Azernews.Az

Friday March 29 2024

AIM congress to see first Foreign Direct Investment report

6 February 2014 17:58 (UTC+04:00)
AIM congress to see first Foreign Direct Investment report

By Sara Rajabova

Annual Investment Meeting (AIM)'s theme for this year is Investment Partnerships for Sustainable and Inclusive Growth in Frontier and Emerging Markets.

The representatives of 165 countries have been invited and a total of 10,000 visitors are expected to take part in the event, which will take place in Dubai on 8 - 10 April 2014.

The opening day of the congress will see the presentation of the first AIM Foreign Direct Investment (FDI) report, with a special focus on FDI flows to and from frontier and emerging markets. Produced in conjunction with the FDI Intelligence unit of the Financial Times, the report will look at the key opportunities and challenges in these fast growth markets.

The United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2013 (released in June 2013) said global foreign direct investment inflows fell by 18 percent in 2012 to $1.35 trillion and their predictions for 2013 show little sign of a great increase with an upper range estimate of $1.4 trillion.

For the first time ever, developing countries absorbed more FDI than developed countries, with a 52 percent share, even if these inflows declined slightly by 4 percent.

"The rise of the emerging markets requires us to revisit our perspective on global FDI," Karl Sauvant, Resident Senior Fellow at the Vale Columbia Center on Sustainable International Investment (VCC) at Columbia University, New York, and moderator of the ministerial roundtable and a plenary session on the evolving regulatory framework for FDI at this year's AIM congress said.

"Whereas the pattern shifted some 20 years ago from bipolar (dominated by the U.S. and the European Community) to tripolar (entrance of Japan into the world FDI market and the notion of the FDI Triad), we can no longer use this characterisation. I am not sure however whether emerging markets will be able to maintain their share in world FDI flows in 2013. Their share, whilst remaining important, might drop as growth in developed economies continues to pick up," Sauvant said.

Those emerging markets that are receiving most inward investment are those that participate in the manufacturing global value chains (GVCs). These are to be found mostly in Asia. Investment into Africa and South America is predominantly infrastructure and natural resources investment, with the exception of Mexico.

GVCs have increasing importance in terms of global trade, representing 80 percent of the total value, according to UNCTAD. These continue to represent a real opportunity for developing and emerging economies, contributing on average 30 percent to individual countries' GDP. It is not just an increase in GDP that participation in these GVCs can add, but they can also positively influence aspects such as skill building and industrial upgrading in the host countries.

Taking into account the subject of GVCs, it cannot be denied that participation in these value chains does not come without certain risks for emerging and developing economies. The risks lie in the host country capturing only a small proportion of the value within that chain, and this engendering a negative environmental and social impact in terms of working conditions, low wages, job security and health and safety.

Sauvant believes that this crystallisation of multiple FDI poles will more than likely influence international rule-making and will engender changes in the way that developed countries and emerging markets both see the responsibilities of host countries and multinationals. This will encourage them to be more aligned, particularly as these emerging markets are becoming significant outbound investors in their own right.

"The new players and established investors will have to understand that countries no longer look for more FDI, but sustainable FDI - investment contributing as much as possible to economic, environmental and social development in the framework of mechanisms that ensure a fair distribution of FDI benefits," Sauvant said.

He noted that the real growth for emerging markets will come from the service sector rather than manufacturing GVCs. He said this is not a surprise in the sense that the service sector is the largest worldwide.

"Services have traditionally had to be produced when and where they are consumed. Information technology has however changed the rules of the game, and indeed continues to do so. Anyproduct that has a high information content and can hence be computerised, can also be outsourced. GVAs in the service sector in emerging markets really are in their infancy but cost issues will push their development into these countries. These markets need to anticipate this future trend by ensuring that the adequate telecommunications infrastructure and the relevant skill sets are in place," Sauvant said.

With opportunity comes indeed certain challenges. On a very simple level, the access to information can often be much more limited than in developed countries making informed choices rather difficult. Bureaucracy and complicated administrative procedures can represent another challenge.

The experiences of other companies investing in the same markets can be helpful and that is why this year's AIM congress welcomes high-level,private sector representatives who will share with participants their views and experiences of investing in emerging markets, as well as their feedback as to what were the main drivers were behind their investments, the interaction and support they had and how they mitigated the risks in investing in these markets.

Ultimately, any emerging market needs to make sure that the right economic determinants are in place: the market, the physical and virtual infrastructures and the right skills. These are the real drivers behind an investment decision. A simplified regulatory framework makes it easier, but if the economic determinants are in place, a company will find the way to invest.

Easing the regulatory framework is however important, as on an even playing field this can indeed make a difference. One of the main instruments used is the creation of an Investment Promotion Agency (IPA) which will not only promote the developing country to overseas investors but also act as a lobbying arm to ensure that the investment climate is open and welcoming.

The creation of such a structure also increases FDI inflows by not only "getting their country as the map" as it were, but also in centralising all that market information that overseas investors can find hard to access. Investment Promotion Agencies typically also navigate the red-tape that companies can find burdensome.

Loading...
Latest See more