Transcript Mobilizing international resources for development: Foreign direct investment and other private flows Mansoor Dailami Manager, International Finance, Development Prospects Group, World Bank New York February.

Mobilizing international resources for development:
Foreign direct investment and other private flows
Mansoor Dailami
Manager, International Finance, Development Prospects Group, World Bank
New York
February 15th, 2008
Summary and key issues
 Private capital flows to developing countries have been on a
strong upward trend, supported by domestic economic
reforms and high growth
 FDI continues to be the largest and most stable capital flow
with increasing focus on services
 Private capital flows expected to decline somewhat in the
short term amid more moderate global growth and tighter
credit conditions
Private flows have gone through pronounced
cycles against an upward trend
Net private capital flows to developing countries, 1970-2007
$ billions
Percent
1000
$998 billion in 2007
(7.3% of GDP)
800
6
600
400
8
Percent of GDP
(right axis)
$6.5 billion in 1970
(1.0% of GDP)
4
2
200
2006
2002
1998
1994
1990
1986
1982
1978
1974
0
1970
0
… dominated by cycles in international
bank lending…
Net private debt flows to developing countries , 1970-2007
Percent
4
3
Bank loans
2
1
Bonds
0
1970
-1
1975
1980
1985
1990
1995
2000
2005
..with the corporate sector playing an increasingly
important role in debt flows
$ billions
Gross debt flows to developing countries, 1991-2007
500
Corporate
Sovereign
400
300
200
100
0
1991
1993
1995
1997
1999
2001
Source: World Bank Debt Reporting System and staff estimates.
2003
2005
2007e
…and FDI accounting for about one-half of
total private flows
$ billions
3,500
3,000
2,500
Debt
Portfolio equity
37%
FDI
2,000
12%
1,500
42%
1,000
50%
11%
500
47%
0
1992-97
2002-07
…supported by strong growth in developing countries
Real GDP, percent change
10
Developing economies
8
7.2%
6
High-income
4
2.7%
2
-2
Source: World Bank.
7
6
4
20
05
3
2
1
20
00
98
99
96
97
94
95
92
93
89
19
90
91
87
88
85
86
83
84
19
81
82
0
…and improved external payments positions
--current account surpluses in many countries
Current account balance of developing countries
$ billions
Percent
$408 billion in 2007
450
4
3
300
2
Percent of GDP
(right axis)
150
1
0
0
-1
-2
-150
-3
-300
-4
1990
1992
1994
1996
1998
2000
2002
2004
2006
..along with large-scale foreign exchange
reserve holdings…
Foreign exchange reserves
$billions
4000
3600
3200
2800
2400
2000
1600
1200
800
400
0
$3.6 trillion
1995
1999
2005
2007
$2.0 trillion
$0.9 trillion
Oil-exporting
countries
Emerging Asia
Developing
countries
Increase in foreign exchange
reserves
$billions
2006
2007*
China
247
431
Russia
120
169
Brazil
32
84
India
39
86
Malaysia
12
19
Algeria
22
33
Libya
20
21
Indonesia
8
12
* World Bank staff estimates
…improved external financial policy…

Many developing countries have moved to
managed or free floating exchange rate regimes
Mexico(1994), Indonesia(1997), Colombia(1999),
Brazil(1999), Chile(1999), and Russian
Federation(2002)...

Capital controls have been eased
Brazil, Chile, Hungary, Romania, and Slovak Republic...

Some have adopted inflation targeting
Brazil, Chile, Colombia, Mexico, Peru, Philippines,
South Africa, and Thailand...
…and better macroeconomic policies
percent
30
1980s
20
2002-2004
10
0
Av. Tariffs
-10
Median Inflation
Fiscal Deficit
Markets have recognized improved fundamentals
in emerging markets -- priced in bond spreads
Bond spreads (basis points)
1,600
1,400
Emerging market
1,200
bond spread (EMBIG)
1,000
800
600
400
200
0
1994M1
1996M1
1998M1
2000M1
2002M1
2004M1
2006M1
2008M1
Summary and key issues
 Private capital flows to developing countries have been on a
strong upward trend, supported by domestic economic
reforms and high growth
 FDI continues to be the largest and most stable capital flow
with increasing focus on services
 Private capital flows expected to decline somewhat in the
short term amid more moderate global growth and tighter
credit conditions
Growth in FDI flows driven by
middle income countries…
$ billions
500
percent
$456 billion (3.2 percent of GDP) in 2007
3.5
450
3
400
350
2.5
Percent of GDP
300
Low-Income Countries
2
250
1.5
200
150
Middle Income Countries
100
1
0.5
50
0
0
1991 1993
1995
1997
1999 2001
* 2007 data is World Bank staff projection
2003
2005 2007p
…and highly concentrated in just a few large
economies
FDI inflows to developing countries
500
400
$ billions
Top 5 countries account for 46 % in 2007
China
Russia
Turkey
Mexico
Brazil
300
200
Other Countries
100
0
2000 2001 2002 2003 2004 2005 2006 2007p
* 2007 data is World Bank staff projection
…but relative to GDP, FDI to low-income countries
is on par with middle income countries
FDI to GDP Ratio
percentage
4.0
3.5
3.0
2.5
2.0
1.5
Low Income (excluding India)
1.0
Middle Income
0.5
0.0
1991
1994
1997
2000
* 2007 data is World Bank staff projection
2003
2006
FDI inflows are closely related to income
per capita
FDI per capita vs GDP per capita, 2001-06
8
China
log(FDI per capita)
Equatorial Guinea
Trinidad &
Tobago
Romania
6
Azerbaijan
Oman
Chad
Turkey
Venezuela
Gambia
4
South Africa
Bolivia
Congo, Dem.
Rep.
2
Iran
India
Zimbabwe
y = 1.27x - 5.5
R2 = 0.69
Central African Republic
0
Malawi
4
5
Rwanda
6
7
-2
log(GDP per capita)
8
9
10
And increasing focus on FDI in services, facilitated
by technological change and liberalization
Share in FDI Stock in 2005
70
percent
Almost all services sector
FDI is in infrastructure
and financial sectors
60
50
Manufacturing
Primary
40
Services
30
20
10
0
Developing
Countries
AFRICA
LAC
ECA
EAP
Low income countries still attract very limited
private capital flows
Net private capital flows to developing countries
$ billions
2400
China
2000
Mexico
Brazil
Russia
Poland
India
1600
1200
52 %
800
Middle Income 40%
400
Low Income 8 %
0
1995-1999
2001-2006
Steady expansion in migrant remittance flows
Migrant remittance flows
Migrant remittance flows / GDP
$200 billion
$ billions
200
Percent
Middle-income countries
Low-income countries
4
150
Low-income countries
3
100
2
50
1
0
0
2000
2001
2002
2003
2004
2005
2006
Middle-income countries
2000
2001
2002
Source: World Bank staff estimates.
2003
2004
2005
2006
Summary and key issues
 Private capital flows to developing countries have been on a
strong upward trend, supported by domestic economic
reforms and high growth
 FDI continues to be the largest and most stable capital flow
with increasing focus on services
 Private capital flows expected to decline somewhat in the
short term amid more moderate global growth and tighter
credit conditions
Global financial conditions have
worsened noticeably

Moderate slowdown in global growth

Tighter credit conditions

Large losses in major financial institutions

More stringent credit standards
* Impact of financial turmoil on emerging
markets limited so far…
Private capital flows expected to ease…
Net private capital flows to developing countries
$ billions
1000
$998 billion in 2007
(7.3% of GDP)
800
Projected Percent
2008-09
8
Percent of GDP
(right axis)
600
6
5.25%
3.5% of GDP
average 1990-02
4
400
2
200
0
0
1991
1993
1995
1997
1999
2001
2003
2005
2007e
2009P
…but long-term prospects for increased
capital flows remain positive

Developing countries’ favorable demographic
profiles


Scope for increasing investment and growth
(Per capita investment $500 in 2006, compared
to $6000 in developed countries )


About 84% of world Population reside in developing
world
Less than 5% of global bonds issued in recent years
originated in developing countries.
Further room for integration in the world
economy