Geneva 30 January 2004

Countries need to reorient their national economic development strategies and integrate FDI with these strategies says CUTS study “Stategising Investment for Development”. The study was released at Geneva, Switzerland by Karl Sauvant, Chief of the Division on Investment, Technology & Enterprise Development (DITE), UNCTAD. It was released on 28 January 2004 during a panel discussion on “Civil Society Perceptions of FDI” at the Palais des Nations.

The one-hour panel discussion was held as part of the final meeting of the Consumer Unity & Trust Society (CUTS)-implemented two-year project: Investment for Development (IFD). The project was conducted in collaboration with UNCTAD and with the support of Department for International Development (DFID), UK. It was implemented in seven countries: Bangladesh, Brazil, Hungary, India, South Africa, Tanzania and Zambia.

Speaking on the occasion, Sauvant said, “This was the first time that UNCTAD has worked with an NGO on a project ….. it was a privilege for UNCTAD to work with CUTS on the IFD project”. Jean-Pierre Lehmann, Director of the Evian Group and Professor of International Political Economy in IMD at Lausanne, Switzerland moderated the discussion, which also included Pradeep S. Mehta, Secretary General, CUTS and Freddy Bob-Jones, Economist, DFID as speakers.

Welcoming the participants, Mehta highlighted the results of a survey on civil society perceptions of FDI carried out under the project. The survey showed that the respondents are highly aware of their own country experiences and that countries with more positive experiences with FDI are favourably inclined towards FDI. Further, the survey respondents considered the benefits of FDI as access to new technologies, management techniques and competitiveness, while costs as environmentally harmful technologies and reduction of opportunities for domestic firms.

The main project finding is that developing countries in 1990s have liberalised their investment regimes to attract foreign direct investment (FDI) with mixed degrees of success. In some cases, high FDI has not contributed to economic growth and development. The aim of the countries should be to attract “quality” FDI: foreign investment, which would contribute positively to economic development.

The panel discussion was followed by a day long “International Seminar on FDI Policies and Regulation” on 30 January at the Palais. The two events were organised in conjunction with the UNCTAD Commission on Investment, Technology and Related Financial Issues, Eighth Session, held between 26 and 30 January. On the issue of linkages between FDI and Economic Development, it was pointed out that developing countries should have policy flexibility in the context of WTO commitments and other international agreements for furthering their own development. Peter Nunnenkamp of Kiel Institute for World Economics noted that it is important for developing countries to build local entrepreneurial capacity.

The experiences of least developed and large emerging economies were also discussed in the seminar. Speakers pointed out that, while least developed countries (LDCs) are keen to attract FDI in manufacturing and other non-traditional areas such as services, their share in the world trade is less than one percent. Further, the IFD research shows that the LDCs, which were studied in the project, lack proper FDI data, which hampers their prospects since most data underreports their actual FDI. Large emerging economies (LEMs), in contrast, have been attracting increasingly higher quantity of FDI, as the latest UNCTAD data has also confirmed. Interestingly, in some LEMs such as Brazil, this has not produced much benefit for the economic growth process.

Miklos Szanyi of Budapest University of Economics and Public Administration talked about Hungary’s experiences with FDI: while the country managed to attract high FDI between 1990 and 1998, the flows have petered out in recent years. Now the country needs to review its policies and national development plan to take into account the changed scenario.

The seminar had an interesting discussion on China. James Zhan, Chief of International Investment Arrangement section of the DITE, UNCTAD pointed out that the share of FDI stock in gross domestic product in China is 36 percent. He added that China has managed to attract FDI in high tech manufacturing and this has benefited its economic development. Reservations were expressed that China has depressed its exchange rate to attract FDI or that round tripping of FDI hides the actual flows into the country. Questions were also raised on whether there is any crowding out of domestic investment and what type of linkages exists between foreign and local firms in the country. The discussion ended with a note of caution that the long-term effect of FDI in China is uncertain and depends on a number of factors such as what type of FDI is it attracting.