The OECD has recently come out with a new publication, this time on The Internationalisation of Business R&D. A lot of OECD publications provoke a half yawn from me, but this one is worth a look. Here's the main thrust:...non-OECD countries have attracted an increasing amount of R&D investment in recent years. Surveys indicate that China and India, among others, are now considered very attractive locations for future investment both because of their large and rapidly growing markets and their large pools of qualified workers and their relatively low, though rising, labour costs. However, they also indicate important drawbacks, such as inadequate enforcement of intellectual property rights (IPR). While these may not deter companies from investing, they may affect the type of...
The Financial Times on its front page today speculates (subscription required) that the G8 may be backtracking on its commitments to Africa:Leaders of the Group of Eight rich nations are set to backtrack on their landmark pledge at the Gleneagles summit in 2005 to increase development aid to Africa to $25bn a year...In a further retreat, the G8 is set to abandon its Gleneagles promise to provide universal access to Aids treament and prevention by 2010.For some critics of the aid establishment, this will not provoke too many tears. I wait to see how many minutes pass before William Easterly intones on this latest broken promise. It probably won't be anything too nice if it bears any relation to what Easterly had to say in this biting critique of foreign aid from 2007:$568 billion in...
The Council on Foreign Relations just raised a red flag on FDI flows with its recently released Global FDI Policy: Correcting a Protectionist Drift. (You can read a condensed version in an op-ed today in the FT.) David Marchick and Matthew Slaughter, the authors of the paper, offer up some numbers to show that the long-term global trend of increasing openness to FDI inflows is starting to reverse. While in the 1990s, most national regulatory changes around the world favored FDI, that is less and less the case. According to data from the United Nations Conference on Trade and Development, "37 of 184 policy changes—20.1 percent—were unfavorable to FDI [in 2006]." One of the most obvious examples of this has been the United States, which passed the Foreign Investment and...
In a recent article in gazeta.ru, Vladimir Milov takes a hard look (in Russian) at the amount of foreign direct investment (FDI) going into Russia (Hat tip: JRL). The official numbers coming from Rosstat indicate that about $28 billion entered Russia in 2007. This number is respectable when compared to many other markets, as outlined in this post on Russia vs. China. However, Milov discounts about $18 billion of this. He attributes about $13 billion of this $18 billion to Royal Dutch Shell, which was forced to hand over its share in Sakhalin-2 to Gazprom. The rest of the $18 billion Milov attributes to Russian money coming from Cyprus—perhaps akin to money going into China from Hong Kong. He concludes that only $9.5 billion of 'real' FDI came into Russia in 2007. This certainly knocks...
The sky is falling???or so the head of Gazprom, the state-owned Russian energy giant, would have us believe. Today???s FT reports that Alexei Miller has predicted oil will hit $250 per barrel in 2009. Should we believe such a prognostication? Before you throw all your money into investments in oil companies, let???s remember the backdrop for such a prediction: Russia is courting foreign investors concerned about the security of their investments at the same time as BP and a group of Russian shareholders are fighting over control of the TNK-BP joint venture oil company. Medvedev, Russia???s new president, has been attempting to convince foreign investors that Russia is a safe bet, but Russian shareholders in TNK-BP have been making this look questionable with the trouble they???ve been...
A recent study by Mastercard indicates that many cities in emerging markets are moving up in the rankings of the Worldwide Centers of Commerce Index (Hat tip: FT). The index ranks 75 cities based on data that cover everything from the ease of doing business to livability. This is the second year Mastercard has produced this index, and London and New York are once again in the first two slots. However, China accounted for five of the cities that made it into the rankings, and India contributed another three. Latin America boasted seven cities in the rankings. Eastern Europe merited the inclusion of six cities, with Prague (pictured) ranked highest for that region.The authors of the study don???t provide much information on the methodology they have developed to rank cities. However, it's...
An article today in Bloomberg covering the St. Petersburg International Economic Forum begins with the following lede:Russia is the most promising market for foreign investment, surpassing China and India, even though corruption remains a ???major concern,??? according to a survey of international companies for the Russian government.Count me among the unconvinced. Even if we assume the agency commissioned by the Russian government was evenhanded, the methodology was clearly flawed. About 50 companies were polled, but they don???t look much like a random selection. The surveyed companies account for about 40 percent of FDI in Russia. Bias in the selection of companies makes it difficult to take anything meaningful from the data ??? other than that the companies that are already in Russia...
In just the last two days, two articles have pointed to growing pressure for greater state control of energy resources. In Brazil, the state-owned oil company Petrobras (subscription required) has been pressuring the country???s Congress to change the rules of the game to its benefit. Currently, foreign oil companies bid in auctions for exploration rights, paying a combination of an upfront fee and royalties on any discoveries. However, a huge discovery last year by Petrobras has upped the stakes. Petrobras wants to force all new explorations to be carried out as joint ventures, a la Venezuela and Nigeria.
A case in Russia is also pointing to continuing pressure for state control of the energy industry (subscription required). TNK-BP, a joint venture of British Petroleum and...
In this brave new world of knowledge-driven economies, it is a battle of the brains. And in perhaps the biggest battle of them all???China versus India???a winner is emerging. If you guessed India, I???m sorry, you get the consolation prize. China is far outstripping India in the race to expand tertiary enrollment. Data collected by the UNESCO Institute for Statistics indicate that in 2006, China achieved a gross enrollment ratio of 22 percent, compared to only 12 percent in India. Granted, raw numbers don???t take into account variations in the quality of education. Nevertheless, India is clearly a laggard at 12 percent???and perhaps even less than that, according to data from the Program for Research on Private Higher Education. What could explain India???s poor marks? One part of the...
James Surowiecki's wrote a piece in March 17 issue of the The New Yorker on how the hype around microfinance is fogging the way to development. "What poor countries need most[...]is not more microbusinesses. They need more small-to-medium-sized enterprises," writes Surowiecki. He explained further that focusing on SMEs, rather than on microbusinesses, could generate higher rates of employment. Jacqueline Novogratz from the Acumen Fund, wrote a piece in response where she gives some practitioner's insights: "In my own experience corroborated James' findings that only a small percentage of borrowers went onto create larger businesses that employed significant numbers of people. But we've learned how to deliver at least one product to the poor, and we have an unprecedented opportunity not...
Emerging markets are becoming important sources of foreign direct investment (FDI), with south-south – investments flowing among emerging markets – playing a bigger role.
According to recent MIGA report, the reasons for the increase in south-south FDI include, rising demand for energy in emerging markets, increase in south-south trade, proximity and cultural affinity, cost competitiveness, and outward FDI support.
The graph below shows global FDI outflows for developed and emerging markets, with a steady growth of both types of FDI since 2003.
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Despite some evidence that offshoring did little or nothing to help U.S. original equipment manufacturers (OEMs), the practice across industries has doubled since 2004 according to a survey recently published by CFO magazine.
Not only have the numbers grown, but also the spectrum of services using offshore outsourcing. These services range from the traditional information technology services, to legal research, and analysis of medical test results.
Also, favorite offshoring destination is still India with China as a big competitor. On a lighter note, CIO magazine ran a fun head-to-head comparison between these two countries showcasing their respective comparative advantages when it comes to IT outsourcing....
A new study by the Boston Consulting Group finds that outsourcing to China and India did little or nothing to save costs for many of the original equipment manufacturers (OMG).
About two-thirds of the manufacturers in the survey reported unit costs in China equal to or higher then those in their home countries. The authors point to diseconomies of scale and higher quality costs, which can outweigh savings on labor, as main causes....
Last month, China announced it would increase by 2012 investment in Pakistan from $1 billion to $15 billion and hoped to triple the trade volume between the two countries to $15billion by that date.
Pakistan, in turn, will create industrial zones across Punjab province in an effort to make doing business easier for Chinese investors.
Though over 100 Chinese companies operate in Pakistan, the safety of nearly 3,000 Chinese workers currently in Pakistan remains a constraint for a future investment. ....
ICBC's $5.5 billion deal with South Africa's Standard Bank is China's biggest investment to date in any foreign market. It adds to over nine-hundred Chinese companies already present on the continent. From the International Herald Tribune: The fact that a top Chinese banker brackets Africa with Asia is one more sign that the Asians themselves see what is happening in Africa as a repeat of what happened to them 20 and 30 years ago....
China's National Development and Reform Commission (NDRC) and the Commerce Ministry released on Wednesday a new set of prescriptions for desirable foreign direct investment. The recommendations will take effect in December 1: Foreign firms will now be banned from building or managing golf courses; in the past, they fell into the restricted category. The [NDRC] set out a very specific shopping list for investment in a range of sectors, from automobiles to printing machinery to electronics. For example, only investment in high-performance digital cameras with a resolution of 6 megapixels or above will be encouraged....
Norway, the world's third largest oil exporter, passively invests a large portion of proceeds into a national pension fund. "The future-generations fund," which is now worth $300 billion, invests into foreign assets only as a way to remove the temptation for politicians to spend money on pork-barrel projects. Can oil-rich African countries follow the Scandinavian path or are they destined to suffer under the resource course?
John Ghazvinian, the author of "Untapped: The Scramble for Africa's Oil," is pessimistic: "Between 1970 and 1993, countries without oil saw their economies grow four times faster than those of countries with oil."...
The Economist Intelligence Unit together with the Columbia Program on International Investment released the World Investment Prospects to 2011 which forecasts FDI flows for 82 countries over the next five years. Eight out of top twenty recipient countries will be in emerging-markets.
The report focuses on political risk, and Jeffrey Sachs analyzes ways to address growing risks in the energy sector.
The graph shows predicted inflows to Asia + China:...
What promises the excitement of gambling without the adverse social consequences? For a growing number of Kenyans it's the Nairobi Stock Exchange (NSE).
The NSE has come a long way since 2002. The paper system which required up to three days just entering trading orders, is finally gone. The number of investors grew to 750,000 from 50,000 and the market capitalization is at $12 billion.
Can Africa attract more investment? So far the NSE has drawn Goldman Sachs....
U.S. investors have been earning a considerably higher rate of return on their foreign investment than foreigners investing in the United States.
In a new paper, Barry Bosworth, Susan Collins and Gabriel Chodorow-Reich investigate if U.S. firms indeed allocate capital more efficiently – as the graph would suggest – or whether other factors play a role....
Some worry that capital market liberalization, and FDI in particular, crowds out local efforts and undermines the development of domestic entrepreneurs.
Laura Alfaro and Andrew Charlton at Harvard took 24 million observations of listed and unlisted private firms in 98 developed and developing countries in 1999 and 2004 to study the nature of this relationship....
Some worry that capital market liberalization, and FDI in particular, crowds out local efforts and undermines the development of domestic entrepreneurs.
Laura Alfaro and Andrew Charlton at Harvard took 24 million observations of listed and unlisted private firms in 98 developed and developing countries in 1999 and 2004 to study the nature of this relationship....
"There's no silver bullet for this business" says Dermot Coffey, a World Bank staffer with 30 years of experience promoting FDI in Ireland; instead start with a question: why is a country incapable of generating employment for its people?
Last year the FDI inflows/GDP ratio in the Balkans exceeded 10%. But the trend is likely to decline as privatization opportunities are running out, leaving countries to have to work extra hard to attract investment. Coffey, in less than 10 minutes, explains how to do it....
"There's no silver bullet for this business" says Dermot Coffey, a World Bank staffer with 30 years of experience promoting FDI in Ireland; instead start with a question: why is a country incapable of generating employment for its people?
Last year the FDI inflows/GDP ratio in the Balkans exceeded 10%. But the trend is likely to decline as privatization opportunities are running out, leaving countries to have to work extra hard to attract investment. Coffey, in less than 10 minutes, explains how to do it....
Listen to four experts spar on what presents the biggest impediment to African development: poor governance or trade barriers.
Richard Cockett, the Economist's Africa Editor, quoting the Nigerian experience, said that political reform, not aid nor trade, is key to growth in the continent that is more deeply corrupt than any other part of the world.
Mike Gidney, from Fairtrade Foundation disagrees. He argues that corruption is not limited to Africa and pointing fingers at politicians has limited effectiveness: "politicians can't possibly generate the development impact that could be achieved through an increase in trade."
The debate, which included Kenyan filmmaker and activist June Arunga and professor Tunde Zack-Williams, took place on June 2 and was a part of the Hay Festival...
The Global Development Finance report, released on Tuesday, shows that net private capital flows to developing countries reached a record $647 billion in 2006 – a 17 percent increase from the year before. The study notes, however, that only about 8 percent of that capital flowed to the poorest 51 countries.
The Wall Street Journal (subscription required) views the report as a demise of the bank: [in the report] the bank itself describes how record private-capital flows into the developing world are advancing economic growth. The trend clearly is diminishing the need for organizations like the bank.
The most disconcerting news for World Bank fans are the sections on private credit markets. Developing countries are borrowing from markets instead of from multilateral institutions....
Why does China receive so much foreign direct investment (FDI) if its formal institutions are so poorly developed by international standards?
Recent research shows that it is actually not that much, if you consider FDI per capita rather than relative to GDP and compare it to other countries at the same level of economic development. It might be China's special circumstances (sustained growth and relatively good infrastructure in some provinces) that explain foreign investors' appetite for China rather than a unique model of Chinese development....
The common belief in the positive relationship between economic growth and FDI led to the creation of over 160 investment promotion agencies around the world. A new paper, using comprehensive industry data over 15 years from 29 OECD countries, finds that not all FDI is equal.
Which kind of FDI is your country getting?...
The most interesting meeting I've attended so far in 2007 took place last week. My colleague, Edie Wilson, put it together. She wrote up some of her impressions and has agreed to let me share them here. Edie is a senior communications advisor at the World Bank and spent a decade working at public relations firm Burson-Marsteller. Her words follow:
FIAS invited a dozen of the world's best international public relations agencies in for a closed door chat about what happens when developing countries engage in image making. The communications companies were stunned that the World Bank Group would actually listen to them – "very therapeutic," was one comment. And we got an earful.
It's a peculiar situation actually. Compared to twenty years ago, the public relations industry is far more...
Thanks to the magic of our blog statistics, I just noticed a fantastic blog on Islamic finance. It doesn't quite fit on our blogroll (not really PSD), but I wanted to share anyway.
Invest Halal is written by Blake Gould, Executive Director of the Institute of Halal Investing, a non-profit think-tank "devoted to the demystification of Islamic banking, finance & investing." The Institute is launching a newsletter this month - I'm sure it will be a great read....