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Andrea Goldstein
OECD Investment Division
China-DAC Study Group
AU, Addis Ababa – 16/17 February 2011
OECD Enterprises in
African Development
1 FDI and the Crisis
Global Business: A New Geography? 2
OECD Enterprises in Africa3
The Role of the OECD4
Outline
* Projection based upon first half 2010
Source: OECD elaboration based on Dealogic.
FD
I a
nd
th
e cr
isis
Global FDI inflows by group of
countries, 2007/Q1-2010/Q2 (USD billion)
0
100
200
300
400
500
600
700
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2007 2008 2009 2010
18 G20 countries Rest of EU Rest of the world
Source: OECD and UNCTAD, Fourth Report on G20 Investment Measures.
FD
I a
nd
th
e cr
isis
Prospects for 2011
• The world economy is slowly recovering from the crisis FDI trails economic growth by at least two quarters.
• Improvement in business environment profits are progressively coming back to near pre-crisis levels (although firms repatriated a larger share of the earnings)
• Contrasting trends:
– pick-up in the value of cross-border M&As
– slight drop in number of greenfield projects
• New risk factors:
– turmoil in sovereign debt markets falling intra-company loans
– currency wars related escalation of trade protectionism
• Priorities
– Balanced growth
– Smoother functioning of global credit markets
FD
I a
nd
th
e cr
isis
Share of the global economyG
lob
al
Bu
sin
ess:
A N
ew G
eog
rap
hy
?
Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth b
PPP terms
Contribution to world GDP growthG
lob
al
Bu
sin
ess:
A N
ew G
eog
rap
hy
?
0%
1%
2%
3%
4%
5%
6%
1990
1991
1992
19
93
1994
1995
19
96
1997
1998
1999
2000
2001
2002
20
03
2004
2005
20
06
2007
2008
2009
2010
2011
2012
20
13
2014
2015
Contribution of advanced economies
Contribution of emerging and developing economies
Source: OECD Development Centre, Perspectives on Global Development 2010 Shifting Wealth
PPP terms (based on 3-yr moving average)
The world’s top 100 non-financial TNCs,
ranked by foreign assets, 1998 and 2008 1998 2008 Difference
United States 26 18 -8
Japan 17 9 -8
Germany 12 13 +1
United Kingdom 9 15 +6
France 12 15 +3
Italy 4 2 -2
Benelux 4 3 -1
Ireland & Portugal 0 2 +2
Switzerland 4 5 +1
Spain 1 4 +3
Canada 3 0 -3
China & Hong Kong, China 0 3 +3
Mexico 0 1 +1
Korea 0 2 +2
Australia 3 1 -2
Venezuela 1 0 -1
Israel 0 1 +1
Finland, Norway & Sweden 4 5 +1
Malaysia 0 1 +1
Source: elaboration on UNCTADGlo
ba
l B
usi
nes
s: A
New
Geo
gra
ph
y?
Value of global M&A deals by nationality of
target
Glo
ba
l B
usi
nes
s: A
New
Geo
gra
ph
y?
Source: OECD, March 2010
Shares of global M&A deals by nationality of
acquirer
Glo
ba
l B
usi
nes
s: A
New
Geo
gra
ph
y?
Source: OECD, March 2010
Trend of South-South M&A activity
Glo
ba
l B
usi
nes
s: A
New
Geo
gra
ph
y?
Source: OECD, March 2010
What consequences for OECD countries?
• More competition in developing countries (e.g., resources in Africa) : Southern FDI as an alternative to MNCs from the North ?
• A subtle game: OECD MNCs maintain complex and multi-level relations (e.g. Chevron-CNOOC, competing for Unocal, cooperating elsewhere)
• FDI promotion: pro-active policies to attract FDI from emerging economies
• As in the case of developing countries, issues related to impact have to be considered.
Glo
ba
l B
usi
nes
s: A
New
Geo
gra
ph
y?
FDI Outward flows from OECD countries
to Africa, 2000-2008 (US$, millions)
OE
CD
En
terp
rise
s in
Afr
ica
Source: OECD FDI database Excluding New Zealand (2003, 2005, 2006, 2008), Canada and Mexico. For Norway, only data from 2005, 2006 and 2007 are included.
OECD FDI outflows by region
OE
CD
En
terp
rise
s in
Afr
ica
Source: OECD FDI database
1985 1990 1995 2000
OECD 68.6 80.2 79.7 84.6
Non-OECD 31.4 19.8 21.3 12.9
Of which
Africa 0.7 0.1 0.9 0.7
Asia 3.5 5.4 7.5 2.8
Non-OECD Europe
0.0 0.2 1.1 1.3
Latin America 14.9 8.0 7.1 6.4
Middle East 0.3 0.4 0.6 0.1
ROW 12.0 5.7 4.1 1.6
Selected OECD countries: geographical
distribution of outward FDI stock (US$ m)
OE
CD
En
terp
rise
s in
Afr
ica
2000 2007 or 2008 or 2009 Growth
USA – world 1,316.2 3,508.1 167
USA – Africa 11.9 44.8 276
Japan – world 278.4 740.4 166
Japan – Africa 0.8 5.7 613
Germany – world 537.8 1205.1 124
Germany – Africa 4.4 8.8 100
Canada – world 240.1 597.8 149
Canada – Africa 0.4 1.9 365
Switzerland – world 233.4 760.1 226
Switzerland – Africa 2.0 12.6 530
Austria – world 24.8 151.0 509
Austria – Africa 19 125 558
Sources: BEA, Columbia FDI Profiles, JETRO
Some home country characteristics
• European firms represent roughly two-thirds of total FDI in Africa, with over half of European investment emanating from the UK and France.
– Historical ties
– Petroleum sector
– Growing diversification (French telecommunications firms, Barclays’s acquisition of South Africa’s Absa)
• German firms – concentrated in South Africa and tend to favour manufacturing.
• American firms invest on the same scale as their British and French counterparts
– two-thirds of capital going into mining and petroleum.
– substantial presence in manufacturing in SA
OE
CD
En
terp
rise
s in
Afr
ica
Source: Thomsen (2005)
The contribution of multinationals to
African development – Unilever in SA
• Unilever South Africa (ULSA)– Has been operating in South Africa for more than 100 years.
– It ranks among that country’s “Top Forty” companies
– In 2005 it generated about R8.5b in sales and employed >4,000 people
– 3,000 suppliers and their 20,000 employees
• Direct or indirect impact throughout the SA economy in 2005– Generated output of more than R32 billion
– Supported approximately 100 000 jobs.
– For every ULSA job, another 22 workers depended upon the company for some part of their livelihood.
– majority of these jobs are located in the retail trade sector of the economy
• input-output analysis – for every R100 of ULSA sales, R145 added to the country’s GDP
• broader social and environmental impacts– wages and comprehensive benefits (medical care and a private pension scheme)
– Training, BEE, environmental policies and programmes
OE
CD
En
terp
rise
s in
Afr
ica
Source: Kapstein (2008)
What explains the recent rise?
• Availability of natural resources and “mega projects”– the oil industries of Nigeria and Angola
– Aluminium smelters in Guinea and Mozambique
• Economic reforms – Privatization
– trade & investment liberalization
– Simplification of business regulation
• Size of the domestic economy (also in the context of regional integration)
• Emerging middle class
• Gross returns on investment can be very high (although the effect is more than counterbalanced by high taxes and a significant risk of capital losses…)
OE
CD
En
terp
rise
s in
Afr
ica
What are the persisting problems?
• macroeconomic instability– Inflationary episodes
– Currency crashes
• loss of assets due to non-enforceability of contracts;
• physical destruction caused by armed conflicts
• sustainability of national economic policies,
• poor quality of public services
• Relatively closed trade regimes
• More attention to upgrading of suppliers
• Provide top-notch training
• Reduce environmental footprint (Unilever = packaging)
• Maintain an ongoing dialogue with government
OE
CD
En
terp
rise
s in
Afr
ica
Th
e ro
le o
f th
e O
EC
D
Investment Policy at the OECD (1)
• legal instruments
– Code of Liberalisation of Capital Movements
– Code of Liberalisation of Current Invisible Operations
– Declaration on International Investment and Multinational Enterprises
– Guidelines for Multinational Enterprises (voluntary rules of conduct for multinational enterprises)
– Convention on Combating Bribery of Foreign Officials in International Business Transactions
Th
e ro
le o
f th
e O
EC
D
Investment Policy at the OECD (2)
• Non-legal instruments
– Policy Framework for Investment (PFI)
– Risk Awareness Tool for Multinational Enterprises in Weak Governance Zones
– Principles for Private Sector Participation in Infrastructure
– Framework for Investment Policy Transparency
Th
e ro
le o
f th
e O
EC
D
Investment Policy at the OECD (3)
• Investment Committee and subsidiary bodies
• Regional initiatives
• Global Forum for International Investment
• Freedom of Investment Roundtable
– Guidelines for Recipient Country Investment Policies relating to National Security (2009)
– Sovereign Wealth Funds (SWFs) - OECD Declaration and Guidance (2008)
Th
e ro
le o
f th
e O
EC
D
OECD pilot project on due diligence in
the mining and minerals sector
• Part of the follow-up initiatives to the 2002 Final report of the UN Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the DRC
• Broad consultations, including with ICGLR.
• Key documents include the main “Due Diligence Guidance” and a “Supplement on Tin, Tantalum and Tungsten” (“3T Supplement”).
• Development on a “Supplement on Gold and Other Precious Metals” begun in December 2010. Th
e ro
le o
f th
e O
EC
D
EE5 involvement in Investment
Committee activities
Brazil China India Indonesia S. Africa
OECD
DeclarationAdherent No No No No
Investment
Committee
Regular
observer; full
participant
(Declaration)
No No No Ad hoc observer
FOI processRegular
observerAd hoc observer Ad hoc observer Full participant Ad hoc observer
WGIIS Ad hoc observer Ad hoc observer Ad hoc observer Ad hoc observer Ad hoc observer
Investment
Policy Reviews1998
2003, 2006,
20082009 2010 No
GFII host 2005 2002 2004 No 2003
Official
secondmentNo No No No Yes
Th
e ro
le o
f th
e O
EC
D
China’s Investment Policy Reviews
• Have contributed in some degree to subsequent policy developments:
– 2003 Review foreign investment approval procedures streamlined
– 2006 Review new M&A regulations which represented a net increase in transparency;
– 2008 Review process corporate conduct guidelines for SOEsT
he
role
of
the
OE
CD
For, essentially, the debate is still defined by two principal questions: one, where lies the responsibility for our lag?
In ourselves or in the outside world which exploits us? Two,how can we make progress? By imitating others (the West or
Russia) or by fashioning our own way?
ALBERT O. HIRSCHMAN, Latin American issues.Essays and comments, 1961
An immediate increase in productivity per man could be brought about by well-directed foreign investments added to
present savings
RAÚL PREBISCH, The economicdevelopment of Latin America and its principal problems,
1950
