Slide1: Global FDI Movements: Myths & Facts Trends in Global FDI Movements Conference, Istanbul, 24/03/06 Presentation by Declan Murphy Director, XMI Consult Advisor to the OECD


Slide2: KEY THEMES GLOBAL FDI TRENDS DRIVERS OF CHANGE PROSPECTS FOR FDI COMPETITION FOR FDI TURKEY: MOVING TO BUILD FDI TURKEY’S VISION, STRATEGY AND STRUCTURE


Slide3: FDI - SOME MYTHS? FDI mostly in manufacturing… Mostly large multinational groups… Mainly about acquiring domestic market share… Focused on acquisition of national assets/resources… Puts domestic companies out of business… ‘Transient’…..comes only for a period and then moves on… Repatriates profits and benefit lost to host country… Seeks to avoid labour/environmental standards… Needs special controls/regulations


Slide4: GLOBAL FDI MOVEMENTS 1990s: Continuous growth through decade to annual record levels 2000: An unprecedented peak → $1,400 billion+ 2001: FDI plummeted with economic recession, 2003: $600 billion 2004: Growth resumed, $648 billion inflows, 2% higher than 2003 2005: FDI levels increased 29% on 2004 to ca. $780 billion 2006: General expectations for continued growth


Slide5: MAJOR DRIVERS OF FDI Global GDP grew at an average of 4.7% over past two years Fastest pace in any two consecutive years since 1970s: EIU Corporate profits up: in G7 countries 14 % of GDP V 12% in 2000 Global interests expected to remain low Regulatory regimes more liberalised in many countries Intense competition, market seeking and search for lower costs Intensified policy and promotion efforts by countries Opening of major new markets e.g. China Corporate restructuring (e.g. offshoring, outsourcing, business functions split)


Slide6: SOURCES OF FDI Almost half of all FDI originated from USA, UK, and Luxembourg Leading sources continue to be US, UK, Germany, China, Japan, France, Netherlands, Koreas…but many smaller countries investing Major investing countries tend to be major host countries as well Stock of FDI at end 2004 estimated at $9 trillion; invested by ca. 70,000 transnational companies with 690,000 affiliates abroad 1970s: predominantly manufacturing 1990s on: predominantly services


Slide7: TYPES OF FDI


Slide8: PROSPECTS FOR FDI Mergers and acquisitions will drive levels M&A up 30% this year (680 deals) compared to same period 2005 Value of M&As up 64% to $2,714 billion Source: Bloomberg, Mar 2006 European stocks at 5 year high (3/2006) “Companies are flush with cash for takeovers” David Stix, CEO, Dexia 75% of European expect higher operating margins in 2006 Source: IBES estimates Restructuring, tighter cost controls, outsourcing have helped profit growth


Slide9: COMPETITION FOR FDI Global competition increasing all the time World Association of Investment Promotion Agencies (WAIPA): (191 members - up 18 in 2005 - from 149 countries) “Very nature of FDI is evolving rapidly….developing and emerging countries increasing their share…also moving up value chain…next wave will have new sectors, new players, new methods… governments and IPAs must be ‘state of the art’ in their approach… adapt permanently to changing conditions …focus more on concrete business and investment opportunities… staying competitive will require constant flow of new ideas and smart work” China, India new ‘centres of gravity’; in addition to major developed countries Asia and Central East Europe remain highly competitive.


Slide10: CHINA, INDIA, POLAND ‘China most attractive FDI destination’ ATKearney FDI Confidence Index Dell Computer plans to double its workforce in India to 20,000 10,000 in call centres/business support roles; plans new factory “There is a fantastic opportunity to attract talent” Michael Dell, 03/2006 “Poland’s similarity to Western Europe makes it well positioned to become a business processing centre for Europe. If this happens, 200,000 new jobs could be created by 2008…”: McKinsey & Company


Slide11: WORKING WITH EXISTING INVESTORS Existing investors are the source of over 50% of new investment for many EU and OECD countries Crucial that strategy recognises this and ensures partnership Case Examples: Ireland Abbott Laboratories is a global healthcare company with 60,000 people. On 21/03/06 it announced a new diabetes care product factory in Ireland. It has six manufacturing plants in Ireland. “The success of our operations in Ireland was an important factor in our decision to locate in Donegal” Ed Fiorentino, President, Abbott Diabetes Care Vistakon, a subsidiary of Johnson & Johnson announced 15/03/06 an investment of EUR 100 million in its Limerick facility, one of its seven plants in Ireland, manufacturing various healthcare products


Slide12: IRELAND: PRIORITY SECTORS AGRI/FOOD ICT SOFTWARE e BUSINESS PHARMA ENGINEERING TOURISM FINANCIAL/ SHARED SERVICES HEALTHCARE SECTORS


Slide13: TURKEY – MOVING TO BUILD FDI New levels of FDI achieved in 2005…but… Relative to EU and OECD countries Turkey is not a major player Huge opportunity for Turkey to build FDI levels Matching Romania’s levels, for example, implies $10-20 billion FDI Moving forward in competitive global environment demands: STRATEGY + STRUCTURES SHARED VISION 2006 – 2010 AND TARGETS ADEQUATE RESOURCES (PEOPLE AND MONEY) TO COMPETE GOVERNMENT ENDORSEMENT AND SUPPORT


Slide14: TURKEY: STRATEGY AND STRUCTURES National Economic Development Plan: FDI strategy an inherent part Investment Promotion Strategy 2006-2010: Debate and consensus VISION 2006-2010: Shapes strategy and structures Investment environment: continue reform… Structures: move to build in line with world ‘successful practice’


Slide15: TURKEY: STRATEGY NEEDED


Slide16: STRENGTHEN EXISTING CAPACITIES Existing opportunities need to be seized…immediately Strengthen existing promotion efforts in the Treasury Communicate openly and widely the progress being achieved Enable Treasury staff to work more effectively with investors (priority of FDI, skills, budget, no. of people, admin procedures, etc.) Ensure good partnerships with SPO and MFA…plus others Such action does not prejudice any future decisions about structures and should help to prepare ground for new strategy and new institutional structures


Slide17: VITAL ELEMENTS OF NEW STRATEGY Private sector partnership in building strategy, contribution to impact assessment, linkage with domestic companies, supporting promotion efforts, developing sectoral strategies EU candidate status: articulating benefits to international investors Turkey as a Regional Centre: building the concept Measuring the benefits of FDI and building wide understanding Existing investors: working with them, make it a priority Greenfield investment: make it a priority