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Foreign Direct Investment: attract more to benefit more C Istanbul, 20 November 2013 O MC C Khalil Hamdani MCE OIC countries can be more active in FDI (UNCTAD data, inflows, billions of dollars) 2,500 2,000 1,500 World Developing coountries OIC countries 1,000 500 0 1980 1988 1996 2004 2012 OIC countries are now more open to FDI (UNCTAD data, inflows, percent of GDP) 4 3 OIC countries Developing countries 2 1 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 OIC country experiences vary by region (UNCTAD data, inflows per capita, dollars) $350 $300 $250 $200 $150 $100 $50 $0 ASIA (8) MENA (19) SSA (22) Economies in transition (7) African members rely on FDI more for capital formation (UNCTAD data, inflows, percent of gross fixed capital investment) 40 35 30 25 20 15 10 5 0 1980 1985 ASIA (8) 1990 MENA (19) 1995 SSA (22) 2000 2005 2010 Economies in transition (7) Largest OIC recipients of FDI Largest OIC providers of FDI Intra-OIC FDI: acquisitions have slowed (UNCTAD data, billions of dollars) Intra-OIC FDI: main buyers (cross-border acquisitions) Intra-OIC FDI: main locations (cross-border acquisitions) Intra-OIC FDI: greenfield projects (UNCTAD data, estimated capital expenditure, billions of dollars) world Intra-OIC FDI: main industries (UNCTAD data, greenfield projects, 2003-2012, capital expenditure, billions of dollars) Intra-OIC FDI played an important role (UNCTAD data, billions of dollars) 200 180 160 140 OIC FDI inflows 120 100 OIC FDI outflows 80 Intra-OIC FDI (estimated by author) 60 40 20 0 2000 2004 2008 2012 OIC countries can be more active on outward FDI (UNCTAD data, outflows, percent of GDP) 2.5 2 1.5 Developing countries OIC countries 1 0.5 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 Intra-OIC FDI potential: current account surplus (UNCTAD data, billions of dollars) $400 $350 $300 $250 $200 $150 $100 $50 $0 2000 2002 2004 2006 2008 2010 2012 More open investment policies • Reduction of barriers to FDI (opening up more sectors to foreign investment, lifting of ownership restrictions, employment of non-nationals, etc) • Strengthening of standards of treatment (national treatment, legal protection to foreign investors, etc) • Enhancing the functioning of the market (supervision of banking and financial services, protection of intellectual property rights, environmental standards, etc) • Investment promotion and facilitation (image building, one-stop service, aftercare, policy advocacy, etc) • Incentives Investment strategy An improved investment climate Strategic policy coordination Strategic FDI attraction Linkages policies and programmes Source: Altenburg, 2005. Strengthening hard and soft infrastructure Investment strategy: an example • Shift from a natural resource-based to a knowledge-based economy • Diversify industrial base • Target biotechnology, pharmaceuticals and petrochemical products • Encourage SMEs and entrepreneurship development • Develop clusters of knowledge-based activities Work with existing investors BACKWARD FORWARD TNC SUPPLIERS SUPPLY CHAIN MANAGEMENT Improved productivity Higher incomes for suppliers Reduced costs for company A A CONSUMERS A PRODUCT STEWARDSHIP Better products for consumers Enlarged market share for company The greater the linkages between foreign affiliates and local enterprises and public institutions, the greater the spillovers into the domestic economy. Enhancing FDI benefits Channels Benefits Education and training Production efficiency Support for SMEs Productivity growth Backward linkages Technological and Linkages with technology partners Forward linkages with customers Participation in global supply chains Outward investment managerial capabilities Entrepreneurial activity Market diversification Upgrading of production Export growth Incentives Carefully targeted, strategic incentive packages may be relevant and useful to: • enhance the benefits from investment and trade in extractive industries. • diversify industrial and export base. • attract FDI into infrastructure, manufacturing and services. • create linkages between FDI and domestic investment. Recommendations • encourage investment among the OIC countries, through intergovernmental agreements, financing facilities and joint investment projects to improve cross-border transactions and infrastructure. • Mandate your envoys in OIC countries to promote intra-OIC FDI. • expand knowledge sharing within the OIC on FDI, using existing institutions and involving private sector. • Intensify cooperation among investment promotion agencies. • generate reliable data on FDI at the country level that is comparable across OIC countries in conformity with international standards. Intra-OIC FDI, trade and development (UNCTAD data, current account net, 2012, billions of dollars, for 57 OIC countries) $150 $100 $50 $0 -$50