencies involved is important.
  • Efforts need to tally with SME development and FDI policies
  • Identify the best service providers of business support -- whether they be private or public.
  • Efforts must be adapted to the specific circumstances of each country or sub-national location.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the national linkage programme in ireland basic facts
The National Linkage Programme in Irelandbasic facts
  • Run by Enterprise Ireland
  • Dates back to the mid-1980s
  • Two main tasks:
    • to support Irish enterprises to build capacity, innovate and create new partnerships
    • to assist international investors to source and identify key suppliers in Ireland
  • Key industries: electronics, engineering and pharamceuticals
  • Has focused on 70-80 Irish firms and involved some 250 foreign affiliates.
  • Rapid growth of local purchases of raw materials and services
  • Several SMEs have become successful international subcontractors.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

the local industry upgrading programme liup in singapore
The Local Industry Upgrading Programme (LIUP) in Singapore
  • Run by the Economic Development Board (EDB)
  • Started in 1986
  • Aim: to upgrade, strengthen and expand the pool of local suppliers to foreign affiliates by enhancing their efficiency, reliability and international competitiveness.
  • Close collaboration with foreign affiliates.
  • In 1999, some 30 foreign affiliates and 11 large domestic companies were partnering some 670 vendors under the LIUP.
  • Several local firms under the programme have managed to become preferred global first-tier suppliers to their customers and TNCs in their own right.

Source: UNCTAD

World Investment Report 2001: Promoting Linkages

a linkage promotion programme key elements
A Linkage Promotion Programme - key elements

1. Setting the policy objectives

2. Identifying the targets of the programme

- selection of industries, foreign affiliates and domestic firms

3. Identifying specific measures to be adopted:

- information and matchmaking

- technology and technical assistance

- training

- provision of finance

4. Setting up institutional and administrative framework to implement and monitor the programme

Source: UNCTAD

World Investment Report 2001: Promoting Linkages