project progress report

IFD Project , Seventh Quarterly Progress Report, (April-June 2003)

Introduction
Progress of the Project
Plans for Next Quarter
Problems and Solutions

I. Introduction

1.1   This is the seventh Quarterly Progress Report (April-June 2003) of the project titled ‘Investment for Development: Awareness and Capacity-Building on Investment Regimes and International Investment Issues in Selected Developing Countries and Transition Economies’.

1.2   The project, which is popularly known as ‘Investment for Development’ (IFD), is being implemented by Consumer   Unity & Trust Society (CUTS), Jaipur. The Department for International Development  (DFID), UK is supporting the two-year project. UNCTAD is providing support for the project in terms of information resources and advice and is also guiding the project through their representation on the PAC. Seven countries, Bangladesh, Brazil, Hungary, India, South Africa, Tanzania and Zambia have been selected for the purpose of the study.

1.3 The objectives of the project are:

·     Assist project countries to design and implement effective investment policies that will contribute to equitable growth, development and poverty reduction;

·     To delineate measures that will help developing countries, in general, and selected countries, in particular, to construct an environment that stimulates domestic and foreign direct investment;

·     Contribute to the assessment of needs and formulation of negotiating strategies for developing countries for discussions on investment issues at the regional and multilateral levels;

·     Raise awareness and stimulate national debate on investment issues;

·     Build capacity in civil society on investment issues;

·     Encourage a participative policy-making process for investment issues;

·     Raise awareness of the impact of competition policy and sectoral regulatory policies on attracting beneficial investment;

·     Encourage “good regulation” or “re-regulation” rather than just deregulation;

·     Dampen competition for investment between countries;

·     Arrest reductions in labour, environment and other standards – the ‘race to the bottom’ – phenomenon, by examining and disseminating information on the relationship between standards and investment, and

·     Encourage cooperation, information sharing and joint initiatives across countries on investment issues.

1.4 During the first (September–November 2001) quarter of the project following developments took place:

·        Institutions in the project partner countries were identified as partners in the project.

Operational Strategy Note (OSN) was prepared and sent to all concerned.

·        A Project Advisory Committee (PAC) was set up to guide the design and implementation of the project.

·        Two core researchers both from the Indian Institute of Management, Ahmedabad were appointed.

·        Terms of Reference (TOR) Report A was prepared and sent to all concerned for their reference.

·        Two consultants were engaged on the basis of their interest and ability and their commitment to the fulfillment of the project goals.

·        Draft project reports (Report A) from four of the seven country partners were received.

1.5 During the second (December 2001–February 2002) quarter of the project following developments took place:

·     Draft Report A was received from all partner countries.

·     Final Report A was received from India.

·     The launch meeting of the project was held at Jaipur, India on 13-14 December 2001.

·     A meeting of project partners was held on 12 December 2001 at Jaipur.

·     First PAC meeting was held in Jaipur, India on 15 December 2001 and the second PAC was held on 22 January 2002 at Geneva, Switzerland.

·     The first round of National Reference Group (NRG) meetings were held in India, Hungary, South Africa and Tanzania during the quarter.

·     Terms of Reference (TOR) for Report B was prepared along with the questionnaires for civil society, investor and local businesses and sent to all concerned.

·     Centre for Policy Dialogue, the Bangladesh partner, opted out of the project for their own reasons. Negotiations were under progress with Bangladesh Enterprise Institute in Dhaka.

·     The Zambian researcher Stephen Muyakwa withdrew from the project. No reasons for the withdrawal were cited.

1.6 During the third (March-May 2002) quarter of the project following developments took place:

·     In Bangladesh, Bangladesh Enterprise Institute (BEI), Dhaka signed the contract with CUTS as IFD project partner in Bangladesh.

·     In Zambia, Gideon Mudenda took over as the independent IFD researcher.

·     Final Reports A were received from Brazil, Hungary, India, South Africa and Zambia.

·     The Terms of Reference (TOR) of Synthesis Report A was prepared and sent to core researchers and PAC members.

·     Draft Synthesis Report was prepared by IFD core researchers and sent to PAC members for their comments.

·     The Terms of Reference (TOR) of Report B was prepared and sent to all country partners.

·     Sanjib Pohit of NCAER, New Delhi, prepared India Report B.

·     The first round of NRG meetings was held in Bangladesh, Brazil and Zambia during the quarter.

·     The second quarterly electronic newsletter for the period January-March 2002 was circulated.

·     IFD E-Forum was launched as an online discussion forum on investment issues.

·     A briefing paper entitled ‘Foreign Direct Investment in India and South Africa: A Comparison of Performance and Policy’ was published by CUTS.

·     Terms of Reference (TOR) of Report C was prepared.

1.7 During the fourth quarter (June-August 2002), the following developments took place:

·     Laveesh Bhandari of Indicus Analytics, New Delhi took over as core researcher of the IFD project. The change was made in consultation with the PAC.

·     Final reports A were received from each project partner.

·     Draft reports B were received from Bangladesh, India and South Africa.

·     The previous core researchers of the project prepared the draft synthesis report that has been circulated for comments.

·     The second round of NRG meetings was held in Bangladesh, Brazil, India and South Africa.

·     The third issue of IFD newsletter on the theme of Mergers and Acquisitions (M&A) was published.

·     The third quarterly electronic newsletter for the period April-June 2002 was circulated.

·     A briefing paper entitled ‘Regulating Corporate Behaviour’ was published.

·     A monograph entitled ‘Foreign Direct Investment in Developing Countries: What Economists (Don’t) Know and What Policymakers Should (Not) Do!’ was published.

·     Ms. Sanchita Chatterjee represented CUTS for the second NRG meeting in Bangladesh held on 08^th August 2002.

1.8 During the fifth quarter (September-December 2002), the following developments took place:

·     The second National Reference Group meetings were held in Hungary and Tanzania.

·     The three regional seminars were held in collaboration with UNCTAD at Nairobi, New Delhi and Sao Paulo.

·     An interim meeting was held at New Delhi, which was attended by project partners, PAC members, consultants, core researcher and representatives from DFID and UNCTAD. 

·     The third Project Advisory Committee meeting was held at New Delhi.

·     A Research Seminar on Foreign Direct Investment and Development – the Policy Dimension was held. The aim was to discuss country experiences of national policies and development benefits of foreign direct investment (FDI), common concerns regarding national policies and, researchers’ opinions on bilateral investment treaties (BITs) and international investment agreements (IIAs) based on their research and studies.

·     The fourth issue of IFD newsletter on the theme ‘Investment and Employment’ was published.

·     The fourth and fifth issues of the quarterly electronic newsletter for the period July-September 2002 and October-December 2002 respectively were circulated.

·     A briefing paper entitled ‘Multilateral or Bilateral Investment Negotiations? Where can Developing Countries Make Themselves Heard?’ was published.

·     Rajan Gandhi represented CUTS at the 2002 conference of the OECD Global Forum on International Investment (GFII) at Shanghai, China, on 5-6 December 2002.

·     During the Asia-Pacific regional seminar held at New Delhi, a press conference was organised. Karl Sauvant, Director, Investment, Technology and Enterprise, UNCTAD, Christian Rogg, Investment Climate and Competition team, DFID and Pradeep S. Mehta Secretary General of CUTS participated. The press conference received wide coverage in the press.

·     Since Tanzania was lagging behind in the report B, Sanchita Chatterjee of CUTS visited the project partner in Dar es Salaam on 17^th November 2002 to hold discussions. The independent researcher in Zambia also did not deliver the report B and could not be contacted. Rajeev Mathur of CUTS visited Lusaka between 11-15 November 2002 to make alternative arrangements.

1.9 During the sixth quarter (January-March 2003), the following developments took place:

·     Draft Report B was received from Zambia. Report B had, therefore been received from all project countries.

·     During the quarter, the second NRG meeting was held in Zambia. All project countries had held their second NRG meeting by the end of March 2003. Bangladesh, India, South Africa and Tanzania held their third and final NRG meetings as well.

·     Draft Report C was received from Bangladesh, India, Tanzania and South Africa.

Revised synthesis Report A was received from our core researcher and sent to the PAC for comments.

·     The sixth issue of the quarterly electronic newsletter for the period January to March 2003 was circulated.

·     A briefing paper entitled ‘FDI in Mining and Environment’ was published and distributed.

·     A monograph entitled ‘ABC of FDI’ was published and distributed.

·     Work on the first draft of the CUTS Advocacy Document started.

·     Ms Sanchita Chatterjee attended the third NRG meeting at Dhaka, Bangladesh on 5^th January 2003.

·     Rajeev Mathur of CUTS, Jaipur attended a Think Tank meeting organized by Trade Law Centre for South Africa (TRALAC) on ‘Developments in International Trade Negotiations and their relevance for Southern Africa’ at Stellenbosch on 17-18 March 2003. Over 30 lawyers and professors of law from South Africa, Amsterdam, Italy and USA, besides representatives from the WTO and UNCTAD attended the meeting. It was a good opportunity to showcase the work under the IFD project. The project and the IFD publications were very well received and the participants evinced a lot of interest in the project.

·     Sanjib Pohit, researcher of the project partner in India made a presentation on ‘FDI Policies and Practices: Indian Experience’ at a workshop organized by CUTS in Mumbai on 27^th January 2003. The workshop was organized under a five-year CUTS work programme-Grassroots Reachout and Networking on Trade and Economics (GRANITE).

II. Progress in the Seventh Quarter (April-June 2003)

2.1 Investment Performance and Perceptions Report (Report B)

2.1.1 Revised Report Bs were received from Hungary, Tanzania and Zambia.

2.1.2 Report B studies the relationship between policy, perceptions and performance through selected case studies. It is a reader-friendly and non-technical document and draws on secondary sources and the data from surveys that were conducted by the partners.

2.1.3 All the reports B are available on our website www.cuts-international.org/ifd-cr-lm-htm.

2.2 National Reference Group (NRG) Meetings

2.2.1 The third round of NRG meetings were held in all the countries which had not held their meetings till the end of the last quarter.

2.2.2 A major component of the project is to constitute a NRG in each project country for conducting periodic consultative meetings. It includes representatives of the civil society, government and media. For more information, kindly refer to the Operational Strategy Note (OSN). The purpose of constituting the NRG is to provide a sounding board and quality check on the research outputs.

2.2.3 Third round of NRG meetings targeted retention of momentum and assessed progress made in the national investment debate. The draft report C which is the national advocacy document was discussed and views invited from the participants.

2.2.4. Third NRG meeting was held in Brazil on 14^th April 2003. The meeting discussed the draft report C and the participants actively commented on the merged report. Presentations were made on areas where the FDI policy is highly sensitive. Discussions were followed by the presentations.

2.2.5 The third Hungarian NRG meeting was held in Budapest on 14^th April 2003. The major discussions were on the reasons of the current decline of foreign investments worldwide and divestments in Hungary, the question of national image, how to shape the national investment plan to improve investment opportunities especially to limit regional disparities and improve human capital supply.

2.2.6 Third NRG meeting was held at Lusaka, Zambia on 16^th April 2003. The purpose of the meeting was to discuss the following documents, ‘Investment Policy, Performance and Perceptions in Zambia’, ‘National Advocacy Document for Zambia’ and ‘Coordination Among Sector Regulators For A Sustainable FDI Environment’. The meeting called for the adoption of a national investment policy for Zambia which would harmonise operations of conflicting investment regulations to enhance the inflow of FDI.

2.3 Synthesis Reports

2.3.1 Synthesis Report A (Report on Investment Policies in Seven Developing and Transition Countries) was revised by IFD core researcher Laveesh Bhandari. The report is under finalisation.

2.3.2 Draft Synthesis Report B (Report on Investment, Performance and Perceptions in Developing and Transition Countries) prepared by Laveesh Bhandari has been received.

2.3.3 The first draft of the Report on Investment Policies, Performance and Perceptions in Large Emerging Markets: India, Brazil and South Africa was submitted by Suman Bery, Sanjib Pohit and Shalini Subramanyam of National Council for Applied Economic Research (NCAER), New Delhi.

2.3.4 The first draft of the report on Least Developed Countries: Bangladesh, Tanzania and Zambia was prepared by David Ongolo, Research Adviser, CUTS Africa Resource Centre, Lusaka, Zambia. It is under revision.

2.4 Investment Policy, Performance and Perceptions Report (Merged Report A & B)

2.4.1 In consultation with the Project Advisory Committee members, it was decided that reports A and B of each country would be merged.

2.4.2 Draft merged reports have been received from Bangladesh and India.

2.4.3 It was decided that the merged reports will be peer reviewed by an external reviewer and be revised if necessary on the basis of the comments received.

2.4.4 Revised merged report of Zambia is available on our website.

2.4.5 The revised and peer reviewed version of the Brazil merged report is available at out website.

2.4.6 All the merged reports will be reviewed by Richard Eglin, who is a PAC member. Eglin reviewed the Brazil report in this quarter.

2.5 National Advocacy Document (Report C)

2.5.1 This report will be a reader-friendly document with clear policy recommendations and action points for stakeholder groups reflecting consultation with but not necessarily endorsed by all stakeholders. It is based primarily on the NRG meetings but also draws on reports A and B.  On finalisation, it would be widely distributed in the respective countries. It was decided in consultation with the PAC that Report C would be published as a standalone document

2.5.2 Draft reports C have been received from Hungary.

2.5.3 Revised reports Cs have been received from South Africa, Tanzania and Zambia.

2.5.4 All the report Cs are available on our website www.cuts-international.org/ifd-cr-lm-htm.

2.6 Outreach

2.6.1 The February 2003 issue of IFD newsletter has been published.

2.6.2 A Monograph entitled ‘FDI as a Source of Finance for Development’ has been published.

2.6.3 Briefing Paper entitled ‘Investment Policies that Really Attract FDI’ was published by CUTS. A number of efforts have been taken by countries in the past decade to attract foreign direct investment (FDI) inflows. This briefing paper examines the policies that motivate investors. It discusses in detail the policies that are effective in attracting FDI and generating growth as well. It discusses three generations of FDI policies – the first generation is liberalisation of investment policies, the second is facilitation and promotion measures, and the third is enhancement of the investment environment. It also says that policy changes are needed across the board in all the areas for achieving political, legal and macroeconomic stability, education, competition, trade etc to attract FDI.

2.6.4 ‘How Mining Companies Influence the Environment?’ briefing paper was published during the quarter. The paper intends to study the importance of mining TNCs in the global mining sector, effects of operations of these companies on the environment and the general relationship between environmental regulatory structure and FDI flows to a country. It also discusses the uncertainties faced by companies, steps taken by companies to overcome these uncertainties and steps taken by governments to protect the environment.

2.6.5 ‘How is FDI related to Economic Development’ is another briefing paper that has been published. It is not surprising that there is a lot of hype surrounding Foreign Direct Investment. Arguments and counter-arguments about FDI and its relationship with development can take highly polarised positions. A number of studies have been conducted on the relationship between FDI and development. These studies conclude that FDI can have beneficial effects on a host economy if right policies and regulatory conditions are in place.This Briefing Paper by CUTS Centre for Competition, Investment & Economic Regulation examines whether the positive impact of FDI on development in a country depends on the quality of FDI it is receiving. The paper discusses the benefits developing countries expect from FDI, while pointing out the fact that countries compete with each other for FDI. It also outlines some measures to maximise benefits from FDI and looks very briefly at the debate whether FDI follows development.

2.6.6 Briefing Paper entitled ‘Public Private Partnerships in the Essential Services Sector’ has been published. Public Private Partnership (PPP) is a partnership between the public and private sector for the purpose of delivering a project or service traditionally provided by the public sector. This paper concentrates on the basic services, which are essential to achieve a certain quality of life for citizens of a country. The disruption in their provision can cause a backlash in terms of health, lifestyle and the economy of a country. The paper discusses PPPs in the basic infrastructure services sectors restricting itself to discussions on the power, water and sanitation sectors. The infrastructure services are expensive to set up, enjoy economies of scale and are consumed on a massive scale. Due to growing population and economy, it is becoming increasing difficult across the world to meet the growing demands of infrastructure. Thus, private investment, as an alternative supplement to government efforts in these key sectors, is increasingly being thought of.

2.6.7. Sanchita Chatterjee of CUTS met Ms. Ritu Lohiya, General Manager, Bureau of Industrial Promotion (BIP), Rajasthan on 2^nd April 2003 to collect information on failed investment cases in the State of Rajasthan, India. She also attended the seminar of the World Investment Report (WIR) 2003 organised by UNCTAD in Geneva, Switzerland on 12-13 May 2003. The theme of the WIR 2003 was ‘National FDI Policies and International Investment Agreements’. On corporate social responsibility, Ms. Chatterjee said that it is important in the form of soft laws as well as mandatory codes. Both home and host countries have important role in enforcing it. There should be recognition that there are costs and benefits associated with the competition for FDI through providing incentives and relocation of investment. The fact that developing countries as a whole lack the capacity to negotiate international investment agreements should also be acknowledged.           

2.6.8. Rajan Gandhi of CUTS had attended an interactive session on ‘Attracting Foreign Direct Investment to India: The Challenge and Competitive Response’ organized by UNIDO regional office on 8^th May 2003. Mr. Gandhi attended the session with Prof. John Henley, former Head of Economics and Management at Edinburgh University. Here FDI in China was discussed and it was also compared with India both in respect of quantity and quality. Interstate position of FDI in India was also discussed. The competition among states in attracting FDI was acknowledged. The need was felt to put in promotional and facilitating expertise to promote India as a preferred destination for investment. 

2.6.9 Rajeev Mathur visited Lusaka, Zambia on 23-24 May 2003 to discuss various IFD issues. Deadlines were decided for the revised Merged Report A & B and Report C.

2.6.10 Representatives of UNCTAD, Taffere Tesfach, Special Assistant to the Deputy Secretary General, Lena Chai, Secretary to Khalil Hamdani and Shuvojit Banerjee, Economic Affairs Officer, Investment Division from Geneva visited the CUTS Zambia office (CUTS-ARC) during the mid-May 2003. Their weeklong visit to Zambia was to undertake an investment policy review of Zambia at the request of the Zambian government which is likely to last for six months. They are not only well aware of the IFD project but also have the Zambia Report A & B with them.

2.6.11 CUTS-ARC has been nominated by the Ministry on the sub-committee to study the recommendations to review the Zambia Investment Act. It was thought appropriate to finalize the Zambian Report C and made available to the Ministry so that the recommendations could be taken on board.

2.7 CUTS Advocacy Document

2.7.1 Comments and suggestions have been asked for on the first draft of the Advocacy document based on the Terms of Reference approved by the Project Advisory Committee (PAC) members. On the basis of their comments, the document will be revised.

2.8 Events

2.8.1 An OECD-CUTS Regional Roundtable was held at Istanbul, Turkey in collaboration with OECD entitled ‘FDI in Transition Economies: Challenges, Policies and Good Practices’ on 5-6 May 2003. The main purpose of this regional roundtable was to bring together investment policy makers, practitioners, private sector, trade unions and other civil society partners in transition economies for an interactive discussion.

2.8.2 A Review Seminar of the project was held at Geneva, Switzerland on 9-10 May 2003. The aim of the seminar was to discuss investment policies and trends, civil society perceptions of FDI and challenges faced in attracting FDI in the project countries. Further, FDI experiences of the telecom sector and the mining sector in Africa was discussed. There were also presentations on FDI performance in the following regions: Latin America, S E Asia, C E Europe. Lastly there were debates on the relationship between FDI and development, and policy recommendations for governments, IGOs and CS as presented in the draft CUTS advocacy document for the IFD project

2.8.3 The fourth PAC and the third partners meetings were held at Geneva, Switzerland on 10^th May 2003 to discuss the draft CUTS Advocacy Document and the way forward.

II. Plans for the Eighth Quarter (July-September 2003)

3.1 Merged Report

3.1.1 It is expected that all the merged reports will be peer reviewed and finalised during the quarter.  They will be sent for printing during the quarter.

3.2 Report C

3.2.1 It is envisaged that all the report C’s would be finalised during the quarter and some of them would be ready for printing.

3.3 Project Process Report (Report D)

3.4.1 All the partners are to prepare a report D that would be a summary of outreach/dissemination activities conducted and will cover an assessment of their impact including reports on regional and international meetings attended by the partners. This report would be completed within 6 weeks of the final meeting.

3.4.2 Terms of Reference for the report D would be sent to partners once we receive all the revised report Cs.

3.5 Synthesis Reports

3.5.1 The revised and edited synthesis report A has been sent to the members of the PAC for comments. This report will be finalised during the quarter.

3.5.2 The core researcher has prepared the first draft of synthesis report B which has been  sent to partners and PAC for their comments. It will be revised on the basis of comments received from partners.

3.5.3 The report on Large Emerging Economies: India, Brazil and South Africa prepared by Suman Bery, Sanjib Pohit and Shalini Subramanyam of National Council for Applied Economic Research (NCAER), New Delhi and the report on Least Developed Countries: Bangladesh, Tanzania and Zambia prepared by David Ongolo, a Research Advisor for CUTS Africa Resource Centre, Lusaka, Zambia will be finalised during the quarter.

3.6 Publications

In addition to the IFD newsletter ‘Investment for Development’ and the electronic newsletter, it is planned is to publish the following during the quarter:

3.7.1 Monographs:

3.7.1.1 The Home Country Role in Promoting FDI.

3.7.1.2 Competition for FDI among Sub-national Units 

IV. Problems and Solutions

4.1 During the seventh quarter (March-May 2003), payment under the project was delayed due to shifting of portfolios in DFID, UK. As the person responsible for payments under the project has been shifted to a different department and a new person took charge. We were asked to send the details again which were duly sent. The payment was however released late in May 2003.