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No. 02,January-March 2002 CUTS
Centre for Competition, Investment and Economic Regulation
Jaipur, India |
Editors note
Possible
Virtues of Mergers and Acquisitions! The
1990s and 2000 experienced a high foreign direct investment (FDI) flows,
mainly due to an explosion in mergers and acquisitions (M&As).
Greenfield investment formed a small portion of total FDI flows. Increases
in M&As reflected, a shift in the composition of FDI away from
greenfield investment as well as a growth in the international financial
markets. At the same time, overseas development assistance (ODA) has
fallen significantly in the last decade, which has made developing
countries more dependent on FDI as a source of capital. It
is believed that greenfield investment is more beneficial for an economy
as it results in asset creation. However, in certain countries, such as in
transition economies, M&As may be more desirable. A reason could be
that M&A flows in these economies are associated with the
privatisation programme, which has linkages with the local economy. On the
other hand, greenfield investment may use less local inputs. Though
investors usually have a choice between greenfield investment and
M&As, these two are not always realistic substitutes. Therefore, while
discussing FDI one has to consider that M&As are often the only direct
mode of entry of foreign investors in a country. M&As
could play an important role in economic growth and recovery, as it might
do in the case of South East Asian economies. These countries are now in
the path of economic recovery after a long period of recession brought
about by the financial crisis in the late 1990s, the slump in the IT
(information technology) industry in 2000 and the slowdown in the US
economy in 2001. M&As could be an important instrument to achieve
this. However, this is not to say that M&As would not lead to any
competition problems. South
East Asian economies are looking to ICE (IT and telecom) sectors to
recover from economic slump. This could be a win-win situation for the
economies and the business. For example, once the Global Crossing was
among the world leaders in telecommunications sector, but in January 2002,
the company filed for bankruptcy protection. A take-over of the company by
the Hong Kong-based businessman Li Kashing and the state-owned Singapore
Technologies is proposed. A successful take-over could boost investors’
confidence in the region.
The
Investment for Development (IFD) project
About
The
project
The
‘Investment for Development’ project aims to create awareness and build
capacity on investment regimes and international investment issues in
developing and transition economies. The project is supported by the
Department for International development (DFID), UK and is conducted by
CUTS-CITEE with the collaboration with the United Nations Conference on
Trade and Development (UNCTAD). There are two aspects to the project: fact
finding and advocacy. Project
Update The
OSN outlines the
objectives and management of the project and the timetable. It also talks
about the structure and contents of the outputs. It has
been finalised and put onto the CUTS’ web site [www.cuts-international.org]. ‘Investment
for Development’ Newsletter A
quarterly newsletter, ‘Investment for Development,’ is published
regularly, covering developments relating to investment policy and
experience. National
Reference Group (NRG) Meetings One
of the most important activities of the project is to form national
reference group (NRG) in each of the partner-countries. The purpose is to
develop a constituency for better investment climate. It also aims at
increasing awareness on investment policy issues among the civil society
representatives and generating ways to take forward advocacy points
suggested by the research. The first round of NRG meetings has been held. Country
Reports Researcher
in each of the seven countries is to prepare two reports on investment
policies and performance. The first one (Report A) will study national
investment regime, while the second will cover sector-specific analyses of
investment performance so as to generate specific policy recommendations Recovery
in 2002 Global
FDI grew spectacularly in the 1990s. In 1993 world FDI flows were a little
over US$ 200 billion, in 2000 this figure rose to a record $1.3 trillion.
In 2001, however, FDI flows fell drastically due to a recession in the
world economy. FDI is set to recover in 2002 led by a recovery in the US
economy. More: http://news.bbc.co.uk/hi/english/business/newsid_1793000/1793998.htm IT-related Investments
Drives Recovery
A
fast recovery of the US economy is taking place due to a number of
factors. An important factor being a faster access of real-time
information, which has improved business decision-making considerably. IT
investments in the late 1990s are driving changes in business
organisation. A number of business analysts had predicted that the power
of IT would kill business cycles. This hypothesis has been falsified by
the present world recession but the use of IT could make business cycles
shorter. However
IT investments has its downsides. Firstly, in many companies, huge
investments in IT did not give any return and secondly, the rapid spread
of IT has introduced harsh competition in markets and uncertain pricing
power of companies. More: http://www.federalreserve.gov/boarddocs/speeches/2002/20020116/default.htm Spotlight
on Accounting Practices The
demise of Enron, the world's biggest energy-trading company, has attracted
public attention on companies with questionable accounting practices. The
event has shaken Americans' perception of financial markets, accounting
practices and corporate ethics. All these are leading to high interest
rates, which are raising cost of credit, which in turn is putting a strain
on corporate investment plans. This means a slower recovery of the US
economy and therefore a slower recovery of the world economy. The
Future of the Enron Project in India is Uncertain Enron
has been the largest foreign direct investor in India after the country
opened up her economy to foreign investors in 1991. The Enron's power
project at Dabhol in the Western Indian State of Maharashtra was plagued
with controversy ever since the project was sanctioned. Maharashtra
Government's handling of the project was questioned. The current troubles
in Enron have put the controversy on the backburner for the time being and
the future of the Dabhol power project is being contemplated.
Enron’s
human rights record in Dabhol and Maharshtra State Government’s role in
that had also been criticised by a recent Human Rights Watch Report.
Farmers of Dabhol have complained that Enron acquired their land unfairly
and diverted scarce water for its needs. The report also accuses that
contractors of the company harassed and attacked individuals who opposed
the power project in Dabhol. Police refused to investigate complaints and
is some cases, arrested the victims on trumped-up charges. No Significant Effect on the World Energy Market Though,
Enron boasted a 25 percent market share in gas and power trading on both
sides of the Atlantic, there has not been much effect of the company's
downfall on the global energy market. One of the reasons could be that the
company did not enjoy as high revenues as it used to project in its
reports. Instead of reporting
profits from trading as revenues, Enron used to book the entire value of
its trades as revenues, which is a common practice in this industry. If
adjustments are made for this, the companies' share in the energy market
will probably be around 15 percent. Challenges
in Implementing a Competition Policy and Law: An Agenda for Action
This
report is an outcome of a symposium entitled ‘Competition Policy and
Consumer Interest in the Global Economy’ which was organised by CUTS in
Geneva on 12-13 October 2001, with the support of the International
Development Research Centre, Canada. It will enable the stakeholders to understand domestic as well as international challenges in
respect of competition law and policy. (Suggested contribution:
US$25/Indian Rs. 100) Globalisation
and India: Myths and Realities This
monograph, published by CUTS, is an attempt to examine the myths and
realities so as to address common fallacies about globalisation and raise
peoples’ awareness on the potential benefits that globalisation has to
offer, in a simple question-answer format. Its aim is to build up a
constituency for economic reforms so as to unlock vital resources for
generating better employment opportunities and get people out of poverty.
Instead of developing a pessimistic outlook and finding faults in the
process of globalisation, it is better that India pull up its socks and
move ahead. (Suggested contribution: US$5/Indian Rs. 100) For Subscription and Orders Please Write To CUTS
Centre for Competition, Investment and Economic Regulation |
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