BOPCOM—13/25

Twenty-Sixth Meeting of the

IMF Committee on Balance of Payments Statistics

Muscat, Oman

October 28–30, 2013

World Investment Report 2013

Prepared by the

UNCTAD

1

WORLD INVESTMENT REPORT 2013

Global Value Chains: Investment and Trade for Development

Masataka Fujita

Division on Investment and Enterprise

UNCTAD

2

Contents

• Global and regional investment trends

• Recent policy developments

• Global value chains and development

1

3

FDI recovery road proves bumpy, with 18% decline in 2012 Global FDI inflows (Billions of dollars)

1,473

2,003 1,816

1,216 1,409

1,652

pre-crisis

average 2005-

2007

2007 2008 2009 2010 2011

1,351

2012

+ 17% - 18%

Average annual

growth rate

2

4

Flows in 2013 are expected to remain close to 2012 level, and

could rise in 2014 – 2015

Global FDI flows 2004 – 2012, and projections 2013 – 2015 (Billions of dollars)

• Forecasts for 2013

close to 2012 level;

upper range at $1.45

trillion aligned with the

pre-crisis average

• FDI may slowly

increase to $1.6

trillion in 2014 and

$1.8 trillion in 2015

• However significant

risks to this growth

scenario remain

3

5

Developing economies surpass developed economies as

FDI recipients for the first time FDI inflows by group of economies, 1995 – 2012 (Billions of dollars)

0

500

1 000

1 500

2 000

2 500

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

52%

World total

Developing economies

Transition economies

Developed economies

42%

4

6

9 of the 20 largest FDI recipients are developing economies

Top 20 host economies, 2012 (Billions of dollars)

14

14

16

20

25

26

28

28

29

30

45

51

57

57

62

65

65

75

121

168

20 Sweden (38)

19 Kazakhstan (27)

18 Colombia (28)

17 Indonesia (21)

16 France (13)

15 India (14)

14 Spain (16)

13 Luxembourg (18)

12 Ireland (32)

11 Chile (17)

10 Canada (12)

9 Russian Federation (9)

8 Singapore (8)

7 Australia (6)

6 United Kingdom (10)

5 British Virgin Islands (7)

4 Brazil (5)

3 Hong Kong, China (4)

2 China (2)

1 United States (1)

(x) = 2011 ranking

Developed economies

Developing economies

Transition economies

5

7

Outward FDI from developing economies accounts for

1/3 of global total Shares in global FDI outflows, by group of economies, 2000–2012 (Per cent)

6

Developed economies

Developing and transition economies

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

12%

88%

35%

65%

8

China moves up from the sixth to the third largest

investor, after the United States and Japan Top 20 investor economies, 2012 (Billions of dollars)

17

19

21

21

23

26

30

33

33

37

42

44

51

54

67

71

84

84

123

20 Luxembourg (30)

19 Ireland (167)

18 Norway (19)

17 Chile (21)

16 Singapore (18)

15 Mexico (28)

14 Italy (9)

13 Republic of Korea (16)

12 Sweden (17)

11 France (8)

10 British Virgin Islands (10)

9 Switzerland (13)

8 Russian Federation (7)

7 Canada (12)

6 Germany (11)

5 United Kingdom (3)

4 Hong Kong, China (4)

3 China (6)

2 Japan (2)

1 United States (1)

(x) = 2011 ranking

Developing economies

Transition economies

329

Developed economies

7

9

Global FDI drop is due to developed economies, flows into

developing regions remain at their high level FDI inflows by region, 2010–2012 (Billions of dollars)

• FDI flows to developed

countries plummet

• FDI flows to developing

economies see a small

overall decline, with some

bright spots:

• Africa bucks the trend

• Developing Asia loses

growth momentum, but

remains at historically high

levels

• Latin America and the

Caribbean register a small

decline

• FDI is on the rise in

structurally weak

economies

• Transition economies see a

relatively small decline

8

FDI inflows

2010 2011 2012

World 1 409 1 652 1 351

Developed economies 696 820 561

Developing economies 637 735 703

Africa 44 48 50

Asia 401 436 407

East and South-East Asia 313 343 326

South Asia 28 44 34

West Asia 59 49 47

Latin America and the Caribbean 190 249 244

Oceania 3 2 2

Transition economies 75 96 87

Structurally weak, vulnerable and small economies 45 56 60

LDCs 19 21 26

LLDCs 27 34 35

SIDS 5 6 6

Region

10

All the three sectors see a decline, but the services

sector remains resilient FDI projects inflows by sector (Billions of dollars)

Primary

Manufacturing

Services

Value of greenfield projects, 2011–2012 Value of cross-border M&As, 2011–2012

76 25

453

264

385

323

2011 2012

137 47

205

137

214

124

2011 2012

- 16%

- 33%

- 42%

- 67%

- 42%

- 45%

- 33%

- 66%

9

11

International production continues to grow at a steady

pace

72 million of employees

$26 trillion of sales

$7 trillion of value added

(~9% of global GDP)

$87 trillion of managed assets

Change vs. 2011

+6%

+7%

+6%

+4%

Selected key performance indicators, foreign affiliates of TNCs, 2012

10

International production of TNCs continues to expand at a steady rate

because FDI flows, even at lower levels, add to the existing FDI stock

12

Contents

• Global and regional investment trends

• Recent policy developments

• Global value chains and development

11

13

Changes in national investment policies, 2000 – 2012 (Per cent)

Most countries remain keen to attract FDI while

becoming more selective and reinforcing regulatory

frameworks

0

25

50

75

100

94%

Liberalization/promotion 75%

6%

Restriction/regulation 25%

12

14

The number of newly signed IIAs continues to decline

but the total number has reached 3,196 Trends in IIAs, 1983–2012

13

15

Contents

• Global and regional investment trends

• Recent policy developments

• Global value chains and development

14

16

Trade is increasingly driven by global value chains (GVCs),

leading to a significant amount of double counting

Global gross exports “Double counting”

(foreign value added in

exports)

Value added in trade

~19 ~5

~14

28%

ESTIMATES

Value added in global trade, 2010 (Trillions of dollars)

15

17

The contribution of GVCs to economic growth can be

significant Domestic value added in trade as a share of GDP, by region, 2010 (Per cent)

30%

14%

27%

22%

16%

37%

18%

24%

25%

30%

28%

13%

12%

26%

18%

22%

Least Developed Countries

Memorandum item:

Transition Economies

South America

Caribbean

Central America

Latin America and Caribbean

West Asia

South Asia

East and South - East Asia

Asia

Africa

Developing Economies

Japan

United States

EU

Developed Economies

Global

Developing country average

26%

16

18

GVCs are typically coordinated by TNCs

Global trade in goods and

services

Non-TNC

trade

All TNC-related

trade

Intra-firm trade TNC arm's length

trade

TNC-related trade:

~80%

ESTIMATES

NEM-generated

trade, selected

industries

Global gross trade (export of goods and services), by type of TNC involvement, 2010 (Trillions of dollars)

~ 19 ~ 4

~ 15 ~ 6.3

~ 2.4

~ 6.3

17

19

The presence of TNCs drives GVC participation Correlation between inward FDI stock and GVC participation, 187 countries, 1990 – 2010

18

20

FDI shapes patterns of value added in trade Key value added trade indicators (median values), by quartile of FDI stock

relative to GDP, 2010

1st quartile

(Countries with high FDI

stock relative to GDP)

2nd quartile

3rd quartile

4th quartile

(Countries with low FDI

stock relative to GDP)

Foreign value added in export

18%

17%

24%

34%

Value added contribution of

trade to GDP

21%

24%

30%

37%

19

21

Longer term, the ideal development path involves not just

participation but also domestic value added creation GDP per capita growth rates for countries with high/low growth in GVC

participation, and high/low growth in domestic value added share, 1990-2010

GVC participation

growth rate

Growth of the domestic value added

component of exports

Low

Low

High

High

+ 2.2% + 3.4%

+ 0.7% + 1.2%

+ n.n% median GDP per capita

growth rates =

20

22

A number of factors and conditions may facilitate ‘climbing’

the GVC development ladder

Resource-

based

Low-tech

manufacturing,

basic services

Mid-level

manufacturing

and services

Sophisticated

manufacturing

and services

Knowledge-

based services

Integrating

• Enter (increase relative

importance of) more

fragmented GVCs

• Increase exports of

intermediate goods and

services

Upgrading

(Focus on product and

process upgrading)

• Increase productivity and

value added produced within

existing GVC segments

Upgrading

(Focus on functional and

chain upgrading)

• Move to (or expand to) higher

value segments in GVCs

• Move to (or expand to) more

technologically sophisticated

and higher value GVCs

GVC development stages

• Effective national innovation system, R&D

policies, and intellectual property rules

• Presence of TNCs capable of GVC

coordination and a domestic and

international supplier base

• Pool of highly trained workers

• Presence of domestic supplier base fully

integrated in multiple GVCs (reduced

reliance on individual GVCs)

• Absorptive capacities at higher technology

levels, capacity to engage in R&D activities

• Pool of relatively low-cost skilled workers

• Availability and absorptive capacities of

domestic supplier firms and partners

• Reliable basic infrastructure services (utilities

and telecommunications)

• Pool of relatively low-cost semi-skilled

workers

• Conducive investment and trading

environment

• Basic infrastructure provision

• Pool of relatively low-cost workersValue creation

Part

icip

ation

Value creation

Part

icip

ation

Value creation

Part

icip

ation

(i)

Participation/ value

creation archetypal

moves

(ii) Share of exports by level of technological sophistication

21

The contribution of GVCs to development can be significant,

however participation in GVCs also involves risks

• Value added trade contributes nearly 30 per

cent to developing countries’ GDP on

average

• There is a positive correlation between

participation in GVCs and growth rates of

GDP per capita

• GVCs have a direct economic impact on

value added, jobs and income

• Participation in GVCs can help countries’

acquisition and dissemination of

technologies and skills, and spread

international best practices, including on

social and environmental issues, e.g.

through the use of CSR standards

• GVCs can also be an important avenue for

developing countries to build productive

capacity, opening up opportunities for

longer-term industrial upgrading

• GDP contribution of GVCs can be limited if

countries capture only a small share of the

value added created in the chain

• Also, a large part of GVC value added in

developing economies is generated by foreign

affiliates of TNCs, which can lead to relatively

low “value capture”, e.g. as a result of transfer

pricing or income repatriation

• Technology dissemination, skill building and

upgrading are not automatic. Developing

countries face the risk of remaining locked into

relatively low value added activities

• Environmental impacts and social effects,

including on working conditions, occupational

safety and health, and job security, can be

negative

• The potential “footlooseness” of GVC activities

and increased vulnerability to external shocks

pose further risks

22

24

Countries need to make a strategic choice whether or not to

promote GVCs

23

• Countries need to carefully weigh the pros and cons of GVC participation, and the

costs and benefits of proactive policies to promote GVCs or GVC-led

development strategies, in line with their specific situation and factor endowments

• Some countries may decide not to promote GVC participation. Others may not

have a choice: for the majority of smaller developing economies with limited

resource endowments there is often little alternative to development strategies

that incorporate a degree of participation in GVCs . The question for those

countries is not so much whether to participate in GVCs, but how. In reality, most

countries are already involved in GVCs one way or another

• Promoting GVC participation requires targeting specific GVC segments, i.e. GVC

promotion can be selective. Moreover, GVC participation is only one aspect of a

country’s overall development strategy

25

Policies matter to make GVCs work for development A policy framework for GVCs and development

Embedding GVCs in

development strategy

Enabling participation

in GVCs

Building domestic

productive capacity

Providing a strong

environmental, social

and governance

framework

Synergizing trade and

investment policies

and institutions

• Incorporating GVCs in industrial development policies

• Setting policy objectives along GVC development paths

• Creating and maintaining a conducive environment for trade and

investment

• Putting in place infrastructural prerequisites for GVC participation

• Supporting enterprise development and enhancing the bargaining

power of local firms

• Strengthening skills of the workforce

• Minimizing negative effects and risks associated with GVC

participation through regulation, public and private standards

• Supporting local firms in complying with international standards

• Ensuring coherence between trade and investment policies

• Synergizing trade and investment promotion and facilitation

• Creating ‘Regional Industrial Development Compacts’

24

26

Regional industrial development compacts for regional value chains

Regional trade and investment agreements could evolve

into regional industrial development compacts

25

27

Visit UNCTAD websites:

www.unctad.org/diae

and

www.unctad.org/wir

www.unctad.org/fdistatistics

Thank You!

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