02 February 2004, The Financial Express

GENEVA, FEB 01: Developing countries needed to re-think their national development strategies and restructure foreign direct investment (FDI) strategies to facilitate “quality” investment flow, a study carried out on FDI trends, policies and perceptions in select developing countries has suggested.

The investment for development (IFD) project launched by the Consumer Unity and Trust Society (CUTS) to study the foreign investment scenario in seven developing nations including India, Bangladesh and Brazil, has concluded that although the countries studied had adopted liberal investment policies to facilitate higher FDI in 1990’s, not all of them had been successful in doing so.

The IFD report released at the United Nations Conference on Trade and Development (UNCTAD) conference in Geneva by CUTS, pointed out that FDI inflows did not ensure higher economic growth and development.

It proposed that countries needed to re-orient their development strategies to take account of changing international economic factors like growth in new kinds of FDI, effect of technological change on the information, communication & technology (ICT) sector, growth of global production networks and change in attractiveness of certain investment locations to foreign investors.

The other countries covered in the report include Hungary, South Africa, Tanzania and Zambia.

Speaking at a seminar on FDI policies and regulations, Peter Nunnenkamp from the Kiel Institute of World Economics, Germany, said that policy makers should be aware that attracting FDI is no guarantee for reaping benefits from FDI. It is much more difficult to benefit from FDI than to attract FDI, he said.

Dr Nunnepkamp added that the current preoccupation of policymakers, with promoting high-tech FDI, appears to be out of proportion, once it is taken into account what many developing countries can reasonably expect from FDI in technology intensive industries.

He suggested that policymakers should spend scarce public resources on improving local capabilities, rather than encouraging inflows of high-tech FDI. In a comparative analysis of FDI inflow in the 1990’s in Brazil, South Africa and India, Mr. Rajeev Mathur from CUTS pointed out that Brazil received relatively high FDI mainly in services industries that did not have a favourable impact on economic growth. South Africa experienced very little inward FDI and domestic investment but was the biggest foreign direct investor in Africa.

India lagged behind other economies of its size due to poor implementation of policy and regulatory measures. Mr. Mathur concluded that governments should improve regulatory framework for FDI, facilitate business and improve economic determinants.

Citing an interesting case of FDI decline, Milkos Szanyi from the Budapest University of Economics and Public Administration pointed out that the inflow of FDI in Hungary during the turn of the century started to decrease and transfer of profits abroad started.