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Regional Trends in Fdi

REGIONAL TRENDS IN FDI CHAPTER II Salient features of 2011 FDI trends by region include the following: • Sub-Saharan Africa drew FDI not only to its natural resources, but also to its emerging consumer markets as the growth outlook remained positive. Political uncertainty in North Africa deterred investment in that region. • FDI inflows reached new record levels in both East Asia and South-East Asia, while the latter is catching up with the former through higher FDI growth.

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FDI inflows to South Asia turned around as a result of higher inflows to India, the dominant FDI recipient in the region. • Regional and global crises still weigh on FDI in West Asia, and prospects remain unclear. • South America was the main driver of FDI growth in Latin America and the Caribbean. The pattern of investment by traditional investors – Europe and the United States – is changing, while there has been an advance in FDI from developing countries and Japan.

A recent shift towards industrial policy in major countries may lead to investment flows to targeted industries. • FDI flows to economies in transition recovered strongly. They are expected to grow further, partly because of the accession of the Russian Federation to the World Trade Organization (WTO). • The search for energy and mineral resources resulted in cross-border megadeals in developed countries, but the eurozone crisis and a generally weak outlook still cloud investor sentiment. FDI inflows to the structurally weak, vulnerable and small economies were mixed. While FDI to landlocked developing countries (LLDCs) grew strongly, inflows to least developed countries (LDCs) and small island developing States (SIDS) continued to fall. 38 World Investment Report 2012: Towards a New Generation of Investment Policies INTRODUCTION In 2011, FDI inflows increased in all major economic groups ? developed, developing and transition economies (table II. 1).

Developing countries accounted for 45 per cent of global FDI inflows in 2011. The increase was driven by East and SouthEast Asia and Latin America. East and South-East Asia still accounted for almost half of FDI in developing economies. Inflows to the transition economies of South-East Europe, the Commonwealth of Independent States (CIS) and Georgia accounted for another 6 per cent of the global total. The rise in FDI outflows was driven mainly by the growth of FDI from developed countries.

The growth in outflows from developing economies seen in the past several years appeared to lose some momentum in 2011 because of significant declines in flows from Latin America and the Caribbean and a slowdown in the growth of investments from developing Asia (excluding West Asia). FDI inflows to the structurally weak, vulnerable and small economies bounced back from $42. 2 billion in 2010 to $46. 7 billion in 2011, owing to the strong growth in FDI to LLDCs (table II. 1). However, the improvement in their share was hardly visible, as FDI inflows to both LDCs and SIDS continued to fall.

Table II. 1. FDI flows, by region, 2009–2011 (Billions of dollars and per cent) Region World Developed economies Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies Structurally weak, vulnerable and small economiesa LDCs LLDCs SIDS Memorandum: percentage share in world FDI flows Developed economies Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies Structurally weak, vulnerable and small economiesa LDCs LLDCs SIDS 2009 1 197. 606. 2 519. 2 52. 6 206. 6 42. 4 66. 3 149. 4 72. 4 45. 2 18. 3 28. 0 4. 4 50. 6 43. 3 4. 4 17. 2 3. 5 5. 5 12. 5 6. 0 3. 8 1. 5 2. 3 0. 4 FDI inflows 2010 1 309. 0 618. 6 616. 7 43. 1 294. 1 31. 7 58. 2 187. 4 73. 8 42. 2 16. 9 28. 2 4. 2 47. 3 47. 1 3. 3 22. 5 2. 4 4. 4 14. 3 5. 6 3. 2 1. 3 2. 2 0. 3 2011 1 524. 4 747. 9 684. 4 42. 7 335. 5 38. 9 48. 7 217. 0 92. 2 46. 7 15. 0 34. 8 4. 1 49. 1 44. 9 2. 8 22. 0 2. 6 3. 2 14. 2 6. 0 3. 1 1. 0 2. 3 0. 3 2009 1 175. 1 857. 8 268. 5 3. 2 176. 6 16. 4 17. 9 54. 3 48. 8 5. 0 1. 1 4. 0 0. 3 73. 0 22. 0. 3 15. 0 1. 4 1. 5 4. 6 4. 2 0. 4 0. 1 0. 3 0. 0 FDI outflows 2010 1 451. 4 989. 6 400. 1 7. 0 243. 0 13. 6 16. 4 119. 9 61. 6 11. 5 3. 1 9. 3 0. 3 68. 2 27. 6 0. 5 16. 7 0. 9 1. 1 8. 3 4. 2 0. 8 0. 2 0. 6 0. 0 2011 1 694. 4 1 237. 5 383. 8 3. 5 239. 9 15. 2 25. 4 99. 7 73. 1 9. 2 3. 3 6. 5 0. 6 73. 0 22. 6 0. 2 14. 2 0. 9 1. 5 5. 9 4. 3 0. 5 0. 2 0. 4 0. 0 Source: UNCTAD, FDI/TNC database (www. unctad. org/fdistatistics). a Without double counting. CHAPTER II Regional Trends in FDI 39 1. Africa A. REGIONAL TRENDS Fig. FID ows – Africa Figure A.

FDI flows, top 5 host and home economies, 2010–2011 (Billions of dollars) (Host) Nigeria South Africa Ghana Angola Table A. Distribution of FDI flows among economies, by range,a 2011 Range Above $3. 0 billion $2. 0 to $2. 9 billion Inflows Outflows Nigeria, South Africa .. and Ghana Congo, Algeria, Morocco, .. Mozambique, Zambia Sudan, Chad, Democratic $1. 0 to Republic of the Congo, Guinea, Angola, Zambia $1. 9 billion Tunisia, United Republic of Tanzania, Niger Madagascar, Namibia, Uganda, $0. 5 to Equatorial Guinea, Gabon, Egypt, Algeria $0. billion Botswana, Liberia Zimbabwe, Cameroon, Cote d’Ivoire, Kenya, Senegal, $0. 1 to Mauritius, Ethiopia, Mali, Liberia, Morocco, Libya $0. 4 billion Seychelles, Benin, Central African Republic, Rwanda, Somalia Swaziland, Cape Verde, Djibouti, Democratic Republic of the Congo, Mauritius, Malawi, Togo, Lesotho, Sierra Gabon, Sudan, Senegal, Niger, Tunisia, Togo, Leone, Mauritania, Gambia, Zimbabwe, Kenya, Cote d’Ivoire, Seychelles, Below Guinea-Bissau, Eritrea, Sao Ghana, Guinea, Swaziland, Mauritania, Burkina $0. billion Tome and Principe, Burkina Faso, Botswana, Benin, Mali, Guinea-Bissau, Faso, Comoros, Burundi, Egypt, Sao Tome and Principe, Cape Verde, Namibia, Angola Mozambique, Cameroon, South Africa, Nigeria a Economies are listed according to the magnitude of their FDI flows. (Home) Zambia Egypt Congo Algeria Algeria 2011 2010 Liberia 0. 0 0. 2 0. 4 0. 6 0. 8 1. 0 2011 2010 1. 2 1. 4 1. 6 0. 0 1. 0 2. 0 3. 0 4. 0 5. 0 6. 0 7. 0 8. 0 9. 0 10. 0 Fig.

B – Africa FDI in ows Figure B. FDI inflows, 2005–2011 (Billions of dollars) West Africa Fig. C – Africa FDI out ows Figure C. FDI outflows, 2005–2011 (Billions of dollars) 10 8 6 4 2 0 – 2 Central Africa Southern Africa East Africa North Africa 2005 2006 2007 70 60 50 40 30 20 10 0 Central Africa Southern Africa North Africa East Africa West Africa 2008 2009 2010 2011 2005 3. 1 2006 2. 5 2007 2. 6 2008 3. 2 2009 4. 4 2010 3. 3 2011 2. 8 Share in world total – 4 0. 2 . 6 0. 4 0. 4 0. 3 0. 5 0. 2 Table B. Cross-border M&As by industry, 2010–2011 (Millions of dollars) Sector/industry Total Primary Mining, quarrying and petroleum Manufacturing Food, beverages and tobacco Chemicals and chemical products Metals and metal products Electrical and electronic equipment Services Trade Transport, storage and communications Finance Business services Table C. Cross-border M&As by region/country, 2010–2011 (Millions of dollars) Region/country

World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies 4 812 – 22 – 22 4 393 15 810 441 – 181 – 10 674 37 8 072 6 722 1 838 1 931 3 199 – 246 1 048 365 499 10 922 – 10 653 – 84 51 Sales 2010 2011 8 072 2 516 2 516 303 263 5 32 -9 5 253 84 1 912 134 2 994 7 205 1 664 1 595 1 922 1 026 155 286 470 3 619 2 161 489 910 149 Purchases 2010 2011 3 309 – 28 – 28 404 2 – 15 2 933 – 49 2 547 436 Sales 2010 2011 205 4 308 2 528 1 408 649 – 278 2 865 408 1 679 318 464 -5 – 130 Purchases 2010 2011 3 309 1 371 1 240 45 86 1 550 365 257 38 965 – 75 388 4 812 4 265 1 987 41 2 236 547 408 – 78 217 – Table D. Greenfield FDI projects by industry, 2010–2011 (Millions of dollars) Sector/industry Total Primary Mining, quarrying and petroleum Manufacturing Food, beverages and tobacco Coke, petroleum and nuclear fuel Metals and metal products Motor vehicles and other transport equipment Services Electricity, gas and water Construction Transport, storage and communications Business services Africa as destination Africa as investors

Table E. Greenfield FDI projects by region/country, 2010–2011 (Millions of dollars) Partner region/economy World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies Africa as destination 88 918 20 237 20 237 39 506 1 888 23 235 2 093 2 568 29 175 5 432 7 630 6 381 5 429 2010 82 315 22 824 22 824 31 205 5 185 9 793 5 185 3 118 28 286 10 477 3 303 5 345 5 619 2011 6 662 1 246 1 246 7 506 175 5 684 429 99 7 910 899 2 627 1 274 2010 16 551 4 640 4 640 4 798 628 2 212 9 7 113 1 441 1 223 68 2 282 2011 88 918 48 554 32 095 5 507 473 10 479 37 752 12 226 9 929 4 890 9 897 809 2 612 2010 82 315 38 939 23 633 6 627 1 299 7 380 42 649 10 368 12 357 11 113 7 038 1 774 727 2011 Africa as investors 16 662 1 192 373 49 769 15 462 12 226 141 75 2 517 503 8 2010 16 551 487 182 259 45 16 064 10 368 400 980 150 1 167 – 2011 40 World Investment Report 2012: Towards a New Generation of Investment Policies

Continued fall in FDI inflows to Africa but some cause for optimism. FDI flows to Africa were at $42. 7 billion in 2011, marking a third successive year of decline, although the decline is marginal (figure B). Both cross-border mergers and acquisitions (M&As) (tables B and C) and greenfield investments by foreign transnational corporations (TNCs) (tables D and E) decreased. In terms of share in global FDI flows, the continent’s position diminished from 3. 3 per cent in 2010 to 2. 8 per cent in 2011 (figure B).

FDI to Africa from developed countries fell sharply, leaving developing and transition economies to increase their share in inward FDI to the continent (in the case of greenfield investment projects, from 45 per cent in 2010 to 53 per cent in 2011; table E). However, this picture of an overall declining trend in FDI does not reflect the situation across all parts of the continent. The negative growth for the continent as a whole was driven in large part by reduced flows to North Africa caused by political unrest and by a small number of other exceptions to a generally more positive trend.

Inflows to sub-Saharan Africa1 recovered from $29. 5 billion in 2010 to $36. 9 billion in 2011, a level comparable with the peak in 2008 ($37. 3 billion). North Africa has traditionally been the recipient of about one third of inward FDI to the continent. Inflows in 2011 halved, to $7. 69 billion, and those to the two major recipient countries, Egypt and Libya, were negligible. Outward FDI from North Africa also fell sharply in 2011 to $1. 75 billion, compared with $4. 85 billion in 2010. These figures are in stark contrast with the peak of 2008 when the outward FDI of North African ountries reached $8. 75 billion. Flows to West Africa were destined primarily for Ghana and Nigeria, which together accounted for some three quarters of the subregion’s inflows. Guinea emerged with one of the strongest gains in FDI growth in 2011, a trend that is likely to continue in the next few years in view of the $6 billion that State-owned China Power Investment Corporation plans to invest in bauxite and alumina projects. Overall, inward FDI flows to West Africa expanded by 36 per cent, to $16. 1 billion.

The bulk of FDI in Central Africa goes to three commodity-rich countries: the primarily oil-exporting Congo and Equatorial Guinea and the mineralexporting Democratic Republic of the Congo. Although inward FDI flows to Congo grew strongly in 2011, weak inflows to the Democratic Republic of the Congo affected the region as a whole and resulted in inward investment flows to Central Africa falling by 10. 2 per cent overall to $8. 53 billion. Inward FDI to Southern Africa, recovered from a 78 per cent decline in 2010, more than doubling its total to $6. 37 billion.

This reversal was precipitated primarily by the sharp rebound of flows to South Africa, the region’s largest FDI recipient. Inflows to Angola, however, declined by over $2 billion. East Africa, with historically the lowest FDI inflows in sub-Saharan Africa, reversed the downward trend of 2009–2010 to reach $3. 96 billion, a level just 5 per cent below the peak of 2008. As most countries in this subregion have not been considered rich in natural resources, they have not traditionally attracted large investments into exportoriented production in the primary sector, except in agriculture.

However, the discovery of gas fields is likely to change this pattern significantly. New oil- and gas-producing countries are emerging as major recipients of FDI. Oil production in subSaharan Africa has been dominated by the two principal producer countries, Angola and Nigeria. Nigeria was Africa’s largest recipient of FDI flows ($8. 92 billion) in 2011, accounting for over one fifth of all flows to the continent. In gross terms, Angola attracted FDI inflows worth $10. 5 billion, although in net terms, divestments and repatriated income left its inflows at -$5. 9 billion. Aside from these major oil-producing countries, investors are looking farther afield in search of oil and gas reserves. Ghana, in particular, benefited from FDI in the newly developed Jubilee oil field, where commercial production started in December 2010. Elsewhere, Tullow Oil (United Kingdom) announced its plan to invest $2. 0 billion to establish an oil refinery in Uganda. Noble Energy (United States) also announced plans to invest $1. 6 billion to set up production wells and a processing platform in Equatorial Guinea.

Inward FDI flows to Uganda and Equatorial Guinea were $792 million and $737 million respectively in 2011, but announced greenfield projects show future investments of $6. 1 billion in Uganda and $4. 8 billion in Equatorial Guinea, indicating strong FDI growth in these countries. CHAPTER II Regional Trends in FDI 41 If oil reserves off the Atlantic coast of Africa have drawn significant FDI to that region, natural gas reserves in East Africa, especially the offshore fields of Mozambique and the United Republic of Tanzania, hold equal promise. In 2011, inflows of FDI to Mozambique doubled from the previous year, to $2. 9 billion. New discoveries of large-scale gas reserves continue to be made in 2012. Development of gas fields and the liquefied natural gas (LNG) industry will require huge upfront investments and presents considerable technological challenges. FDI is certain to play a large role in developing this industry in the region, as exemplified by the plans announced by Eni (Italy) to invest $50 billion to develop the gas fields recently discovered in Mozambique. Sectoral shift emerging, especially towards services. The limited volume of FDI to Africa tends to make inflows vary widely from year to year.

Nevertheless, viewed over a longer time period, a discernible sectoral shift is taking place in FDI to Africa. Data on greenfield projects by three-year periods show that, contrary to popular perceptions, the relative importance of the primary sector is declining, although the total value of projects is holding steady (figure II. 1). The data on projects in services in the period 2006–2008 are inflated by the announcements of no fewer than 13 construction projects worth more than $3 billion each, which take many years to complete. Still, a general ascendancy of the services sector is clear.

Aside from the construction industry, projects are drawn into industries such as electric, gas and water distribution, and transport, storage and communications in the services sector and industries such as coke, petroleum products and nuclear fuel in the manufacturing sector. This shift is more about diversification of naturalresource-related activities than a decline of the extractive industry. Many of the projects in manufacturing and services are premised on the availability of natural resources or play a supporting role for the extractive industry.

Such projects include a $15 billion project by Western Goldfields (Canada) to construct a coal-fired power station in Nigeria and an $8 billion project by Klesch & Company (United Kingdom) to build an oil refinery in Libya, both announced in 2008. Better prospects for 2012. The region’s prospects for FDI in 2012 are promising, as strong economic growth, ongoing economic reforms and high commodity prices have improved investor perceptions of the continent. Relatively high profitability of FDI in the continent is another factor.

Data on the profitability of United States FDI (FDI income as a share of FDI stock) show a 20 per cent return in Africa in 2010, compared with 14 per cent in Latin America and the Caribbean and 15 per cent in Asia (United States Department of Commerce, 2011: 51). In addition to traditional patterns of FDI to the extractive industries, the emergence of a middle class is fostering the growth of FDI in services such as banking, retail and telecommunications. UNCTAD’s forecast of FDI inflows also points to this pattern (figure I. 10).

It is especially likely if investor confidence begins to return to North Africa and compensates for the recent declines in this region. Figure II. 1. Value of greenfield investments in Africa, by sector, 2003–2011 (Billions of dollars) 500 450 400 350 300 250 200 150 100 50 0 Services Manufacturing Primary 2003–2005 2006–2008 2009–2011 Source: UNCTAD, based on data from Financial Times Ltd, fDi Markets (www. fDimarkets. com). 42 World Investment Report 2012: Towards a New Generation of Investment Policies Fig. FID ows – Africa 2. East and South-East Asia Table A. Distribution of FDI flows among economies, by range,a 2011 Range

Above $50 billion $10 to $49 billion Inflows China, Hong Kong (China), Singapore Outflows Hong Kong (China), China Fig. FID ows – East and South-East Asia Figure A. FDI flows, top 5 host and home economies, 2010–2011 (Billions of dollars) (Host) (Home) China Hong Kong, China China Indonesia, Malaysia Singapore, Republic of Korea, Malaysia, Taiwan Province of China, Thailand Indonesia, Viet Nam Hong Kong, China Singapore Viet Nam, Thailand, Mongolia, $1. 0 to $9. 9 Republic of Korea, Macao (China), billion Philippines, Brunei Darussalam $0. 1 to $0. 9 Cambodia, Myanmar, Lao People’s billion Democratic Republic Below $0. billion a Singapore Republic of Korea Malaysia 0 20 40 60 80 .. Mongolia, Macao (China), Cambodia, Brunei Darussalam, Philippines, Lao People’s Democratic Republic Indonesia Democratic People’s Republic of Korea, Timor-Leste, Taiwan Province of China Malaysia 0 20 40 60 80 2011 2010 100 120 140 2011 2010 100 120 Economies are listed according to the magnitude of their FDI flows. Fig. B – East & South-East Asia FDI in ows Figure B. FDI inflows, 2005–2011 (Billions of dollars) Fig. C – East & South-East Asia FDI out ows Figure C. FDI outflows, 2005–2011 (Billions of dollars) 240 200 160 120 80 40 South-East Asia East Asia 20 280 240 200 160 120 80 40 0 South-East Asia East Asia 2005 16. 3 2006 13. 4 2007 12. 0 2008 13. 2 2009 17. 2 2010 22. 5 2011 22. 0 Share in world total 0 2005 2006 2007 2008 2009 2010 2011 7. 9 8. 1 7. 9 8. 4 15. 0 16. 7 14. 2 Table B. Cross-border M by industry, 2010–2011 (Millions of dollars) Sector/industry Total Primary Mining, quarrying and petroleum Manufacturing Food, beverages and tobacco Chemicals and chemical products Electrical and electronic equipment Precision instruments Services Electricity, gas and water Trade Finance Business services

Table C. Cross-border M by region/country, 2010–2011 (Millions of dollars) Region/country World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies 26 417 – 427 – 607 11 423 2 383 1 796 864 78 15 421 796 194 952 5 642 Sales 2010 2011 32 715 5 214 4 780 10 253 3 078 1 159 3 279 806 17 248 2 280 1 704 6 484 4 365 67 609 18 844 18 932 6 994 3 714 2 396 – 331 3 41 771 1 345 1 912 33 111 – 483

Purchases 2010 2011 67 966 19 301 19 695 12 609 961 6 596 1 794 684 36 056 3 855 1 752 31 215 – 1 273 26 417 7 439 1 288 673 3 229 2 249 18 087 257 18 870 1 201 – 2 320 79 – Sales 2010 2011 32 715 15 007 4 548 2 086 6 760 1 613 15 346 – 78 12 968 539 1 758 159 1 531 67 609 34 985 17 977 4 849 647 11 511 32 604 499 18 870 – 1 731 127 14 664 20 Purchases 2010 2011 67 966 45 773 13 906 12 369 1 084 18 414 21 814 1 679 12 968 – 2 417 253 9 311 379 Table D. Greenfield FDI projects by industry, 2010–2011 (Millions of dollars) Sector/industry

Total Primary Mining, quarrying and petroleum Manufacturing Chemicals and chemical products Metals and metal products Electrical and electronic equipment Motor vehicles and other transport equipment Services Construction Transport, storage and communications Finance Business services Table E. Greenfield FDI projects by region/country, 2010–2011 (Millions of dollars) 2011 Partner region/economy World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies

East and South-East Asia as destination 213 770 3 658 3 647 129 489 16 410 14 856 34 930 28 559 80 623 4 601 13 226 15 900 13 471 2010 206 924 4 444 4 444 131 800 25 582 16 735 21 578 17 921 70 681 7 021 19 141 16 451 10 255 2011 East and South-East Asia as investors 143 094 4 262 4 262 104 303 7 980 16 028 26 528 10 523 34 530 5 030 5 943 4 777 4 200 2010 East and South-East Asia as destination 213 770 136 798 44 341 44 237 36 353 11 866 71 324 141 63 779 1 955 2 910 2 531 5 648 East and South-East 125 466 5 158 5 158 85 119 6 480 24 522 11 376 9 084 35 189 3 840 6 745 5 250 1 682 2010 06 924 133 339 57 936 33 515 30 198 11 690 72 353 400 56 138 10 973 3 965 675 1 232 2011 Asia as investors 143 094 32 559 5 567 8 093 362 18 537 105 283 9 929 63 779 18 556 2 541 9 556 5 253 2010 125 466 16 470 7 123 5 961 510 2 877 102 434 12 357 56 138 19 050 5 930 8 950 6 563 2011 CHAPTER II Regional Trends in FDI 43 South-East Asia is catching up. Registering a 14 per cent increase, total FDI inflows to East and SouthEast Asia amounted to $336 billion in 2011 (figure B). The region accounted for 22 per cent of total global FDI flows, up from about 12 per cent before the global financial crisis.

FDI inflows reached new records in both subregions, as well as in the major economies, such as China; Hong Kong, China; Singapore and Indonesia (figure A). South-East Asia continued to outperform East Asia in FDI growth. Inflows to the former reached $117 billion, up 26 per cent, compared with $219 billion, up 9 per cent, in the latter, narrowing the gap between the two subregions (figure B, annex table I. 1). Among the economies of the Association of Southeast Asian Nations (ASEAN), four – Brunei Darussalam, Indonesia, Malaysia and Singapore – saw a considerable rise in their FDI inflows.

The performance of the relatively low-income countries, namely Cambodia, the Lao People’s Democratic Republic and Myanmar was generally good as well, though Viet Nam declined slightly. Although natural disaster in Thailand disrupted production by foreign affiliates in the country, particularly in the automobile and electronic industries, and exposed a weakness of the current supply-chain management systems, FDI inflows to the country remained at a high level of nearly $10 billion, only marginally lower than that of 2010.

Overall, as East Asian countries, particularly China, have continued to experience rising wages and production costs, the relative competitiveness of ASEAN in manufacturing has been enhanced. Accordingly, some foreign affiliates in China’s coastal regions are relocating to South-East Asia,2 while others are moving their production facilities to inland China. The performance of East Asian economies showed a mixed picture. FDI flows to China reached a historically high level of $124 billion in 2011. The second largest recipient in the subregion, Hong Kong, China, saw its inflows increase to $83 billion (figure A), a historic high as well.

By contrast, inflows to the Republic of Korea and Taiwan Province of China declined to $4. 7 billion and -$2 billion, respectively. Japan gains ground as investor in the region. Partly as a result of the significant appreciation of the Japanese yen in 2011, TNCs from Japan have strengthened their efforts in investing abroad (section A. 7), particularly in low-cost production locations in South-East Asia. For instance, in 2011, attracted by low labour costs and good growth prospects, Japanese companies pledged to invest about $1. 8 billion in Viet Nam. In China, FDI from Japan rose from $4 billion (4 per cent of total inflows) in 2010 to $6 billion (9 per cent of total inflows) in 2011. In Mongolia, large projects in extractive industries, including the Tavan Tolgoi coal mine, are being implemented or negotiated, some with Japanese investors. In addition, negotiation of the Economic Partnership Agreement with Japan may bring in more FDI to Mongolia. Owing to the worsening sovereign debt crisis and related liquidity problems at home, TNCs from Europe have slowed their pace of expansion in East and South-East Asia since late 2011.

In particular, some European banks have undertaken divestments from the region, selling their Asian operations to regional players, a trend which may continue this year with banks such as HSBC and Royal Bank of Scotland selling assets in Hong Kong, China; Thailand; and Malaysia. The actions of TNCs from the United States were mixed: some in industries such as home appliances have been relocating production facilities to their home countries,4 while others in industries such as automotives have continued to expand in Asia. 5 Greenfield investment dominates, but M are on the rise.

Greenfield investment is the dominant mode of entry in East and South-East Asia, although the total amount of investment decreased slightly in 2011 to about $207 billion. In contrast, cross-border M sales in the region increased by about 24 per cent to $33 billion, driven by a surge in South-East Asia, where total M sales more than doubled, reaching $20 billion. Sales in East Asia dropped by one fourth, with a rise in M in China (up 77 per cent to $11 billion) cancelled out by a fall in those in Hong Kong, China (down 92 per cent to $1 billion).

In manufacturing, the major industries in which greenfield investment took place were chemical products, electronics, automotive and metal and metal products in that order, while those most targeted for cross-border M were electronics and food and beverages. M sales also increased 44 World Investment Report 2012: Towards a New Generation of Investment Policies in services, contributing to a longer-term shift. In China, for example, FDI flows to services surpassed those to manufacturing for the first time as the result of a rise in flows to non-financial services and a slowdown of flows to manufacturing.

FDI in finance is expected to grow as the country continues to open its financial markets,6 and as foreign banks, including HSBC (United Kingdom) and Citigroup (United States), expand their presence through both M and organic growth. 7 Outward FDI: East Asia slows down while SouthEast Asia sets a new record. FDI outflows from East and South-East Asia as a whole remained more or less stable after the significant increase in 2010 (figure C). FDI outflows from East Asia dropped by 9 per cent to $180 billion, the first decline since 2005, while those from South-East Asia rose 36 per cent to $60 billion, a record high.

FDI outflows from Hong Kong, China, the region’s financial centre and largest source of FDI, declined in 2011 by 14. 5 per cent to $82 billion, but increased in the last quarter of the year. FDI outflows from China dropped by 5. 4 per cent to $65 billion. In contrast, outflows from Singapore, the leading source of FDI in South-East Asia, registered a 19 per cent growth, reaching $25 billion. Outflows from Thailand and Indonesia surged, reaching $11 billion and $8 billion. The boom was driven mainly by cross-border M in the case of Thailand and by greenfield investments in the case of Indonesia.

Diverging patterns in overseas M. TNCs from East and South-East Asia continued to expand globally by actively acquiring overseas assets. Their M purchases worldwide amounted to $68 billion in 2011, marginally higher than the previous record set in 2010. Their cross-border M activities demonstrated diverging trends: total purchases in developed countries increased by 31 per cent to $46 billion, while those in developing countries declined by 33 per cent to $22 billion (table C).

The rise in their M in developed countries as a whole was driven mainly by increases in Australia (up 20 per cent to $8 billion), Canada (up 99 per cent to $9 billion) and the United States (up 155 per cent to $12 billion), while the value of total purchases in Europe decreased by 8 per cent to $17 billion. The rise in M purchases in the developed world corresponded to an increase in M in manufacturing, to $13 billion (table B). Greenfield investment by TNCs from East and South-East Asia dropped, in both number and value (tables D and E).

The number of recorded greenfield projects undertaken by firms based in East and South-East Asia was about 1,200. The value of investments dropped by 12 per cent to about $125 billion. In manufacturing, East and South-East Asian TNCs in industries such as metals and metal products as well as food and beverages have been investing more frequently through greenfield investment. In services, companies from East Asia in particular continued to be active players in the M markets in both developed and developing countries. Short-term prospects: slowing growth.

FDI growth in the region has slowed since late 2011 because of growing uncertainties in the global economy. FDI to manufacturing stagnated in China, but the country is increasingly attracting market-seeking FDI, especially in services. According to the annual World Investment Prospects Survey (WIPS) undertaken by UNCTAD this year, China continues to be the most favoured destination of FDI inflows. FDI prospects in South-East Asia remain promising, as the rankings of ASEAN economies, such as Indonesia and Thailand, have risen markedly in the survey. CHAPTER II Regional Trends in FDI 5 3. South Asia Table A. Distribution of FDI flows among economies, by range,a 2011 Range Above $10 billion $1. 0 to $9. 9 billion $0. 1 to $0. 9 billion Below $0. 1 billion a Figure A. FDI flows, top 5 host and home economies, 2010–2011 Fig. FID ows – dollars) (Billions of South Asia (Host) India Iran, Islamic Republic of Pakistan India Iran, Islamic Republic of Pakistan Inflows India India Outflows (Home) Islamic Republic of Iran, Pakistan, Bangladesh .. Sri Lanka, Maldives Islamic Republic of Iran Nepal, Afghanistan, Bhutan Pakistan, Sri Lanka, Bangladesh Bangladesh Sri Lanka

Economies are listed according to the magnitude of their FDI flows. Sri Lanka 2011 2010 0 5 10 15 20 25 30 35 Bangladesh 2011 2010 0 3 6 9 12 15 Fig. B – South Asia FDI in ows Figure B. FDI inflows, 2005–2011 (Billions of dollars) 60 50 40 30 10 20 10 0 2005 1. 5 2006 1. 9 2007 1. 8 2008 3. 0 2009 3. 5 2010 2. 4 2011 2. 6 Share in world total 5 0 2005 0. 4 25 20 15 Fig. C – South Asia FDI in ows Figure C. FDI outflows, 2005–2011 (Billions of dollars) 2006 1. 0 2007 0. 9 2008 1. 0 2009 1. 4 2010 0. 9 2011 0. 9 Table B. Cross-border M by industry, 2010–2011 (Millions of dollars) Sector/industry

Total Primary Mining, quarrying and petroleum Manufacturing Wood and wood products Chemicals and chemical products Non-metallic mineral products Motor vehicles and other transport equipment Services Electricity, gas and water Trade Finance Business services Table C. Cross-border M by region/country, 2010–2011 (Millions of dollars) Region/country World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies Sales 2010 2011 569 18 18 5 960 4 194 3 4 – 409 53 275 – 602 12 875 8 997 8 997 1 940 435 85 152 977 1 937 310 341 701 291 26 682 5 240 5 240 2 499 174 393 – 14 18 943 95 29 5 745 424 Purchases 2010 2011 6 078 111 111 1 489 6 1 370 24 470 4 478 1 636 1 461 96 5 569 7 439 153 5 319 1 372 596 – 1 910 38 – 1 731 342 177 – 735 – Sales 2010 2011 12 875 14 870 12 450 1 576 986 – 142 – 2 017 217 – 2 417 46 133 3 – 26 682 7 836 971 3 343 3 522 18 823 10 922 1 201 342 898 5 460 24 Purchases 2010 2011 6 078 5 239 1 094 23 40 4 082 1 083 318 539 46 180 – 245 Table D. Greenfield FDI projects by industry, 2010–2011 (Millions of dollars) Sector/industry

Total Primary Mining, quarrying and petroleum Manufacturing Chemicals and chemical products Metals and metal products Machinery and equipment Motor vehicles and other transport equipment Services Construction Transport, storage and communications Finance Business services Table E. Greenfield FDI projects by region/country, 2010–2011 (Millions of dollars) 2011 Partner region/economy World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies South Asia as destination 2 899 1 080 1 080 43 943 4 224 13 635 2 809 9 483 17 876 1 554 4 554 2 108 2 722 2010 68 019 47 649 4 567 19 223 3 157 11 466 20 369 2 640 3 675 2 552 5 879 2011 20 777 679 679 12 446 3 905 3 740 404 2 349 7 653 511 501 1 823 1 785 2010 South Asia as investors South Asia as destination 62 899 38 423 18 858 11 169 6 258 2 138 23 900 75 18 556 2 177 2 266 826 576 35 593 4 165 4 165 19 435 1 370 8 287 132 2 628 11 993 776 345 1 710 3 228 2010 68 019 41 532 16 008 14 024 8 366 3 135 26 097 980 19 050 1 910 4 093 64 389 2011 20 777 6 368 3 619 728 8 2 012 13 341 4 890 1 955 2 177 3 752 566 1 069 2010

South Asia as investors 35 593 4 503 2 512 1 497 8 485 30 266 11 113 10 973 1 910 5 672 598 824 2011 46 World Investment Report 2012: Towards a New Generation of Investment Policies FDI inflows to South Asia have turned around. Inflows rose by 23 per cent to $39 billion in 2011 (2. 6 per cent of global FDI flows) after a slide in 2009–2010 (figure B). The recovery derived mainly from the inflows of $32 billion to India, the dominant FDI recipient in South Asia. Inflows to the Islamic Republic of Iran and Pakistan, recipients of the second and third largest FDI flows, amounted to $4. 2 billion and $1. billion (figure A). Bangladesh has also emerged as an important recipient, with inflows increasing to a record high of $1. 1 billion. In 2011, about 145 cross-border M and 1,045 greenfield FDI projects by foreign TNCs were recorded in South Asia (annex tables I. 4 and I. 9). Cross-border M rose by about 131 per cent in value, and the total reached $13 billion (tables B and C), surpassing the previous record set in 2008. The significant increase was driven mainly by a number of large transactions in extractive industries undertaken by acquirers from the European Union (EU), as well as from developing Asia.

By contrast, cross-border M sales in manufacturing declined by about two thirds, to a level below $2 billion (table B). Sales in services amounted to $2 billion as well but were still much below the annual amounts during 2006–2009. Within manufacturing, the automotive industry ($1 billion) was the main target of investors, while in services, finance ($700 million) was the main target. FDI outflows from South Asia picked up as well. In 2011, outflows from the region rose by 12 per cent to $15 billion, after a decline of three years. Outflows from India, the dominant source of FDI from the region, increased from $13. 2 billion in 2010 to $14. billion in 2011 (figure A). However, Indian TNCs became less active in acquiring overseas assets. The amount of total cross-border M purchases decreased significantly in all three sectors: from $5. 2 billion to $111 million in the primary sector, from $2. 5 billion to $1. 5 billion in manufacturing, and from $19. 0 billion to $4. 5 billion in services. The drop was compensated largely by a rise in overseas greenfield projects, particularly in extractive industries, metal and metal products, and business services (table D). Indian companies in information technology services have long been active players in global markets.

In recent years, firms in service industries such as banking and food services have also become increasingly active in overseas markets, particularly in developed countries and especially in the United Kingdom. In early 2012, the State Bank of India started offering mortgages in the United Kingdom. India Hospitality Corp. acquired Adelie Food Holding, based in the United Kingdom, for $350 million, to capture growth opportunities in the Indian fast food market. Cautiously optimistic prospects. Countries in the region face various challenges, which need to be tackled in order to build an attractive investment climate for enhancing development.

Recent developments have highlighted new opportunities (box II. 1). The growth of inflows so far appears likely to keep its momentum in 2012. As economic growth in India has slowed, however, concerns have arisen about short-term prospects for FDI inflows to South Asia. Whether countries in the region can overcome old challenges and grasp new opportunities to attract investment will depend to a large extent on Governments’ efforts to further open their economies and deepen regional economic integration.

CHAPTER II Regional Trends in FDI 47 Box II. 1. Attracting investment for development: old challenges and new opportunities for South Asia South Asian countries face different challenges in building a conducive business environment and an attractive investment climate, which are crucial for promoting economic development. These challenges include, for instance, stabilization in Afghanistan, security concerns in the Islamic Republic of Iran and Pakistan, and macroeconomic as well as political issues in India.

Two issues stand out as major concerns: political risks and obstacles at the country level and weak integration processes at the regional level. At the country level, high political risks and obstacles have been an important factor deterring FDI inflows. Countries in the region rank high in the country risk guides of political-risk assessment services, and political restrictions on both FDI and business links between countries in the region have long existed. This has deterred FDI inflows and negatively affected the countries’ FDI performance. However, recent developments have highlighted new opportunities.

For instance, the political relationship between India and Pakistan, the two major economies on the subcontinent, has been moving towards greater cooperation, with Pakistan granting India most-favoured-nation status in November 2011 and India recently announcing that it will allow FDI from Pakistan. In Afghanistan, some FDI has started to flow into extractive industries. At the regional level, progress in economic integration (with the South Asian Association for Regional Cooperation as the key architect) has been slow, and the trade barriers between neighbouring countries in the region are among the highest in the world.

South Asia is perhaps one of the least integrated developing regions: intraregional trade accounts for about 2 per cent of total gross domestic product (GDP), compared with more than 20 per cent in East Asia. In addition, investment issues have not yet been included in the regional integration process. As a result, the region has not been able to realize its potential for attracting FDI inflows, especially in promoting intraregional FDI flows. In 2011, intraregional greenfield investment accounted for merely 3 per cent of the regional total, compared with 27 per cent in East and South-East Asia.

Nevertheless, high economic growth in major economies in the subregion has created a momentum for regional integration in recent years, and South Asian countries have increasingly realized that regional integration can help them improve the climate for investment and business. The inclusion of an investment agenda in the regional integration process and in particular the creation of a regional investment area can play an important role in this regard. Source: UNCTAD and UNESCAP. 48 World Investment Report 2012: Towards a New Generation of Investment Policies 4. West Asia

Table A. Distribution of FDI flows among economies, by range,a 2011 Range Above $10 billion Inflows Saudi Arabia, Turkey .. Outflows Figure A. FDI flows, top 5 host and home economies, 2010–2011 Fig. FID ows – West Asia (Billions of dollars) (Host) (Home) Saudi Arabia Turkey United Arab Emirates Lebanon Kuwait $5. 0 to $9. 9 billion United Arab Emirates Kuwait, Qatar Qatar $1. 0 to $4. 9 billion Lebanon, Iraq, Jordan, Syrian Arab Republic Saudi Arabia, Turkey, United Arab Emirates Lebanon, Bahrain, Oman, Iraq, Yemen, Jordan, Syrian Arab Republic, Palestinian Territory

Saudi Arabia Turkey United Arab Emirates 30 0 1 2 3 4 5 6 Below $1. 0 billion a Oman, Bahrain, Kuwait, Palestinian Territory, Qatar, Yemen Iraq 0 5 10 15 20 2011 2010 25 2011 2010 7 8 9 10 Economies are listed according to the magnitude of their FDI flows. Fig. B – West Asia FDI in ows Figure B. FDI inflows, 2005–2011 (Billions of dollars) Fig. C – West Asia FDI out ows Figure C. FDI outflows, 2005–2011 (Billions of dollars) 100 90 80 70 60 50 40 30 20 10 0 2005 4. 5 2006 4. 6 2007 4. 0 2008 5. 1 2009 5. 5 2010 4. 4 2011 3. 2 Share in world total Other West Asia Gulf Cooperation Council (GCC) Turkey 0 40 30 20 10 0 2005 1. 4 2006 1. 6 2007 1. 5 2008 1. 9 2009 1. 5 Other West Asia Gulf Cooperation Council (GCC) Turkey 2010 1. 1 2011 1. 5 Table B. Cross-border M by industry, 2010–2011 (Millions of dollars) Sector/industry Total Primary Mining, quarrying and petroleum Manufacturing Wood and wood products Chemicals and chemical products Metals and metal products Machinery and equipment Services Electricity, gas and water Transport, storage and communications Finance Business services Table C. Cross-border M by region/country, 2010–2011 (Millions of dollars) Region/country

World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies Sales 2010 2011 4 887 170 170 2 416 10 19 410 2 301 – 59 100 1 611 172 9 713 2 730 2 682 665 37 180 174 310 6 317 555 338 4 128 895 – 15 278 1 484 1 484 18 16 – 19 – 16 780 400 – 10 721 – 4 163 281 Purchases 2010 2011 6 136 37 37 780 – 89 -2 3 5 319 190 – 2 568 7 954 314 Sales 2010 2011 4 887 2 257 1 472 112 343 331 2 062 965 127 898 72 21 9 713 8 222 9 412 – 1 579 33 356 1 187 253 916 18 5 15 278 – 2 555 – 683 – 2 333 461 – 12 724 – 10 653 – 2 320 177 72 – Purchases 2010 2011 6 136 2 599 5 083 – 1 110 – 1 374 3 420 464 1 758 133 916 147 117 Table D. Greenfield FDI projects by industry, 2010–2011 (Millions of dollars) Sector/industry Total Primary Mining, quarrying and petroleum Manufacturing Food, beverages and tobacco Coke, petroleum and nuclear fuel Chemicals and chemical products Metals and metal products Services Electricity, gas and water Construction Hotels and restaurants Business services Table E. Greenfield FDI projects by region/country, 2010–2011 (Millions of dollars) 2011 Partner region/economy

World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies West Asia as destination 60 011 1 631 1 631 23 395 1 443 1 165 8 977 3 155 34 985 6 004 11 231 5 431 3 976 2010 69 151 915 915 39 640 3 783 4 472 13 877 8 260 28 595 6 744 6 620 4 686 3 199 2011 West Asia as investors 37 190 7 538 1 110 2 122 1 771 737 29 652 570 13 630 2 921 4 805 2010 West Asia as destination 60 011 36 532 23 370 8 219 1 162 3 782 21 726 2 517 2 541 3 752 12 403 513 1 753 4 194 503 503 19 444 2 414 7 633 3 372 3 088 24 247 2 611 12 603 1 920 921 2010 69 151 38 990 14 911 18 121 2 896 3 062 29 466 150 5 930 5 672 17 535 178 695 2011 West Asia as investors 37 190 3 769 3 454 123 192 28 313 9 897 2 910 2 266 12 403 836 5 108 2010 44 194 9 687 7 481 1 937 269 33 371 7 038 3 965 4 093 17 535 699 1 135 2011 CHAPTER II Regional Trends in FDI 49 Inflows to West Asia declined for a third year. They decreased by 16 per cent to $49 billion in 2011, affected by both the continuing political instability and the deterioration of global economic prospects in the second half of 2011.

The level is the lowest since 2005 – when FDI flows stood at about $44 billion – and far below the record high of about $92 billion registered in 2008 (figure B). Gulf Cooperation Council (GCC) countries are still recovering from the suspension or cancellation of large-scale projects in previous years. They registered a drop of 35 per cent in FDI inflows, which brought their share in the region’s total from 69 per cent in 2010 to 53 per cent in 2011. Saudi Arabia – the region’s biggest recipient – saw a 42 per cent fall in 2011 to $16 billion, which largely explains the overall decline.

FDI flows to Oman and Qatar also decreased – reaching negative values in the latter – but those to Bahrain, Kuwait and the United Arab Emirates rebounded from relatively low values (figure A and annex table I. 1). Some of the big and expensive projects that had prospered in these countries during the precrisis period had to be suspended or cancelled when project finance dried up in the wake of the global financial crisis. After a period of calm and consolidation, projects started slowly coming back on line in 2010 but soon faced delays caused by the Arab uprising across the region during 2011, and by new uncertainties about global economic rospects. Some big projects with strong sponsors have managed to secure financing, sometimes with greater use of export credit agencies, in particular from Japan and the Republic of Korea, and highly liquid regional bank lenders. 8 As of October 2011, the cancelled or suspended construction projects in the Middle East and North African market were estimated at $1. 74 trillion, with $958 billion in the United Arab Emirates alone and $354 billion in Saudi Arabia. Construction was one of the most important areas for investment to have emerged in the last oil boom, and the pace of its activity is among the key indicators of investment behaviour in housing, tourism, infrastructure, refineries, petrochemicals and real estate, where foreign investment prospered during the boom years. Strong recovery of FDI into Turkey. Turkey stood as an exception to regional trends, with inflows registering a 76 per cent increase to $16 billion (figure A), maintaining the country’s position as the region’s second largest FDI recipient and increasing its share in the region’s total from 16 to 33 per cent.

The increase in inflows was mainly the result of a more than three-fold increase in crossborder M sales (annex table I. 3), with two big deals making up most of the total. 10 In addition, Turkey’s FDI promotion policy has been shifting towards a more sector-specific approach, aiming directly at high value added, high-tech and exportoriented projects. Investments in automotive and petrochemical industries have been designated primary objectives by the Investment Support and Promotion Agency, and the mining sector will soon be added as well. 1 Political and social unrest has halted FDI to nonGCC Arab countries. Flows to this group of countries – which represented 14 per cent of the region’s total – declined by 26 per cent in 2011 to $7 billion. Spreading political and social unrest has halted FDI inflows in the Syrian Arab Republic and Yemen. Flows to Lebanon were affected by the slowdown in the real estate sector – the most important recipient of FDI – as a consequence of adverse spillovers of both the global financial crisis and the regional unrest. Increased oil revenues helped boost FDI outflows.

FDI outflows from West Asia rebounded by 54 per cent in 2011 after bottoming out at a five-year low in 2010 (figure C). The rise in oil prices since the end of 2010 made more funds available for outward FDI from the GCC countries. In addition to these countries – the region’s main outward-investing economies – Turkey registered a 68 per cent increase in outward FDI flows. This is reflected in the recovery of both cross-border M purchases and greenfield projects abroad by Turkish investors, with a strong shift of greenfield FDI projects from developed and transition economies to neighbouring developing regions and countries.

FDI prospects are still negative for inward FDI to the region. UNCTAD projects that FDI inflows will continue declining in 2012, judging by preliminary data on cross-border M sales and greenfield investment for the first five months of 2012, as 50 World Investment Report 2012: Towards a New Generation of Investment Policies uncertainties at the global and regional levels are likely to cause foreign investors to remain cautious about their investment plans in the region. In the longer term, however, the concentration of oil wealth in the region and the strategic need to urther reduce economic dependence on the oil and gas sectors through economic diversification will create additional business opportunities, and revive the region’s attractiveness for foreign investors (see box II. 2). Box II. 2. Economic diversification and FDI in the GCC countries Economic diversification has recently taken high political priority in West Asia, as the lack of job prospects for a rapidly growing, educated and young population was a key trigger of political unrest. The oil-rich countries saw in the surge of oil prices in the early 2000s an opportunity for change.

In 2001, the six GCC members signed an economic agreement aiming to boost their diversification efforts by encouraging the private sector, including foreign investors, to play a more active role and implementing liberalization measures to this end. The new policy framework opened a wider range of activities to FDI. Together with new opportunities offered by the surge in oil revenues, this has increased annual inflows from a relatively modest $1 billion on average during 1990– 2000 to $28 billion during 2001–2011, eaching a record $60 billion in 2008, and targeting mainly services. Stock data from three countries show that in 2010, services accounted for 59 per cent of inward FDI, manufacturing for 27 per cent and the primary sector – mainly the oil and gas upstream industry where restrictions on FDI participation remain – for 14 per cent (box figure II. 2. 1). Services was also dominant in greenfield FDI projects, attracting 51 per cent of estimated investments during 2003–2011; 44 per cent targeted manufacturing and 5 per cent went to the primary sector. Box figure II. . 1. Accumulated inward FDI stock in Oman, Qatar and Saudi Arabia, a by sector, 2010 Primary 14 % Business activities 19 % Chemicals 11 % Manufacturing Re ning 7 % Other 9 % Construction 14 % Finance 9% Services 59 % Transport, storage and communications 6% Trade 3% Electricity, gas and water 3% Other services 3% Source: UNCTAD, FDI/TNC database (www. unctad. org/fdistatistics). a These three countries accounted for 69 per cent of GCC countries’ inward FDI stocks in 2010. Sectoral data for Bahrain, Kuwait and the United Arab Emirates are not available.

Active industrial policies have targeted FDI in specific activities, using oil revenues to establish projects and encouraging foreign investors to participate – for example, in petrochemicals and petroleum refining, and the building of economic zones and new cities. /… CHAPTER II Regional Trends in FDI 51 Box II. 2. Economic diversification and FDI in the GCC countries (concluded) The soaring oil prices and increasing refining margins in the 2000s encouraged Gulf countries to establish refinery/ petrochemical complexes to produce products with higher value added.

They also opened the door wider to international oil companies, as providers of technologies and market experience. Several projects have been built or are under way, through joint ventures or non-equity agreements with foreign TNCs. Several are hosted in Saudi Arabia, such as Petro Rabigh (with Sumitomo Chemical (Japan)), Al Jubail (with Total (France)), and Fujian (with ExxonMobil (United States) and Sinopec (China)), among others. Similar projects also took place in the United Arab Emirates, Qatar and Oman.

Building economic zones and cities has generally consisted of providing advanced information and communications technology, infrastructure and services to attract leading tenants to help establish new, globally competitive industries, especially service-based ones. More than 55 such cities or zones have been established or are under way, generally targeting knowledge-intensive industries. GCC countries clearly experienced higher growth in their non-oil sectors during the 2000s (IMF, 2011), and the shift in their FDI policy allowed foreign direct investors to participate.

Progress in equal treatment of GCC-country citizens – in freedom of movement, work, residence, economic engagement, capital movement and real estate ownership – has spurred intra-GCC FDI, which has helped develop services activities. Despite this progress, hydrocarbons still dominate real GDP and export revenues, and the expansion of the non-oil sectors has not meant a decline in dependence on oil. a High growth rates in non-oil activities have created relatively few job opportunities for national workforce to assuage the high unemployment rates and reliance on government posts. This might indicate a mismatch between career aspirations and available opportunities, on the one hand, and between the skills required by the private sector and those available in the workforce, on the other. This introduces the risk of the consolidation of a dual system, where modern enclaves with expatriate management and workforces are disconnected from the skills of the national workforce which relies mostly on government jobs. GCC countries face common challenges.

The scale of diversification plans will require both private and public funding, as well as cooperation and coordination between public and private sectors, which will continue to provide investment opportunities for TNCs. Source: UNCTAD. a Oil revenues represented 60–88 per cent on average of government revenues during 2005–2009, and its share in export revenues was 76–95 per cent in 2008, except in the United Arab Emirates, where it was 43 per cent (Samba, 2010). b In 2008, national unemployment was estimated at close to 13 per cent in Saudi Arabia, 14 per cent in the United Arab Emirates and 15 per cent in both Bahrain and Oman.

The majority of those employed worked in government; 88 per cent of nationals in Qatar, 86 per cent in Kuwait, 72 per cent in Saudi Arabia and 47 per cent in Oman. In 2007–2008, the share of migrants in total employment was estimated at 74 per cent in Bahrain, 77 per cent in Oman, 92 per cent in Qatar and 87 per cent in Saudi Arabia (Baldwin-Edwards, 2011). 52 World Investment Report 2012: Towards a New Generation of Investment Policies 5. Latin America and the Caribbean Table A. Distribution of FDI flows among economies, by range,a 2011 Range Above $10 billion $5. 0 to $9. 9 billion $1. to $4. 9 billion Figure A. FDI flows, topFig. FID and home economies, 2010–2011 5 host ows – LAC (Billions of dollars) (Host) British Virgin Islands Chile Inflows Brazil, British Virgin Islands, Mexico, Chile, Colombia Peru, Cayman Islands, Argentina, Bolivarian Republic of Venezuela Outflows British Virgin Islands, Chile Mexico, Colombia Brazil British Virgin Islands Mexico (Home) Panama, Dominican Republic, Uruguay, Costa Rica, Bahamas, Cayman Islands, Panama, Argentina Honduras, Guatemala, Nicaragua Plurinational State of Bolivia, Trinidad, Tobago, Ecuador, Aruba, El Salvador, $0. to Bahamas, Bolivarian Republic of Barbados, Paraguay, Jamaica, Haiti, $0. 9 billion Venezuela, Peru Guyana, Saint Kitts, Nevis, Saint Vincent and the Grenadines, Cuba Jamaica, Costa Rica, Ecuador, Turks and Caicos Islands, Belize, Guatemala, Nicaragua, Curacao, Saint Lucia, Curacao, Antigua Less than Turks and Caicos Islands, Aruba, and Barbuda, Grenada, Dominica, $0. 1 billion Belize, Sint Maarten, Honduras, Anguilla, Montserrat, Sint Maarten, Suriname, Uruguay, Dominican Suriname Republic, Barbados, Brazil a Economies are listed according to the magnitude of their FDI flows. Mexico Chile Colombia Cayman Islands 70 0 10 20 30 40

Colombia 0 10 20 30 40 2011 2010 50 60 2011 2010 50 60 70 Fig. B – LAC FDI in ows Figure B. FDI inflows, 2005–2011 (Billions of dollars) 220 200 180 160 140 120 100 80 60 40 20 0 Fig. C – LAC FDI out ows Figure C. FDI outflows, 2005–2011 (Billions of dollars) 120 100 80 60 40 20 0 2005 Share in world total 5. 0 2006 5. 6 2007 3. 6 2008 4. 9 2009 4. 6 2010 8. 3 2011 5. 9 Caribbean Central America South America Caribbean Central America South America 2005 8. 0 2006 6. 7 2007 8. 7 2008 11. 7 2009 12. 5 2010 14. 3 2011 14. 2 Table B. Cross-border M by industry, 2010–2011 (Millions of dollars) Sector/industry

Total Primary Mining, quarrying and petroleum Manufacturing Food, beverages and tobacco Textiles, clothing and leather Wood and wood products Electrical and electronic equipment Services Construction Transport, storage and communications Business services Community, social and personal service activities Table C. Cross-border M by region/country, 2010–2011 (Millions of dollars) Region/country World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies 8 414 12 376 11 898 7 398 5 878 50 84 1 742 8 640 18 2 409 2 438 217 Sales 2010 2011 20 689 6 409 6 249 2 766 7 638 119 216 683 11 514 1 417 3 523 1 415 2 565 15 831 2 077 1 981 4 700 2 825 – 598 69 9 055 49 263 1 070 1 220 Purchases 2010 2011 18 659 – 650 – 745 6 035 2 213 425 122 16 13 274 826 6 123 – 272 4 28 414 2 744 – 285 – 395 4 907 – 1 483 24 741 – 75 14 664 5 460 4 692 -3 Sales 2010 2011 20 689 908 – 12 191 – 3 497 10 946 5 649 17 585 9 311 180 147 7 983 2 119 15 831 12 036 2 905 4 719 125 4 287 3 951 – 84 79 – 735 4 692 – 156 Purchases 2010 2011 8 659 9 173 1 752 5 402 2 019 8 157 -5 159 3 18 7 983 1 329 Table D. Greenfield FDI projects by industry, 2010–2011 (Millions of dollars) Sector/industry Total Primary Mining, quarrying and petroleum Manufacturing Food, beverages and tobacco Rubber and plastic products Metals and metal products Motor vehicles and other transport equipment Services Electricity, gas and water Transport, storage and communications Finance Business services Table E. Greenfield FDI projects by region/country, 2010–2011 (Millions of dollars) 20 655 2 300 2 300 7 674 1 197 170 1 769 250 10 681 156 3 678 1 290 5 117

LAC as destination 120 113 17 234 17 234 68 900 6 258 4 541 20 242 14 774 33 979 9 518 9 916 2 892 7 291 2010 138 680 21 481 21 446 59 166 10 632 3 424 15 233 15 977 58 034 11 989 20 643 2 786 20 557 2011 LAC as investors 21 754 7 429 7 418 8 373 2 038 3 050 678 360 5 952 1 688 1 424 1 392 410 2010 2011 Partner region/economy World Developed economies European Union United States Japan Other developed countries Developing economies Africa East and South-East Asia South Asia West Asia Latin America and the Caribbean Transition economies LAC as destination 20 113 94 771 50 871 21 217 6 585 16 098 23 324 503 9 556 566 836 11 864 2 018 2010 138 680 112 431 57 462 29 109 9 945 15 915 25 880 1 167 8 950 598 699 14 466 370 2011 LAC as investors 21 754 5 200 1 132 566 46 3 456 16 544 809 2 531 826 513 11 864 10 2010 20 655 3 499 1 319 2 038 93 49 17 156 1 774 675 64 178 14 466 – 2011 CHAPTER II Regional Trends in FDI 53 South America is the main driver of FDI growth to the region. FDI flows to Latin America and the Caribbean increased by 16 per cent to a record $217 billion in 2011, driven mainly by increasing inflows to South America (up 34 per cent).

Inflows to Central America and the Caribbean, excluding offshore financial centres, increased by 4 per cent, while those to the offshore financial centres registered a 4 per cent decrease. The high growth of FDI in South America was mainly due to its expanding consumer markets, high growth rates and natural-resource endowment. In 2011 Brazil remained by far the largest FDI target, with inflows increasing by 37 per cent to $67 billion – 55 per cent of the total in South America and 31 per cent of the total in the region.

The size of Brazil’s domestic market explains its attractiveness, as does its strategic position in South America, which brings within easy reach other emerging and fast-growing markets, such as Argentina, Chile, Colombia and Peru. Another important driver for FDI growth to South America has been the relatively high rate of return on investments in the region. Since 2003, South American countries have witnessed significant growth of income on FDI: from an annual average of $11 billion during 1994–2002, equivalent to 0. 84 per cent of the subregion’s GDP, to an annual average of $60 billion during 2003–2011, equivalent to 2. 4 per cent of GDP. In 2011, FDI income increased another 17 per cent, reaching $95 billion. 12 The rise in FDI income during the 2000s, in parallel with the increase in FDI stock (a nine-fold increase between 1994 and 2011) and share in GDP (from 11 to 28 per cent share in current GDP), was in part driven by increased investment in extractive industries, which have enjoyed high profitability and have attracted a significant part of FDI inflows since the commodity price boom. For example, in Chile this industry accounted for 43 per cent of

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