project ADVISORY COMMITTEE First MEETING

Participants: PAC members: Arvind Mayaram, Farooq Sobhan, Roger Nellist

Core researchers: Rakesh Basant, Sebastian Morris

Special invitees: Allan Asher, Shyam Khemani

CUTS staff: Pradeep S Mehta, Olivia Jensen, Rajeev D. Mathur, KS Sajeev

Project aims

The focus of the project needs to be clearly defined: FDI. The scope of the project should not be extended to include domestic investment/ foreign portfolio investment etc. The objective of the project also needs to be clear: policy recommendations that will help countries to attract more beneficial FDI.

The project should also not attempt to add to the discourse on the relationship between FDI and development/poverty alleviation. This is a huge topic on which much has already been written and this project would not be able to add much value to the debate. The notion of development in the project title is an economic one and does not include social, distributional, environmental or other aspects of development.

The project is policy oriented, not a theoretical study and this needs to be clear in the research design.

The Operational Strategy Note and other project documents reflect this focus and provide a good outline for future activities.

The aim of the project should be to identify what is really making policy work – or fail to work. In most cases, the problems are found in the implementation of the policy rather than in the provisions of the policy itself. In the case of Bangladesh, key factors are the lack of expertise and governance problems. It would also be useful to benchmark the policy-making and implementation processes in the project countries.

Investment policy reviews, including those conducted by UNCTAD, often fail to reveal anything new because they do not look at the implementation of the policy. In the IFD research, the terms of reference for the research as they stand do not give enough emphasis to identifying these practical problems. Decision-making structures, policy distortions, tensions between different bodies of policy-makers and other implementation problems need to be examined in order to make useful policy recommendations including changes that need to be made to decision-making structures.

Quality control

The Bangladesh report failed to identify the factors that really determine whether policy works. AC members with experience of policy implementation can make a very useful contribution by commenting on the reports. National reference group meetings should also function as quality control for the reports.

Perceptions

Perceptions are extremely important. In Bangladesh, as in many other developing countries, FDI is perceived very negatively and this may undermine the country’s potential to attract FDI. The question of FDI in the gas sector in Bangladesh has been front-page news for the last two months in the country. It is difficult in this atmosphere to have an educated debate, but the project may be able to play a role in informing the debate. The question is how to balance the interests of investors with a broad conception of the national interest.

Negative perceptions of FDI should be seen in the historical context of the colonial experience, as expressed in the postmodern literature.

CUTS’ strengths lie in its value-based approach and its civil society orientation. Thus it can make a real contribution to shaping civil society views of investment.

Selection of case studies

The research outline that has been developed envisages the selection of case studies based on two criteria:

(1)   Sectors in which FDI is greatest

(2)   The importance of the sector in the perceptions of civil society

Tourism might be another sector that is important in most of the project countries. In most cases, these two routes will yield the same sectors for analysis. Some sectors will be important in most of the project countries, e.g. the oil and gas sector, and possibly mining. This will then provide good material for comparison.

Investor surveys

A large number of such surveys are already conducted by private consultancies, the World Bank and other institutions. This has led to survey fatigue among investors and low response rates. Two recent surveys reported in the WTO, working group on investment (one of European investors and the other of Canadian). IFD research on investor perceptions should draw on the data that has already been collected, be careful not to replicate work that has already been done be designed in such a way that it adds value. Surveys to draw on include:

(1)   Commonwealth Business Council Survey (Roger will be able to share this with CUTS)

(2)   Economic Intelligence Unit (Shyam suggested requesting The Economist to make their data available)

(3)   FIAS World Business Environment Survey (available on the web)

One drawback of many investor surveys is that they provide a huge shopping list of factors which are not prioritised. Investor experience with implementation should be included specifically in the questionnaires. The surveys should look at transactions costs, transparency and corruption.

A further problem is that the results of these surveys are not communicated to the public at large.

The survey group should include investors, failed investors (those who intended to invest but did not) and disinvestors. Questionnaires must be carefully targeted to someone at the right level of the organisation and may be tailored to the specific circumstances of the country.

The AC will be invited to comment on the questionnaire that is developed for the investor surveys. A business representative should be on the AC, particularly to advise on the survey design.

Other studies of interest include those done by Andrew Stone at the World Bank, the study of transactions costs currently underway in Bangladesh, a study of administrative costs in Saudi Arabia.

Role and make-up of the Advisory Committee

Most members of the AC were not able to take part in the meeting because of other international commitments. It may therefore be necessary to enlarge the AC to ensure that there are enough people from different groups to ensure a fruitful discussion. Another option is to invite individuals to participate in the AC meetings as special invitees.

It is important for a business representative to participate in the AC. This could be someone from an international business chamber, or an MNC with first-hand experience of investing in these countries. While companies like Unilever or Nestle probably have investments in most of the project countries, it may be more relevant to get someone from the mining or pharmaceuticals industry rather than consumer goods sector. A representative from a consultancy such as McKinsey or Boston Consulting with worldwide experience could be ideal. One possibility is to identify a few business representatives who would be invited as special invitees to AC meetings. The level of targeted person should be selected carefully – senior enough to have a broad perspective but not so senior that they would not have time to participate actively.

Participation of the OECD in the AC was considered but it was decided that a more informal relationship with the OECD would be maintained or OECD representatives could participate as special invitees.

Information and data

This will be a problem in a number of countries, particularly Zambia, Tanzania and Bangladesh. Data that is available is unreliable and may not reflect accurately the volume and nature of FDI in the country. Concerns had already been voiced by the partners in these countries. The study therefore cannot and should not attempt to give a macro picture of FDI. This reinforces the need for a highly focused case study approach to the research. The AC and meetings of the national reference groups will provide an important quality check on the outputs of the country researchers.

International advocacy

Outputs of the project can make useful case studies for the WTO Working Group on investment issues either as UNCTAD submissions or as submissions by the partner countries in the lead-up to Ministerial V.

IFD results could also feed into SAARC’s work on formulating a common regional position on investment. This will be discussed at the summit in January. The regional dimension is being discussed in the SACEPS (South Asia Centre for Economic Policy Studies) Taskforce on Investment.

Other issues

§         Special efforts need to be made with Hungary and Brazil to ensure that they have adequate support and are fully integrated into the project. Hungary is in danger of being a token transition country. For example, regional meetings can be held in these countries.

§         Other countries have expressed interest in taking part in the project. The project is limited to seven countries because of management and budget constraints, but other countries can be included through skill-sharing, regional outreach and advocacy. CUTS would be happy to share the techniques used in the project with interested parties in other countries. They would also be involved in the regional outreach activities like the planned seminars.

§         Timing of the international events in 2003 need to be carefully planned so that preparations for the WTO Ministerial would not create problems of participation of key resource persons and audience at the Final Meeting.

§         Timing of international events can also be advantageous: one such opportunity for a meeting would be the Rio + 10 meeting in Johannesburg in  Sept 2002.

§         A further meeting of the AC was tentatively planned for 21/24 January 2002 in Geneva to coincide with the UNCTAD Commission on Investment, Technology and related financial issues meeting and the WAIPA.