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World Investment Report 2007

EMBARGO
The contents of this Report must not 
be quoted or summarized in the press, 
on radio, or on television, before 
16 October 2007 - 17:00 hours GMT
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
WORLD
INVESTMENT 2007
REPORT
WTror
ansnational Corpora
l
tions,
Extractive Industries and Development
dt
Investment
Repor


UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
WORLD
INVESTMENT 2007
REPORT
Transnational Corporations,
Extractive Industries and Development
UNITED NATIONS
New York and Geneva, 2007
New York and Geneva, 2007

ii
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
NOTE
As the focal point in the United Nations system for investment and technology, and building on 30 years 
of experience in these areas, UNCTAD, through DITE, promotes understanding of key issues, particularly 
matters related to foreign direct investment and transfer of technology. DITE also assists developing 
countries in attracting and benefiting from FDI and in building their productive capacities and international 
competitiveness. The emphasis is on an integrated policy approach to investment, technological capacity 
building and enterprise development.
The terms country/economy as used in this Report also refer, as appropriate, to territories or areas; 
the designations employed and the presentation of the material do not imply the expression of any opinion 
whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, 
territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In 
addition, the designations of country groups are intended solely for statistical or analytical convenience and 
do not necessarily express a judgement about the stage of development reached by a particular country or area 
in the development process.  The major country groupings used in this Report follow the classification of the 
United Nations Statistical Office. These are: 
Developed countries: the countries members of the OECD (other than Mexico, the Republic of Korea 
and Turkey), plus the new European Union member countries which are not OECD members (Cyprus, Estonia, 
Latvia, Lithuania, Malta and Slovenia), plus Andorra, Israel, Liechtenstein, Monaco and San Marino.
Transition economies: South-East Europe and the Commonwealth of Independent States.
Developing economies: in general all economies not specified above. 
The reference to a company and its activities should not be construed as an endorsement by UNCTAD 
of the company or its activities.
The boundaries and names shown and designations used on the maps presented in this publication do 
not imply official endorsement or acceptance by the United Nations.
The following symbols have been used in the tables:
Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have 
been omitted in those cases where no data are available for any of the elements in the row;
A dash (–) indicates that the item is equal to zero or its value is negligible;
A blank in a table indicates that the item is not applicable, unless otherwise indicated;
A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year;
Use of a hyphen (-) between dates representing years, e.g., 1994-1995, signifies the full period involved, 
including the beginning and end years;
Reference to “dollars” ($) means United States dollars, unless otherwise indicated;
Annual rates of growth or change, unless otherwise stated, refer to annual compound rates;
Details and percentages in tables do not necessarily add to totals because of rounding.
The material contained in this study may be freely quoted with appropriate acknowledgement.
UNITED NATIONS PUBLICATION
Sales No. E.07.II.D.9
ISBN 978-92-1-112718-8
Copyright © United Nations, 2007
All rights reserved
Printed in Switzerland

iii
PREFACE
Foreign direct investment represents the largest share of external capital flows to developing 
countries. Just as transnational corporations can bring with them new technology, management know-how 
and improved market access, foreign direct investment can be a significant force for development. In 2006, 
developing countries attracted $380 billion in foreign direct investment — more than ever before. While two 
thirds of these flows went to rapidly growing markets in Asia, virtually all developing regions participated 
in the increase. Investments rose particularly fast in many countries that are richly endowed with natural 
resources.
As highlighted in this year’s World Investment Report, recent years have seen a revival of foreign direct 
investment in extractive industries, reflecting higher commodity prices. This commodity boom, partly fuelled 
by rising Asian demand for various natural resources, should open a window of opportunity for mineral-rich 
countries to accelerate their development. This is especially important as we reach the midpoint in our efforts 
to reach the Millennium Development Goals.
The  World Investment Report 2007 focuses on the role of transnational corporations in extractive 
industries, and documents their presence in many of the world’s poorest economies. Transnational corporations 
can bring in the finance and management skills these economies need to transform their resources into products 
that can be used locally or exported. The rise of new transnational corporations from the South, not least Asia, 
has given mineral-rich countries a wider spectrum of potential sources of investment. 
But as we know, the extraction of natural resources involves considerable economic, environmental 
and social challenges. The objective is to ensure it is done in the most efficient and environmentally friendly 
manner possible, while at the same time contributing to poverty alleviation and accelerated development. 
For that, we need institutional and regulatory frameworks promoted by accountable Governments, as well as 
responsible investors. All relevant stakeholders need to join forces in a concerted effort. This year’s World 
Investment Report 
offers useful insights to that end.
         
 
 
 
 
 
Ban 
Ki-moon
New York, July 2007 
 
 
 
 
Secretary-General of the United Nations

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
ACKNOWLEDGEMENTS
The World Investment Report 2007 (WIR07) was prepared by a team led by Anne Miroux, comprising 
Torbjörn Fredriksson, Masataka Fujita, Kálmán Kalotay, Devianee Keetharuth, Dong Jae Lee, Guoyong 
Liang, Padma Mallampally, Nicole Moussa, Abraham Negash, Hilary Nwokeabia, Jean François Outreville, 
Thomas Pollan and Astrit Sulstarova. Kumi Endo, Justin Fisher, Joachim Karl, Hafiz Mirza, Shin Ohinata, 
Olle Östensson, Joerg Weber and James Zhan also contributed to the Report.
Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourt, Jovan Licina, 
Lizanne Martinez and Tadelle Taye. Dana Al-Sheikh, Darya Gerasimenko, Niels Heystek and Saveis Joze 
Sadeghian assisted as interns at various stages. The production of the WIR07 was carried out by Rosalina 
Goyena, Chantal Rakotondrainibe and Katia Vieu. WIR07 was desktop published by Teresita Ventura. It was 
edited by Praveen Bhalla.
John H. Dunning was the senior economic adviser.
WIR07 benefited from inputs provided by participants in a Global Seminar in Geneva in May 2007, 
and three regional seminars on TNCs in extractive industries held in March and April 2007: one in Santiago, 
Chile (in cooperation with the Economic Commission for Latin America and the Caribbean), the second in 
Hanoi, Viet Nam (in cooperation with the ASEAN Secretariat), and the third in Randburg, South Africa (in 
cooperation with Mintek, South Africa’s national mineral research organisation). 
Inputs were also received from Bekele Amare, Glenn Banks, Damian Brett, Peter Buckley, Humberto 
Campodónico, Frederick Cawood, Ken Chew, Mélanie Clerc, Kim Eling, Hamed El-Kady, Florence Engel, 
Magnus Ericsson, Keith Jefferis, Thomas Jost, Paul Jourdan, Abba Kolo, Romy Kraemer, Josaphat Kweka, 
Bryan Land, Michael Likosky, Kari Liuhto, Shervin Majlessi, Yusuf Mansur, Jonas Moberg, Peter Muchlinski, 
Silane Mwenechanya, Yinka Omorogbe, Antonio M.A. Pedro, Nehru Pillay, Melissa Powell, Marian Radetzki, 
Huaichuan Rui, Jenny Rydeman, Pedro Sainz, Osvaldo Urzúa, Aimable Uwizeye-Mapendano, Peeter Vahtra, 
Eveline van Mil, Rob van Tulder, Peter Zashev and Zbignew Zimny.
Comments and suggestions were received during various stages of preparation from Murat Alici, 
Rory Allan, Luis Alvarez, Erman Aminullah, Isabelle Anelli, Toutam Antipas, Benjamin N.A. Aryee, Yoseph 
Asmelash, Neal Baartjes, Doug Bannerman, Diana Barrowclough, Klaus Brendow, Perla Buenrostro, Bonnie 
Campbell, Eduardo Chaparro, Charlie Charuvastr, Allen Clark, Jeremy Clegg, John Cole-Baker, Herman 
Cornielson, Graham A. Davis, Persa Economou, Rod Eggert, Erwiza Erman, Petrus Fusi, Stephen Gelb, 
Richard Goode, John Groom, Martin Hahn, Ben Hammouda Hakim, Fabrice Hatem, Andrew Hayman, Susan 
Hayter, Katsuyuki Higae, David Humphreys, Gábor Hunya, Grazia Ietto-Gillies, Rajeev Jain, Roberto Kozulj, 
Steve Lenahan, Deirdre Lewis, Michael Lim, Paul Mitchell, Rekha Misra, Jesús Mora Contreras, Juan Carlos 
Moreno-Brid, Michael Mortimore, Hudson Mthega, Sodhie Naicker, Boyko Nitzov, Gerald Pachoud, Pavida 
Pananond, Lorraine Ruffing, Zavareh Rustomjee, A. Edward Safarian, Fernando Sánchez Albavera, John E. 
Tilton, Peter Utting, Kee Hwee Wee, Susanna Wolf, Changqi Wu and Frida Youssef.
Numerous officials of central banks, statistical offices, investment promotion and other government 
agencies, and officials of international organizations and non-governmental organizations, as well as 
executives of a number of companies, also contributed to WIR07, especially through the provision of data 
and other information. The Report also benefited from collaboration with Erasmus University, Rotterdam on 
the collection of data on, and analysis of, the largest TNCs.
The financial support of the Governments of France, Norway, Poland, the Republic of Korea, Sweden 
and the United Kingdom is gratefully acknowledged.

v
TABLE OF CONTENTS
Page
PREFACE ............................................................................................................................................ iii
ACKNOWLEDGEMENTS ................................................................................................................. iv
OVERVIEW .........................................................................................................................................xv
PART ONE
WIDESPREAD GROWTH IN FDI
CHAPTER I.  GLOBAL TRENDS:  SUSTAINED GROWTH IN FDI FLOWS .............................3  
A.   FDI AND INTERNATIONAL PRODUCTION.............................................................................3
1.
Trends in FDI .....................................................................................................................................3
a. Overall trends ...............................................................................................................................3
b. Continued rise in cross-border M&As .........................................................................................5
c. FDI by private equity funds..........................................................................................................7
2.
International production .....................................................................................................................8
3.
Indices of inward FDI performance and potential ...........................................................................12
4.
Developments in FDI policies..........................................................................................................14
a.  Developments at the national level .............................................................................................14
b.  Developments at the international level......................................................................................16
B.   CHANGING PATTERNS OF FDI ...............................................................................................19
1.
Geographic patterns .........................................................................................................................19
2.
Sectoral and industrial distribution of FDI.......................................................................................22
C.   THE LARGEST TNCs ..................................................................................................................24
1.
The world’s 100 largest TNCs .........................................................................................................24
2.
The 100 largest TNCs from developing economies.........................................................................25
3.
Transnationality of the largest TNCs ...............................................................................................26
.............................................................................................26
D.   PROSPECTS..................................................................................................................................28
NOTES ............................................................................................................................................30
CHAPTER II.  REGIONAL TRENDS ...............................................................................................33
INTRODUCTION ................................................................................................................................33
A.   DEVELOPING COUNTRIES ......................................................................................................34
1.
Africa................................................................................................................................................34
a. Geographical trends....................................................................................................................34
(i)
Inward FDI: natural resources drove the surge ..........................................................................34
(ii) Outward FDI hit new heights .....................................................................................................38
b. Sectoral trends: primary sector’s share rose ...............................................................................38
c. Policy developments...................................................................................................................38
d. Prospects: moderate growth expected in 2007 ...........................................................................39
2.
Asia and Oceania..............................................................................................................................40
a.  South, East and South-East Asia .................................................................................................41
(i)
Geographical trends....................................................................................................................41
(a) Inward FDI: continued shift in favour of South and South-East Asia................................41
(b) Outward FDI increased substantially from all subregions .................................................43

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Page
(ii) Sectoral trends ............................................................................................................................45
(a) Inward FDI increased in primary and services sectors.......................................................45
(b) Outward FDI: resource-seeking FDI continued to rise ......................................................46
(iii)  Policy developments...................................................................................................................47
(iv)  Prospects: most-favoured region for FDI ...................................................................................47
b. West Asia ....................................................................................................................................48
(i)
Geographical trends....................................................................................................................48
(a) Inward FDI maintained its upward trend ...........................................................................48
(b) Outward FDI increased slightly .........................................................................................49
......................................................................50
(iii)  Policy developments...................................................................................................................52
(iv)  Prospects: upward trend should continue ...................................................................................53
c. Oceania .......................................................................................................................................53
3.
Latin America and the Caribbean.....................................................................................................53
a. Geographical trends....................................................................................................................54
(i)
Inward FDI remained stable .......................................................................................................54
(ii) Outward FDI soared ...................................................................................................................55
b. Sectoral trends ............................................................................................................................56
.........56
..............................................................58
(iii) Modest increase of FDI in services ............................................................................................59
c. Policy developments...................................................................................................................59
d. Prospects: moderate growth of inflows, reduced outflows ........................................................60
B.  SOUTH-EAST EUROPE AND THE COMMONWEALTH OF INDEPENDENT STATES ...61
1.
Geographical trends .........................................................................................................................61
a. Inward FDI surged......................................................................................................................61
b. Outward FDI growth was sustained ...........................................................................................62
2.
Sectoral trends: FDI in services was buoyant ..................................................................................63
3.
Policy developments ........................................................................................................................64
4.
Prospects: brighter for larger economies and new EU members .....................................................66
C.  DEVELOPED COUNTRIES.........................................................................................................66
1.
Geographical trends .........................................................................................................................67
a. Inward FDI grew in all regions and all sectors...........................................................................67
b. Outward FDI increased sharply..................................................................................................69
2.
Sectoral trends: services continued to dominate ..............................................................................71
3.
Policy developments ........................................................................................................................72
4.
Prospects: optimism for further growth in FDI................................................................................72
NOTES ............................................................................................................................................74
PART TWO
TRANSNATIONAL CORPORATIONS, EXTRACTIVE INDUSTRIES 
AND DEVELOPMENT
INTRODUCTION ................................................................................................................................81
CHAPTER III. FEATURES OF THE EXTRACTIVE INDUSTRIES ...........................................83
A.  EXTRACTIVE INDUSTRIES IN THE WORLD ECONOMY.................................................83
1.
Minerals are essential for all economies ..........................................................................................83
2.
Geography of production and consumption of selected minerals....................................................86

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Page
B.  THE COMMODITY PRICE BOOM AND ITS IMPACT ON INVESTMENTS.....................86
1.
Booms and busts of mineral prices ................................................................................................. 88
.............................................................................. 89
3.
Prices likely to remain high for some time ......................................................................................90
C.  EXTRACTIVE INDUSTRIES: OPPORTUNITIES AND CHALLENGES
 FOR DEVELOPMENT.................................................................................................................91

1.
Characteristics of investments in extractive industries ....................................................................91
2.
Public policy concerns of mineral-rich countries.............................................................................93
a. Mineral endowments represent development opportunities.......................................................93
b. The economic challenge .............................................................................................................94
c. The environmental, social and political challenges....................................................................95
d. The governance challenge ..........................................................................................................96
NOTES ............................................................................................................................................97
CHAPTER IV.   TNCs IN EXTRACTIVE INDUSTRIES................................................................99
A.  GLOBAL TRENDS IN FDI AND OTHER FORMS OF  TNC
 PARTICIPATION IN EXTRACTIVE INDUSTRIES ................................................................99

1.
FDI trends........................................................................................................................................ 99
2.
Developing and transition economies are receiving a growing share of   foreign investment ......100
B.   THE CHANGING UNIVERSE OF TNCs  IN EXTRACTIVE INDUSTRIES ......................105
1.
TNCs in the metal mining industry................................................................................................107
a. Continued dominance of private firms .....................................................................................107
b. Varying degrees of internationalization.................................................................................... 111
2.
TNCs in oil and gas........................................................................................................................ 113
a. The Seven Sisters have given way to State-owned companies ................................................ 113
b. TNCs from developing and transition economies are expanding overseas.............................. 116
C.  DRIVERS AND DETERMINANTS...........................................................................................122
1.
Motivations for internationalization.............................................................................................. 122
2.
Determinants of TNC activity ....................................................................................................... 123
a. Ownership-specific advantages ................................................................................................123
b. Internalization advantages ........................................................................................................124
c. Locational advantages ..............................................................................................................124
D.  CONCLUSIONS ..........................................................................................................................125
NOTES ..........................................................................................................................................127
CHAPTER V.   DEVELOPMENT IMPLICATIONS FOR HOST COUNTRIES........................129
A.  A FRAMEWORK FOR ASSESSING IMPLICATIONS FOR HOST
 COUNTRIES OF TNC INVOLVEMENT IN EXTRACTIVE INDUSTRIES .......................129

B.   ECONOMIC IMPACT................................................................................................................130
1.
Direct economic effects..................................................................................................................131
a. Financial contributions .............................................................................................................131
b. Technology contributions .........................................................................................................132
c. Employment impacts ................................................................................................................133
d. Enhancement of exports ...........................................................................................................135
e. Generation of government revenue ..........................................................................................136

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Page
2.
Indirect economic effects ...............................................................................................................139
a. Linkages ..................................................................................................................................140
b. Infrastructure development.......................................................................................................142
3.  Overall impact: implications for macroeconomic performance ........................................................142
C.  ENVIRONMENTAL IMPACT ...................................................................................................145
D.   SOCIAL AND POLITICAL IMPACTS .....................................................................................148
1.
Health and safety impacts ..............................................................................................................148
2.
Social impacts on the local community  ........................................................................................149
3.
Human rights implications .............................................................................................................152
................................................................................152
E.  CONCLUSIONS ..........................................................................................................................153
NOTES ..........................................................................................................................................154
CHAPTER VI.  THE POLICY CHALLENGE ...............................................................................157
A.  THE BROADER GOVERNMENT POLICY AND INSTITUTIONAL FRAMEWORK .....157
B.  REGULATING THE ENTRY AND OPERATIONS OF
 TNCs IN EXTRACTIVE INDUSTRIES ...................................................................................158

1.
Oil and gas: from “old-style” concessions to partnership agreements...........................................159
2.
Codes and mining agreements governing FDI in metal mining ....................................................161
C.  ARRANGEMENTS FOR RENT-SHARING ............................................................................163
1.
Recent policy changes....................................................................................................................163
2.
Implications of recent policy changes............................................................................................165
3.
Is progressive taxation a solution? .................................................................................................166
D.  POLICIES FOR BROADER ECONOMIC BENEFITS ..........................................................168
1.
Promoting linkages.........................................................................................................................168
2.
Promoting skills and technology development ..............................................................................169
E. COPING WITH ENVIRONMENTAL CHALLENGES ..........................................................171
F. ADDRESSING SOCIAL AND POLITICAL CONCERNS......................................................173
1.
Labour-related concerns.................................................................................................................173
2.
Local community concerns ............................................................................................................174
3.
Human rights..................................................................................................................................176
4.
Enhancing transparency .................................................................................................................178
...................................179
G.  CONCLUSIONS ..........................................................................................................................182
NOTES ..........................................................................................................................................184
ANNEX TO CHAPTER VI.  TECHNICAL ASSISTANCE WITH
EXTRACTIVE INDUSTRIES: SELECTED EXAMPLES............................................................189

REFERENCES ..................................................................................................................................193
ANNEXES ..........................................................................................................................................206

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Page
SELECTED UNCTAD PUBLICATIONS ON TNCs AND FDI ....................................................287
QUESTIONNAIRE ...........................................................................................................................293
Boxes
I.1.  
Selected examples of major acquisitions by companies from developing countries and economies in transition.......... 7
I.2.       Developing-country openness to FDI in services varies widely ................................................................................... 16
I.3.    
Analysing the intensity of FDI relationships ................................................................................................................ 21
I.4. 
Globalization of the reinsurance market ....................................................................................................................... 27
II.1.  
FDI flows to African LDCs rise, led by investment in extractive industries ................................................................ 36
II.2. 
A renewed push for Asian FDI in Africa ...................................................................................................................... 40
II.3. 
North Africa: EU initiatives aimed at boosting FDI inflows and industrial growth ..................................................... 41
II.4. 
Market-seeking FDI in India’s automotive industry is booming .................................................................................. 46
II.5.
Free industrial zones in the United Arab Emirates and Jordan ..................................................................................... 51
II.6.  
Brazilian enterprises expanded abroad and consolidated at home................................................................................ 57
II.7. 
The accession of Bulgaria and Romania to the EU: impact on FDI ............................................................................. 62
II.8. 
The Rusal/Sual/Glencore merger creates the largest integrated aluminium 
         
TNC in the world .......................................................................................................................................................... 64
II.9. 
Who controls the pipelines?.......................................................................................................................................... 65
II.10. 
Canada: using inward and outward FDI to internationalize.......................................................................................... 68
III.1.
Definitions of extractive industries and minerals ......................................................................................................... 84
III.2.
Artisanal mining ........................................................................................................................................................... 91
III.3.
The “resource curse” debate ......................................................................................................................................... 94
IV.1.
Complexities of interpreting data on FDI in extractive industries .............................................................................. 101
IV.2.
Nationalizations in metal mining, 1960-1976............................................................................................................. 108
IV.3.
The role of mining suppliers....................................................................................................................................... 113
IV.4.
Nationalizations in the oil industry............................................................................................................................. 115
IV.5.
Examples of outward expansion of oil and gas TNCs from developing and transition economies ............................ 119
V.1.
Fostering skills in the mining industry: the case of CEIM in Chile............................................................................ 135
V.2.
TNC activities in extractive industries and host-country economic development: the experience of Botswana........ 144
V.3.
TNC activities in extractive industries and economic development in Nigeria .......................................................... 145
V.4.
Environmental impacts of FDI in the metal mining industry in selected African countries ....................................... 146
V.5.
Environmental impact of TNC activities in the Niger Delta....................................................................................... 147
V.6.
Worker safety in coal mines in China ......................................................................................................................... 149
V.7.
Social impacts of extractive-industry TNCs on indigenous peoples: selected cases .................................................. 151
VI.1.
Common forms of contractual arrangements with TNCs in the oil and gas industry ................................................. 160
VI.2.
Three generations of mining code reforms in Africa in the 1980s and 1990s............................................................. 162
VI.3.
Different ways of sharing the rent .............................................................................................................................. 164
VI.4
Chile’s new mining tax ............................................................................................................................................... 165
VI.5.
Progressive taxes and the extractive industries........................................................................................................... 167
VI.6.
Promotion of technology transfer in the oil industry: the case of Norway ................................................................. 170
VI.7.
The 2007 Big Table..................................................................................................................................................... 172
VI.8.
The International Council on Mining and Metals ....................................................................................................... 173
VI.9.
ICEM and Global Framework Agreements ................................................................................................................ 174
VI.10. Protecting the rights of indigenous peoples in the context of FDI in extractive industries ........................................ 175
VI.11. The introduction of community “preferent rights” in South Africa ............................................................................ 176
VI.12. Extractive industries and the United Nations Global Compact .................................................................................. 177
VI.13. The EITI five years on: progress and prospects.......................................................................................................... 180
VI.14. Conflict diamonds and the Kimberley Process ........................................................................................................... 181
I.2.1.   Openness to FDI in services in developing and transition economies, by region, 2004............................................... 16
II.1.1.   African LDCs: FDI inflows and their share in gross fixed capital formation, 1995-2006............................................ 36
II.4.1.   Market shares of automobile producers in India, 2005/06............................................................................................ 46
II.7.1.   Inward FDI Performance Index ranking, Bulgaria, Romania, 1990-2006 .................................................................... 62
II.10.1. Canadian inward and outward FDI stocks, 1982-2006................................................................................................. 68
III.1.1. Minerals and their use................................................................................................................................................... 84
V.2.1.
GDP growth and GDP per capita, Botswana, 1961-2005 ........................................................................................... 144
Box tables
I.4.1.     The world’s largest reinsurance groups, ranked by the Geographical Spread Index, 2005 .......................................... 28
II.5.1.    Number of foreign firms operating in Jebel Ali Free Zone, by nationality, 2005-2006................................................ 51
II.8.1.    Main assets of Rusal, Sual and Glencore, 2006............................................................................................................ 64

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Page
III.2.1
Artisanal gold production, 2005 .................................................................................................................................. .91
IV.1.1. Number of countries reporting data on FDI in extractive industries, 2005................................................................. 101
IV.3.1. Leading suppliers of mining equipment, 2007............................................................................................................ 113
V.2.1.
Contribution of mining and other industries to GDP growth in Botswana, 1975-2006 .............................................. 144
V.6.1
Safety performance of different types of coal producers in China, 1999-2006 .......................................................... 149
I.1.       FDI inflows, global and by group of economies, 1980-2006 ......................................................................................... 3
I.2.        Reinvested earnings: value and share in total FDI inflows, 1990-2006.......................................................................... 5
I.3.        Global cross-border M&As, value and growth rate, 1988-2006..................................................................................... 6
I.4.        Outward FDI stock and employment in foreign affiliates, 1982-2006 ........................................................................... 9
I.5.       Outward FDI stock and employment in foreign affiliates of selected home countries: 
average annual growth, 1985-2004............................................................................................................................... 11
I.6.        Number of TNCs from developed, developing and transition economies, 1992, 2000 and 2006................................. 12
I.7. 
Transnationality Index for host economies, 2004 ......................................................................................................... 13
I.8.        Matrix of inward FDI performance and potential, 2005 ............................................................................................... 14
I.9.        More favourable and less favourable regulatory changes in 2006, by region............................................................... 16
I.10.      Number of BITs and DTTs concluded, cumulative, 1997-2006 ................................................................................... 17
I.11.       Number of other agreements concluded, by period, 1957-2006 ................................................................................... 17
I.12.      BITs concluded as of end 2006, by country group........................................................................................................... 17
I.13.      DTTs concluded as of end 2006, by country group ......................................................................................................... 18
I.14.      Number of BITs concluded by top ten economies, end 2006 ....................................................................................... 18
I.15.      Known investment treaty arbitrations, cumulative and new cases, 1987 to end 2006 ....................................................... 18
I.16.      Sectoral distribution of cross-border M&As, by industry of seller, 1987-2006............................................................ 22
I.17.      Cross-border M&As in infrastructure, by value and share in total M&As in all   industries, 1987-2006 .................... 23
I.18.     Cross-border M&As in infrastructure in developing and transition economies, 
by value and share in total M&As in all industries, 1987-2006.................................................................................... 24
I.19.     The top 30 locations for foreign affiliates of the 100 largest TNCs from developing economies, 2005 ...................... 26
I.20.      The 30 most favoured locations for foreign affiliates of the top 50 financial TNCs, 2005 .......................................... 27
I.21.      Prospects for global FDI flows for 2007-2009 ............................................................................................................. 29
I.22.      FDI plans of foreign affiliates in host countries for 2007-2009.................................................................................... 29
II.1.       FDI flows by region, 2005 and 2006 ............................................................................................................................ 33
II.2.       Total net resource flows to developing countries, by type of flow, 1990-2006 ............................................................ 34
II.3.       Africa: FDI inflows and their share in gross fixed capital formation, 1995-2006 ........................................................ 35
II.4.       Africa: top 10 recipients of FDI, 2005-2006................................................................................................................. 37
II.5.       FDI prospects in Africa, 2007-2009, by subregion: responses to UNCTAD survey..................................................... 40
II.6.       South, East and South-East Asia: FDI inflows and their share in gross fixed capital formation, 1995-2006 ............... 41
II.7.       South, East and South-East Asia: top 10 recipients of FDI inflows, 2005-2006 .......................................................... 42
II.8.       South, East and South-East Asia: FDI outflows, 1995-2006 ........................................................................................ 43
II.9.       South, East and South-East Asia: top 10 sources of FDI outflows, 2005-2006............................................................ 43
II.10.    FDI prospects in South, East and South-East Asia, 2007-2009: responses to UNCTAD survey.................................. 48
II.11.     West Asia: FDI inflows and their share in gross fixed capital formation, 1995-2006 .................................................. 48
II.12.     West Asia: top five recipients of FDI inflows, 2005-2006............................................................................................ 49
II.13.     West Asia: FDI outflows, 1995-2006............................................................................................................................ 50
II.14.     West Asia: top five sources of FDI outflows, 2005-2006 ............................................................................................. 50
II.15.     FDI prospects in West Asia, 2007-2009: responses to UNCTAD survey ..................................................................... 53
II.16.     Latin America and the Caribbean: top 10 recipients of FDI inflows, 2005-2006 ......................................................... 54
II.17.     Latin America and the Caribbean: FDI inflows and their share in gross fixed capital formation, 1995-2006 ............. 54
II.18.     FDI inflows and income on FDI inflows in countries in South America and 
Central America and the Caribbean, 2000-2006 ........................................................................................................... 55
II.19.     Latin America and the Caribbean: FDI outflows, 1995-2006....................................................................................... 56
II.20.     Latin America and the Caribbean: top 10 sources of FDI outflows, 2005-2006........................................................... 56
II.21.     Latin America and the Caribbean: FDI inflows by sector, 2005-2006 ......................................................................... 58
II.22.     FDI prospects in Latin America and the Caribbean, 2007-2009: responses to      UNCTAD survey ........................... 60
II.23.     South-East Europe and CIS: FDI inflows and their share in gross fixed capital  formation, 1995-2006 ..................... 61
II.24.     South-East Europe and CIS: top 10 recipients of FDI inflows, 2005-2006.................................................................. 61
II.25.     South-East Europe and CIS: FDI outflows, 1995-2006................................................................................................ 62
II.26.     FDI prospects in South-East Europe and CIS, 2007-2009: responses to  UNCTAD survey ........................................ 66
II.27.    Developed countries: FDI inflows and their share in gross fixed capital  formation, 1995-2006................................. 67
II.28.     Developed countries: top 10 recipients of FDI inflows, 2005-2006............................................................................. 67
II.29.     Developed countries: FDI outflows, 1995-2006........................................................................................................... 70
II.30.     Developed countries: top 10 sources of FDI outflows, 2005-2006 .............................................................................. 70
II.31.     FDI prospects in developed countries, 2007-2009: responses to UNCTAD survey ..................................................... 73
III.1.
Real price index of crude oil and metallic minerals, 1948-2006 .................................................................................. 88
III.2.
Profitability of Fortune Global 500 companies in extractive industries and other industries, 1995-2006.................... 89
III.3.
Number of major discoveries and private non-ferrous mineral exploration expenditure, 1980-2007 .......................... 90

xi
Page
IV.1.
Share of extractive industries in world inward FDI stock, 1990, 1995, 2000 and 2005 ............................................. 100
IV.2.
United States outward FDI stock in extractive industries, 2005 ................................................................................. 100
IV.3.
Share of extractive industries in the inward FDI stock of selected economies, 2005 ................................................. 104
IV.4.
Foreign affiliates’ share in metal mining production of selected host countries 
with notable deposits of minerals, 2006 ..................................................................................................................... 105
IV.5.
Share of foreign companies in the oil and gas production of selected major 
oil- and gas-producing economies, 2005 .................................................................................................................... 107
IV.6.
The pyramid of metal mining companies, 2006 ......................................................................................................... 109
IV.7.
Top 20 mining companies’ share in the value of refined production, 1995 and 2005................................................. 111
IV.8.
Global exploration expenditure, by type of company, 1997-2005 .............................................................................. 115
IV.9.
World production of oil and gas, by types of companies, 2005 .................................................................................. 118
IV.10.
Oil and gas production of selected TNCs outside their home country, 2005 .............................................................. 119
IV.11.
Selected foreign production locations of oil and gas TNCs, 1995 and 2005 .............................................................. 121
V.1.
Development implications of TNC participation in extractive industries: an analytical framework .......................... 130
V.2.
Income tax revenue from mining and oil and gas industries, Peru, 2000-2006 .......................................................... 138
V.3.
Contributions to fiscal revenues by Codelco and the 10 largest private mining enterprises 
in Chile, total of 1991-2002, 2003-2006..................................................................................................................... 138
V.4.
Growth rates of GDI and GNI, and FDI income, Chile and Peru, 2003-2006............................................................ 143
Tables
I.1.       Cross-border M&As valued at over $1 billion, 1987-2006 ............................................................................................ 6
I.2.        Cross-border M&As through exchange of shares, 1987-2006........................................................................................ 7
I.3.        Cross-border M&As by private equity funds and other funds, 1987-2006..................................................................... 8
I.4.       Selected indicators of FDI and international production, 1982-2006 ............................................................................. 9
I.5.        Employment related to inward and outward FDI and total employment in  selected economies, most recent year  .... 10
I.6.      Employment in United States foreign affiliates abroad and United States outward FDI stock, by sector, 2003 .......... 11
I.7.         Top 20 rankings by Inward and Outward Performance Indices, 2005 and 2006.......................................................... 14
I.8.       National regulatory changes, 1992-2006 ...................................................................................................................... 14
I.9.        Top 50 bilateral FDI relationships, 1985, 1995, 2005................................................................................................... 20
I.10.      Snapshot of the world’s 100 largest TNCs, 2004, 2005................................................................................................ 25
I.11.       Snapshot of the world’s 100 largest TNCs from developing economies, 2004, 2005 .................................................. 25
I.12.     Comparison of II and TNI values for the top 100 TNCs, by industry, 2005................................................................. 26
I.13.      The most attractive locations for FDI for 2007-2009 ................................................................................................... 30
II.1.       Cross-border M&A sales, by sector and by group of economies, 2005-2006 .............................................................. 34
II.2.       Distribution of cross-border M&A purchases in Africa by home region, 1999-2006................................................... 35
II.3.       Africa: distribution of FDI flows among economies, by range, 2006........................................................................... 37
II.4.       Africa: distribution of cross-border M&As, by sector and main industry, 2005-2006 ................................................. 39
II.5.      Intraregional FDI in South, East and South-East Asia: largest bilateral flows and  stocks, 2005, 
ranked by FDI flows ..................................................................................................................................................... 45
II.6.       Sector/industry breakdown of cross-border M&As in South, East and South-East Asia, 2005-2006 .......................... 46
II.7.       West Asia: distribution of FDI flows among economies, by range, 2006..................................................................... 49
II.8.       West Asia: cross-border M&As, by home/host region, 2005-2006 .............................................................................. 50
II.9.       West Asia: cross-border M&As, by sector/industry, 2005-2006................................................................................... 52
II.10.     Latin America and the Caribbean: distribution of cross- border M&As, by sector/industry, 2005-2006 ..................... 55
II.11.     Latin America and the Caribbean: country distribution of FDI flows, by range, 2006................................................. 56
II.12.     South-East Europe and CIS: cross-border M&As, by home/host region, 2005-2006................................................... 63
II.13.     South-East Europe and CIS: cross-border M&As, by sector/industry, 2005-2006....................................................... 66
II.14.     Developed countries: country distribution of FDI flows, by range, 2006 .................................................................... 71
II.15.     Developed countries: cross-border M&As, by sector/industry, 2005-2006.................................................................. 71
III.1.
Most important metals in world mining, 2005.............................................................................................................. 85
III.2.
Share of value added at the mining stage of selected metals, 2005/2006 ..................................................................... 85 
III.3.
Reserves, production, consumption, and exploration of oil and natural gas, by region, 1995 and 2005 ...................... 86 
III.4.
Production and consumption of selected metallic minerals, 1995 and 2005 ................................................................ 87
III.5.
Developing and transition economies with highest dependency on exports of minerals ............................................. 87
III.6.
Supply delays: selected examples................................................................................................................................. 89
IV.1.
United States outward FDI stock in extractive industries, 1985, 1990, 1995, 2000 and 2005.................................... 103
IV.2.
Oil and gas production, total and by foreign companies, by region and selected economy, 1995 and 2005  ............. 106
IV.3.
Main forms of TNC contracts in the oil and gas industry of selected developing and 
transition host economies, June 2007 ......................................................................................................................... 108
IV.4.
Top 25 metal mining companies, 2005 ....................................................................................................................... 109
IV.5.
Host countries in which top 25 metal mining companies are involved in exploration projects, 2006........................ 110
IV.6.
Host countries in which top 25 metal mining companies are involved in mining production projects, 2005 ............ 112
IV.7.
Host countries in which top 25 metal mining companies are involved in refining/smelting projects, 2005............... 114
IV.8.
The world’s largest oil and gas extraction companies, ranked by total production, 2005........................................... 117
IV.9.
The world’s largest oil and gas service TNCs, ranked by foreign assets, 2005 .......................................................... 118
IV.10.
Main foreign production locations of selected oil and gas TNCs, 2005 ..................................................................... 120

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Page
V.1.
Total employment and employment in extractive industries, selected developing countries, latest year ................... 134
V.2.
Employment in Ghana’s mining industry, 1995-2005 ................................................................................................ 134
V.3.
Ownership structure of major mining companies in Botswana, 2005 ........................................................................ 139
V.4.
Local content in supplies to upstream oil and gas activities, and GDP, 
selected oil-producing countries, various years .......................................................................................................... 141
VI.1.
Number of BITs concluded by developing and transition economies in which 
oil, gas and other minerals account for a significant share of total exports, 1995 and 2006....................................... 163
VI.2.
Top mining TNCs participating in selected international initiatives, June 2007 ........................................................ 182
VI.3.
Top oil TNCs participating in selected international initiatives, June 2007 ............................................................... 182  
Annex A
A.I.1.     Number of greenfield FDI projects, by investor/destination region, 2002-2006 ........................................................ 207
A.I.2.     Number of greenfield FDI projects, by sector/industry, 2002-2006 ........................................................................... 211
A.I.3.     Cross-border M&A deals with values of over $1 billion, completed in 2006............................................................. 212
A.I.4.     Selected 50 large cross-border M&As involving collective investment funds, completed in 2006............................ 216
A.I.5.     Number of parent corporations and foreign affiliates, by region and economy,  latest available year....................... 217
A.I.6.   Country rankings by Inward FDI Performance Index, Inward FDI Potential  Index and 
Outward FDI Performance Index, 2004-2006 ............................................................................................................ 220
A.I.7.    Bilateral FDI relationships ranked between 51 and 100, 1985, 1995, 2005................................................................ 222
A.I.8.     FDI intensity of selected major developed and developing home economies with 
various host economies, 1995 and 2005 ..................................................................................................................... 223
A.I.9.     Estimated world inward FDI stock, by sector and industry, 1990 and 2005............................................................... 225
A.I.10.   Estimated world outward FDI stock, by sector and industry, 1990 and 2005............................................................. 226
A.I.11.   Estimated world FDI inflows, by sector and industry, 1989-1991 and 2003- 2005.................................................... 227
A.I.12.   Estimated world FDI outflows, by sector and industry, 1989-1991 and 2003-2005................................................... 228
A.I.13.   The world’s top 100 non-financial TNCs, ranked by foreign assets, 2005 ................................................................. 229
A.I.14   The top 100 non-financial TNCs from developing economies, ranked by  foreign assets, 2005 ................................ 232
A.I.15.   The top 50 financial TNCs ranked by the Geographical Spread Index, 2005............................................................. 235
A.I.16.   The top 100 TNCs ranked by the number of host countries and the Geographical Spread Index,  2005................... 236
A.IV.1.  Inward FDI in extractive industries, flows and stocks, selected economies ............................................................... 237
A.IV.2. Outward FDI in extractive industries, flows and stocks, selected economies ............................................................ 239
A.IV.3.  Cross-border M&A purchases in extractive activities, by industry, 1990-2006 ......................................................... 240
A.IV.4.  50 largest cross-border M&As sales in oil and gas and mining, 1987-2006............................................................... 241
A.IV.5.  Top 25 metal mining companies, 1995 ....................................................................................................................... 242
A.IV.6.  Top 10 producers of selected minerals, 2005.............................................................................................................. 243
DEFINITIONS AND SOURCES ......................................................................................................245
Annex B
B.1.  
FDI flows, by region and economy, 2004-2005.......................................................................................................... 251
B.2.       FDI stock, by region and economy, 1990, 2000, 2006 ............................................................................................... 255
B.3.       FDI flows as a percentage of gross fixed capital formation, 2004-2006 and FDI stocks as a percentage 
of gross domestic product, 1990, 2000, 2006, by region and economy...................................................................... 259
B.4.      Value of cross-border M&As, by region/economy of seller/purchaser, 2004- 2006................................................... 271
B.5.   
Number of cross-border M&As, by region/economy of seller/purchaser, 2004-2006................................................ 274
B.6.   
Value of cross-border M&As, by sector/industry, 2004-2006 .................................................................................... 278
B.7.      Number of cross-border M&As, by sector/industry, 2004-2006 ................................................................................ 279
B.8.   
Number of foreign affiliates in the host economy and of foreign affiliates of  home-based TNCs, 2002-2004 ......... 280
B.9.   
Assets of foreign affiliates in the host economy and of foreign affiliates of  home-based TNCs, 2002-2004............ 281
B.10.   Employment of foreign affiliates in the host economy and of foreign affiliates of 
home-based TNCs, 2002-2004 ................................................................................................................................... 282
B.11.    Wages and salaries of foreign affiliates in the host economy and of foreign affiliates of 
home-based TNCs, 2002-2004 ................................................................................................................................... 282
B.12.     Sales of foreign affiliates in the host economy and of foreign affiliates of    home-based TNCs, 2002-2004............ 283
B.13.    Value-added of foreign affiliates in the host economy and of foreign affiliates of 
home-based TNCs, 2002-2004 ................................................................................................................................... 283
B.14.    Profits of foreign affiliates in the host economy and of foreign affiliates of    
 home-based TNCs, 2002-2004 .................................................................................................................................. 284
B.15. 
Exports of foreign affiliates in the host economy and of foreign affiliates of home-based TNCs, 2002-2004........... 284
B.16. 
Imports of foreign affiliates in the host economy and of foreign affiliates of home-based TNCs, 2002-2004........... 285
B.17.   R&D expenditures of foreign affiliates in the host economy and of foreign affiliates of 
home-based TNCs, 2002-2004 ................................................................................................................................... 285
B.18. 
Royalty receipts and payments of foreign affiliates in the host economy and  of foreign affiliates 
of home-based TNCs, 2001-2004 ............................................................................................................................... 286

xiii
ABBREVIATIONS
AGOA   
African Growth and Opportunity Act
ASEAN  
Association of Southeast Asian Nations
bbd 
 
billion barrels per day
BIT 
 
bilateral investment treaty
CIS 
 
Commonwealth of Independent States
DTT 
 
double taxation treaty
DR-CAFTA      Dominican Republic-Central American Free Trade Agreement (with the United States)
ECA 
 
United Nations Economic Commission for Africa
ECB 
 
European Central Bank
ECLAC  
United Nations Economic Commission for Latin America and the Caribbean
ECT  
Energy 
Charter 
Treaty
EITI 
 
Extractive Industries Transparency Initiative 
EIU 
 
Economist Intelligence Unit
FDI 
 
foreign direct investment
FTA 
 
free trade agreement
GCC 
 
Gulf Cooperation Council
GDP 
 
gross domestic product
GFCF   
gross fixed capital formation
GSI 
 
Geographical Spread Index 
ICEM   
International Federation of Chemical, Energy, Mine and General Workers’ Unions 
ICMM   
International Council on Mining and Metals 
ICSID   
International Centre for Settlement of Investment Disputes 
ICT 
 
information and communication technology
IEA  
International 
Energy 
Agency
II   Internationalization 
Index
IIA 
 
international investment agreement
ILO  
 
International Labour Organization
IMF 
 
International Monetary Fund
IPA 
 
investment promotion agency
IPO 
 
initial public offering
IT  
information 
technology
KPCS   
Kimberley Process Certification Scheme
LDC 
 
least developed country
LNG 
 
liquefied natural gas
M&A   
merger and acquisition
mbd 
 
million barrels per day
MFA  
Multi 
Fibre 
Arrangement
NAFTA  
North American Free Trade Agreement
NGO  
non-governmental 
organization
OECD   
Organisation for Economic Co-operation and Development
OPEC   
Organization of the Petroleum Exporting Countries
PGM 
 
platinum group metal
PSA  
production-sharing 
agreement
R&D 
 
research and development
SEE  
South-East 
Europe 
SME 
 
small and medium-sized enterprise
SOE  
State-owned 
enterprise
TNC  
transnational 
corporation
TNI  
Transnationality 
Index
UNCTAD
United Nations Conference on Trade and Development
UNCTC  
United Nations Centre on Transnational Corporations (1974-1992)
UNDP   
United Nations Development Programme
WAIPA   
World Association of Investment Promotion Agencies
WTO  
World 
Trade 
Organization



OVERVIEW
WIDESPREAD GROWTH IN FDI
Global FDI flows approach 
for 84% of global outflows. While there
their 2000 peak level …
was a rebound of FDI from the United 
States,  almost  half of world outflows
Global FDI inflows soared  in 2006  originated from European Union (EU)
to reach $1,306 billion – a growth of 38%.  countries, notably France, Spain and the
This marked the third consecutive year of  United  Kingdom  in that order. TNCs 
growth, and approached the record level of  from developing and transition economies 
$1,411 billion reached in 2000. It reflected  continued their international expansion 
strong economic performance in many  in 2006, led  by Hong Kong (China)  in 
parts of the world. Inflows  increased  in  the former group of economies and the
all three groups of economies: developed  Russian Federation in the latter. Total FDI 
2007
countries, developing countries and the  outflows from these groups of economies
transition economies of South-East Europe
reached $193 billion, or 16% of world FDI
and  the Commonwealth of Independent  outflows. 
States (CIS). 
The rise  in  global FDI flows was  ... driven by cross-border 
partly driven by increasing corporate profits  M&As with the increasing 
worldwide and resulting higher stock  involvement of private equity 
prices that raised the value of cross-border  funds …
mergers and acquisitions  (M&As). M&As 
continued to account for a high share of 
Increased cross-border M&A 
FDI flows,  but  greenfield  investment also  activity supports the current rise in global
increased, especially  in  developing and  FDI. Such transactions rose significantly
transition economies. As a result of higher  in 2006, both  in value  (by 23%, to reach 
corporate profits, reinvested earnings have
$880 billion) and in number (by 14% to 
become an important component of inward  6,974), approaching the previous M&A 
FDI: they accounted for an estimated 30%  peak  in 2000. This growth was driven  by
of total inflows worldwide in 2006 and for  higher stock market valuations, rising 
almost 50% in developing countries alone. 
corporate profits and favourable financing
conditions. In contrast with the M&A boom 
While FDI inflows in developed  of the late 1990s, this time transactions 
countries rose by 45% – well over the rate  have been predominantly financed by cash 
of the previous two years – to reach $857
and debt, rather than through an exchange
billion, flows to developing countries and  of shares. As many as 172 mega deals (i.e. 
the transition economies attained  their  deals worth over $1 billion) were recorded 
highest levels ever: $379 billion (a 21%  in 2006, accounting for about two thirds of 
increase over those in 2005) and $69 billion
the total value of cross-border M&As.
(a 68% increase) respectively. The United 
States regained  its position as the  leading 
These transactions were widely 
host country, followed by the United  spread across regions and sectors. In North 
Kingdom and France. The  largest  inflows  America, due to several deals in the mining
among  developing economies went to  industry, cross-border M&As almost 
China, Hong Kong (China) and Singapore,
doubled. In Europe, the United  Kingdom
and among the transition economies to the
was the main target country, while Spanish 
Russian Federation.
companies were very active as acquirers.
Cross-border acquisitions  by Spanish
Developed-country TNCs remained  companies (e.g. Teléfonica and Ferrovial)
the  leading sources of FDI, accounting

xvi
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
were valued at $78 billion, a record level for that  million, representing a reduction of half a million. 
country. Companies from developing and transition 
In comparison, reflecting the fact that United States 
economies have also been increasingly engaged in  firms are by far the largest direct investors abroad, 
such transactions, the largest in 2006 being the $17 
their foreign affiliates created the largest number of 
billion acquisition of Inco (Canada) by CVRD of  jobs (9 million) among foreign-affiliates of all home 
Brazil.
countries. The employment impact of FDI in host 
Another noticeable trend in global M&A  economies varied by region, but for a given amount of 
activity has been the growing importance of private 
inward FDI more jobs were created in developing and 
equity funds and other collective investment funds. 
transition economies than in developed countries. 
In 2006, they were involved in cross-border M&As 
As in previous years, services accounted for the 
valued at $158 billion, an 18% increase over 2005. 
bulk of world inward FDI stock in 2005 – nearly two 
A growing appetite for higher yields and ample  thirds – compared with 49% in 1990. Within services, 
liquidity in world financial markets helped fuel these 
the share of infrastructure-related industries rose in 
acquisitions. Private equity firms are increasingly  both absolute and relative terms. Manufacturing was 
acquiring large listed companies, in contrast to their 
the second largest sector, but its share declined from 
former strategy of investing in high-yield, high-
41% in 1990 to 30% in 2005, while the share of the 
risk assets, and they are likely to continue to play  primary sector was less than 10% of world inward 
a prominent role in M&A transactions. However,  FDI stock. The share of extractive industries in total 
this scale of activity may not be sustainable due to 
FDI increased somewhat between 2000 and 2005, 
a number of factors: competition is intensifying and 
having been on the decline since the Second World 
the asset prices involved in recent acquisitions have 
War. This rebound was fuelled by new investments 
increased substantially; there is also a possibility  in mineral exploration and extraction, as well as by a 
that the favourable fiscal treatment such firms enjoy 
number of large cross-border M&As (see Part Two).
in some countries may not last. Investments by 
private equity firms are often more akin to portfolio 
TNCs from emerging economies 
investment than to FDI, in that they tend to have  continue to expand overseas. 
relatively short time horizons. This has raised some 
concerns regarding the impact of such investments, in 
While the universe of TNCs is dominated by 
particular as regards the dismantling of the acquired 
developed-country firms, the picture is changing. 
companies and worker layoffs. As cross-border  The number of firms from developing economies in 
M&As by private equity firms are a relatively recent 
the list of the world’s 100 largest non-financial TNCs 
phenomenon, more research is needed to better  increased from five in 2004 to seven in 2005 (the 
understand their impact. 
most recent year for which data are available), in line 
with the rise of TNCs from the South. Rankings in 
… and resulting in further growth of 
the list of the world’s top 100 TNCs have remained 
international production.
relatively stable, with General Electric, Vodafone 
and General Motors having the largest foreign assets. 
The production of goods and services by  Although the foreign assets of the top 100 TNCs 
TNCs outside their home countries grew more  have remained virtually unchanged since 2004, their 
rapidly in 2006 than in the previous year. The sales, 
foreign sales and employment increased by about 
value added and exports of some 78,000 TNCs and 
10%. 
their 780,000 foreign affiliates are estimated to have 
Large TNCs from emerging economies are 
increased by 18%, 16% and 12% respectively. They 
internationalizing particularly fast. In 2005, the 
accounted for the equivalent of 10% of world GDP 
foreign sales and foreign employment of the top 100 
and one third of world exports. China continued to 
TNCs from developing economies increased by 48% 
host the largest number of foreign affiliates in the  and 73% respectively. However, these TNCs are still 
world, while the growth rate of the number of TNCs 
significantly less transnational in their reach than the 
from developing countries and transition economies 
world’s top 100, with a presence in fewer countries 
over the past 15 years has exceeded that of TNCs  abroad.
from developed countries.
Asia dominates the list of the 100 largest 
Employment in foreign affiliates of TNCs  developing-country TNCs, with 78 firms, followed 
has increased nearly threefold since 1990, although 
by 11 each from Africa and Latin America. These 
at a slower pace than FDI stock. Foreign affiliates  TNCs operate in a broader range of industries than 
in China had the largest number of employees: 24  the largest TNCs from developed countries. As in 
million as estimated by the country’s Ministry of  previous years, the single most important industry  in 
Commerce. Between 2001 and 2004, employment in 
2005 was electrical/electronic equipment, especially 
foreign affiliates in the United States shrank to 5.1 
for a large number of companies from Asia. 

OVERVIEW
xvii
The geographical pattern of FDI is 
In some industries, however, new restrictions 
changing, with greater South-South 
on foreign ownership or measures to secure a greater 
FDI flows.
government share in revenues were observed. Such 
steps were the most common in extractive industries 
The geographical pattern of FDI is showing signs 
and in industries deemed to be of “strategic” 
of change, with new countries emerging as significant 
importance. For example, in Algeria, State-owned oil 
host and home economies. The rise of FDI from  and gas enterprises must now hold a minimum of a 
developing and transition economies and the growth of 
51% stake, and in Bolivia, by signing new contracts 
South-South FDI are important recent trends. Changes 
TNCs have returned ownership of petroleum reserves 
are taking place in the pattern of bilateral flows of FDI 
to the State oil company. In the Russian Federation, 
as well. In 2005, the largest bilateral outward FDI stock 
foreign investment is to be restricted in “strategic 
was that of the United Kingdom in the United States 
sectors” such as defence and extractive industries, 
– at $282 billion; 20 years earlier, it was the reverse. 
with only minority stakes permitted in the latter. In 
Whereas bilateral links between selected economies,  Venezuela, nationalizations in the “strategic sectors” 
such as those between the United States on the one  of energy and telecommunications are in progress. 
hand and Canada, the Netherlands and the United 
The perception that these and other changes 
Kingdom on the other, dominated the global picture of 
might trigger renewed protectionism has led to some 
bilateral FDI relationships in 1985, today, the situation 
concern. However, as in 2005, the trend appears to 
is considerably more multifaceted, reflecting the  be confined to a relatively small number of countries, 
involvement of many more countries in international  and to specific industries.
production. 
The number of international investment 
With strengthening relationships between  agreements (IIAs) has continued to grow, reaching a 
countries within the same region, and the emergence 
total of almost 5,500 at the end of 2006: 2,573 bilateral 
of many developing countries as sizeable investor  investment treaties, 2,651 double taxation treaties and 
economies, geographical proximity is becoming  241 free trade agreements and economic cooperation 
increasingly important in bilateral FDI relations. For 
arrangements containing investment provisions. 
 
example, in the top 50 pairs of countries with the  The number of preferential trade agreements with 
largest bilateral inward stock, 22 were from Europe 
investment provisions has almost doubled in the 
in 2005, compared to 17 in 1995. FDI relationships 
past five years. Developing countries are becoming 
between two economies can be further examined on the 
increasingly important participants in international 
basis of the intensity of FDI, which compares the actual 
investment rule-making, partly reflecting growing 
volume of bilateral FDI stocks with what would be  South-South FDI.
“expected” on the basis of the share of each economy in 
global inward and outward FDI. Such a measure shows 
FDI in Africa peaked, as its resources 
that the United States has a stronger-than-average FDI 
attracted increasing FDI.
intensity with Canada, European countries with each 
other, and Japan with Asian countries. It also shows 
At $36 billion in 2006, FDI inflows in 
that South-South relationships have strengthened  Africa were twice their 2004 level. This was due 
over the past decade, especially in the Asian region.
to increased interest in natural resources, improved 
prospects for corporate profits and a more favourable 
Most policy changes continue to 
business climate. The value of cross-border M&A 
favour FDI, though some restrictions 
sales reached a record $18 billion, half of which 
have emerged in certain industries.
represented purchases by TNCs from developing 
Asia. Greenfield projects and investments in 
Governments continue to adopt measures to  expansion also grew significantly. Despite this 
facilitate FDI. In 2006, 147 policy changes making 
increase, Africa’s share in global FDI fell to 2.7% in 
host-country environments more favourable to FDI 
2006, compared with 3.1% in 2005, much lower than 
were observed. Most of them (74%) were introduced 
that of other developing regions. FDI outflows from 
by developing countries. They included in particular 
Africa also reached a record $8 billion in 2006, up 
measures aimed at lowering corporate income taxes 
from $2 billion in 2005.
(as in Egypt, Ghana and Singapore) and expanding 
FDI inflows rose in 33 African countries and 
promotional efforts (as in Brazil and India). Further 
in all subregions except for Southern Africa. The 
liberalization of specific industries is under way in 
top 10 host African countries received about 90% 
various countries, such as that relating to professional 
of such flows. In eight of them, inflows exceeded 
services (Italy), telecommunications (Botswana and 
$1 billion each. Large cross-border M&As as well 
Cape Verde), banking (the Lao People’s Democratic 
as greenfield investments and expansion projects 
Republic and Mali) and energy (Albania and  played an important role in the top host countries, 
Bulgaria).

xviii
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
particularly Egypt and Nigeria.  In Egypt, the leading 
the efforts of Chinese State-owned enterprises and 
recipient in the region, inflows exceeded $10 billion, 
of Indian privately owned conglomerates to acquire 
80% of which were in expansion and greenfield  strategic assets abroad, as highlighted by the $11 
projects in non-oil activities. South Africa witnessed 
billion acquisition by Tata Steel (India) of Corus 
a major decline in inflows due to the sale of a foreign 
Group (United Kingdom and the Netherlands), have 
equity stake in a domestic gold-mining company to a 
led to greater FDI flows from these countries to 
local firm, but it generated most of the outflows from 
developed economies. 
Africa.  The search for new natural-resource reserves 
Rapid economic growth in South, East and 
led to increased FDI to African least developed  South-East Asia should continue to fuel growing 
countries (LDCs), amounting to $8 billion, following 
market-seeking FDI to the region. The region will 
two consecutive years of decline. As a result, the  also become more attractive to efficiency-seeking 
LDCs accounted for 23% of the FDI inflows to the 
FDI, as countries such as China, India, Indonesia 
region – a significant rise over 2005. Of these LDCs, 
and Viet Nam plan to significantly improve their 
Burundi, Cape Verde, Djibouti, Ethiopia, Gambia,  infrastructure. During the first half of 2007, the value 
Guinea-Bissau, Madagascar, Somalia and Sudan saw 
of cross-border M&A deals in the region increased 
the largest increases in FDI inflows mainly directed 
by nearly 20% over the corresponding period of 
at new oil exploration and mining activities.
2006. Increased FDI outflows from the region are 
In 2006, many African countries adopted  also expected to continue.
measures to attract FDI as well as to improve the 
impact of FDI on their development. Prospects  …while FDI inflows into West Asia 
for FDI inflows into Africa remain positive due to  continued to climb to unprecedented 
persistently high global commodity prices, though  heights.
some moderation is expected in 2007.
In 2006, FDI inflows to the 14 economies of 
Inflows to South, East and South-
West Asia rose by 44%, to an unprecedented $60 
East Asia reached $200 billion, and 
billion. Privatization of various services progressed 
outflows soared …
in 2006, and there was an improvement in the general 
business climate. The region’s strong economic 
FDI inflows to South, East and South-East  growth has encouraged investment, and high oil 
Asia maintained their upward trend in 2006, rising 
prices have been attracting increasing amounts of 
by about 19% to reach a new high of $200 billion. 
FDI in oil and gas and in related manufacturing 
At the subregional level, South and South-East Asia 
industries.
saw a sustained increase in flows, while their growth 
A few mega cross-border M&As and the 
in East Asia was slower. However, FDI in the latter 
privatization of financial services made Turkey the 
subregion is shifting towards more knowledge-
largest recipient in West Asia, with inflows of $20 
intensive and high value-added activities. 
billion. Saudi Arabia was the second largest with 
China and Hong Kong (China) retained their 
$18 billion (an increase of 51% over its 2005 levels), 
positions as the largest FDI recipients in the region, 
followed by the United Arab Emirates, where the 
followed by Singapore and India. Inflows to China 
free zones attracted a significant share of its FDI 
fell in 2006 for the first time in seven years. The  inflows. Services remained the dominant sector for 
modest decline (by 4% to $69 billion) was due mainly 
FDI in West Asia, a major proportion of which went 
to reduced investments in financial services. Hong  to financial services as a result of privatization and 
Kong (China) attracted $43 billion in FDI, Singapore 
liberalization policies of a number of countries in the 
$24 billion (a new high), and India $17 billion (an 
region. There were also several major deals in the 
amount equivalent to the combined inflows to that  telecommunications industries in Jordan and Turkey. 
country of the preceding three years).
Efforts by the Gulf countries to diversify their 
FDI outflows from the region as a whole rose 
production activities beyond oil-related activities 
by 60% to $103 billion, with higher investments from 
succeeded in attracting greater FDI flows into the 
all subregions and major economies. Outflows from 
manufacturing sector. During the first half of 2007, 
Hong Kong (China), the largest source of FDI in the 
the value of cross-border M&A sales increased by 
region, rose by 60% to $43 billion. China consolidated 
nearly 3% over the corresponding period of 2006.  
its position as a major investor, and India is rapidly 
FDI outflows from West Asia rose by 5% to 
catching up. Their emergence as important sources  reach a new high of $14 billion in 2006, as a result of 
of FDI is challenging the dominance of the Asian  the high oil prices and the current-account surpluses 
newly industrializing economies (NIEs) in outward 
of the oil-producing countries. Kuwait accounted for 
FDI from the region. Resource-seeking FDI from  the lion’s share (89%) of the region’s total outward 
China and India continued to increase. In addition, 
FDI, mainly in the telecommunications industry. 

OVERVIEW
xix
The value of cross-border M&As by firms from the 
The trend towards greater State intervention 
region totalled $32 billion, 67% of which involved 
continued in 2006, but unlike the previous year 
firms from the United Arab Emirates, the second  when this occurred mainly in the extractive 
largest investor from West Asia. 
industries, it extended to other industries such as 
In 2006, FDI inflows to Oceania amounted to 
telecommunications and electricity, in particular 
$339 million, a decline of 11%, and they remained 
in Bolivia and Venezuela. In Venezuela, a deal was 
concentrated in the mining industry. Investments  negotiated with Verizon, AES and CMS (all United 
also went to onshore fish-processing activities in  States firms) whereby the three firms agreed to divest 
Papua New Guinea and the Marshall Islands, and to 
their assets to the Government, while the Government 
the tourism industry in some economies such as Fiji 
of Bolivia is planning to take over Empresa Nacional 
and Vanuatu.
de Telecomunicaciones (Entel), controlled by 
Telecom Italia. By contrast, the Government of 
Greenfield investments and 
Colombia is proceeding with a programme of FDI 
reinvested earnings boosted FDI in 
promotion and downsizing of the public sector, 
including in the extractive industries. 
Latin America and the Caribbean, 
and outflows hit new records.

FDI inflows into Latin America and the 
Caribbean, excluding the offshore financial centres, 
FDI flows to Latin America and the Caribbean 
are expected to rise moderately in 2007, increasingly 
increased by 11%, to $84 billion. If the offshore  driven by greenfield investments rather than by 
financial centres are excluded, however, they reached 
cross-border M&As. 
$70 billion in 2006, which was the same level as in 
FDI flows to South-East Europe and 
2005. This is in sharp contrast to the soaring FDI  the Commonwealth of Independent 
outflows, which jumped by 125% to $43 billion (or 
$49 billion if offshore financial centres are included). 
States increased for the sixth 
Brazil and Mexico remained the leading recipients  consecutive year…
(with about $19 billion each), followed by Chile, the 
FDI inflows into South-East Europe and the 
British Virgin Island and Colombia. The stagnation 
CIS grew by 68%, to $69 billion – a significant leap 
of FDI inflows in the region (excluding the offshore 
from the inflows of the two previous years. The top 
financial centres) hides disparities among different  five recipient countries (the Russian Federation, 
countries: in South America, most of the countries  Romania, Kazakhstan, Ukraine and Bulgaria in 
registered strongly positive growth in FDI flows, but 
that order) accounted for 82% of the total inflows. 
this was offset by a significant decline in Colombia 
Those to the Russian Federation almost doubled to 
and Venezuela. Two features characterized the  $28.7 billion, while those to Romania and Bulgaria 
region’s FDI inflows: greenfield investments became 
grew significantly, in anticipation of their accession 
more important than cross-border M&As, and  to the EU on 1 January 2007 and due to a series of 
reinvested earnings became an increasingly important 
privatization deals. FDI outflows from the region 
component (the largest component in South America 
increased for the fifth consecutive year, to reach $18.7 
alone).
billion. Virtually all of this outward FDI reflected the 
Manufacturing again received the largest share 
expansion abroad of Russian TNCs, especially some 
of inflows, and the services sector’s share increased 
large resource-based firms seeking to become global 
slightly. In services, TNCs continued to withdraw  players and some banks expanding into other CIS 
from public utilities, mainly from the electricity  countries.
industry. The primary sector remained attractive due 
While the services sector was particularly 
to persistently high commodity prices.
buoyant because of increased cross-border M&As 
FDI outflows were mainly targeted at extractive 
in the banking industry, the primary sector received 
industries, followed by resource-based manufacturing 
higher inflows as a result of soaring demand for 
and telecommunications. Brazil’s outward FDI was 
natural resources. In some natural-resource-based 
the largest in the region, at $28 billion – its highest 
economies of the CIS, such as the Russian Federation, 
level ever – exceeding for the first time its inward 
the State continued to increase its control in strategic 
FDI. This was mainly due to the above-mentioned  industries. In countries of South-East Europe, FDI-
purchase of Inco (Canadian nickel producers) by the 
related policies continue to be in line with their 
mining company CVRD, the largest transaction ever 
accession or aspirations to accede to the EU, and 
by a developing-country company. Companies from 
with their aim to step up the privatization of State-
other countries, especially those from Argentina,  owned enterprises. 
Chile, Mexico and Venezuela, are also increasingly 
FDI inflows in the region are expected to be 
seeking to internationalize through FDI.
particularly buoyant in large economies such as the 

xx
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Russian Federation and Ukraine, as well as in the  protectionist sentiment remains or is again on the rise 
two new EU members (Bulgaria and Romania).
in certain developed countries.
The prospects for FDI in developed countries 
… while the surge in FDI to 
remain bright.  Strong economic growth, albeit at 
developed countries was 
a more moderate pace than in 2006, high corporate 
widespread.
profits and the upward movement of equity prices are 
expected to further stimulate cross-border M&As; 
FDI inflows to developed countries surged  they had already increased by 66% during the first 
to $857 billion – 45% higher than in the previous  half of 2007 over the same period in 2006.
year – reflecting another rise in cross-border M&As. 
In contrast to the upward trend of the previous  Overall, prospects for global FDI 
FDI cycle at the end of the past decade, the current 
flows remain positive. 
increase was widespread, across all the developed 
regions. FDI inflows to the United States rebounded 
The upward trend in FDI is expected to 
strongly to $175 billion in 2006, with record flows in 
continue in 2007 and beyond – albeit at a somewhat 
the chemical industry, while a wave of cross-border 
slower rate than in 2006. This would be in line 
M&As in the mining sector caused Canadian inflows 
with global economic growth, which should remain 
to double, to a record of $69 billion. Inward FDI  above its longer term trend, although it might slow 
in the 25 EU countries grew by 9%, to reach $531 
down moderately. This forecast is confirmed by the 
billion. Declines in FDI flows to Ireland, Spain and 
rise in global cross-border M&As to $581 billion 
the United Kingdom were more than compensated  in the first half of 2007 – a 54% increase over the 
for by increases in Belgium, Italy and Luxembourg, 
corresponding period of 2006 – and by the results of 
while inflows in the 10 new EU members amounted 
various surveys.
to $39 billion – their highest level so far. Due to 
In UNCTAD’s World Investment Prospects 
some large sell-offs of foreign affiliates to Japanese 
Survey, more than 63% of the responding TNCs 
companies, FDI inflows to Japan turned negative for 
expressed optimism that FDI flows would increase 
the first time since 1989 (-$6.5 billion). The share  over the period 2007-2009. According to the survey, 
of foreign investment from developing countries in 
the most attractive FDI destination countries are 
the total value of cross-border M&A sales was 9% 
China and India, while East, South and South-East 
in 2006 compared to 7% 2005, largely as a result of 
Asia is considered the most attractive region. This 
several mega deals.
is reinforced by several international organizations 
FDI outflows from developed countries also  and research institutes, as well as by another survey 
grew by 45%, to $1 trillion. The United States and five 
conducted by UNCTAD/WAIPA, in which 76% of 
EU countries ranked among the 10 largest outward 
the responding CEOs of foreign affiliates expected to 
investor economies in the world. France remained  continue to increase investments in host economies 
the second largest investor worldwide for the second 
over the next three years.
year in a row ($115 billion), while Spanish companies 
However,  despite the generally positive 
continued their outward expansion at a rapid pace to 
prospects, several challenges and risks face the world 
reach $90 billion, the largest ever recorded for Spain. 
economy, which may have implications for FDI flows in 
FDI outflows from the Netherlands amounted to  2007 and 2008. These include global current-account 
$23 billion, mainly due to the acquisition of Arcelor 
imbalances causing exchange rate shifts, volatile oil 
(Luxembourg) by Mittal Steel (a company registered 
prices, and a potential tightening of financial market 
in the Netherlands) – the largest deal of the year. 
conditions. Respondents in the UNCTAD survey also 
While continuous financial deregulation was 
expressed some concerns regarding the possible rise of 
the main reason for the significant increase in cross-
protectionism and of global threats such as terrorism 
border M&As in financial services, high commodity 
and war. But they believed that the probability of these 
prices and consolidation efforts spurred such deals  types of risks affecting the level of FDI in the short term 
in the mining industry. Many developed countries  was relatively low. Nevertheless, these considerations 
adopted policies that could, directly or indirectly,  underline the need for caution in assessing future FDI 
increase their attractiveness for FDI, although some 
prospects.

OVERVIEW
xxi
TRANSNATIONAL CORPORATIONS, 
EXTRACTIVE INDUSTRIES AND 
DEVELOPMENT
High prices of metals, oil and natural 
2005, the aggregate share of developed countries in 
gas have led to increased activity of 
global FDI in extractive industries fell from 99% in 
TNCs in extractive industries.
2000 to 95% in 2005. 
Both government policies and TNCs’ 
The involvement of TNCs in extractive  investment decisions are influenced by the volatility 
industries has had a chequered history. In the early 
of mineral markets. The current price boom reflects 
twentieth century, these industries accounted for  in part a surge in demand for oil, gas and various 
the largest share of FDI, reflecting the international 
metallic minerals, especially from some rapidly 
expansion of firms from the colonial powers. With 
growing developing economies, notably China. 
a growing number of former colonies gaining  Although by June 2007, prices of commodities such 
independence after the Second World War, and  as aluminium, copper, gold and oil remained close 
the creation of the Organization of the Petroleum  to their highest levels in nominal terms, their future 
Exporting Countries (OPEC), the dominance of  trends are difficult to forecast. However, experts 
these TNCs declined, as did the share of extractive 
agree that the costs of exploiting new mineral 
industries in global FDI. From the mid-1970s, in  deposits are likely to rise, which might keep prices at 
particular, the share of oil, gas and metal mining in 
relatively high levels in the coming years. The high 
world FDI fell steadily as other sectors grew much 
prices have spurred an investment boom in mineral 
faster. However, as a result of rising mineral prices, 
exploration and extraction. For example, global 
the share of extractive industries in global FDI has 
private investment in non-ferrous metal exploration 
recently increased, although it is still much lower than 
rose from $2 billion in 2002 to an estimated $7 
those of services and manufacturing. It is therefore 
billion in 2006, and drilling for oil and gas doubled 
an opportune time for the WIR07  to revisit the role 
over the same period, pushing the rig utilization rate 
of TNCs in extractive industries and their impact on 
up to about 92%. 
development.
Global mineral markets are characterized by  The relative importance of foreign 
an uneven geographical distribution of reserves,  affiliates in mineral production varies 
production and consumption. Some developing and 
by economy and mineral…
transition economies are among the main producers 
and net exporters of various minerals, while developed 
Developed countries still attract the bulk of 
countries and fast-growing emerging economies are 
FDI in extractive industries, partly explained by 
the major consumers and importers. These imbalances 
significant cross-border M&A activity. However, 
sometimes create concerns among importing countries 
their share in global inward FDI in these industries 
over the security of supply, and concerns among  fell from about 90% in 1990 to 70% in 2005. The 
exporting countries over market access. The supply 
share of developing and transition economies as 
of minerals is essential for economic development: 
destinations for TNC investments in extractive 
no modern economy can function without adequate, 
industries has increased over the past two decades. 
affordable and secure access to these raw materials. 
Between 1990 and 2000, their estimated combined 
TNCs can be important for both host and home  stock of inward FDI in those industries more than 
countries in this context. For countries that lack the 
doubled, and between 2000 and 2005, it increased 
necessary indigenous capabilities for transforming  again by half. Following new mineral discoveries, 
their natural resources into commercial goods, TNCs 
a number of new FDI recipients have emerged, 
can bring the needed capital, knowledge and access 
including LDCs such as Chad, Equatorial Guinea 
to markets; for home countries, they can serve as  and Mali. During this period, the Russian Federation 
vehicles for securing access to foreign supplies.  and other CIS members also became important 
Indeed, some of the world’s largest TNCs are active 
destinations for FDI in extractive industries. 
in extractive industries, and a number of new ones 
The importance of extractive industries in 
have emerged in resource extraction in the past  inward FDI varies by host economy. In all the major 
decade, not least from developing and transition  country groups, the extractive industries of some 
economies. The overseas expansion of TNCs from  countries account for a significant share of the total 
the South is reflected in FDI data. Between 2000 and 
inward FDI stock: for example, Australia, Canada 

xxii
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
and Norway among developed countries; Botswana, 
were BHP Billiton (Australia), Rio Tinto (United 
Nigeria and South Africa in Africa; Bolivia, Chile, 
Kingdom) and CVRD (Brazil). Three State-owned 
Ecuador and Venezuela in Latin America and the  companies also featured on the list: Codelco (Chile), 
Caribbean; and Kazakhstan in South-East Europe  Alrosa (Russian Federation) and KGHM Polska 
and the CIS. In a number of low-income, mineral-
Miedz (Poland). Following CVRD’s acquisition 
rich countries, extractive industries account for the 
of Inco (Canada), it was estimated to have become 
bulk of inward FDI; many have few other industries 
the largest metallic mineral producer in the world 
that can attract significant FDI, due to their small  in 2006 – the first time that a Latin America-
domestic markets and weak production capabilities. 
based company will have occupied that position. 
The relative importance of foreign companies 
The level of internationalization of these leading 
in the production of metallic minerals and diamonds 
companies varies greatly. In 2005, Rio Tinto had 
varies considerably by country. Foreign affiliates  mining operations in the largest number (10) of host 
account for virtually all of the (non-artisanal)  countries, followed by Anglo American, AngloGold 
production in LDCs such as Guinea, Mali, the  Ashanti and Glencore International. In contrast, 
United Republic of Tanzania and Zambia, as well as 
large producers like Codelco, CVRD and Debswana 
in Argentina, Botswana, Gabon, Ghana, Mongolia,  (Botswana) had no overseas mining production.
Namibia and Papua New Guinea. In these countries, 
In oil and gas, private companies remain the 
TNCs generally operate through concessions granted 
largest corporations in terms of foreign assets. For 
in the form of exploration and mining licences. In  example, 10 of them were included among the firms 
another 10 major metal-producing countries, foreign 
on UNCTAD’s list of the world’s top 100 TNCs 
affiliates account for an estimated 50% to 86% of  (by foreign assets) in 2005. In terms of production, 
production. By contrast, in the Islamic Republic of 
however, TNCs from developed countries no 
Iran, Poland and the Russian Federation their share 
longer rank among the largest companies in the 
is negligible.
world. In 2005, the world’s three largest oil and gas 
In  oil and gas, foreign affiliates generally  producers were all State-owned enterprises based in 
account for a lower share of production than in  developing or transition economies: Saudi Aramco 
metal mining. In 2005, they were responsible for  (Saudi Arabia), Gazprom (Russian Federation) and 
an estimated 22% of global oil and gas production, 
the National Iranian Oil Company. Saudi Aramco’s 
with the average share being higher in developed  annual production in 2005 was more than double that 
countries (36%) than in developing countries (19%) 
of the largest privately owned oil and gas producer, 
and transition economies (11%). However, there was 
ExxonMobil (United States). More than half of the 
wide variation among developing countries. In West 
top 50 producers were majority State-owned, 23 had 
Asia, foreign affiliates’ output amounted to an average 
their headquarters in developing countries, 12 in 
of only 3% of production, whereas the corresponding 
South-East Europe and the CIS, and the remaining 
share in sub-Saharan Africa was 57% on average.  15 in developed countries.
Foreign companies accounted for more than half of 
Although State-owned companies based in 
production in Angola, Argentina, Equatorial Guinea, 
developing and transition economies control most 
Indonesia, Sudan and the United Kingdom. On the 
of the global production of oil and gas, their degree 
other hand, no production was attributed to foreign 
of internationalization is still modest compared with 
affiliates in, for instance, Kuwait, Mexico and Saudi 
that of the top privately owned oil TNCs. Indeed, 
Arabia. 
none of the top three State-owned producers had 
significant foreign production in 2005, whereas 
… reflecting a diverse and changing 
foreign locations accounted for 70% of the production 
universe of extractive-industry TNCs, 
of the top three privately owned oil majors. However, 
with the dominance of privately 
some companies from developing and transition 
owned firms in metal mining and of 
economies are expanding their overseas interests, 
State-owned enterprises in oil and 
and are fast becoming global players. The combined 
overseas production of CNOOC, CNPC, Sinopec (all 
gas.
China), Lukoil (Russian Federation), ONGC (India), 
The relative importance of TNCs in the  Petrobras (Brazil) and Petronas (Malaysia) exceeded 
production of metallic minerals and of oil and gas  528 million barrels of oil equivalent in 2005, up 
varies considerably. In metal  mining, 15 of the 25  from only 22 million barrels 10 years earlier. China’s 
leading companies in 2005, ranked by their share in 
CNPC, Sinopec and CNOOC, and India’s Indian 
the value of world production, were headquartered  Oil Corporation and ONGC Videsh have invested 
in developed countries. Eight others were from  large sums in oil and gas production deals around 
developing countries and the two remaining  the world during the past two years. Both CNPC and 
were from the Russian Federation. The top three  Petronas are involved in oil and gas production in 

OVERVIEW
xxiii
more than 10 foreign countries. A few State-owned 
Access to financial resources is an advantage 
oil TNCs from emerging economies have invested in 
over domestic firms in host countries, enjoyed by both 
host countries that developed-country TNCs are less 
traditional and new TNCs. International experience 
likely to operate in, for a variety of reasons, including 
with extractive projects may increase the ability of 
sanctions. 
TNCs to borrow or raise funds through stock markets. 
In metal mining, the top 10 companies account 
Financial strength can also be linked to home-country 
for a growing share of global production. Following 
institutional arrangements. State-owned TNCs from 
a series of cross-border M&As, the 10 largest metal 
some emerging economies benefit from financial 
mining companies in 2006 controlled an estimated  backing by their governments, which may enable 
33% of the total value of all non-energy minerals  them to assume greater risks when investing abroad 
produced globally, compared with 26% in 1995.  and to pay more for access to mineral resources.
Concentration levels are even higher for individual 
With some important exceptions, proprietary 
metals. In the case of copper, for example, the top 10 
technology is of relatively limited importance 
companies accounted for 58% of world production  as an ownership-specific advantage for the 
in 2005. Conversely, in the oil and gas industry, the 
internationalization of most extractive-industry 
level of concentration has remained fairly stable over 
firms. Technologies used in most metal mining 
the past decade, with the top 10 producers accounting 
operations and oil and gas extraction are well known 
for about 41% of world production. 
today, and can be obtained in the open market. 
Important exceptions include technologically 
Varying motives drive the overseas 
challenging projects, such as those related to deep 
expansion of different TNCs. 
offshore drilling, and production of liquefied natural 
gas and development of unconventional energy 
The drivers and determinants of investments 
sources. However, expertise in managing long-term 
by extractive-industry TNCs differ between activities, 
projects and the associated risks remains critical for 
industries and companies. Natural-resource-
successful overseas expansion. Access to markets 
seeking motives dominate FDI and other forms of  and to transportation and distribution channels are 
TNC involvement in upstream (exploration and  other potentially important firm-specific advantages, 
extraction) activities. A TNC might seek resources  at least in the case of oil and gas.
to meet its own needs for its downstream refining or 
manufacturing activities, to sell the minerals directly 
TNC participation in extractive 
in host, home or international markets, or to secure 
industries can have significant 
the strategic requirements of its home country (as  impacts on host economies…
formulated by the country’s government) for energy 
or other minerals. The latter has been a major driver 
Mineral endowments provide opportunities 
of the recent overseas expansion of State-owned  for economic development and poverty alleviation in 
TNCs from Asia, for instance. 
the countries where they are located. Indeed, some 
Market-seeking motives figure mainly among 
of today’s developed countries as well as a number 
the drivers of overseas downstream activities. For  of developing countries have successfully leveraged 
example, Russian TNCs in extractive industries have 
their mineral resources for accelerating their 
invested abroad to enhance control over distribution 
development process. In other cases, however, the 
channels linked to those activities, and Saudi and  impact of extractive activities has been and remains 
Kuwaiti State-owned oil companies have partnered 
disappointing.
with the Chinese firm Sinopec in two separate refining 
For many mineral-exporting countries, the 
and petrochemical ventures in China. Efficiency-
current commodity price boom has led to improved 
seeking motives apply mainly to investments in  terms of trade. This applies in particular to many 
the processing or early metal manufacturing stage,  low-income countries, where revenues from mineral 
where TNCs seek to exploit differences in costs of 
exploitation and exports represent a large share 
production between countries. Strategic asset-seeking
of their national income. But natural resource 
motives can be linked especially to the rise of cross-
endowments do not translate automatically into 
border M&As in various extractive industries and  development gains for a country, with or without 
activities: companies may invest to acquire strategic 
TNC involvement in the extraction process. There 
assets in the form of know-how and technology from 
are many underlying determinants of the performance 
other companies or from specialized technology  of resource-rich countries that are related to the 
providers, or to speed up their rise to global status by 
global forces of demand and supply and to policy 
accessing the resources, capabilities and markets of 
failures rather than to TNC participation per se. 
the acquired firms. 
Nevertheless, TNCs can influence the outcome. 

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
They may complement domestic investment and  extraction generally offers limited employment 
boost production by contributing capital, technology 
opportunities, and hence has little impact on 
and management skills. Such a package of assets is 
employment, at least at the macro level. This 
generally needed the most in low-income countries 
applies especially to projects involving TNCs, as 
that lack domestic capabilities. On the other hand,  these companies tend to use more capital-intensive 
reliance on TNCs may also raise concerns associated 
technologies and processes than domestic enterprises. 
with unequal bargaining strengths, ownership and  The scope for backward linkages is generally 
control over non-renewable resources, rent-sharing, 
relatively small in extractive industries. In addition, 
transfer pricing practices and various environmental 
foreign affiliates are more likely to use foreign 
and social costs.
suppliers of various inputs. In low-income countries, 
Thus TNC involvement in extractive industries 
a lack of qualified suppliers and skills shortages can 
may have both positive and negative economic,  also reduce the scope for local sourcing as well as 
environmental, social and political impacts on a  downstream processing. Thus the potentially most 
host country. Considerable efforts to address these  important direct contribution from mineral extraction 
issues are necessary for harnessing the earnings from 
is the rise in host-country income, much of which 
extractive industries to boost development. 
takes the form of government revenue. 
The amount of net revenue and income 
… including various economic 
generated for the host country from TNC operations 
impacts …
in extractive industries depends both on the extent of 
the overall value created by their participation, and 
The economic challenge for a host country  how that value is shared between the TNC on the one 
is threefold: how to add value through extractive  hand, and host-country factors of production and the 
activities, how to capture that value locally, and how 
government on the other. In general, the better the 
to make the best use of the revenues generated. 
capabilities and competitive strengths of a country’s 
In terms of adding value, the benefits of TNC 
domestic enterprises, the more choice that country 
involvement vary by country. Developing countries 
has for project financing and implementation. In 
that possess sufficient financial resources, engineering 
countries with limited domestic capabilities, relying 
expertise and technically competent State-owned oil 
on TNCs may well be the only viable option to 
companies have successfully developed their own  transform dormant resources into commercial 
capabilities to exploit their natural resources. West  products. 
Asia is a typical example, where much of the oil and 
The sharing of revenue from a project partly 
gas extraction is undertaken with known technology 
reflects the relative bargaining power of host 
and little participation by foreign companies. In  governments vis-à-vis transnational firms, which 
many other countries that lack the finance and  influences the terms and conditions they can impose 
ability to manage capital-intensive, high-risk and  for the participation of the latter. The sharing of 
sometimes technologically challenging projects,  revenue is also influenced by TNC conduct, including 
TNC participation has helped boost their output and 
their accounting practices, financial behaviour, the 
exports of minerals.
possible use of transfer pricing and the repatriation of 
While there are alternatives to TNCs for  a certain proportion of their profits. Various studies 
accessing funds, such sources may not be available 
of fiscal regimes suggest that the government’s take 
to domestic enterprises in all countries. An advantage 
in revenues generated from oil and gas activities over 
of involving TNCs in the financing of a mining  the lifetime of a project vary between 25% and 90%, 
project is that it does not generate foreign debt for 
and in metal mining between 25% and 60%. However, 
host-country governments, and such financing comes 
empirical information on TNCs’ tax payments on a 
with a bundle of other assets, such as technology and 
country-specific basis is scarce, making enhanced 
managerial expertise. For some extraction projects, 
transparency important.
access to technology and management know-how 
There can also be various potential indirect 
can indeed be a reason for countries to rely on TNCs. 
economic impacts from TNC involvement. First, the 
But TNC involvement comes at a price. TNCs may 
entry of TNCs can constitute an important channel 
claim a significant share of the revenue generated  for knowledge and technology transfer to developing 
and repatriate a certain proportion of their profits,  countries. However, the lack of educated and skilled 
thereby affecting the sharing of the value created.
human resources and of absorptive capacity in general 
TNC involvement also affects the second  can limit the positive effects on low-income countries 
part of the economic challenge: capturing the value 
of such knowledge transfers. Another potential 
locally in the form of employment and wages, local 
indirect economic effect is linked to investments in 
procurement, and government revenue in the form  infrastructure. TNC activities in extractive industries 
of taxes, royalties or dividends. Large-scale mineral 
are often associated with the development of public 

OVERVIEW
xxv
utilities (such as electricity and water supplies) and 
undoubtedly still occur, their environmental practices 
with the building of the transportation infrastructure 
have generally improved over the past decade or so, 
(roads, railways and ports) needed for extracting,  although these vary by company. For example, TNCs 
transporting and exporting the minerals and fuels.  originating from home countries where environmental 
If the new infrastructure is developed in populated  legislation is at a nascent stage may be relatively 
areas, it is likely to provide greater benefits than if 
less well equipped to manage the environmental 
developed in more remote areas of a country.
consequences of their overseas projects than those 
The third part of the economic challenge is  from countries with more advanced environmental 
not directly linked to TNCs. Ultimately, the overall 
legislation and standards.
development impact of the revenue generated is 
More than in other industries, investment in 
determined by the way in which the revenues generated 
extractive activities can also have far-reaching social 
for the host country are managed, distributed and  and political consequences; the outcome depends 
used by the government, and to what extent they  largely on the specific host-country situation. 
support the development objectives and needs of  Negative social and political impacts have been 
both current and future generations. By enabling or 
observed mainly in mineral-rich poor countries with 
boosting production, TNCs may influence the overall 
weak institutions. Problems are often associated with 
economic performance of a host country in terms  particular minerals, poor governance frameworks, 
of its macroeconomic stability, growth and income  and weak institutional capacities of host governments 
distribution. Whereas most of these impacts relate to 
to formulate and implement laws and regulations.
extractive activities in general, the income generated 
Among various social concerns, health and 
through TNC involvement can help overcome initial 
safety in the extractive industries have consistently 
hindrances to economic growth (such as low levels 
posed a challenge, particularly in artisanal mining in 
of savings and investment) and give it a big push. At 
developing countries. However, problems also exist 
the same time, a booming extractive industry, with or 
in some projects operated by major TNCs. Other 
without TNC participation, can also have distorting 
concerns may arise from the relationship between 
effects, commonly referred to as the “Dutch disease”, 
TNCs and local communities, the influx of migrants 
especially if windfall gains are not managed carefully 
to work in TNC-operated projects and related issues. 
and in accordance with long-term development  Political problems may stem from disputes over the 
strategies. Thus, even if TNC participation contributes 
distribution of the resource revenues, corruption, and 
to economic growth, for it to generate substantial  even armed conflict or war among different groups 
development gains the benefits obtained need to be 
seeking to benefit from the revenues generated. 
wisely used and equitably distributed.
TNC participation can introduce higher standards 
in dealing with various social issues, but it can also 
… as well as considerable 
add to problems. By their mere presence, they may 
environmental, social and political 
– directly, indirectly, or unwittingly – support or 
impacts.
strengthen the existing order. When mineral deposits 
are known to exist in weakly governed or authoritarian 
Extractive activities, regardless of who  States, companies need to consider carefully whether 
undertakes them, involve environmental costs.  or not to operate in those locations. 
TNCs can play both a negative and a positive role 
in this context. On the one hand, they may add to  Governance systems are important 
environmental degradation in a host country simply 
for maximizing development gains 
by participating in resource extraction where there  from resource extraction…
would otherwise be none. On the other hand, they 
may reduce adverse environmental consequences 
The quality of government policies and 
by using more advanced technologies in production, 
institutions is a determining factor for ensuring 
and by applying and diffusing higher standards  sustainable development gains from resource 
of environmental management than domestic  extraction, with or without TNC involvement. The 
companies, where the latter – including artisanal  management of a mineral-based economy is complex, 
and small-scale mining – exist. However, the  and requires a well-developed governance system and 
net environmental impact of TNC activities is  well-considered national development objectives. In 
determined to a significant extent by a host-country’s 
some mineral-rich developing countries, however, 
environmental regulations and its institutional  government policy-making may be aimed at short-
capacity to implement them. In recent years, there  term gains rather than long-term development 
has been growing environmental awareness among  objectives. Furthermore, the distribution and use 
large, established TNCs in both metal mining and oil 
of a host country’s share of mineral revenues may 
and gas extraction. While accidents and bad practices 
be determined with little attention to development 

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
considerations. In some cases, easy access to revenues 
of June 2007, PSAs were the most commonly used 
from mineral resources can make governments less 
form, accounting for more than 50% of all contracts 
accountable to their populations, and more inclined 
with foreign TNC participation in the main oil- and 
to preserve and extend the interests of a small  gas-producing developing economies. They were the 
governing elite.
main contractual form in countries such as China, 
These factors underline the importance of  Equatorial Guinea, Indonesia, Iraq, the Libyan Arab 
developing a legal system based on the rule of law, 
Jamahiriya, Qatar, Sudan and Viet Nam. Concessions 
as well as an institutional environment in which  and joint ventures are the next most commonly used 
companies have incentives to invest in productive  contractual forms, and the dominant ones in Algeria, 
activities. The quality of the physical infrastructure, 
Angola, Brazil, Kazakhstan, the Russian Federation 
education and health care also influences investment 
and Venezuela. Service contracts are less common but 
decisions. Moreover, proactive policies aimed at using 
are important, for example, in the Islamic Republic 
government revenues from extractive industries to  of Iran and Kuwait.
achieve development goals are essential for ensuring 
The effect of a given contract depends on how 
social cohesion; indeed, large increases in revenues 
its contents have been negotiated between the host 
can cause social disruptions and political instability 
State and the investor. Royalty and taxation rates are 
if they are not channelled and managed carefully.  often contractually determined, as are issues related 
Beyond the overall framework, appropriate sectoral 
to local content, training, host-government control 
institutions and policies are needed, including a legal 
over key decisions and the extent of participation 
and administrative framework for the exploration  of a State-owned corporation, where applicable. 
and exploitation of minerals, for health and safety,  More recently, contracts have also started to include 
and for the protection of the environment and the  provisions relating to human rights and environmental 
rights of local communities. 
issues. 
In this policy-making process, all relevant 
In metal mining, companies obtain concessions 
stakeholders – governments, civil society, affected  in the form of licences, which give them the right 
communities, indigenous peoples’ organizations,  to explore for and produce minerals. The conditions 
labour unions, industry and international organizations 
for investment are typically set out in a mining code 
– must be given a chance to participate in order to 
or a mining agreement. Such codes have evolved 
avoid inequitable outcomes. Allocating an acceptable 
over time, reflecting changing market conditions 
share of the revenues to provincial and other lower 
and political priorities. Common features of current 
levels of government can be a way to mitigate social 
mining laws include increased security of tenure, 
conflicts in the local areas most directly affected  open access to historical exploration reports, more 
by extractive activities. However, this also requires 
streamlined and transparent exploration application 
adequate governance systems and capabilities at the 
procedures, geographically defined exploration 
local-government level.
areas, provision for dispute resolution and methods 
for resolving conflict over land use. A number of 
… as are the regulations and 
countries also stipulate conditions related to the 
contractual forms relating to TNC 
employment of domestic and foreign employees in 
entry and operations.
the metal mining industry. 
In both the oil and gas and the metal mining 
The way foreign involvement in extractive  industries, the evolving arrangements reflect an 
industries is governed has changed over time and  ongoing process through which governments 
still varies considerably by country. Approaches  seek to find an appropriate balance between the 
range from total prohibition of foreign investment in 
respective rights and obligations of States and 
resource extraction (as in the case of oil in Mexico and 
firms. As government revenue is among the most 
Saudi Arabia) to almost complete reliance on TNCs 
important benefits from mineral extraction, it is not 
(as in the case of metal mining in Ghana and Mali, or 
surprising that policymakers devote much attention 
oil and gas extraction in Argentina and Peru). Various 
to finding a mechanism that assures the government 
national laws, regulations and contracts govern TNC 
an appropriate share in the profits from mineral 
involvement. In addition, many countries have  extraction. As the result of higher mineral prices in the 
entered into international investment agreements  past few years, a number of governments have taken 
(IIAs) of relevance to the operations and impacts of 
steps to increase their share of the profits generated 
extractive-industry TNCs. 
by amending their fiscal regimes or their contractual 
In the oil and gas industry, TNCs operate under 
relations. Recent regulatory changes in developed, 
contractual arrangements of various kinds, such  developing as well as transition economies suggest 
as concessions, joint ventures, production-sharing  that many governments believed their previous 
agreements (PSAs) and service contracts. Overall, as 

OVERVIEW
xxvii
regulations may have been overly generous vis-à-vis 
A clear strategy at both central and subnational 
foreign investors. 
levels of government indicating how to manage and 
Compared with earlier waves of government 
use the revenue generated from mineral extraction is 
policy changes and nationalizations, an added  essential. 
dimension this time is the wider use of IIAs 
Policymakers need to consider from the 
among countries. While such treaties subject these  outset how to derive long-term and sustainable 
governmental actions to certain international law  development gains from the extractive activities 
principles, they cannot ultimately prevent a State  of TNCs. It is crucial that the revenue generated 
from putting an end to a contractual relationship  from mineral extraction be invested in activities to 
under existing terms. However, IIAs may grant  enhance productive capacities, including human-
foreign investors the right to claim compensation  resource and technology development, with a view 
through international arbitration in case of a dispute. 
to strengthening domestic private sector capabilities. 
Protection under IIAs therefore mainly becomes  They should also promote backward and forward 
relevant in the context of an exit strategy of a foreign 
linkages within the extractive industries and with 
investor. The scope of protection granted by such an 
related industries.
agreement depends on how the treaty is formulated 
In designing and implementing policies, 
and its interpretations by arbitration tribunals.  governments need to bear in mind the cost-benefit 
Moreover, the outcome of the government policy  relationship, and the fact that mineral markets are 
changes depends partly on the bargaining power  volatile. If a country seeks TNC participation in its 
of the parties. For those host countries that posses  extractive industries, its business environment should 
proven and high-value mineral and petroleum  be competitive to attract the desired investments 
deposits, unilateral actions may be a viable approach 
and skills. To reduce the need for unilateral actions 
to capturing a larger share of the benefits from an  by governments, countries may need to develop 
extractive industry. However, other countries may be 
frameworks that are robust over the different phases 
in a weaker position to take such actions. 
of the business cycle, for example by introducing 
progressive taxation systems for the fiscal treatment 
Ensuring greater and more equitable 
of revenues from extractive industries. 
development gains requires shared 
Host-country governments should also 
responsibility among stakeholders, 
consider the environmental and social consequences 
including host and home 
of extraction activities. There have been some 
governments….
encouraging developments in this area in recent years. 
An increasing number of countries are introducing 
In order to derive maximum economic gains 
environmental legislation, often with specific 
from TNC involvement while keeping potential  regulations for extractive industries. However, many 
environmental and social costs to a minimum,  countries still need to develop the capabilities to 
concerted action by all relevant stakeholders is  implement and enforce their environmental laws. The 
required, based on a consensus around coherent  protection of the interests and rights of the people 
policies. A number of recommendations to host-
that might be affected by resource extraction is first 
country governments, home-country governments,  and foremost a government obligation. Nonetheless, 
the international community, civil society and TNCs 
it is important for the various relevant stakeholders 
emerge from the analysis in WIR07.
in a host country to be given the opportunity to 
Host-country governments bear the main  influence the decision-making process so as to 
responsibility for ensuring that the exploitation of  ensure equitable outcomes. An important factor in 
their extractive industries yields benefits that support 
this context is the need to enhance transparency. In 
development objectives. Each government should  several countries, information about revenue is still 
formulate a clear vision as to how the country’s oil 
treated as confidential, and foreign investors may 
and mineral resources can contribute to sustainable 
be required to sign confidentiality or non-disclosure 
development. In that respect, an overall development 
agreements. 
strategy, developed within a governance framework 
Home-country governments can influence 
based on the rule of law, is essential for coherent  the potential impact of their TNCs’ investments on 
policy formulation and implementation. It should  host countries. A number of developed and now 
consider all relevant stakeholders – both current  also developing countries actively support their 
and future generations. Governments also need to  firms’ overseas expansion, sometimes with a view to 
strengthen their ability and capacity to design and  securing access to strategically important resources. 
implement appropriate policies. Well-informed  They should promote responsible behaviour on the 
governments are in a better position not only to design 
part of these TNCs. This is equally important if 
an appropriate regulatory framework, but also to  the home State is also the owner of the company. 
enter into negotiations with TNCs, where necessary. 

xxviii
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
More home countries can become involved in  expertise on economic and environmental as well as 
existing international initiatives related to the  human rights issues; and they can play an important 
extractive industries, such as the Extractive Industry 
role in monitoring the actions both of governments 
Transparency Initiative, the World Mines Ministers 
and companies, drawing attention to any abuse or 
Forum and the Intergovernmental Forum on Mining, 
inappropriate actions. However, it is important for 
Minerals, Metals and Sustainable Development.  more countries and TNCs in extractive industries to 
They may also provide the recipient economies with 
become involved in these initiatives. 
financial and technical assistance for effective policy 
When engaging in resource extraction, the role 
formulation and for building efficient governance  of TNCs should be, first and foremost, to contribute to 
systems. 
efficient production while, as a minimum, respecting 
the laws of the host country. When mineral deposits 
…the international community, civil 
are located in weakly governed or authoritarian States, 
society and the TNCs.
foreign companies need to consider the implications 
of investing there or not. While there are no easy 
The  international community can also help  choices in this respect, a number of new tools – such 
promote greater development gains from resource  as those for compliance assessment developed by 
extraction. International organizations can facilitate 
the Danish Institute for Human Rights and for risk 
learning opportunities from studying and comparing 
and impact assessments and screening produced by 
the positive and negative experiences of different  International Alert – can provide guidance. However, 
mineral-rich countries. Initiatives at the regional  even among the largest enterprises, the number of 
level might be useful. For example, it is worth  extractive TNCs that have signed up to relevant 
exploring the scope for regional geological surveys 
international initiatives is still small. A review of 
and for establishing regional mining schools in  the top mining and oil and gas TNCs shows that 
Africa. In addition, the international community can 
very few of them are explicitly committed to these 
be instrumental in the development of standards and 
initiatives, particularly companies from developing 
guidelines and in promoting the use and adoption of 
and transition economies. Until more companies 
existing tools to help ensure a more development-
participate in them and abide by their commitments, 
friendly outcome of TNC activities in mineral-rich  their impact will be limited. 
countries, notably in weakly governed or authoritarian 
States. In very serious instances, the international 
A concerted effort by all stakeholders is 
community may have to explore sanctions as a tool 
necessary to ensure that the vast mineral resources 
for protecting human rights.
located in some of the world’s poorest countries 
become a force for development. In low-income, 
Voluntary initiatives can also be a useful  mineral-rich countries, TNCs are likely to play an 
supplement in countries where appropriate legislation 
active role in the mineral extraction. The challenge 
or its enforcement is absent. A number of multi-
is therefore to develop frameworks that create the 
stakeholder initiatives have been established with the 
proper incentives for local and foreign firms to 
aim of reducing the risk of conflict-related resource 
produce efficiently while at the same time respecting 
extraction and setting standards for corporate behaviour 
environmental and social requirements that reflect the 
in conflict situations. The most notable ones include 
interests of local communities and society at large. 
the Extractive Industries Transparency Initiative,  A win-win situation can result if various minerals 
the Kimberley Process Certification Scheme, the  are produced efficiently and if host countries, with 
Voluntary Principles on Security and Human Rights 
the support of various other stakeholders, can make 
and the Global Reporting Initiative. Civil society has 
the revenues generated work more effectively for 
played an active role in promoting these initiatives. 
sustainable development and poverty alleviation.
International as well as local NGOs can contribute 
Supachai Panitchpakdi
Geneva, August 2007   
Secretary-General of the UNCTAD

PART ONE
WIDESPREAD GROWTH IN FDI


































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































CHAPTER I
GLOBAL TRENDS:  SUSTAINED 
GROWTH IN FDI FLOWS
The upward trend  in foreign  direct  the world’s top transnational corporations 
investment  (FDI)  that  began  in 2004  (TNCs). Section D concludes with  a
accelerated  further in 2006. FDI flows
review of future prospects for FDI, based 
increased in all the major country groups –  on UNCTAD surveys of TNCs and  their 
developed countries,  developing countries  foreign affiliates.
and the transition economies of South-
East Europe and  the Commonwealth  of 
A. FDI and international 
Independent States (CIS) – but at varying
rates. The sustained growth of FDI and 
production
related  international production primarily 
reflect the strong economic performance
and increasing profits of many countries 
1.  Trends in FDI 
2007
in the world, further liberalization of their 
policies, and other specific factors such
as currency movements, stock exchange  a.   Overall trends
and  financial market  developments and 
high commodity prices. Increases in cross-
Global FDI inflows grew in 2006 
border mergers and acquisitions (M&As),
for the third consecutive year to reach 
fuelled substantially  by private equity  $1,306 billion, the second highest level
funds, also added to FDI growth. 
ever recorded. All  three major country
groups – developed countries, developing 
This chapter first examines recent  countries and the transition  economies 
trends  in  global FDI flows, changes  in  of South-East Europe and  the CIS – saw
international  production, the comparative  continued growth.
position of countries in terms of 
transnationalization and 
inward FDI
FDI inflows in 2006 were 38%
performance and  potential, and recent  higher than in 2005, approaching the peak 
developments in FDI policies (section A).  of $1,411 billion reached in 2000 (figure
The changing  geographic and  industrial
I.1). Although FDI flows to all three major 
patterns of FDI are described  in section
country  groups rose, they varied  greatly 
B, while section C presents an analysis of  among regions and countries  (chapter II). 
Figure I.1. FDI inflows, global and by group of economies, 1980-2006
(Billions of dollars)
Source: UNCTAD, based on annex table B.1 and FDI/TNC database (www.unctad.org/fdi statistics).

4
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
FDI flows to developed countries in 2006 rose by 
and major economies. FDI inflows to Oceania 
45%, well over the growth rates of the previous two 
remained small, at less than $400 million.
years, to reach $857 billion (figure I.1 and annex  • In West Asia, FDI flows – both inward and 
table B.1). The United States regained its position 
outward – maintained their upward trend in 2006. 
as the world’s leading FDI recipient, overtaking 
Turkey and the oil-rich Gulf States continued 
the United Kingdom, which had led in 2005. The 
to attract the most FDI inflows, achieving 
European Union (EU) remained the largest host 
record levels in 2006 in spite of geopolitical 
region, with 41% of total FDI inflows. FDI inflows 
uncertainty in parts of the region. Energy-
to developing countries and economies in transition 
related manufacturing and services were the 
rose by 21% and 68%, respectively, to new record 
most targeted activities. Countries with large 
levels for them (annex table B.1). Developing 
financial resources, led by Kuwait, accounted 
Asia retained its strong attraction for investors, 
for most of the rise in outward FDI from the 
accounting for more than two thirds of the total 
region. Cross-border M&As continued to be 
inflows to all developing countries in 2006.
the main mode of outward FDI, particularly by 
• In  Africa, FDI inflows exceeded their previous 
State-owned enterprises. The region’s closer ties 
record set in 2005. High prices and buoyant 
with economies in other parts of Asia and Africa 
global demand for commodities were again key 
support its energy-related FDI.
factors. The oil industry attracted investment  • FDI inflows to the 19 countries of South-East 
from TNCs based in both developed and 
Europe and the CIS expanded significantly in 
developing countries (chapter IV). Cross-border 
2006, for the sixth consecutive year, and they 
M&As in the extractive industries rose fivefold 
more than doubled in the region’s largest host 
to $4.8 billion. As in previous years, most of the 
country, the Russian Federation (annex table 
inflows were concentrated in West, North and 
B.1).
Central Africa. However, inflows remained small 
The continued rise in FDI flows across 
in low-income economies with few endowments  regions largely reflects strong economic growth 
of natural resources.
and performance in many parts of the world.1 High 
• Inflows to Latin America and the Caribbean  corporate profits (and stock prices) boosted the 
increased on average by 11% in 2006. However,  value of cross-border M&As, which account for a 
if the offshore financial centres are excluded, they  large share of such flows. The number of greenfield 
remained almost unchanged over the previous  and expansion investment projects increased by 13% 
year. Mexico was the largest recipient followed  to 11,800 projects, notably in developing countries 
by Brazil. While inflows to Mexico were similar  (annex tables A.I.1) and in the services sector (annex 
to 2005, those to Brazil rose by 25%. In the  table A.I.2). In 2006, FDI inflows accounted for 
Andean group of countries, the commodity price  half of all net capital flows to developing countries 
boom induced a more restrictive regulatory  (World Bank, 2007a: 37).2  Thus, as in more 
environment governing TNC participation recent years, FDI flows continued to be the most 
in the extractive industries (Part Two). The  important and stable source of external financing 
possibility of additional regulatory changes and  for developing countries (chapter II). Mobilizing 
of their spread to more countries may have raised  international resources for development, including 
uncertainty among investors in the primary sector, 
FDI, was set out as one of the objectives in the 
resulting in lower FDI flows to some countries in  Monterrey Consensus.3
the region. In addition, high commodity prices 
Global FDI flows also rose as a result of 
and resulting improvements in current-account  a weakening dollar in 2006. The United States 
balances led to an appreciation of the currencies  attracted large inflows from both the euro area and 
of some mineral-rich countries in the region,  Japan. Overall, however, the amounts in 2006 (as 
potentially harming the prospects for FDI in other  well as 2005) were not much higher than those of 
export-oriented activities.
the 1990s. The sharp appreciation of the euro in 
• FDI inflows to South, East and South-East Asia,  recent years has not led to as strong an increase in 
and Oceania maintained their upward trend,  FDI outflows from the euro area into the United 
reaching a new high in 2006 of $200 billion, an  States and Japan, possibly suggesting that TNCs 
increase of 19% over the previous year. At the  from the countries in the euro area are reacting 
subregional level, the shift in favour of South and  less to exchange rate changes than in the past. This 
South-East Asia continued. China, Hong Kong  is probably because they have already reached a 
(China) and Singapore retained their positions as  relatively high degree of internationalization (section 
the three largest recipients of FDI in the region.  C), which makes their profits less vulnerable to 
Outward FDI from the region surged, driven by  exchange rate changes vis-à-vis particular host 
the rapid rise in FDI from all the Asian subregions 
countries.  Moreover, TNC strategies are now 

CHAPTER I
5
influenced by other secular developments. For  reached a peak. They accounted for 30% of world 
example, the creation of the euro area has promoted  FDI inflows and for almost half of total inflows to 
greater regional integration and concentration of  developing countries (figure I.2).
economic activity within the EU and led to increased 
intra-EU FDI flows to the common currency area as  b.  Continued rise in cross-border 
well as to the United Kingdom and the EU accession 
M&As
countries (chapter II, section C). 
Increased corporate profits (and consequently 
Cross-border M&As increased by 23% to 
higher stock values), also partly explain rising  $880 billion in 2006, and the number of transactions 
global FDI flows. They have boosted the value of  increased by 14% to 6,974 (figure I.3 and annex 
cross-border M&As, which, as mentioned, account  tables B.4-B.5), reflecting strong global M&A 
for a large share of FDI flows, and contributed to  activity in general. Their value, however, still 
higher reinvested earnings. For example, the profits-
remained below the peak attained in 2000 (figure 
to-sales ratio of the United States’ top 500 firms  I.3). The rise in the value of cross-border M&As 
in 20064 was the highest for the past two decades,  was largely fuelled by the growing strength of the 
and profits of Japanese firms have continued to  stock markets,7 and sustained increases in the asset 
rise, setting new records every year since 2003.5
values of enterprises.8 In 2006, increases in stock 
Similarly, profits of EU companies have surged: in  values in emerging markets also played a role: for 
the United Kingdom, for example, the net rate of  example, for the first time ever, the combined value 
return of private non-financial corporations in 2006  of 13 stock markets in developing Asian economies 
rose to an all-time high (United Kingdom, National  exceeded that of the Tokyo Stock Exchange, now 
Statistics Office, 2007). Profits earned abroad or by  the second largest in the world. 
foreign affiliates were also high. Income on FDI 
The higher stock prices, increased purchasing 
(i.e. repatriated profits and reinvested earnings as  power of investors, and the desire of firms to capture 
recorded in host countries’ balance of payments)  a growing market share in global competition led to 
rose another 29% in 2006, following a 16% rise in  a further increase in the number of mega deals (i.e. 
2005.6 In the 93 countries for which data on all three  cross-border deals worth over $1 billion). In 2006, 
components of FDI – equity investments, reinvested  the number of such deals rose to 172, compared to 
earnings and other capital (essentially intra-company 
141 in 2005 and close to the record of 2000 (table 
loans) – were available, reinvested earnings in 2006  I.1). They accounted for two thirds of the total value 
Figure I.2. Reinvested earnings: value and share in total FDI inflows, 1990-2006
Source: UNCTAD.
Note
Only 48-112 countries that reported all three components of FDI inflows already mentioned in the text are covered. They accounted for 
74% of global FDI flows between 1990 and 2006.

6
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure I.3.  Global cross-border M&As, value and growth rate, 
increased their role as buyers in the global 
1988-2006
M&A market. Investors from the fast 
growing emerging economies of Asia and 
from Eastern Europe – especially China, 
India and the Russian Federation – played 
a prominent role (box I.1). In the oil and 
gas industry, for example, two of the three 
largest companies worldwide (measured 
by market capitalization) – Gazprom 
(Russian Federation) and Petrochina 
(China) – have substantially increased 
their foreign investments through 
M&As. As several corporations located 
in the developing world have grown 
significantly in recent years (section C.2; 
WIR06: 32), they are expected to make 
Source:  UNCTAD, cross-border M&A database.
larger acquisitions in the future. In some 
cases, their home-country governments 
of global cross-border M&As 
also actively support their 
Table I.1. Cross-border M&As valued at 
– a higher share than in 2005, 
over $1 billion, 1987-2006
overseas expansion (WIR06,
but still below that of 2000.9
chapter IV).
Number  Percentage
Value
Percentage 
Year
The current M&A 
of deals
of total
($ billion)
of total
Taking a look at cross-
boom is spread across 
border M&A activity across 
1987
14
1.6
30.0
40.3
regions and sectors. In North  1988
22
1.5
49.6
42.9
industries, significant M&As 
1989
26
1.2
59.5
42.4
America, the value of cross-
were recorded in the consumer 
1990
33
1.3
60.9
40.4
border M&A sales nearly 
goods and service industries 
1991
7
0.2
20.4
25.2
doubled in 2006.10 This is  1992
10
0.4
21.3
26.8
(including financial services) 
mainly because of a number  1993
14
0.5
23.5
28.3
and in energy supply and basic 
1994
24
0.7
50.9
40.1
of mega deals concluded in 
materials. In contrast to the M&A 
1995
36
0.8
80.4
43.1
natural resources in Canada 
boom of the late 1990s and early 
1996
43
0.9
94.0
41.4
where cross-border M&A 1997
64
1.3
129.2
42.4
2000s, which was largely driven 
1998
86
1.5
329.7
62.0
deals rose more than 2.5 times 
by takeovers in the information 
1999
114
1.6
522.0
68.1
in value. Moreover, in 2006, 
and communications technology 
2000
175
2.2
866.2
75.7
the United States regained its  2001
113
1.9
378.1
63.7
industries, there were fewer 
position as the country with  2002
81
1.8
213.9
57.8
takeovers in telecommunications, 
2003
56
1.2
141.1
47.5
the largest cross-border M&A 
media and technology services in 
2004
75
1.5
187.6
49.3
sales in the world. In Europe, 
2006 (section B.2).
2005
141
2.3
454.2
63.4
M&A activity remained high  2006
172
2.5
583.6
66.3
 In 2006, cross-border 
in terms of both sales and  Source:   UNCTAD, cross-border M&A database.
M&As were largely driven by 
purchases. The large number 
favourable financing conditions 
of M&A deals by European companies reflect the  worldwide, reflecting low debt-financing costs 
regained strength of European corporations after  and an abundant supply of credit as a result of 
successful cost-cutting and restructuring efforts.  high corporate profits. Recent cross-border M&A 
The United Kingdom was the main target country  transactions have been carried out primarily through 
for cross-border M&As by strategic investors  cash and debt financing. In the previous M&A 
from continental Europe. Three of the six largest  boom, transactions were to a large extent financed 
cross-border M&As worldwide were acquisitions  by the exchange of shares (table I.2). For example, 
of United Kingdom companies by other EU  in large deals, including many in the mining and oil 
investors (chapter II and annex table A.I.3).11 These  industries, cash is now the standard payment method. 
transactions partly reflect the United Kingdom’s  Emerging economies awash with petrodollars (West 
openness to cross-border M&As. Firms located  Asia) and foreign exchange (e.g. China) have 
in the new member States of the EU continued to  become very active in cash-based cross-border 
remain important targets for cross-border M&As,  acquisitions. The increasing role of debt financing 
but there were fewer mega deals, and the value of  can partly be explained by the fact that the cost of 
those deals fell considerably, from $19 billion in  equity capital remains significantly higher than the 
2005 to $10 billion in 2006.
cost of debt financing. This reflects a corporate 
In 2006, developing countries and economies  strategy of not holding excessive equity capital 
in transition (South-East Europe and CIS) further  and instead using borrowings and internal funds in 

CHAPTER I
7
Box I.1. Selected examples of major acquisitions by companies from developing countries
and economies in transition
A few cross-border M&As by firms from developing and transition economies took place in the past two 
years, reflecting their increasing strength. The following are a few examples:

In China, the largest and most active buyers are in the oil and gas industry. China National Petroleum 
Corporation acquired PetroKazakhstan for $4.1 billion in 2005, and Sinopec bought the Russian-United 
Kingdom joint venture Udmurtneft for $3.5 billion in 2006.a

The main motives for Indian companies to undertake cross-border M&As are to gain access to new 
technologies and competencies, and to build stronger positions in global markets. The acquisition by Mittal 
Steel group (a company of Indian origin headquartered in the Netherlands) of the European steel company 
Arcelor for $32 billion, was the world’s largest cross-border M&A transaction in 2006, and the largest deal 
ever made by a company with origins in a developing country (annex table A.I.3). In the same year, the Indian 
Tata Group acquired the Corus Group (United Kingdom/Netherlands) – also in the steel industry – for $9.5 
billion (though the deal was not recorded in 2006, as the payment was not completed). 

The Russian oil and gas giants (Gazprom, Rosneft and Lukoil) have started to expand abroad. Gazprom has 
made several investments in Germany through M&As in the energy sector in order to reach directly the end-
users of its natural resources.b Gazprom is also planning investments in the oil industry in Algeria, Bolivia and 
the Libyan Arab Jamahiriya. Some other large cross-border M&As by Russian companies included Russian 
Aluminium’s acquisition of part of Glencore International (Switzerland) for $2.5 billion, and CTF Holdings’ 
(Alfa Group) purchase of Turkcell Iletisim Hizmetleri, a telecommunications firm in Turkey for $1.6 billionc
(neither of them was recorded in 2006).

In the past, companies from West Asia, in particular from the Gulf region, were not very active in cross-border 
M&As; instead they preferred portfolio investments in foreign companies. But this has changed in recent 
years. For instance, Saudi Oger acquired Turk Telekom for $6.6 billion in 2005 and Ports Customs Free-Zone 
Thunder FZE United Arab Emirates bought Peninsular & Oriental Steam (United Kingdom) for $6.9 billion in 
2006 (annex table A.I.3).
Source: UNCTAD.
a “Die Käufer des neuen Jahrtausends”, Frankfurter Allgemeine Zeitung, 22 December 2006: 23.
b Gazprom holds stakes in Wingas (49.99%), VNG Verbundnetz (5.26%) and Winthershall Erdgas Handelshaus (50%).
c “Die Käufer des neuen Jahrtausends”, Frankfurter Allgemeine Zeitung, 22 December 2006: 23.
investment to attain  Table I.2.  Cross-border M&As through  c.   FDI by private equity funds
high managerial  exchange of shares, 1987-2006
efficiency (measured, 
Private equity funds14 and other 
Number   Percentage
Value
Percentage 
for example, by the  Year of deals
of total
($ billion)
of total
collective investment funds continued 
return on equity).12
1987
6
  0.7
  1.5
  2.0
to engage in cross-border M&As in 
In financing M&As,  1988
14
  0.9
  1.6
  1.4
2006. These, along with mutual and 
bank loans accounted 
1989
51
  2.3
  11.2
  8.0
hedge funds, have become increasingly 
1990
45
  1.8
  12.6
  8.4
for 36% of total  1991
22
  0.8
  2.3
  2.9
important participants in such transactions 
finance during 
1992
48
  1.8
  3.0
  3.8
(WIR06:16-21). In 2006, collective 
January-September 
1993
75
  2.6
  14.3
  17.3
investment funds were involved in 18% 
1994
71
  2.0
  5.3
  4.2
2006, compared to 
of all cross-border M&As, registering 
1995
96
  2.3
  13.8
  7.4
29% in 2005.13
1996
113
  2.5
  29.8
  13.1
a record value of $158 billion, a value 
The continuing 
1997
112
  2.2
  32.4
  10.6
significantly higher than in previous 
1998
134
  2.4
  140.9
  26.5
strong M&A activity 
years though slightly lower in terms of 
1999
176
  2.5
  277.7
  36.3
can also be partly  2000
271
  3.4
  507.8
  44.4
their share in the total value of all M&As 
explained by the fact  2001
206
  3.4
  140.9
  23.7
(table I.3).15 They accounted for 18% of 
2002
142
  3.2
  39.9
  10.8
that the current M&A 
worldwide M&As (domestic and cross-
2003
123
  2.7
  32.7
  11.0
boom has produced 
border) in 2006, compared to 12% in 
2004
161
  3.1
  62.2
  16.3
more corporate value  2005
149
  2.4
  123.7
  17.3
2005 and 4% in 2000.16 In 2006, private 
2006
171
  2.5
  96.0
  10.9
for the acquiring 
equity funds raised a record amount of 
companies than 
Source:  UNCTAD, cross-border M&A database (www.
$432 billion, compared to $315 billion 
the previous one; 
unctad.org/fdistatistics).
in 2005 (Private Equity Intelligence, 
the value of the Note:  Covers only deals the transaction value of  2007).17
which is known.
companies created by 
The funds benefit from the 
M&As in the previous boom shrunk continuously as  ample liquidity in the global financial markets. In 
these activities progressed  (McKinsey, 2007a).
addition, private equity firms have successfully 

8
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
devised alternative ways of  Table I.3. Cross-border M&As by 
resulting in greater competition 
fundraising. Unlike previous  private equity funds and other 
between buyers, which makes 
practices, these firms, such as 
funds, 1987-2006
it increasingly difficult to 
(Number of deals and value)
Apollo Management (United 
find profitable target firms for 
States), RHJ International (part 
Number of deals
Value
investment. Other factors include 
of Ripplewoods) (United States) 
rising interest rates, the fact that 
Share in 
Share in 
and KKR (United States), listed  Year Number
$ billion
the favourable tax rates offered 
total (%)
total (%)
their firms in stock markets in  1987
43
5.0
4.6
6.1
to private equity firms are being 
Europe in 2004, 2005 and 2006  1988
59
4.0
5.2
4.5
examined by authorities in some 
respectively, and Blackstone 1989
105
4.8
8.2
5.9
countries,24 and risks associated 
1990
149
6.0
22.1
14.7
(United States) in the United  1991
225
7.9
10.7
13.2
with the financial behaviour of 
States in 2007, and collected  1992
240
8.8
16.8
21.3
private equity firms.25
funds from the general public.18
1993
253
8.9
11.7
14.1
Nevertheless, these 
1994
330
9.4
12.2
9.6
Funds of funds (mutual funds  1995
362
8.5
13.9
7.5
firms will continue to play a 
that invest in other mutual funds)  1996
390
8.5
32.4
14.3
role in M&As, including cross-
have become the single most  1997
415
8.3
37.0
12.1
border ones. Over time, in 
important source of financing  1998
393
7.0
46.9
8.8
1999
567
8.1
52.7
6.9
general, acquired firms improve 
investment by private equity  2000
636
8.1
58.1
5.1
performance (Kaplan and 
funds. It has been estimated that  2001
545
9.0
71.4
12.0
Schoar, 2005). This is the case 
in 2006, $500 billion or 38% of  2002
478
10.6
43.8
11.8
for buyouts, whether by public 
2003
649
14.2
52.5
17.7
total private equity assets globally  2004
773
15.1
83.7
22.0
companies or private equity 
were managed by funds of funds  2005
889
14.5
134.6
18.8
firms, and the available evidence 
(Private Equity Intelligence, 2006   889
  12.4
  158.1
  18.0
does not suggest any additional 
2007). North America and the  Source:  UNCTAD cross-border M&As database. efficacy of the buyouts by the 
United Kingdom are still the most  Note:  Private equity funds as well as other  latter. Nevertheless, while private 
important regions for fundraising 
funds such as hedge funds are  equity firms may not improve 
and investments by private equity 
included. They are defined here to 
include funds managed by firms in the 
the efficiency of buyouts any 
firms but continental Europe and 
following industries:  investment advice, 
more than public companies, it 
Asia (particularly West Asia) are 
investment of
is ar
fices not elsewhere 
gued that they help raise the 
gaining ground.
classified, management investment 
offices and investors not elsewhere  overall efficiency of economies 
In 2006, of the 889 
classified. 
by expanding the sheer scale 
cross-border M&As undertaken 
of domestic and cross-border 
by collective investment funds, the largest two  M&A activity.26 Against this are attendant concerns. 
– the acquisitions of Philips Semiconductor  Private equity firms have typically shorter time 
(Netherlands)19 for $9.5 billion and of Altana  horizons than public companies engaged in buyouts, 
Pharma (Germany)20 for $5.8 billion – were done by  as they are inclined to look for options that offer 
club deals involving more than two private equity  quick returns, more akin to those of portfolio 
funds (annex tables A.I.3 and A.I.4).21 However,  investors. This has raised concerns regarding the 
the share of single funds in cross-border M&As  dismantling of the acquired companies and layoffs 
increased substantially in 2006. Because of the  of their workers.27 There are also worries about less 
growing size of the funds, private equity investors  transparency,28 especially when public companies 
are now trying to buy larger and also publicly  are taken into private ownership. These concerns 
listed companies, such as the two firms mentioned  notwithstanding, cross-border M&As by private 
above.22
equity firms are still a relatively recent phenomenon 
A number of factors raise doubts as to the  that needs further investigation, especially given 
sustainability of this high level of FDI activity  their rising involvement in developing countries.
by private equity and other collective investment 
funds.23 First, the prices that private equity funds 
2.  International production
pay for their investments (mainly buyouts or 
acquisitions of firms) have increased substantially 
International production, as measured by 
in recent years (Standard and Poor’s, 2006). This  indicators of the value adding activities of TNCs 
is partly because competition is becoming stronger  outside their home countries, is continuing to grow.  
and partly because they are targeting larger firms.  In keeping with the large increase in FDI flows 
A second, related factor is that private equity funds  worldwide, several indicators rose more rapidly 
are increasingly acquiring listed companies, in  in 2006 than in the previous year (table I.4). The 
contrast to their former strategy of investing in high-
estimated foreign capital stock of TNCs (i.e. the 
yield and high-risk assets. Third, the abundance  total assets of foreign affiliates) rose by 20% in 
of funds available for private equity markets is  2006, while the estimated sales, value added (gross 

CHAPTER I
9
Figure I.4. Outward FDI stock and employment in foreign affiliates, 
product) and exports of foreign 
1982-2006
affiliates increased by 18%, 16% 
and 12% respectively (table I.4). 
These affiliates also accounted for 
an estimated 10% of world GDP, 
compared to 9% in 2005.29 The 
expansion of the foreign assets and 
operations of TNCs, however, is 
largely due to acquisitions rather 
than to organic growth. To the 
Thousands
extent that additions to FDI take 
place through M&As rather than 
greenfield investments, they involve 
a shift in production control and 
management from domestic to 
foreign firms, rather than additions 
to global production capacity 
(WIR06: 10-13). Such a shift may, 
nevertheless, lead to sequential FDI 
Source:  UNCTAD, FDI/TNC database.
through greenfield projects that 
Note
For the employment estimation method, see footnote g in table I.4.
Table I.4.  Selected indicators of FDI and international production, 1982-2006
Value at current prices
Annual growth rate
 (Billions of dollars)
 (Per cent)
Item
 1986-
 1991-  1996-
1982
1990
2005
2006
1990
1995 2000 2003
2004
2005
2006
 59
 202
 946
1 306
21.7
22.0
40.0
-9.3
31.6
27.4
38.1
 28
 230
 837
1 216
24.6
17.3
36.4
3.6
56.6
-4.6
45.2
Inward FDI stock
 637
1 779
10 048
11 999
16.9
9.4
17.4
20.6
16.9
5.0
19.4
Outward FDI stock
 627
1 815
10 579
12 474
17.7
10.6
17.3
18.1
15.6
4.2
17.9
Income on inward FDI
 47
 76
 759
 881
10.4
29.2
16.3
37.5
33.2
28.9
16.0
Income on outward FDI
 46
 120
 845
 972
18.7
17.4
11.8
38.0
38.4
24.7
15.1
Cross-border M&Asa
..
 151
 716
 880
25.9b
24.0
51.5 -19.7
28.2
88.2
22.9
2 741
6 126
21 394c
25 177c
19.3
8.8
8.4
26.6
15.0
3.0c
17.7c
 676
1 501
4 184d
4 862d
17.0
6.7
7.3
21.1
15.9
6.3d
16.2d
2 206
6 036
42 637e
51 187e
17.7
13.7
19.3
26.0
-1.0
9.3e
20.1e
 688
1 523
4 197f
4 707f
21.7
8.5
3.3
16.1f
20.5f
10.7f
12.2f
21 524
25 103
63 770g
72 627g
5.3
5.5
11.5
5.7
3.7
16.3g
13.9g
Memorandum
GDP (in current prices)
12 002
22 060
44 486
48 293h
9.4
5.9
1.3
12.3
12.4
7.7
8.6
2 611
5 083
9 115
10 307
11.5
5.5
1.0
12.6
15.5
4.8
13.1
Royalties and licence fee receipts
 9
 29
 123
 132
21.1
14.6
8.1
12.4
19.2
9.6
7.2
Exports of goods and non-factor services
2 124
4 329
12 588
14 120
13.9
8.4
3.7
16.1
20.5
10.7
12.2
Source:  UNCTAD, based on the FDI/TNC database (www.unctad.org/fdi statistics), UNCTAD GlobStat database, and IMF, 2007b.
a
Data are available only from 1987 onwards.
b
1987-1990 only.
c
Data are based on the following regression result of sales against inward FDI stock (in $ million) for the period 1980-2004: sales=1,853+1.945* inward FDI 
stock.
d
Data are based on the following regression result of gross product against inward FDI stock (in $ million) for the period 1982-2004: gross product=679+0.349* 
inward FDI stock.
e
Data are based on the following regression result of assets against inward FDI stock (in $ million) for the period 1980-2004: assets= -1,523+4.395* inward 
FDI stock.
f
For 1995-1997, data are based on the regression result of exports of foreign affiliates against inward FDI stock (in $ million) for the period 1982-1994: 
exports=285+0.628*inward FDI stock.  For 1998-2006, the share of exports of foreign affiliates in world exports in 1998 (33.3%) was applied to obtain the 
values.
g
Based on the following regression result of employment (in thousands) against inward FDI stock (in $ million) for the period 1980-2004: 
employment=18,021+4.55* inward FDI stock.
h
Based on data from the IMF, World Economic Outlook, April 2007.
Note:     Not included in this table are the values of worldwide sales of foreign affiliates associated with their parent firms through non-equity 
relationships and the sales of the parent firms themselves.  Worldwide sales, gross product, total assets, exports and employment of 
foreign affiliates are estimated by extrapolating the worldwide data of foreign affiliates of TNCs from Austria, Canada, the Czech Republic, 
Finland, France, Germany, Italy, Japan, Luxembourg, Portugal, Sweden and the United States for sales; those from the Czech Republic, 
Portugal, Sweden and the United States for gross product; those from Austria, Germany, Japan and the United States for assets; those 
from Austria, the Czech Republic, Japan, Portugal, Sweden and the United States for exports; and those from Austria, Germany, Japan, 
Switzerland and the United States for employment, on the basis of the shares of those countries in the worldwide outward FDI stock.

10
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
add to the production capacity of countries in  majority-owned foreign affiliates in 2004, a larger 
subsequent years.
number of employees abroad than in TNCs from 
Among the indicators of international any other home country (table I.5 and annex table 
production, employment in foreign affiliates is  B.10). The workforce employed in majority-owned 
of particular interest to host countries, most of  foreign affiliates of United States TNCs increased 
which are concerned about the impact of FDI on  significantly from the 1950s to the 1980s. In 
employment within their economies.30 The increase  1985, nearly 5 million employees worked in such 
in FDI in recent years has led to rising employment  affiliates. The growth in their workforce over the 
in foreign affiliates of TNCs. An estimated 73  subsequent two decades (at an annual average rate 
million workers were employed in foreign affiliates  of 2.9%) was, however, much lower than that in the 
of TNCs in 2006, nearly three times larger than  foreign affiliates of several other countries’ TNCs 
in 1990 (table I.4), and their total employment  (figure I.5). In Europe, employment in foreign 
accounted for an estimated 3% of the global  affiliates of TNCs based in countries like Austria 
workforce. 
(with an average annual growth rate of foreign-
affiliate employment of 13.1%), the Czech Republic 
At the global level, changes in the (19.5%) and Finland (17.9%), in particular, has 
employment of foreign affiliates in comparison to  expanded much more rapidly. German and Japanese 
changes in FDI stock or foreign affiliate output may  TNCs have the second and third largest number 
indicate changes in the composition, 
capital-intensity or technological Table I.5.  Employment related to inward and outward FDI and 
sophistication of international total employment in selected economies, most recent year
production. Over the period 1982-
(Thousands of employees)
2006, employment in foreign affiliates 
worldwide rose at a lower rate than did 
Host 
Share of 
economy 
Foreign 
Total paid 
foreign 
FDI stocks (figure I.4)31 and the gross 
employment  employment 
employment 
affiliates’ 
product of foreign affiliates (table I.4), 
of foreign 
of home-
in the 
employment 
affiliates 
based TNCs  Difference 
economy 
in total 
suggesting a possible shift by TNCs  Economy
Year 
(A)
(B)
(A-B)
(C)
(A/C)
towards more capital- and knowledge- Australia
2002
..
  321.9a
..
 7 959.8
..
intensive production.
Austria
2004
  232.8
  370.5
-  137.7
 3 266.5
  7.1
Belgium
2003
..
  209.7
..
 3 460.6
..
Global trends in employment Canada 
2002
..
  919.0a
..
 12 996.0
..
by foreign affiliates affect individual  China
2004
 24 000.0
..
..  752 000.0
  3.2
countries differently. In countries that  Czech Republic
2004
  620.4
  24.8
  595.6
 3 890.0
  15.9
Finland
2001
  176.1a
  315.1a
-  139.0
 2 060.0
  8.5
are both home and host economies,  France
2003
 1 880.0b
..
..
 13 460.0c
  14.0
the direct employment consequences Germany
2004
 2 280.0
 4 605.0
- 2 325.0
 31 405.0
  7.3
Hong Kong, China
2004
  543.0a
..
..
 2 460.5
  22.1
of FDI will also depend upon what  Hungary
2000
  606.7
..
..
 2 703.2
  22.4
happens to employment by foreign Ireland
2004
  149.5d
..
..
  295.8d
  50.6
affiliates in their economies as well as  Italy
1999
  560.1e
  642.5e
-  82.4
 4 075.0e
  13.7
Japan
2004
  430.9
 4 138.6
- 3 707.7
 53 550.0
  0.8
to employment in their foreign affiliates  Luxembourg
2001
  72.9
  103.3
-  30.4
  258.9
  28.2
abroad. For instance, China is the host  Macao, China
2004
  36.7
  10.9
  25.8
  192.3
  19.1
Madagascar
2003
  193.8f
..
..
 8 098.5g
  2.4
country with the largest number of  Mozambique
2004
  13.2h
..
..
..
..
employees in foreign affiliates. In 2004,  Nepal
1999
  73.5h
..
..
..
..
around 24 million workers (3% of total  Poland
2000
  648.3a
..
..
 10 546.0
  6.1
Portugal 
2002
  150.4a
  23.6a
  126.8
 3 756.2
  4.0
employment in China) were employed  Singapore
2004
  157.6e
..
..
  335.2e
  47.0
in foreign affiliates in that country (table  Slovenia
2004
  64.0
..
..
  798.0
  8.0
Sri Lanka
2004
  415.7h
..
..
 7 394.0
  5.6
I.5)32 compared to less than 5 million  Sweden
2004
  544.6a
  953.6a
-  409.1
 3 796.0
  14.3
in 1991 (WIR04: 187). Employment in  Switzerland
2004
  190.1
 1 861.7
- 1 671.6
 3 631.6
  5.2
foreign affiliates of TNCs in the United  United Rep. of Tanzania 2000
  80.6
..
..
 16 914.8i
  0.5
United States
2004
 5 116.4a
 8 617.2a
- 3 500.8
 131 367.4
  3.9
States shrank by half a million between  Vanuatu
2002
  0.1
..
..
..
..
2001 and 2004 to 5 million as the United 
States economy underwent an economic  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), and ILO.
a
Data refer to majority-owned affiliates only.
downturn. FDI inflows to the United  b Employees in enterprises under foreign control.
States during this period were only two  c Employees in enterprises under foreign control + employees in enterprises under French 
control.
fifths of those in 2000. 
d
Total permanent full-time employment in the manufacturing and internationally traded 
The United States has by far 
services sectors.
e
Data refer only to the manufacturing sector. 
the largest stock of outward FDI, and  f 1998.
this is reflected in the employment of  g Total labour force in 2003.
h
Approval data. 
foreign affiliates of United States-based  i Total employed persons in Tanzania mainland (from the Integrated Labour Force Survey 
TNCs: nearly 9 million employees in 
2000-2001).

CHAPTER I
11
Figure I.5. Outward FDI stock and employment in foreign affiliates of selected home countries: average 
annual growth, 1985-2004
(Per cent)
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).
Note:
Employment data for Finland, Portugal and Sweden are for majority-owned affiliates only.
of employees in their foreign affiliates 
worldwide (4.6 million and 4.1 million, 
Table I.6. Employment in United States foreign affiliates 
respectively, in 2004).
abroad and United States outward FDI stock, 
by sector, 2003
The employment impact of FDI in 
host economies varies by region and industry. 
No. of
Generally, employment created by a given 
employees
amount of FDI is larger in developing and 
per $1 
Outward
million of 
transition economies than in developed 
Employees
FDI stock
outward FDI 
countries, and in the manufacturing sector  Region/sector
(Thousands)
($ million)
stock
than in other sectors. In the case of United  World
States outward FDI, for instance, the largest 
Total
 9 657.5
1 769 613
  5.5
impact is observed in South-East Europe and 
Primary
  199.5
 85 473
  2.3
the CIS, followed by developing countries 
Mining, quarrying and petroleum
  181.0
 85 473
  2.1
(table I.6). Employment creation is smallest 
Manufacturing
 4 989.2
 371 078
  13.4
in the primary sector, including the mining 
Services
 3 973.4
1 176 957
  3.4
and oil industry.
Developed countries 
The effects of outward FDI on  Total
 5 983.1
1 266 350
  4.7
employment in the home countries are often 
Primary
  56.7
 42 876
  1.3
the focus of economic and political debates 
Mining, quarrying and petroleum
  55.5
 42 876
  1.3
Manufacturing
 2 760.6
 280 874
  9.8
in those countries. Fears of job losses at 
Services
 1 755.8
 835 881
  2.1
home may also induce home governments to 
introduce policy measures that try to prevent  Developing countries 
companies from expanding abroad or they 
Total
 3 550.4
 489 865
  7.2
may offer them incentives to stay and invest 
Primary
  107.3
 37 506
  2.9
at home. In the United States, for example, 
Mining, quarrying and petroleum
  92.1
 37 506
  2.5
Manufacturing
 2 099.9
 88 369
  23.8
public debate about possible job losses 
Services
  779.6
 333 917
  2.3
through expansion abroad by United States 
TNCs led to the introduction of the Homeland  South-East Europe and CIS
Investment Act in 2004 to encourage more 
Total
  32.1
 2 511
  12.8
investment at home (see WIR06: 89 for 
Primary
  4.3
 1 253
  3.4
Mining, quarrying and petroleum
  4.3
 1 253
  3.4
the effects of this Act on United States FDI 
Manufacturing
  15.1
  266
  56.8
outflows).33 In many developed countries, 
Services
  4.8
  325
  14.8
jobs created abroad by their own TNCs 
(through outward FDI) tend to be larger than  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).
those created by foreign companies operating 

12
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
in those countries (through inward FDI) (table I.5).  based in developed countries and about 20,000 
This is largely a reflection of their position as net  in developing and transition economies (18,500 
direct investors (with outward FDI stock exceeding  in developing countries and 1,650 in transition 
inward FDI stock).34 However, some empirical  economies). The number of TNCs from developing 
studies for the United States do not support the  and transition economies has increased more than 
hypothesis that FDI abroad causes job losses at  those from developed countries over the past 15 
home (Hanson, Mataloni and Slaughter, 2005;  years: 4,000 in the former and 31,000 in the latter 
Desai, Foley and Hines, 2005; Mankiw and Swagel,  in 1992 (figure I.6). Regarding foreign affiliates, 
2005).35 Instead, they suggest that outward FDI has  in 2006 there were 260,000 located in developed 
a positive or non-significant effect on employment  countries, 407,000 in developing countries, and 
at home. In the case of Japanese TNCs, according  111,000 in the transition economies. China continues 
to a recent survey on the likely impact of outward  to host the largest number of foreign affiliates, 
FDI on employment in parent firms, only 6% of  accounting for one third of all foreign affiliates of 
the surveyed firms said that they would cut labour  TNCs worldwide. Given its small share in global 
at home while 62% said that outward FDI would  inward stock (only 2% in 2006), this implies that 
not create redundant labour at home (Japan, METI,  many foreign affiliates in China are very small, or 
2007: 58).
are joint ventures with domestic enterprises. 
There are other instances where outward 
UNCTAD’s Transnationality Index37 shows 
FDI has led to a reduction of employment in the  that in 2004 (the latest year for which the index 
home country at least in the short run. A study of  was compiled), the importance of international 
German and Swedish TNCs, for instance, found  production rose in most host economies (developed 
that foreign-affiliate employment tends to substitute  and developing as well as transition), reflecting 
for employment of the parent firm, with significant  the rise of FDI flows that year (figure I.7). The 
positive employment effects for host countries that  transnationalization of the largest TNCs worldwide 
have a large wage gap with Sweden and Germany,  has also increased (as discussed in section C). 
notably the Central and Eastern European countries 
(Becker et al., 2005). For Italy it was found that 
3.  Indices of inward FDI 
FDI has a negative effect on labour intensity of 
performance and potential 
home-country production by TNCs in the case of 
efficiency-seeking FDI, especially for smaller firms 
The rankings of countries by UNCTAD’s 
that invested in other developed countries. Positive  Inward FDI Performance38 and Potential Indices,39
home-country effects were found for market-seeking  as well as the Outward FDI Performance Index40 for 
FDI in developed countries (Mariotti, Mutinelli and  2006 show the continuation of a number of previous 
Piscitello, 2003).36
patterns and some year-to-year changes. Among 
Available data suggest that TNCs responsible  the top 20 listed in the Performance Index for both 
for the growth of cross-border production numbered  inward and outward FDI, some relatively small 
at least some 78,000 parent companies with at least  countries continued to rank  high (table I.7; annex 
780,000 foreign affiliates in 2006 (annex table  table A.I.6). Bahrain and Tajikistan entered the top 
A.I.5). Of these, about 58,000 parent TNCs were  20 rankings for inward FDI performance, and Israel 
and Estonia, entered  the top 20 for outward FDI 
Figure I.6.  Number of TNCs from developed, 
performance.  In general, however, there were few 
developing and transition economies, 
1992, 2000 and 2006
major changes in the top rankings.
(Thousands)
There were no major changes in the Inward 
FDI Potential Index rankings; this index essentially 
reflects the country-specific structural variables 
affecting inward FDI that do not generally change 
significantly from year to year.  Juxtaposing the 
Inward FDI Performance Indices of countries with 
their respective Inward FDI Potential Indices yields 
countries with high FDI potential and performance; 
with high FDI potential but low performance; 
FDI potential and performance (figure I.8). While 
Source:  UNCTAD, based on annex table A.I.5.

CHAPTER I
13
Figure I.7. Transnationality Indexa for host economies,b 2004
(Per cent)
Source:  UNCTAD estimates.
a
Average of the four shares: FDI inflows as a percentage of gross fixed capital formation for the past three years 2002-2004; FDI inward stocks as a 
percentage of GDP in 2004; value added of foreign affiliates as a percentage of GDP in 2004; and employment of foreign affiliates as a percentage of total 
employment in 2004.
b
Only the above-mentioned economies for which data for all of these four shares are available were selected.  Data on value added are available only for 
Australia (2001), Belarus (2002), China (2003), the Czech Republic, France (2003), Hong Kong (China), Ireland (2001), Japan, Lithuania, the Republic of 
Moldova, Singapore (manufacturing only), Slovenia, Sweden (2003), and the United States. For Albania, the value added of foreign affilialtes was estimated 
on the basis of the per capita inward FDI stocks and the corresponding ratio refers to 1999.  For the other economies, data were estimated by applying the 
ratio of value added of United States affiliates to United States outward FDI stock to total inward FDI stock of the country.  Data on employment are available 
only for Australia (2001), Austria, China, the Czech Republic, France (2003), Germany, Hong Kong (China), Ireland (2001), Japan, Lithuania, Luxembourg 
(2003), Poland (2000), the Republic of Moldova, Singapore (manufacturing only), Slovenia, Sweden, Switzerland, and the United States. For Albania, the 
employment impact of foreign affiliates was estimated on the basis of their per capita inward FDI stocks and the corresponding ratio refers to 1999.  For the 
remaining countries, data were estimated by applying the ratio of employment of Finnish, German, Japanese, Swedish, Swiss and United States affiliates to 
Finnish, German, Japanese, Swedish, Swiss and United States outward FDI stock to total inward FDI stock of the economy.  Data for Ireland, Sweden and 
the United States refer to majority-owned foreign affiliates only. Value added and employment ratios were taken from Eurostat for the following countries: 
Austria (value added only), Bulgaria, Estonia, Finland, Hungary, Italy, Latvia, the Netherlands, Portugal, Romania, Slovakia and Spain; the data refer to the 
year 2003.
there are no notable changes in the 2005 grouping  annex table A.I.6), which reflects increased FDI 
of countries according to this matrix over that  inflows relative to their incomes as well as improved 
of the previous year (WIR06), several countries  economic and other conditions for attracting FDI, 
have improved their FDI position in performance  relative to other countries. On the other hand, 
or potential, or both, over the past decade. For  countries such as Ghana and Paraguay went into 
example, Botswana, Croatia, Lithuania, the United  the underperformance category. Only Indonesia has 
Arab Emirates and Thailand significantly improved  fallen from a front-runner to an underperformer over 
their rankings in the Performance Index or both  the past decade. 
Performance and Potential Indices (figure I.8 and 

14
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Table I.7. Top 20 rankings by Inward and Outward 
4.  Developments in FDI policies 
Performance Indices, 2005 and 2006a
Inward Performance Index 
Outward Performance Index 
a. Developments at the national level
rankingb
rankingc
Economya
2005
2006
Economya
2005
2006
Countries worldwide continue to adopt 
Luxembourg
5
1
Iceland
1
1
measures aimed at improving their investment 
Hong Kong, China
4
2
Hong Kong, China
3
2
climate. In 2006, according to UNCTAD’s annual 
Suriname
3
3
Luxembourg
2
3
survey of changes in national laws and regulations 
Iceland
12
4
Switzerland
8
4
relevant to the entry and operations of TNCs, a total 
Singapore
6
5
Belgium
7
5
Malta
10
6
Netherlands
6
6
of 184 policy changes were identified, 80% of which 
Bulgaria
8
7
Panama
4
7
were in the direction of making the host-country 
Jordan
19
8
Ireland
10
8
environment more favourable to FDI (table I.8). At 
Estonia
7
9
Azerbaijan
5
9
Belgium
11
10
Bahrain
9
10
the same time, the survey also noted 37 changes in 
Bahrain
23
11
Kuwait
34
11
the opposite direction, many of which were related 
Azerbaijan
1
12
Sweden
11
12
to the extractive industries and were concentrated in 
Gambia
14
13
Singapore
12
13
a relatively few countries.
Lebanon
9
14
Spain
13
14
Georgia
16
15
Israel
23
15
Out of 184 identified changes, 109 were 
Tajikistan
33
16
Estonia
21
16
adopted in developing countries, with Africa 
Panama
25
17
France
16
17
Bahamas
21
18
Norway
14
18
accounting for 57, West Asia for 14, South, East 
Sudan
13
19
United Kingdom
15
19
and South-East Asia for 32, and Latin America and 
Guyana
32
20
Cyprus
17
20
the Caribbean for 6. South-East Europe and the CIS 
adopted 38 of the changes and developed countries 
Source:  UNCTAD, based on annex table A.I.6.
a
Countries are listed in the order of their 2006 rankings.
37 (see also chapter II).
b
Rankings are based on indices derived using three-year moving averages 
of data on FDI inflows and GDP for the immediate past three years, 
Most of the changes involved the introduction 
including the year in question.
of new promotional efforts, including incentives 
c
Rankings are based on indices derived using three-year moving averages 
of data on FDI outflows and GDP for the immediate past three years, 
aimed at increasing FDI in certain economic 
including the year in question.
activities. As in 2005, many involved lowering 
corporate income taxes, a measure that affects 
Figure I.8. Matrix of inward FDI performance and potential, 2005
High FDI performance
Low FDI performance
Front-runners
Below potential
Azerbaijan, Bahamas, Bahrain, Belgium, Botswana, Brunei 
Algeria, Argentina, Australia, Austria, Belarus, Brazil, Canada, 
Darussalam, Bulgaria, Chile, China, Croatia, Cyprus, Czech 
Denmark, Finland, France, Germany, Greece, Ireland, Islamic 
Republic, Dominican Republic, Estonia, Hong Kong (China), 
Republic of Iran, Italy, Japan, Kuwait, Libyan Arab Jamahiriya, 
Hungary, Iceland, Israel, Jordan, Kazakhstan, Latvia, 
High FDI potential
Mexico, New Zealand, Norway, Oman, Republic of Korea, 
Lithuania, Luxembourg, Malaysia, Malta, Netherlands,  Russian Federation, Saudi Arabia, Slovenia, Spain, Sweden, 
Panama, Poland, Portugal, Qatar, Singapore, Slovakia,  Switzerland, Taiwan Province of China, Tunisia, Turkey, United 
Thailand, Trinidad and Tobago, Ukraine, United Arab  States and Venezuela. 
Emirates and United Kingdom.
Above potential
Under-performers
Albania, Angola, Armenia, Colombia, Congo, Costa Rica, 
Bangladesh, Benin, Bolivia, Burkina Faso, Cameroon, 
Ecuador, Egypt, Ethiopia, Gabon, Gambia, Georgia, Guyana, 
Democratic Republic of Congo, Côte d’Ivoire, El Salvador, 
Honduras, Jamaica, Kyrgyzstan, Lebanon, Mali, Mongolia, 
Ghana, Guatemala, Guinea, Haiti, India, Indonesia, Kenya, TFY 
Low FDI potential
Morocco, Mozambique, Namibia, Nicaragua, Republic  Rep. of Macedonia , Madagascar, Malawi, Myanmar, Nepal, 
of Moldova, Romania, Sierra Leone, Sudan, Suriname, 
Niger, Nigeria, Pakistan, Papua New Guinea, Paraguay, Peru, 
Tajikistan, Uganda, United Republic of Tanzania, Uruguay, 
Philippines, Rwanda, Senegal, South Africa, Sri Lanka, Syrian 
Viet Nam and Zambia. 
Arab Republic, Togo, Uzbekistan, Yemen and Zimbabwe.
Source:  UNCTAD, based on annex table A.I.6.
Table I.8. National regulatory changes, 1992-2006
Item
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Number of countries that introduced changes
43
56
49
63
66
76
60
65
70
71
72
82
103
93
93
Number of regulatory changes
77
100
110
112
114
150
145
139
150
207
246
242
270
205
184
More favorable to FDI
77
99
108
106
98
134
136
130
147
193
234
218
234
164
147
Less favorable to FDI
0
1
2
6
16
16
9
9
3
14
12
24
36
41
37
Source:   UNCTAD database on national laws and regulations.

CHAPTER I
15
both domestic companies and foreign affiliates.  Republic of Macedonia), or solidarity or social taxes 
For example, Egypt reduced its corporate tax  (e.g. Hungary, Lithuania). More far-reaching changes 
to a standard rate of 20% (from a basic rate of  were observed in the Russian Federation, where in 
40% and from 32% for industrial and export  March 2006 the Government released a preliminary 
activities).41  Similar steps were taken by Ghana  list of 39 “strategic sectors” in which inward FDI 
(which reduced its corporate income tax from 28%  would be restricted, including most defence-related 
to 25%) and Singapore (from 20% to 18%). Other  activities, aviation and natural resources.43 Foreign 
countries, including India, created new special  companies will only be allowed to own minority 
economic zones, many offering tax holidays or  stakes in “strategic assets” in the country’s natural 
other incentives. Brazil decided to implement an  resources sector. In China, a similar development 
“accelerated growth programme” that will provide  aimed at the protection of strategic sectors has 
corporate tax reductions amounting to an estimated  been observed. A new policy includes “provisions 
$4.7 billion. 
for increased supervision of sensitive acquisitions” 
The overall trend to provide more incentives  to ensure that what are termed “critical industries 
to foreign investors goes hand in hand with the  and enterprises” remain under Chinese control.44
continuing opening up of a number of economic  The potential negative effects of such policies 
sectors to FDI in various countries. In Italy, for  stem mainly from the uncertainties relating to the 
example, a wide ranging liberalization programme  definition of strategic sectors or national security 
was agreed, covering a number of service industries  (WIR06). 
such as professional services, pharmacies, banks 
By region, as in 2005, Latin America and 
and taxi transport. Many of those services have  the Caribbean had a relatively high proportion of 
traditionally been protected by licensing regimes.  “less favourable” changes, which mainly reflected 
Steps to liberalize the telecommunications industry  regulatory amendments related to the extractive 
were taken, for example in Botswana, Cape Verde  industries in Bolivia, Peru and Venezuela, and to 
and Kenya; the banking industry was made more  the Venezuelan programme to nationalize “strategic 
open in Belarus and Mali; and the energy/electricity  sectors” such as energy and telecommunications 
industry was liberalized to FDI in, for example  (figure I.9). FDI policy changes at the regional level 
Albania, Algeria, Bulgaria and Kyrgyzstan. While  are described further in the analysis of regional 
the overall policy trend in the services sector  trends in chapter II.
remains in the direction of greater openness to FDI, 
In sum, while, in general, policy changes 
the extent to which countries restrict the entry of  are in the direction of more liberalization and 
foreign companies to the sector still varies widely.  deregulation, there are some notable changes 
Outside developed countries, Latin America and the  that suggest signs of a shift towards restrictions 
transition economies are the most open to FDI in  on investments in some industries. As in 2005, 
services (box I.2).  
restrictions are still confined to a relatively small 
A notable exception to the liberalization trend  number of countries, and with notable regional 
relates to the extractive industries, where a number  differences. But the perception that such changes 
of new restrictions on foreign ownership were  might trigger renewed protectionism in certain 
observed in 2006.42  For example, in Algeria, the  countries has prompted some concern reflected 
State-owned oil and gas enterprise must now hold a  in policy-related initiatives such as the series of 
minimum 51% stake in exploration and production  round tables launched in 2006 by the Organisation 
arrangements. In Bolivia, discussions relating to  for Economic Co-operation and Development 
ownership and fiscal arrangements in the oil and gas  (OECD) on Freedom of Investment, National 
industry were resolved by the signing of new service  Security and “Strategic” Industries. Issues discussed 
contracts; these substantially raise the Government’s  at four such round tables so far include the role 
revenues from production and return ownership  of national security considerations in present 
of all reserves to the State oil company (see also  investment regulations in OECD and non-OECD 
chapter VI). In Indonesia, on the other hand, the  countries, their treatment in international investment 
Government decided to offer subsidies and tariff  agreements (IIAs); regulatory approaches to foreign 
reductions to extractive-industry investors in the  State-controlled enterprises, and the challenge 
eastern part of the country. 
of identifying ultimate beneficiary ownership 
While the proportion of less favourable  and control in cross-border investments. The 
changes has remained at the peak of 20% reached in  view emerging from these round tables was 
2005, the nature and significance of those changes  that investment policies should be guided by 
vary. In 2006, the majority of them concerned tax  the principles of regulatory proportionality, 
increases or the introduction of new taxes, such  predictability and accountability.45 It was also 
as withholding taxes (e.g. the former Yugoslav  suggested that restrictions on investment should not 

16
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box I.2. Developing-country openness to FDI in services varies widely
Services account for about two thirds of FDI inflows worldwide and for half of FDI inflows in 
developing countries (annex table A.I.10). The extent to which countries have opened up to FDI in services 
varies considerably. Latin America and Central and Eastern Europe are on average more open than countries in 
Africa and developing Asia (box figure I.2.1), but with significant intraregional variation. A recent UNCTAD 
study (2006a) found that among developing countries Bolivia and Uganda have the fewest restrictions on FDI in 
services, whereas Ethiopia, the Philippines 
and Saudi Arabia are at the other end of the 
Box figure I.2.1. Openness to FDI in services in developing and transition 
spectrum.
economies, by region, 2004
Social services such as health and 
education are among the industries with 
the lowest level of explicit restrictions on 
FDI, followed by business services and 
the distribution industries. By contrast 
electricity, telecommunications, transport 
and financial industries remain highly 
restricted. Earlier studies (e.g. Warren, 2001; 
McGuire and Smith, 2001; Kemp, 2001; 
Kalirajan, 2000; Nguyen-Hong, 2000; and 
McGuire, 2002), which relied primarily 
on information contained in the country 
schedules of the WTO General Agreement 
of Trade in Services (GATS), tended to  Source:  UNCTAD database on national laws and regulations.
underestimate the extent to which countries  a   Excluding North Africa.
have opened up their services to FDI. This  b  Excluding South America.
is partly because countries have been 
more willing to liberalize unilaterally than  Note:  
Openness is measured on a scale of 0-1, with 0 representing 
multilaterally, for various reasons, including 
full openness and 1 a de facto or actual prohibition of FDI. 
their desire to maintain policy space.
The measurement takes into account rules on ownership, 
screening and post-entry operational restrictions.  
Source: UNCTAD, 
2006a.
be more costly or more discriminatory than  Figure I.9.  More favourable and less favourable regulatory 
changes in 2006, by region
needed to achieve the security objectives, and 
that they should not duplicate what is, or could 
be, better dealt with by other regulations. 
Other guiding principles proposed were that 
regulatory objectives and practices should 
be made as transparent as feasible, and that 
proper mechanisms should be introduced to 
ensure accountability. The G-8 Heiligendamm 
Summit Declaration in June 2007 called for a 
continuation of this work.
b. Developments at the 
international level
The universe of international 
investment agreements (IIAs) continues to 
grow in number and complexity. In 2006, 
73 bilateral investment treaties (BITs), 83 
double taxation treaties (DTTs), and 18 
other international agreements that deal with 
other economic activities (such as trade) but  Source:  UNCTAD, database on national laws and regulations.
also contain investment provisions46 were 
concluded. This brought the total number  2,573 BITs (figure I.10), 2,651 DTTs (figure I.10), and 241 
of IIAs to close to 5,500 at the end of 2006:  other agreements (figure I.11). 

CHAPTER I
17
Some recent developments  Figure I.10. Number of BITs and DTTs concluded, cumulative, 1997-2006
deserve particular attention. 
First, the IIA universe continues 
to evolve into an increasingly 
complex and diverse patchwork.47 
Among its key characteristics are 
its universality, in that nearly 
every country has signed at least 
one IIA, and its atomization, 
in that no single authority 
1 000
coordinates the overall structure 
or the content of the thousands 
of agreements that constitute 
0
the system. Moreover, it is 
multilayered, with  IIAs existing 
at the bilateral, regional, sectoral, 
plurilateral and multilateral 
levels; it is also multifaceted with     Source: UNCTAD (www.unctad.org/iia).
some IIAs including not only 
Thirdly, the role of developing countries 
Figure I.11. Number of other agreementsa concluded, by 
in international investment rule-making is 
period, 1957-2006
growing. At the end of 2006, they were party to 
76% of all BITs (figure I.12), 61% of all DTTs 
(figure I.13), and 81% of all other IIAs. For 
the first time, there are now three developing 
countries – China, Egypt and the Republic of 
Korea – among the top 10 signatories of BITs 
worldwide (figure I.14). Least developed 
countries (LDCs), while host to less than 1% 
of global inward FDI stock, had nevertheless 
concluded 16% of all BITs, 7% of all DTTs 
and 15% of other IIAs by the end of 2006. 
By period
Cumulative
There is also a substantial increase in the 
number of IIAs concluded among developing 
Source: UNCTAD (www.unctad.org/iia).
a
International agreements, other than BITs and DTTs, that contain investment  countries. By December 2006, 680 BITs had 
provisions.
been concluded among developing countries, 
constituting about 27% of all BITs. There 
provisions on investment, but also – and in some 
were more than 90 South–South IIAs other 
cases more extensively –  rules on related matters 
than BITs and DTTs at the end of 2006.49 The 
such as trade in goods and/or services, or intellectual 
Figure I.12.  BITs concluded as of end 2006, 
property protection.  
by country group
Secondly, IIAs other than BITs and DTTs 
(Per cent)
have proliferated. While their total number is still 
small compared with the number of BITs, it has 
nearly doubled over the past five years (figure 
I.11).  Most of the agreements concluded in 2006 
are free trade agreements (FTAs) that establish, 
inter alia, binding obligations of the contracting 
parties concerning the admission and protection 
of foreign investment. The scope of the protection 
commitments in these FTAs is comparable to those 
found in BITs, including with regard to dispute 
settlement. Furthermore, the new Central European 
Free Trade Agreement (CEFTA) was concluded, 
which consolidated over 30 bilateral FTAs. In 
addition, at least 68 such agreements, involving 
106 countries, were under negotiation at the end of  Source: UNCTAD (www.unctad.org/iia).
2006.48

18
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure I.13.  DTTs concluded as of end 2006, 
of Investment Disputes (ICSID). Other disputes 
by country group
were initiated under the Arbitration Rules of the 
(Per cent)
United Nations Commission on International Trade 
Law (UNCITRAL) (65), the Stockholm Chamber 
of Commerce (18), the International Chamber of 
Commerce (4), ad hoc arbitration (4), and the Cairo 
Regional Centre for International Commercial 
Arbitration (1). The venues for the remaining 
six cases are unknown. Most of the cases (42%) 
involved the services sector (including electricity 
distribution, telecommunications, debt instruments, 
water services and waste management), 29% 
were related to mining and oil and gas exploration 
activities, and another 29% concerned the 
manufacturing sector. At least 70 governments – 44 
of developing countries, 14 of developed countries 
and 12 of South-East Europe and the CIS – faced 
Source: UNCTAD (www.unctad.org/iia).
investment treaty arbitration, with Argentina topping 
the list (42 claims), followed by Mexico 
Figure I.14. Number of BITs concluded by top ten 
(18), the United States and the Czech 
economies, end 2006
Republic (11 each).51 In terms of substance, 
in 2006 arbitration tribunals rendered 
significant awards relating to IIA provisions 
on most-favoured-nation (MFN) treatment, 
fair and equitable treatment, expropriation, 
the “umbrella clause”, and a “state of 
necessity” exception.52
The evolution of the IIA universe, 
including investment arbitration, poses 
challenges of capacity and content for many 
developing countries. Challenges of capacity 
arise from the fact that many developing 
countries lack the resources to participate 
fully and effectively in the development of 
the IIA network that is increasing in scope, 
Source: UNCTAD (www.unctad.org/iia).
complexity and diversity.53 Challenges of 
content arise in several respects, three of 
growth of FDI from the South means that a number 
which are of primary importance: policy 
of developing countries are becoming both host and 
home economies. 
Figure I.15. Known investment treaty arbitrations, cumulative and new cases, 
Fourthly, the 
1987 to end 2006
number of known 
treaty-based investor–
300
State dispute settlement 
cases further increased 
250
by 29 in 2006, bringing 
200
the total number of such 
cases to 259 (figure 
150
I.15).50 However, 
100
the increase in 2006 
was considerably 
50
smaller than during 
0
2003-2005. As of end 
2006, more than half 
(161) of all known 
cases had been filed 
with the International Source: UNCTAD (www.unctad.org/iia).
Centre for Settlement 

CHAPTER I
19
coherence, balancing private and public interest in  formally notified its withdrawal to the World Bank 
IIAs, and strengthening the development dimension  (chapter II). 
of these agreements, as discussed below.
Strengthening the development dimension 
Policy coherence.  The increasingly complex  of IIAs.  It might be useful for IIAs to include 
universe of IIAs raises concerns related to coherence  provisions for strengthening their development 
among different IIAs, with implications for the  dimension. Apart from provisions aimed at allowing 
formulation of effective development policies.  regulatory flexibility for host countries (UNCTAD, 
Due to capacity constraints and weaker bargaining  2004), they could also include specific investment 
positions, developing countries may find it more  promotion provisions, such as transparency and 
difficult than developed countries to establish  exchange of investment-related information, 
coherent development polices that are consistent  fostering linkages between foreign investors and 
with IIAs or that conform with the requirements/
domestic companies, capacity-building and technical 
principles of IIAs and consistently reflect them  assistance, granting of investment insurance and 
in IIAs. On the other hand, the possible effects of  other incentives, easing informal investment 
inconsistency might be mitigated by the MFN  obstacles, joint investment promotion activities, 
clause that is a standard feature in practically all  and the setting up of an institutional mechanism for 
IIAs. It has, in principle, the effect of harmonizing  coordination and monitoring purposes (UNCTAD, 
the different degrees of investment protection  forthcoming a). The issue of incorporating a 
granted by a country in its IIAs at a level that is the  development dimension into an IIA also raises 
most favourable for the investor, thereby enhancing  the question of what kind of IIA best advances 
coherence. Also, international jurisprudence can  development objectives. This may vary for different 
make an important contribution to harmonizing  countries.  The development dimension thus 
understanding of the interpretation of core principles  requires not only selecting the type of instrument 
of investment protection. However, some recent  to be negotiated, but also the drafting of specific 
contradictory awards have created uncertainty as  provisions for incorporating into the agreement.  
to the circumstances under which the MFN clause 
actually applies and how far-reaching its effects 
B.  Changing patterns of FDI
might be (UNCTAD, 2005a).
Balancing private and public interests in IIAs. 
The rise in investor-state disputes over the past few 
1.  Geographic patterns
years has triggered a discussion on what should 
be the proper counterweight to investors’ rights 
The geographic pattern of FDI has changed 
in IIAs. Three approaches have emerged in recent  in various ways during the past decade, with new 
treaty-making. First, some developed countries  countries having emerged as significant host and 
have clarified individual IIA provisions to prevent  home economies. Shifts in the patterns of bilateral 
overly broad interpretations. This has occurred, for  FDI relationships have occurred among developed 
example, with regard to provisions guaranteeing  countries, as well as in the relative importance 
fair and equitable treatment of investment and the  of developed versus developing and transition 
definition of indirect takings.54 Secondly, numerous  economies. The rise of FDI from developing and 
recent IIAs place a stronger emphasis on public  transition economies and the growth of South-South 
policy concerns, for example by including general  FDI, as discussed in WIR06, are examples of recent 
exceptions to maintain national security, preserve  trends. In order to assess the strength of FDI links 
the public order, and protect public health, safety  between different home and host economies and its 
or the environment. These provisions may become  development over time, the value of bilateral FDI 
particularly relevant for investments in extractive  stocks for 72 countries for which data are available 
industries (chapter VI). Thirdly, some IIAs have  is examined below. 
strengthened the public role in investor-State dispute 
In 2005, the largest bilateral outward FDI 
resolution, for example, by allowing individuals or  stock was that of the United Kingdom in the United 
entities not involved in the dispute to make written  States, amounting to $282 billion (table I.9). In 
submissions to a tribunal (UNCTAD, 2007a). Most  comparison, the stock of FDI of the United States 
of the three approaches mentioned above have so  in the United Kingdom was valued at $234 billion 
far been limited to a small, but growing number of  – the third largest bilateral FDI relationship. Twenty 
countries.55 It remains to be seen whether they will  years earlier, the situation had been the reverse, 
become a more commonly used feature in future  with the FDI stock of the United States being larger 
IIAs.  Finally, in April 2007, three countries in  in the United Kingdom. Whereas the bilateral link 
Latin America, Bolivia, Nicaragua and Venezuela,  between these two economies, together with those 
announced plans to withdraw from the World  of United States-Canada and Netherlands-United 
Bank’s arbitration court, ICSID. So far, only Bolivia  States, dominated the global picture in 1985, 

20
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Table I.9. Top 50 bilateral FDI relationships, 
For example, in 2005, the second strongest 
1985, 1995, 2005
relationship was between Hong Kong (China) 
(Billions of dollars)
and China. Other bilateral links that have grown 
significantly in importance since 1985 include 
Rank
Home economy
Host economy
1985a 1995a 2005a
Japan-United States, Germany-United States, 
China-Hong Kong (China) and the British Virgin 
1
United Kingdom
United States
  44
  116
  282
Islands-Hong Kong (China) (table I.9). Out of the 
2
Hong Kong, China
China
..
  120
  242
top 50 home-host economy FDI relations in 2005, 
3
United States
United Kingdom
  48
  85
  234
4
Japan
United States
  19
  105
  190
41 were among only developed countries and 9 
5
Germany
United States
  15
  46
  184
involved developing economies, and especially 
6
United States
Canada
  49
  83
  177
China and Hong Kong (China). Reflecting its 
7
Netherlands
United States
  37
  65
  171
position as the largest FDI recipient in the world, 
8
China
Hong Kong, China
  0.3
  28
  164
the United States appears eight times among the 
9
British Virgin Islands
Hong Kong, China
..
  70
  164
10
Canada
United States
  17
  46
  144
20 destinations with the largest stock of FDI 
11
France
United States
  7
  36
  143
from another country in 2005. Geographical 
12
Switzerland
United States
  11
  27
  122
proximity has become more important over time 
13
Luxembourg
United States
  0.3
  6
  117
for partners.56 For example in Europe in 2005, out 
14
Netherlands
Germany
  5
  34
  111
of the top 50 pairs of countries with the strongest 
15
Netherlands
France
  10
  31
  102
16
United Kingdom
France
  9
  26
  96
FDI links in terms of bilateral inward FDI stock, 
17
Netherlands
United Kingdom
  17
  27
  93
22 were from Europe, compared to 17 in 1995 
18
Germany
United Kingdom
  3
  14
  86
(table I.9; annex table A.I.7 ranks the next 50 pairs 
19
United States
Netherlands
  8
  25
  84
by inward FDI stock of host partner economy). 
20
France
United Kingdom
  5
  13
  80
21
United States
Switzerland
..
  14
  79
The above analysis can be taken a step 
22
United States
France
  12
  36
  79
further by comparing the actual volume of 
23
Germany
France
  6
  21
  79
bilateral FDI stocks with what could have been 
24
Netherlands
Ireland
..
..
  76
“expected” by considering the respective shares 
25
Belgium
France
..
  17
  73
of each economy in global outward and inward 
26
United States
Germany
  14
  41
  68
27
United Kingdom
Netherlands
  4
  18
  67
FDI.  57 A comparison of the actual value with 
28
France
Germany
  2
  15
  59
the “expected value” of the bilateral FDI stock 
29
Germany
Netherlands
  2
  12
  58
provides a measure of the intensity of the FDI 
30
United States
Australia
..
  33
  54
relationship between a home economy and a host 
31
Belgium
Netherlands
  1
  11
  50
economy (box I.3).
32
United Kingdom
Germany
  3
  11
  49
33
United States
China
..
  18
  48
An analysis of the intensity of the FDI 
34
Japan
China
..
  19
  47
relationship of major developed home economies 
35
Luxembourg
France
..
  2
  44
with various host economies produces the 
36
Australia
United States
  3
  10
  44
37
United States
Japan
..
  15
  44
following patterns (annex table A.I.8):
38
Netherlands
Switzerland
..
  10
  43
• The FDI intensities of the United States with 
39
Netherlands
Hong Kong, China
  ..
  16
  42
its main traditional developed host-country 
40
United Kingdom
South Africa
..
..
  40
partners, such as Canada, Japan and the United 
41
Netherlands
Italy
..
  6
  40
42
Luxembourg
Germany
  0.3
  3
  40
Kingdom, were all larger than one in 2005. 
43
Taiwan Province of China China
..
  18
  40
And the intensity of its FDI relationship with 
44
Switzerland
France
  5
  19
  39
some European host countries (e.g. Sweden 
45
United States
Sweden
  1
  6
  39
and Switzerland) has increased. The analysis 
46
United Kingdom
Australia
..
  25
  38
further shows the growing importance of Asian 
47
Virgin Islands
China
..
  3
  37
48
Belgium and Luxembourg Ireland
..
..
  37
host economy partners with the United States 
49
Netherlands
Sweden
  1
  6
  36
than would be expected given their shares in 
50
United Kingdom
Sweden
..
  2
  35
global inward FDI: out of 10 economies with 
a strong relationship, four were in developing 
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).
Asia. For example, in 1995, the United States-
a
Or latest year available.
Malaysia FDI stock was only about half of the 
Note
Countries are ranked by the value of inward FDI stock in 2005 as 
reported by the host economy.
expected value (an FDI intensity of 0.5), and 
by 2005, it had increased to 1.3. Conversely, 
the United States’ actual FDI stock in Latin 
today, the situation is considerably more multifaceted, 
America has fallen more than expected, given 
reflecting the involvement of many more countries in 
that region’s importance in global inward FDI. 
international production.
• Reflecting the strong geographical dimension 
of FDI, Japan’s FDI intensity with respect to 

CHAPTER I
21
Box I.3. Analysing the intensity of FDI relationships
Similar to the trade intensity index (Srivastava and Green, 1986), it is possible to assess the intensity of the 
FDI relationship between a home country (i) and a host country (j) by using a ratio that compares the actual value 
of the stock of country i in country j with what might be expected given the world position of each of them as 
home and host countries respectively.
FDI intensity ratio (R) =  FDIij / ExpFDIij
FDIij = Actual amount of FDI stock from country i to j.
ExpFDIij Expected value of FDI stock from country i  to country j
FDIwj
FDIiw
              = 
*
FDI
 
ww    
FDI
                    
ww     FDIww  
where,
FDIwj = Total inward stock in the j country; 
FDIiw = Total outward FDI stock of i country in the world; and
FDIww = Worldwide inward or outward FDI stock.
If the intensity ratio is greater than 1, the FDI relationship is stronger than would be expected based on the 
relative importance of the two economies as home and host; if it is less than 1 it is weaker than expected.
For example, considering United States FDI in France: in 2004, the United States outward FDI stock 
accounted for 20% of the world outward stock. France’s stock of inward FDI accounted for 7% of the world 
inward stock. The “expected value” of the United States FDI stock in France would then be 1.4% (0.2*0.07) of 
world FDI stock.a In the case of United States and France, the actual FDI stock in 2004 was $79 billion and 
the “expected value” about $140 billion (1.4% of world FDI stock in 2004). Accordingly, the FDI intensity was 
79/140, or 0.56 – a weaker than expected relationship.
Source: UNCTAD.
a A similar assessment of FDI intensity, proposed by several researchers (Petri, 1994; Dunning, Fujita and Yakova, 2007) in the context 
of regional flows, measures the relative importance of a host region for a particular home country by looking at the ratio of the share 
of the host region in outward FDI stock of that country to the share of the host region in worldwide stock.
Asian developing countries has been not only 
countries (notably Malaysia and the Republic of 
stronger than with other developing countries, 
Korea). However, the FDI intensity of Germany 
it has also increased over the past decade. The 
and France with new EU member countries as 
main exception was its bilateral FDI relationships 
hosts has weakened significantly over the past 
with Hong Kong (China) and Indonesia, which 
decade. 
have weakened. The intensity of Japan’s FDI in 
Home developing economies have 
such developed host countries as Australia and  established stronger than expected FDI links with 
the United States have increased over the past  other developing host economies, especially in the 
decade.
regional context of Asia, China, Malaysia and the 
• The intensity of the bilateral FDI relationships  Republic of Korea  (annex table A.I.8). A number 
of major EU home countries have generally  of their developing-country partners rank higher 
increased with other European countries, than those from developed countries in terms of FDI 
suggesting increased regional integration through  intensity. Bilateral links are particularly strong with 
FDI. For example, the FDI intensity of the United  countries within the region, such as China-Hong 
Kingdom as a home country, with Sweden rose  Kong (China), Malaysia-Cambodia and the Republic 
from 0.6 to 1.6 between 1995 and 2005, and from  of Korea-China. Malaysia is an exception in that 
0.4 to 0.9 with Austria. Among non-European  its FDI intensity with home developing countries 
countries, its FDI intensity with Panama and  such as China and the Republic of Korea declined 
Singapore has increased. The FDI intensity of  between 1995 and 2005, while it increased with 
France has increased with Japan and the United  home developed countries such as the United States 
States, but fallen with Latin American host  and Japan.
countries (e.g. Argentina and Brazil). Germany’s 
Overall, the analysis suggests that 
FDI intensity has risen with host countries such  geographical proximity is associated with stronger 
as France, the United States and the United  FDI intensities between certain home and host 
Kingdom, as well as with some Asian host  countries than between others. The geographical 

22
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
dimension has become more important for Asian  a noticeable drop from its share of 41% in 1990 
home and host countries, especially for Japan as a  (annex tables A.I.9-A.I.12). Services represented 
home country. For the United States, FDI flows have  nearly two thirds of the global FDI stock (61%) 
increasingly spread beyond traditional recipients in  in 2005, up from 49% in 1990. FDI flow data for 
Canada and Latin America. A similar phenomenon  recent years suggest that the share of the primary 
can be observed for the EU, as witnessed by its  sector is partly recovering and could eventually 
declining FDI intensity with many of its traditional  reach its 1990 level, possibly even surpassing it if 
developing-country partners. A number of home  current trends continue. The sector accounted for 
developing countries have developed stronger than  12% of world FDI inflows in 2003-2005, compared 
expected FDI relationships, especially with other  with 7% in 1989-1991.
developing countries, highlighting the scope for 
Data on cross-border M&As confirm the 
increasing South-South investments. 
growing importance of services. This sector’s share 
in worldwide cross-border M&As rose from 37% 
2.  Sectoral and industrial 
in 1987-1990 to 58% in 2002-2006 (figure I.16), 
distribution of FDI 
while that of the primary sector was halved, from 
11% to 5% between 1987-1990 and 1996-2000, 
The most important change in the sectoral  but it recovered to 11% in 2002-2006 (figure I.16).  
and industrial pattern of FDI over the past quarter  The share of manufacturing fell from 52% of global 
century has been the shift towards services (WIR04),  cross-border M&As in 1987-1990 to 31% in 2002-
accompanied by a decline in the share of FDI in  2006. 
natural resources and manufacturing. Recently, 
The estimated share of the primary sector 
however, FDI in the extractive industries of  in total inward FDI stock is lower in developed 
resource-rich countries has rebounded (Part Two),  countries than in developing countries and in the 
and its importance in infrastructure services is also  transition economies of South-East Europe and the 
rising.
CIS (annex table A.I.9). Its decline in total inward 
Over the past 25 years, FDI has increased  FDI stock during 1990-2005 was largely confined to 
significantly in absolute terms in all three  developed countries. In South-East Europe and the 
major sectors: primary, manufacturing and CIS, the primary sector’s share has been particularly 
services. However, the shares of the primary and  high. In 2005, it accounted for almost a quarter of 
manufacturing sectors in world inward FDI stock  their total inward FDI stock. The decline in the 
have declined. In 2005, FDI stock in the primary  share of manufacturing in FDI was slightly larger 
sector accounted for less than one tenth of total  in developing countries – where it reached 31% in 
world inward FDI stock, only slightly lower than its  2005 – than in developed countries where it was 
share in 1990, while manufacturing accounted for  29%. On the other hand, the share of services in 
slightly less than a third of total FDI stock (30%),  total inward stock (annex table A.I.9) in developed 
Figure I.16. Sectoral distribution of cross-border M&As, by industry of seller, 1987-2006
(Per cent)
Source:  UNCTAD, cross-border M&A database. 

CHAPTER I
23
and in developing countries rose at a similar rate 
In the services sector, estimated inward FDI 
in the two regions, reaching 62% and 58% of their  stock data for 1990 and 2005 and data on cross-
respective inward FDI stocks in 2005.
border M&As for 1987-2006 suggest that there has 
By far the highest share of FDI in the primary  been a relatively steady increase in the shares of 
industries has been in mining (grouped along with  electricity, gas and water distribution, and transport, 
quarrying) and petroleum.  While FDI stock and  storage and communications in global FDI (annex 
flow estimates are not available for mining and  table B.6). The share of construction has declined, 
petroleum separately, data on cross-border M&As  but FDI in infrastructure services as a group has 
suggest that both these industries have attracted  risen in both absolute and relative terms.59 As 
increasing volumes of investment in recent years.  infrastructure development requires vast amounts 
During 2005 and 2006, the value of cross-border  of financing, it is almost impossible to meet such 
M&As in petroleum (representing an annual average  requirement from public sources alone in particular 
of $63 billion) was nearly twice that in mining. Two  in developing countries. TNCs have therefore been 
of the five largest cross-border M&A deals in 2006  increasingly involved in infrastructure development 
were in the mining sector (annex table A.I.3): one  through FDI (both greenfield investments and 
was the acquisition of Falconbridge, a Canadian  M&As) as well as through non-equity forms of 
copper and nickel mining company, by Xstrata of  participation (such as build-operate-transfer and 
Switzerland for $17 billion, and the other was the  other modalities). For example, infrastructure-
$17 billion acquisition of Inco, also Canadian, by  related industries accounted for 22% of worldwide 
CVRD of Brazil (see also Part Two, chapter IV). 
cross-border M&As in 2006 (figure I.17), and for 
30% in the developing and transition economies 
FDI stock estimates as well as data on cross-
(figure I.18) –  with both sets of shares rising 
border M&As suggest that nearly all manufacturing  recently. Private equity firms are also entering this 
industry groups have experienced a declining share  market, and accounted for more than half of the 
in FDI over 15 years (annex table A.1.9-A.I.12).  worldwide M&A deals (both domestic and cross-
That includes industries that have been the largest  border) in infrastructure in 2006, compared with 
recipients of FDI in manufactures:  chemicals 
and chemical products, motor vehicles and other  only 2% in 1998.60
transport equipment, food, beverages and tobacco, 
Regarding financial services, estimates show 
electrical and electronic equipment, and machinery  that its share in global inward FDI stock between 
and equipment.58 With the exception of chemicals  1990 and 2005 appears to have fallen slightly (annex 
and chemical products, and motor vehicles and other  table A.I.9), as also its share in total cross-border 
transport equipment, in developed countries during  M&As over the past decade (annex table B.6 for the 
the period 1990-2005, the share of all manufacturing  last three years).61  There are noticeable differences 
industry groups in global inward FDI stock declined  between regions with respect to the relative 
in both developing and developed countries. 
Figure I.17. Cross-border M&As in infrastructure, by value and share in total M&As 
in all industries, 1987-2006
Source: UNCTAD, cross-border M&A database. 
Note
Includes electricity, gas, and water distribution; construction; transport, storage and communications; educational services; and health and 
social services.

24
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure I.18. Cross-border M&As in infrastructure in developing and transition economies, by value and 
share in total M&As in all industries, 1987-2006
%
Source:  UNCTAD cross-border M&A database. 
Note
Includes electricity, gas, and water distribution; construction; transport, storage and communications; educational services; and health and 
social services.
importance of inward FDI in financial services. This  them would feature in the list.62  This section also 
industry accounted for a larger share of the estimated  includes an analysis of the 50 largest financial TNCs 
inward FDI stock of developing countries than that  ranked by the Geographical Spread Index.   
of developed countries in 1990 (26% compared to 
19%); however, this was reversed in 2005 when it 
1.  The world’s 100 largest TNCs
accounted for 20% in developed countries and 15% 
in developing countries.
The world’s 100 largest TNCs play a major 
The broad sectoral and industrial patterns  role in international production. In 2005, they 
discussed above conceal changes in the sectoral  accounted for 10%, 17% and 13% respectively of 
composition of FDI at the regional, subregional and  the estimated foreign assets, sales and employment 
country levels. A discussion of industrial patterns  of all TNCs worldwide. Following a slowdown in 
of FDI and differences in them among the major  their rate of expansion in 2000, they have increased 
regions is included in chapter II. 
their activities significantly since 2002. Overall, the 
rankings in the first half of the list have remained 
relatively stable compared to those in 2004, with 
C.  The largest TNCs
General Electric, Vodafone and General Motors 
at the top (annex table A.I.13). The top 10, with 
The composition of the 100 largest TNCs  about $1.7 trillion in foreign assets (i.e. almost 36% 
worldwide changed moderately in 2005 (the latest  of the total foreign assets of the top 100), include 
year for which data on the top TNCs are available),  four TNCs in petroleum and three in automobile 
as did their foreign activities as measured by sales  production.
and employment.  The foreign activities of the 
There were only 10 new entrants to the list in 
largest 100 TNCs from developing countries grew  2005, originating from seven different countries. By 
more noticeably; however, the importance of foreign  origin, 84 of the companies had their headquarters in 
operations in their total activities remained relatively  the Triad (the EU, Japan and the United States), the 
stable.
United States dominating the list with 24 TNCs. Five 
This section looks at developments among  countries (the United States, the United Kingdom, 
the largest TNCs, including the 100 largest non-
France, Germany and Japan) had 72 of the top 100 
financial TNCs worldwide and the 100 largest  firms. The most significant change over the past two 
non-financial TNCs from developing economies,  years has been the increase in the number of firms 
ranked by foreign assets. The current UNCTAD  from developing economies, from five to seven (six 
lists of largest TNCs, however, exclude many TNCs  of which were from Asia and one from Mexico), in 
(such as family-owned and State-owned firms)  line with the rise of TNCs from several developing 
that are not publicly listed, due to non-availability  countries (WIR06).  There is a large disparity in 
of comparable information for such companies.  size (as measured by foreign assets) between the 
If data were available, it is likely that a number of  largest firms and those ranked in the second half 

CHAPTER I
25
of the list. However, the level of 
one third of the foreign assets of 
Table I.10. Snapshot of the 
concentration of foreign assets 
world’s 100 largest TNCs, 
the top 100. With foreign assets of 
within the largest TNCs has 
2004, 2005
$62 billion, Hutchison Whampoa 
remained relatively stable over the 
(Billions of dollars, thousands of
(Hong Kong, China) remained the 
past 10 years.63
employees and per cent)
leader, accounting for as much as 
one eighth of all foreign assets of 
Although their foreign 
%
Variable
2004
2005 change
the top 100 developing-country 
assets remained almost the same as 
TNCs. Petronas (Malaysia), Cemex 
in the previous year, the activities  Assets
Foreign
4 728
4732
0.1
(Mexico), Singtel (Singapore) and 
of the largest TNCs increased  Total
8 852 8 683 -1.9
Samsung Electronics (the Republic 
significantly in 2005, with foreign 
Share of foreign in total (%)
53.4
54.5
1.1a
of Korea) remained in the next four 
sales and employment increasing  Sales
positions (annex table A.I.14).
faster than those of their domestic 
Foreign
3 407
3742
9.8
counterparts by almost 10% and 
Total
6 102
6623
8.5
The regions and countries of 
9% respectively (table I.10). In  Share of foreign in total (%)
55.8
56.5
0.7a
origin of the top 100 developing-
addition, the ratio of foreign sales  Employment
country TNCs have changed little 
 Foreign
7 379
8025
8.8
and employment to total sales and 
over the past 10 years, and 78 of 
 Total
14 850 15107
1.7
employment increased again in   Share of foreign in total (%) 49.7 53.1 3.4a
them originate in South, East and 
2005.64
South-East Asia. Other companies 
Source
UNCTAD/ Erasmus University 
database.
are headquartered in Latin America 
Of the top 100 TNCs, a In percentage points.
(11) and Africa (11). By home 
58 belonged to six industries: 
economy, Hong Kong (China) 
motor vehicles (11), petroleum 
Table I.11. Snapshot of the 
and Taiwan Province of China 
(10), electrical and electronic 
world’s 100 largest TNCs 
dominate with 25 and 18 TNCs 
equipment (10), pharmaceuticals 
from developing economies, 
respectively of the top 100. China 
(9), telecommunications (9), and 
2004, 2005
has gained in importance with 10 
electricity, gas and water services 
(Billions of dollars, thousands of 
companies listed. Other important 
(9). 
employees and per cent)
home developing countries of 
If ranking were to be 
%
TNCs in the top 100 are Singapore 
based on foreign sales or foreign  Variable
2004
2005 change
with 11, South Africa with 10, 
employment they would yield Assets
Mexico with 7 and Malaysia with 
different results (UNCTAD, Foreign
336.9
  471
39.8
6. In 2005, their foreign assets and 
forthcoming b). Ranking by sales 
Total
1073.2  1 441
34.3
Share of foreign in total (%)
31.4
32.7
1.3a
foreign sales increased significantly 
would move the petroleum TNCs 
over the previous year, by 40% 
into the top four positions on  Sales
Foreign
323.0
  477
47.6
and 48% respectively (table I.11). 
the list and another four motor  Total
738.2  1 102
49.3
But their foreign operations, as 
vehicles TNCs into the top 10.  Share of foreign in total (%) 43.8 43.2 -0.5a
reflected in the ratio of foreign 
The largest TNC in terms of Employment
to total assets and foreign to total 
foreign sales (ExxonMobil) is  Foreign
1109  1 920
73.2
sales, remained relatively stable 
10 times larger than the firm  Total
3364  4 884
45.2
Share of foreign in total (%)
33.0
39.3
6.4a
compared with 2004. By contrast, 
ranked 55 in the list. Ranking the 
foreign employment increased more 
companies by foreign employment  Source
UNCTAD/ Erasmus University 
database.
than domestic employment and the 
would present yet another picture,  a In percentage points.
ratio of foreign to total employment 
placing three retail TNCs in the 
rose by 6%.
top positions. On average, the 
The top 100 TNCs from developing 
largest TNCs had affiliates in 39 foreign countries. 
economies operate in a broader range of industries 
Deutsche Post (Germany) was the leader in this  than do the world’s largest TNCs. In 2005, apart 
regard, with value-added activities in 103 host  from the large number of diversified groups, the 
economies,65 followed by Royal Dutch/Shell  single most important industry for the top firms 
(United Kingdom/Netherlands) with 96. (annex  remained electrical/electronic equipment and 
table A.I.16).
computers, with a large number of companies 
from Asia. This was followed by petroleum, which 
2.  The 100 largest TNCs from 
gained in importance in 2005, accounting for 
developing economies66
10 companies on the list. Other relatively well-
represented industries in the top 100 were food 
In 2005, the foreign assets of the 100 largest 
and beverages (8), transportation and storage (7), 
TNCs from developing economies amounted to  telecommunications (6), and metal and metal 
$471 billion. The five largest TNCs accounted for  products (5).

26
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure I.19. The top 30 locations for foreign affiliates of the 100 largest TNCs from developing economies, 
2005
(Number of foreign affiliates)
Source:  UNCTAD, based on Dun & Bradstreet, Who Owns Whom Database.
With respect to the geographical spread of  total affiliates, also shows that, on average, 69% 
foreign operations and the number of host countries  of the affiliates of the world’s largest TNCs are 
for foreign affiliates, compared to the average of 39  located abroad, a much higher percentage than that 
host countries for the 100 largest TNCs worldwide,  for TNCs from developing economies (55%) (table 
the largest ones from developing economies each  1.12). However, the picture is more nuanced by 
had affiliates in 28 foreign countries on average. The  industry (table I.12).
preferred locations for their foreign affiliates were 
In addition to the TNI and II, WIR06 
the United Kingdom and the United States (figure  introduced  the Geographical Spread Index (GSI)67
I.19), followed by China, Germany, Hong Kong  which seeks to capture both the number of foreign 
(China), the Netherlands and Brazil.
affiliates and the number of host countries in which 
a company has established its affiliates. Since TNCs 
3.  Transnationality of the largest  from developing and transition economies have 
TNCs
foreign affiliates in fewer host countries than their 
counterparts from developed countries, the GSI 
The Transnationality Index (TNI), a composite 
indicates much lower levels of internationalization 
of  three ratios 
by developing-country TNCs 
– foreign  assets/
Table I.12. Comparison of II and TNI values 
(annex table A.I.16) in keeping with 
total assets,  foreign 
for the top 100 TNCsa, by industry, 2005
their relatively recent expansion 
sales/total sales and 
internationally.
TNCs from 
foreign employment/
Largest
developing
total employment 
TNCs
countries
4.   The world’s 50 
– is higher for the 
Industry
II
TNI
II
TNI
largest financial TNCs 
100 largest TNCs Motor vehicles
62.1
55.5
71.3
24.7
worldwide than for Electrical/electronics
76.2
53.9
67.1
53.6
Large TNCs that have grown 
the 100 largest TNCs  Petroleum
60.5
55.5
21.0
24.6
mainly through M&As dominate 
Pharmaceuticals
81.9
60.2
..
..
from developing 
Telecommunications
71.6
61.6
52.2
35.8
world financial services, not only in 
e c o n o m i e s .  Utilities
53.1
52.3
31.4
41.0
terms of their total assets but also 
Another measure of  Metals and metal products
77.7
62.0
35.9
41.5
the number of countries in which 
Food and beverages
77.8
73.3
38.3
59.2
transnationality, the Transport and storage
62.9
50.6
56.5
60.7
they operate. The 50 largest financial 
Internationalization  Computer and related activities
..
..
68.5
50.9
TNCs are ranked in this Report by 
Index (II), which 
All industries
69.5
59.9
54.5
50.6
the GSI (annex table A.I.15) and 
is the ratio of a Source:  UNCTAD/Erasmus University database.
not, as in the case of the largest non-
TNC’s foreign to 
a
Annex tables A.I.13 and A.I.16.
financial TNCs by foreign assets, 

CHAPTER I
27
as data on foreign assets as well as on foreign  Islands, Bermuda and the Bahamas are also favoured 
sales and foreign employment of financial TNCs  as locations. 
are not available. The GSI is significantly higher 
The rise in the value of assets of TNCs in 
for the largest financial groups, and for financial  the insurance industry, including reinsurance (box 
firms from Switzerland due to that country’s small  I.4), may be attributed to growth through M&As. At 
home market. The top 50 financial TNCs have, on  the end of the 1990s, many European life insurance 
average, affiliates in 28 host countries, whereas the  companies had established a presence in the United 
five largest have affiliates in 51 host countries, on  States by acquiring United States companies. The 
average. 
fact that nearly all the acquisitions were by European 
Information on the location of foreign  companies was no coincidence, as European insurers 
affiliates suggests that the most favoured host  are larger than their United States counterparts: ING 
country for the largest financial TNCs is the  (Netherlands), AXA (France), Allianz (Germany) 
United Kingdom followed by the United States  and Fortis (Belgium) were ranked 13th to 18th in the 
and Germany (figure I.20). Among developing  Fortune Global 500 in 2006. 
economies, Brazil hosts the largest number of 
These companies have been looking for 
affiliates of the world’s largest financial TNCs,  growth opportunities in the United States market and 
followed by Hong Kong (China) and Mexico. It  their presence there enables them to become global 
is noteworthy that tax havens such as the Cayman  players. Two thirds of the world’s retirement assets 
Figure I.20. The 30 most favoured locations for foreign affiliates of the top 50 financial TNCs, 2005
(Number of foreign affiliates)
Source:  UNCTAD, based on Dun & Bradstreet, Who Owns Whom Database.
Box I.4. Globalization in the reinsurance market
Globalization and consolidation are changing the composition of the largest reinsurance TNCs. Although 
three countries (Germany, Switzerland and the United States) have dominated the reinsurance business worldwide 
over the past 10 years, with more than 60% of total reinsurance premiums, Bermuda has in recent years emerged 
as a major reinsurance centre. At the same time, the consolidation of the reinsurance market in the 1990s has 
significantly increased the market share of the largest companies. In 2005, the three largest groups wrote 54% 
of all net reinsurance premiums for the 20 largest companies in this industry. In 2006 Swiss Re completed its 
acquisition of GE Insurance Solutions in a deal estimated at $7.5 billion (including $1.7 billion of debt), to become 
the world’s largest reinsurance group.
In 1985, 8 of the 20 largest reinsurance groups in the world were from the United States, five were 
German and three were Japanese, and the others were from other European countries. Twenty years later, 
according to Standard & Poor’s, five were from the United States, only two were German, another two were 
from Japan, but four were companies established in Bermuda for tax reasons and they have grown rapidly over 
/...

28
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box I.4. Globalization in the reinsurance market (concluded)
the past decade. Compared with the largest financial companies, reinsurance firms are still small in terms of assets 
and employment, but the average number of host countries in which they operate (14 to date) is on the rise due to 
the globalization of the reinsurance business. In terms of the GSI, more than half of the firms would rank among 
the 50 largest financial TNCs (box table I.4.1).
Box table I.4.1. The world’s largest reinsurance groups, ranked by the Geographical Spread Index, 2005 
(Millions of dollars and number of employees)
Assets
Sales
Employees
Rank
Net 
Number of 
GSI
TNC
Home country
Total
Total
Foreign
Total
2005
premiums
host countries
1
47.9
Swiss Re a
Switzerland
166 552
21 204
8 882
24
179
187
2
41.4
Munich Re
Germany
259 087
22 603
37 953
37
138
298
3
40.3
ACE Tempest Re
Bermuda
61 126
1 546
10 061
20
82
101
4
38.4
Mapfre Re
Spain
29 540
1 082
..
29
86
169
5
30.5
SCOR Re
France
4 440
2 692
 994
14
20
30
6
30.3
QBE Insurance Group
Australia
13 929
1 190
7 800
13
36
51
7
30.1
XL Re
Bermuda
58 137
5 013
3 600
13
62
89
8
29.5
Hannover Re (Talank)
Germany
39 624
9 191
1 989
21
53
128
9
27.3
White Mountains Re
Bermuda
8 458
1 304
..
8
27
29
10
26.8
Berkshire Hathaway
United States
198 325
10 041
..
23
148
473
11
25.8
PartnerRe
Bermuda
13 744
3 616
 943
10
8
12
12
23.9
Mitsui Sumitomo Insurance Co.
Japan
69 203
1 713
16 432
9
26
41
13
23.1
Millea (Tokio Marine&Fire)
Japan
108 430
2 789
..
10
23
43
14
22.7
Odyssey Re
United States
8 620
2 302
 592
8
9
14
15
22.0
Transatlantic Holdings Inc.(AIG) United States
4 242
3 466
 485
12
141
349
16
19.8
Reinsurance Group of America
United States
16 140
3 863
..
14
22
78
17
16.9
Axis Capital Holdings
Bermuda
11 926
1 491
 441
4
5
7
18
15.8
Sompo Japan Insurance Group
Japan
54 913
1 804
14 705
5
10
20
19
15.8
Aioi Insurance Co.
Japan
25 265
1 152
9 085
5
8
16
20
13.4
Converium Re
Switzerland
10 983
1 816
 579
3
3
5
Source:  UNCTAD, based on Standard & Poor’s, Global Reinsurance Highlights; companies’ websites; Dun & Bradstreet, Who Owns 
Whom database; and Thomson Financial database.
a
In June 2006, Swiss Re completed its acquisition of GE Insurance Solutions, a process which started in Nov. 2005, with a deal estimated at 
$7.4 billion.
Note
The Geographical Spread Index (GSI), is calculated as the square root of the Internationalization Index multiplied by the 
number of host countries. The internationalization Index (II), is calculated as the number of foreign affiliates divided by the 
number of all affiliates (majority-owned affiliates only).
From an operating performance perspective, and given the high degree of volatility inherent in the 
reinsurance business, out of the past 18 years, global reinsurers only managed to achieve underwriting profitability 
in 2003 and 2004. The operating difficulties encountered in this market have reduced the number of reinsurers, and 
only large diversified reinsurers such as Munich Re and Swiss Re managed to close 2005 with operating profits. In 
contrast with this picture, most United States-based and Bermuda-based reinsurers reported significantly weaker 
results for 2005.
Source: UNCTAD.
are in the United States, and the annuity market is  (Italy) of the German Bayerishe Hypo Bank and 
expected to double over the next decade (KPMG,  the Bank of Austria Creditanstadt for a total of 
2006). There are likely to be more M&As due to  $21.6 billion. In 2006, this trend continued with the 
the fragmented nature of the United States market.  acquisition of Banca Nazionale del Lavaro (Italy) by 
Driving this activity are the ever-increasing capital  BNP (France) for about $11 billion. European banks 
demands by rating agencies and regulators on these  are also expanding rapidly in South-East Europe.
companies. However, the lack of attractive targets 
and excessive price expectations are factors that 
D.  Prospects
could work in the opposite direction (KPMG, 2006).
In the banking industry, over the past three 
Various surveys point to continued growth 
years, the largest cross-border deals (over $10 billion  of FDI flows in 2007 and beyond, although the 
each) were concluded among European banks. In  increase in global flows in 2007 is likely to be 
2004, Santander (Spain) acquired Abbey National  at a slower rate than in 2006. Inflows in 2007 are 
(United Kingdom) for $15.8 billion.  In 2005, one of  forecast to reach $1,400–$1,500 billion, which 
the largest deals was the acquisition by Unicredito  would imply a new record level. Many factors that 

CHAPTER I
29
drive FDI activity have developed favourably during 
Figure I.21. Prospects for global FDI flows 
the course of 2007, but there could also be some 
for 2007-2009
hindrances responsible for the slower rate. 
(Per cent of survey responses)
Global economic growth in 2007 is projected 
to slow down moderately, but to remain robust 
nonetheless, and above its long-term trend (IMF, 
2007a; World Bank, 2007b; and OECD, 2007). 
• World trade is expected to be robust. 
• The continuing expansion of the world economy 
– now into its fifth year – should stimulate FDI. 
• Corporate profits and external financing 
conditions are likely to remain positive in 2007.
• M&A activity is forecast to continue its upward 
trend in 2007, boosted by ample global liquidity, 
strong growth, low inflation and high corporate 
profitability. In the first half of 2007, cross-
border M&As had increased by 54% over the  Source: UNCTAD, 2007b.
same period in 2006, to reach $581 billion. 
• Private equity and hedge funds, many in  Russian Federation and Brazil. Viet Nam is ranked 
collaboration with minority shareholders, were  higher than the United Kingdom and Germany as an 
responsible for several high-value M&As in the  attractive location. Many other recent assessments 
and surveys concur with these broad results of 
first half of 2007.68
preferred regions and countries for TNC location 
UNCTAD’s  World Investment Prospects  (Ernst & Young, 2007; IIF, 2007; JBIC, 2007; 
Survey for 2007-2009 provides strong support for  JETRO, 2007; McKinsey, 2007b; World Bank, 
the projection that FDI flows are set to increase in  2007a). FDI prospects by region are discussed in 
2007 and beyond (UNCTAD, 2007b).69 An average  more detail in chapter II.
of 63% of the companies surveyed expressed 
These preferences are undoubtedly swayed 
optimism regarding FDI prospects for the period  by the specific strategies of TNCs. For example, in 
2007-2009 (figure I.21), and 66% expect an  contrast to the UNCTAD survey, a recent survey 
increase in FDI flows in 2007. These results are  of CEOs on M&A trends suggests that developed 
also broadly supported by the worldwide survey  countries continue to be the favourite M&A 
of foreign affiliates of TNCs conducted jointly by  destination: 43% prefer Western Europe for M&As, 
UNCTAD and the World Association of Investment  followed by Asia (31%) and North America (25%), 
Promotion Agencies (WAIPA).70 Some 76% of the  with the majority of CEOs targeting countries in 
responding CEOs of foreign affiliates expected their  their own region or traditional trading partners 
investment in host economies to increase over the  (PricewaterhouseCoopers, 2007a).
next three years (figure I.22). Several international 
organizations and research 
institutes (IMF, 2007a; IIF, 2007; 
Figure I.22.  FDI plans by foreign affiliates in host countries for 2007-
World Bank, 2007a) also predict 
2009
(Per cent of survey responses)
higher FDI in 2007.71
In terms of preferred 
regions and country groups for 
FDI location, East, South and 
South-East Asia remains the 
most favourable region, followed 
by North America, the EU-15, 
and the new EU-12 (countries 
that joined the EU in 2005 and 
2007) (UNCTAD, 2007b). China 
is the most preferred investment 
location, according to the 
UNCTAD survey responses, 
followed by India and the United 
States (table I.13), and then the  Source: UNCTAD-WAIPA Worldwide Survey of Foreign Affiliates, 2007.

30
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
The UNCTAD survey did not 
stronger-than-expected tightening of 
Table I.13. The most 
cover prospects by industry in detail, 
attractive locations for 
financial market conditions cannot 
but the general consensus is that 
FDI for 2007-2009
be excluded. Increased risk exposure 
current trends will continue, with large-
on financial markets, caused for 
scale M&As already occurring or in 
Percentage of 
example by the activities of hedge 
Economies
respondents
the offing in the primary sector,72  and 
funds and carry trades,77  as well as 
especially in chemicals and automotive  China
52
spillovers from the United States 
industries in the manufacturing  India
41
housing market, pose the risk of 
United States
36
sector.73 Further growth74 and 
stronger corrections of highly valued 
Russian Federation
22
liberalization75 in the services sector is  Brazil
12
stock and real estate markets. Some 
likely to help maintain the momentum  Viet Nam
11
concerns about FDI prospects have 
United Kingdom
10
of FDI flows to this sector in the 
been expressed by respondents to 
Poland
7
largest host developed and developing  Germany
7
the UNCTAD survey, based on the 
Australia
6
regions. In banking and other financial 
possible rise of protectionism: more 
services the upward trend in M&A 
than four fifths of them believe there 
Source: UNCTAD, 2007b.
activity continued in the first half of 
could be a significant risk of changes 
2007.76
that are unfavourable to FDI in the 
Despite the generally positive prospects,  short term (UNCTAD, 2007b). Many respondents 
several challenges and risks face the world economy  also recognize that global threats such as terrorism 
that may have implications for FDI flows in 2007  and war are not negligible, but they consider that 
and 2008. Global current-account imbalances have  the probability that this type of risks might affect 
grown dramatically in some developed countries.  the level of FDI in the short term is relatively 
This could cause exchange-rate shifts, which  low (UNCTAD, 2007b). These considerations, 
may affect FDI negatively. High and volatile oil  nevertheless, emphasize the need for caution in 
prices have caused inflationary pressures, so that a  assessing future FDI prospects.
Notes
1  
Real world GDP rose by 4.9% in 2005 and 5.4% in 2006 and is 
M&As. This was due to several very large deals like the 
projected to grow by 4.9% in 2007 (IMF, 2007a).
Vodafone-Mannesmann deal which alone accounted for 18% of 
2
the value of cross-border M&As in that year.
10
The observations in this and subsequent paragraphs on the 
shares of portfolio, other capital transactions (e.g. bank loans) 
changes in M&A values in various countries/regions are based 
on data from UNCTAD’s cross-border M&A database.
Bank, 2007a).
11
O2 (telecoms) and BAA (airport services) were bought by the 
3
The Monterrey Consensus was adopted by the International 
Spanish companies Telefónica and Ferrovial, respectively for 
Conference on Financing for Development, a summit level 
$32 billion and $22 billion. BOC, an industrial gas company, 
meeting sponsored by the United Nations to address key 
was acquired by its German competitor Linde for $14 billion 
(annex table A.I.3).
held on 21-22 March 2002, in Monterrey, Mexico.  It calls, 
12
In an environment of low interest rates and ample funds, many 
among other things, for mobilizing and increasing the effective 
optimize their capital structure (IMF, 2007c: 11). 
development goals in the context of a holistic approach to 
13
Nikkei, 18 October 2006.
14
These are funds controlled and managed by private equity 
2002).
4
See Fortune 500, 15 April 2007.
holders that are not publicly listed) and buy majority or entire 
5
ownership stakes in companies and/or business units with 
a view to restructuring the management and organization, 
Nikkei,
and thereby raising the stock value of the latter for resale. 
10 February 2007).
6
Data collected by UNCTAD, based on inward FDI, are limited 
held privately and restructured over a certain period of years, 
to 132 countries for 2006. 
and then resold to other parties or again listed through an initial 
7
Several stock market indices in 2006 exceeded their previous 
public offering (IPO).
records reached in 2000 (e.g. the Dow Jones in September 
15
Because of data constraints and given the dominance of private 
2006). In 2006, the blue chip indices in 48 out of 51 of the 
equity funds, the analysis concentrates on the activities of 
world’s most important stock exchanges rose, 40 with a double-
private equity funds, which are the most active in cross-border 
digit percentage increase and 4 with a triple-digit increase 
M&As. But different kinds of funds increasingly act together, 
(World Federation of Exchanges, 2007: 113).
and the boundaries between private equity funds, hedge funds, 
8
Market capitalization in 49 of 51 major stock exchanges 
other collective investment funds and even investment banks 
increased in 2006; 41 stock exchanges recorded double-digit 
are fading away.
growth rates and 3 triple-digit growth rates (World Federation 
16
According to Dealogic, quoted in “M&A in 2006 beats tech 
of Exchanges, 2007: 66).
boom”,  Financial Times, 21 December 2006; and Nikkei, 18 
9
In 2000, cross-border M&As of over $1 billion accounted 
November 2006. 
for more than three quarters of the value of total cross-border 

CHAPTER I
31
17
funds in 2006. For example, Blackstone Group (United States) 
June 2007. 
raised $15.6 billion, 2.4 times larger than its previous highest 
29
Based on data on the estimated gross product of foreign 
raising of $6.5 billion in 2002. Apollo Management (United 
States) raised $10.1 billion, Permira (United Kingdom) $14 
30
Starting with this report, WIR plans to analyse periodically 
one important variable indicating an aspect of international 
“Blackstone quickens pace with $15.6 bn fund”, Financial 
Times
, 12 July 2006; and Nikkei, 13 July 2006. Investment 
WIR07 focusing on the employment variable. 
banks or commercial banks (such as Morgan Stanley, Citigroup, 
31
It should be noted that FDI stock is measured in nominal terms 
Deutsche Bank, Credit Suisse and Royal Bank of Scotland) 
(current value), while employment is measured in real terms 
have also entered the private equity market by establishing 
(number of employees). For a strict comparison, FDI data 
or strengthening their investment arms, and are now heavily 
engaged in private equity buyouts (complete acquisition of 
32
Source: Ministry of Commerce, China. According to the data 
from National Bureau of Statistics of China (China Statistical 
18
For example, KKR raised $5 billion with its IPO in Euronext 
Yearbook
(Amsterdam) in 2006.
accounting systems in China’s urban areas was only 6.7 million 
19
KKR, Bain Capital, Silver Lake Partners, Apax and AlpInvest 
in 2001. No employment data have been available from this 
Partners NV were involved in this acquisition. The new 
source for subsequent years.
company has been named NXP. 
33
In the United Kingdom and the United States, two traditional 
20
home countries of large TNCs, the issue of export of jobs has 
with its stock listed in Frankfurt, was acquired by Nycomed 
been widely discussed. In these countries, the immediate loss 
of jobs at home was generally compensated by an increase 
Avista Capital Partners (United States) and others. 
in employment as a result of enhanced competitiveness of 
21
However, on an announcement basis, the acquisition of VNU 
the investors (Dunning, 1993). In France and other European 
countries, debates surfaced in the early 1990s over the issue 
the largest deal in 2006.
of  delocalization, or the shifting of manufacturing production 
22
In addition to Philips Semiconductor and Altana Pharma, a 
to other countries, and its employment consequences. This 
number of publicly quoted companies are currently being 
issue continues to be of concern (for a discussion, see WIR94,
chapter IV).
(Germany), Alliance Boots (United Kingdom), Altaria (Italy), 
34
However, in some countries, such as Australia, Belgium, 
Iberia (Spain), Sapporo Holdings (Japan), Valeo (France).
Greece, Ireland, Israel, Luxembourg and New Zealand, inward 
23
For example, see “The trouble with private equity” and “The 
FDI stock is larger than outward stock.
business of making money”, The Economist, 7 July 2007, “Les 
35
Some earlier studies rejected this hypothesis (see WIR94).
fonds LBO risquent une bonne correction”, Challenge, 19 July 
36
In considering home-country effects, it is important to consider 
2007: 34. 
the counterfactual, that is whether a company would have had a 
24
For example, see “Private equity growth hitting tax revenues”, 
given level of employment or not in the home country if it had 
Financial Times, 13 October 2006 and “Blackstone’s blues”, 
not been able to invest abroad.
The Economist,  15 June 2007.
37
The index is calculated as the average of four shares for a 
25
formation, FDI inward stock as a percentage of GDP, value 
as a whole. Even if banks are less exposed and less involved, 
because these risks are ultimately taken by other parties, 
employment.
38
 The UNCTAD Inward FDI Performance Index is a measure of 
is also the possibility that corporate balance sheets could come 
the extent to which a host country receives inward FDI relative 
to its economic size. It is calculated as the ratio of a country’s 
activity (ECB, 2006a).
26
Financial Times, 24 April 2007, Special Report on Private 
detailed methodology, see WIR02.
Equity Funds.
39
The UNCTAD Inward FDI Potential Index is based on 12 
27
However, it is not certain whether job cuts have been larger 
economic and structural variables measured by their respective 
than job creation. According to an FT/Harris poll undertaken 
scores on a range of 0-1 (raw data available on: www.unctad.
org/wir). It is the unweighted average of scores on the 
United Kingdom) in March/April 2007, out of a total of 
following: GDP per capita, the rate of growth of real GDP, the 
6,587 adults surveyed, about one third of respondents (34%) 
share of exports in GDP, telecoms infrastructure (the average 
believed that the industry created jobs, but almost the same 
no. of telephone lines per 1,000 inhabitants, and mobile phones 
percentage (32%) believed it destroyed them (“Public lacks 
per 1,000 inhabitants), commercial energy use per capita, share 
awareness of private equity, says survey”, Financial Times,
of R&D expenditures in gross national income, share of tertiary 
24 April 2007). In a separate survey on 400 managed buyouts 
level students in the population, country risk, exports of natural 
(MBOs) and managed buyins (MBIs) conducted during 1999-
resources as a percentage of the world total, imports of parts 
2004 in the United Kingdom by the Centre for Management 
and components of electronics and automobiles as a percentage 
Buyout Research of Nottingham University, employment levels 
of the world total, exports of services as a percentage of the 
typically fell 2%-3% in the year of the MBOs, but then they 
world total, and inward FDI stock as a percentage of the world 
total. For the methodology for building the index, see WIR02:
MBOs. In the case of MBIs, employment levels were lower 
34-36. 
40
The UNCTAD Outward FDI Performance index is calculated 
growth of employment  (“Buyouts good for jobs, says study”, 
in the same way as the Inward FDI Performance Index: it is the 
in Fund Management, Financial Times, 26 February 2007).
28
ratio of its share in world GDP. 
bought Korea Exchange Bank in 2003 for $1.3 billion, and was 
41
 Oil companies, however, will continue to pay a 40.5% rate.
trying to sell its 50% stake to Kookmin (Republic of Korea) to 
42
(source: “S. Korea rebuffs Lone Star reproach”, Financial 
of policy changes – in Algeria, Bolivia, Peru, the Russian 
Times, 25 May 2006; “Lone Star close to scuppering $7.3bn 
Federation and Venezuela. 
deal”, Financial Times, 22 November 2006). The Government 
43
 In addition, it has compiled a list of more than 1,000 “strategic 
of the Republic of Korea charged Lone Star with stock 
enterprises” that cannot be privatized. Apart from defence-

32
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
related enterprises, the list includes Transneft, the pipeline 
64
The ratio of foreign assets to total assets also rose in 2005, but 
monopoly; Svyazinvest, a telecoms company; Alrosa, a 
this was mainly due to the decline in total assets. 
diamond producer; and the world’s largest gas producer,  65
Its wide geographical coverage is partly explained by its 
Gazprom (Liuhto, 2007).
control of DHL.
44
OECD Investment Newsletter, February 2007.
66
If there were a combined list of the top 100 TNCs from 
45
Information from the OECD secretariat.
46
In the discussion here, such agreements with investment 
be included: Lukoil and Norilsk Nickel. 
provisions are categorised as IIAs. 
67
47
The UNCTAD secretariat is currently preparing a study on 
number of host countries, and was termed simply the 
the evolution of the IIA system over the last 60 years, and 
Spread Index (SI) in WIR06. In this report, it is termed the 
its development implications (UNCTAD, forthcoming a). 
Geographical Spread Index (GSI).
Various investment-related aspects of international economic 
68
For example in April 2007, the private equity fund KKR 
agreements other than BITs and DTTs are also discussed in 
(United States) acquired the pharmaceutical company Alliance 
UNCTAD, 2006c.
Boots (United Kingdom) for $22 billion, the biggest ever 
48
These included FTAs signed by the United States with 
leveraged buyout made by a private equity fund (“Le private 
Colombia, Oman, Panama and Peru, and the Economic 
equity pulvérise ses records”, Le Temps, 16 May 2007).
Partnership Agreement between Japan and Malaysia, and  69
The UNCTAD survey on FDI prospects by large TNCs is 
between Japan and the Philippines.
conducted worldwide on an annual basis. It was undertaken 
49
Recent examples of such agreements include the ASEAN 
during March–June 2007 on a sample of 1,500 companies, 
agreements for the establishment of  free trade and investment 
chosen from among the 5,000 TNCs. A total of 191 
areas with China (2002), India (2003) and the Republic of 
responses were received, representing a 13% response rate. 
Korea (2005), the FTA between Panama and Singapore (2006), 
Simultaneously, an ad hoc group of international location 
and the FTA between China and Pakistan (2006). 
experts has been set up to provide a more qualitative and global 
50
This number does not include cases where a party signalled 
analysis on medium-term business opportunities, risks and 
its intention to submit a claim to arbitration but had not yet 
uncertainties affecting international investment. The results of 
commenced arbitration (notice of intent).
its analysis are included in a separate survey report (UNCTAD, 
51
UNCTAD, “Latest developments in investor-state dispute 
2007b).
settlement”, IIA Monitor, No. 4, 2006. 
70
52
Idem. 
of TNCs conducted in February–April 2007 aimed at obtaining 
53
In this context, see UNCTAD, 2006b.
54
regard to investment prospects and local business environments 
the concept of fair and equitable treatment does “not require 
in their respective host economies. The survey questionnaire 
treatment in addition to or beyond that which is required” by 
the customary international law minimum standard of treatment 
of aliens, and that, “except in rare circumstances, non-
completed the questionnaire, yielding a response rate of 11%.
71
discriminatory regulatory actions that are designed and applied 
The IMF’s World Economic Outlook has estimated an increase 
to protect legitimate public welfare objectives, such as public 
health, safety, and the environment, do not constitute indirect 
expropriations.”
billion, from $266 billion in 2006 (IMF, 2007a). Estimates 
55
These are primarily Canada and the United States, but also 
Colombia, Japan and the Republic of Korea.
Finance for 30 emerging economies are $194 billion in 2007, 
56
Empirical evidence suggests that the worldwide sales and 
compared with $167 billion in 2006  (IIF, 2007). The World 
investments of TNCs are heavily concentrated in their home 
country or one other major region (e.g. Rugman and Verbeke, 
(including Central and Eastern Europe) from $325 billion in 
2004; Dunning, Fujita and Yakova, 2007).
2006 to $377-$420 billion in 2009, depending on the world 
57
economic growth rate (World Bank, 2007a).
Assuming that world outward FDI equals world inward FDI (as 
72
it should in principle), this implies that the share of the host 
For example, Rio Tinto (United Kingdom) offered a $38 billion 
country’s total inward FDI that comes from the home country 
bid for the acquisition of Alcoa (United States) in July 2007.
73
is the same as its share in total world inward FDI that comes 
For example, 82% of Japanese companies in manufacturing 
from that home country.
plan to strengthen or expand overseas business operations 
58
The one exception may be metals and metal products: although 
over the next three years (JBIC, 2007). Eastern Europe is set 
estimated FDI stock data show a slight decline in their share in 
total world inward FDI during 1990-2005, data on cross-border 
Several car makers are also building plants in the Russian 
M&As worldwide indicate a modest rise of their share in total 
Federation (“Suzuki announces plan to build car plant in Russia 
sales through much of the period 1987-2006.
with Itochu”, Japan Today, 9 June, 2007; www.japantoday.
59
com/).
74
including public utilities (e.g. power, telecommunications, 
For example, in the United States, the Institute for Supply 
sewage and sanitation), public works (e.g. roads, dams), 
Management’s Index, which includes new orders, inventories, 
transportation (e.g. railways, postal systems and airports) and 
exports and employment by non-manufacturing businesses, 
social services such as education and health (World Bank, 
including banks, builders and retailers, rose to 59.7, the highest 
1994). 
since April 2006. (“U.S. May ISM services index rises to the 
60
highest of year”, Bloomberg, 5 June 2007).
“Infrastructure deals soar to $145 bn”, Financial Times, 13 
75
October 2006.
For example, agreements on the EU’s Services Directive in 
61
2006 and commitments by ASEAN member States to liberalize 
For time-series data, see UNCTAD’s FDI/TNC database (www.
FDI in 70 out of 83 service industries by 2015 are likely to 
unctad.org/fdistatistics). 
boost FDI. 
62
For example, the two largest private industrial corporations in 
76
the United States, Koch Industries and Cargill Inc., Boehringer-
2007: Danske Bank (Denmark) acquired Sampo Bank (Finland) 
and Crédit Agricole (France) purchased Cassa di Risparmio 
and Bertelsmann (media) in Germany, and Japan’s Shiseido 
di Parma (Italy), each for $5 billion, while Citibank (United 
(the largest Japanese cosmetics TNC) and Suntory (the largest  
States) acquired Akbank (Turkey) for $3 billion.
in cosmetics and alcoholic beverages) , are not included in 
77
Transactions in which investors borrow low-yielding currencies 
UNCTAD’s lists.
in countries with low interest rates and lend them in other 
63
The relative importance of the 5, 10 and 20 largest TNCs 
countries with high exchange rates (for a further discussion on 
among the world’s top 100 has remained relatively stable over 
carry trade, see UNCTAD’s Trade and Development Report 
time (UNCTAD, forthcoming b).
2007). 


CHAPTER II
REGIONAL TRENDS
INTRODUCTION
of Independent States (CIS)  also reached 
record levels. Flows to all developing and 
Inward FDI flows in 2006 rose in  transition  economies  remained at more 
all regions  (figure II.1), though  their rates  than one third of the world total, but their 
of growth differed and some new trends  share in global FDI inflows fell somewhat 
emerged. FDI inflows to developing  in 2006 due to higher rates of increase in
countries grew at a slower rate than those
flows to developed countries. At the same 
to developed countries, but all developing  time, the share of developing and transition 
regions except Latin America and the  economies in global FDI outflows has
2007
Caribbean registered record  flows. FDI
risen continuously since 2003, and 
inflows  to the transition  economies  of  reached nearly 16% in 2006. Compared to
South-East Europe and the Commonwealth 
other types of capital flows to developing
economies, FDI inflows  have  been the 
largest component of total 
Figure II.1. FDI flows by region, 2005 and 2006
resource flows since 1994, 
(Billions of dollars)
and their share in 2006 was 
51% (figure II.2; chapter 
I).1
In terms  of  sectoral
distribution,  judging from 
data on cross-border M&As 
(as data on FDI flows
by sector for 2006 were 
not available at the time
of writing this Report), 
FDI  in the services sector 
grew in all economies in 
2006, while the primary 
and manufacturing sectors 
experienced uneven patterns 
of  growth, which also 
differed  by region  (table 
II.1). The pattern confirms 
not only the increasing 
importance of services  in 
FDI  (WIR04) over the past 
several  years, but also the 
recent re-emergence of the 
primary sector in developing 
and transition  economies 
due to a significant rise  in
FDI in mining, quarrying 
and petroleum  – extractive 
Source: UNCTAD, based on annex table B.1 and FDI/TNC database (www.
industries that are the focus 
unctad.org/fdistatistics).
of Part Two of this WIR.
1

34
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure II.2.  Total net resource flowsa to developing countries,b by type of flow, 1990-2006
(Billions of dollars)
Source:  UNCTAD, based on World Bank, 2007a. 
 
 
 
 
a
Defined as net liability transactions or original maturity of more than one year.
b
The World Bank’s classification of developing countries is used here. It differs from UNCTAD’s classification in that it includes new EU member States from 
Central and Eastern Europe, and excludes high-income countries such as the Republic of Korea and Singapore under developing countries.
Table II.1. Cross-border M&A sales, by sector and by group of economies, 2005-2006
(Millions of dollars)
2005
2006
Group of economies
All industries
Primary
Manufacturing
Services
All industries
Primary
Manufacturing
Services
World
716 302
115 420
203 730
397 152
880 457
86 133
274 406
519 918
Developed economies
604 882
110 474
171 020
323 388
727 955
65 119
247 233
415 602
Developing economies
94 101
2 858
25 963
65 280
127 372
16 639
22 603
88 130
Transition economies
17 318
2 088
6 747
8 483
25 130
4 374
4 570
16 185
Source:   UNCTAD, cross-border M&A database.
This chapter examines the trends and patterns 
and fell in 21. Some Asian developing countries 
of FDI in 2006 by major regions. The discussion  have become major sources of cross-border M&As 
in the following sections focuses on recent trends  and other forms of FDI in Africa. Outward FDI 
in FDI flows to and from each region, as well as  from Africa also reached a record level in 2006, 
their subregions and countries, and provides a  largely driven by TNCs from South Africa. Policy 
picture of the changing geographical, sectoral and  developments indicate a further opening up to 
industrial patterns of FDI flows by region. Policy  foreign investment, although some countries have 
developments underlining these patterns, and  also made changes in their regulatory frameworks 
prospects for FDI flows to and from each region are 
with a view to securing greater benefits from inward 
also analysed.
FDI.
A.  Developing countries
 a.  Geographical trends
(i)
Inward FDI: natural resources 
1.  Africa
drove the surge
FDI to Africa amounted to $36 billion in 
In 2006, FDI inflows to Africa rose by 20%
2006 – a new record level. The surge was in large 
to $36 billion (figure II.3), twice their 2004 level. 
part related to investments in extractive industries,  Following substantial increases in commodity 
but FDI also rose in various service industries. As a 
prices, many TNCs, particularly those from 
result, inflows as a percentage of the region’s gross 
developed countries already operating in the region, 
fixed capital formation increased to 20% in 2006,  significantly expanded their activities in oil, gas and 
from 18% in 2005 (figure II.3). As in other years,  mining industries. TNCs from Asia expanded even 
there were wide variations among the different  more rapidly, through both greenfield investments 
African countries. FDI inflows rose in 33 countries 
and cross-border M&As (table II.2). At the same 


CHAPTER II
35
Figure II.3. Africa: FDI inflows and their share in gross fixed 
FDI grew by 14%, which was more than in 
capital formation, 1995-2006
Asia and Oceania (9%) but much less than 
in Latin America and the Caribbean (36%) 
(section A.3).4  
The extractive industries accounted 
for most of the increase in inflows to 
Africa in 2006.5  While such investments 
can help boost exports and government 
revenues, concerns have arisen in several 
mineral-rich countries about the impact on 
exchange rates and the prospects for other 
export-oriented activities (EIU, 2007a). 
In Zambia, for instance, a tenfold increase 
in copper exports since 2000 to $2.7 
billion in 2006 led to an appreciation of 
the real exchange rate.6 As a consequence, 
Zambia’s attractiveness for FDI suffered in 
export-oriented clothing and horticulture, 
as well as in those products that are entitled 
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex  to preferences under the African Growth 
tables B.1 and B.3.   
and Opportunity Act (AGOA)7 and the 
time, the services sector continued to attract 
Euro-Mediterranean Partnership. Similar 
considerable FDI, in particular in transport, storage 
concerns have been raised for Algeria, the Libyan 
and communications. An estimated 442 greenfield  Arab Jamahiriya, Mauritania, Nigeria, South 
investments were undertaken in Africa in 2006, 258
Africa, Swaziland and Uganda. Moreover, the 
by developed-country TNCs, particularly Europe  appreciation of the real exchange rate exacerbated 
(161), 175 by developing economies (134 from Asia 
the situation even further in countries with already 
and the remaining from within Africa), and a few  high costs of production, capacity shortage or low 
from South-East Europe and the CIS.2  The value  competitiveness. This may have led to the closure 
of cross-border acquisitions of African enterprises  of some foreign-owned production facilities in 
reached a record level ($18 billion) in 2006, almost 
garments and other manufactures, for example in 
half of this in the form of M&As by Asian TNCs,  Kenya, Lesotho,  Mauritius and Swaziland.8  These 
which represents a huge expansion of activity since 
disinvestments were partly offset in some cases by 
the start of the decade (table II.2), particularly in oil, 
higher inflows into new natural resource exploration 
gas and mining activities. Despite the increased FDI 
activities, particularly in some least developed 
inflows, however, Africa’s share in global inflows  countries (LDCs) (box II.1). 
fell, from 3.1% in 2005 to 2.7% in 2006. 
The top 10 FDI recipients in Africa accounted 
FDI inflows contributed to a strengthening of 
for $32 billion (or nearly 90%) of the region’s 
the balance of payments in several African countries. 
inflows in 2006, up from $20 billion in 2005 (annex 
In 2006, foreign reserves in the region as a whole  table B.1). Eight of them attracted FDI in excess 
grew by some 30%, and by even more in some  of $1 billion in 2006, the same as the previous 
major oil-exporting countries such as Nigeria and  year; and in four of them such flows were higher 
the Libyan Arab Jamahiriya.3  Income on inward  than $3 billion: Egypt, Nigeria, Sudan and Tunisia 
2
3
4
5
6
7
8
Table II.2. Distribution of cross-border M&A purchases in Africa by home region, 1999-2006 
(Millions of dollars)
Acquiring regions
1999
2000
2001
2002
2003
2004
2005
2006
World
3 117
3 199
15 524
4 684
6 427
4 595
10 509
17 569
Developed economies
2 534
2 380
14 964
3 668
3 156
2 571
9 564
7 173
Developing economies
 583
 819
 559
1 016
3 270
2 024
 476
9 721
Africa
 52
 769
 520
 809
 569
1 849
 360
 746
Latin America and the Caribbean
 373
-
-
 67
 166
-
-
 125
Asia
 158
 50
 39
 141
2 536
 175
 116
8 850
Source:  UNCTAD cross-border M&A database.

36
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box II.1. FDI flows to African LDCsa  rise, led by investment in extractive industries
FDI flows to African LDCs increased from $6 billion in 2005 to $8 billion in 2006 (box figure II.1.1) 
following two consecutive years of decline. The increase was driven by investors seeking new mining locations 
in response to rising global demand and high commodities prices. As a result, the share of LDCs in FDI to Africa 
rose from 21% in 2005 to 23% in 2006, and, as with many other African host economies, such investment was 
mainly from developed countries and Asian developing countries. TNCs in telecommunications activities have 
also started to invest in African LDCs, especially those LDCs that were previously considered risky due largely to 
conflicts, leading to a small but positive improvement in inflows to these countries.b
The 10 major recipients of FDI among African LDCs in 2006 were (in declining order): Sudan, Equatorial 
Guinea, Chad, the United Republic of Tanzania, Ethiopia, Zambia, Uganda, Burundi, Madagascar and Mali. FDI 
grew particularly fast (by 50% or more) in Burundi, Djibouti, Guinea-Bissau, Somalia, Madagascar, Ethiopia, 
Cape Verde, Gambia and Sudan. CNOOC (China), Ophir Energy (South Africa), Soma Petroleum (Canada), 
Range Resources and Woodside (both Australia) were among the TNCs that contributed to FDI in natural resource 
exploration in these countries. 
In contrast, Angola and Liberia 
Box figure II.1.1. African LDCs: FDI inflows and their share in gross 
registered negative FDI inflows in 2005 
fixed capital formation, 1995–2006
and 2006. In Angola, this was because 
of acquisitions by the State-owned oil 
company, Sonangol, of ongoing oil 
exploitation and refinery projects owned 
by foreign TNCs. In Liberia, while the 
negative inflows of $82 million in 2006 
were reduced from the previous year’s 
negative level of $479 million, investor 
confidence is recovering at a slow pace 
following the end of a series of civil wars 
and the establishment of a democratically 
elected  government in that country. 
Inflows stagnated in Lesotho, mainly 
due to a slowdown in the textile industry 
and the withdrawal of a number of TNCs 
Source:
UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and  involved in that industry.
annex tables B.1 and B.3.   
Source: UNCTAD.
a
The 34 African LDCs are: Angola, Benin, Burkina Faso, Burundi, Cape Verde, the Central African Republic, Chad, Comoros, the 
Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, 
Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, 
Togo, Uganda, the United Republic of Tanzania and Zambia.
b
Examples include MTN of South Africa in Guinea-Bissau and Liberia, Maroc Télécom in Burkina Faso and Burundi, Telsom Mobile 
of the United Kingdom in Somalia, Portugal Telecom in Angola and MTC Kuwait in Sudan.
(figure II.4, table II.3). Both cross-border M&As  TNCs) that were fairly diversified. All countries 
and greenfield investments contributed to increased 
in the subregion, except Morocco (where flows 
inflows to several of the top host countries,  remained relatively large), received increased inflows, 
particularly Egypt, Nigeria, Sudan, Tunisia and  most of which were concentrated in agriculture, 
Morocco.9 While most of the FDI to the region as  communications, construction, manufacturing11
a whole went to extractive industries, in Egypt – the 
and tourism; they were driven partly by investments 
top FDI recipient in 2006 – 80% of the more than 
for expansion and privatizations.  As a result, FDI 
$10 billion of its inflows were in non-oil activities 
flows to the subregion surged to a record level 
such as agriculture, manufacturing, banking and  of $23 billion in 2006, accounting for 66% of 
tourism. 
inflows to Africa. Egypt attracted an exceptional 
FDI inflows to the five subregions of Africa 
level of inflows, amounting to 43% of the total to 
in 2006 were uneven, reflecting the influence of  the subregion,12 but the share of investments in oil 
different factors, particularly the availability of  and gas activities, though still large, declined from 
natural resources, as discussed below.
60% in 2005 to 21% in 2006. In the Libyan Arab 
Jamahiriya, FDI inflows rose by 67% over those of 
North Africa.10 North African countries  2005, to reach $1.7 billion, the highest level since 
received record FDI inflows (partly from Asian 
9
the end of international sanctions imposed on that 
10
11
12

CHAPTER II
37
Figure II.4. Africa: top 10 recipients of FDI,a 2005-2006
for 80% of the FDI to the subregion, 
(Billions of dollars)
dominated by FDI in its oil industry, 
mostly from China.  In Ghana, inflows 
tripled to $435 million, largely as a 
result of investment by two United 
States firms: Newmont Gold Company 
and Alcoa (in an aluminium company, 
Valco). Most of the other inflows into 
the subregion went to the services sector. 
Cape Verde saw a major disinvestment, 
with the Government re-acquiring a 
majority stake in the country’s electricity 
and water utility, Empresa Pública de 
Electricidade e Água de Cabo Verde, 
thereby reversing a controversial 
privatization. On the other hand, FDI 
in tourism in the country experienced 
strong growth.15
Central Africa.16  In Central 
Africa, Asian TNCs made significant 
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex table  investments in many sectors, nudging 
B.1.
a
Ranking based on FDI inflows in 2006.
FDI inflows up to $4 billion in 2006. The 
subregion accounted for 11% of Africa’s 
country. In Tunisia, inflows more than quadrupled,  total inflows, most of it going to the primary and 
mainly as a result of privatizations in the  services sectors, including infrastructure. Equatorial 
telecommunications industry.13 Algeria, Sudan and  Guinea, Chad, Congo and Cameroon (in that order) 
Tunisia also received more FDI in the petroleum and 
were the destinations. A large part of the increase 
telecommunication industries, mainly from China,  in investment to the subregion reflected greater 
India, Kuwait and Malaysia.  In contrast to other  spending by TNCs on oil and mining exploration. 
North African countries, FDI inflows to Morocco  In Cameroon, investments by Total (France) and 
declined due to fewer privatization sales. 
Pecten Cameroon were the major cause of the surge 
West Africa.14 FDI inflows to West Africa  in its FDI inflows.17
rose to $7 billion in 2006, following larger 
East Africa.18  East African countries 
investments in all sectors by European and Asian  recovered from a decline in their FDI inflows as 
TNCs. The subregion’s share in FDI inflows to  a result of new oil exploration activities in non-
Africa rose to 19% from 17% in 2005. Nigeria was 
traditional producer countries and privatizations. 
the main destination in West Africa, accounting  FDI inflows to the subregion rose to about $2 billion 
13
14
15
16
17
18
Table II.3. Africa: distribution of FDI flows among economies, by range, 2006
Range
Over $3.0 billion
Egypt, Nigeria, Sudan and Tunisia
South Africa
$2-2.9 billion
Morocco
..
$1-1.9 billion
Algeria, Libyan Arab Jamahiriya and Equatorial Guinea
..
$0.5- 0.9 billion
Chad
..
Ghana, United Republic of Tanzania, Ethiopia, Zambia, Congo, 
$0.2-0.4 billion
Namibia, Cameroon, Uganda, Burundi, Botswana, Gabon, 
Morocco, Liberia and Nigeria
Côte d’ Ivoire and Madagascar
Mali, Democratic Republic of the Congo, Mozambique, Seychelles,  Egypt, Libyan Arab Jamahiriya, Angola, Algeria, Tunisia, 
Cape Verde, Djibouti, Guinea, Mauritius, Somalia, Gambia, Benin, 
Kenya, Botswana, Mauritius, Sudan, Seychelles, Senegal, 
Less than $0.1 
Senegal, Lesotho, Togo, Kenya, Sierra Leone, Guinea-Bissau, 
Congo, Sierra Leone, Swaziland, Niger, Malawi, Mali, 
billion
Zimbabwe, Swaziland, Malawi, Burkina Faso, Central African 
Mozambique, Cape Verde, Zimbabwe, United Republic of 
Republic, Niger, Rwanda, Eritrea, Comoros, São Tomé and 
Tanzania, Benin, Burkina Faso, Guinea-Bissau, 
Principe, Mauritania, Liberia, South Africa and Angola 
Côte d’ Ivoire, Namibia, Togo and Gabon
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex table B.1.
a
Countries are listed according to the magnitude of FDI.

38
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
in 2006 compared with $1 billion the previous year. 
invested in offshore oil exploration in the United 
However, this subregion still ranks low in FDI  Republic of Tanzania.  AngloGold also established 
inflows to Africa. Four countries (Djibouti, Ethiopia, 
an alliance worth $58 million with Trans-Siberian 
Kenya and Madagascar) that had registered a decline 
Gold of the Russian Federation. 22  
in their inward FDI in 2005 saw increased inflows 
A number of African TNCs in services 
in 2006. The United Republic of Tanzania had the  (many of them from South Africa) also expanded 
highest inflows in the subregion, amounting to $377 
abroad, including into Europe. Outward FDI 
million in 2006 (most of it due to investment for  in telecommunications involved, for example, 
expansion in the mining industry). FDI into Uganda 
Orascom (Egypt), MTN (South Africa), Maroc 
rose by 19%, partly as a result of investments from 
Telecom (Morocco), Naguib Sawiris (Egypt) 
Australia (e.g. by Hardman Resources) in the oil  and Telkom (South Africa).23  Significant cross-
industry and from Egypt, India, Kenya, South  border acquisitions by African firms took place in 
Africa and the United States in services and agro-
industries as diverse as health-care services, printing 
processing.  In Kenya, FDI increased due to large  and media, and construction.
privatization sales in the telecommunications 
industry and investments in railways. The recovery 
b.  Sectoral trends: primary sector’s 
of FDI to Ethiopia in 2006 was a result of increased 
share rose
oil exploration activities in the Ogaden region. 
Southern Africa.19 A significant decline 
There was a surge of FDI flows to Africa in 
in FDI inflows, particularly to the two principal  the primary sector, mainly in oil and gas (table II.4). 
host countries (Angola and South Africa) in the  In addition, the growing services sector, particularly 
subregion led to negative inflows amounting to  transport, storage and communications, continued to 
$195 million in 2006. This contrasted with the high 
attract FDI, as reflected by the data on cross-border 
growth experienced in 2005 when inflows reached  M&As in 2006. However, it grew at a lower rate 
$6 billion. Although South Africa experienced  than the primary sector. 
negative FDI inflows, caused by the sale of a foreign 
Inflows into the manufacturing sector 
equity stake in a domestic gold-mining company to 
continued to grow in North African countries at a 
a local firm, there were a number of cross-border  slow but stable rate, while in sub-Saharan Africa, 
M&A deals in the country. For instance, Vodafone  no significant manufacturing FDI took place. 
(United Kingdom) paid $2.9 billion to raise its stake 
Conversely, disinvestments occurred in textile 
in Vodacom of South Africa, Tata (India) bought  processing.  Limited production capabilities continue 
a 26% stake in InfraCo (a telecommunications  to be a major factor behind the relatively low FDI 
company), valued at $60 million, and some other  inflows in manufacturing and the difficulties faced 
Asian TNCs (such as Istithmar, the investment  by African countries in seizing the opportunities 
arm of the Government of Dubai) bought V&A  offered by preferential market access initiatives 
Waterfront (South Africa) for more than $1 billion.20
such as AGOA, Everything but Arms (EBA) and 
In Angola, Sonangol’s takeover of major oil-related 
the Cotonou Agreement between the European 
projects from foreign companies, such as the Lobito 
Commission (EC) and the African Caribbean and 
oil refinery, also resulted in an overall negative FDI 
Pacific group of countries.  
inflow, though some foreign investments took place 
in banking, telecommunications and mining.    
c. Policy developments 
(ii) Outward FDI hit new heights
The rapid growth of inflows to Africa partly 
FDI outflows from Africa hit record levels in 
reflects the steps taken by countries of this region 
2006, to reach $8 billion, nearly four times those of 
to open up their economies to foreign investment. 
2005, and more than twice the previous peak in 1997 
UNCTAD’s annual survey on changes to national 
(annex table B.1).21  Investors from South Africa  laws and regulations shows that in 2006, 40 African 
accounted for four fifths of these. Other source  countries introduced 57 new measures affecting 
countries, including Morocco, Liberia, Nigeria,  FDI, of which 49 encouraged inward FDI. 
Egypt and the Libyan Arab Jamahiriya, in that order, 
Of these measures, 14 were related to sectoral 
recorded their highest level of outflows. A large  liberalization, more specifically: 
proportion of FDI by South African TNCs in 2006 
Botswana, Burkina Faso, Burundi, Cape Verde, 
was in natural resource exploration and exploitation. 
Ghana, Kenya and Namibia allowed partial or full 
For example, AngloGold Ashanti invested in a gold- 
foreign ownership of their telecommunications 
mining expansion project in Brazil (in Cuiaba) 
industries; 
and in underground gold extraction development 
Congo, Egypt and Nigeria wholly or partially 
in Australia (at Sunrise Dam); and Ophir Energy 
opened up their banking industries; 
19
20
21
22
23

CHAPTER II
39
Table II.4. Africa: distribution of cross-border M&As, 
foreign ownership in its oil and gas industries; 
by sector and main industry, 2005-2006
Lesotho extended State monopoly over its fixed-
(Millions of dollars)
line telephone services for a further 12 months; 
Swaziland closed its retail sector to foreign 
Sales
Purchases
investors, and Zimbabwe prohibited money transfer 
Sector/industry
2005
2006
2005
2006
operations by foreign or domestic agencies and 
Total industry
10 509 17 569
 15 505  11 208
main banking institutions. In the Libyan Arab 
Primary
 908
4 788
  249
  356
Jamahiriya, new measures were adopted, requiring 
Mining, quarrying and petroleum
 908
4 788
  249
  356
foreign investors to give priority to Libyan 
Mining and quarrying
 873
 524
  237
  335
Petroleum
 34
4 265
  12
  21
nationals in the manufacturing and agricultural 
Secondary
1 676
2 017
  35
  159
sectors, and in construction, electricity, transport 
Food, beverages and tobacco
 17
1 136
  3
-
and communications in the services sector, as well 
Chemicals and chemical products
 12
 3
-
  120
as to provide training to locals, and ensure equal 
Stone, clay, glass, and concrete products
 967
-
  29
-
payments  between Libyan and foreign staff. 
Metals and metal products
 12
 783
  3
-
Machinery
 545
-
-
  39
At the international level, the region’s 
Electrical and electronic equipment
-
 8
-
-
development partners under the umbrella of the 
Motor vehicles and other transport equipment
 3
 13
-
-
fourth Africa-Asia Business Forum (AABF) and 
Services
7 925 10 763
 15 221  10 693
the Tokyo International Conference for Africa’s 
Electricity, gas, and water distribution
 58
 307
-
-
Hotels and restaurants
 32
 10
-
-
Development (TICAD) implemented measures to 
Trade
 312
1 001
  47
  87
boost the region’s FDI inflows.  The Forum sought 
Transport, storage and communications
1 534
8 321
 1 307
  698
to boost the expansion of investments by Asian 
Finance
5 398
1 086
 13 787
 9 315
firms, including small and medium-sized enterprises 
Health and social services
 587
-
-
-
(SMEs), in Africa (box II.2).
Source:  UNCTAD cross-border M&A database.
However, changing regulatory frameworks 
and improving the business climate may not be 
Ethiopia approved foreign concessions to its  enough to attract greater FDI into manufacturing 
railway company and Mauritius opened its legal 
and to benefit from such investments. In countries 
professional services industry to FDI; 
with small domestic markets, FDI in manufacturing 
Morocco permitted foreigners to own vast areas  depends particularly on export markets and on the 
of land; and 
international competitiveness of African products in 
terms of unit factor costs relative to other countries 
Swaziland opened up to FDI in insurance. 
(Golub and Edwards, 2003). Natural resources are 
A number of African countries introduced  attractive assets for export-oriented production, 
measures aimed at improving the admission and/
but they may not provide a sufficient basis for 
or establishment processes applied to foreign  sustainable economic growth (Part Two). Moreover, 
investors. For example, Burkina Faso created a one-
natural resources provide rents only for as long 
stop shop for new businesses; Kenya strengthened  as the resources last and are in demand; without 
its investment promotion agency (IPA); several  technological and skills upgrading and development 
countries eased or improved registration and  of downstream industries resource-exporting 
fiscal procedures for various business start-ups.24
countries may eventually face stagnant prices and 
For example, Nigeria cut the average property  the risk of specializing in products that may become 
registration time from 274 to 80 days.
outdated (Nwokeabia, 2007). Accordingly, it is 
Many countries introduced various other  important for host countries to adopt policies that 
measures to promote foreign investment. These  help improve their local capacities, and in particular 
mainly involved tax reductions (Algeria, Egypt,  their labour skills and technological capabilities.
Ghana, Lesotho, Mozambique, Tunisia, Uganda and 
the United Republic of Tanzania), the establishment 
d. Prospects: moderate growth 
of specialized investment zones or parks (Botswana,
expected in 2007
Eritrea, Morocco, the United Republic of Tanzania 
and Zambia), or the setting up of advisory councils 
Prospects for FDI inflows into Africa in 
for investment promotion (Ethiopia).
2007 and beyond are expected to remain positive 
In some countries, however, governments  – albeit moderately – due to high commodity prices, 
adopted policies that were less favourable to  particularly of oil. UNCTAD’s World Investment 
foreign investment. For example, in Algeria, Egypt, 
Prospects Survey (UNCTAD, 2007b)25 shows that 
Equatorial Guinea and Zambia, Governments  only 20% of the investors interviewed planned to 
raised various taxes or royalties that may affect  increase investment in Africa between 2007 and 
foreign investment. Algeria ended majority 2009, with no significant differences by subregion 
25
24

40
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box II.2.  A renewed push for Asian FDI in Africa
In 2006, TNCs from developing Asia accounted for over half of the cross-border M&As to Africa, worth 
close to $9 billion, up from $0.1 billion in 2005 (table II.2). This followed previous but slower growth in Asian 
FDI to Africa, which averaged $1.2 billion annually during the period 2002-2004. Singapore, India and Malaysia 
are the top Asian sources of FDI to the region, with a combined investment stock estimated at $3.5 billion (i.e. of 
cumulative approved flows from 1996 to 2004), followed by China, the Republic of Korea and Taiwan Province 
of China. Malaysia’s FDI was the most diversified, by country and by industry, while about 3% of China’s total 
outward FDI stock was spread over some 500 FDI projects in 48 African countries. Moreover, FDI from China to 
Africa has been increasing rapidly in recent years (UNCTAD, 2007d).
As part of efforts by the Government of Japan to boost trade and investment flows between the two regions, 
the fourth Africa-Asia Business Forum (AABF IV) took place in Dar es Salaam, United Republic of Tanzania 
in February 2007.  The forum aims at increasing trade opportunities available to Asian TNCs in Africa taking 
into account the various trade agreements in place, such as AGOA and various new economic programmes for 
Africa’s development (e.g. the New Partnership for Africa’s Development (NEPAD)). It also aims to encourage 
the transcontinental exchange of knowledge and expertise and foster stable and sustainable economic growth and 
development between the regions within a South-South framework. The sectors targeted by AABF IV are:  agro-
industry and food processing, building materials, construction and engineering, information and communication 
technologies, medical equipment and pharmaceuticals, and textiles, garments and leather products.
Participation in AABF IV was open to businesses from African and Asian countries.
Source:  UNCTAD, based on information from AABF IV.
(figure II.5). Returns on capital in the region are  which are geographically concentrated. In North 
expected to remain strong. While FDI in oil and  Africa, prospects for the region as a whole are bright 
gas and other minerals is likely to remain robust in 
under initiatives being negotiated or concluded with 
the medium term, in manufacturing it is likely to  the EU (box II.3), with significant new investments 
fall further, due to tough international competition  expected in Algeria and the Libyan Arab Jamahiriya. 
in garment exports and to the removal of trade  In  West Africa, Central Africa and Southern Africa 
preferences. But in the long-term it should revive  FDI inflows will also be concentrated in a few 
as new initiatives, such as the African Investment  countries, for example, in oil exploration in Nigeria, 
Incentive Act (AIIA) by the United States  in mining and associated activities in South Africa, 
Government, are implemented.26
and in oil and related infrastructure development 
FDI inflows into Africa in 2007 are likely to 
in Equatorial Guinea. FDI inflows into countries 
remain unevenly distributed by sector/industry and  with few natural resources are likely to remain 
subregion and country, especially because most new 
slow, including in almost the entire East African 
investments will be in oil, gas and natural resources 
subregion, though even here there will be relatively 
higher flows to countries such as Mauritius because 
of privatizations and other M&A activity.
Figure II.5. FDI prospects in Africa, 2007-2009, by 
subregion: responses to UNCTAD survey 
 Prospects are also good for larger FDI 
(Per cent of respondents)
outflows from Egypt, Morocco, Nigeria and 
South Africa, as TNCs from these countries (in 
particular in mining and services) are set to continue 
expanding abroad.  
2.  Asia and Oceania
FDI inflows to Asia and Oceania reached 
a record of $260 billion, marking the fourth 
consecutive year of growth and representing more 
than two thirds of inflows to developing countries. 
Outward flows from this region grew by 50%, 
to $117 billion. Six out of the seven developing-
country TNCs listed in the world’s top 100 non- 
financial TNCs are from this region. This section 
examines South, East and South-East Asia, West 
Asia and Oceania.
Source: UNCTAD, 
2007b.
26

CHAPTER II
41
Box II.3. North Africa: EU initiatives aimed at boosting FDI inflows and industrial growth
The North Africa subregion is a vital trade and investment partner of the EU, and the flow of FDI is in 
both directions: TNCs from the EU have purchased significant assets, particularly in Morocco and Egypt, in the 
context of privatizations that started in the 1980s, while more recently North African investors have begun to 
acquire EU firms. In 2005, for instance, Orascom Telecom (Egypt) acquired Wind Telecommunicazioni (Italy) for 
$12.8 billion (WIR06). FDI flows between North African countries and the EU are set to grow further as a result 
of the conclusion or negotiation of some recent free trade agreements between the EU and countries in the region. 
These agreements include the outcomes of the Barcelona Processa and a network of association agreements such 
as the Euro-Mediterranean Partnership and the Euro-Mediterranean Free-Trade Area.b The Euro-Mediterranean 
Partnership specifically aims at constructing a zone of shared prosperity through the gradual establishment of a 
free-trade area. The funding priorities of the MEDA programme of the Euro-Mediterranean Association Agreement 
focus on support for SMEs, privatization and trade facilitation. 
The agreement on the Euro-Mediterranean Free Trade Area aims at assisting private sector development 
including improvement of the business environment, facilitating privatization, support for SMEs, promotion of 
investment and industrial cooperation. It can thereby assist in attracting FDI to stimulate industrial and commercial 
competitiveness in the North African region. 
Source: UNCTAD, based on information from Euromed (europa.eu.int/comm./external relations) and other sources.
a
The Barcelona Process is the result of the Euro-Mediterranean Conference of Ministers of Foreign Affairs, held in Barcelona on 27-
28 November 1995. It marked the starting point of the Euro-Mediterranean Partnership, a wide framework of political, economic and 
social relations between the Member States of the European Union and 10 country partners of the Southern Mediterranean. 
b
The Mediterranean Partnership and Euro-Mediterranean Free Trade area include four North African countries: Algeria, Egypt, Morocco 
and Tunisia, with the Libyan Arab Jamahiriya as an observer.
a.  South, East and South-East Asia
2006 respectively. Singapore was the third largest 
destination in the region with $24 billion worth 
of inflows, followed by India, which registered a 
FDI inflows into South, East and South-
substantial increase in FDI, amounting to $17 billion 
East Asia maintained an upward trend in 2006. The 
(figure II.7). 
bulk of these flows went to East Asia, with growth 
particularly pronounced in the inflows to South and 
The value of cross-border M&As in the 
South-East Asia. In East Asia, FDI flows are shifting 
region rose by 19%, to $54 billion (annex table 
towards more knowledge-intensive and high value-
B.4), driven partly by large intraregional deals. In 
added activities, reflecting an increasing emphasis  2006, 47% of cross-border M&As in South, East 
on the quality of FDI in investment promotion.  and South-East Asia were intraregional,  compared 
Outward FDI from the region also soared. China  to 43% in 2005 and 32% in 2004. Meanwhile, the 
has consolidated its position as an important  number of recorded greenfield projects climbed by 
source of investment, and India is rapidly 
catching on. Resource-seeking FDI from  Figure II.6. South, East and South-East Asia: FDI inflows and 
the two countries continued to increase, 
their share in gross fixed capital formation, 1995-2006
as did large acquisitions by their firms in 
developed countries.
(i)  Geographical trends 
(a) Inward FDI: continued shift 
in favour of South and 
South-East Asia
FDI inflows to South, East and 
South-East Asia rose by 19% to $200 
billion. At the subregional level, FDI 
continued to grow at a faster rate in South 
and South-East Asia than in East Asia 
(figure II.6). Nevertheless, the East Asian 
economies of China and Hong Kong 
(China) remained the largest FDI recipients 
among all developing economies, 
attracting $69 billion and $43 billion in  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex 
tables B.1 and B.3.

42
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure II.7. South, East and South-East Asia: top 10 
the largest M&As, including the acquisitions 
recipients of FDI inflows, 2005-2006
of Eastern Multimedia for $1.5 billion and of 
(Billions of dollars)
some banks.
Inflows to the Republic of Korea
declined considerably in 2006, due mainly to 
a significant fall in the value of cross-border 
M&As (annex table B.4) and divestment 
by foreign investors. There were a number 
of large divestments from the country by 
foreign investors, particularly retailers such 
as Carrefour of France (about $1.6 billion) 
and Wal-Mart of the United States (about 
$900 million). New flows were nevertheless 
directed into high value-added activities in 
fields such as parts and materials, research 
and development (R&D) centres and 
distribution centres. For example, FDI in the 
parts and materials industry rose by 50% to 
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex  $3.2 billion (on a notification basis).30
table B.1.
a
Ranked on the basis of the magnitude of FDI inflows in 2006.
South-East Asia 
19%, reaching a peak of 3,515 projects (annex table 
FDI inflows into South-East Asia (comprising 
A.I.1).
the 10 ASEAN member States31 and Timor-Leste) 
East Asia
registered a 25% increase in 2006, to reach their 
FDI inflows to East Asia27 rose by 8% in  highest ever level of $51 billion. In particular, 
2006. Despite slower investment growth over the  FDI flows to Singapore rose by 61%, representing 
past two years, this subregion still accounted for  a new high of $24 billion. As a distribution hub 
about two thirds of total FDI flows to South, East  and financial centre in the subregion, the country 
and South-East Asia. China was East Asia’s largest 
accounts for almost half of total inflows to South-
FDI recipient, followed by Hong Kong (China),  East Asia and continues to receive most of its FDI in 
Taiwan Province of China and the Republic of  services (mainly trade and finance). FDI inflows to 
Korea.
Thailand continued to rise, by 9% in 2006, reaching 
a record $10 billion and consolidating the country’s 
Inward FDI flows to China declined for the  position as the second largest FDI recipient in 
first time in seven years. The modest decline (by  South-East Asia. Large intraregional M&A deals, 
4% to $69 billion) was due mainly to reduced flows 
particularly the acquisition of Shin Corp. by 
to financial services.28 Rising production costs and 
Temasek Holdings (Singapore), accounted for a 
labour shortages in China’s coastal regions,29 as well 
large part of the total inflows. Inflows to Malaysia
as policy measures for promoting the development  and the Philippines rose substantially: by 53% in the 
of the inner areas, have begun to influence the  former, to its highest level since the Asian financial 
geographic distribution of FDI. Some provinces  crisis ($6 billion), and by 26% in the latter to its 
in the middle and western regions of the country  highest level ever ($2.3 billion). The Philippines’ 
received higher FDI inflows than in previous years, 
potential to attract FDI has been highlighted by the 
while in the more advanced areas, such as the Pearl 
decision of Texas Instruments (United States) to 
River and Yangtze River Deltas, investments have  invest around $1 billion in the country over 10 years 
been shifting towards higher value-added activities  in a new testing and assembly facility.32 Indonesia
such as computer peripherals, telecom equipment  saw a substantial decline (33%) in FDI inflows, thus 
and semiconductors. 
breaking the positive trend from 2005.
FDI flows to Hong Kong (China) rose to 
The performance of other ASEAN member 
$43 billion, its second highest level ever. Taiwan 
countries in attracting FDI in 2006 was generally 
Province of China saw the highest growth rate of  good. The Lao People’s Democratic Republic
FDI in the subregion in 2006, with inflows jumping 
witnessed a sixfold growth, the highest among 
by about 360% to $7 billion. FDI increases recorded 
countries in the subregion, while inflows to 
for both economies were driven by rising cross-
Cambodia also rose. In Viet Nam they rose by 15% 
border M&As. In Taiwan Province of China, private 
to reach $2.3 billion, and the country is increasingly 
equity firms from the United States, such as Carlyle 
considered an attractive location for efficiency-
Group and Newbridge, were involved in some of  seeking FDI and some view it as an alternative 
27
30.
28
31
29
32

CHAPTER II
43
destination to countries such as China.33 With its  attractive location for FDI in South Asia, political 
accession to the World Trade Organization (WTO)  uncertainty, poor infrastructure and a weak business 
in 2007, market-seeking FDI is likely to increase.
environment tend to deter investors (World Bank, 
2006). 
South Asia 
FDI inflows to South Asia34 surged by 126%, 
(b) Outward FDI increased 
amounting to $22 billion in 2006, mainly due to 
substantially from all subregions 
investments in India. The country received more FDI 
Outward FDI from South, East and South-
than ever before ($17 billion, or 153% more than in 
East Asia soared by 60% to $103 billion, increasing 
2005), equivalent to the total inflows to the country 
from all three subregions (figure II.8), and 
during the period 2003-2005. Rapid economic  particularly from Hong Kong (China), China, India, 
growth has led to improved investor confidence in  Singapore and the Republic of Korea (figure II.9). 
the country. According to the Government of India, 
The total value of cross-border M&As undertaken 
the country’s economy is expected to grow by 9.2% 
by TNCs based in the region rose to $47 billion. 
in the 2006/07 fiscal year. The sustained growth in 
Outflows from Hong Kong (China), the largest FDI 
income has made the country increasingly attractive 
source in the region, rose by 60%, to $43 billion. 
to market-seeking FDI. Indeed, foreign retailers  The rebound in outflows from Singapore was 
such as Wal-Mart have started to enter 
the Indian market. At the same time, a 
Figure II.8. South, East and South-East Asia: FDI outflows, 
number of United States TNCs, such as 
1995-2006
(Billions of dollars)
General Motors and IBM, are rapidly 
expanding their presence in the country, 
as are several large Japanese TNCs, 
such as Toyota and Nissan. Private 
equity firms are also playing a role. For 
instance, Kohlberg Kravis Roberts & Co. 
(United States) acquired a controlling 
stake (85%) of Flextronics Software Sys 
Ltd. with an investment of $900 million.
Other important recipients of 
FDI in the subregion include Pakistan, 
Bangladesh and Sri Lanka. The 
performance of Pakistan in attracting 
FDI ($4.3 billion in 2006) has been 
promising. Strong economic growth and 
an aggressive privatization programme  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex tables 
have led to booming FDI inflows during 
B.1 and B.3.
2004-2006. In terms of sources of FDI, 
Figure II.9. South, East and South-East Asia: top 10 sources of 
there has been a shift from developed 
FDI outflows, 2005-2006
countries to West Asian countries, 
(Billions of dollars)
particularly the United Arab Emirates 
and Saudi Arabia. After playing a 
leading role in a number of large M&A 
deals in Pakistan’s privatization process, 
West Asian companies announced a 
series of large greenfield projects in the 
country.35 Inflows to Sri Lanka rose 
significantly, reaching a record high of 
$480 million. However, Bangladesh has 
not yet realized its potential: the country 
is still categorized as an underperformer 
according to UNCTAD’s Inward FDI 
Potential and Performance Indices
(figure I.8), with FDI inflows of $625 
million in 2006 (10% less than in 2005). 
Despite liberalization in some sectors  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex table 
(such as telecommunications) and 
B.1.
recent efforts in establishing itself as an  a Ranked by magnitude of  FDI outflows in 2006.
33
34
35.

44
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
driven by large M&As within the region as well as 
investment of $11 billion, for example, Tata Steel 
in developed countries,36 while increased outward  acquired Corus Group (United Kingdom and the 
FDI from the Republic of Korea was driven more by 
Netherlands) in early 2007, creating Tata-Corus, 
greenfield investments, prompting some concerns  the world’s fifth largest steel maker (by revenue). 
of a hollowing out.37 FDI outflows from the region 
It is one of a series of large cross-border M&As 
are targeting mainly offshore financial centres,  undertaken by Tata Steel and other members of the 
but investments in developed countries as well as  Tata Group in the past two years,40 and by far the 
intraregional investments are also on the rise. 
second largest deal ever made by a company from 
a developing country, the largest being the CVRD 
(Brazil)-Inco (Canada) deal in 2006 (section A.3). 
China and India are beginning to challenge 
The emergence of China and India as 
the dominance of the Asian newly industrializing  important sources of FDI, coupled with active 
economies (NIEs) – Hong Kong (China), the  M&A activities by investors based in the Asian 
Republic of Korea, Singapore and Taiwan Province 
NIEs (particularly Singapore), has led to increased 
of China – as the main sources of FDI in developing 
FDI flows from Asia to developed countries. Asian 
Asia. Since 2004, their share of the total outflows  investors have become a driving force in the M&A 
from the Asian region as a whole has risen from  boom in Europe, in particular, in 2006. According 
10% to 25%. 
to Think London (the local IPA of London in 
China’s outflows increased by 32% to $16  the United Kingdom), FDI in the city from Asia, 
billion in 2006, and its outward FDI stock reached 
particularly India, has risen significantly in recent 
$73 billion, the 6th largest in the developing world. 
years.41
Part of this overseas expansion involves considerable 
investment in other developing and transition 
economies. For example, China is establishing the 
Intraregional FDI flows are important for 
first group of eight overseas economic and trade  many economies in the region, and a few of the 
cooperation zones38 in the following countries:  bilateral FDI stocks are among the largest in the 
in Nigeria, Mauritius and Zambia in Africa, in  world (table II.5). The past two years have seen a 
Mongolia, Pakistan and Thailand in Asia and in  rise in intraregional flows, as highlighted by data on 
Kazakhstan and the Russian Federation in South-
cross-border M&As: in 2005 and 2006, about 55% 
East Europe and the CIS. With a total investment  of cross-border M&As undertaken by TNCs based 
of $250 million, for example, the zone in Pakistan  in the region were intraregional, as compared to 
is a joint venture between Haier (China) and Ruba 
40% in 2004. 
Group (Pakistan). According to China’s Ministry of 
Intraregional FDI flows take place both 
Commerce, 50 similar zones will be established over 
within and between subregions. Within subregions, 
the next few years, facilitating more FDI from China 
two clusters stand out: intra-Greater-China FDI 
into other developing and transition economies.
– flows among China, Hong Kong (China), Taiwan 
In addition, China established in 2007 a  Province of China and Macao (China) – and intra-
government investment company to manage a $200 
ASEAN FDI. Within the former cluster, bilateral 
billion fund drawn from the country’s huge foreign 
FDI stocks between Hong Kong (China) and China 
currency reserves.39 This follows the example of  are the second largest in the world (table II.5), 
the proactive approach to reserves management  after those between the United Kingdom and the 
implemented in countries such as the Republic of  United States (chapter I). Mutual flows between 
Korea and Singapore. Although the investment  the two economies have grown significantly since 
strategy and policy of this company has not yet  the mid-1990s, but round-tripping FDI as well 
been clarified, it is expected to invest in foreign  as trans-shipping FDI account for a large share of 
companies, partly through direct investment. In May 
these flows (WIR06:12-13). FDI flows from Taiwan 
2007, for example, the company, though not yet  Province of China into China have increased since 
formally established, invested $3 billion for a 9.9% 
the early 2000s. Accordingly, a number of affiliates 
stake in the private-equity firm Blackstone (United 
established by electronics companies based in 
States).
Taiwan Province of China now rank among the 
India’s outflows were almost four times  largest foreign affiliates in China.42 Within the intra-
higher than those of 2005. Compared to China,  ASEAN cluster, Singapore is the leading investor 
where FDI outflows are driven by the international 
(table II.5), while Malaysia has also become 
expansion of State-owned enterprises encouraged by 
an important source of FDI. Further economic 
proactive government policies, booming outflows  integration driven by the common objective of 
from India have been dominated by privately owned 
achieving an ASEAN Investment Area by 2015 has 
conglomerates, such as the Tata Group. With a total 
been stimulating stronger intra-ASEAN FDI flows.
36
37
38
40
39
41
42

CHAPTER II
45
they nevertheless continue to be resilient 
Table II.5. Intraregional FDI in South, East and South-East 
Asia: largest bilateral flows and stocks, 2005, 
in attracting FDI. For example, high oil 
ranked by FDI flows
prices have been encouraging investment 
by TNCs in large projects in coal mining 
FDI stock in 
FDI flows in 2005
and processing in China.44 In the region 
2005c
as a whole, the value of cross-border 
Share
Share
in home 
in host 
M&As in extractive industries rose nearly 
Amount
economy economy
Amount
Rank
($
outflowsb   inflowsa   
($
in the 
fivefold to $1.7 billion in 2006, and the 
Rank Home country - host country
million)a
(%)
(%)                  
million)d
world
number of recorded greenfield projects in 
the sector also increased significantly.
1
Hong Kong (China) - China
 17 949
  61.6
  24.8
 241 573
2
2
China - Hong Kong (China)
 9 373
  27.9
  27.9
 164 063
8
Manufacturing. In 2006, cross-
3
Republic of Korea - China
 5 168
  46.0
  7.1
 25 936
63
border M&As in the region soared in 
4
Thailand - Hong Kong (China)
 3 613
..
  10.7
 4 282
e
textiles and clothing, machinery and 
5
Singapore - China
 2 204
  43.8f
  3.0
 25 539
65
6
Taiwan Province of China - China
 2 152
  35.7f
  3.0
 39 604
43
chemicals, but declined considerably in 
7
Singapore - Hong Kong (China)
 1 414
  28.1f
  4.2
 10 874
123
food, beverages and tobacco, electrical 
8
Hong Kong (China) - Singapore
  771b
  2.8
  5.1g
 5 160
e
and electronic equipment and motor 
9
Malaysia - Singapore
  627
  2.2
  3.1
 4 046
e
vehicles and other transport equipment 
10
Macao (China) - China
  600
  8.0
  0.8
 6 337
e
11
Singapore - Malaysia
  575
  11.4f
  14.5
 7 623
159
(table II.6). Greenfield investments also 
12
Malaysia - China
  361
  3.6
  0.5
 3 833
e
rose significantly in textiles and clothing. 
13
Singapore - Thailand
  301
  6.0f
  7.5
 6 150
194
China remains the region’s top recipient of 
14
India - Singapore
  289
  11.6f
  1.4
 1 101
e
FDI in manufacturing, and it is climbing 
15
Hong Kong (China) - Thailand
  238
  1.2
  5.9
 2 737
e
up the value chain.45 An increasing 
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).
number of TNCs have established 
a
Based on data on FDI inflows as reported by the host economy.
regional headquarters in Chinese cities 
b
Based on data on FDI outflows as reported by the home economy.
c
such as Beijing and Shanghai. IBM has 
Or latest year available.
d
Based on data on inward FDI stock as reported by the host economy.
even relocated its global procurement 
e
>200.
headquarters to Shenzhen. India is gaining 
f
Estimated share, based on data on inward flows from the home economy to the reporting 
strength in attracting FDI in traditional 
host economy (numerator) and total outward flows of the reporting home economy 
(denominator).
manufacturing industries such as steel 
g
Estimated share, based on data on outward flows from the reporting home economy 
and petrochemicals. Its FDI inflows in 
to the host economy (numerator) and total inward flows of the reporting host economy 
(denominator).
manufacturing rose from $11 billion in the 
2004/05 fiscal year to $17 billion in the 
2006/07.46 POSCO (Republic of Korea) 
Chinese FDI in ASEAN is also rising fast,  announced in 2006 that it would invest $12 billion 
complementing the traditionally large investors  in a steel plant in India. Automobile manufacturing 
from Hong Kong (China) and Taiwan Province of  TNCs have been rapidly expanding their presence in 
China. Chinese companies have focused on energy, 
India’s automotive industry (box II.4).
infrastructure and related services in a number of 
Services. The shift towards services (WIR04)
ASEAN member States.43 Rising inflows to low-
continues in the region, particularly on account of 
income countries such as Cambodia and the Lao  investments in communications, real estate, retailing 
People’s Democratic Republic have also been driven 
and financial services. Intraregional M&A deals in 
mainly by FDI from China, which has become the  service industries such as telecommunications and 
largest source of FDI inflows to those countries.
transportation (annex table A.I.3 for large deals) 
(ii)  Sectoral trends
have been one of the driving forces behind this 
shift, and the growth of FDI in financial services 
(a) Inward FDI increased in primary  has been particularly significant in recent years. In 
and services sectors
the banking industry, a new wave of liberalization 
in economies such as China, India, Pakistan, Taiwan 
Judging by the data on cross-border M&A  Province of China and Viet Nam – often linked to 
sales, in 2006, the primary and services sectors  WTO commitments – has resulted in significant 
in South, East and South-East Asia received  flows of FDI. Investors are from Asian countries 
significantly higher FDI inflows in 2006, while  with existing thriving banking industries (e.g. the 
M&A sales in manufacturing dropped (table II.6). 
Overseas Union Bank of Singapore, which recently 
Extractive industries. In comparison with  expanded into Viet Nam) as well as from outside 
Africa and Latin America, extractive industries and 
the region (e.g. the Standard Chartered Bank of the 
related activities account for a relatively small share 
United Kingdom, which acquired a bank in Taiwan 
of total FDI to South, East and South-East Asia, but 
Province of China; and Dubai Islamic Group of the 
44
45
43
46

46
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Table II.6. Sector/industry breakdown of cross-border 
United Arab Emirates, which is expanding into 
M&As in South, East and South-East Asia, 2005-2006
Pakistan). Private equity firms from the United 
(Millions of dollars)
States, such as Carlyle Group and Newbridge, 
are also actively investing in the banking industry 
Growth
Sector/industry
2005
2006
rate (%)
in the region. In the retailing industry, China 
and India have large potential to attract both 
Primary
469
1753
273.5
120
89
-25.7
equity and non-equity investments from TNCs. 
Mining, quarrying and petroleum
350
1664
376.0
In India the retail market has begun to open up 
Mining and quarrying
3
63
1926.8
to foreign retailers.47 In China, this industry has 
Petroleum
347
1601
362.1
already become an important FDI recipient, with 
Secondary
13 300 12 906
-3.0
accumulated flows of $5 billion. Based on a first-
Food, beverages and tobacco
6 256
3 099
-50.5
mover strategy, Carrefour (France) has become 
Textiles, clothing and leather
100
1720
1624.8
Woods and wood products
997
419
-57.9
the fifth largest retailer in China, while Wal-Mart 
Chemicals and chemical products
659
970
47.1
(United States), which ranked the 14th largest, 
Stone, clay, glass and concrete products
401
734
83.0
recently expanded its presence in China through 
Metals and metal products
812
856
5.4
the acquisition of Trust-Mart.48 In contrast to their 
Machinery
432
2 640
510.9
Electrical and electronic equipment
2 368
1 462
-38.2
expansion in China and India, as noted, Carrefour 
Motor vehicles and other transport equipment
1 047
275
-73.8
and Wal-Mart divested from the Republic of 
Services
31 363 39 063
 24.6
Korea.49
Electricity, gas and water distribution
932
161
-82.7
108
58
-45.9
(b) Outward FDI: resource-seeking 
Hotels and restaurants
1 845
1 387
-24.8
FDI continued to rise
Trade
1 863
786
-57.8
Transport, storage and communications
6 604 16 139
144.4
Resource-seeking FDI from South, East 
Finance
14 529 11 645
-19.9
and South-East Asia rose again in 2006, driven 
Business activities
4 804
5 048
5.1
Health and social services
294
140
-52.5
by large M&As involving oil and gas companies 
Community, social and personal service activities
371
3172
754.0
from China and India (annex table A.I.3 for large 
deals). Chinese and Indian oil companies have 
Total
45 132 53 723
 19.0
jointly acquired companies in several countries, 
Source:  UNCTAD, cross-border M&A database.
47
48
49
Box II.4. Market-seeking FDI in India’s automotive industry is booming
Production of motor vehicles by India’s automotive industry reached 1.7 million vehicles in 2005/06. 
Suzuki Motor (Japan) was the leading investor in India in this industry, ranking first in market share, followed 
by the domestic firm Tata Motors and then Hyundai Motor (Republic of Korea) (box figure II.4.1). Other 
significant foreign players in India’s automotive industry include Toyota Motor (Japan), Honda Motor (Japan), 
General Motors (United States) and Ford Motor (United States). Driven by market-seeking motives, these car-
manufacturing TNCs have started or are planning large-scale investment projects in India. Accordingly, the 
landscape of the country’s automotive industry is likely to witness a dramatic change in the next few years. 
To strengthen its leading position, Suzuki Motor has announced an expansion plan of $1.65 billion, which will 
help to increase its annual production capacity to a million vehicles by 2010. 
General Motors is investing $300 million in a car- 
Box figure II.4.1. Market sharesa of automobile 
assembly plant in Maharashtra. The plant will start 
producers in India, 2005/06 
production in the fourth quarter of 2008, producing 
(Per cent)
100,000 compact cars annually. The capacity of 
General Motors’ factory in neighbouring Gujarat is 
also being expanded.
Cooperating with Mahindra & Mahindra, an Indian 
jeep and tractor producer, Nissan (Japan) and Renault 
(France) are planning to invest $908 million in a car-
assembly plant in Chennai. With an annual capacity 
of 400,000 vehicles, the plant will start production in 
2009.
In order to double its market share to 10% in four or 
five years, Toyota Motor is preparing to invest $500 
million in quadrupling the capacity of its plant in Source: UNCTAD, based on the Automotive Component 
Bangalore (from 50,000 vehicles in 2006 to 200,000 
Manufacturers Association of India.
by 2010).
a
Calculated based on production.
Source:  UNCTAD, based on various newspaper accounts.

CHAPTER II
47
such as Colombia, Sudan and the Syrian Arab  telecommunications has given rise to national 
Republic. By actively investing abroad, these  security concerns for the Government of India, 
State-owned companies are spearheading their  leading to more restrictive measures.54 The Chinese 
Governments’ drive to secure overseas energy  Government has implemented new policy measures 
sources (chapter IV).
on M&As by foreign firms and on the foreign 
In manufacturing, FDI from South, East  purchase of real estate,55 and has formulated a list 
and South-East Asia has been largely driven  of industries over which the State will maintain 
by the international expansion of firms in their  control.56
bid to acquire created assets such as brands and 
Some countries have adopted new measures 
technologies, which has become an important  to encourage the internationalization of their 
motive for their FDI. Aggressive acquisitions have  enterprises. The Chinese Government has abolished 
placed some of these Chinese and Indian companies 
quotas on the purchase of foreign exchange for 
onto a fast track of internationalization. However,  overseas investment since 1 July 2006 and has 
the experience of some Chinese companies  strengthened its support for overseas investments 
highlights the risks inherent in this approach  by Chinese enterprises. The Republic of Korea 
towards international expansion.50
also plans to relax foreign exchange regulations, 
In the services sector, Chinese banks have  including a complete removal of the investment 
started to take serious steps in recent years to go  ceiling for outward FDI by individuals (currently 
global, through both cross-border M&As and  $10 million). In recent years, dependence on 
greenfield investments. Despite policy restrictions in 
imported oil has increased significantly in some 
some host countries such as the United States,51 the 
countries in the region. Therefore, energy security 
total foreign assets of China’s State-owned banks  concerns have played an increasingly important 
had reached $28.4 billion by the end of 2006 and are 
role in their policies concerning outward FDI in 
expected to grow rapidly in the coming years.
extractive industries (chapter IV). In the Republic 
of Korea, for example, it was announced that 
(iii)  Policy developments
investment in large overseas resource development 
projects would be backed by increased financial 
A number of policy measures favourable to  support by the Export-Import Bank of Korea.
FDI were introduced in South, East and South-East 
Asia in 2006. For example, Mongolia introduced a 
Countries in South, East and South-East 
package of tax reforms that may help improve the  Asia concluded 31 new BITs and 39 new DTTs in 
investment climate by reducing the corporate tax  2006. Among the most important developments 
rate. In India, new legislation on special economic  in international agreements in 2006 were the 
zones came into force. Companies that choose to  conclusion of free trade agreements between the 
invest in those zones are offered tax concessions  Republic of Korea and the United States and 
such as a 15-year direct tax holiday and full  between China and Pakistan; as well as the Trade 
exemption of import duties. In 2007, the Indonesian 
and Investment Framework Agreement between 
Government is in the process of promulgating a new 
the United States and ASEAN, and the Economic 
law on energy under which foreign firms in oil and 
Partnership Agreements between Japan and the 
gas and coal mining will be provided incentives for 
Philippines and between Japan and Malaysia 
investment (chapter VI). A number of countries also 
(chapter I).
took steps to liberalize inward FDI in services. For 
(iv) Prospects: most-favoured region 
example, the Lao People’s Democratic Republic 
for FDI
introduced a new banking law, and Viet Nam 
deregulated its banking industry to allow FDI in that 
Rapid economic growth in South, East and 
industry. 
South-East Asia is likely to continue, underpinned 
Some policy measures have been adopted  by the strong performance of China and India (ADB, 
with a view to prioritizing various objectives related 
2006; IMF, 2007a). Growth in market-seeking FDI 
to FDI. For instance, the Chinese Government is  to the region should keep pace with rapid economic 
increasingly emphasizing the quality rather than  growth in the next few years. In addition, the region 
the quantity of FDI as a policy objective.52 In  may become more attractive to efficiency-seeking 
addition, it has unified two income tax systems  FDI, owing to the plans of several countries such 
for foreign affiliates and domestic enterprises,  as China, India, Indonesia and Viet Nam to develop 
respectively, which will take effect in 2008.53
their infrastructure.57 During the first half of 2007, 
New policy measures have also been introduced  the value of cross-border M&As increased by 
to address various concerns related to inward FDI.  nearly 20% over the corresponding period in 2006. 
For example, potential FDI in such industries as  FDI outflows from the region are also expected 
50
54
51
55
52
56
53
57

48
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure II.10. FDI prospects in South, 
to keep growing, with the 
the region, inward FDI in 
East and South-East Asia, 2007-2009: 
internationalization efforts of 
manufacturing, especially in 
responses to UNCTAD survey 
some Chinese State-owned 
industries related to oil and 
(Per cent of respondents)
enterprises and Indian privately 
gas, increased significantly. 
owned conglomerates set to 
Outward FDI flows, driven 
continue.
partly by rising revenues 
According to UNCTAD’s 
from natural resources, 
World Investment Prospects 
remained high. Developed 
Survey, South, East and South-
countries accounted for the 
East Asia is the region most 
lion’s share of FDI flows 
favoured by TNCs, followed 
to and from West Asia, but 
by North America and the 
flows to and from other 
EU (UNCTAD, 2007b). Of 
developing Asian countries 
the TNCs interviewed in the 
have also been on the rise. 
survey, 65% already have 
Despite the geopolitical 
Source:  UNCTAD, 2007b.
FDI stocks in the region, and 
uncertainties that are likely 
over 74% of respondents 
to persist in the region, both 
anticipate increasing investments to it (figure II.10). 
inward and outward FDI can be expected to rise in 
In terms of the investment locations, China (52%  2007, judging from the record number of investor 
of respondents) and India (41%) rank numbers  commitments. This is confirmed by UNCTAD’s 
one and two, respectively, among the five most  World Investment Prospects Survey, in which about 
attractive sites (table I.14). The respondents who  one third of the respondents indicated that they 
mentioned the two countries are mainly attracted  would increase FDI in the region in 2007-2009. 
by the size and growth of their domestic markets 
(i)  Geographical trends
and the availability of cheap labour. Viet Nam was 
considered an attractive location for FDI by 11% of 
(a) Inward FDI maintained its upward 
the respondents and is ranked number six globally. 
trend
China will remain a magnet for FDI, but is 
becoming more selective with respect to the quality 
In 2006, FDI inflows into West Asia 
of FDI it seeks. India has shown huge potential  increased by 44%, to $60 billion (figure II.11). 
for market-seeking FDI, but faces a number of  The region’s share in total FDI flows to developing 
disadvantages that could impede progress in  countries rose from 13% in 2005 to 16% in 
attaining its goal of raising annual FDI to $50 billion 
2006.  FDI inflows as a percentage of gross fixed 
by 2010.58 Viet Nam appears to be poised to become 
capital formation remained higher than in other 
an important site for manufacturing FDI, while  subregions in Asia, at 22%. Inflows, as previously, 
Thailand appears to attract high-
value-added FDI. According Figure II.11.  West Asia:  FDI inflows and their share in gross fixed capital 
to a 2006 survey, these four 
formation, 1995-2006
countries are also among the 
top five in which Japanese 
manufacturing TNCs expect to 
invest the most (JBIC, 2007). 
Meanwhile, investors from West 
Asia may continue to drive FDI 
to South Asian countries such as 
Pakistan to new heights.
b.  West Asia
FDI flows to West Asia59
continued their upward trend in 
2006. High rates of economic 
growth, diversification 
strategies, ongoing reforms 
and privatizations contributed 
to the increase.  While the 
services sector was by far the 
largest recipient of FDI in Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex tables B.1 and B.3.
58
59

CHAPTER II
49
were concentrated in three countries: Turkey,  was the third largest, with FDI inflows going mainly 
Saudi Arabia and the United Arab Emirates, which 
to the country’s 15 free trade zones. There were 
together accounted for 78% of the total (figure  several cross-border M&A deals and a noticeable 
II.12). 
increase in greenfield FDI projects in the country 
(annex table A.I.1). 
Figure II.12.  West Asia: top five recipients of FDI 
FDI inflows to the other West Asian 
inflows, 2005-2006a
economies62 amounted to $7.3 billion. Inflows to 
(Billions of dollars)
Jordan doubled to $3.1 billion, partly owing to the 
acquisition of Umniah Telecom and Technologies 
by Batelco (Bahrain) (IMF, 2007d). However, 
the Islamic Republic of Iran, Iraq, the Palestinian 
Territory and Lebanon attracted limited FDI (table 
II.7), due largely to geopolitical problems.
The value of cross-border M&As in West 
Asia in 2006 rose by 26% over the previous 
year (table II.8). M&A by TNCs from developed 
countries jumped considerably from $3 billion to 
$15 billion (table II.8): Greece, the United Kingdom 
and Belgium, followed by the United States, were 
the main home countries of those TNCs, in that 
order, accounting for over 75% of total M&As. 
The value of cross-border M&As by firms from 
developing countries fell markedly to $3 billion 
from $9 billion in 2005. In consequence, developing 
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) 
countries’ share of total M&A sales was 15% (of 
and annex table B.1.
a
Ranked by magnitude of FDI inflows in 2006.
which 11% represented cross-border M&As within 
West Asia), significantly lower than in the previous 
Several factors explain this upward trend in  year (66%).
recent years. First, regulatory frameworks for FDI 
are becoming more relaxed in several countries of 
Table II.7.  West Asia:  distribution of FDI flows 
the region, particularly in services such as finance, 
among economies,a by range, 2006
real estate and telecommunications (see section 
on policy developments below). Privatizations of 
Range
these services have also attracted more investments 
Turkey, Saudi Arabia, 
Over $5 billion
Kuwait
United Arab Emirates
by TNCs. Second, the business climate in several 
$3-4.9 billion
Jordan
..
West Asian economies has improved (World Bank, 
Bahrain, Lebanon and 
$1-2.9 billion
United Arab Emirates
2006), and economic growth has been robust, at an 
Qatar
average rate of 5.6% in 2005–2006 (IMF, 2007a).  
Oman, Islamic Republic 
Bahrain, Turkey and 
$0.5-0.9 billion of Iran and Syrian Arab 
Third, high oil prices encouraged more FDI in oil- 
Saudi Arabia
Republic
and gas-related manufacturing and services in 2006. 
Islamic Republic of Iran, 
$0.1-0.4 billion Iraq and Kuwait
Greenfield investments as well as cross-border 
Qatar and Oman
Lebanon, Syrian Arab 
M&As were attracted by booming local economies 
Less than $0.1  Palestinian Territory and 
Republic, Yemen, 
and prospects for continuing high prices of oil and 
billion
Yemen
Palestinian Territory and 
Jordan
gas.
A few mega cross-border M&As (including 
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) 
and annex table B.1.
through privatization), particularly in financial 
a
Economies are listed according to the magnitude of FDI.
services contributed to Turkey becoming the top 
recipient country in the region, with FDI inflows 
(b)  Outward FDI increased slightly
more than twice the amount registered in 2005 ($20 
billion).60
FDI flows from West Asia totalled $14 
The  Gulf Cooperation Council (GCC)  billion, a modest rise of 5% over the 2005 level 
member countries – Bahrain, Kuwait, Oman, Qatar, 
(figure II.13). The GCC countries led by Kuwait 
Saudi Arabia and the United Arab Emirates –  accounted for 89% of this outward FDI, with about 
attracted 54% of total FDI inflows to the subregion 
$13 billion worth of flows (figure II.14).  The value 
in 2006. Saudi Arabia was the second largest  of cross-border M&As by investor firms from West 
recipient in West Asia, with inflows of $18 billion, 
Asia as a whole amounted to $32 billion,63 which 
50% more than in 2005.61 The United Arab Emirates 
corresponded to a 78% increase over that in 2005. 
62
63
60.
61

50
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure II.13.   West Asia: FDI outflows, 1995-2006
in greenfield projects in Saudi Arabia and 
(Billions of dollars)
bidding for another licence for mobile 
telecommunications in Qatar. The National 
Bank of Kuwait is engaged in deals in Jordan, 
Qatar and Turkey.64
In the case of greenfield FDI, the 
United Arab Emirates was also the most 
active investor, with more than 200 announced 
projects undertaken by its investors abroad 
out of a total of 429 by all the countries of the 
subregion in 2006 (annex table A.I.1). Around 
40% of the outward greenfield investments 
from the United Arab Emirates were in the 
property/tourism and leisure industries, both 
within the region and in countries such as 
China, India, Morocco and Pakistan. The 
projects in real estate vary from offices and 
Source
 
UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and 
hotels, to marina and hub developments. 
annex table B.1.
Companies from the United Arab Emirates 
are also investing in logistical and distribution 
Figure II.14.   West Asia: top five sources of FDI 
facilities mainly in the region. Saudi Arabian 
outflows, 2005-2006 a
outward greenfield investments are concentrated 
in the chemical, plastic and rubber industries, 
including in Australia, New Zealand and Viet 
Nam. 
Table II.8. West Asia: Cross-border M&As, by 
home/host region, 2005-2006
(Millions of dollars)
Sales
Purchases
Home/host region
2005
2006
2005
2006
World
14 134 17 857
18 221 32 426
Developed countries
3 265 15 112
8 856 21 540
Europe
1 574 13 864
7 539 15 064
  European Union-25
1 574 13 864
7 539 13 769
   United Kingdom
 97
4 811
1 564 11 407
United States
1 557
1 130
1 222
2 835
Developing countries and territories
9 276
2 723
9 363 10 590
Africa
..
 55
 5
4 581
Latin America and the Caribbean
..
..
 50
..
Caribbean and other America
..
..
 50
..
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and 
annex table B.1.
Asia and Oceania
9 276
2 669
9 358
6 009
a
Ranked by the magnitude of FDI outflows in 2006.
   Asia
9 276
2 669
9 358
6 009
   West Asia
9 208
1 971
9 208
1 971
   South, East and South-east Asia
 68
 697
 150
4 038
The United Arab Emirates was by far the largest 
South-East Europe and CIS
1 593
 22
 2
 297
acquirer (annex table B.4). Acquisitions were largely 
targeted at developed countries, that accounted for 
Source:  UNCTAD cross-border M&A database.
66% of the value of cross-border M&As by firms 
from West Asia (table II.8), and in particular the 
(ii)  Sectoral trends: all sectors attracted 
United Kingdom (35% by value), Canada (11%) 
and the United States (9%).  With 8% of the value 
higher flows
of such purchases, companies in Pakistan were also 
Data on cross-border M&As in the 
important targets in 2006.
region suggest that all three sectors – primary, 
FDI from West Asia was mainly concentrated 
manufacturing and services – received higher 
in oil and gas and related industries, tourism,  FDI inflows than in 2005 (table II.9). While West 
telecommunications and financial services (annex  Asia’s inward and outward FDI flows are highly 
table A.I.3 for mega deals). MTC, one of Kuwait’s 
concentrated in the services sector, the shares of 
mobile telephone companies is expanding its  primary and manufacturing sectors in cross-border 
presence in 14 sub-Saharan countries, investing  M&As increased. Jordan and the United Arab 
64

CHAPTER II
51
Emirates provide examples of successful cases  petrochemicals.66 FDI also continues to flow into 
of attracting FDI into free zones as part of efforts  Turkey’s automotive sector, which has been a major 
by their Governments to diversify FDI into the  beneficiary of outsourcing by the European motor 
manufacturing sector (box II.5).
vehicle industry over the past two decades.67 In 
Few West Asian countries permit FDI in  the United Arab Emirates following that country’s 
oil and gas exploration and extraction (Part Two),  economic diversification drive aimed at promoting 
which explains the low levels of FDI in the region’s 
the non-oil sector, manufacturing now accounts 
primary sector. Nevertheless, the sector’s share in  for about one fifth of GDP. This has been achieved 
cross-border M&As rose markedly in 2006 (table  mainly through the provision of incentives to attract 
II.9). Initiatives by some countries of the region,  investors to special economic zones of various kinds 
including Qatar and Saudi Arabia, to develop their  (box II.5). In 2006, 95% of total FDI inflows to 
natural gas industries and to open them to foreign  Jordan were directed to the country’s manufacturing 
investment may explain part of this increase.65
sector.68
In the secondary sector, manufacturing FDI 
Services  have remained the dominant sector 
in the region has been concentrated primarily in  for FDI in the region, often through cross-border 
energy-related industries, including oil refining and 
M&As and privatizations. Continued liberalization 
66
65
67
68
Box II.5.  Free industrial zones in the United Arab Emirates and Jordan 
As part of its diversification initiatives aimed at developing the manufacturing sector, the Government of 
the United Arab Emirates has been setting up free trade and industrial zones in which investors are offered special 
incentives and facilities for setting up industrial establishments.a In order to encourage foreign participation, 100% 
foreign ownership is allowed in the free zones. At present, there are 15 free zones in operation in the country, the 
largest of which is Dubai’s Jebel Ali Free Zone (JAFZ), with more than 5,000 business entities from over 100 
countries (box table II.5.1).In general, all of the zones are used mainly to locate warehousing and distribution 
facilities for local and international business operations.b Transnational manufacturing and distribution companies 
with investments in JAFZ include Black & Decker, Daewoo, Honda, Johnson & Johnson, Nestlé, Nissan, Philips, 
Samsung, Sony, Nokia, Daimler Chrysler and Toshiba.  Another free zone, the Ras al Khaimah Free Trade Zone 
has attracted 2,400 companies, many of which are foreign, with $27.2 billion in total investments (including 
foreign and domestic).  Out of the foreign entities, 623 companies are owned by Indian investors.  Manufacturing 
companies in the zone make up about 25% of the total.c
The objective of Jordan’s Qualified Industrial Zones (QIZs) 
is to attract investment, strengthen economic integration in the 
operating in Jebel Ali Free Zone, by 
nationality, 2005-2006
region and provide incentives for economic cooperation between 
Jordan and Israel.d They operate on joint rules of origin between 
Number
Growth rate 
Jordan and Israel, whereby products produced in the zone can be 
Economy
2005a
2006b
(%)
exported duty-free and quota-free to the United States.e These 
Iraq
673
954
41.8
rules and incentives have been particularly helpful in attracting 
United Arab Emirates
609
856
40.6
foreign investors wishing to benefit from the exemption of quota 
India
530
627
18.3
Islamic Rep. of Iran 
412
452
9.7
restrictions on textile exports to United States markets. Firms 
United Kingdom 
367
389
6.0
from other West Asian countries are also investing in the QIZs in 
United States 
195
230
17.9
Jordan. Many Turkish companies have plans to invest there to 
Germany
139
170
22.3
benefit from Jordan’s preferential trade agreements with both the 
Pakistan
104
115
10.6
Japan
85
98
15.3
United States and Europe and the lower labour costs that prevail. 
British Virgin Islands 
84
96
14.3
By 2004, Jordan’s QIZs had attracted $379 million in foreign 
Others
1 380
1 601
16.0
investment, helping to create more than 40,000 jobs in 79 projects. 
Total 
4 578
5 588
22.1
Approximately 88% of the capital invested is classified as non-Arab 
Source : JETRO, 2006: 358.
(Kardoosh, 2004). In addition to QIZs, the Aqaba Special Economic 
a   As of 24 May.
Zone had already attracted more than $6 billion on an approval 
b   As of 31 May.
basis by the end of 2006.f
Source: UNCTAD.
a
“JAFZA milestones”, Gulf Industry, at: www.gulfindustryonline.com/bkArticlesF.asp?IssueID=244&Section=840&Article=5077, 
2006.
b
“Welcome Message”, Jebel Ali Free Zone, at: http://www.jafza.co.ae/jafza/content/section1.asp, 2006.
c
“Global Investment House KSCC”, Ras Al Khaimah Economic and Strategic Outlook, February 2007.
d
State of Israel, Ministry of Industry. Trade and Labour, “QIZ – Qualified Industrial Zones”, at: www.moit.gov.
e
Jordan and the United States concluded an FTA in 2000, the first between an Arab State and the United States. This FTA will eliminate 
all tariff and non-tariff barriers to bilateral trade in virtually all industrial goods and agricultural products within 10 years (source:
Office of the United States Trade Representative, at: www.ustr.gov). 
f
“Incentives make Jordanian port a haven for investors”, Financial Times, 21/22 October 2006.

52
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Table II.9. West Asia: cross-border M&As, by sector/
industries, Qatar has announced several changes 
industry, 2005-2006
in contractual and tender conditions, which will 
(Millions of dollars)
facilitate the process of bidding for and securing 
contracts managed by Qatar Petroleum. These 
Sales
Purchases
changes, when implemented, could have a positive 
Sector/industry
2005
2006
2005
2006
impact on FDI inflows, especially in the context of 
Total industry
14 134 17 857
 18 221  32 426
Primary
 111
1 274
  45
 1 043
Qatar’s gas initiative.74 Broader measures affecting 
Mining, quarrying and petroleum
 111
1 270
  45
 1 043
the investment climate have also been adopted, or 
Mining and quarrying
-
 112
-
-
are being considered. For instance, Turkey in June 
Petroleum
 111
1 158
  45
 1 043
2006 lowered the corporate income tax rate from 
Secondary
 55
2 499
  19
 1 078
Food, beverages and tobacco
-
 925
-
  18
30% to 20%,75 and the Kuwaiti Government has 
Oil and gas; petroleum refining
-
1 054
-
-
announced plans to reduce the corporate income tax 
Chemicals and chemical products
-
 90
-
  893
rate from 55% to 25% in order to attract more FDI 
Stone, clay, glass, and concrete products
-
 291
-
  167
Motor vehicles and other transport equipment
 55
 131
-
-
into non-oil industries. Legislation to that effect is 
Services
13 968 14 084
 18 157  30 305
expected to be passed in 2007.
Transport, storage and communications
8 146
5 687
 11 231  13 084
In general, the need for FDI reform in West 
Telecommunications
8 143
5 687
 9 950
 5 868
Finance
5 513
7 934
 6 690  15 664
Asia is being acknowledged and addressed (World 
Bank, 2006). Iraq and Jordan, for example, have 
Source: UNCTAD cross-border M&A database.
either revised or are revising their investment 
laws. In December 2006, the United Arab Emirates 
has spurred inward FDI into real estate and financial 
decided to draft a foreign investment law aimed 
services. In GCC countries, the latter has received  at improving its investment climate.  However, in 
the major share of the FDI in services. There are  order to promote local employment, the Labour 
signs that FDI in Islamic finance by enterprises from 
Ministry issued a decree in June 2006 that requires 
within and outside the subregion is growing.69 In  all firms – domestic and foreign – to replace within 
the telecommunications industry, significant M&A  18 months all expatriate secretaries and human 
deals have taken place, particularly in Jordan and  resource managers with United Arab Emirates 
Turkey.70
nationals.76
(iii)  Policy developments
At the international level, while the FTA 
between Oman and the United States was the only 
Most policy measures introduced in West  international agreement signed in the region in 
Asia in 2006 were favourable to foreign investors:  2006, several others are being negotiated. These 
out of 14 regulatory changes related to FDI, 12  include an FTA between Jordan and the GCC, 
aimed at making the investment environment more 
which is set to include all commercial services and 
favourable to FDI.71 Several countries continued to 
agricultural products, as well as the free movement 
liberalize sectors, but generally not the extractive  of individuals working in construction, insurance 
industries.
and banking institutions. An FTA is also being 
For instance, the trend towards liberalization 
negotiated between the GCC countries and India 
in financial services continued in 2006. In Bahrain, 
that may encourage investment from the Gulf into 
measures taken by the Central Bank of Bahrain  India, particularly in financial services; another 
and the Bahrain Monetary Agency (BMA) enable  one between the GCC and Japan is expected to be 
offshore banks to do business onshore for the first  concluded in 2007. In February 2007, the EU Trade 
time. Saudi Arabia announced a plan to construct  Commissioner called on members of the GCC to 
a financial district in Riyadh by 2010 at a cost of  work on creating an FTA between the GCC and the 
250 billion Saudi Arabian riyal ($6.7 billion) to  EU.77
accommodate growing financial activities. The 
Qatar Financial Centre Regulatory Authority 
(iv)  Prospects: upward trend should 
signed a memorandum of understanding with the 
continue
BMA to enable the two agencies to cooperate in 
In light of the region’s high GDP growth, 
the supervision of financial institutions operating  ongoing economic reforms, high oil prices and the 
in both the Qatar Financial Centre (QFC) and  conclusion of investment agreements, the upward 
Bahrain.72 In Turkey, new legislation on insurance  trend in inward FDI flows to West Asia is likely 
was adopted in 2007.
to be maintained, especially in services such as 
There are examples of liberalization in  finance, telecommunications and health care,78 oil 
other industries as well. Oman, for example, has  and gas (in some countries)79 and related industries. 
allowed foreign ownership of real estate, which  In the first half of 2007, cross-border M&As in West 
should encourage FDI in tourism.73 In the extractive 
Asia increased by 3% over the same period of 2006. 
69
70
71
74
72
75
73
76
77
78
79

CHAPTER II
53
Nearly 66% of the respondents  Figure II.15. FDI prospects in West  favourable to FDI.  However, 
to UNCTAD’s World Investment 
Asia, 2007-2009: responses to 
in light of recent political 
Prospects Survey expected their 
UNCTAD survey 
turmoil in some countries 
FDI in 2007-2009 to remain at the 
(Per cent of respondents)
of Oceania that are regular 
same level as in 2006, and about 
recipients of FDI,84 prospects 
one third expected it to increase 
for FDI in the region seem 
(figure II.15). 
bleak, at least in the short-term. 
The geographical distribution 
In Papua New Guinea, on the 
of FDI in this subregion is likely 
other hand, despite persistent 
to remain uneven, mainly due to 
political uncertainty and the 
geopolitical uncertainty in some 
suspension of the project by Oil 
areas. Liberalization of policies 
Search85 to establish a pipeline 
and deregulation should progress 
between Papua New Guinea 
and strengthen prospects for 
and Queensland, the prospects 
increased inward FDI, although 
for FDI inflows in 2007 remain 
overregulation and trade barriers are  Source: UNCTAD, 2007b.
bright. This is mainly because 
still viewed as significant deterrents 
of the economy’s potential in 
to FDI and internationalization 
the production of liquefied 
in general (PricewaterhouseCoopers, 2007a). natural gas (LNG). Following the initial backlash 
Moreover, continuing global external imbalances  from the decline in the tourism sector in Fiji, the 
and sharp exchange-rate fluctuations, as well as  neighbouring islands, such as Vanuatu, Samoa and 
political tensions and even open conflict in some  Cook Islands, are now seeking to further develop 
parts of West Asia, pose risks that may discourage 
their tourism industry by attracting FDI inflows.
FDI inflows. Outward FDI from West Asia is likely 
to expand further, particularly in services, with 
3.  Latin America and the 
petrodollars remaining one of the major sources of 
Caribbean86
finance.
FDI flows to Latin America and the 
c.  Oceania80
Caribbean rose by 11% in 2006, to reach $84 billion. 
However, the increase was entirely attributable to 
In 2006, FDI inflows to Oceania declined  investment in the region’s offshore financial centres. 
by 11%, to $339 million. Inflows remained  Excluding these centres, FDI inflows remained 
concentrated in Fiji, New Caledonia, Vanuatu and  unchanged at $70 billion. Important changes have 
Papua New Guinea, which together accounted  occurred in the mode of entry of FDI and in its 
for 82% of the total. Fiji was the major recipient,  components. Reinvested earnings are becoming a 
with $103 million in FDI inflows. Relative to  major component of inward FDI in South America, 
their economic size, however, Fiji and Papua New  the result of large increases in profits. Moreover, 
Guinea have performed less well than several other 
greenfield investments have replaced cross-border 
economies in the region in recent years.81
M&As as the main mode of FDI. Manufacturing has 
FDI flows were mainly concentrated in the  overtaken services as the most important recipient 
primary sector, in particular in nickel (in Papua  sector during the past three years. Although FDI 
New Guinea)82 gold mining (in Fiji and Papua New 
inflows to the services sector increased slightly 
Guinea), and in logging activities (in Papua New  in 2006, TNCs continued to withdraw from public 
Guinea and the Solomon Islands). In manufacturing,
utilities, especially electricity distribution. The 
FDI has been primarily in onshore fish-processing  primary sector remained attractive for foreign 
activities, while in the services sector, tourism  investors due to the high commodity prices, although 
remains very important. While China is increasingly 
regulatory changes dampened their enthusiasm in 
becoming a significant investor in the region, in  some countries and inflows in 2006 actually fell 
particular in mining, traditional investors such as  somewhat. FDI outflows from Latin American and 
Australia, France and New Zealand have retained a 
Caribbean countries soared, reflecting the increasing 
strong presence. Malaysia is a significant investor in 
capacity of local companies to internationalize their 
the forestry industry of the Solomon Islands.
production. On the policy front, the trend towards 
In Oceania, mining and tourism potential as  less FDI-friendly measures continued in some 
well as the implementation of the China-Pacific  countries. These policy changes – concentrated 
Island Countries Economic Development and  mainly in the extractive industries – are extending 
Cooperation Guiding Framework83 are all factors  to other industries considered “strategic”. 
80
81
82
83
84
85
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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
a.  Geographical trends
The reasons for increases in FDI inflows 
are diverse. In Brazil, the rise was mainly in 
(i)  Inward FDI remained stable
manufacturing and, within this sector, in resource-
based activities (pulp and paper, and basic 
FDI inflows to South and Central America  metallurgy). In addition, the $2.6 billion acquisition 
and the Caribbean (excluding offshore financial  of Banco Pactual by UBS (Switzerland) in 2006 
centres) remained more or less stable, at $45 billion 
reversed the negative FDI flows registered in 
and $25 billion respectively. In contrast, FDI into  the financial services industry. In Chile, the 
offshore financial centres soared from $6 billion to 
main reason was the 14% increase in reinvested 
$14 billion, reversing the decline in 2005 following 
earnings, supported by high profits in the mining 
the adoption of the Homeland Investment Act in the 
industry. Some cross-border M&A transactions also 
United States.87 Mexico and Brazil, with inflows  contributed to the growth in FDI. Mining-related 
of $19 billion each, remained the region’s leading  FDI accounted for most of the increase in inflows to 
FDI recipients, followed by Chile, the British Virgin 
Ecuador and Peru, while in Uruguay it was the pulp 
Islands and Colombia (figure II.16). FDI inflows as 
and paper sector. 
a percentage of gross fixed capital formation fell 
In Colombia, FDI inflows fell after an 
from 16% in 2005 to 15% in 2006 (figure II.17).
exceptional wave of cross-border M&As in 2005 
(WIR06); still, it remained relatively high ($6.3 
Important changes have occurred in the  billion) due to the resumption of the privatization 
mode of entry of FDI and in its components. First, 
there have been fewer M&As: the ratio of 
Figure II.16. Latin America and the Caribbean: top 10 
cross-border M&As to total FDI inflows 
recipients of FDI inflows,a 2005-2006
was 47% in 1997-2001 and 34% in 2002-
(Billions of dollars)
2006.88 The 37% increase in cross-border 
M&As in 2006 (table II.10) was largely 
due to acquisitions by foreign firms of local 
assets owned by other foreign affiliates 
rather than to the acquisition of local assets 
owned by nationals.89 The decline in FDI 
entry through cross-border M&As occurred 
throughout the region (excluding financial 
centres). 
Second, in South America, income 
on inward FDI has grown steadily since 
2003 (figure II.18). In 2006, it increased by 
49% to reach $59 billion, thus exceeding 
total FDI inflows ($45 billion) for the first 
time since economic liberalization began  Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex 
in the 1990s (figure II.18). Income on FDI 
table B.1.
was particularly high in Brazil and Chile, at 
a
Ranked by magnitude of FDI inflows in 2006.
$14 billion and $20 billion respectively. 
Figure II.17. Latin America and the Caribbean: FDI inflows and 
The reinvested earnings – part of such 
their share in gross fixed capital formation, 1995-2006
income90 – also surged, its share  in total 
FDI inflows in South American countries 
for which data are available91 soaring 
from 44% in 2005 to 61% in 2006, 
compared to a mere 10% in 2000-2003. 
In South America, the stability of 
among countries. Most of the countries 
(e.g. Bolivia, Brazil, Chile, Ecuador, 
Paraguay, Peru and Uruguay) registered 
high FDI growth rates, but these were 
countries: Colombia and Venezuela. 
Argentina was the only country where 
Source:  UNCTAD (www.unctad.org/fdistatistics) and annex tables B.1 and B.3.
87
88
89
90
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55
Table II.10.  Latin America and the Caribbeana:
FDI into this subregion) in 2006, other countries 
distribution of cross-border M&As by sector/
compensated for this with increases. In Costa Rica, 
industry, 2005-2006
for example, inward FDI increased by 71%, partly 
(Millions of dollars)
due to a large sale in the financial sector and partly 
to rising FDI in tourism. In the Dominican Republic, 
Sales
Purchases
flows increased especially in telecommunications.92
Sector / industry
2005
2006
2005
2006
Other countries of the subregion received less than 
Total industry
22 532 30 824
10 179 31 350
$1 billion in FDI inflows (table II.11). 
Primary
 814
8 201
 881 17 679
Mining, quarrying and petroleum
 814
8 201
 881 17 679
(ii)  Outward FDI soared 
Secondary
10 793
5 152
5 492
5 605
Food, beverages and tobacco
5 710
2 157
 127
1 436
FDI outflows from Latin America and the 
Metals and metal products
3 129
 480
3 306
3 327
Services
10 926 17 471
3 806
8 067
Caribbean, excluding offshore financial centres, 
Electricity, gas and water 
 125
3 917
 101
1 618
surged by 125% to $43 billion (figure II.19).93 The 
distribution
primary sector was the main target of the outward 
Transport, storage and 
4 164
4 803
2 532
4 499
communications
FDI, followed by resource-based manufacturing 
Finance
1 077
5 125
1 107
1 437
and telecommunications. Brazil was the region’s 
principal source country, with $28 billion in FDI 
Source:  UNCTAD, cross-border M&A database.
a  Excludes offshore financial centres such as Belize, Panama, and the 
outflows (figure II.20), the country’s highest level 
Caribbean countries other than Cuba, Dominican Republic, Haiti, Jamaica 
ever and, for the first time its outflows were higher 
and Trinidad and Tobago.
than its inflows. The $17 billion purchase of Inco 
programme (see section c below). In contrast, the  (a Canadian nickel producer) by the country’s 
large decline in FDI inflows to Venezuela, from  mining company, CVRD, was responsible for a 
$2.6 billion in 2005 to -$540 million in 2006, was 
significant share of the increase (see also chapter 
due to negative inflows to the oil industry – mostly 
IV). It was the largest acquisition ever undertaken 
attributable to financial transactions between foreign 
by a Latin American company, and reflects CVRD’s 
oil TNCs and the State-owned oil company PDVSA, 
strategy of diversification away from Brazil and 
while FDI to non-oil activities remained stable.
iron ore. In addition, a series of other acquisitions 
In Central America and the Caribbean  and investments by Brazilian companies, such as 
(excluding offshore financial centres) overall FDI  Itaú (banking), Petrobras (oil and gas), Votorantim 
inflows were unchanged. While Mexico saw a slight 
(cement, pulp and paper, steel and mining), 
decline (nevertheless still accounting for 77% of all 
Gerdau (steel), Odebrecht (construction services, 
petrochemicals) Camargo 
Figure II.18. FDI inflows and income on FDI inflows in countries in South 
Corrêa (cement), Weg 
America and Central America and the Caribbean,a 2000-2006
(motors and generators) 
(Billions of dollars)
and Marcopolo (buses), 
also contributed to the 
country’s outward FDI 
(ECLAC, 2007). It suggests 
an increasing tendency for 
large Brazilian companies 
to pursue a strategy of 
internationalization through 
FDI (box II.6).  Brazilian 
FDI has traditionally flowed 
mainly to offshore financial 
centres, which, in 2005, 
hosted 57% of Brazilian 
outward FDI stock (WIR05). 
However, in recent years, 
its FDI has mainly targeted 
Source:  UNCTAD, based on the balance of payments data from the central banks of the respective  developed countries other 
countries.
than financial centres: 
a
The countries covered are those for which income on inward FDI data were available for 2006. In South 
America they are: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Uruguay  their share in Brazil’s total 
and Venezuela. Their share in total FDI inflows to South America in 2006 was 99%. In Central America and 
outward FDI stock jumped 
the Caribbean they are: Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Jamaica, 
Mexico, Nicaragua, and Trinidad and Tobago. Their share in total FDI inflows to Central America and the  from 13% in 2001 to 35% 
Caribbean (excluding offshore financial centres) in 2006 was 99%.
in 2005, while that of 
b
Excludes offshore financial centres such as Belize, Panama, and the Caribbean countries other than Cuba, the 
Dominican Republic, Haiti, Jamaica and Trinidad and Tobago.
developing and transition 
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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
economies other than financial centre
Table II.11.  Latin America and the Caribbean: country 
s fell from 
distribution of FDI flows, by range a, 2006
13% to 8%.94
The second largest source of FDI from the 
Range
Inflows
Outflows
region was Mexico with outflows of $5.8 billion, 
Over $10 billion
Mexico and Brazil
Brazil
11% lower than in 2005. Mexican investments 
Chile, British Virgin Islands and 
$5.0 to 9.9 billion
Mexico
abroad were concentrated in telecommunications, 
Colombia
but they were also undertaken in other industries 
Argentina, Peru, Cayman Islands,  British Virgin Islands, Chile, 
$1.0 to 4.9 billion
Panama, Ecuador, Costa Rica, 
Venezuela, Argentina, Cayman 
such as banking, cement, and food and beverage, 
Uruguay and Dominican Republic Islands, Panama and Colombia
and were mainly directed to other Latin American 
Jamaica, Trinidad and Tobago, 
and Caribbean countries. Chile, Venezuela and 
Bahamas, Honduras, Guatemala, 
Aruba, Suriname, Nicaragua, 
Argentina were also important and dynamic 
Peru, Trinidad and Tobago, and 
$0.1 to 0.9 billion
Bolivia, Antigua and Barbuda, El 
Jamaica
investors, with outflows increasing by 30%, 77% 
Salvador, Saint Kitts and Nevis, 
Haiti, Paraguay, Grenada, Saint 
and 74%, respectively, and surpassing $2 billion 
Lucia, Anguilla and Guyana
each in 2006 (figure II.20). The main target 
Saint Vincent and the 
Costa Rica, Netherlands 
industries for Chile were mining and retailing, 
Grenadines, Belize, Netherlands  Antilles, Honduras, Paraguay, 
for Venezuela, it was petroleum (ECLAC, 2007), 
Less than $ 0.1 
Antilles, Barbados, Turks and 
Guatemala, Barbados, Bolivia, 
billion
Caicos Islands, Dominica, 
Nicaragua, Ecuador, Belize, 
and for Argentina, petroleum and steel pipes and 
Montserrat, Falkland Islands 
Dominican Republic, Cuba, 
tubes. 
(Malvinas), Cuba and Venezuela
Aruba, Uruguay and El Salvador
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and  b.  Sectoral trends 
annex table B.1.
a
Countries are ordered according to their magnitude of FDI.
In 2006, the manufacturing sector continued 
to receive the largest share of FDI inflows in Latin 
Figure II.19.  Latin America and the Caribbean: FDI 
America and the Caribbean (excluding offshore 
outflows, 1995-2006
(Billions of dollars)
financial centres), almost the same as in 2005 at 
41%. The share of the services sector increased 
slightly, from 35% to 37%, while that of the 
primary sector fell marginally, from 23% to 21%. 
FDI flows to the services sector increased by an 
estimated 8%, and those to the primary sector fell 
by 7% (figure II.21).
(i)
Primary sector: modest decline 
in inflows but foreign investors’ 
interest remains strong

The decline in FDI to the region’s primary 
sector in 2006 was mainly the consequence of 
agreements between Venezuela’s State-owned 
Source:  UNCTAD (www.unctad.org/fdistatistics) and annex table B.1.
oil company PDVSA, and foreign TNCs that 
Figure II.20. Latin America and the Caribbean: top 10 
resulted in significant negative FDI inflows being 
sources of FDI outflows,a 2005-2006
recorded in that country’s oil and gas sector, as 
(Billions of dollars)
noted above. Nevertheless, foreign investors 
remain interested in the country’s vast oil and gas 
potential, in spite of regulatory changes designed 
to maximize fiscal revenue and increase State 
control of the industry (WIR06, and section c 
below). The Government signed new contracts 
with Chevron (United States), Statoil (Norway), 
Total (France) and BP (United Kingdom), while 
ConocoPhilips, ExxonMobil (both United States) 
and PetroCanada (Canada) opted to end their 
operations in the country. Many other TNCs are 
also interested in entering Venezuela, especially 
the very promising Orinoco Belt. Although large, 
privately owned foreign companies are still 
important partners for PDVSA, it is showing an 
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and 
annex table B.1.
increasing preference for working with other 
a
Ranked by magnitude of FDI outflows in 2006.
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CHAPTER II
57
Box II.6.  Brazilian enterprises expanded abroad and consolidated at home
Investments abroad by Brazilian companies soared to a record $28 billion in 2006, exceeding the amount 
of inward FDI ($19 billion) for the first time. A large part of the outward FDI was attributed to the $17 billion 
acquisition of Inco (Canada) by CVRD, which has been seeking to expand its non-ferrous metal division and raise 
its international profile. With this acquisition, CVRD may have become the world’s top metal mining company 
in 2006 in terms of production value (see chapter IV). The company is set to continue its diversification and 
expansion strategy with an agreement to purchase 100% of the coal mining company AMCI (Australia) for $661 
million. The steel company Companhia Siderúrgica Nacional (CSN) had similar ambitions in its attempt to acquire 
Corus (United Kingdom/Netherlands), but it lost the bid to rival Tata Steel (India), which won for $11 billion. 
The steel maker Gerdau has also been actively acquiring foreign assets, but at a more modest level: it acquired 
enterprises in Argentina and Colombia at the end of 2005, and in Peru, the United States and Spain in 2006, while 
in 2007, it agreed to buy the Mexican steel mill Siderúrgica Tultitlán (Sidertul). 
Brazilian companies have begun to invest abroad following years of record exports. In some cases, 
Brazilian suppliers sought to move closer to their customers, as in the automotive industry: Sabó now has plants 
in Europe, and Marcopolo (specialized in bus manufacturing) is producing in China. The strong currency, the real, 
has favoured such moves. Sluggish economic growth at home has been another motivating factor behind some 
groups’ decisions to expand abroad.
Outward investments by Brazilian firms are to some extent part of an expansion and consolidation process 
that is taking place at home as well as abroad.  Brazilian businesses are seeking to consolidate some industries, 
such as steel and mining, by buying foreign competitors so as not to lose market shares or become a takeover target 
themselves. Within Brazil itself, domestic buyers were involved in 58% of the 560 M&A deals in 2006 (including 
both domestic and cross-border), which reached record highs both in volume and value terms. There has been 
increased consolidation among Brazilian companies themselves, as well as through a large number of Brazilian 
companies buying foreign-owned assets in Brazil. Examples of the latter included the $2.2 billion purchase of the 
Brazilian affiliate of BankBoston (United States) by Itaú (Brazil), and Bradesco’s (Brazil) purchase of American 
Express’s (United States) assets in Brazil. Some foreign companies that were involved in utilities industries 
sold their assets to local investors. For example, in the electricity industry, EDF (France) and four United States 
companies (Alliant Energy, El Paso, Public Service Enterprise Corporation Global and AES) divested their assets 
to local investors in 2006, and CMS Energy (United States) announced in 2007 that it would do the same. 
Source:  “Brazil outward bound”, Business Latin America, 12 February 2007, 12 March 2007 and 24 April 2007 
(London, EIU); Gerdau press release, 28 June 2006 and 5 May 2006 (http://www.gerdauaza.com/ing/pressroom/
index.asp); and American Express press release, 20 March 2006 (http://home3.americanexpress.com/corp/
pc/2006/bradesco_brazil.asp).
State-owned oil companies. For example, Petrobras 
In Peru, there has been steady investment 
is now its preferred partner in efforts to develop  in the oil and gas industry. Petroperu, the State 
extra-heavy oil reserves in the Orinoco Oil Belt and 
oil company, has signed a record 31 oil and gas 
for participating in offshore drilling to produce gas 
exploration contracts over the past two years. 
for liquefaction and export. Venezuela’s petroleum  Peru also intends to expand value-added activities 
industry is also attracting investments from China,  related to its gas reserves by involving TNCs in 
the Islamic Republic of Iran and the Russian  the development of a $2.8 billion petrochemical 
Federation.95
complex to produce fertilizers and polyethylene.97
In Bolivia, most companies froze new  In Colombia, foreign oil companies are increasingly 
investments after a Government decree in May 2006 
interested in investing in the oil industry due to new 
that changed the regulations pertaining to the oil and 
investment incentives, including low royalty rates 
gas industry (WIR06). However, after contracts were 
and the possibility of 100% ownership in some 
adapted to the new legislation at the end of 2006  cases. The Government is also seeking to privatize 
(section c below), enterprises resumed investments. 
20% of State-owned Ecopetrol. FDI inflows to the 
Indeed, in January 2007, eight oil companies,  oil industry increased by 57% in 2006, reaching a 
including Brazil’s State-owned Petrobras, Repsol  total of $1.8 billion.98
YPF (Spain), Total (France), BP and BG (both 
Foreign investment in mining in Latin 
United Kingdom) bid on a project to export  America and the Caribbean remained buoyant 
Bolivian natural gas to Argentina.96 In addition,  in 2006. In Chile and Colombia, the high levels 
Gazprom (Russian Federation) is negotiating with  of FDI in 2005 were maintained in 2006: $1.25 
the Bolivian State-oil company YPFB for a possible 
billion and $2 billion respectively, while in Peru, 
joint venture for gas exploration and production.
investments amounted to $1.6 billion (Proinversión, 
97
98
95
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Figure II.21. Latin America and the Caribbean:a  FDI inflows by 
metallurgy and petrochemicals in 
sector, 2005-2006
countries such as Bolivia, Brazil, 
Colombia and Trinidad and Tobago. 
crude steel production facility 
is being set up by CSA (Brazil-
Germany).100 Finally, in the pulp 
and paper industry in which FDI has 
become more prominent since the 
early 2000s (Barbosa and Mikkilä, 
2006), inflows in Brazil rose to 
$1.5 billion in 2006 mainly due to 
a $1.2 billion pulp mill project by 
International Paper (United States); 
Source:  UNCTAD, based on official data from Brazil, Colombia, Costa Rica, Ecuador, Mexico 
while in Uruguay FDI inflows 
and Venezuela (for the petroleum industry only), and on estimates for the rest.
were boosted by the World Bank’s 
a
Excluding offshore financial centres such as Belize, Panama, and the Caribbean countries other 
than Cuba, the Dominican Republic, Haiti, Jamaica and Trinidad and Tobago.
approval of a loan and political risk 
insurance for a pulp and paper plant 
2007), up from $1 billion in 2005 (WIR06), and 
being built by Botnia (Finland). 
the Government anticipates continued rapid  The region’s advantages in this industry include 
growth in mining FDI, estimated to total nearly  an abundance of water and land for plantations of 
$10 billion over the next five years. In Bolivia,  fast growing trees and cheaper labour costs. In 
despite uncertainties created by revisions to the  addition, in Brazil, there is a history of investments 
country’s mining tax regime, several foreign  in research in genetics, forestry and biotechnology, 
mining companies have initiated projects that are  which has led to improvements in the quality of 
due to start production in 2007. Finally, Guyana  trees and forest management (Santos Rocha and 
and Suriname are attracting FDI into the bauxite  Togeiro de Almeida, 2007).
industry. 99
In other manufacturing, the automotive 
industry is an important FDI recipient in Argentina, 
(ii) Manufacturing continued to attract 
Brazil and Mexico, where the world’s largest 
the largest inflows
automobile and auto parts manufacturers have 
FDI flows to the manufacturing sector in Latin 
production facilities. In Mexico, motor vehicle 
America and the Caribbean are estimated to have  exports rose by 30% in 2006, with 1.5 million units 
remained the same as in 2005, despite a significant 
exported (AMIA, 2006), as a result of increased 
decline in cross-border M&As, which suggests  investments by the top five automakers (all foreign) 
an increase in greenfield FDI. High commodity  in the country: General Motors, Ford Motor, 
prices and rising world demand encouraged FDI  DaimlerChrysler, Nissan and Volkswagen. Among 
in resources-based manufacturing. On the other  the factors contributing to Mexico’s attractiveness 
hand, the increased FDI in the automotive industry 
for FDI in the automotive industry is its access to 
was fuelled by strong domestic demand in, and  the NAFTA market, and more recently to Europe 
rising exports from Argentina, and by exports from 
under the Mexico-EU FTA (effective in 2000) 
Mexico. Finally, the maquila apparel industry in the 
(which also reduces its excessive reliance on a 
Central American and Caribbean countries continues 
single market).101
to face increasing competition for FDI from Asian 
In Argentina, where output expansion in 
countries, especially since the phasing out of the  the automotive industry was boosted by rapid 
Multi-Fibre Arrangement (MFA).
growth in both the domestic and export markets, 
In resource-based manufacturing, soaring  investments in car terminals are estimated to have 
oil prices raised the demand for ethanol, driving  amounted to $800 million in 2006.102 In contrast, 
an investment rush by both domestic and foreign  in Brazil, FDI flows to the automobile sector fell 
investors in sugar production and refining in Latin  by 24% in 2006,103 because of the appreciation 
America. In Brazil, where there has been domestic 
of the exchange rate. Nevertheless, significant 
investment in this industry for a long time, foreign 
investment plans – mainly focused on the domestic 
interest rose only after oil price hikes. Sugar  market – have been announced by companies such 
production and refining is prospering and attracting 
as Fiat (Italy), General Motors (United States), Ford 
FDI also in countries that have signed FTAs with the 
(United States), and Volkswagen (Germany), which 
United States. Other industries that have registered 
dominate the domestic market with a combined 
increases in FDI include smelting, refining,  share of 75%.104
100
101
99
102
103
104

CHAPTER II
59
Finally, the maquila  apparel industry an  its greater control over the industry (chapter VI). 
 
important target of investors, especially from the  The changes also related to some other industries, 
United States, suffered a significant decline in  particularly in Bolivia and Venezuela. 
exports to the United States (practically the only 
In Venezuela, having taken a majority control 
market): Mexican maquila apparel exports fell by  in 2006 of 32 marginal oil fields that were managed 
13% and those of members of the Central American 
by foreign oil companies, in 2007 the Government 
Free Trade Area and the Dominican Republic (DR-
adopted a decree that gave PDVSA a majority equity 
CAFTA) fell by 7%. As a consequence, the share  share and operational control of four joint ventures 
of Mexico and Central American and Caribbean  in the oil-rich Orinoco River basin. Four TNCs 
countries in total apparel exports to the United  involved in the ventures agreed to sign the new 
States fell significantly, while those of their Asian  agreements that granted PDVSA an average stake of 
competitors rose.105 Haiti and Nicaragua are  78%, up from the original 39%, while two refused. 
the only countries in the region that registered a  The Government of Venezuela assumed State control 
significant increase in apparel exports in 2006 (11% 
of other industries, such as telecommunications, 
and 23% respectively) (Asociación Hondureña de  electricity and non-fuel mining. In public utilities, 
Maquiladoras, 2006).
after creating a new State-controlled power company 
(iii) Modest increase of FDI in services
in late 2006 to boost electricity generation and 
halt frequent power supply cuts, the Government 
FDI in the services sector (excluding offshore 
declared the energy and telecommunications 
financial centres) increased by an estimated 8% in  industries to be strategic and therefore subject to 
2006. A number of foreign companies expanded  nationalization in 2007. As a result, it negotiated a 
their existing activities, or acquired new assets,  deal with Verizon, AES and CMS (all United States 
or established new operations in the region,  TNCs) whereby the three agreed to divest their 
which more than compensated for withdrawals  assets to the Government, which now controls the 
by other firms (WIR05 and WIR06). For instance,  country’s largest telecom company, CANTV, and 
in the telecommunications industry the Mexican  the electricity company, EDC. In non-fuel mining, 
companies, América Móvil and Telmex, and  in 2006 Venezuela’s national assembly approved a 
Telefónica (Spain), continued to expand in the region 
bill to reform the mining law, and launched a series 
and also to consolidate their telecommunications  of public meetings to discuss the reform project with 
services and media operations by acquiring cable  interested parties. 
TV operators and broadband Internet services.106
In Bolivia, all foreign oil TNCs agreed to 
On the other hand, firms such as Verizon (United  convert their production-sharing contracts into 
States) and Telecom Italia continued their strategy  operating contracts, and to turn control over sales 
of divestments.107 Similarly in the financial services 
to YPFB, Bolivia’s State-run oil company, as 
industry, Bank of America sold its BankBoston units 
stipulated in the decree for the nationalization of 
in Brazil, Chile and Uruguay to the Brazilian bank 
oil and gas resources of May 2006. In addition, the 
Itaú (WIR06), while UBS (Switzerland) acquired  Government reached a deal in 2007 with Petrobras 
the Brazilian Banco Pactual. In retail, large TNCs,  (Brazil) to renationalize the country’s only two oil 
such as Wal-Mart, Carrefour and Casino, have been 
refineries acquired by Petrobras in 1999 as part of 
expanding their investments in Brazil, Colombia,  a broad privatization programme. The Government 
Mexico and Central America (ECLAC, 2007).  is also moving to take over Empresa Nacional 
Finally, in the electricity industry there has been a  de Telecomunicaciones (Entel), now controlled 
wave of divestments by foreign companies in Brazil 
by Telecom Italia, which was privatized in 1996. 
that have sold their assets to domestic investors (box 
Moreover, according to the Minister of Mining, 
II.6). 
reform of the mining sector’s tax regime to secure a 
higher tax take for the Government is a priority for 
c.  Policy developments
2007.108
As in 2005, some countries in Latin America 
In Peru, where thriving mining activities 
adopted a number of measures less favourable to  have been causing social conflicts, the 
foreign investors, reversing to some extent the  Government created a high-level commission to 
trend that had been dominant from the early 1990s 
address this issue. At the same time, it reached a 
until 2004. These changes concerned mainly the  deal with mining companies whereby they agreed 
extractive industries and led to the revision of  to make “voluntary contributions” to avoid tax 
contracts and/or tax regimes with a view to securing 
increases. Under this agreement, the companies 
for the State a greater share in the windfall profits  will contribute $772 million over the next five 
resulting from soaring commodity prices, and/or  years towards fighting poverty, malnutrition and 
108
105
106
107

60
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
social exclusion. The payment is intended to  the Andean Community of Nations has agreed to 
appease demands by various civil society groups  make Chile an associate member of its trading bloc; 
for increased taxes on mining companies.109
the country quit the group 30 years ago.  Moreover, 
In Argentina, where foreign companies  the DR-CAFTA agreement became effective during 
largely control oil and gas production and exports,  2006 and 2007 in all signatory countries (Dominican 
the Government increased taxes on natural gas  Republic, El Salvador, Guatemala, Honduras and 
exports from 20% to 45% to offset higher costs of 
Nicaragua), except Costa Rica.
imported gas from Bolivia and to avoid domestic 
price increases. Moreover, in the mineral-rich 
province of Mendoza, lawmakers voted to block 
all mining activity if mining companies failed 
to come up with proposals for a plan to mitigate 
FDI inflows into Latin America and the 
environmental costs. In public utilities, in December 
Caribbean, excluding the offshore financial 
2006 Argentina’s Congress approved an extension  centres, are expected to increase moderately in 
for one more year of the Economic Emergency  2007. Commodity prices (see chapter III) and 
Law, which allows the executive branch to maintain 
regional economic growth should remain strong 
a price freeze on privatized public services and  in 2007,114 boosting TNCs’ profits and FDI. This 
renegotiate contracts with their owners. In January  forecast is confirmed by the results of UNCTAD’s 
2007, the Government authorized power distributors 
World Investment Prospects Survey in the region, 
Edenor (Argentina) and Edesur (Spain) to increase  with 47% of foreign companies indicating plans to 
tariffs by close to 15% for industrial and business  increase their investments in the period 2007-2009, 
clients.110
2% to decrease them, and 50% to maintain them at 
the same level (figure II.22).
In contrast to some of the above-mentioned 
policy changes, in Colombia the Government 
However, as cross-border M&As involving 
decided to revitalize the privatization programme  the acquisition of assets owned by nationals are not 
of the 1990s and launched a series of sales of State 
expected to recover significantly, and the withdrawal 
assets in financial services and telecommunications. 
of TNCs from service activities is likely to continue, 
Privatizations of the largest gas distribution  the growth of FDI inflows is expected to be driven 
company, Ecogas, local electricity distributors, and 
mainly by greenfield investments, and could 
part of the largest transmission company, are in  therefore be rather moderate. Preliminary cross-
the pipeline for 2007. The country’s Congress also 
border M&A data for the first six months of 2007 
approved the privatization of 20% of the State-
show almost the same level as in the corresponding 
owned oil company Ecopetrol, and approved the  period of 2006. Acquisitions by foreign companies 
reduction of corporate and personal income tax rates 
of assets owned by nationals amounted to $9.5 
to 34% in 2007 and 33% in 2008 from the current 
billion – half the total amount of 2006. Moreover, 
38.5%.111
a number of foreign companies sold their assets to 
local investors during the first months of 2007, or 
In other Latin American and Caribbean  announced their intention to do so,115 confirming 
countries, various other changes in FDI-related  the likelihood of a slowdown in FDI growth. 
policy were introduced. Brazil, for instance, ended 
the monopoly on reinsurance by the State-owned 
FDI outflows from Latin America and the 
Instituto de Resseguros do Brasil in December  Caribbean, excluding offshore financial centres, are 
2006. Foreign investment 
expected to decline in 2007 
will be allowed, though it 
following strong growth in 
Figure II.22. FDI prospects in Latin America 
will be restricted to 40% of  and the Caribbean, 2007-2009: responses 
2006. Preliminary data from 
Brazil’s market during the 
to UNCTAD survey 
Brazil support this forecast: 
(Per cent of respondents)
first three years of the market 
they indicate negative 
opening.112
outflows of FDI (-$3.5 
billion) during the first five 
Latin American and 
months (because of the high 
Caribbean countries continued 
amount of loan payments 
to sign trade agreements that 
from Brazilian affiliates 
are likely to affect FDI flows 
to their parent company 
to and from their economies. 
in Brazil).116 But a sharp 
Chile signed FTAs with 
increase in FDI outflows 
China in 2006 113 and with 
from Mexico should partly 
Japan in 2007. In addition, 
compensate for the reduced 
109
outflows from Brazil. 
110 
111 
112 
Source: UNCTAD, 2007b.
113
114 
115
116 

CHAPTER II
61
B.  South-East Europe 
FDI recipient, with most of the $11.4 billion worth 
of flows linked to privatization.118 There was a 
and the Commonwealth of 
substantial increase in inflows to Kazakhstan, 
Independent States117
which reached an unprecedented level of more 
than $6 billion (figure II.24 and annex table B.1), 
mainly due to oil and gas projects, making it the 
1.  Geographical trends
third largest recipient in the region. In contrast, 
inflows into Ukraine fell in 2006, possibly due to 
Inward FDI grew significantly in both South-
the reduction in privatization-related FDI, combined 
East Europe and the Commonwealth of Independent 
with the abolition of incentives in special economic 
States (CIS) in 2006. In South-East Europe, most  zones. In 12 countries of the region, FDI flows 
of the FDI inflows were driven by the privatization 
remained below $1 billion, but in certain economies 
of State-owned enterprises and by large projects  such as Montenegro, they are still considerable in 
benefiting from a combination of low production  relation to the size of economy. FDI inflows rose in 
costs in the region and the prospective entry of  17 countries in South-East Europe and the CIS in 
Bulgaria and Romania into the EU. In the CIS,  2006, compared to nine in 2005 (annex table B.1).
all resource-based economies experienced strong 
Developed countries were the main investors 
inward-FDI growth. FDI flows to the Russian  in the region’s greenfield FDI projects. EU countries 
Federation grew markedly despite an apparent  accounted for 70% of such projects, followed by the 
tightening of national legislation on extraction  United States with 9%. The share of the Russian 
contracts and on foreigners’ access to resources.  Federation as a source of greenfield FDI projects 
One reason may be that these legal changes in effect 
remained low (4%).
codified and clarified de facto restrictions 
118 
on foreign investors’ involvement in natural 
Figure II.23.  South-East Europe and CIS: FDI inflows and 
resources instead of introducing new 
their share in gross fixed capital formation, 1995-2006
constraints. Developed countries, mainly EU 
members, continued to account for the largest 
share of flows to the region in the form of 
both greenfield projects and cross-border 
M&As. Outward FDI in 2006 also increased, 
notably from the Russian Federation. There 
are indications that FDI will grow further in 
2007, especially in the large countries and in 
the two new EU members. 
In 2006, FDI flows to South-East 
Europe and the CIS grew by 68%, to $69 
billion, marking the sixth consecutive year  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex 
tables B.1 and B.3.
of growth and a significant rise over the two 
previous years (figure II.23). As a result, the  Figure II.24.  South-East Europe and CIS: top 10 recipients of 
FDI inflows, 2005-2006a
share of inward FDI in gross fixed capital 
(Billions of dollars)
formation rose from 16% in 2005 to 21% in 
2006.
As in previous years, inflows 
remained unevenly distributed, with five 
countries (the Russian Federation, Romania, 
Kazakhstan, Ukraine and Bulgaria in that 
order) accounting for 82% of the total. 
Inflows to the region’s largest economy, 
the Russian Federation, more than doubled 
(figure II.24), reaching a record $29 billion. 
Flows to Romania and Bulgaria also 
grew significantly in 2006, in anticipation 
of their joining the EU on 1 January 2007  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex 
(box II.7). Romania was the second largest 
table B.1.
117 
a
Ranked on the basis of the magnitude of the 2006 FDI inflows.

62
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box II.7. The accession of Bulgaria and Romania to the EU: impact on FDI
In contrast with FDI flows to the eight Eastern European countries that joined the EU on 1 May 2004,
inflows to Bulgaria and Romania remained small for most of 1990s due to an inadequate business infrastructure, 
economic instability, slow privatization and regional conflicts. Only in the beginning of the 2000sa did they begin 
to receive sizeable FDI, partly driven by privatizations, as well as important greenfield investments. In 2006, the 
FDI stock in Bulgaria and Romania together reached $62 billion, representing a 18-fold increase over the past 
decade. 
After several years of negotiations, the two  Box figure II.7.1. Inward FDI Performance Index ranking, 
Bulgaria, Romania, 1990-2006a
countries became members of the EU in January 2007. 
The pre-accession process gradually transformed the 
business environment of the two new member States 
and had a significant impact on FDI. Consequently 
Bulgaria’s rank in the UNCTAD FDI Performance 
Index moved up to 7th place in 2004-2006 from 92nd 
in 1990-1992, while Romania’s ranking improved 
from 101st to 21st (box figure II.7.1). Competitive 
labour costs remain an important factor for efficiency-
seeking FDI, but higher value-added industries are also 
attracting FDI. 
EU accession will help anchor the ongoing 
reforms and support the convergence of the economies 
of Bulgaria and Romania with those of the rest of 
the EU. Apart from adopting the EU law (the acquis  Source: UNCTAD.
communautaire), these countries are expected to  a  For the calculation of the Inward FDI Performance Index, see 
meet the “benchmarks” established by the European 
notes to table I.7, chapter I. Ranking out of 141 countries.
Commission in areas such as judicial independence, 
fight against crime and corruption, and mandatory structural reform to increase transparency and accountability in 
public administration. These steps could further increase competitiveness in these countries. 
Source: UNCTAD.
a
Romania’s FDI flows reached $2 billion in 1998 due to large privatizations that year (WIR99: 70), but this was only a temporary surge.
such as Norisk Nickel and the Evraz Group continue 
In cross-border M&As, the acquisition of  to invest abroad. Similarly, Rusal and Sual merged 
private companies dominated in the CIS countries,  with part of Glencore International (Switzerland) to 
whereas in South-East Europe most of the M&As  create the world’s largest aluminium and alumina 
involved privatization deals. With the acquisition  producer (box II.8 and chapter IV).119
of Banca Comerciala Romana (Romania) by 
Erste Bank (Austria), Austria once again became 
Russian banks also increased their presence in 
the leading source of cross-border M&A-based  the region, extending for instance into Kazakhstan 
investment in the region, followed by the United  and Ukraine. FDI outflows from other countries in 
States and Norway. FDI from developing countries 
119  
and from sources within the region has also recently 
Figure II.25.  South-East Europe and CIS: FDI 
emerged (table II.12 and WIR06). The share of 
outflows, 1995-2006
developing-country TNCs as buyers in cross-border 
(Billions of dollars)
M&As of enterprises in South-East Europe and 
CIS increased to 16% in 2006, from a mere 1% on 
2005. China was the leading buyer from developing 
countries, while the Russian Federation accounted 
for 5% of total cross-border M&As in the region.
FDI outflows increased for a fifth consecutive 
year, amounting to $18.7 billion (figure II.25). 
The Russian Federation alone accounted for $18 
billion, representing more than 96% of the total and 
a significant increase (41%) from the FDI outflows 
Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)
in 2005. Some large resource-based Russian TNCs 
and annex tables B.1 and B.3.

CHAPTER II
63
the region remained modest in 2006 – less than $1 
Primary sector. The primary sector continued 
billion.
to attract investors, despite new restrictions, 
especially in oil and gas extraction, in some 
In greenfield operations, half the projects by 
members of the CIS, and uncertainty over access 
investors from South-East Europe and the CIS were 
to and the use of oil and gas transportation (box 
undertaken within the region, and were concentrated 
II.9). However the recent wave of domestic M&As 
mainly in the development of extraction activities,  in countries of the region may deter further FDI, 
such as mining, metals and oil fields. For example, 
especially in extractive industries (box II.8). 
Petrom Romania (now an affiliate of Austria’s  According to cross-border M&A sales data for 
OMV) invested $190 million to develop the  2006, the share of this sector in total sales increased 
Komsomolksoe oil field in Kazakhstan. In terms of 
to 17%, from 12% in 2005 (table II.13). Particularly 
value, cross-border M&A purchases by TNCs from 
notable was the purchase of OAO Udmurneft by 
 
the region decreased in 2006 compared to 2005,  Sinopec (China) (for $3.5 billion). 
but within the region they increased by 59% (table 
II.12).
Manufacturing.  According to cross-border 
M&A data, FDI inflows to the manufacturing sector 
were lower than in 2005 (table II.13). However, 
2.  Sectoral trends: FDI in 
within manufacturing, there was a significant 
services was buoyant
increase of flows to the chemical industry due to 
large cross-border acquisitions in the pharmaceutical 
The data on cross-border M&As in 2006  industry in South-East Europe (Croatia, Serbia and 
indicates that the primary and services sectors of  Romania). Projects in manufacturing represented 
South-East Europe and the CIS received higher  55% of all greenfield investments in the region in 
inflows while flows into manufacturing declined. 
2006.
Services sector. FDI in services was 
Table II.12. South-East Europe and CIS: Cross-
border M&As, by home/host region, 2005-2006
particularly buoyant, as reflected in cross-border 
(Millions of dollars)
M&A sales in services which almost doubled in 
value from 2005 (table II.13) due to increased 
Sales
Purchases
cross-border M&As in the banking industry. For 
Home/host region
2005
2006
2005 2006
example Russia Raiffeisen International (Austria) 
World
17 318 25 130
6 812 5 034
signed an agreement to buy 100% of Impexbank 
Developed countries
16 224 19 619
3 801 2 793
(Russian Federation) for up to $550 million; OTP 
Europe
14 075 16 305
3 340 2 445
Bank (Hungary) acquired Investsberbank (Russian 
European Union-25
14 075 13 969
3 340 2 445
Austria
3 239
5 632
-
-
Federation) for $477 million.120 Additionally, large 
Czech Republic
 635
 278
 284
-
investments were made in energy generation: for 
France
 505
1 951
-
-
example, the energy giant AES (United States) 
Germany
 569
1 477
 15
 10
started the rehabilitation of the Maritsa East 1 
Greece
 362
 821
-
 143
complex in Bulgaria, with an investment of $1.4 
Hungary
 497
1 490
-
-
billion. And in telecommunications, Norwegian 
Italy
 731
 452
 653
 700
Netherlands
6 189
 409
-
-
Telenor acquired Mobi 63 (Serbia) for $1.5 billion. 
Poland
 51
 60
 383
-
The number of greenfield projects in services 
United Kingdom
 286
 539
2 005 1 488
rose by 28% from that of 2005, with construction 
Other developed Europe
-
2 336
-
-
attracting the highest share. Efficiency-seeking 
Norway
-
1 956
-
-
United States
1 948
3 038
-
 348
investment in industries such as information 
Japan
 14
-
-
-
technology and business services was particularly 
Developing economies
 145
4 006
2 062
 736
significant because of the region’s skilled labour 
Africa
 22
 81
 469
 675
force. FDI inflows also continue to be important 
South Africa
-
 81
 469
 675
in high value-added activities such as research and 
Latin America and the Caribbean
102
 28
-
-
Asia
 21
3 897
1 593
 61
development. 
Turkey
-
 297
1 593
 22
As far as the sectoral distribution of outward 
China
-
3 500
-
-
FDI is concerned, data on cross-border M&As 
India
 20
 100
-
-
purchases show that petroleum extraction as well 
Transition economies
 949
1 505
 949 1 505
South-East Europe
 32
 149
 91
 149
as financial services remained the most important 
Bulgaria
 22
 78
 20
 78
targets for the region’s TNCs. 
CIS
 916
1 356
 857 1 356
Russian Federation
 910
1 249
 237
 264
120
Source: UNCTAD, cross-border M&A database.

64
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box II.8. The Rusal/Sual/Glencore merger creates the largest integrated aluminium TNC in the world
In the mid-2000s, cross-border M&As in mining revived, particularly in the aluminium industry. Three 
main trends are emerging in this current wave (Humphreys, 2006): first, it is happening at the peak of the 
production and price cycle; second, the main driver for the cash-rich companies is their long-term strategy to 
meet rapidly increasing world demand, especially in East and South-East Asia; third, companies from emerging 
markets are increasingly involved in M&As. An example is the merger of Rusal, the Russian Federation’s 
largest aluminium company, with its domestic upstream competitor Sual and with Switzerland-based Glencore’s 
aluminium business in 2007. This follows the merger of BHP Billiton/WMC Resources Ltd. in 2005 and that 
of Xstrata/Falconbridge in 2006. The Rusal merger, concluded on 27 March 2007,a has created a world leader 
in aluminium production (by tonnage), with an estimated share of 12.5% in global aluminium sales and 16% of 
global alumina production, and locations in 17 countries. 
One of the main questions concerning the Rusal/Sual/Glencore merger is whether it has been driven by 
industrial and commercial logic, or whether national interests have also played a part, as in the case of the oil and 
gas industry in the Russian Federation. 
While cross-border M&As in developed countries have been largely horizontal, in emerging markets, 
especially in the former centrally planned economies, more vertical or “integrated” M&As are taking place. This 
is a replication of the past experience of huge State-owned enterprises having almost complete control over the 
supply chain. Similarly, the Rusal/Sual/Glencore merger aims at restoring control over the entire value chain, 
while also entering new markets. Hence the merger has been both vertical and horizontal: Rusal has surplus 
bauxite in its supply chain but is short of alumina, while Sual and Glencore have excess refining capacity, and will 
benefit from Rusal’s bauxite surplus.
The merger has wide-ranging implications for the geography of outward FDI from the Russian Federation. 
Even though both Russian companies (box table II.8.1) had extended their global reach for accessing natural 
resources through overseas M&As, they were still largely concentrated in the Russian Federation. With the 
integration of Glencore’s assets, their foreign reach will have increased significantly. Moreover, the merger will 
have given them control of almost the entire Russian aluminium market, rendering competition from foreign 
companies virtually impossible. 
Box table II.8.1. Main assets of Rusal, Sual and Glencore, 2006
Rusal
Sual
Glencore
In the Russian Federation
In the Russian Federation
Alumina Partners of Jamaica (Jamaica)
Achinsk alumina refinery
Bogoslovsk aluminium plant
Aughinish Alumina Ltd.(Ireland)
Boksitogorsk alumina refinery
Irkutsk aluminium smelter 
EurAllumina Spa (Italy)
JSC Bratsk aluminium plant 
Kandalaksha aluminium smelter 
Kubikenborg Aluminium Sundsvall AB (Sweden)
Krasnoyarsk aluminium smelter 
Nadvoitsy aluminium smelter 
West Indies Alumina Co. (Jamaica)
Novokuzneck aluminium smelter 
North Ural bauxite mine 
Sayanal
Pikalevo alumina refinery 
Sayanogorks aluminium smelter
Sual-PM Ltd.
Ural Silicon 
In other countries
Urals aluminium smelter
Armenia foil mill (Armenia)
Urals Foil 
Bauxite Co. of Guyana Inc. (Guyana)
Volgograd aluminium smelter
Cathode plant (China)
Volkhov aluminium smelter
Compagnie de Bauxite de Kindia 
(Guinea)
Friguia alumina refinery (Guinea)
In other countries
Nikolaev alumina refinery (Ukraine)
Zaporozhye aluminium combine (Ukraine)
Queensland Alumina ltd. (Australia) 20%
Source: “Oleg Deripaska answers Alcoa; Now, the real questions begin”,  American Metal Market, 16 October 2006:13.
Source: UNCTAD.
a
“RUSAL, SUAL and Glencore deal completed” , Press Release of United Company RUSAL, 27 March 2007. 
3.  Policy developments 
is pursuing a two-pronged strategy. The first aims 
to prevent or limit the direct control of resources 
Countries of South-East Europe and the  by foreign investors by producing a list of strategic 
CIS continued to adopt policies aimed at attracting 
industries121 that cannot be privatized, or by 
FDI. However different groups of countries have  blocking 25% of the shares or 50.1% majority shares 
followed different policy priorities. 
in those industries for the State or other national 
In some natural-resource-based economies  investors. Second, it has adopted some indirect 
of the CIS, such as the Russian Federation,  measures, such as stricter environmental standards, 
Kazakhstan and Uzbekistan, the State continues to  which are putting pressure on foreign companies 
increase its control of strategic industries. In the  to sell part of their stakes to local firms, as in the 
Russian Federation, for instance, the Government  case of the Sakhalin-2 project.122 In Kazakhstan, the 
121
122

CHAPTER II
65
Box II.9. Who controls the pipelines?
For both producers and consumers of oil and gas, the question of who controls access to, and the use 
of, transportation infrastructure is of strategic importance. This is particularly true of pipelines, which offer the 
cheapest, safest and most efficient way of transporting large volumes of oil and gas. Indeed, in the current era of 
energy security, a concern of many countries, pipelines are considered an integral and perhaps the most vital part 
of the oil and gas value chain (Liuhto, 2007).a This is also a key factor in determining FDI decisions in extraction, 
because private investment may be impossible if access to pipelines is denied or is too expensive. In the CIS, the 
Russian Federation occupies the largest land area in the world, while other major oil and gas producers, such as 
Azerbaijan, Kazakhstan and Turkmenistan are landlocked. For the other resource-based countries in the CIS the 
disadvantages of landlockedness are further exacerbated by the fact that all pipelines pass through the Russian 
Federation, making them overly dependent on a single export route. 
Since ownership of pipelines gives leverage, or even control, over extracting and producing companies, the 
pipelines have remained in States’ control in all members of the CIS even during the much-contested privatization 
of the early 1990s. Indeed, in all countries of the region the transport facilities are controlled by majority State-
owned companies such as Gazprom and Transneft in the Russian Federation, Beltransgas in Belarus and Naftogas 
in Ukraine. Recently, both the Russian giants mentioned above have increased their ownership of the transport 
routes of other countries in exchange for lower export prices that they charge for oil and gas. For example 
Gazpromb has full control over the gas pipelines running through the Republic of Moldova and Armenia, as well 
as majority shares in the pipelines in the Baltic States, Belarus, Serbia and other countries. 
Discriminatory access to transit pipelines is one of the main reasons for distortions and inefficiencies in the 
energy sector in the CIS, hindering both intraregional and extraregional trade.c
Strategically, ownership has implications for access of third parties to the pipelines. New national borders 
after the break-up of the Soviet Union created additional difficulties for both importing and exporting countries, as 
the fragmentation of ownership increased the number of governments that extract rents from their own respective 
segments of the pipelines. Access to regional and European markets fell largely under the control of neighbouring 
countries, whose national governments took advantage of monopolistic positions to extract rents by limiting 
pipeline access (Mathieu and Shiells, 2002). Turkmenistan and Uzbekistan, for instance, are large producers 
and exporters of natural gas, but they find it difficult to export due to restrictions on their access to the Russian 
Federation transit pipelines.
The episodes of gas and oil supply interruption in Belarus in early 2007, and gas supply interruption in 
early 2006 in Ukraine also showed that final customers in the EU are susceptible to uncertainties in the energy 
market. Producers and consumers who have to pay monopoly rents for access to pipelines are therefore seeking to 
improve their energy security by diversifying the transportation routes. The construction of alternative pipelines 
such as the Baku-Tbilisi-Ceyhan oil pipeline linking the Azeri-Chirag-Guneshli oil field in the Caspian Sea to the 
Mediterranean Sea as well as the Nord Stream gas pipeline linking the Russian Federation with Germany under 
the Baltic Sea are thus long-term strategic investments, irrespective of their immediate costs. 
Source: UNCTAD.
a
Liuhto (2007) argues that hydrocarbon pipelines are strategically even more important for the Russian Government than the 
hydrocarbon reserves.
b
Gazprom owns and operates the Unified Gas Supply System, which is the largest gas transportation, storage and processing system in 
the world. 
c
See Mathieu and Shiells (2002) for a discussion of the energy sector in the CIS.   
Government decreed a pre-emptive right to block  In the Russian Federation, in addition to some 
the sale of energy assets on its territory123 while in 
improvements in legislation related to intellectual 
Uzbekistan, the mining company Newmont (United 
property rights, foreign investors have obtained 
States) had its 50% share in the gold-extraction  similar rights as those of domestic investors to 
joint venture Zarafshan-Newmont expropriated in 
buy Russian banking assets (although the Russian 
a dispute over taxes.124
banks have to obtain permission from the central 
At the same time, the business climate for  bank when selling more than 10% of their assets, 
foreign investors has improved in non-strategic  compared to 20% previously). In Kazakhstan, a new 
industries. In 2006, in the context of their bid for  law to attract investments in the securities market 
WTO membership, some countries harmonized  was approved, while in Kyrgyzstan a 10% flat tax 
their legislation with WTO norms and standards. In 
rate replaced an earlier corporate tax of 20%.
Ukraine, for instance, foreign banks were allowed 
In South-East European countries, policies 
to establish their branches in the country, and  are in line with their accession (or aspirations for 
foreigners were allowed to provide legal services.  accession) to the EU as well as with their interest 
123
124

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Table II.13 South-East Europe and CIS: cross-
averaging 7% in the last five years (IMF, 2007a), 
border M&As, by sector/industry, 2005-2006 
the country will continue to attract market-seeking 
(Million of dollars)
FDI. The Government’s privatization plan for 2007 
includes 1,500 companies and more than 300 real 
Sales
Purchases
estate properties with total proceeds exceeding $1.5 
Sector/industry 2005
2006
2005
2006
billion (IIF, 2007). The business environment in the 
Total industry
17 318
25 130
6 812
5 034
Russian Federation improved in 2006 (World Bank, 
2006). The values of cross-border M&A sales and 
Primary
2 088
4 374
2 022
1 799
purchases in the first half of 2007 in the Russian 
Mining, quarrying and petroleum
2 088
4 360
2 022
1 784
Federation were already larger than those for the 
Mining and quarrying
57
543
-
22
whole year in 2006.
Petroleum
2 031
3 817
2 022
1 762
Secondary
6 747
4 570
2 553
1 265
According to UNCTAD’s World Investment 
Food, beverages and tobacco
1 112
 739
 217
 201
Prospects Survey, South-East Europe and the CIS128
Textiles, clothing and leather
 1
 81
-
-
was the only region where no TNC participating in 
Chemicals and chemical products
 232
3 491
 484
 4
the survey expected a decrease in FDI inflows in 
Metals and metal products
5 323
 166
1 851
 917
Machinery
 12
 4
-
-
2007-2008, while 39% anticipated an increase and 
Electrical and electronic equipment
-
 25
-
 143
61% expected no change (figure II.26). About 21% 
Motor vehicles and other transport equipment
 65
 15
-
-
of the responding TNCs expected an increase in FDI 
Services
8 483
16 185
2 237
1 971
inflows to the Russian Federation, making it the 
Electricity, gas, and water distribution
1 488
 950
 52
 31
fourth among the most preferred FDI destinations 
Construction firms
-
 49
-
-
Trade
 108
 298
-
 5
in the world. This was confirmed as well by other 
Hotels and restaurants
 128
 35
-
 30
corporate surveys. In an annual survey of Japanese 
Transport, storage and communications
3 155
3 150
 327
 860
manufacturing TNCs (JBIC, 2007), for instance, the 
Telecommunications
3 105
2 870
 327
 860
largest number of respondents stated an intention to 
Finance
2 677
10 961
1 858
1 045
strengthen or expand their activities in the Russian 
Business activities
 153
 492
-
-
Federation.  
Source:  UNCTAD, cross-border M&A database.
Figure II.26. FDI prospects in South-East Europe 
in accelerating the privatization of State assets 
and CIS, 2007-2009: responses to 
especially in the telecom and energy industries.125
UNCTAD survey 
As part of the accession process, Bulgaria and 
(Per cent of respondents)
Romania, for instance, have to undertake reforms 
related to judicial independence, accountability, 
fighting corruption, and tackling of organized 
crime (box II.7). Such efforts should further 
improve the climate for all investments, including 
FDI. In Albania, Croatia and Serbia also measures 
favourable to foreign investors were adopted.126  
4.  Prospects: brighter for larger 
economies and new EU members
Source: UNCTAD, 2007b.
FDI in South-East Europe and CIS is 
expected to be particularly buoyant in the larger 
economies such as the Russian Federation and 
C.   Developed countries
Ukraine, as well as in the new EU members: 
Bulgaria and Romania. Even though FDI prospects 
FDI inflows to developed countries surged 
for Kazakhstan and the Russian Federation could be 
to $857 billion, more than twice that in 2004. 
affected by the tighter grip of their Governments on 
As in 2005, FDI was driven mainly by cross-
strategic industries, foreign investors are eager to  border M&As, spurred by favourable financing 
access these countries’ natural resources, even under 
conditions, high corporate profits, sustained 
stricter conditions.127 FDI in the Russian Federation 
economic growth and rising stock market prices. 
is also likely to grow in other activities such as the 
In contrast to the upward phase of the previous 
retail trade (e.g. Ikea of Sweden), the automotive  FDI cycle at the end of the last decade, the 
industry (Ford, General Motors, and Toyota) and  current expansion was widespread across all the 
banking (Citibank). With strong real income growth, 
developed regions and economic sectors. Increasing 
a booming consumer market, and GDP growth  market integration promoted higher cross-border 
125
126
128
127

CHAPTER II
67
investments in manufacturing, Figure II.27. Developed countries: FDI inflows and their share in gross 
energy, telecommunications and 
fixed capital formation, 1995-2006
transportation. Private equity and 
hedge funds played an important 
role.
While the United States 
recovered its position as the 
largest single FDI host country in 
2006, the 25 countries of the EU 
together accounted for about 41% 
of total FDI inflows. Flows to 
most countries in Europe remained 
stable or rose as compared to 
those in 2005. Japan’s FDI inflows 
were negative for the first time 
since 1989. FDI outflows from 
developed countries rose by 45%, 
to $1,023 billion, marking their  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex tables B.1 and 
B.3.
fifth consecutive year of growth. 
The largest share of such flows was directed towards 
and the Netherlands in that order (United States, 
other developed countries. Trends in cross-border  Bureau of Economic Analysis, 2007).
M&As as well as UNCTAD’s World Investment 
After a sharp rise in 2005, FDI inflows into 
Prospects Survey suggest that FDI into developed  Canada  doubled to $69 billion in 2006, mainly 
countries will reach a new high in 2007. 
due to a wave of cross-border M&As in the 
mining industry, notably the acquisitions of Inco 
1.   Geographical trends
by CVRD (Brazil) and of Falconbridge by Xstrata 
(Switzerland), each valued at more than $17 billion 
(annex table A.I.3, chapter IV). FDI in the buoyant 
mineral industry, among other activities, was 
all sectors
stimulated by the country’s strong economic growth, 
FDI inflows to developed countries rose for  tax cuts in recent years and a very competitive 
the third consecutive year, by 45% in 2006, to reach 
business environment (box II.10).
$857 billion (figure II.27). Inflows rose in 24 out of 
FDI flows into the 25 EU countries rose by 
the 36 developed countries (annex table B.1), and  9% in 2006, to a total of $531 billion. Much of the 
their share in world FDI inflows increased from  growth was again driven by cross-border corporate 
62% to about 66%.
FDI inflows into North America rose 
Figure II.28. Developed countries: top 10 recipients of 
by 88%, to $244 billion (figure II.27). With 
FDI inflows, 2005-2006a
(Billions of dollars)
its economy growing at more than 3% in 2006,
fuelled by buoyant consumer demand and high 
corporate profits, FDI inflows to the United 
States  
rebounded to $175 billion (figure II.28). 
Reinvested earnings, boosted by the continued 
high profitability of foreign affiliates in the 
country, grew by 65% to an all-time high of 
$65 billion. There was an unprecedented surge 
of investments in the chemical industry, which 
attracted $26 billion, accounting for 15% of 
total inflows. This growth was linked to some 
large cross-border M&As in the pharmaceutical 
industry and a weaker dollar.129 Flows to finance 
and banking grew almost fivefold compared 
to 2005, reaching $31 billion, while those to 
the wholesale trade rose by 34% to $21 billion. 
Germany was the top source country of FDI in  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and 
annex table B.1.
the United States, followed by France, Japan  a Ranked by the magnitude of  FDI inflows in 2006.
129

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Box II.10. Canada: using inward and outward FDI to internationalize
Canada is among the most attractive business locations in the world. The country was ranked first by 
the World Bank among its surveyed countries for ease of starting a business (World Bank, 2006). Moreover, in 
UNCTAD’s Inward FDI Potential Index, it has been among the top five countries since 1990. At the end of 2006, 
the inward FDI stock of Canada amounted to $385 billion (box figure II.10.1) – a fourfold increase from its 1990 
level.a Foreign affiliates accounted for around 45% of the country’s exports and 30% of total business revenues in 
2005.b
Box figure II.10.1. Canadian inward and outward FDI stocks, 
1982-2006
The internationalization of the 
Canadian economy also continues through 
outward FDI. Canada ranks among the 
top 25 outward investor economies in 
UNCTAD’s Outward FDI Performance 
Index. In contrast to FDI inflows, which 
have fluctuated heavily in recent years, 
annual outflows have been relatively 
stable: their stock has increased more 
than fivefold since 1990, to $449 billion 
in 2006 (box figure II.10.1).
Source.
UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).
The Canada-US Free Trade 
Agreement of 1988 and the North 
American Free Trade Agreement 
(NAFTA) of 1992 have encouraged Canadian FDI into the United States (MacDermott, 2007; Beaulieu et al., 
2006), the prime target country for Canadian TNCs. During the period 2000-2006, 51% of Canadian outward FDI 
went to that country, compared to 19% to the EU. The leading investors abroad were firms in the finance and 
insurance industry, which accounted for 46% of total outflows, while those in the energy and metallic minerals 
industry accounted for 20%. In 2006, Canadian TNCs undertook several large acquisitions in the United States; for 
example, Goldcorp Inc. acquired Glamis Gold, a United States mining company, for $8.7 billion, and Brookfield, 
a Toronto-based real estate firm, together with Blackstone, the United States private equity group, bought Trizec 
Properties, a real estate investment trust company, for $2.9 billion (annex table A.I.3).
Further stimulus to outward FDI has come from the Government. Its international commercial policy 
recently has been paying more attention to outward FDI, a departure from its previous focus on trade and inward 
FDI (Beaulieu et al., 2006). In 2005, the Government acknowledged that the Canadian economy also benefits from 
outward investment as this contributes to competitiveness and increased R&D, and leads to technology transfers 
and spillovers to the Canadian economy.c
Source: UNCTAD.
a Compared to its potential, Canada had a lower Inward FDI Performance Index, ranking only 71st,  but even this rank is 
much better than that of other developed countries such as the United States and the United Kingdom.
b Source: “Canada’s international policy statement–a role of pride and influence in the world commerce”, at: http://www.
itcan-cican.gc.ca/ips/pdf/IPS-commerce-en.pdf.
c Ibid.
restructuring. In fact, 8 of the world’s 10 largest  the second largest worldwide. Several high-value 
cross-border M&As in 2006 took place within  cross-border acquisitions of United Kingdom firms 
the EU. Intra-EU FDI in 2006 was responsible for  took place, mainly in the telecommunications, 
an appreciable proportion of the inflows into EU  transportation and chemical industries.130 Inflows to 
member countries.
Sweden amounted to $27 billion, the second largest 
In the EU-15, inward FDI rose by 10%,  amount since 1999, due to a significant increase in 
to reach $492 billion in 2006. Lower flows to  intra-company loans and equity inflows.
the United Kingdom, the Netherlands and Spain 
Inward FDI flows to the 12 countries 
were more than offset by the increase in flows to  forming the European Monetary Union (EMU) 
Belgium, Germany, Italy and Luxembourg.  FDI  grew significantly in 2006, rising by 37% to $318 
inflows into the United Kingdom fell by 28%,  billion. Inflows to Belgium more than doubled
to $140 billion, largely reflecting a significant  to $72 billion, raising its total FDI stock to $603 
decrease in equity inflows (by 34%) and repayment 
billion, which was more than the country’s GDP at 
of intra-company debt by foreign affiliates to their  the end of 2006. The continued presence in Belgium 
parent firms. Nevertheless, the country remained  of TNC “coordination centres”,131 as well as new 
the largest FDI recipient in Europe in 2006, and  tax incentives that entered into force in January 
130
131

CHAPTER II
69
2006, may have contributed to that increase. France
Hong Kong (China), in that order, were responsible 
recorded a small increase in inflows to $81 billion  for that decrease. In 2006, Japan’s economic 
– representing a quarter of total inflows to the 12  expansion was still hampered by deflationary 
EMU countries in 2006.
pressures and low productivity growth in non-
Inflows to Germany increased by 20%, to  tradable goods and services (Moody’s, 2007). The 
reach $43 billion in 2006, the bulk of which came 
decline in FDI inflows made it impossible to achieve 
from France, Denmark and the United States in that 
the ambitious target to double Japan’s inward FDI 
order. Among industries, banking and insurance  stock by the end of 2006 (WIR06: 85). In Australia,
received the largest share (32%) (Deutsche  after the large disinvestment of $35 billion in 2005, 
Bundesbank, 2007). Italy’s inward FDI flows, still  mainly due to the reincorporation of News Corp. 
low compared to other European countries, doubled 
(WIR06), inflows rose to $24 billion.
to $39 billion, due to large cross-border M&As in 
In 2006, cross-border M&As of developed-
the banking sector. Inflows to Luxembourg rose  country firms increased by 20%, to $728 billion, the 
substantially mainly due to the purchase of Arcelor 
second largest annual increase so far, driven partly 
by Mittal (Netherlands/United Kingdom) for $32  by private equity funds (chapter I). The rebound, 
billion – the largest acquisition in 2006 (annex table 
in both number and value of deals, similar to that 
A.I.3). After two consecutive years of negative  in 2005, was driven by economic expansion in the 
inflows, as a result of repayment of loans by foreign 
United States and the euro area, strong corporate 
affiliates to their parent firms, inward FDI flows to 
profits, improved capacity utilization and rising 
Ireland increased to $13 billion in 2006.
stock markets in developed countries. Nearly 90% 
A few EMU-12 countries, namely Austria,  of M&As in developed countries were concluded 
Spain and the Netherlands, saw a decrease in FDI  by firms from other developed countries. Some 
inflows in 2006. Inflows to Spain fell to $20 billion, 
developing-country TNCs were also involved in 
the lowest level since 1999, largely reflecting  several mega M&A deals in developed countries in 
decreased FDI in manufacturing, mainly due to  2006 (annex table A.I.3). Altogether, developing-
competition from Eastern European and Asian  country firms invested up to $65 billion in 
countries. In the Netherlands inflows amounted to  acquisitions in developed countries – a 50% increase 
$4.4 billion in 2006, down from $41 billion in 2005, 
from the previous year.
mostly due to the repayment of unusually high intra-
Like cross-border M&As, greenfield projects 
company loans in 2005 by some United States and 
increased in all major subgroups/economies of 
European affiliates.
developed countries to a total of 5,197 recorded 
FDI inflows to the 10 new EU member  projects in 2006 compared to 4,662 in 2005 (annex 
countries (i.e. excluding the most recent accession  table A.I.1). While the EU had the largest combined 
countries of Bulgaria and Romania)
retained  number (3,844) as well as share (74%) of such 
their upward trend, totalling $39 billion, resulting  projects in developed countries, the United States 
mainly from a continued rise in reinvested earnings. 
continued to be the single country with the largest 
Poland was the top recipient of that group, with  number of projects – 723 in all. The number of 
record flows of $14 billion, as a result of increased 
greenfield projects in developed countries by firms 
investments not only from European investors,  from developing countries grew by 15% in 2006 to 
but also from Japanese companies such as Sharp,  405 projects.
Bridgestone, Toyota and Toshiba. Germany and Italy 
(in that order) continued to be the leading sources of 
FDI to these countries.132
Outflows from developed countries amounted 
Among non-EU countries in Europe,  to $1,023 billion, a growth of 45% (figure II.29). 
Switzerland saw a recovery of FDI inflows in 2006, 
Developed countries continued to maintain their 
amounting to $25 billion, largely driven by record  position as net outward investors, with outflows 
reinvested earnings of $14 billion. Its biotechnology 
exceeding inflows by $165 billion. While there was 
and finance industries attracted the most foreign  a rebound of FDI outflows from the United States, 
investments (Ernst and Young, 2006).133
more than half of total outflows from developed 
In 2006, FDI inflows to Japan turned  countries in 2006 were from the EU. Outflows from 
negative, falling to -$6.5 billion, following  the 10 new EU members, although significantly 
an already low inflow of $2.8 billion in 2005.  higher than in 2005, continued to be modest 
Reinvested earnings of $2.3 billion could not  compared to inflows ($12 billion, or 31% of FDI 
compensate for the large negative equity inflows  inflows). 
of $8.6 billion. Large disinvestments by Japanese 
A major reason for the upswing in FDI 
affiliates of Vodafone and GM through their  outflows was a rebound in outward FDI from the 
financial affiliates in the Netherlands, Canada and  United States, the largest outward investor in 2006 
132
133

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure II.29. Developed countries: FDI outflows, 1995-2006
FDI from Switzerland nearly doubled 
(Billions of dollars)
to $82 billion, also a new record. It took 
the form primarily of acquisitions in the 
United States and Canada, and mainly in 
finance and holding companies but also 
in the mining and chemical industries 
(Swiss National Bank, 2007). Outflows 
from the United Kingdom fell by 5% to 
$79 billion; nevertheless, its position as 
the world’s second largest source country 
of FDI in terms of stock remained intact. 
Large United Kingdom companies in 
telecommunications and finance invested 
in developing countries, as illustrated by 
the acquisitions by the Vodafone group 
of firms in Turkey and South Africa 
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex table B.1.
and by HSBC of a bank in Panama.134
FDI from the Netherlands amounted to 
(figure II.30). After the negative outflows of FDI  $23 billion as a result of the acquisition of Arcelor 
registered in 2005 due to the repatriation of profits 
(Luxembourg) by Mittal Steel (registered in the 
induced by the one-off tax incentives provided by  Netherlands). 
the American Jobs Creation Act (WIR06: 89), FDI 
In contrast to its declining inflows, Japan’s
flows from the United States jumped to $217 billion 
FDI outflows increased further in 2006, by 10%, to 
in 2006, while its FDI stock abroad rose to $2.4  reach a record $50 billion, the second highest since 
trillion. Reinvested earnings ($201 billion) were  1990. The depreciation of the yen did not deter 
the main FDI component in that increase. The EU  outward FDI, while high corporate profitability 
was the region with the highest level of investments 
of Japanese foreign affiliates enhanced reinvested 
($112 billion) by United States companies,  earnings abroad to $16 billion, the largest ever. 
followed by Asia and Latin America in that order.  While the largest share of Japan’s outward FDI 
Manufacturing and financial firms were the major  flows went to Western Europe (36%), the second 
investors, accounting for $60 billion and $25 billion 
largest recipient was Asia (with 35%), overtaking 
respectively (United States Bureau of Economic  North America (19%). The United States, however, 
Analysis, 2007). 
was the single largest country recipient of Japanese 
In 2006, FDI outflows from the EU countries 
FDI with $9 billion in investments, slightly lower 
fell slightly, to $572 million. Nevertheless, seven  than the $12 billion recorded in 2005, followed by 
EU countries ranked among the top 10 developed  the Netherlands, the United Kingdom135 and China. 
source countries (figure II.30, table II.14). With  Finally, outflows from Israel reached a record $14 
outflows of $115 billion, slightly lower 
than those in 2005, France was the second 
Figure II.30. Developed countries: top 10 sources of FDI 
largest source of FDI worldwide for the 
outflows, 2005-2006a
(Billions of dollars)
second year in a row. Companies in Spain,
profiting from special incentives (WIR06:
89) and high growth in various sectors in 
their home economy (especially property, 
construction and banking), continued their 
rapid rate of outward expansion, resulting 
in record outflows of $90 billion. Of the 
three largest cross-border M&As in 2006, 
two originated from Spain (annex table 
A.I.3). Large overseas acquisitions by 
German companies, mainly in the United 
Kingdom and the United States, led to 
an increase of 43% in Germany’s FDI 
outflows in 2006.
Other major sources of FDI 
from Europe were the Netherlands, 
Switzerland and the United Kingdom.  Source:  UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex table B.1.
134
135

CHAPTER II
71
billion because of large M&As such as the above-
Table II.14.  Developed countries: country 
distribution of FDI flows, by range,a 2006
mentioned acquisition by Teva Pharma Inds Ltd of 
Ivax Corp (United States) (annex table A.I.3). 
Range
Inflows
Outflows
The countries among the 10 new EU members
United States, France, 
United States, United 
with more than $1 billion in outward FDI were 
Spain, Switzerland, United 
Over $50 billion Kingdom, France, 
Kingdom, Germany, 
Poland, Hungary, the Czech Republic and Estonia. 
Belgium and Canada 
Belgium and Japan
Germany, Italy, 
2.  Sectoral trends: services 
Luxembourg, Sweden, 
Canada, Italy, Sweden, 
$10-49 billion
Switzerland, Australia, 
Netherlands, Australia, 
continued to dominate
Spain, Israel, Poland and  Ireland, Israel and Norway
Ireland
Judging from information on cross-border 
New Zealand, Portugal, 
Denmark, Bermuda, 
M&As by sector in 2006, services continued to 
Denmark, Iceland, Poland, 
Hungary, Czech 
Greece, Austria, Bermuda, 
dominate FDI flows between developed countries. 
Republic, Norway, 
Portugal, Hungary, 
$1-9 billion
Greece, Netherlands, 
Manufacturing gained in importance in terms of both 
Luxembourg, Czech 
Slovakia, Iceland, 
Republic, New Zealand 
target and acquiring firms, while the importance of 
Finland, Lithuania, Malta,  and Estonia
Estonia, Latvia and 
the primary sector declined compared to 2005 (table 
Cyprus
II.15).
Slovenia, Cyprus, 
Less than $1 
Gibraltar, Slovenia, 
Slovakia, Lithuania, 
In the primary sector, although the 
billion
Austria and Japan
Latvia, Finland and Malta
exceptionally large cross-border M&As in 2005 
(such as the acquisition of Royal Dutch Petroleum 
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) 
and annex table B.1.
by Shell Transport &Trading Co. cited in WIR06:
a
Countries are listed according to the magnitude of FDI.
273) were not repeated in 2006, the volume of 
sales and purchases remained high. 
Table II.15. Developed countries: cross-border M&As,
Cross-border M&As in mining alone, 
by sector/industry, 2005-2006 
which accounts for the bulk of M&As 
(Million of dollars)
in the primary sector, increased almost 
Sales
Purchases
fivefold in terms of sales and more 
Sector/industry 2005
2006
2005
2006
than sevenfold in terms of purchases 
(table II.15). High commodity prices as 
Total industry
604 882 727 955
627 064 752 482
well as consolidation of the mining and 
Primary
110 474
65 119
98 035
56 850
quarrying industries (Part Two) were the 
Mining, quarrying and petroleum
108 769
63 036
97 838
54 102
main drivers of this trend. Nevertheless, 
Mining and quarrying
11 035
50 492
4 858
36 903
because of the larger increase in 
Petroleum
97 735
12 544
92 980
17 199
the value of cross-border M&As in 
Secondary
171 020 247 233
125 684 197 125
Food, beverages and tobacco
31 706
16 823
17 516
15 474
manufacturing and services, the share of 
Textiles, clothing and leather
2 031
1 721
4 638
 694
the primary sector in total cross-border 
Woods and wood products
3 862
4 841
3 340
4 181
M&As declined.
Printing, publishing and allied services
9 778
24 922
7 460
9 223
Cross-border M&As in the 
Oil, gas and petroleum refining
1 882
2 548
 757
 446
Chemicals and chemical products
53 017
54 162
36 574
36 642
manufacturing sector of developed 
Rubber and miscellaneous plastic products
2 421
7 244
1 336
5 715
countries rose by 45% in terms of sales 
Stone, clay, glass and concrete products
4 521
8 557
10 024
7 916
and by 57% in terms of purchases, led by 
Metals and metal products
20 184
46 606
12 943
42 505
a significant increase in the metals and 
Machinery
4 235
16 520
5 117
21 422
metal product, printing and publishing 
Electrical and electronic equipment
12 687
37 750
10 195
33 760
and electrical and electronic equipment 
Measuring, medical, photo equipment & 
13 438
8 748
6 424
10 193
clocks
industries. While M&As in chemicals 
Motor vehicles and other transport equipment
9 744
15 449
8 859
8 381
and chemical products remained the 
Services
323 388 415 602
403 309 498 507
same as in 2005, the main target in the 
Electricity, gas and water distribution
35 596
17 630
25 364
9 890
manufacturing sector and the largest 
Construction firms
6 124
10 956
2 802
6 592
Trade
24 908
20 267
14 377
13 878
cross-border M&A deal in 2006 was the 
Hotels and restaurants
5 507
26 943
1 814
13 001
acquisition of Arcelor by Mittal (annex 
Transport, storage and communications
73 900 102 812
49 646
67 022
table A.I.3), which made the metal 
Telecommunications
47 141
58 151
29 896
59 325
industry the largest recipient.
Finance
63 927
92 055
253 322 333 967
Business activities
85 374 101 831
46 321
38 141
Services  continued to be the 
Health and social services
5 312
13 425
1 621
1 059
main target and acquiring sector for 
Community, social & personal service 
21 050
25 439
6 734
10 061
cross-border M&As in developed 
activities
countries. M&A activity was particularly 
Source:  UNCTAD, cross-border M&A database.
intense in financial services, mainly 

72
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
due to ongoing financial deregulation and  investment and attract foreign investors. In 
restructuring. M&As also increased significantly  Austria, for example, new legislation abolished 
in telecommunications136 and tourism. In 2006,  the Austrian non-resident capital gains tax for 
there was a significant increase in FDI in R&D  most foreign investors. The Czech Republic, 
activities, especially in the pharmaceutical and  Estonia, Greece and the Netherlands, introduced 
automotive industries (United Kingdom Department 
further cuts in their corporate tax rates. In Japan, 
of Trade and Industry, 2006).137 Apart from being a 
foreign companies have been allowed to acquire 
hub for some manufacturing activities, mainly the  Japanese firms through the exchange of shares 
automotive industry (WIR06: 91), the group of 10  since May 2007, which is expected to encourage 
new EU-member countries is becoming attractive  cross-border M&As.141 In Hungary, even though 
also for certain high value-added activities such as 
an additional business tax  – called a solidarity tax 
R&D.138
– was introduced, the withholding tax for dividends 
paid to foreign corporations was abolished. And in 
3.  Policy developments
Luxembourg, the dividend withholding tax rate was 
reduced from 20% to 15% and the income tax in 
In 2006, many developed countries adopted  Luxembourg City, where most of the holding and 
policies that could directly or indirectly increase  finance companies are located, was also reduced.
their attractiveness for FDI: of the 37 changes in 
However, protectionist sentiment and various 
their regulatory frameworks affecting FDI, 30 aimed 
kinds of institutional barriers against foreign 
at facilitating more FDI.139 These policies included 
investment persist, and some are even on the rise 
privatization and liberalization efforts, tax cuts and 
again in several developed countries. In Austria, 
other monetary incentives, as well as promotion and 
for example, the establishment of a private fund to 
marketing activities.
protect Austrian companies from foreign takeovers 
Privatization and liberalization. Most of  is under discussion.142 A report of the European 
the 10 new EU member States (that joined the EU 
Commission has concluded that the Community’s 
in 2004) continued the process of privatization and 
corporate takeover rules of 2004 have failed to 
opening up of their domestic economies to foreign  alleviate hostile takeovers (European Commission, 
investors in 2006, although at a slower pace. The  2006). At the same time, efforts are under way to 
Governments of Latvia and Malta, for instance,  reduce barriers to FDI. For example the European 
sold some State-owned assets. On the other hand,  Commission tried to advise Spain to drop 
the new Government of Slovakia halted further  restrictions on the bid by the German energy group 
privatizations of State-owned companies. In other  E.ON for Spanish power company Endesa (though 
EU countries, such as Austria, Portugal, France  eventually the German bid was withdrawn). In 
and Ireland, several large-scale privatizations were  another case, the EU Advocate General in February 
announced or completed.140
2007 backed the EU Commission’s 2005 decision to 
Further liberalization and opening up of  take Germany to the European Court of Justice by 
some protected industries also took place. For  claiming that the “Volkswagen Law” contravened 
example, the European Parliament approved the  EU rules on the free movement of capital (European 
EU Directive on Services in the Internal Market in 
Court of Justice, 2007).143
December 2006 (WIR06: 93), which is expected 
In the United States, although the continuing 
to stimulate FDI in this sector. In Australia, a  commitment to open up to investment and trade has 
new law was passed that allows more foreign  been expressed on several occasions,144 steps were 
investments and mergers in media: the earlier  taken to ensure that foreign investments do not 
quantitative restrictions for FDI were eliminated,  jeopardize national security. Indeed, the Committee 
although investments in the industry would still  on Foreign Direct Investment in the United States 
require government approval. In Italy, the Minister 
(CFIUS) was reorganized for this purpose, and the 
for Economic Development announced a decree  time period for approval of foreign acquisitions 
to start a programme of liberalization and increase  will be extended, especially if the foreign investor 
competition in heavily protected services such as  is an enterprise that is partly or wholly-owned by a 
professional services, pharmacies, banks and taxis.  foreign government (WIR06). 
In Greece, the Government opened its tourism 
industry to large-scale foreign investment. Japan 
4.  Prospects:  optimism for 
relaxed its competition policy to facilitate the 
further growth in FDI
establishment of large-scale retailing operations. 
Tax policy and other incentives. In 2006, 
The medium-term prospects point to 
several developed countries reformed their tax  continued high levels of FDI flows to most 
systems or cut their corporate tax rates to stimulate 
developed countries, as many of the factors pushing 
141
142
136
143
137
144
138
139
140

CHAPTER II
73
FDI flows upwards are expected to prevail for some 
expecting flows to remain the same (figure II.31). 
time. Economic growth in developed countries  Growth of FDI inflows is likely to be the strongest in 
seems set to remain robust in 2007 and 2008 (IMF, 
the United States, the United Kingdom, Poland and 
2007a) and should continue to support corporate  Germany (table I.14). Among developed countries 
profits and upward movement of equity prices,  as a whole, TNCs expressed greater optimism for 
stimulating further cross-border investments in those 
FDI inflows to the new EU-12 members,146 North 
countries. While the pace of economic expansion  America and the EU-15, in that order; while in other 
in the United States has eased, it remains solid  European and other developed countries (Japan, 
in the euro area and Japan. The OECD’s leading  Australia and New Zealand) 41% of respondents 
indicators of economic performance in the first half 
expected FDI inflows to remain stable for the next 
of 2007 point to an upward trend in all the regions, 
three years. A number of other corporate surveys 
with significant economic growth especially in  reflect optimism regarding business and FDI 
South-East Asia (OECD, 2007). Increased FDI  prospects.147
outflows can therefore be expected, especially 
However several risks remain. Economic 
to the developing countries. The EU’s Directive  developments crucially depend on future oil prices 
on Services and the relaxation of some of the  and the unwinding of global current-account 
requirements of the United States’ Sarbanes-Oxley  imbalances. The United States’ deficits, asset price 
Act145 are expected to have a positive influence on 
inflation, and a resulting increase in interest rates, 
FDI activity in 2007. The significant increase in  present risks for the world economy. Although the 
cross-border M&As in developed countries (66%  considerable turbulence experienced by financial 
in value) in the first half of 2007, compared to the 
markets in early 2007 has calmed down, it is a 
same period in 2006, is another indicator of higher 
reminder to investors and policymakers of potential 
FDI flows in 2007. 
financial market risks. The large increase in 
UNCTAD’s  World Investment Prospects  private equity buyouts in several countries and the 
Survey also indicates bright prospects for further  accompanying transfer of risks to hedge funds has 
growth in FDI flows in developed countries, with  also increased the vulnerability of financial markets 
half of the TNCs surveyed anticipating an increase 
to various shocks (IMF, 2007a; and chapter I).
in FDI inflows into developed countries, and 44% 
145
146
147
Figure II.31. FDI prospects in developed countries, 2007-2009: responses to 
UNCTAD survey 
(Per cent of respondents)
Source: UNCTAD, 2007b.
a
Australia, Japan and New Zealand.


74
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Notes
1
At times this share has been higher, reaching more than 70% at 
19
The subregion comprises Angola, Botswana, Lesotho, Malawi, 
the beginning of the decade.
Mozambique, Namibia, South Africa, Swaziland, Zambia and 
2
Zimbabwe.
Consulting, LOCOmonitor database (www.locomonitor.com).
20
Sources: “Vodafone raises South Africa stake to 50%”, 
3
Data on international reserves from the IMF’s International 
Computer Business Review Online, 7 December 2006 (http://
Financial Statistics.
www.cbronline.com/article_news.asp?guid=78E3F61D-8188-
4
Based on 29 countries; source:  IMF, Balance of Payments 
461D-BD07-458659500C6A); “India’s Tata group acquiring 26 
Statistics.
PCT stake in SAfrican telecom”, AFX News Limited, 22 August 
5
In addition to major oil producers such as Nigeria, Algeria, the 
2006 (http://www.forbes.com/business/feeds/afx/2006/08/22/
Libyan Arab Jamahiriya, Angola and Sudan, mineral-producing 
afx2963999.html); and “Dubai-led group gets Cape V&A 
countries such as Kenya, Mauritius, Lesotho, Swaziland, the 
for R7bn”, Business Day, 9 October 2006. (http://www.
United Republic of Tanzania, Uganda, and Zambia that had 
businessday.co.za/articles/dailymailer.aspx?ID=BD4A275648).
started to receive FDI in manufacturing, especially textile 
21
See: www.unctad.org/fdistatistics for longer time series data.
processing and export-oriented activities, also received larger 
22
Source: “South Africa: Scrambling for Africa”, AllAfrica, 22 
November 2006 (http://allafrica.com/stories/200607240385.
6
Zambia is the world’s fourth largest copper producer, with most 
html); “AngloGold in $58 million Russian mining alliance”, 
of the production undertaken by TNCs (chapter IV). See also 
BusinessDay
“Zambian producers suffer as copper bonanza sends exchange 
in Tanzania”, All Africa, 2 May 2006 (www.allafrica.com); 
rate soaring”, Financial Times, 26 September 2006.
and “AngloGold in $58 million Russian mining alliance”, 
7
Under this Act, the United States Government has been offering 
BusinessDay, 7 April 2006.
trade preferences since 2000 to promote trade and investment 
23
Orascom (Egypt) bought a 19.3% stake in Hong Kong-
in Africa. The expiration of this Act has been extended until 
based Hutchison; Telkom acquired part of Portugal Telecom, 
2015.
including its operations in several African countries such as 
8
In 2005-2006, Lesotho witnessed an 8.3% contraction in 
Angola and Morocco; MTN bought into Lebanon’s Investcom; 
of quotas after the expiry of the Multi Fibre Arrangement 
national des telecommunications (Onatel); and Naguib Sawiris 
(MFA) on exports from low-cost Asian producers and the 
of Egypt purchased Wind Telecomuncazioni SpA of Italy.
continued strength of the South African rand (Lesotho’s mloti is 
24
Angola eased procedures for the entry of foreigners into 
pegged to the rand). Source: “Lesotho economy: Manufacturing 
sector performance to improve”, EIU Viewswire, 28 June 2006. 
operational licences, set up a Business Regulatory Reform 
For Swaziland, see for instance, Africa Renewal (previously 
Unit to bring standards up to international best practices and 
Africa Recovery), vol., 20, No. 1, April 2006: 18.
introduced a 24-hour service at the port of Mombasa and 
9
For example, France’s Crédit Agricole acquired Egyptian 
Mauritania eliminated various restrictions on foreign-exchange 
American Bank (later renamed the new bank Crédit Agricole-
operations.
Egypt) (Source: “Credit Agricole Egypt’s Adrien Phares on his 
25
See endnote 69 in chapter I. 
bank’s acquisition of EAB”, Business Today, 16 August 2006).  
26
Under AGOA, Africa-based clothing exporters were able to 
In Nigeria, CNOOC (China) acquired NNPC OML-130 for $3 
import fabric from the cheapest available suppliers while 
still enjoying duty-free access to the United States market. 
sale of MobiTel to MTC Kuwait for $1.33 billion.
When this concession expires in 2007, some of the foreign-
10
This subregion comprises Algeria, Egypt, the Libyan Arab 
Jamahiriya, Morocco, Sudan and Tunisia.
decide to relocate elsewhere. In December 2006, the United 
11
The North African countries received FDI in the manufacturing 
States Congress passed AIIA under the AGOA to help avert 
sector from TNCs engaged in the production of cosmetics, 
the diversion of FDI and the loss of thousands of jobs in the 
water storage tanks, auto valves, irrigation pumps, minibus 
region.  The new Act supplements and extends the provisions 
assembly lines, utility vehicles and pick-up trucks, 
of AGOA to help producers in sub-Saharan Africa better 
paints, pharmaceuticals and chemical production. Source:
withstand greater competitive pressures from China following 
PricewaterhouseCoopers (www.pwc.com).
the expiry of MFA in 2005.
12
Source: Central Bank of Egypt. For instance, pharmaceutical 
27
Includes China, Hong Kong (China), the Democratic People’s 
giant AstraZeneca invested in a plant to manufacture medicines 
Republic of Korea, the Republic of Korea, Macao (China), 
(for cardiovascular disease, psychiatric disorders and cancer) in 
Mongolia and Taiwan Province of China.
28
in the Middle East”, in-Pharma Technologist.com (www.in-
pharmatechnologist.com).
industries is reported by the Chinese Government based on 
13
Tunisia sold 35% of Tunisie Telecom (TT) to a consortium 
comprising Dubai Technology and Media Free Zone, and 
bodies: the banking, insurance and securities regulatory 
Dubai Investment Group for $2.3 billion.   
commissions. According to the China Banking Regulatory 
14
The subregion comprises Benin, Burkina Faso, Cape Verde, 
Commission, however, its data on foreign investments are not 
Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, 
Mali, Mauritania, Niger, Nigeria, Saint Helena, Senegal, Sierra 
FDI (UNCTAD, 2007e).
Leone and Togo.
29
There has been a worsening labour shortage in coastal 
15
Source: “Ernie Els to design course in Cape Verde Islands”,  
provinces such as Guangdong. In response, minimum wage 
Golf Today Travel, 12 September 2006 (http://www.golftoday.
co.uk/travel/press_releases/els_cape_verde.html).
in recent years.  For example, the minimum wage increased by 
16
The subregion comprises: Burundi, Cameroon, the Central 
17.4% in Shenzhen in 2006.
African Republic, Chad, Congo, the Democratic Republic of 
30
Source: Ministry of Commerce, Industry and Energy.
the Congo, Equatorial Guinea, Gabon, Rwanda and Sao Tome 
31
ASEAN members are: Brunei Darussalam, Cambodia, 
and Principe.
Indonesia, the Lao People’s Democratic Republic, Malaysia, 
17
Pecten is part of the Shell Group (“Pecten Cameroon 
Myanmar, the Philippines, Singapore, Thailand and Viet Nam.
Company”, MBendi, 7 October 2006 (www.mbendi.com)).
32
The project is expected eventually to employ 3,000 workers 
18
The subregion comprises Comoros, Djibouti, Eritrea, Ethiopia, 
and double Texas Instruments’ production capacity (“Texas 
Kenya, Madagascar, Mauritius, Seychelles, Somalia, Uganda 
Instruments unveils $1 billion Philippines expansion”, 3 May 
and the United Republic of Tanzania.
2007, at: www.marketwatch.com).

CHAPTER II
75
33
Although wages in Viet Nam have been rising rapidly 
47
For example, Wal-Mart will cooperate with the local Bharti 
particularly after the minimum wage level was increased in 
early 2006, the wage rate is still attractive compared to that in 
(“Wal-Mart will enter the Indian retailing industry”, Financial 
China.
Times, 28 November 2006). 
average worker in Viet Nam was about $90-$110 compared to 
48
According to China’s Ministry of Commerce (MOFCOM), 
$160-$190 in southern China in 2006 (JETRO, 2006: 88). 
Carrefour (France) had established 79 branches in China 
34
The subregion comprises Afghanistan, Bangladesh, Bhutan, 
by the end of June 2006, with total sales reaching $15 
India, Maldives, Nepal, Pakistan and Sri Lanka.
35
This includes, for instance, the investment of $20 billion 
cn/GB/54823/4929860.html). In February 2007, Wal-Mart 
by Emaar Properties (United Arab Emirates) in real estate 
acquired a 35% stake in Bounteous Company Ltd. (Taiwan 
development in Islamabad and Karachi (see “Emaar unveils 
Province of China), which operates Trust-Mart in mainland 
three real estate projects in Pakistan with total investment of 
China (see “Wal-Mart expands in China through Trust-Mart 
AED 8.8 billion”, at: http://www.emaar.com).
stake”, 27 February 2007, MarketWatch, at: www.marketwatch.
36
com).
countries include the PSA International-Peninsular & Oriental 
49
For example, Wal-Mart sold its 16 branches in the Republic 
Steam Navigation (United Kingdom) deal ($6.4 billion) and 
of Korea to the local E-Mart in 2006. (Evan Ramstad, “South 
the Temasek-Standard Chartered (United Kingdom) deal 
Korea’s E-Mart is no Wal-Mart, which is why locals love it”, 
($4.3 billion), though they are not recorded in 2006 (because 
Wall Street Journal, 10 August 2006). 
payment was not made).
50
For example, TCL had to write off much of its investment 
37
For example, see “A new wave of overseas investment has 
recently after it acquired Thomson (France) in 2004.
led to concerns of hollowing out”, 30 October 2006 (www.
51
The applications for establishing branches in the United States 
Xinhuanet.com).
by Chinese banks, such as Bank of China, China Construction 
38
The objective of establishing these zones is to promote 
Bank and Bank of Communications, have been denied several 
the internationalization of Chinese SMEs. The zones are 
times by the United States authorities over the past decade. 
However, this may change after the Second China-United 
support from the Chinese Government (source: Ministry of 
States Strategic Economic Dialogue in 2007, which reached 
Commerce).
the conclusion that any such applications should be examined 
39
So far, the Central Foreign Exchange Management Centre, 
based on the principle of national treatment (Mei Xinyu, 
under the State Administration of Foreign Exchange (SAFE), 
“Chinese banks eyes overseas markets”, 5 June 2007, at: www.
has been the only government agency responsible for 
FTChinese.com).
managing China’s foreign exchanged reserves ($1 trillion 
52
A priority objective indicated by both the Ministry of 
by the end of 2006). Following the conventional approach to 
Commerce and the National Development and Reform 
reserves management, which emphasizes security and liquidity, 
Commission. 
53
as United States Treasury Bonds. As highlighted in WIR06
continue to enjoy previous tax rates (15% or 24% depending 
(box II.7), the Chinese Government has been considering 
alternative uses for its foreign currency reserves in view of 
54
The Indian National Security Commission has proposed to 
the relatively low returns and high risks associated with the 
all economic departments of the Government that FDI from 
approach followed hitherto. Following a decision made by the 
certain countries should be subject to approval and monitoring 
State Council at the Central Financial Work Meeting in January 
with regard to national security implications.
2007, the Chinese Government is establishing a Government 
55
In 2006, the Ministry of Commerce and the National 
Investment Corporation, which is expected to manage a 
Development and Reform Commission introduced new rules 
possible $200 billion fund drawn from the pool of China’s 
on foreign takeovers in order to ensure a standard treatment for 
foreign currency reserves. 
acquisitions and a screening based on antitrust and “national 
40
In 2005, Tata Steel acquired NatSteel (Singapore) for $486 
economic security” concerns. In July 2006, the Government 
million. In 2006, Tata Tea purchased a 30% stake in Energy 
introduced a regulation to restrict FDI in real estate in order to 
Brands Inc. (United States) for a total acquisition price of $677 
avoid overheating in China’s real estate market. 
million, and Tata Coffee (a subsidiary of Tata Tea) acquired 
56
Seven industries, including telecommunications, petroleum, 
Eight O’Clock Coffee Company (United States) for $220 
defence, electricity, coal mining, civil aviation and ocean 
million. 
shipping, are considered to be of strategic importance, and thus 
41
to be controlled by the State. 
57
For example, China announced plans to invest about $200 
42
For example, in terms of sales, Hongfujin Precision Industry 
(Shenzhen), a subsidiary of Hon Hai Precision Industry, has 
Nam is planning a high-speed railway system. 
surpassed Motorola (China) in size, becoming the largest 
58
First, poor infrastructure prevents the country from attracting 
$14.5 billion in exports in 2006 (Ministry of Commerce of 
making efforts to attract FDI projects, they are not necessarily 
welcomed by local communities. 
based Quanta Computer and Inventec ranked number eight and 
59
Comprising Bahrain, the Islamic Republic of Iran, Iraq, Jordan, 
Kuwait, Lebanon, Oman, the Palestinian Territory, Qatar, Saudi 
2006. 
Arabia, the Syrian Arab Republic, Turkey, the United Arab 
43
For example, China Huadian Corporation is cooperating with 
Emirates and Yemen. 
its local partner Perusahaan Listrik Negara on a $2 billion 
60
Turkey was host to the largest cross-border M&A deal of 
electricity project in Indonesia. Other agreements (worth $4 
the year in the region – the purchase of TELSIM Mobil 
billion) in electricity and extractive industries were signed in 
Telekomunikasyon of Turkey by the United Kingdom’s 
October 2006 at a China-Indonesia energy forum in Shanghai. 
Vodafone Group for $4.6 billion (annex table A.I.3). There 
44
For example, Royal Dutch Shell announced in July 2006 that 
were an estimated 43 completed cross-border M&A sales in the 
it would invest in a $5 billion coal-to-liquids plant in Ningxia 
country, compared with 23 in 2005 (annex table B.5). 
Province. Anglo American is considering a coal-mining and 
61
processing complex worth about $4 billion (“Anglo American 
with over 10 in the construction sector (OCO Consulting, 
shows China interest”, Financial Times, 16 November 2006). 
Locomonitor database, at:www.locomonitor.com). 
45
FDI in high-tech industries such as telecom equipment 
62
Including the Islamic Republic of Iran, Iraq, Jordan, Lebanon, 
the Palestinian Territory, the Syrian Arab Republic and Yemen.
the Ministry of Commerce).
63
46
Source: the Reserve Bank of India.
but due to different methodologies in collecting these two sets 

76
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
WIR00.
2007). 
64
SourceOxford Analytica, 2 July 2007. 
80
Oceania comprises American Samoa, Cook Islands, Fiji, 
65
For example, ExxonMobil (United States), Royal Dutch Shell 
French Polynesia, Guam, Kiribati, Marshall Islands, the 
(United Kingdom/Netherlands) and Sasol (South Africa) have 
Federated States of Micronesia, Nauru, New Caledonia, Niue, 
gas exploration projects in Qatar, and Royal Dutch Shell and 
Norfolk Islands, Northern Mariana Islands, Palau, Papua New 
Total (France) have them in Saudi Arabia. 
Guinea, Samoa, the Solomon Islands, Tokelau, Tonga, Tuvalu, 
66
Vanuatu, Wallis and Futuna Islands.  
acquisition in 2006 took place in Turkey, where OMV 
81
Their ranking according to the UNCTAD Inward FDI 
Performance Index, would be 94 and 136, respectively. 
AS (Turkey) for $1.1 billion. 
However, the index for these economies is calculated separately 
67
The motor vehicles and other transport equipment industry 
from that of other economies; only Papua New Guinea is 
accounted for 13% of Turkey’s total inward FDI stock in 2004, 
included in the index, which is limited to 141 economies for 
the second largest recipient industry after transport, storage 
which the Inward FDI Potential Index is constructed (annex 
and communications. This trend is continuing: in 2006, Doktas 
table A.I.6).  
Docum Sanayi ve Ticaret, an automobile parts and components 
82
Following the agreement signed with China Metallurgical 
Construction Group Corporation in 2005 by the Government 
million. 
of Papua New Guinea, work has commenced at the joint Ramu 
68
Jordan Investment Board, Investment Statistics 2006 (http://
Nickel-cobalt project in which the Chinese corporation holds 
www.jordaninvestment.com).
85% of equity. 
69
83
compliance with Islamic norms (based on the Shariah), 
Countries Economic Development & Cooperation Forum 
took place in Fiji in 2006 with a view to promoting relations 
rather than paying out and receiving interest for access to 
70
In June 2006, Umniah Mobile Communications, a major player 
countries. 
in Jordan’s highly competitive cellular market was bought by 
84
For example, in Fiji following a coup in December 2006, an 
Batelco (Bahrain) for $415 million (“Batelco acquires Jordan 
initial decline in the number of tourist arrivals was observed, 
mobile operator for $415 mln”, Khaleej Times, 25 June 
but the sector is showing signs of rapid recovery (EIU, 
2006), and the Government of Jordan sold off its remaining 
2007c).  However, it is forecast that the long-run impacts of 
41.5% shares of Jordan Telecom to France Télécom for $183 
the coup will result in some 8% contraction in Fiji’s real GDP 
million (“France Telecom acquires a majority interest in Jordan 
(Narayan and Prasad, 2007). In the short term, FDI is expected 
TelecomFinancial Times, 30 June 2006).
to decline, although not nearly as much as the 33% decline in 
71
Source: UNCTAD, database on national laws and regulations. 
the aftermath of the 2000 coup.  The interim Government has 
72
The Central Bank of Bahrain has also enacted a Trust Law that 
set up an inter-agency FDI taskforce to ensure that existing 
Bahrain (Bahrain Trust Law, EIU Viewswire, October 2006). As 
seems to recover only after a politically stable environment is 
re-established. In the Solomon Islands, after elections in April 
regulated activity rather than the type of institution. Offshore 
banks, including investment banks, will now be covered by a 
Tonga also witnessed violence, which led to the destruction of 
“wholesale banking” licence (“Offshore Banking in Bahrain”, 
80% of the capital’s business district (EIU, 2007d). 
EIU Viewswire, October 2006). For Saudi Arabia, see “Saudis 
85
Oil Search Ltd. was incorporated in Papua New Guinea in 
Financial 
1929 and is listed on the Australian Stock Exchange, with the 
Times, 10 May 2006 and for Qatar, see “Qatar Central Bank, 
Government of Papua New Guinea as the principal shareholder 
2006”, EIU Viewswire (www.viewswire.com), 2006. 
(of about 18%).
73
Non-Omani citizens will have the right to own residential 
86
Bermuda is no longer included in this region, as it is now 
property and land in “integrated tourism complexes”. Oman 
Tourism, EIU Viewswire
, March 2006.
87
For the Homeland Investment Act, see WIR06: 89. 
74
The Qatar Government opened its market to foreign investment 
88
Although this ratio must be interpreted with caution because 
in the gas sector. There are several large projects under this 
data on FDI and M&As are not quite comparable (see WIR00),
it is however a good barometer of the relative importance of 
Limited (Qatar Gas), a joint-venture company between Qatar 
M&As as a mode of FDI. 
Petroleum and ExxonMobil Corporation, has expanded  89
In 2006, the purchase by TNCs of local assets owned by 
its facilities at the Ras Laffan industrial city natural gas 
liquefaction plant in Qatar. Started in early 2005, the project 
owned by nationals decreased by 22 %. Both transactions are 
investment has been estimated at $12 billion. Royal Dutch 
recorded as cross-border M&As (source: UNCTAD, cross-
Shell is also investing in a Qatar gas plant to turn Qatari gas 
border M&As database (www.unctad.org/fdistatistics)).  
into super clean fuel, in a project worth up to $18 billion. 
90
Reinvested earnings are recorded both in the current account 
75
The law also consolidates existing legislation and introduces 
of the balance of payments (as being paid to the direct investor 
new, tighter provisions regarding transfer pricing and tax 
as investment income) and in the capital account (as being 
havens. Turkey Tax Law, EIU Viewswire, March 2006. 
76
See, for example, “UAE mulls FDI reform”, Khaleej Times, 
91
Data on reinvested earnings in 2006 are available for 
22 December 2006; and “UAE Labour LawEIU Viewswire,
Argentina, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, 
June 2006.  
Uruguay and Venezuela. These countries received 57% of the 
77
http://ec.europa.eu/trade/issues/bilateral/, accessed in March 
total inward FDI to South America in 2006.  
2007. 
92
Source: Central Bank of Costa Rica and Central Bank of the 
78
The health-care sector is considered to be the industry with 
Dominican Republic. 
the highest growth potential, especially in the West Asian 
93
subregion (PricewaterhouseCoopers, 2007a), which could 
37%, to $49 billion. 
attract some FDI. In Jordan for instance, Kuwaiti investors are 
94
Source: Central Bank of Brazil. 
seeking government approval to launch a medical city near 
95
Alexander’s Gas & Oil Connections, Vol. 10, No. 18, 28 
Amman at a cost of $3-5 billion. 
September 2005; América Economía.com, Edición 342, 29 
79
In Kuwait, for example, legislation is expected to be passed in 
June 2007, and PDVSA (www.pdvsa.com). 
2007, enabling Project Kuwait, a $7 billion plan to encourage 
96
Business Latin America, 22 January 2007 (London: EIU). 

CHAPTER II
77
97
Business Latin America, 29 January 2007 (London: EIU), 
116
Source: Central Bank of Brazil. 
Business Latin America, 30 October 2006 (London: EIU), and 
117
Bulgaria and Romania which became new EU member States 
Mercopress, 8 March 2007 (www.mercopress.com). 
98
Banco de la República, Subgerencia de Estudios Económicos, 
CIS in this Report. For more on geographical grouping, see 
at: www.banrep.gov.co/economia/flujos/flujoinv.xls. 
WIR06, p 6. 
99
Sources: for Chile, Comisión Chilena del Cobre (Cochilco) 
118
In 2006, the $4.7 billion purchase of Banca Comerciala 
(www.cochilco.cl) (the amount does not include investments 
Romana by the Austrian bank Erste Bank was the largest deal 
in exploration and in routine maintenance); for Colombia, 
in the country so far (annex table A.I.3).
Banco de la República, Subgerencia de Estudios Económicos,
119
For more on the rise of Russian TNCs, see Kalotay, 2007.
120
Source: UNCTAD cross-border M&A database. Cross-border 
Proinversión, 2007 and Business Latin America, 23 April 
2007 (London: EIU); for Bolivia, Business Latin America,
Croatia by Société Générale (France) of HVB Splitska owned 
15 January 2007 (London: EIU); for Guyana, Business Latin 
by Unicredito Italiano for $1.2 billion, and in Ukraine, the 
America, 30 October 2007 (London: EIU); for Suriname, 
Business Latin America, 31 July 2006 (London: EIU). 
of Raiffeisen Bank (Austria) for $833 million.   
100
Sources: Business Latin America, 18 September 2006, 14 
121
In March 2006 the Government of the Russian Federation 
August 2006 and 9 October 2006 (London: EIU); and www.
released a preliminary list of 39 industries deemed to be 
thyssenkrupp-steel.com. 
strategic, including energy and metals. 
101
In 2007 Nissan began using its Mexican operations to 
122
In June 2007, TNK-BP, agreed to cede its controlling 62.9 % 
supply cars to 18 European countries. Volkswagen is another 
automaker that exports to Europe from its Mexican factory 
submits to Kremlin pressure and hands Kovytka to Gazprom” 
(“Horisly’s space”, Automotive News, 9 April 2007, at: http://
Financial Times, 23 June 2007).   
horisly.blogspot.com/2007/04/nissan-to-supply-europe-from-
123
The sale of PetroKazakhstan to CNPC, a Chinese State-owned 
mexico.html). 
oil company (WIR06: 58) was allowed to go through only after 
102
ADEFA,  Press Release, December 2006 and Página 12, 1 
CNPC agreed to sell a 33% stake in PetroKazakhstan to State-
October 2006. 
owned KazMunaiGaz. 
103
Including FDI in automotive engines and other transportation 
124
“Mining groups feel the heat in central Asia”, Financial Times,
equipments (source: Banco Central do Brasil). 
2 August 2006. 
104
Fiat is proceeding with a $1.4 billion modernization plan for 
125
However in some countries such as Romania the previous 
its operations in Brazil that will extend until 2008. General 
privatization deals were disputed (see Hunya, 2007 for the 
Motors has announced it might double its annual investment of 
Petrom privatization-related dispute).  
$500 million by the end of the decade if GDP growth in Brazil 
126
In Serbia, for instance, a new Free Zone Law was enacted, 
improves. Ford has unveiled plans to invest $1 billion by 2011, 
while in Albania, in 2006, an initiative “Albania one Euro” 
and Volkswagen (Germany) intends to invest $1.2 billion by 
was launched to attract foreign investors especially in energy 
2012 (Business Latin America, 22 January 2007 (London: 
generation. For more on this latter initiative, see: http://www.
EIU)). However, Volkswagen plans to phase out exports of its 
albinvest.gov.al/dokumenti.asp?id=304&menu=96. 
Fox model from Brazil to Europe, and will supply it at a lower 
127
For example, in July 2007 the French oil company Total 
 
cost from the Russian Federation (Business Latin America, 2 
agreed to form a consortium with Gazprom to develop one 
October 2006 (London: EIU)). 
of the world’s largest natural gas deposits (see “Gazprom and 
105
Mexico’s share in total apparel exports to the United States 
Total strike a deal on gas”, International Herald Tribune, 13 
fell from 8.8% in 2005 to 7.4% in 2006, and that of DR-
July 2007). 
CAFTA countries from 14% to 12.5%. In contrast, the share of 
128
In the survey, Romania and Bulgaria were not included as part 
China, for example, increased from 22% to 25.9%, and that of 
of the South-East Europe and CIS region. 
Indonesia from 4.2% to 5.1%.  
129
For example, Teva Pharma Inds Ltd (Israel) bought Ivax Corp 
106
Examples include the acquisition of Verizon’s (United States) 
for $7.4 billion, and Novartis AG (Switzerland) acquired 
assets in the Dominican Republic by América Móvil for $2.1 
Chiron Corp. for $6.2 billion. 
billion, Telmex’s acquisition of shares in Embratel (Brazil) 
130
For example, Telefonica (Spain) acquired O2 Plc for $31.7 
for $809 million, and the acquisition of the Brazilian Tevecap 
billion, Ferrovial (Spain) bought a 14% stake in airports 
(cable TV) by Telefónica for $467 billion. 
operator BAA for $21.8 billion, and Linde AG (Germany) 
107
Verizon sold its assets in Venezuela to the State and its assets 
acquired BOC Group Plc for $14.1 billion (annex table A.I.3). 
in the Dominican Republic to América Móvil (Mexico), while 
131
“Coordination centre” status is granted by Royal decree to 
Telecom Italia sold its assets in Venezuela to the local group 
very large industrial conglomerates which meet certain criteria. 
Cisneros. 
Multinational companies with coordination centre status, 
108
Reuters América Latina, 10 May 2007, and Business Latin 
America
, 15 January 2007 (London: EIU).
its outward FDI in the period 1995-2005 (Piette, 2007). These 
109
Business Latin America, 30 October 2006 and 29 January 2007 
(London: EIU). 
they pay normal Belgium corporate income tax rates of up to 
110
Clarín, 9 January 2007 (www.clarin.com.ar), Business Latin 
America
, 7 August 2005, 13 November 2006 and 25 December 
4%-10% of their total “business expenses”). 
2006 (London: EIU). 
132
For example, MOL (Hungary) sold a natural gas storage 
111
Business Latin America, 25 December 2006 and 29 January 
and wholesale trading business, to E.ON (Germany) for 
2007 (London: EIU). 
$1.3 billion, and the power generator, Slovenske Elektrarne 
112
Business Latin America, 22 January 2007 and 27 November 
(Slovenia), was taken over by Enel (Italy) for $1.1 billion 
2006 (London: EIU).
(annex table A.I.3). 
113
The accord with China has already been implemented, but it 
133
For example the acquisition of Winthertur by AXA (France) 
does not include chapters on services and investments. 
“AXA buys Winterthur for Euro 7.9 billion” Financial Times,
114
The region is expected to achieve a GDP growth rate of 4.7% 
15 June 2006. 
in 2007 (UNCTAD, 2007). Regarding prospects for commodity 
134
Vodafone bought TELSIM Mobil Telekomunikasyon in Turkey 
prices, see chapter III of this WIR.
for $4.6 billion and VenFin Ltd. in South Africa for $2.9 
115
In addition to the sale of the local assets of AES and CMS 
billion; HSBC bank acquired Grupo Banistmo SA in Panama 
(both United States companies) to the Government of 
(annex table A.I.3). 
Venezuela, CMS announced that it would sell its assets in 
135
Major deals included the following: Japan Tobacco acquired 
Brazil, and Union Fenosa (Spain) announced plans to sell its 
Gallagher (United Kingdom) for $14.7 billion in what was not 
assets in Nicaragua back to the State. In the telecom sector, 
only the largest acquisition in the tobacco industry, but also the 
Verizon (United States) agreed to sell its assets in Venezuela to 
largest foreign takeover by a Japanese manufacturing company. 
the Government. 
The deal was recorded in 2007 (“Buying overseas: executives 

78
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
discover that the developed world is their oyster”, Financial 
However, stock-swapping M&As by foreign companies are 
Times, 13 March 2007). Toshiba bought Westinghouse Electric 
Co. (United States) for $5.4 billion, and Nippon Sheet Glass 
Co Ltd. acquired Pilkington PLC (United Kingdom) for $3 
142
“Business in Austria: not so welcome in Vienna”, The 
billion. 
Economist, 31 March 2007. 
136
In 2006, two large acquisitions took place in  143
The so-called “Volkswagen Law” prevents mergers and 
investment in Volkswagen, the largest carmaker in the EU, as it 
by Spain’s Telefonica, and Lucent Technologies by France’s 
caps voting rights and limits board seats at Volkswagen. 
Alcatel. 
144
In addition to the Economic Report of the President, the 
137
For instance, Ford (United States) announced that it would 
Department of Commerce launched the Invest in America
invest up to $1.8 billion over the next six years in its R&D 
initiative in March 2007. This initiative will reach out to the 
projects in the United Kingdom, while Novartis (Switzerland) 
international investment community, serving as ombudsman 
plans to create a research facility with 400 scientists in China 
in Washington, DC, for the concerns of the international 
(“Ford to invest £1 billion in UK R&D”, Financial Times,
investment community, and will support state and local 
17 July 2006 and “Novartis in China R&D push”, Financial 
governments engaged in foreign investment promotion 
Times, 3 November 2006). 
(“Commerce to launch new Federal Initiative to attract foreign 
138
For example, in 2006 Morgan Stanley opened a Business 
investment”,  Press Release 7 March 2007, Department of 
Services & Technology Centre in Budapest (Hungary) 
Commerce, Washington, DC). 
(“Eastern Europe becomes a centre of outsourcing”, The New 
145
The Sarbanes-Oxley Act is a federal law in the United States 
York Times, 19 April, 2007).
which establishes new and enhanced standards for all United 
139
Source: UNCTAD, database on national laws and regulations. 
States public company boards, management and public 
140
The Austrian Government sold, through an initial public 
offering (IPO), a 49% stake in the previously 100% State-
146
The new EU-12 group comprises the 10 members that joined 
owned mail service provider, Österreichische Post, while in 
the EU in 2004, plus Romania and Bulgaria that joined in 
Portugal, the Government sold, through an IPO in October 
2007. 
2006, 25% of Galp Energia, a large State-owned oil and 
147
In the 10th Annual Global CEO Survey, 43% of the CEOs 
gas utility. The French Government announced the partial 
preferred Europe as their M&A destination, followed by Asia 
privatization of Gaz de France and the State-owned Aéroports 
and then North America (PricewaterhouseCoopers, 2007a); 
de Paris, and, similarly, the Irish Government announced the 
a survey by Ernst and Young indicated that Western Europe 
offering of a major part of the State-owned national airline, Aer 
maintained its lead as the most attractive global investment 
Lingus, to private investors. 
141
This is further stimulated by a tax deferral, as shareholders 
Czech Republic ranked 7th and 10th respectively (Ernst and 
necessarily pay the tax at the time of receipt of the shares.  
Young, 2007). 

PART TWO
TRANSNATIONAL CORPORATIONS, 
EXTRACTIVE INDUSTRIES AND 
DEVELOPMENT



INTRODUCTION
During much of the past two
The boom in mineral prices has
decades, transnational corporations (TNC)
brought development issues related to the 
in extractive  industries  have attracted  extraction of natural resources back  into
limited attention in analyses and in policy  focus. The appropriate use of revenues 
debates on issues relating to development.  from their exports could enable a number 
To some extent, this reflected the declining  of mineral-rich  developing countries to 
importance of those industries in the  accelerate their development process. 
world economy and their shrinking share
At the present juncture,  given the shared 
in global FDI, as well as the  increasing
objective of countries to accelerate the 
emphasis placed on industrialization as
progress towards meeting the Millennium
a key aspect of the development process.
Development Goals set forth by the United 
2007
However, the recent and  significant  Nations,  it  is timely to consider – once 
revival of commodity prices has led to
again and with the benefit of experience 
renewed interest in the exploitation of  – how resource endowments can promote
natural resources and  in energy security.
development. 
Following an extended period of low
Such an assessment needs to take 
levels  of international investment in  into account the potential implications of 
extractive  industries, significant changes  involving TNCs in the process. During 
are sweeping the landscape of FDI and  the past decade, TNC investments in 
TNC activity in these industries. It is  the  extractive industries have  evolved 
therefore an opportune time to take a fresh
in several respects, with a change  in 
look at this area, its implications for host-
the distribution of such TNCs among
country development, and related policy  home and host economies. New TNCs
challenges.  Part Two of WIR07
7 is devoted  have surfaced  in traditional as well as
to this topic.
emerging market economies. A number 
The 
renewed interest in the
of importing countries, anxious to secure 
extractive  industries partly reflects the  continued access to mineral supplies, are
structural shift that is occurring in the
encouraging their firms to invest abroad 
relative importance of various markets  in extractive industries. Today, companies 
in the world economy. Rising  demand  headquartered in developing and transition 
for mineral resources from fast-growing  economies  account for a noticeable  share 
markets in Asia has added to the persistent  of TNC investments, including in the 
high  levels of demand  in  developed  extractive  industries  (WIR06). In some 
countries, leading to a surge in mineral
of these, notably oil and gas, privately
prices. In 2006, the price of crude oil
owned TNCs are now competing directly 
reaches a level 10 times  higher than  its
in overseas markets with  State-owned 
lowest point in 1998. Price increases have  companies from the South.
also occurred in metals such as aluminium, 
Mineral-rich developing countries 
copper, nickel and  zinc, and  by June  see new economic opportunities and 
2007 they were far higher than the levels  development prospects stemming from 
prevailing in 2003. As a result, corporate  higher export revenues, but they are also 
profits  in the extractive  industries  have  increasingly aware of the potential adverse
soared and international investments have
effects associated with resource extraction. 
rebounded.
Countries that allow foreign investment 

82
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
in their extractive industries are seeking to strike  for a host country, but may also have adverse 
the right bargain with the companies involved. This  environmental or social effects. On the other hand, 
is particularly true for many of the world’s poorest  many developing countries may not be able to fully 
economies, for which oil, gas and various metals are  exploit their resources without TNCs. The question 
by far the largest sources of export and government  is what various stakeholders – host countries, home 
revenues. 
countries, investors, the international community and 
The relationship between TNCs in extractive  civil society – can do to facilitate a development-
industries and host States is constantly evolving as  friendly outcome. A range of international initiatives 
countries seek ways of exercising control over their  of relevance to the TNC-extractive industries-
resources and maximizing retained gains, while at  development nexus have been set in motion in the 
the same time drawing on the strengths of the TNCs.  past decade. Some of them have been initiated 
In the present decade, the bargaining power of  by governments, and others by civil society and 
mineral-exporting countries vis-à-vis mining TNCs  industry associations. 
is growing as a result of the higher mineral prices. 
WIR07 examines the evolving role of TNCs 
Reflecting their improved negotiating position,  in extractive industries, and revisits the issue of how 
several governments have recently changed their  investment and other relevant policies in this area 
policies with respect to TNC participation with  may bring about greater development gains. The 
the aim of increasing their share of the windfall  coverage is limited to minerals, more specifically 
revenues created. At the same time, more and more  oil, gas, diamonds and metallic minerals, which 
countries are paying attention to the broader effects  account for the bulk of FDI in the primary sector.1
of resource extraction, including on the environment, 
Chapter III defines the scope of the industries 
human rights and other social dimensions, with a  and activities covered, and discusses the recent 
view to taking the necessary steps for promoting  commodity price boom, with particular attention 
sustainable development.
to the interface between extractive industries and 
Although investments in extractive industries  development. Chapter IV examines the trends and 
account for a small share of global FDI flows, they  developments with respect to FDI and other forms of 
constitute the bulk of the flows to many low-income  TNC involvement in extractive industries globally. 
economies, particularly in Africa. However, only  It provides detailed information on the presence 
a few African recipients of significant amounts of  of the leading TNCs in key mineral-exporting 
such FDI have been able to transform it into broader  countries, based on unique sets of data, with a focus 
development gains; instead most of them score low  on recent developments. It also discusses the main 
by various measures of development. For example,  drivers and determinants of foreign investment in 
Angola, Equatorial Guinea, Nigeria and Sudan  extractive industries, noting that these vary between 
were among the top five sub-Saharan African host  different groups of TNCs. Chapter V analyses the 
countries of inward FDI stock in 2005 (annex table  economic, environmental and social impacts of 
B.2). They were also the top four sub-Saharan oil  TNC involvement in extractive industries on host 
exporters. In terms of development, however, their  countries. The concluding chapter (chapter VI) is 
performance has been disappointing. Their rankings  devoted to the policy challenge. While recognizing 
out of 171 economies listed according to the  that governments have the primary responsibility 
Human Development Index of the United Nations  for ensuring that TNC involvement in mineral 
Development Programme were: Equatorial Guinea  extraction translates into tangible development 
- 121; Sudan - 141; Nigeria - 158; and Angola - 160  benefits – particularly in host countries – it explores 
(UNDP, 2006).
the options available to various relevant stakeholders 
for contributing towards the achievement of that 
Owing to the varying experiences of host  goal.
countries and the failure of many of them to 
utilize the gains from TNC participation in export-
oriented resource extraction for the purpose of 
Note
accelerating their development, it is necessary to  1
reconsider how foreign investment in the extractive 
primary sector, account for less than 1% of all primary-sector 
industries can serve as an impetus to development. 
FDI from the EU and the United States, the main sources of 
There are concerns that TNC involvement may not 
such FDI.
only fail to generate significant economic gains 


CHAPTER III
FEATURES OF THE EXTRACTIVE 
INDUSTRIES
Access to a variety of minerals  economy and defines the scope of analysis
is  important for all economies, not least  by  identifying  the main minerals on
for those that are at an early stage of  which  this Report focuses. It points out 
development. The current commodity  that the centre of gravity of supply and 
price boom has generated renewed interest  demand for many  minerals  has  gradually 
in the  links  between extractive  industries  shifted towards  developing countries. 
and development. The intertwining roles  Section B considers the functioning 
of markets, enterprises and States in the  of mineral markets,  highlighting  the
extractive industries vary with the specific
special  characteristics of the most recent 
nature of those industries. Global markets  commodity price boom and its implications 
for mineral resources tend to be  highly
for  global  investment activities  in the 
2007
volatile, partly due to the often significant  extractive  industries.  Section  C outlines 
time lags in the supply response to changes  some  of the main characteristics  of 
in  demand. Investments in the extractive  investment in these activities and discusses
industries are generally associated  with
the 
development opportunities and 
high capital intensity and high risk,  challenges facing resource-rich countries 
and are strongly  influenced  by political  in the current era.  
decisions, which  in turn are considerably 
affected by swings in the market. When
A. Extractive industries 
prices are high, governments have a strong
bargaining position vis-à-vis the  investors 
in the world economy 
and vice versa.  At the same time, there is
a  significant positive correlation  between
high prices and  global  investments  in 
1.  Minerals are essential 
exploration. 
for all economies 
For resource-rich countries, the price
boom that started  in 2004 has generated 
Minerals  account for a small
new development opportunities. However,
share of world  production and trade.1
the relationship  between exploitation of  Nonetheless, their supply is essential for 
mineral resources and  the  development  the sustainable development of a modern
performance of the exporting countries has
economy. They are basic, essential 
varied considerably. Countries have to face
and strategic raw materials for the
several  challenges  beyond  the economic  production of a wide range of industrial
concerns, extending to environmental,
and consumer goods, military equipment, 
social and  political  dimensions. Such  infrastructure, inputs for improving soil 
concerns vary, depending on the mineral
productivity, and also for transportation, 
resources and the countries. Many  energy, communications and countless 
related  challenges are linked to the
other services (Highley, et al., 2004). No 
specific features of the  industry  itself,  modern economy can function without 
independently of TNC involvement.
adequate, affordable and secure access 
This chapter sets the stage for  to raw materials. This is easily taken for 
the analyses that follow  in subsequent  granted in “normal times”. However, when 
chapters of the role and impact of TNCs in
supply  is  disrupted or prices rise, affected 
extractive  industries. Section A examines  countries are quick to react. Recent 
the evolving role of minerals in the world  events in disrupted gas deliveries between

























84
World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
Box III.1. Definitions of extractive industries and minerals
Extractive industries are defined in the WIR07 as primary activities involved in the extraction of non-
renewable resources.a Thus they do not include such industries as agriculture, forestry and fisheries. The report 
also employs an economic definition of minerals.b    Economic minerals are those that can  be marketed  for 
productive purposes.  They can be classified into three main categories (box figure III.1):
o Energy minerals (oil, gas, coal and uranium), 
o Metallic minerals, and 
o Non-metallic minerals (industrial and construction minerals and precious stones).
An important dimension of economic minerals is the way in which they are traded (IIED, 2002). 
Globally traded minerals have a high enough value per unit weight to be sold in global markets. They include
gold, diamonds, copper and aluminium. Oil and gas also belong to this category. Less globally traded minerals 
have a sufficiently  high value per unit weight to be marketed regionally  (some  grades of coal,  limestone and 
steel), but seldom globally. Locally traded minerals, mainly sand, gravel and stone, have a very low value per 
unit of weight. 
The present report focuses on the most tradable energy and metallic minerals: oil and gas among the
energy minerals; and iron ore (ferrous metals), gold (precious metal), and copper, bauxite/aluminium, zinc and 
nickel  (base metals) among  the metallic minerals. Metallic minerals account for about 25% of the total value 
at the mine stage of global mineral production (excluding oil and gas). Given their importance for selected 
developing countries and their high tradability, diamonds are also included in the analysis.
Box figure III.1.1.  Minerals and their use
Source:
UNCTAD.
a See http://glossary.eea.europa.eu/EEAGlossary/E/extractive_industr.  It should be noted that metals are not destructible.
b Other definitions of minerals are based on geological, legal or biological-medical considerations.

CHAPTER III
85
the Russian Federation and Ukraine as well as  in zinc and nickel production, and about 20% in iron 
concerns over the rising oil and gas prices are vivid  ore production. 
illustrations. It is therefore not surprising that energy 
The metallic mineral industry involves five 
security has resurfaced to the top of the international  main stages: exploration, development, mining, 
political agenda, as witnessed, for example, in the  processing (smelting and refining) and mine closure. 
G8-summit in Heiligendamm in June 2007 (G8  The share of the value added at the various stages of 
Summit, 2007).
extraction depends on the specifics of each process 
This report focuses on extractive industries  from mine to metal (table III.2). If the smelting 
(box III.1), with special attention to energy  and refining steps are complicated and/or very 
minerals, notably oil and gas, and to the following  energy-intensive, 
metallic minerals: bauxite/aluminium, copper, the costs of these 
Table III.2. Share of value 
iron ore, gold, nickel and zinc, and diamonds.  latter stages may  added at the mining stage of 
Their selection reflects their importance in global 
selected metals,a
be considerable 
 2005/2006
(Per cent)
mineral production, the role of TNC involvement  compared to the 
in their extraction and their tradability at the global  mining stage, and 
Share of value 
level. Throughout this report, a distinction is made  hence less value 
added at the 
between the oil and gas industry, and the metal 
Metal
is added at the 
mining stage
mining industry. 
Gold
mining stage. For 
100
Platinum group metals
example, in the 
100
These two categories of extractive industries  case of bauxite/ Tin
83
are of quite different magnitude. Global production 
Copper
77
of crude oil and natural gas amounted to an  aluminium, less 
Lead
77
estimated $2.3 trillion in 2005.2 By comparison,  than 10% is created  Nickel
70
global production (at mine site) of metallic  at the mining 
Zinc
63
minerals was valued at about $265 billion the same  stage. Gold and 
Cobalt
33
year.3 Commercially, a few metals dominate the  the platinum group  Bauxite/aluminium
9
metal mining industry. The three most important  metals represent 
Source
the other extreme, 
: UNCTAD, based on data from the 
ones – iron ore, gold and copper – account for 
Raw Materials Group.
some 50% of the total value of metallic minerals  as the product at a Estimates.
produced, followed by nickel and zinc (which  the mining stage 
represent only about 8%) (table III.1). Bauxite is  needs very little further treatment in a specialized 
low on the list mainly because most of the value  refinery. The base metals, copper, lead and zinc are 
added in aluminium is created at the refining  in between, with the product at the mining stage – 
(alumina production) and smelting (aluminium  the concentrate – accounting for most of the value. 
production) stages (see below). These six metals are 
In the case of oil and gas, refining applies 
economically the most important. Moreover, in most  mainly to oil, but a certain proportion of the natural 
cases, foreign affiliates play a significant role in  gas is also used in “gas-to-liquids” plants in which 
their global production, their share being more than  high-quality oil products are produced. 
50% in bauxite copper and gold production, 36-37% 
Petroleum refining is the separation and 
processing of crude oil into three types of products: 
Table III.1. Most important metals in world mining, 
fuels,4 finished non-fuel products,5 and chemical 
2005
industry feedstocks.6 The transport part of the 
value chain is different for oil and gas, respectively. 
Share in total value of 
Share of foreign 
metallic mineral 
Volume of output  affiliates in world 
Oil is traded worldwide as it can be easily stored 
productiona            (metal content in 
productionb       
and transported via pipelines, railway, tankers 
Metal
(%)
kilotonnes)
(%)
and trucks. Gas, which is more difficult to store 
Iron ore
21.9
800 000
21
and transport, is generally transported between 
Copper
18.0
16 900
56
neighbouring countries via pipelines. For long-
Gold
13.5
3
50
distance transportation and trade it usually takes the 
Nickel
4.9
1 300
36
form of liquefied natural gas (LNG). LNG supply 
Zinc
3.4
10 300
37
involves liquefaction, maritime transportation and 
Bauxite
1.5
31 000
60
re-gasification at the receiving end, where it is 
Others
36.8
..
..
connected to the traditional transmission pipelines, 
All metals
100.0
..
..
storage facilities and distribution networks.7 The 
share of LNG in total gas trade, which was 35% 
Source:   UNCTAD, based on data from the Raw Materials Group. 
a
Estimates.
in 2005 (BP, 2006), is expected to increase, with 
b
Foreign affiliates are considered to be those with at least 10% foreign 
total liquefaction capacity worldwide set to double 
ownership.
between 2005 and 2010 (IEA, 2006a). 

86
World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
2. Geography of production 
note, however, that the share of developed countries 
and consumption of selected 
in the consumption of iron ore, copper and zinc 
fell significantly in 2005 from that of a decade 
minerals
ago. This was compensated by a strong increase in 
the share of developing Asian countries for these 
The world mineral market is characterized  metals. Also worth noting is the strong increase in 
by an uneven geographical concentration of  the participation of developed countries in iron 
resources, production and consumption. The major  ore production, to the detriment of Latin American 
producers are mainly from developing and transition  countries and economies in transition and of 
economies and are net exporters, while the major  developing Asia in gold, zinc and bauxite production 
consumers are mainly from developed countries  (table III.4). 
and rely heavily on imports. Since the 1990s, some 
For many developing countries, minerals 
Asian developing countries have significantly  are the most important export products. The heavy 
increased their consumption of minerals to help fuel  reliance on minerals is particularly pronounced 
their booming economies, and are now among the  among oil-producing countries in Africa and West 
leading consumers and importers.  
Asia (table III.5). African and Latin American 
Oil and gas reserves are highly concentrated  countries are endowed with diverse minerals, 
in West Asia: its share in world total proven and  ranging from precious minerals to ferrous and 
probable reserves was 62% for oil and 40% for gas  industrial minerals. Africa dominates the world’s 
at the end of 2005. However, in terms of oil and gas  supply of precious metals and stones, such as 
production, West Asia’s share was only 23% in 2005. 
platinum, diamonds and gold, of which it is the 
In contrast, developed countries that only accounted  leading producer, while Latin America is the leading 
for 6% and 8% of global reserves of oil and gas  producer of such metals as copper and silver (USGS, 
respectively, had a significant 25% share in global  2005). 
oil and gas production (table III.3). For natural gas, 
the Russian Federation has the largest reserves (27% 
of the world total) and the highest production (22% 
B. The commodity price 
of the world total).8 The Persian Gulf region, which 
boom and its impact on 
accounts for only 10% of world gas production,9 is 
set to increase this share as trade in LNG expands. 
investments
Developed countries and South, East and 
Mineral markets are volatile. The most recent 
South-East Asia are two groups of countries for  commodity price boom has had a major impact 
which the share in world consumption is greater than  on corporate investment behaviour as well as on 
in world production and reserves. The gap is larger  government policies. It is therefore important to 
for developed countries, but is growing rapidly for  understand the underlying forces behind the recent 
Asian countries (table III.3).10 This explains why 
exploration activity is highly  Table III.3. Reserves, production, consumption, and exploration of oil and 
concentrated in developed 
natural gas, by region, 1995 and 2005
countries where around 70% 
(Per cent)
of new fields are drilled. 
Among developing countries, 
Oil and gas
Reserves at 
exploration activities are 
end 2005c
Explorationa
Productionb
Consumptionb
mostly concentrated in South, 
1995
2005
1995 2005
1995
2005
Oilb
Gasb
East, and South-East Asia 
Economy
Share in total number
Share in total volume
(table III.3). 
Developed countries
67
71
31
25
56
52
6
8
For  metallic minerals, 
Developing countries
29
23
49
54
29
36
84
59
the picture varies by Africa
4
6
8
10
3
3
10
8
commodity. However, with  Latin America
7
6
10
11
7
7
10
4
few exceptions, developed  Developing Asia
17
11
31
33
20
26
65
47
countries and developing  West Asia
2
3
21
23
7
9
62
40
South, East and South-East Asia
15
8
10
10
13
17
3
7
Asia consume more metals 
South-East Europe and CIS
5
6
19
20
14
12
10
31
than they produce, while Russian Federation
3
3
16
16
9
8
6
27
the converse applies to 
Total world
100
100
100
100
100
100
100
100
Africa, Latin America and 
Source:  UNCTAD based on data from IHS Energy and BP, 2006. 
the Caribbean, as well as to  a Shares calculated on the basis of the number of new fields drilled.
b
South-East Europe and the 
Shares calculated on the basis of volume.
c
The reserves are proven and probable ultimate recoverable reserves, i.e. the volume that it is expected will 
Commonwealth of Independent 
be recovered from the deposit over its entire production lifetime.  Proven and probable implies a confidence 
States (CIS). It is interesting to 
level of 50%.

CHAPTER III
87
Table III.4. Production and consumption of selected metallic minerals, 1995 and 2005
(Per cent)
Developed
Latin America and 
Developing
South-East Europe 
Metal
Africa
All regions
countries
the Caribbean
Asia
and the CIS
1995
2005
1995
2005
1995
2005
1995
2005
1995
2005
1995
2005
Iron ore production
17
29
6
4
31
24
27
29
19
14
100
100
Pig iron productiona
37
29
2
1
8
5
39
52
14
13
100
100
Copper production
41
43
6
9
19
21
12
6
22
21
100
100
Copper consumptionb
64
46
1
1
5
6
28
42
2
5
100
100
Gold production
34
28
30
21
12
18
14
23
10
10
100
100
Gold consumption
37
39
3
4
2
2
56
53
2
2
100
100
Nickel production
31
30
6
5
12
17
28
26
23
22
100
100
Nickel consumption
52
50
5
3
10
13
10
12
23
22
100
100
Zinc production
45
36
4
4
23
21
22
32
6
7
100
100
Zinc consumption
57
42
2
2
15
8
19
39
7
9
100
100
Bauxite production
39
36
15
10
28
27
12
19
6
8
100
100
Alumina productionc
40
48
2
1
28
20
14
19
16
12
100
100
Source:  UNCTAD, based on data from the Raw Materials Group, Virtual Metals and Bloomsbury Minerals Economics Limited.
a
Pig iron production (iron content) is used as a proxy for iron ore consumption. 
b
The first column’s data for each region are for 1996. 
c
Aluminium production is used as a proxy for bauxite consumption.
Table III.5. Developing and transition economies with highest dependency on exports of minerals 
(Per cent of total exports, 5-year average (2000-2004))
Sorted by fuels a
Sorted by non fuel minerals a
Ores and 
Economy
Fuels
Product description
Economy
metals
Product description
Algeria
97.8
Oil and gas
Guinea bc
89.8
Bauxite, alumina, gold and diamonds
Nigeria b
97.8
Oil
Botswana d
87.2
Diamonds, copper, nickel 
Libyan Arab Jamahiriya e
96.9
Oil
Suriname b
70.0
Alumina (aluminium oxide)
Yemen
93.3
Oil and gas 
Zambia b
61.5
Copper, cobalt
Kuwait b
92.9
Oil
Jamaica
60.8
Alumina, bauxite
Angola f
92.2
Oil
Niger b
46.1
Uranium and gold
Qatar
89.1
Oil, petrochemicals
Chile
45.0
Copper
Saudi Arabia b
88.9
Oil
Mozambique b
42.3
Aluminium
Brunei Darussalam b
88.3
Oil
Papua New Guinea b
38.6
Gold, copper
Azerbaijan
86.6
Oil
Congo Republic g
34.0
Various metals
Iran, Islamic Rep. of b
86.3
Oil and gas 
Ghana h
33.3
Gold
Venezuela
83.4
Oil
Cuba
33.2
Nickel
Turkmenistan
81.0
Gas
Peru
32.9
Gold, copper, zinc
Oman
80.6
Oil
Rwanda bi
32.2
Various metals
Gabon
79.5
Oil
Uzbekistan
30.3
Gold
Sudan b
74.2
Oil
Georgia
24.9
Various metals
Syrian Arab Republic
72.8
Oil
South Africa c
21.7
Platinium, gold
Bahrain
70.5
Oil
Bolivia
19.1
Zinc, gold
Trinidad and Tobago b
61.3
Oil and gas
Kazakhstan
18.0
Various metals
Kazakhstan
56.1
Oil and gas
Bahrain
16.8
Aluminium
Source:   UNCTAD, calculation based on COMTRADE database and other sources.
a
Fuels include SITC 3. Ores and metals include SITC 27+28+68 and, when relevant, diamond ore has been added.
b    2 to 4 year average.
c
The Economist Intelligence Unit. 
d
Bank of Botswana, Financial Statistics.
e
Derived from OPEC, Annual Statistical Bulletin. 
f
IMF, Staff Reports.
g
IMF, Direction of Trade Statistics.
h
IMF, Ghana statistical annex. 
i
IMF, Direction of Trade Statistics.  

88
World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
surge in commodity prices and to examine recent  and the build-up of huge excess supply capacity.14
developments from a historical perspective. 
Crude oil prices also began to decline in real terms 
in 1985, following the discovery of new reserves 
1. Booms and busts of mineral 
in non-OPEC countries such as Angola (now an 
prices
OPEC member), Mexico, Norway, the then Soviet 
Union and the United Kingdom. These new sources 
Mineral prices since the Second World War  of supply reduced the market control of OPEC, 
have been very volatile in response to changes in  whose share of world crude production dropped 
market conditions. 1974 mark the end of the 30-year  from 53% in 1974 to 30% in 1985 (ECLAC, 
“golden period” of strong world economic growth,  2002). The depressed mineral prices of the 1980s 
and high demand for minerals that began after  and 1990s had important consequences: instead 
the Second World War (figure III.1). During the  of being regarded as strategically important to 
period 1950–1973, crude oil prices were effectively  economic development, oil and metals were 
controlled by the so-called “Seven Sisters” and  increasingly treated as simple commodities. This 
remained practically constant in real terms.11
“commoditization” of both oil and metals influenced 
During the same period, metal prices were subject  governments’ policy orientations, and contributed to 
to considerable fluctuations around an upward trend.  a trend of privatizations, deregulation and increased 
Positive and increasing long-run growth rates were  openness to FDI in several developing and transition 
viewed as a durable feature of mineral markets  economies, especially in metal mining (see chapters 
(Tilton, 1990), and the prevailing preoccupation was  IV and VI). 
the risk of a rapid rise in demand for minerals in 
It is only in recent years that the gradual 
developing countries.12
decline in mineral prices has been reversed. For 
From the first oil crisis in 1973–1974 until  oil, the turning point came in 1999, when prices 
the early 1980s, oil prices began to climb steeply,  increased as a result of an agreement signed in 1998 
largely as a result of increased market control by the  between the OPEC and non-OPEC producers – 
Organization of the Petroleum Exporting Countries  Mexico, Norway, Oman and the Russian Federation 
(OPEC).13 Metal prices, on the other hand, began  – to reduce supply.15 From 2003, the geopolitical 
a long-term declining trend that reflected several  instabilities in West Asia contributed to a further 
factors, including slower world economic growth,  surge in the price of crude oil (figure III.1).16 For 
reduced intensity of metal use in many countries  metals, the long-lasting decline in prices came to an 
(Tilton, 1990), acute competition among producers,  abrupt end in 2004.
Figure III.1. Real price index of crude oil and metallic minerals, 1948-2006 
(Base year 2000 = 100) 
Source:  UNCTAD and Radetzki, forthcoming. 
Note
The metals price index includes the following minerals with their respective weights: copper (38.89%), aluminium (23.93%), iron ore 
(13.65%), zinc (7.22%), nickel (6.70%), tin (3.62%), phosphate rock (2.67%), lead (2.10%), manganese ore (1.20%), tungsten ore 
(0.02%). The crude petroleum price index reflects the average of Dubai, United Kingdom Brent and West Texas Intermediate crude prices, 
with relatively equal consumption of medium, light and heavy crudes worldwide. The deflator used is the unit value index of manufactured 
goods exports by developed countries. 

CHAPTER III
89
The price boom took most observers by  unpredictable events, such as strikes and hurricanes, 
surprise. It was driven by very strong demand  put additional upward pressure on prices.21
coupled with supply constraints. Unlike earlier boom 
periods, growth in demand this time came mainly 
2. The boom led to rising profits 
from developing countries. China, in particular, is 
and investments 
currently experiencing a resource-intensive growth 
phase;17 in addition, the country’s economy has been 
The recent boom in mineral prices prompted 
growing more than three times that of the world  a worldwide investment surge, fed in part by rising 
economy over the past decade (UNCTAD, 2007f).  profits. Despite cost increases of many inputs, 
It has therefore become a major engine of world  the profitability of mineral producers has risen 
mineral demand growth: in 2005, it accounted for  fast.  Fortune Global 500 companies in extractive 
29%, 66% and 25%, respectively, of the growth of  industries reached exceptionally high profitability in 
oil, copper and nickel demand, and its share in total  both 2005 and 2006, compared with large companies 
world demand for oil, copper and nickel was 8.5%,  in other industries, as well as historically (figure 
22% and 16% respectively (BP, 2006; Goodyear,  III.2).  The net profits of ExxonMobil for 2006 
2006).18
were the highest ever reported 
The price rises were also Table III.6. Supply delays: selected  by a United States corporation. A 
due to slow supply responses. 
examples
study covering some 80% of the 
The extended period of low 
(Month)
world metal mining industry by 
mineral prices had led to reduced 
capitalization found an increase 
investment in human resources, 
Pre-boom
Lead times, 
in net profits, from $4.4 billion 
lead  times                early 2007 
production and refining capacity,  Item
(in month)
(in month)
in 2002 to $67 billion in 2006 
resulting in a significant decline in  Grinding mills
20
44
(PricewaterhouseCoopers, 2007b). 
spare supply capacity. Many high- Draglines
18
36
To take advantage of 
cost production installations were  Barges
24
32
the high commodity prices, 
closed in the process.19 Thus, when  Locomotives
12
26
Power generators
12
24
firms were eager to expand 
demand suddenly surged, there was  Wagons
12
24
their production facilities as 
little idle production capacity left to  Rope shovels
9
24
fast as possible. The intensity 
satisfy the growing consumption.20  Reclaimers
18
24
of investment and production 
Moreover, shortages and rising Tyres
0-6
24
activity has taken several tracks. 
costs of inputs caused further Large haul trucks
0-6
24
As noted above (table III.6), this 
Crushers
16
24
delays in the expansion of supply  Ship loaders
8
22
may have exhausted a number of 
capacity (table III.6). Low levels of 
immediately available key inputs 
stocks, geopolitical instability and  Source: Rio Tinto, 2007.
in mineral resource investments. 
Figure III.2. Profitability of Fortune Global 500 companies in extractive industries and other industries, 
1995-2006
(Profits in percentage of revenues) 
Source:  UNCTAD, based on data from the Fortune Global 500 (various years). 
Note
Profitability is measured as the ratio of profits to revenues of companies in the Fortune 500 Global, in their respective activity. The 
common denominator in defining revenues for different industries is income, including sales. Profits are calculated after taxes, and after 
extraordinary credits or charges that appear in the income statement. For 2006, data for the 1,000 largest corporations in the United 
States have been used as a proxy. 

90
World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
(figure III.3). Between 2001 and 2005 investment 
Oil and gas drilling operations have doubled since  more than doubled in a number of major mineral-
2002, and the number of active rigs has been the  rich countries, including Argentina, Canada, 
highest in 20 years: in mid-2006, the rig utilization  Mexico, the Russian Federation, South Africa and 
rate was estimated at 92%. This intense activity has  the United States (Humphreys, 2005). Among the 
helped push up costs. For example, drilling day rates  most important developments in recent years has 
have risen by 10–15% per year since 2003 (IEA,  been the growth of exploration in China, Mongolia 
2006b). Companies are scouring the global labour  and the Russian Federation. Their combined share of 
markets for oil and mining engineers, as the dearth  global private, non-ferrous exploration expenditures 
of specialized manpower is creating a bottleneck in  rose from 4% in 2000 to 12% in 2006 (MEG, 2006). 
the execution of investment projects (IMF, 2006).  
However, the level of success in metallic mineral 
Supply constraints notwithstanding, the exploration has been low. Indeed, since 1998, only 
volume of new oil production capacity is expected  four world class deposits have been discovered by 
to grow. According to one study, for the 5-year  new exploration (figure III.3).25 While reserves 
period 2006–2010, global oil production capacity  may expand as a result of additional finds in and 
is projected to increase by 11.7 million barrels per  around already existing mines, it is likely that 
day (mbd), of which no more than 3.8 mbd will  new metal deposits will be located deeper and in 
be additional oil supplied by the OPEC countries  more remote areas, and will be of lower grade. As 
(IEA 2006a). Global demand in the same period  recently summarized by a mining industry expert 
is expected to rise by 8.1 mbd, thus relaxing the  (Humphreys, 2006: 5): 
capacity constraint by 3.6 mbd. Other studies 
“The cost of finding economic deposits 
corroborate these findings.22 However, other 
of base metal minerals appears also to be 
observers have warned that supply constraints 
rising… Moreover,  the failure of exploration 
may result in a further tightening of oil market 
to turn up new monster deposits of the likes 
fundamentals (UBS, 2006; IEA, 2007).23
of Carajas, Escondida, Grasberg  and Norilsk 
Investments in expansion of capacity are 
in recent years has resulted in a growing 
growing in the metallic mineral industries as well. 
perception that finding and developing very 
At the downstream level, refined copper capacity 
large  projects in the future is going to be 
is expected to rise substantially faster than demand 
much more challenging than in the past. Most 
during the period 2005–2009, and from 2006 
of the low hanging  fruit appears to have 
increasing surpluses are anticipated in the copper 
gone.” 
market (CRU, 2006). A similar situation is expected 
in the case of nickel from 2007 to 2010.24 In the iron 
3. Prices likely to remain high for 
ore market, a turnaround to surplus is expected only 
in 2009/2010 (UNCTAD, 2007h). 
some time 
At the upstream level, global private 
Some factors suggest that the price boom 
exploration investment in non-ferrous metals rose  may reflect a “structural” shift. On the demand 
from $2 billion in 2002 to more than $7 billion in  side, the economic ascendancy of China, India and 
2006, and it is expected to reach $9 billion in 2007  other developing countries, along with the resource-
Figure III.3. Number of major discoveries and private non-ferrous mineral exploration expenditure, 
1980-2007
(Billion dollars and number of discoveries)
Source:  UNCTAD, based on Mineral Economic Group, 2006; and data provided by the Raw Materials Group and BHP Billiton. 
e
Estimates.

CHAPTER III
91
intensive stages of their current development phase  well delay the build-up of a sizeable inventory that 
could well result in a long-running acceleration of  could relax the supply constraints. Nevertheless, in 
commodity demand growth. This can be seen as a  the medium term there is the likelihood that most 
new stage in international commodity markets, with  of the ongoing investments will materialize, and 
prices remaining at unprecedentedly high levels. 26
that the investment plans may even expand further, 
Another argument suggesting a structural shift is  if prices remain for some time at the elevated levels 
that depleting natural resources are increasing the  of 2006. Thus, unless global economic growth slows 
cost of new output and, in the case of oil, increasing  down, prices may continue to remain relatively 
the dependence on the politically unstable West  high until there is overcapacity in the oil, gas and 
Asian region, with an unavoidable upward price  mineral industries. This may not happen until the 
push (see, for example, Deffeyes, 2005; and  beginning of the next decade.30 In the longer term, 
Laherrere, 2005), at a time of rising demand from  price behaviour will depend upon the demand 
large emerging market economies. Increased State  and depletion rates as well as on new discoveries. 
involvement in metal mining and oil extraction may  However, industry experts seem to be certain that 
result in political factors having a greater influence  future deposits will be more expensive to develop, 
on production decisions, and it may limit foreign  which should keep prices relatively high. 
TNCs’ access to mineral deposits.  
Other experts question the relevance of such 
C. Extractive industries: 
observations and tend to play down the threat of 
depletion, even in the distant future.27 Some of them 
opportunities and challenges 
have also cautioned that expectations of future global 
for development 
commodity demand growth may be exaggerated.28
According to one corporate assessment, expanding 
output in response to higher prices should mean  1. Characteristics of investments 
that prices move back towards marginal costs of 
in extractive industries 
production (Rio Tinto, 2007). Still, the period over 
which this can be expected to happen – which varies 
from commodity to commodity – is likely to be 
Investments in extractive industries have 
longer in this current cycle than ever before.29
particular features, relevant for their development 
In conclusion, there are contradictory impact. The extraction of mineral resources is 
perspectives regarding the evolution of mineral  largely dominated by large-scale, capital-intensive 
prices. In the short term, although global economic  investments, although artisanal and small-scale 
growth may have peaked in 2004 and, in particular,  mining can be important in some countries and for 
the United States economic expansion slackened  some specific minerals (box III.2). Some projects 
during 2006, there are no indications of an  are technologically challenging, and investments 
impending worldwide recession. On the supply side,  in them are characterized by a high degree of 
the extended gestation period of mining projects  uncertainty and long gestation periods. In most 
due to the shortage and rising costs of inputs may  developing countries – except for China and India 
Box. III.2. Artisanal mining 
There are an undefined number of small- and 
Box table III.2.1. Artisanal gold production,a 2005
medium-scale non-fuel mining enterprises all over 
(Tons)
the world producing mainly gold, but also precious 
Artisanal 
Total
stones, iron ore and other minerals. They include 
Country
production 
production 
artisanal and small-scale miners such as the Brazilian 
Argentina
0.2
27
Bolivia
3.5
9
garimpeiros (illegal gold miners), the West African 
Brazil
6.1
35
orpailleurs (artisans that extract gold, mainly by 
Colombia
21.6
37
washing alluvia) and the Chinese backyard iron ore 
Dem. Rep. of the Congo
2.0
5
mines set up during Mao’s “Great Leap” campaign, 
Ecuador
3.0
4
Ghana
6.9
65
many of which are still operating. In 2005-2006 
Kyrgyzstan
1.4
17
alone, several thousand iron ore mines were opened 
Mali
1.8
46
in China and India. Box table III.2.1 provides 
Mexico
7.4
32
estimates of gold production by artisanal miners for 
Niger
0.5
4
Papua New Guinea
3.2
69
selected countries in Africa and Latin America. 
Philippines
1.2
6
United Rep. of Tanzania
5.0
49
Source: UNCTAD.
Source:  UNCTAD, based on data from the Raw Materials Group.
a
Estimates.

92
World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
where production is consumed or used domestically  market risks (related to demand and price forecasts), 
– mineral extraction is primarily an export-oriented  political risks (e.g. changes in mining laws, 
activity, with significant scope for revenue creation,  nationalizations), and social and environmental risks. 
but limited opportunities for employment creation  In developed countries, it has become increasingly 
and local linkages. In addition, mineral extraction  difficult for mining companies to gain legal access 
poses considerable threats to the local environment  to land and maintain that access (Otto, 2006). If 
and may have adverse social implications. Finally,  undertaken in countries with a weak institutional 
mineral resources are non-renewable and often  framework, the political, social and environmental 
of strategic, geopolitical importance. As a result,  risks can be very costly in terms of delays, negative 
the level of State involvement tends to be high,  publicity, risks of losing their operating licence 
especially in the case of oil and gas (see chapter IV).  and significant unforeseen expenditures.35 Indeed, 
Mineral extraction is capital-intensive. effective management of the social, environmental 
Building a large base-metals mine can cost over a  and other risks is likely to become a source of 
billion dollars. The magnitude of investments in the  competitive advantage for firms (Howard, 2006). 
oil and gas industry is even greater. Constructing a 
When prices are high, companies have a 
pipeline, developing an oil deposit or revitalizing an  higher propensity for risk. “Certain countries such 
ailing, underinvested mineral industry can run into  as Peru, Russia and China, which are generally 
many billions of dollars.31 Such kinds of investments 
considered higher risk, are receiving a greater 
in developing countries generally require the  proportion of exploration dollars because of their 
involvement of a State-owned enterprise (SOE) that  mineral prospectivity. Companies are willing 
can rely on the financial support of the government,  to accept that risk in the search for reserves, 
or of TNCs. Not all developing countries, especially  particularly in the current environment of high 
among the least developed countries (LDCs), have  commodity prices.” (PricewaterhouseCoopers, 
– or can obtain – the financial resources needed for  2006: 23). In periods of low prices, the profitability 
such investments, either from national SOEs or from  of resource extraction projects tends to decline, 
national private firms, and have resorted to attracting 
reducing the bargaining position of a country to 
investments from TNCs. One alternative to TNCs  attract investment. However, once the investment 
for capital may be to borrow from a lender prepared  is made and the mines or wells are successfully 
to accept the high-risk entailed in such investment  working, the high fixed costs, which gave the foreign 
(e.g. national or regional development banks or the  company bargaining strength at the beginning of the 
World Bank).32
investment, can become a source of vulnerability. 
Some projects are more technologically  If stricter conditions are imposed, for example, the 
challenging than others. In metal mining, most  company may have little choice but to accept them, 
technology can be acquired in the market, and there  because it cannot easily withdraw.  
are generally few differences in the approaches taken 
Another characteristic of extractive 
by different mining companies. The challenge is in  industries is the potential for sizeable mineral rents. 
this case related more to the management of projects  Metallic mineral and hydrocarbon deposits are 
with long gestation periods, and the need to give due  heterogeneous, characterized by large differences 
attention to their environmental and social impacts.  in production costs depending on their quality and 
In oil and gas extraction, the level of technological  accessibility. The rent is generally higher for oil 
complexity is particularly high for offshore, deep-
and gas extraction, partly because OPEC keeps oil 
sea extraction, whereas onshore extraction is less  prices above the cost of the least productive field. A 
technologically challenging. 
huge Saudi Arabian oilfield is capable of generating 
Special consideration should be given to the  significant volumes of crude oil over a sustained 
long gestation periods often involved in extractive  period under its own pressure, resulting in very low 
projects. The exploration phase may take up to  extraction costs per barrel of oil. The same barrel 
10 years, and in many cases such investments  of oil is recovered from a deep offshore field at a 
eventually turn out to be unsuccessful.33 On average,  much higher cost.36 In the metal mining sector, 
the costs associated with failure reduce the expected  mineral grade variation, coupled with mineralogical 
economic returns of exploration.  For the exploration 
conditions, can also be significant (Land, 2007).37
projects that result in discoveries, the potential 
Finally, minerals are often perceived as 
rewards can, however, be considerable (Land, 2007;  being of strategic importance both by producer and 
Goodyear, 2006). 
consumer countries. First, minerals may be strategic 
Even if the exploration is successful and a  for military, industrial or essential civilian needs. 
new mine is developed and brought into production,  Secondly, specifically from a producer point of 
the investor still faces various technical risks,34
view, their non-renewable character gives them a 

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strategic dimension. Energy minerals (especially oil  resource abundance in the United States was more 
and gas) are geographically more concentrated (table  an endogenous, “socially constructed” condition, 
III.3), and thus strategically important in terms of  than a natural endowment alone (David and 
energy security. This dimension partly explains the  Wright, 1997). Better scientific understanding and 
significant role of SOEs in the oil and gas industry  engineering knowledge can contribute to increasing 
(chapter IV). 
the amount of proved reserves, improve extraction 
and refining technologies, and widen the scope of 
2. Public policy concerns of 
end-use and commercial utilization.
mineral-rich countries 
A number of today’s upper-middle and high-
income developing countries (e.g. Botswana, Chile, 
Mineral wealth can be a source of income  Indonesia, Kuwait, Malaysia, Saudi Arabia, South 
and prosperity and an opportunity for economic  Africa, the United Arab Emirates and Venezuela) 
development. However, resource abundance does  have managed, in varying degrees, to take advantage 
not automatically translate into economic prosperity,  of their natural wealth in order to advance at least 
and exploitation of non-renewable resources certain aspects of development (such as increasing 
poses serious challenges to long-term sustainable  per capita income, reducing poverty, and, in some 
development prospects. As defined by the World  cases, achieving economic diversification).38 For 
Commission on Environment and Development  many other resource-rich developing countries, the 
of the United Nations, sustainable development  impact of mineral wealth on development has been 
means “development that meets the needs of the  disappointing. Many low-income countries heavily 
present without compromising the ability of the  dependent on exporting natural resources “have 
future generations to meet their needs”(United  performed poorly on various measures of economic, 
Nations, 1987). Economic and social development,  social and political development” (Pegg, 2006: 1). 
and environmental protection are seen as the three  This phenomenon is regularly referred to as the 
“interdependent and mutually reinforcing pillars” of  “resource curse” (box III.3).  
sustainable development (United Nations, 2005a). 
However, the development experience 
Mineral extraction activities can have significant  of mineral-rich developed countries is hardly 
implications for all three pillars. 
reproducible in the present global context, and 
Although all human activities should, ideally,  resource-rich developing countries may have to find 
meet the criteria of sustainable development, this  original ways to leverage their natural resources 
concept is particularly applicable to extractive  for sustainable development. Developed countries 
activities because they concern intensively used most of their mineral extraction locally, and 
consumed, non-renewable resources, and their  local processing as well as inputs were protected 
overexploitation can compromise their possible use  by high transportation costs. Today, with relatively 
– or the use of the revenues generated – by future  low transportation costs and globalized markets, it 
generations. 
is more difficult to compete with imported products. 
Moreover, the intensive exploitation of mineral 
This section focuses on development resources in developing countries has taken place 
opportunities and challenges that mineral wealth  at an earlier stage of their development, to respond 
represents for resource-rich countries, regardless of  to the needs of external, rather than domestic, users. 
which economic agent is exploiting it. Therefore  It has thus preceded the development of national 
it does not address the specific impacts on host  human resource capabilities that could help build an 
countries of TNCs’ involvement in the extractive  integrated mineral activity and create endogenous 
industry – an issue that is examined more closely in  learning and innovation around it. 
chapter V. 
This new global context may limit the 
a.  Mineral endowments represent 
relative capacity for mineral-rich countries to 
benefit from their mineral endowments. Therefore 
development opportunities 
they need to devise an overall development strategy 
for leveraging their non-renewable mineral wealth, 
Successful mineral-based development, as in  not only to improve their present situation but also 
developed countries such as Australia, Canada, New  to ensure sustainable development for the benefit 
Zealand, Norway, Sweden and the United States, has  of future generations. In this regard, one important 
not been merely a matter of geological endowments;  objective should be to build a diversified economy 
rather, it has resulted from the existence and  through investment in human capital, infrastructure 
continuous development of human resources and  and productive capacity. 
skills, learning and innovation around the extractive 
activities (Ramos, 1998). For example, natural 

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Box III.3. The “resource curse” debate 
There is a large body of theoretical and empirical literature that has addressed the role of mineral resources 
in economic development. Some experts cite evidence to suggest that countries that are rich in minerals have been 
worse off than less endowed countries in terms of various economic, social and political performance measures. 
Other experts argue that mineral resources represent a potential source of growth and development if managed 
well. 
In a widely cited study covering a sample of 95 developing countries, a negative relationship was found 
between natural-resource-based exports (including agricultural products, metallic minerals and energy minerals) 
and economic growth during the period 1970–1990 (Sachs and Warner, 1997). Other scholars have confirmed that 
relatively poor per capita growth performance has generally characterized resource-rich developing countries, 
especially metallic mineral-exporting countries (Auty, 2001a; Mikesell, 1997). Oil exporters have not been 
immune either to the “resource curse” in terms of low growth (e.g. Gelb, 1988; Shams, 1989; Mikesell, 1997). 
Many studies also emphasize that countries rich in oil and solid minerals have performed worse in terms of 
alleviating poverty compared with countries with little or no such mineral wealth (Pedro, 2006).  
However, it has also been noted that “there is nothing inherent in resource abundance that condemns 
countries to either low growth or un-sustainability” (Mikesell, 1997: 191). For example, some studies (Wright 
and Czelusta, 2003; Davis, 1998; Davis and Tilton, 2002) have questioned the validity of the econometric 
results and stress that “the reported negative outcomes of mineral economies are case-specific and that economic 
performance is mixed, heterogeneous and should not be generalized” (Pedro, 2004: 4). Rather than focusing on 
mineral resources as such, it has been suggested that political underdevelopment may be the root cause of the poor 
performance of mineral-rich economies (Moore, 2000). Due to weak governance, revenue from mineral extraction 
has often been wasted, rather than invested in ways that promote sustainable development. Thus governance 
systems and institutional capacity need to be strengthened, and mineral wealth should be invested in the creation of 
knowledge for economic innovation, and in human, social and physical capital formation, including infrastructure 
development.  See also chapters V and VI.
Source:   UNCTAD.
Mineral wealth represents not only as well as on the nature of the minerals and the 
opportunities; it can also, if not adequately managed,  level of domestic capabilities. Large-scale mineral 
hinder development. The ability and capacity  extraction is highly capital-intensive in nature, which 
of mineral-rich developing countries to address  limits the potential for employment creation. The 
economic, political, social and environmental  magnitude of profits depends on such factors as the 
challenges associated with the extractive industry is  quality of the mineral deposit, the cost of extracting 
a key determinant of their development outcome. 
the minerals, the productivity of the operations and 
global price developments. The ownership of the 
b.   The economic challenge 
production will influence the extent to which profits 
are distributed between the State and the private 
The economic challenge is threefold: how  sector and within the country or abroad. The amount 
to create value from the mineral deposits; how to  of government revenue depends also on the design 
capture that value locally; and how to make the  and implementation of the fiscal system.  
best use of revenues created from the extractive 
The scope for local procurement depends 
activities.  
primarily on the availability of inputs, but also 
The first part of the challenge is to organize  on the procurement policies of the extraction 
production in an efficient and sustainable way. This  companies; whereas the scope for local use depends 
may involve different actors, such as artisanal and  on the existence of national capabilities and 
small-scale miners (see box III.2), large, private or  competitive advantages in developing downstream 
State-owned, domestic or foreign-owned companies.  manufacturing activities. In developing countries, 
The relative importance of these different players  local sourcing of the highly specialized inputs used 
will vary depending on such factors as the nature of  in mineral exploration and extraction is generally 
the mineral and the level of domestic capabilities. 
difficult; often it is only activities such as catering, 
The value an economy may seek to capture  cleaning and, in some cases, construction services39
locally from mineral extraction can be direct,  that are sourced locally (Otto, 2006: 119). Moreover, 
through employment, profits and taxes, as well as  the downstream capacity of many developing 
indirect, through the purchase of goods and services.  countries barely goes beyond refining activities, and 
Again, the scope for local capture of such value  in a number of cases does not even get that far. As 
depends on how the extraction activity is organized,  a result, fiscal income and profits from the mineral 

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95
extraction are arguably the most significant value  surrounding areas, as well as at the global level. 
contributions to a local developing economy. Thus,  Effects vary between the different types of minerals 
issues related to the ownership, size, distribution and  and the stages in the production chain. In the case 
use of revenues are, more than in other industries,  of oil and gas, considerable environmental damage 
the main focus of policy. 
can result from leakages and spills, flaring of 
The third part of the economic challenge is  excess gas and the creation of access routes to new 
related to the use of income resulting from mineral  areas, often involving deforestation. Oil spills are 
extraction, which is of crucial importance from  massively polluting, reducing fisheries and tourism 
a development perspective. The impact of the  and harming bird life, not to mention the severe 
income generated will differ depending on its use:  ecological impact on other ocean life.41 At the 
that is, whether it is transferred abroad or not, used  global level, a major concern regarding extractive 
to service foreign debt, to repatriate profits, for  industries in general, but especially energy minerals, 
reinvestment, or for importing consumer goods.  
is their impact on climate change (Liebenthal et. al., 
2005; Sala-i-Martin and Subramanian, 2003). 
There are many risks associated with 
the use of income from natural resources. First, 
Many of the environmental problems 
government revenue from natural resources could  associated with metal mining stem from the 
lead to a “rentier attitude” that does not promote 
  contamination of surface and groundwater from 
productive investments in projects conducive  toxic wastes.42 The issue of access to and quality of 
to employment creation and economic growth.  water is especially critical when the mining activity 
While some problems may need urgent responses  takes place in proximity to agricultural or fishing 
– especially those related to poverty – long-term,  communities (Otto, 2006). Mining may also be 
durable solutions are important in order to reduce  associated with deforestation, soil erosion and mine 
the continued reliance on assistance.  
tailings, and, often, firms or government authorities 
are unwilling or unable to pay for the clean-up costs 
Second, mineral revenue could lead to a  of closed and abandoned mines.  
shift away from investment in the manufacturing 
sector, which may cause the sector to shrink and 
Extractive activities can also have profound 
the economy to specialize in the primary sector,  social and political impacts. They can have a positive 
a symptom typical of the “Dutch disease”.40  Yet  effect on development by creating jobs, encouraging 
industrialization is crucial for the development  businesses and providing vital infrastructure for 
of low-income countries. Indeed, a characteristic  remote communities, such as roads, electricity, 
feature of a successful development path is the  education and health. However, they may also 
growing importance of the manufacturing sector  generate new social and economic problems related 
in the early stages of development (Chenery, et al.,  to the involuntary resettlement of populations, loss 
1986). Most technical progress is concentrated in  of traditional livelihoods, health concerns due to the 
manufacturing (Prebisch, 1981), and it is a sector  exposure of workers and populations to chemicals 
that enables positive externalities and learning  and particles, and workers’ safety.43  As governments 
opportunities, which play a key role in long-term  obtain sufficient revenues from external sources, 
economic development (Hirschman, 1958). There  they can become less dependent on their inhabitants 
is a concern that resource-rich countries specialize  for revenue, and thus less accountable, transparent 
in products for which demand increases less rapidly  and responsive to the societies they govern.44
than for manufactured goods, leading to a long-
Several studies have furthermore found a 
term deterioration in their terms of trade (Prebisch,  strong link between dependence on natural resources 
1949; Singer, 1949). Accordingly, resource-rich  and the risk of civil war and other conflicts and 
countries need to channel the wealth generated in  their prolongation (e.g. Collier and Hoeffler, 
their primary sector into efforts towards greater  2005; Collier et al., 2003; Ross, 2001; Renner, 
economic diversification and the upgrading of their  2002). Detrimental impacts of natural resource 
manufacturing activities, especially as mineral  dependence on governance and human rights have 
price volatility may translate into unpredictable  been observed, particularly in sub-Saharan Africa.  
government revenues.  
Oil and diamonds in Angola, diamonds in Sierra 
Leone and Liberia, cobalt and other minerals in the 
c. The environmental, social and 
Democratic Republic of the Congo and oil in Sudan 
political challenges 
have fuelled lengthy civil wars.  The instability in 
West Asia and the Persian Gulf region has been 
More than most other industrial activities,  attributed to that region’s oil wealth. 45  The “Carter 
mineral extraction tends to leave a strong  Doctrine”, which stated that the United States would 
environmental footprint. It can have profound  use military force, if necessary, to defend its national 
environmental impacts near a project site and in  interests in the Persian Gulf region (Carter, 1980), 

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World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
illustrates that natural resources can also be at the  institutions into non-performers, but it may make 
centre of conflicts involving players far beyond the  bad governance worse.  
region immediately concerned. 
The economic, environmental and social 
challenges noted above underline the importance 
d. The governance challenge 
of governance in ensuring maximum development 
gains from resource extraction. But structural, long-
Whether a country can cope successfully  term beneficial solutions – such as administrative 
with all these important challenges (economic,  capacity-building, realignment of existing policies, 
environmental, social and political) depends in  and human capital accumulation  – take time to 
large part on its governance system. The United  evolve, and provide few immediate rewards. Thus 
Nations has defined governance as “the exercise of  they have often been skirted.  As long as the political 
economic, political and administrative authority to  will is missing, the challenge of governance cannot 
manage a country’s affairs at all levels”.46 It defines  be resolved. However, there is an urgent need to 
good governance as: 
continue exploring different ways of addressing it.  
“Participatory, transparent and accountable. 
It is also effective and equitable. And it 
promotes the rule of law. Good governance 
* * * * * *
ensures that political, social and economic 
priorities are based on broad consensus in 
Improvement in the terms of trade resulting 
society and that the voices of the poorest and  from the recent commodity price boom represents 
the most vulnerable are heard in decision-
development opportunities for mineral exporting 
making over the allocation of development  countries. There are, however, important challenges 
resources.”47
in harnessing the earnings from extractive industries 
Without a well-developed governance-
to boost development. Most of these derive from 
framework, there is an increased risk that benefits  the specificities of the extractive industry itself, 
from extraction will not materialize, that fiscal  which generally involves large-scale, capital-
systems will lead to uneven sharing of revenues,  intensive projects, with low labour intensity, a high 
that lack of a coherent and concerted development  environmental footprint, and weak linkages with the 
strategy will lead to their misuse, that local  local economy of developing countries. While the 
populations will be left disappointed, and that  responsibility for ensuring development gains from 
environmental damage, health risk and conflicts  mineral exploitation rests first and foremost with 
will occur. Thus the quality of institutions prior to  governments, the responsibility of other stakeholders 
the discovery of mineral wealth, and the capacity  in contributing to the development impacts of the 
of a country to regulate, monitor and enforce  activity should not be ignored. And, as shown in the 
activities in extractive industries are essential.  next chapter, TNCs are key players in this context. 
Resource extraction may not turn well-working 

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97
Notes
1
In 2005, minerals accounted for 3% of world GDP and 13% 
19
For oil, for example, this happened especially in the United 
of world trade (UN COMTRADE database, SITC Rev. 1 and 
States and the North Sea, allowing OPEC countries to increase 
UN/DESA Statistics Division).
their share in production from 30% in 1985 to 40% in 1999. 
2
Estimated by multiplying global production of oil and gas in 
In addition, low prices were a disincentive for suppliers to 
2005, which amounted to 47 billion barrel oil equivalent (data 
maintain spare capacity.
provided to UNCTAD by IHS), by the 2005 Dubai spot crude 
20
Global surplus crude oil production was estimated at 1–1.3 
price ($49.35/barrel) (http://www.bp.com/).
million barrels per day (mbd)  in August 2006, down from 5.6 
3
Data provided to UNCTAD by the Raw Materials Group.
mbd in 2002 (IEA, 2006a). Moreover, the worldwide aggregate 
stock-to-consumption ratio for all base metals was at a record 
4
petroleum gas, jet fuel, residual fuel oil, kerosene and coke. 
(Barclays Capital, 2006).
5
Solvents, lubricating oils, greases, petroleum wax, petroleum 
21
For example, at the Minera Escondida in Chile, production 
jelly, asphalt and coke.
(of 1.2 million tonnes of copper concentrates a year) was 
6
Naphtha, ethane, propane, butane, ethylene, propylene, 
interrupted for most of July 2006 by labour disputes, resulting 
butylenes, butadiene, benzene, toluene and xylene.
in an estimated loss of production of around 45,000 tonnes 
7
LNG can constitute an alternative to pipeline transportation in 
of copper. Production at Codelco’s Chuquicamata mine in 
regional neighbouring countries when the extra costs involved 
Chile (54,000 tonnes of copper concentrates a year) was also 
match the costs of pipeline transportation.
disrupted in July 2006 after a rock-slide damaged an ore 
conveyor belt (Abare, 2006).  
8
Data on Russian Federation’s gas production are from BP, 
22
2006.
For example, after taking account of reinvestments in existing 
9
Data on gas production in the Persian Gulf are from BP, 2006.
additions in annual capacity from the 100 largest oil projects 
10
For oil, the respective shares in production and consumption 
under development are forecast to average 3% between 2006 
are: 19% and 54% for developed countries, and 9% and 
and 2008, more than twice the expected demand growth 
22% for South, East and South-East Asian countries. The 
(Goldman Sachs, 2005). See also CERA, 2005; and IHS, 2005.
23
Production forecasts are uncertain, however, a study on long-
countries, and 12% and 13% for South, East and South-East 
term projections for non-fuel minerals found very large 
Asian countries (UNCTAD, based on BP, 2006).
differences between global projections (made more than 25 
11
The “Seven Sisters” were: Standard Oil of New Jersey 
years ago) of production and consumption for a selected 
(now ExxonMobil), Royal Dutch Shell, Anglo-Persian Oil 
number of non-fuel minerals and the observed results for the 
Company (now BP), Standard Oil of New York (now part 
year 2000. Projections critically depend on assumptions relating 
of ExxonMobil), Texaco (now Chevron), Standard Oil of 
to such factors as population and income growth, technological 
California (now Chevron) and Gulf Oil (now part of Chevron, 
BP and Cumberland Farms).
2005).
12
24
Interview with David Humphreys, chief economist, Norilsk 
argument that “if the present growth trends in world population, 
Nickel, September 2006. 
industrialization, pollution, food production, and resource  25
depletion continue unchanged, the limits to growth on this 
investments are made and the discovery of a major deposit.
planet will be reached some time within the next 100 years” 
26
(Meadows et al., 1972: 23–24).
See, for example, The Economist, 16 September 2006.
13
27
OPEC is a permanent, intergovernmental organization, created 
For the debate between the pessimists and optimists, see Tilton 
at the Baghdad Conference on 10–14 September 1960 by 
and Coulter, 2001.  
28
Some, such as Morgan Stanley’s chief economist, Stephen 
founding members were later joined by nine other members: 
Roach, argue that “commodities are as bubble-prone as any 
Qatar (1961), Indonesia (1962), the Socialist People’s Libyan 
other investment” (The Telegraph, 2 October, 2006). Others 
Arab Jamahiriya (1962), the United Arab Emirates (1967), 
Algeria (1969), Nigeria (1971), Ecuador (1973–1992), Gabon 
growth of emerging market economies will be mitigated 
(1975–1994) and Angola (2007) (http://www.opec.org/). Many 
by weak demand from developed countries, due to the shift 
similar organizations for other commodities, such as for copper 
of manufacturing from developed to developing countries 
(CIPEC), bauxite (IBA) and iron ore (APEF), were set up 
(Radetzki, forthcoming). 
during the early 1970s but were not particularly successful.
29
14
Increased competition was the combined result of the 
iron ore prices to return to trend after reaching a peak, while 
emergence of new SOEs in the 1970s, following a wave of 
copper and aluminium prices have taken less than three years. 
nationalizations and the failure of producers in general to 
Differences arise mainly due to varying market structures of 
anticipate slowdown in the long-run demand growth, which led 
different commodities.
to excessive investments in new mines and processing facilities 
30
According to one study, the reversal of the upward price trend 
and huge surplus production capacity.
is likely to result from an adjustment of Chinese economic 
15
From 2000 to 2003, a combination of quota cuts and growing 
growth, which is not expected to take place before 2011 
oil demand pushed prices back into the vicinity of a price band 
(Cyclope, 2007).
set by OPEC, of $22–$28 per barrel.
31
For example, exploiting oil deposits in the Orinoco Belt in 
16
Political turmoil in Nigeria and Venezuela, and natural 
Venezuela cost $17 billion (“In Venezuela, a face-off over the 
disasters, such as Hurricane Katrina, also contributed to price 
prospect of oil riches”, International Herald Tribune, 1 June 
volatility.
2006), and in Azerbaijan, the recently opened Baku-Tbilisi-
17
In 2005, for example, China consumed 2.1 tons of copper and 
Ceyhan pipeline cost $3.9 billion (“Europe: too much of a good 
180 tons of oil per million dollars of GDP. In comparison, the 
thing; Azerbaijan and oil”, The Economist, 19 August 2006).
32
for the United States, 0.2 tons and 80 tons (CRU, 2006; IMF, 
conditional on governmental and institutional reform, such as 
2006).
privatization and liberalization of the investment regime (World 
18
On the importance of the Chinese demand in the recent price 
Bank, 2005). 
boom, see, for example, Cyclope, 2007. 

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World Investment Report 2007. Transnational Corporations, Extractive Industries and Development
33
A study of the delay period from discovery to the start of 
in economic growth. This economic paradox has since been 
production covering 214 known grassroots gold deposits 
discovered worldwide in the period 1970–2003 was 6.3 years 
currency – whether it originates from a sharp surge in 
on average (Schodde, 2004).
natural resource prices, or from foreign assistance or foreign 
34
investment – adversely affects the performance of the non-
Technical risks include, for example, the actual amount and 
booming sectors of an economy, and in particular, the non-
grades of ore as compared to forecasts, the actual level of 
booming tradable sector (De Silva, 1994).
operating costs as compared to forecasts, and the adequacy of 
41
mining methods and metallurgical process.
35
 See, for example, Otto, 2006, and http://www.ifc.org/ifcext/
tankers cause the largest volume of spills (Salim, 2003).
enviro.nsf/Content/RiskManagement. 
42
36
For example, gold production involves the use of toxic 
Production costs of a barrel of petroleum were estimated in 
materials such as cyanide, mercury and arsenic, and their 
2004 to vary between $1 dollar in the lowest cost zones (West 
inappropriate handling is frequently a source of health and 
environmental problems (“Why mining is bad for your river”, 
World Rivers Review, Vol. 12, No. 5, October 1997). 
(Chevalier, 2004).
43
37
“Although only accounting for 0.4% of the global workforce, 
This also applies to diamonds. Different qualities of stone 
mining is responsible for over 3% of fatal accidents at work 
(about 11,000 per year)” (see ILO website, http://www.ilo.
thousands of times more valuable than the average carat value 
org/public/english/dialogue/sector/sectors/mining/safety.
of diamond production (Land, 2007).
38
See, for example, Stevens, 2002; Sarraf and Jiwanji, 2001; 
comprises the formal workforce. Thus, workers in informal 
Wright and Czelusta, 2003; and Acemoglu, et al., 2003.
mining are not covered. 
39
Construction service costs are important in the development 
44
Acemoglu et al., 2004; Acemoglu and Robinson, 2006; Keen, 
stage of a mining project.
1998; Moore, 2000; Renner, 2002; Tilly, 1975; and Shafer, 
40
The term “Dutch disease” originated in the Netherlands during 
1994).
the 1960s, when revenues generated by natural gas discovery 
45
See, for example, D‘Amato, 2001; Pelletiere, 2004 and Klare, 
led to an appreciation of the national currency and to a sharp 
2002, 2004.
decline in the competitiveness of the non-booming tradable 
46
See http://mirror.undp.org/magnet/policy/chapter1.htm#b. 
sector. The revenue windfall served to increase imports to the 
47
detriment of national production, provoking a sharp decline 
Ibid.


CHAPTER IV
TNCs IN EXTRACTIVE 
INDUSTRIES
TNCs are prominent players  in
for their  growing manufacturing and 
both  the metal  mining and  the oil and  infrastructure-related  industries.3 During 
gas industries. With new global players  the Great Depression (1929-1933), the 
emerging, not least from developing and  international expansion of oil companies 
transition economies,  the universe of  continued unabated  despite the crisis  in
these extractive-industry TNCs is being  other overseas investments (Graham, 
transformed. It now encompasses both the  1996:  26). As former colonies gained 
traditional, privately owned  firms, mostly
independence after the Second World War, 
headquartered in developed countries, and  and with the creation of the Organization
a  growing number of State-owned  firms.1
of the Petroleum Exporting Countries
The way in which TNCs engage in overseas
(OPEC), many governments chose to
2007
investments has evolved differently over  nationalize their extractive industries, 
time  in  different extractive  industries.  resulting in a declining involvement of the
Drawing on unique sets of data,2 this chapter  TNCs that hitherto had been dominant. For 
starts by examining  global FDI trends in  example, by 1970, the share of resource-
these  industries and  the  importance of  based  industries  (by  investor  industry)  in 
such  investments for individual  home and  United States outward FDI stock had fallen 
host countries. The chapter then goes on  to less than 40% (from more than half at the
to analyse how the universe of extractive-
beginning of the century)  (Graham, 1996:
industry TNCs is evolving  (section B).  27).
Section C examines the main drivers and 
The share of the extractive industries
determinants of related TNC investment.
in  global  inward FDI stocks  declined 
Section D concludes  by summarizing the  throughout the 1990s until the start of the 
main findings.
current commodity  boom  in 2003,  after 
which it recovered to about 9% in 2005
A.  Global trends in 
(figure IV.1). The  decline of the primary 
sector’s share in global FDI has been due
FDI and other forms 
to  its slower  growth compared  with FDI
of TNC participation in  in manufacturing and services. In absolute 
terms, however, FDI in the primary sector 
extractive industries
has continued to grow:  it  increased  in 
nominal terms nearly 5 times in the 1970s,
3.5 times  in the  1980s, and 4 times from 
1.  FDI trends
1990 to 2005 (WIR93; WIR05; annex table 
A.I.9). The stock of FDI in extractive 
Extractive  industries account for a
industries was estimated at $755 billion in 
small share of global FDI flows, though
2005 (annex table A.I.9).
this  has not always  been the case. In
When analysing FDI data related 
the early twentieth century, FDI went  to extractive industries, a number of 
mostly into these industries, reflecting  limitations should  be  kept  in mind. For 
the  international expansion of firms that  example, only 22 countries report data on 
originated largely from the colonial powers.
outward FDI stocks in this area (box IV.1)
The objective of TNCs in the extractive
and some forms of TNC involvement may 
industries was to gain  direct control over  be poorly covered  in official statistics, 
the mineral resources required as inputs  while cross-border mergers and acquisitions

100
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
 Figure IV.1. Share of extractive industries in world 
(figure IV.2). 
Figure IV.2. United States 
inward FDI stock, 1990, 1995, 2000 and 2005
Within mining, non-
outward FDI stock in 
(Per cent)
precious metals were 
extractive industries, 2005
(Per cent)
the most important 
target industries for 
outward FDI from 
the United States, 
together accounting 
for 36% of FDI 
stocks in such 
mining.
This sectoral 
distribution is 
largely confirmed by 
Source: UNCTAD estimates, based on annex table A.IV.1 and the FDI/
data on worldwide 
TNC database (www.unctad.org/fdistatistics).
Source: UNCTAD, based on data from 
c r o s s - b o r d e r 
United States, Department of 
M&As. During 
Commerce.
(M&As) can lead to large FDI flows into countries  the period 1990- Note:  The percentages refer to the 
where owners are based but where very limited 
industry of the outward investor.
2006, oil and gas 
extraction  takes place (box IV.1). It is therefore  accounted for almost three quarters of all such deals 
important to complement FDI data with other  in extractive industries (annex table A.IV.3). Within 
statistical information when analysing the extent and  the oil and gas industry, cross-border M&A purchases 
nature of TNC involvement.
have fluctuated significantly (annex table A.IV.3), 
Developed countries remain the most important 
reaching an all-time high (of more than $100 billion) 
sources of outward FDI in extractive industries,  in 2005 as a result of the restructuring of Royal Dutch 
although their share in the world total declined  Shell (box IV.1; WIR06: 83 and 88). In mining and 
somewhat, from 99% in 1990 to 95% in 2005 (annex  quarrying, cross-border M&A activity has generally 
tables A.I.10 and A.IV.2). Between 1990 and 2005,  been lower, but in 2006, the value of such deals 
the Netherlands, the United Kingdom and the United  reached a record value of $55 billion (annex table 
States remained the three largest home countries of  A.IV.3). Among more than 200 deals recorded in 
outward FDI stock in these industries.4
2006, two were exceptionally large: Companhia Vale 
Recently selected developing and transition  do Rio Doce (CVRD, Brazil) acquired Inco (Canada) 
economies have become significant sources of  for about $17 billion and Xstrata (Switzerland) 
outward FDI in extraction industries. For example,  acquired Falconbridge (Canada) for about the same 
in 2003 and 2004, the mining industry accounted for  amount (annex table A.IV.4).7 Due to the persistently 
48% and 33%, respectively, of China’s FDI outflows; 
high mineral prices and profitability of the industry 
and this share fell to 14% in 2005, they still exceeded 
(chapter III), the M&A frenzy is expected to continue, 
$1 billion in absolute terms.5 In India, oil and gas  as confirmed, for example, by the takeover bid by 
accounted for an estimated 19% of the total value  Rio Tinto (United Kingdom) for Alcan (Canada) in 
of overseas acquisitions by its TNCs up to March  July 2007 (Berman and Glader, 2007).
2006 (MAPE Advisory Group, 2006). The number 
of ongoing overseas projects of extractive-industry 
2. Developing and transition 
TNCs from the Republic of Korea increased from 
141 at the end of 2002 to 218 at the end of 2006, and 
economies are receiving a 
from $0.5 billion to $2.1 billion in value terms, most 
growing share of foreign 
of which ($1.9 billion) was accounted for by oil and 
investment
gas field development (Republic of Korea, 2007).6
Owing to the noted lack of comprehensive 
The geographical distribution of inward FDI 
data on extractive-industry FDI, it is difficult to  in extractive industries has fluctuated over time. In 
make comparisons between individual countries and  the first part of the twentieth century, developing 
regions. The most complete statistics are provided by 
countries were the major destination of FDI in 
the United States, which also distinguishes between  extractive industries. However, nationalizations from 
different subsectors of the extractive industries.  the 1950s to the 1970s8 triggered a shift towards 
According to these data, FDI in oil and gas is  developed countries (discussed in section B.2), 
considerably larger than in metal mining. Oil and  partly due also to discoveries of oil deposits in these 
gas accounted for 71% of United States outward FDI  countries. Over the long period of low mineral prices, 
stock in extractive industries in 2005 (and for 84% if  from the 1980s till the early 2000s (chapter III), the 
FDI in extraction supporting activities is included)  mixed (often unsatisfactory) performance of some 

CHAPTER IV
101
Box IV.1. Complexities of interpreting data on FDI in extractive industries
Difficulties in interpreting data on FDI in the extractive industries arise for four reasons:
 •
Incomplete reporting (information is available for a limited number of countries, and for varying periods of 
time);

Diverging definitions and methodologies used in data collection;

Imperfect FDI data that fail to capture non-equity-based transactions not registered as FDI flows; and

Some components of FDI, such as cross-border M&As, may give an inflated picture of real activities.
These four difficulties are interlinked. For instance in 2005, data on FDI in the extractive industries (mining, 
quarrying and petroleum as defined in the ISIC code) were available for 38–54 economies as inward FDI, but for 
only 22–29 economies as outward FDI.  Even fewer countries break down the extractive industries into oil and gas, 
on the one hand, and other mining on the other (box table IV.1.1). In addition, data are not available systematically 
for all years. Another problem is related to differences in the coverage of national data. For example, while the 
United States explicitly includes “support activities for mining” in its FDI data (that accounts for more than one 
tenth of its outward FDI stock in this industry), other countries do not show this particular subsector separately. 
UNCTAD adjusts the United States data by moving this service activity to the services sector. Thus, the data for 
FDI in the extractive industries should be interpreted with care.
Box table IV.1.1. Number of countries reporting data on FDI in extractive industries, 2005
Inward FDI
Outward FDI
Of which, oil and gas and other 
Of which, oil and gas and other 
FDI type
All extractive industries
All extractive industries
mining are separately available
mining are separately available
Flows
54
17
29
12
Stocks
38
13
22
8
Source:
UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).
Note:
Data for most countries are not available for all years.
There are established international rules on how FDI, including in extractive industries, should be recorded 
(IMF, 1993). FDI covers not only affiliates incorporated in a host country but also unincorporated branches. These 
branches may include both unmovable equipment and objects (such as oil pipelines and structures, except when 
owned by foreign government entities) and mobile equipment (such as gas and oil drilling rigs). All of these items 
are considered to be direct investment according to the balance-of-payments methodology, provided they exist for 
at least one year and that they are accounted for separately by the operator, and so recognized by the tax authorities 
of a host country (IMF, 1993). However, in practice, individual countries differ in how they interpret and apply 
these rules in statistical data collection, resulting in uneven reporting, which makes international comparisons 
difficult.
FDI statistics may fail to capture fully the activities of extractive-industry TNCs in a country, even if they 
follow the international guidelines on data collection. If a TNC has a concession to extract natural resources, it 
owns the equipment and installations used in its operations. Hence cross-border flows aimed at financing such 
capital expenditures should be registered as FDI. On the other hand, in the case of production-sharing agreements, 
equipment and installations typically are the property of the host country, either at the outset of production or 
progressively. Where local governments or companies rent such equipment and installations from abroad, rental 
payments should be recorded under services in the current account, not in the capital account (that includes FDI 
components) of the balance of payments. Hence the full capital expenditure is not necessarily registered under FDI. 
Moreover, in the case of a service contract, it is only the establishment of the branch servicing that agreement and 
its capital expenditures financed by parent firms that are recorded as FDI. The subsequent activities of that branch 
are then recorded as sales of services, such as providing trained personnel or technical advice to the State-owned 
local oil company. It is recommended that the data on these activities be collected as part of foreign affiliates’ trade 
in services statistics, which are different from the balance of payments that cover essentially financial transactions 
between residents and non-residents.
Finally, large cross-border M&As may inflate the FDI inflows of countries whose extractive-industry firms 
are sold to foreign acquirers in the year for which data were collected, without any major change in exploration and 
extraction activities. For example, the reorganization of Royal Dutch Shell in 2005 resulted in a $74 billion merger 
(annex table A.IV.4), and major FDI inflows to the United Kingdom without expanding extractive activities in that 
country. Moreover, some extractive-industry TNCs may select a location of convenience for their headquarters 
different from the country in which the activities are taking place. In those cases, related cross-border M&As are 
recorded under the FDI inflows from the immediate transaction country.
Source: UNCTAD.

102
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
State-owned companies (Radetzki, forthcoming) and  For example, the record inflows of FDI into Africa 
the need to service foreign debt, led many developing 
in 2004-2006 were mostly driven by projects in 
countries to once again allow FDI in metal mining,  extractive industries, notably in oil and gas (chapter 
including through privatizations.9 However, few  II;  WIR05: 41, WIR06: 45).12 Most of the largest 
developing and transition economies have chosen  FDI-recipient countries in Africa in 2006 were rich 
to privatize their national oil and gas companies, for  in oil or metallic minerals. Similar developments 
example, of Argentina, Bolivia and Peru. Others have 
have been observed in Latin America, where most 
allowed the participation of TNCs in the exploration  countries with mineral resources have seen increases 
and exploitation of oil through a variety of contracts  in FDI in related industries in recent years.13
(see below).
Following new discoveries, a number of new FDI 
Nevertheless, the importance of developing  recipients have emerged among developing countries 
and transition economies as destinations for TNC  and economies in transition. In oil and gas, Chad and 
investments in extractive industries has increased  Equatorial Guinea have received large FDI inflows. 
over the past two decades. Between 1990 and 2000,  In Kazakhstan, during the period 1993–2006, oil and 
the estimated stock of inward FDI in extractive  natural gas extraction activities attracted cumulative 
industries in these countries rose by nine times,  FDI inflows of $35 billion (National Bank of 
and between 2000 and 2005 it increased again by  Kazakhstan, 2007). In addition, Kazakhstan, Mali, 
more than 50% (annex table A.IV.1). The share of  Mongolia and Papua New Guinea are among the 
developed countries fell from 86% in 1990 to 71% in 
countries that have emerged as major recipients of 
2005 (annex table A.I.9). 10 The share of developing  FDI in metal mining.
countries in the United States’ outward FDI stock in 
Foreign companies account for varying 
extractive industries increased from 31% in 1985 to  shares of metallic mineral and diamond production 
44% in 2005 (table IV.1). Between 1995 and 2005,  in individual host countries. Based on the value of 
FDI stocks were particularly fast in Africa and Latin  production at the mining stage, of 33 major mining 
America. The Russian Federation and other CIS  countries of the world, foreign affiliates were 
countries also emerged as important destinations.11
responsible for virtually all production in 2005 
United States outward FDI in extractive  in some LDCs, such as Guinea, Mali, the United 
industries was fairly evenly distributed among  Republic of Tanzania and Zambia, as well as in 
Africa, developing Asia and Latin America and the  Argentina, Botswana, Gabon, Ghana, Mongolia, 
Caribbean, each accounting for 13-15% in 2005 of  Namibia and Papua New Guinea (figure IV.4). 
the total. In developing Asia, Indonesia received  In another 10 major mining countries – a mix of 
by far the largest share in 2005. In Latin America,  developed, developing and transition economies 
excluding the financial centres, Brazil, Mexico and  – foreign affiliates accounted for between 50% and 
Peru, three countries with large mining potential, were 
86% of all production. In contrast, in the Islamic 
the main recipients, while in Africa, where detailed  Republic of Iran, Poland and the Russian Federation, 
destinations are not fully given, Egypt was one of  the share of foreign affiliates was very small or 
the main recipients specified in 2005. Finally, of the  negligible (figure IV.4).
transition economies, the Russian Federation was the 
In oil and gas, the share of foreign companies 
leading host country of such FDI (table IV.1).
is generally lower than in metal mining. At the global 
The importance of extractive industries in  level, foreign companies accounted for an estimated 
inward FDI varies greatly by host economy. In all  22% of total oil and gas production in 2005 (table 
major regional groups, there are countries in which  IV.2). The average share was higher in developed 
they account for a significant share of the total inward 
countries (36%) than in developing countries (19%) 
FDI stock. This applies, for example, to Australia,  and the transition economies of South-East Europe 
Canada and Norway among developed countries,  and the CIS (11%). Moreover, there were wide 
Botswana, Nigeria and South Africa in Africa,  variations among the various country groups. In West 
Bolivia, Chile and Venezuela in Latin America and  Asia, which was responsible for almost a quarter of 
the Caribbean, and Kazakhstan in South-East Europe 
the world production of oil and gas in 2005, foreign 
and the CIS (figure IV.3). Moreover, extractive  companies accounted for only 3% of production, 
industries account for the bulk of inward FDI of  whereas in sub-Saharan Africa they accounted for 
many low-income, mineral-rich countries. Due to  57% on average. By individual country, foreign 
their small domestic markets and weak productive  companies were responsible for more than half of 
capabilities, they tend to have few other areas into  production in Angola, Argentina, Equatorial Guinea, 
which they can attract FDI. 
Indonesia, Sudan and the United Kingdom. At the 
The recent boom in commodity prices has  other end of the spectrum were Iraq, Kuwait, Mexico 
aroused growing investor interest in opportunities  and Saudi Arabia, in which no production was 
for mineral extraction in low-income countries.  attributed to foreign firms (figure IV.5).

CHAPTER IV
103
Table IV.1. United States outward FDI stock in extractive industries, 1985, 1990, 1995, 2000 and 2005
(Millions of dollars)
Host region/economy
1985
1990
1995
2000
2005
Total world
58 724
52 826
68 632
72 111
114 386
    Developed countries
33 360
34 261
41 865
33 398
55 802
  EU
16 357
12 495
18 573
10 948
11 052
Netherlands
1 928
1 429
1 449
2 218
4 018
United Kingdom
9 231
10 347
12 061
8 135
5 995
Other developed countries
17 003
21 766
23 292
22 450
44 750
Norway
2 695
3 537
3 257
2 463
5 331
Canada
10 443
10 494
9 875
13 629
33 718
Australia
1 681
2 801
2 628
6 222
5 059
Developing economies
17 997
12 627
21 839
37 045
49 835
Africa
4 072
2 054
2 167
7 204
15 305
Botswana
..
2
5
..
..
Cameroon
..
..
158
..
..
Chad
..
..
106
..
..
Congo
..
21
..
..
..
Congo, Democratic Republic of
..
12
69
..
..
Côte d’Ivoire
..
36
42
..
..
Egypt
1 640
1 073
899
1 424
4 085
Gabon
..
324
108
..
..
Kenya
..
42
63
..
..
Nigeria
..
..
578
452
278
South Africa
..
..
..
2
-5
Sudan
..
5
9
..
..
Unspecified Africa
2 432
434
..
5 326
10 947
Latin America and the Caribbean
5 042
4 196
6 056
16 533
17 225
Argentina
466
471
707
580
508
Bahamas
845
345
62
..
..
Bermuda
-168
..
..
..
118
Bolivia
..
168
102
..
..
Brazil
381
507
1 092
680
2 040
British Virgin Islands
14
..
123
1 249
2 461
Chile
60
..
..
3 248
1 040
Colombia
1 053
461
1 255
695
630
Ecuador
..
102
657
464
557
El Salvador
..
..
76
..
..
Guatemala
47
49
79
..
..
Mexico
53
..
61
327
2 082
Panama
515
682
707
..
95
Peru
579
..
81
1 544
2 082
Trinidad and Tobago
399
..
350
..
..
Venezuela
66
113
398
3 379
1 378
Unspecified Latin America and the Caribbean
643
1 199
393
4 367
4 230
Asia and Oceania
8 883
6 377
13 616
13 308
17 305
West Asia
2 208
1 317
2 667
2 179
5 665
Bahrain
..
-88
-130
..
..
Iran, Islamic Republic of
..
..
310
..
..
Oman
..
..
82
..
..
Qatar
..
..
472
..
..
Saudi Arabia
852
..
176
107
..
Turkey
111
..
124
16
48
United Arab Emirates
664
299
230
..
1 064
Unspecified West Asia
581
1 105
482
2 056
4 553
South, East and South-East Asia
6 675
5 071
10 949
11 129
9 602
China
211
114
951
1 404
1 717
India
28
..
26
-343
134
Indonesia
3 895
2 751
4 449
7 212
6 003
Malaysia
605
402
639
..
1 493
Philippines
109
..
326
..
414
Singapore
354
650
2 408
15
-160
Thailand
803
626
1 374
1 111
..
Unspecified South, East and South-East Asia
319
135
..
1 729
..
Unspecified Asia and the Pacific
..
..
..
..
2 038
South-East Europe and CIS
..
1
692
1 670
3 148
Azerbaijan
..
..
206
..
..
Kazakhstan
..
..
-54
..
..
Russian Federation
..
1
392
79
3 148
Unspecified South-East Europe and CIS
..
..
152
1 591
..
Unspecified
7 367
5 937
4 236
-2
5 601
Source:
UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), based on data from the United States Department of Commerce.

104
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
Figure IV.3. Share of extractive industries in the inward FDI stock of selected economies, 2005 
(Per cent)
Source:   UNCTAD estimates, based on data from the UNCTAD FDI/TNC database (www.unctad.org/fdistatistics).
a
2001.
b
1997.
c
2003.
d
2002.
e
2004.
f
On an approval basis.
During the period 1995-2005, the share of 
The involvement of TNCs in the exploration 
foreign companies in oil and gas extraction evolved  and extraction of oil and gas takes various contractual 
differently in various regions and countries. In  forms, such as concessions, joint ventures, production-
Europe, it declined from 47% to 36% (table IV.2).  sharing agreements (PSAs) and service contracts 
Within developing countries, a stable overall average 
(table IV.3; chapter VI), each of which has different 
share masked diverging trends. In Africa and Latin  implications for recording data on the amount of 
America, the shares of foreign companies increased  related FDI and non-FDI flows (box IV.1). Overall, 
to 41% and 18%, respectively, whereas in developing 
as of June 2007, PSAs were the most frequently 
Asia, their share fell from 19% to 12% on average. In 
used contractual form, accounting for more than 
South-East Europe and the CIS, their share increased  50% of all contracts involving foreign TNCs in the 
from 3% to 11%. Foreign companies’ share rose  most important oil- and gas-producing developing 
particularly fast in Angola, Argentina, Kazakhstan,  economies. Such agreements were the main form 
the Libyan Arab Jamahiriya and Nigeria, and  of TNC participation in countries such as China, 
declined the most in Indonesia and Malaysia, as well  Equatorial Guinea, Indonesia, Iraq, the Libyan Arab 
as in Norway and the United Kingdom among the  Jamahiriya, Qatar, Sudan and Viet Nam. Concessions 
developed countries.
and joint ventures were the next most frequently 

CHAPTER IV
105
Figure IV.4. Foreign affiliates’a share in metal mining productionb of selected host countries with notable 
deposits of minerals,c 2006
(Per cent)
Source:   UNCTAD, based on data from the Raw Materials Group.
a
The share of foreign affiliates includes all firms with foreign ownership of at least 10%.
b
Measured by value of production.
c
Including diamonds, and excluding artisanal mining.
used contractual forms, and the dominant forms in  terms, resulting in widely varying FDI and non-
Algeria, Angola, Brazil, Kazakhstan and the Russian  FDI flows as well as implications for development 
Federation (table IV.3). Service contracts were less  (chapter VI).
numerous but nevertheless important, for example, in 
the Islamic Republic of Iran and Kuwait.14
B.  The changing universe of 
It is not straightforward to establish a link 
between the number and types of contracts with the 
TNCs in extractive industries
size of FDI flows. First of all, the average size of 
contract areas varies considerably, from very large 
TNCs have been present in metal mining 
in Saudi Arabia15 and Sudan to relatively small in  since the sixteenth century (Harvey and Press, 
Brazil, Kuwait and the Russian Federation (table  1990; McKern, 1976), and in the oil industry since 
IV.3). Secondly, different countries of the same  the discovery of oil in the late nineteenth century 
region or group could take divergent approaches  (Yergin, 1991). In colonial times and the early post-
to legal forms. In Africa, for example, Angola uses  colonial decades of the 1950s and 1960s, TNCs 
mostly concessions, Equatorial Guinea and Sudan  from developed countries dominated the extractive 
mostly PSAs. Thirdly, each contract has its own  industries in developing countries. Since then, their 

106
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
Table IV.2. Oil and gas production, total and by foreign companies, by region and selected economy,a 1995 
and 2005
(Million barrels of oil equivalent)
1995
2005
Total 
Production by 
Share of foreign 
Total 
Production by 
Share of foreign 
Region/economy
production foreign companies companies (%)
production
foreign companies companies (%)
World
37 952
..
..
47 001
10 550
22.4
World excluding North America
30 242
5 572
18.4
39 331
7 941
20.2
   Developed economies
11 968
..
..
12 056
4 341
36.0
Europe
3 839
1 795
46.8
3 926
1 409
35.9
European Union
2 619
1 268
48.4
2 357
937
39.8
Of which:
Netherlands
488
69
14.2
448
51
11.4
United Kingdom
1 547
999
64.6
1 325
666
50.3
Other developed Europe
1 220
527
43.2
1 569
472
30.1
Of which:
Norway
1 220
527
43.2
1 569
472
30.1
North America
7 710
..
..
7 670
2 609
34.0
Of which:
Canada
1 712
..
..
2 072
370
17.9
United States
5 998
..
..
5 597
2 239
40.0
Other developed countries
420
203
48.4
461
323
70.1
  Developing economies
19 160
3 406
17.8
25 851
4 877
18.9
Africa
3 483
770
22.1
5 049
2 054
40.7
North Africa
1 974
236
12.0
2 706
713
26.4
Of which:
Algeria
925
3
0.3
1 313
162
12.4
Egypt
420
127
30.2
497
194
39.1
Libyan Arab Jamahiriya
591
86
14.5
735
255
34.7
Sub-Saharan Africa
1’509
534
35.4
2 344
1 340
57.2
Of which:
Angola
254
159
62.4
507
370
73.0
Equatorial Guinea
..
..
..
160
146
91.5
Nigeria
943
182
19.3
1 301
536
41.2
Sudan
..
..
..
120
77
64.2
Latin America and the Caribbean
3 872
415
10.7
5 215
960
18.4
Latin America
3 759
345
9.2
4 946
871
17.6
Of which:
Argentina
410
77
18.9
549
444
80.9
Brazil
298
4
1.4
712
14
2.0
Mexico
1 307
-
-
1 665
-
-
Venezuela
1 246
77
6.2
1 417
60
4.2
The Caribbean
113
70
62.0
268
90
33.4
Developing Asia
11 768
2 196
18.7
15 569
1 847
11.9
West Asia
8 263
778
9.4
11 028
389
3.5
Of which:
Iran, Islamic Republic
1 689
-
-
1 985
47
2.4
Iraq
287
-
-
773
..
..
Kuwait
683
-
-
1 036
..
..
Qatar
256
63
24.4
656
149
22.8
Saudi Arabia
3 364
-
-
4 188
-
-
United Arab Emiratesb
811
89
11.0
1 226
173
14.1
South, East and South-East Asia
3 504
1 418
40.5
4 541
1 458
32.1
Of which:
China
1 186
38
3.2
1 604
54
3.4
Indonesia
986
886
89.8
869
659
75.8
Malaysia
445
263
59.2
628
273
43.5
Oceania
37
26
70.7
18
17
93.9
  South-East Europe and CIS
6 824
168
2.5
9 093
987
10.8
Of which:
Kazakhstan
188
45
24.0
626
302
48.2
Russian Federation
5 659
107
1.9
7 125
531
7.5
Uzbekistan
..
..
..
393
21
5.4
Source:  UNCTAD, based on data from IHS.
a
The table lists 28 major producer economies.
b
Abu Dhabi only.
Note
Oil and gas production by foreign companies includes extraction carried out by majority foreign-owned firms and attributed to them under 
PSAs, concessions, joint ventures, or other contractual forms. Foreign company participation through pure service contracts is not included. 
For each block or field of production worldwide, annual production has been split between the firms involved according to their net percentage 
share of the output.

CHAPTER IV
107
Figure IV.5. Share of foreign companies in the oil and gas productiona of selected major oil- and gas-
producing economies, 2005
(Per cent)
Source:   UNCTAD, based on data from IHS.
a
Measured by million barrels of oil equivalent.
Note
See note to table IV.2.
relative importance has evolved differently in metal  of the more established players. As in many other 
mining on the one hand and the oil and gas industry  industries, there are conflicting tendencies between 
on the other. In general, the major metal mining TNCs 
efforts at consolidating operations and those aimed 
are smaller than their oil and gas peers, but TNCs  at focusing on core activities while relying more on 
play a more dominant role in the former industry than 
specialized service providers. However, following a 
in the latter.
series of recent M&As, concentration is rising.
1.  TNCs in the metal mining 
a.  Continued dominance of private 
industry
firms
In the metal mining industry, privately owned 
In the 1960s and 1970s, the metal mining 
TNCs remain the dominant producers. At the same  industry was affected by widespread nationalizations, 
time, significant changes are taking place in the way  leading to more State ownership (box IV.2). For 
companies position themselves, and the strategies  example, the share of the seven largest TNCs in copper 
of newcomer firms from developing and transition  mining outside the centrally planned economies fell 
economies tend to differ in some ways from those  from 60% in 1960 to 23% in 1981 as a result of 

108
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
Table IV.3. Main forms of TNC contracts in the oil and gas industry of selected developing and transition 
host economies, June 2007
(Number of contracts and percentage share)
Distribution of foreign TNCs’ contracts by main type
Average 
size of 
Service or risk 
Concession or joint 
Other and 
Production sharing
Total
contract
service
venture
unspecified
territory 
Host economy
Number Share (%)
Number Share (%)
Number Share (%)
Number Share (%)
Number Share (%)
(km2)
Algeria
25
22.9
4
3.7
66
60.6
1
0.9
109
100.0
2 357
Angola
21
19.1
-
-
89
80.9
-
-
110
100.0
640
Brazil
-
-
-
-
189
100.0
-
-
189
100.0
283
China
74
97.4
-
-
-
-
2
2.6
76
100.0
2 973
Equatorial Guinea
20
100.0
-
-
-
-
-
-
20
100.0
1 333
Indonesia
155
100.0
-
-
-
-
-
-
155
100.0
2 902
Iran, Islamic Republic
-
-
16
80.0
-
-
4
20.0
20
100.0
3 575
Iraq
7
87.5
1
12.5
-
-
-
-
8
100.0
625
Kazakhstan
9
9.7
-
-
84
90.3
-
-
93
100.0
1 558
Kuwait
-
-
3
100.0
-
-
-
-
3
100.0
120
Libyan Arab Jamahiriya
107
80.5
-
-
26
19.5
-
-
133
100.0
4 497
Nigeria
81
58.3
-
-
57
41.0
1
0.7
139
100.0
579
Qatar
26
100.0
-
-
-
-
-
-
26
100.0
833
Russian Federation
5
1.1
-
-
470
98.9
-
-
475
100.0
343
Saudi Arabia
-
-
-
-
-
-
3
100.0
3
100.0
75 056
Sudan
14
77.8
-
-
4
22.2
-
-
18
100.0
50 770
United Arab Emirates
-
-
-
-
-
-
12
100.0
12
100.0
375
Uzbekistan
14
43.8
-
-
-
-
18
56.3
32
100.0
3 562
Venezuela
19
38.0
-
-
20
40.0
10
20.0
50
100.0
597
Viet Nam
1
100.0
-
-
-
-
-
-
1
100.0
554
Total
578
34.6
24
1.4
1 005
60.1
51
3.1
1 672
100.0
2 067
Total excluding CIS
564
51.1
21
1.9
451
40.9
51
4.6
1 104
100.0
2 852
Source:  UNCTAD, based on data from IHS.
nationalizations (UNCTC, 1983: 208). By the early  metal prices and profits. In response, during the 
1980s, the participation of TNCs in many developing 
1990s, several countries began reopening their metal 
countries had become limited to minority holdings  mining industries to FDI and privatized their State-
and non-equity agreements with State-owned  owned mining enterprises. By the early 2000s, the 
enterprises. However, many of the nationalizations  privatization process in the industry worldwide, apart 
undertaken in Africa and Latin America in the metal  from China, had been more or less completed.16
mining industry turned out to be failures (Radetzki, 
Worldwide, there are today more than 4,000 
forthcoming). The subsequent 30 years witnessed  metal mining firms, mostly engaged in exploration 
a continuous decline in the industry, with falling  and extraction (figure IV.6). Most of the 149 
Box IV.2. Nationalizations in metal mining, 1960-1976
In the 1960s and 1970s, governments placed high hopes on the socio-economic development potential of 
metal mining, based on the industry’s strong economic performance following the end of the Second World War. 
Most government acquisitions of companies or shares in them were made when the market was at its peak. The 
number of expropriations of foreign mining enterprises increased from 32 between 1960 and 1969 to 48 between 
1970 and 1976.

During the first period, copper mines were nationalized in Chile, Peru, Zaire (now the Democratic Republic of 
the Congo) and Zambia. Bauxite production in Guinea was also expropriated.

During the second period, the Government of Jamaica purchased a 51% stake in three previously fully foreign-
owned bauxite mines, while it retained the foreign investors as mine operators; Madagascar nationalized its 
chromite mines; and in Brazil, Chile, India, Mauritania and Venezuela iron ore production was partially taken 
over by their Governments. The Government of Morocco undertook the production and marketing of phosphate, 
and the Governments of Indonesia and Bolivia took over control of tin production.
Source: UNCTC, 1978: 14-18.

CHAPTER IV
109
Figure IV.6. The pyramid of metal mining 
Table IV.4. Top 25 metal mining companies,  2005a
companies, 2006
 (Number of companies)
Share in 
the value 
Rank  Rank 
State 
 Cumulative 
Company name
Country
of world 
2005
1995
ownership 
(%)
(%)
production 
(%)
1
4
BHP Billiton       
Australia
-
4.8
4.8
2
2
Rio Tinto
United Kingdom
-
4.6
9.4
3
6
CVRD   
Brazil
12
4.4
13.8
4
1
Anglo American
United Kingdom
-
4.3
18.1
5
5
Codelco                          Chile
100
3.2
21.3
6
7
Norilsk Nickel
Russian Federation
-
2.2
23.5
7
9
Phelps Dodge
United States
-
2.0
25.5
8
22
Grupo México
Mexico
-
1.6
27.1
9
26
Newmont Mining
United States
-
1.3
28.4
10
11
Freeport McMoran
United States
-
1.3
29.7
11
13
Falconbridge
Canada
-
1.2
30.9
12
53
Anglogold Ashanti
South Africa
3
1.1
32.0
13
15
Inco
Canada
-
1.0
33.0
Source: UNCTAD, based on data from the Raw 
14
..b
Xstrata
Switzerland
-
1.0
34.0
Materials Group.
15
14
Barrick Gold
Canada
-
1.0
35.0
16
..c
Alrosa
Russian Federation
69
0.9
35.9
“majors”17 are TNCs, the majority of  17
18
Placer Dome
Canada
-
0.9
36.8
which have production facilities covering 
18
31
Teck Cominco
Canada
-
0.8
37.6
mining, smelting as well as refining.  19
10
Gold Fields
South Africa
10
0.8
38.4
These companies account for some 60% 
20
19
KGHM Polska Miedz
Poland
44
0.7
39.1
of the total value at the mining stage of 
21
88
Antofagasta
United Kingdom
-
0.7
39.8
all non-energy minerals produced.18 About 
22
8d
Impala Platinum
South Africa
-
0.7
40.5
950 medium-sized companies account for 
23
113
Glencore
Switzerland
-
0.6
41.1
almost 40% of the value of production. 
24
-e
Harmony Gold Mining South Africa
-
0.6
41.7
25
37
Debswana
Botswana
50
0.6
42.3
“Junior” companies include all non-
producing companies, notably specialized  Source: UNCTAD, based on data from the Raw Materials Group.
exploration companies. Much like 
a
The ranking is based on the value of total production, including diamond.
high-tech companies in the information  b Glencore had not formed Xstrata in 1995 (MIM, a recent acquisition of Xstrata, was ranked 33).
and communications technology and c No production data are available for this year.
d
biotechnology industries, they engage in 
In 2000, Impala was controlled by Gencor Ltd.
e
The company did not exist in 1995.
high-risk investments that can sometimes 
prove very profitable. If they do find a 
in the world.20 The top four are global players with 
deposit, it is typically sold to a major mining company 
worldwide operations, and they produce a variety 
with the necessary capital, experience and competence 
of metals.21 The following six are all more or less 
to invest in production. In addition to these 4,000 plus 
single commodity producers with the exception of 
companies, there are a number of unidentified small  Grupo México. A decade before, in 1995, there were 
and medium-sized mining enterprises all over the  17 leading metal mining companies headquartered 
world, including those engaged in artisanal mining  in developed countries – two more than in 2005 
(box III.2).
(annex table A.IV.5); and there were one less each of 
In 2005, of the 25 leading metal mining  developing-country firms and Russian firms (7 and 1
companies (ranked by their share in the value  respectively). In addition, with its acquisition of Inco 
of world production), 15 were headquartered in  (a Canadian nickel producer) CVRD was estimated 
developed countries (table IV.4), 8 were from  to emerge as the top metallic mineral producer in the 
developing countries and the two remaining were  world in 2006, the first time that a Latin American-
from the Russian Federation.19 In contrast to the  based company would occupy that position.
situation in the oil industry (section B.2), State-owned 
The degree of concentration in the metal 
companies occupy a modest place in the list, with the 
mining industries increased significantly between 
exception of the Corporación Nacional del Cobre de  1995 and 2005. Following a series of cross-border 
Chile (Codelco), Alrosa (Russian Federation) and  M&As (section IV.A), the 10 largest metal mining 
KGHM Polska Miedz (Poland). Collectively these  companies in 2005 controlled about 30% of the 
latter companies accounted for approximately 14%  total value of all non-energy minerals produced 
of the value of all non-energy minerals produced 

110
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
enezuela
V
-
Senegal
X
Russian Federation
---
Pakistan
X
Namibia
-----
Mozambique
X
-X-X-X
------
Mongolia
-----
X
Mali
--------
X
Iran, Islamic Rep. of
---
X
Guatemala
X
Cuba
X
-----------
Côte d’Ivoire
------------
X
Congo, Democratic Republic of
-------
X
-
Botswana
-
Argentina
X
---------------
Zimbabwe
----------------
-
----------------
X
urkey
T
X
-
X
  in which the respective company has projects. 
South Africa
------------------
Papua New Guinea
Host developing and transition economies
-------------------
-X-X-X
X
New Caledonia
X
-
---
Mexico
-
----
XXXX
X
---------------------
Kazakhstan
-----------
X
X
Philippines
X
-
---------------
-----------------------
Ghana
X
X
Brazil
X-X-
X
X-X-
-------------------------
anzania, United Rep.
T
---
-----------------
------
X
-
--------------------------
X
X
estern Europe and Other developed countries)
Indonesia
X
X
X
-
--------------
-
X
-X-X
-
-
------
-----------------------
Chile
-
-
-
X
X
----------------------------
-
-
-
X
X
X
----
X
6443332222222111111111111111
America, W
Peru
X
X
-
X
-----------------------------
-----------------------------
X
X
X
-
-----------------------------
X
-----------------------------
X
X
-----------------------------
----------------------
X
-----------------------------
X
X
-------
-------------
----------
-----------------------------
12
Other developed countries
-
1
-
1
-
1
1
-
-
1
-
1
1
-
-
1
1
-
1
-
1
estern Europe 
W
1
-
-
1
-
-
-
-
-
-
-
1
-
-
-
-
1
-
-
-
-
Host
developed
countries
North America
-
1
1
1
-
1
-
-
-
1
-
1
1
-
-
1
-
-
-
-
-
Number of foreign locations
7
5
3
14
----
----
3
3
6
1
..
7
..
14
5
..
1
6
----
4
3
2
1
2
----
.5. Host countries in which top 25 metal mining companies are involved in exploration projects, 2006
able IV
T

Kingdom
Kingdom
Africa
Africa
Africa
Home country
Australia
United 
Brazil
United 
Chile
Russian Federation
United States
Mexico
United States
United States
Canada
South Africa
Canada
Switzerland
Canada
Russian Federation
Canada
Canada
South 
Poland
United Kingdom
South 
Switzerland
South 
Botswana
AD, based on data from the Raw Materials Group.
a
c
UNCT
The number indicates the number of host countries in the region (North 

 Billiton
into

b
See Xstrata.
See CVRD.
See Barrick Gold.
eck Cominco 
Company
BHP
Rio T
CVRD
Anglo American 
Codelco
Norilsk Nickel
Phelps Dodge Corp
Grupo México
Newmont Mining Corp
Freeport McMoran
Falconbridge
Anglogold Ashanti 
Inco
Xstrata plc
Barrick Gold Corp
Placer Dome
Alrosa Co 
T
KGHM Polska Miedz 
Gold Fields
Antofagasta
Glencore International 
Impala Platinum Holdings
Harmony Gold Mining Co 
Debswana Diamond 
Number of companies that have projects in host country
Source
a
b
c
Note

CHAPTER IV
111
annex table A.IV.5). This share reached an estimated  Finally, gold production appears to be the most 
33% in 2006.  In all metals, the share of the top 10
internationalized, with 8 of the 10 largest firms 
production companies increased between 1995 and  having production abroad, including the three largest 
2005. This degree of concentration rose the fastest  ones (annex table IV.6).24
in gold mining (from 38% to 47%), followed by iron 
Of developing host economies of metal mining 
ore (from 44% to 52%), copper (from 51% to 58%)  TNCs, the largest number of exploration  projects 
and zinc production (from 38% to 43%).
was located in Peru, followed by Chile, Indonesia 
and the United Republic of Tanzania (table IV.5). As 
b.  Varying degrees of 
far as mining production is concerned, in 2006, Chile 
internationalization
and Peru hosted the largest number of top 25 mining 
companies (table IV.6). As for refineries, Chile was 
The level of internationalization of the world’s 
host to the largest number of companies, followed by 
top metal mining companies varies substantially.  South Africa and Peru (table IV.7).
While some of them are present in a large number 
The degree of forward (downstream) vertical 
of foreign locations, others are at an early stage in  integration along the production/value chain within 
terms of internationalization, and a few do not have  firms in the metal mining industries varies both 
any foreign exploration or production at all.
by metal and over time. Traditionally, mining and 
In exploration, the activities of certain TNCs,  smelting activities have often been integrated within 
such as Anglo American and Xstrata (present in 14
the same company. A snapshot of the situation in 
countries each), were widely spread in 2006 (table  1995 compared to 2005, for aluminium, copper, 
IV.5). All but four of the top-25 producers (Codelco,  nickel and zinc, suggests that control over refineries 
Debswana, KGHM Polska Miedz and Norilsk Nickel) 
by the top 20 mining companies has increased (figure 
were involved in exploration activities in at least one  IV.7). Similarly, the leading refiners have taken steps 
foreign country. In terms of mining production, Rio  to gain greater control over the mining production 
Tinto was the company with activities in the largest  stages. The overall trend is of increasing vertical 
number (10) of host countries in 2005, followed by  integration in international (as well as national) 
Anglo American and Anglogold Ashanti, both present 
production in the industries, which is most clearly 
in nine host countries (table IV.6). On the other  seen in the movement of nickel miners downstream 
hand, as in the case of exploration, large producers  into refining.25
from developing countries like Codelco, CVRD and 
Firms in the aluminium industry have 
Debswana (and KGHM Polska Miedz of Poland)  traditionally been strongly vertically integrated, 
did not have any overseas mining production in that  with mining and smelting activities located in close 
year.22 In smelting and refining, Glencore was the  proximity. In some cases, smelters have been set up 
most internationalized top metal mining company,  in countries where cheap electricity is available, as in 
with a presence in 13 host countries, followed by  Bahrain, Mozambique (Mozal project) and Norway. 
BHP Billiton (9) (table IV.7). Leading firms appear  On the other hand, the level of vertical integration 
to be more internationalized in exploration and  in zinc production is lower (figure IV.7). A number 
mining production than in smelting and refining. Of  of smelters in both Europe and North America have 
the 25 top companies, 21 had overseas mining 
production activities, whereas just over half of 
Figure IV.7. Top 20 mining companies’ share in the value 
them (13) had foreign refining capacities.
of refined production, 1995 and 2005
(Per cent)
Internationalization of production 
also varies by metal. For example, in iron 
ore mining, only half of the top 10 producer 
companies had overseas production activities in 
2005 (annex table A.IV.6). In fact, CVRD, the 
largest iron ore producer, did not have foreign 
activities (until 2006) while the production of 
the second largest firm, Rio Tinto, was 100% 
abroad. Copper, nickel and zinc production is 
more internationalized. In each of these metals, 
7 of the top 10 producers had foreign production 
activities in 2005. However, in copper and 
nickel, the largest company by volume had 
no production abroad: Codelco and Norilsk 
Nickel.23 In zinc, in turn, the largest producer, 
Teck Cominco, was highly internationalized.  Source: UNCTAD, based on data from the Raw Materials Group.

112
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
Zambia
-
X
enezuela
V
X
--
Uzbekistan
---
X
Suriname
X
---
Russian Federation
-----
X
Papua New Guinea
X
Mexico
-------
Mali
X
Jordan
-
----
Kazakhstan
----------
-
X
India
X
-
Guinea
------------
X
Dominican Rep.
-----------
X
-
Botswana
X
-
--------------
Angola
----
-
X
---------------
Zimbabwe
X
---
-
X
Jamaica
X
-
-----------------
Ghana
X
X
--------
Host developing and transition economies
China
----------------
-
X
Bolivia
----
------
X
-
X
Namibia
X
X
X
---------------------
---------------
anzania, United Rep. of
T
-
--
----------------------
X
----------------------
X
X
Indonesia
-------------------
X
X
X
-
X
-
-
Brazil
X
X
X
------------------------
-
-
----
Argentina
-
-
X
X
X
-
X
South Africa
X
X
X-X-X
--------------------------
---------
-
X
-
X
--------------------------
-
Chile
X
X
X
X
---------------------------
----
X
-
-
-
X
---------------------------
X
-
Peru
X
-
----------------------------
-
----------------------------
----------------------------
X
X
X
-----
X
-
-----
-
X
-
-------------
X
----------------------------
----------
-
X
------------
----------------------------
----------------------------
8754444321212111111111111111
Other developed countries
-
1
-
1
-
-
-
-
2
-
-
1
-
1
1
1
-
-
-
1
-
1
-
1
-
estern Europe
W
-
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Host
developed
countries
North America
2
2
-
-
-
1
-
1
1
-
-
1
-
-
1
1
-
1
-
-
-
-
-
-
-
Number of foreign locations
7
10
-
9
-
1
2
2
7
1
4
9
1
3
5
6
1
2
-
2
1
8
1
1
-
.6. Host countries in which top 25 metal mining companies are involved in mining production projects, 2005
Kingdom
Kingdom
Africa
Africa
Africa
able IV
T

Home country
Australia
United 
Brazil
United 
Chile
Russian Federation
United States
Mexico
United States
United States
Canada
South Africa
Canada
Switzerland
Canada
Russian Federation
Canada
Canada
South 
Poland
United Kingdom
South 
Switzerland
South 
Botswana
AD, based on data from the Raw Materials Group.
UNCT
Data include diamond production.

 Billiton
into

eck Cominco 
Company
BHP
Rio T
CVRD
Anglo American 
Codelco
Norilsk Nickel
Phelps Dodge Corp
Grupo México
Newmont Mining Corp
Freeport McMoran
Falconbridge
Anglogold Ashanti 
Inco
Xstrata plc
Barrick Gold Corp
Placer Dome
Alrosa Co 
T
KGHM Polska Miedz 
Gold Fields
Antofagasta
Glencore International 
Impala Platinum Holdings
Harmony Gold Mining Co 
Debswana Diamond 
Number of companies present in host country
Source
Note

CHAPTER IV
113
been buying their concentrate inputs from various  upstream integration with exploration is declining 
sources all over the world. Rising energy prices have  as mining companies develop strategic relationships 
made integrated production a more attractive option,  with junior, specialized exploration companies. 
however.  Copper exhibits a relatively stable level  Exploration expenditure data show that the juniors 
of vertical integration, between those of aluminium  now account for a larger proportion of such activities 
and zinc. In the iron ore industry, vertical integration  (figure IV.8). More generally, specialized mining 
has seen an upswing since the late 1990s with the  suppliers play an important role in the metal mining 
entry of new major global steel companies with  industry (box IV.3).
roots in India (Mittal Steel and Tata Steel) 26 and the 
Russian Federation (Severstal).27 These companies 
2.  TNCs in oil and gas
have integrated iron and steel works based on a fully 
controlled supply of raw materials. Posco (Republic 
of Korea) follows a similar integrated approach. For  a.  The Seven Sisters have given way 
example, it is building its next integrated steelworks 
to State-owned companies
in India, close to the location of iron ore deposits.28
While there appears to be a trend towards higher 
Until the 1970s, a few major TNCs from the 
levels of vertical integration between the mining  United States and Europe dominated the international 
and refining stages of production, the opposite has  oil industry. In 1972, 8 of the top 10 oil producers 
been observed between exploration and production:  were privately owned TNCs (Clarke, 2006), including 
Box IV.3. The role of mining suppliers
Specialized suppliers of equipment and services are 
Box table IV.3.1. Leading suppliers of mining 
important players in metal mining. Many of them are also 
equipment, 2007
increasingly transnational. Suppliers to the mining industry  Type of equipment
Lead suppliers
Home country
can be grouped according to the markets they address in each  Exploration drilling 
Boart Longyear 
United States
of the main stages of mining. Highly knowledge-intensive  equipment
Atlas Copco, Sandvik
Sweden
inputs are required in the production of both equipment  Drilling equipment, 
Atlas Copco, Sandvik
Sweden
underground
and services. Design and technology are embedded in the  Drilling equipment, 
Atlas Copco, Sandvik 
Sweden
capital equipment used in the mining industry as well as 
Bucyrus, P&H, Terex/
open pit
United States
in the services, which require customization for the unique 
Reedrill
Draglines
Bucyrus, P&H
United States
conditions of each mine. Some firms operate across several  Load haul dump, 
Atlas Copco, Sandvik 
Sweden
markets, providing mining and mineral processing equipment  underground
Caterpillar
United States
with the associated services.
Orica, Dyno Nobel
Australia
Explosives
AEL
South Africa
The growing role of such suppliers is being driven 
Enaex
Chile
by the reorganization of global mining production and 
Caterpillar
United States
technological rejuvenation of the industry, with continued 
Hitachi Construction 
improvements in exploration, mining  and  mineral 
 
Machinery, Komatsu 
Japan
Trucks, open pit
(Haulpak)
processing.a Suppliers are focused on specific niches in 
Liebherr
Germany
which they have a globally dominant position.
Terex/Unit Rig
United States
Belaz
Belarus
For some types of mining equipment there is a high 
Komatsu
Japan
level of international specialization of suppliers. Most of 
Caterpillar, Le Tourneau
United States
these companies are headquartered in the United States or  Articulated dump trucks Bell
South Africa
the Nordic countries (box table IV.3.1). However, there are 
Volvo
Sweden
Astra
Italy
also some examples of equipment suppliers from emerging 
Caterpillar, Bucyrus, P&H
United States
market economies, such as Belarus, Chile and South Africa.
Hitachi Construction 
Shovels
Japan
Machinery, Komatsu
Examples of some knowledge-intensive service 
Liebherr, Terex
Germany
suppliers include large international consulting firms that 
ITT/Flygt
United States
integrate engineering, project management, procurement and 
United
Pumps
Weir Group
Kingdom
construction activities, such as Kvaerner (Norway), Hatch 
Grindex
Sweden
(Canada), and Bechtel Group (United States); medium-
Metso
Finland
sized specialized engineering consulting companies, such as 
Denmark
Crushers
FLSmidth Minerals 
United States
Bateman (South Africa) SRK Consulting (South Africa), and 
Terex, PR Engineering
AMC Consultants (Australia); and small- to medium-sized 
Metso, Outotech
Finland
Mills
mining and geological software providers, such as Maptek 
Polysius
Germany
(Australia).
Source:  UNCTAD, based on data from the Raw Materials Group.
Source: UNCTAD, based on Urzúa, 2007, and data from the Raw Materials Group.
a
Automation and improvements in underground communication and control systems is leading to the introduction of remote-controlled drilling, roof support 
and hauling equipment with benefits in terms of productivity and workers’ safety as people are removed from high-risk work.

114
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
enezuela
V
-
X
Surinam
X
--
Philippines
-
--
X
Namibia
-
X
Mozambique
X
--
Kazakhstan
-
X
Jamaica
-
-------
X
Dominican Republic
-
X
Colombia
X
--
Bolivia
-
X
Argentina
-
-----------
-----------
X
Host developing and transition economies
Indonesia
-
--------
X
X
Brazil
X
-------------
-------------
Peru
--------------
-
X
X
--------------
South Africa
X
X
-
-
-------
X
---------------
---------------
Chile
XXXX
X
----------------
X
----------------
----------------
X
-
----------------
----
X
----------------
----
-
----------------
X
----------------
----------------
----------------
----------------
X
-----
----------------
----------------
----------------
7432211111111111
Other developed countries
-
2
-
-
-
-
-
-
1
1
-
-
1
estern Europe
W
1
-
2
-
-
-
1
1
2
3
-
-
5
Host
developed
countries
North America
1
1
-
-
-
1
-
1
-
-
-
-
1
Number of foreign locations
9
5
2
5
----
----
2
2
----
2
4
----
4
5
----
1
----
----
----
----
1
13
----
----
----
Kingdom
Kingdom
Africa
Africa
Africa
Home country
Australia
United 
Brazil
United 
Chile
Russian Federation
United States
Mexico
United States
United States
Canada
South Africa
Canada
Switzerland
Canada
Russian Federation
Canada
Canada
South 
Poland
United Kingdom
South 
Switzerland
South 
Botswana
.7. Host countries in which top 25 metal mining companies are involved in refining/smelting projects, 2005
able IV
T

AD, based on data from the Raw Materials Group.
UNCT
Data include ferro-alloy plants and cobalt refineries; steel plants and gold refineries are not included.

 Billiton
into

eck Cominco 
Company
BHP
Rio T
CVRD
Anglo American 
Codelco
Norilsk Nickel
Phelps Dodge Corp
Grupo México
Newmont Mining Corp
Freeport McMoran
Falconbridge
Anglogold Ashanti 
Inco
Xstrata plc
Barrick Gold Corp
Placer Dome
Alrosa Co 
T
KGHM Polska Miedz 
Gold Fields
Antofagasta
Glencore International 
Impala Platinum Holdings
Harmony Gold Mining Co 
Debswana Diamond 
Number of companies present in host country
Source
Note

CHAPTER IV
115
 Figure IV.8. Global exploration expenditure, by type of company, 1997-2005
(Billions of dollars)
Source:   Metals Economics Group, 2006.
the so-called Seven Sisters (chapter III). These  private TNCs (Yergin, 1991; box IV.4). For example, 
were fully integrated oil companies, active in the  the share of TNCs in crude oil production plummeted 
extraction and transportation of oil as well as in the  from 94% in 1970 to 45% in 1979 (UNCTC, 1983:
production and marketing of petroleum products. In  197).
the 1960s, they started to face competition from some 
The major oil companies remain giant 
developed-country State-owned companies – such  corporations in terms of their foreign assets; they 
as the Compagnie Française des Pétroles (France)  ranked in the top 10 in UNCTAD’s ranking of the 
(predecessor of today’s Total) and ENI (Italy).  world’s 100 largest TNCs in 2005 (chapter I).29 But 
Subsequently, in the early 1970s, with the emergence 
these large, privately owned TNCs from developed 
of OPEC and the wave of oil nationalizations in  countries no longer control the bulk of the world’s 
developing countries, the ownership picture in the  oil and gas reserves, and are no longer the leading oil 
oil industry changed permanently, with State-owned  and gas producers. In 2005, the top 10 oil-reserve-
national oil companies replacing the dominance of the 
holding firms of the world were all State-owned 
Box IV.4. Nationalizations in the oil industry
From the beginning of industrial activities in the 1850s till the First World War, petroleum extraction had been 
100% privately owned (Yergin, 1991). Since then, the involvement of governments in the management and control of 
the industry has risen almost constantly. Two major forces have motivated home and host governments to intervene 
more, and to increase their share in the ownership and management of their oil and gas resources: the strategic 
importance of these resources for military and other industrial uses, and the considerable rents involved.
Outright nationalization of oil and gas firms, defined as the compulsory transfer of the ownership of the whole 
industry to the State (UNCTAD, 2000: 4),a first took place in the context of the Russian Revolution in 1917. This was 
followed by nationalizations in Bolivia (1937, 1969), Mexico (1938), Venezuela (1943), Iran (1951), and Argentina, 
Burma, Egypt, Indonesia and Peru in the 1960s (Kobrin, 1985). In the 1970s, nationalizations occurred in Algeria, 
Iraq, Kuwait, Libya and Nigeria, and there was a gradual increase in Saudi ownership of Aramco (Yergin, 1991). More 
recent examples of moves towards nationalizations are the Russian Government’s bid to increase shares in petroleum 
companies and in extraction projects (chapter II), and Venezuela’s push to reduce foreign TNCs’ shares in individual 
projects.b
Nationalizations in the oil and gas industry have taken place in periods of favourable market conditions 
(high international demand and prices), domestic conditions (social consensus in support of nationalizations) and 
international political conditions. They have changed the global landscape of petroleum extraction, and contributed to 
the emergence and subsequent strengthening of State-owned firms.
 Source: UNCTAD.
a
Nationalizations differ from ordinary expropriations because they apply to the whole industry or the whole economy, and because they 
always result in a transfer of ownership to the State (ordinary expropriations can also lead to a transfer to a third, private party).
b
It is debatable whether the increase in taxation in Bolivia is a case of nationalization or only a regulatory change.

116
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
companies from developing countries, accounting  b.  TNCs from developing and 
for an estimated 77% of the total, whereas Russian 
transition economies are expanding 
petroleum firms controlled an additional 6%, leaving 
only about 10% for privately owned developed-
overseas
country TNCs such as ExxonMobil, BP, Chevron and 
the Royal Dutch Shell Group.30 The remaining 7% 
Whereas companies from developing and 
was controlled by joint ventures between developed-
transition economies now control most of the 
country TNCs and developing-country State-owned  global production of oil and gas, their degree of 
oil companies (Baker Institute, 2007: 1).
internationalization, although growing fast, is still 
relatively modest compared to that of the top privately 
In 2005, three State-owned enterprises  owned oil TNCs (figure IV.9). Indeed, developed-
topped the list of the world’s 50 largest oil and gas  country companies in the top 50 list undertook most 
producers: Saudi Aramco (Saudi Arabia), Gazprom  of their production overseas (which corresponded 
(Russian Federation) and the National Iranian Oil  to 17% of world production in 2005) (figure IV.9). 
Company (NIOC) (table IV.8). Saudi Aramco’s  On the other hand, of the 54% of global oil and gas 
annual production in 2005 was more than twice as  production that was controlled by companies in 
large as that of the largest privately owned oil and gas 
developing and transition economies, only a fraction 
producer: ExxonMobil (United States). Of the top  was produced abroad (figure IV.9).
50 companies, more than half were majority State-
owned, 23 were based in developing countries, 12
Nevertheless, some of the oil and gas companies 
were based in South-East Europe and the CIS, and  from developing and transition economies are 
only 15 were from developed countries (table IV.8).31
rapidly expanding their overseas interests. In 2005, 
the combined foreign production of CNOOC, CNPC/
 A number of oil and gas firms from developing 
PetroChina, Lukoil, ONGC, Petrobras, Petronas 
and transition economies have evolved into TNCs  and Sinopec amounted to 528 million barrels of oil 
and matured in the past few years. Many, but not all  equivalent. This was more than the foreign production 
of them are partly or fully State-owned.32 Moreover,  of ConocoPhillips, one of the large majors, that year 
some of them, such as CNOOC (China), Pertamina  (figure IV.10).
(Indonesia), Petrobras (Brazil), PetroChina (an affiliate 
A country-by-country review of the outward 
of CNPC),33 and Sinopec34 are listed on the New York 
expansion of State-owned TNCs reveals a common 
Stock Exchange (Baker Institute, 2007). Some State-
push to global status (table IV.10, box IV.5). Both 
owned oil companies are run semi-independently or  CNPC and Petronas are involved in oil and gas 
autonomously of their government owners, at least in 
production in more than 10 foreign countries,  and 
some respects. For example, while Saudi Aramco is  Kuwait Petroleum Corporation, Petrobras and 
100% State-owned, it has an independent board and  Sinopec in more than 5 foreign countries. Between 
decision-making capabilities.35
1995 and 2005, the number of foreign economies in 
The concentration of the industry among the  which Petronas and CNPC/PetroChina extracted oil 
top 10 companies  remained unchanged between  and gas increased by 10, Sinopec by 6 and ONGC 
199536  and 2005 (41% of global production), but rose 
by 5. The expanding overseas upstream production 
from 59% to 63% among the top 25. A worldwide  presence of selected developing- and transition-
review of oil and gas firms in 2006 identified five  country TNCs is illustrated in figure IV.11.
privately owned major TNCs emerging from a wave 
Some developing- and transition-economy 
of consolidations in the industry (ExxonMobil, BP,  TNCs have invested large sums in oil and gas 
Shell, Chevron, Total), more than a dozen large  production deals around the world during the past 
independent oil and gas companies (i.e. Repsol YPF,  two years, sometimes as part of larger consortia. In 
BG, BHP Billiton’s oil and gas division, COP, Devon, 
Uzbekistan, for example, a consortium of CNPC, 
Oxy, Apache, EnCana, Anadarko/Kerr McGee,  the Korea National Oil Corporation (KNOC), 
PetroCanada, Woodside), about 750 smaller oil firms  Lukoil, Petronas and local Uzbekneftegaz has been 
(most of which are also transnational) (Clarke, 2006), 
formed to develop gas fields in the northwest of the 
as well as various transnationalized service firms,  country.38 In Peru, the largest oil production field is 
mostly from North America and Western Europe  being exploited by a consortium of CNPC (45%) and 
(table IV.9). At the same time, a number of State-
Pluspetrol (Argentina, 55%).
owned enterprises from developing and transition 
economies have become outward investors, the 
Emerging oil and gas TNCs have sometimes 
largest of which have been referred to as the new  formed alliances to compete. For example, CNPC 
Seven Sisters (Hoyos, 2007).37
and Sinopec (China) are producing oil and gas in 
CIS countries such as Azerbaijan, Kazakhstan and 
Turkmenistan, and in Latin American countries such 

CHAPTER IV
117
Table IV.8. The world’s largest oil and gas extraction companies, ranked by total production,a
2005
(Per cent and million barrels of oil equivalent)
Number
Change in 
Foreign/
of host 
number of host 
Rank in 
Rank
State
total
economies
economies with 
world
in
ownership Production
Total 
production
with
production since 
production 1995
Company
Home country 
(%)
abroad
production
(%)
production
1995
1
1
Saudi Aramco
Saudi Arabia
100
-
4 148.8
-
-
-
2
3
Gazprom
Russian Federation
51
5.6
3 608.5
0.2
2
1
3
2
NIOC
Iran, Islamic Republic
100
-
1 810.7
-
-
-
4
5
ExxonMobil
United States
-
1 426.5
1 725.7
82.7
23
4
5
4
Pemex
Mexico
100
-
1 666.2
-
-
-
6
13
BP
United Kingdom
-
1 290.6
1 572.6
82.1
19
2
7
6
Royal Dutch Shell
United Kingdom / Netherlands
-
1 045.2
1 482.7
70.5
25
-1
8
7
CNPC/PetroChina
China
100
188.3
1 119.6
16.8
14
10
9
33
Total
France
-
749.3
997.6
75.1
27
-
10
12
Sonatrach
Algeria
100
1.9
911.8
0.2
1
1
11
8
Petróleos de Venezuela
Venezuela
100
-
902.6
-
-
-
12
9
Kuwait Petroleum Corp
Kuwait
100
20.3
897.3
2.3
8
1
13
16
Chevron
United States
-
550.2
816.9
67.3
24
8
14
23
Abu Dhabi National Oil Co (ADNOC)
United Arab Emirates
100
-
794.9
-
-
-
15
11
Lukoil
Russian Federation
-b
45.8
781.1
5.9
2
-
16
40
ConocoPhillips
United States
-
511.6
755.4
67.7
16                    7
17
20
Petrobras
Brazil
56
66.3
749.6
8.8
8
3
18
18
Abu Dhabi Co Onshore Oil Operator
United Arab Emirates
40c
-
710.9
-
-
-
19
22
Nigerian National Petroleum Co
Nigeria
100
-
697.7
-
-
-
20
51
TNK-BP
Russian Federation
-d
-
691.8
-
-
-
21
25
Iraqi Oil Exploration Co
Iraq
100
-
679.7
-
-
-
22
21
ENI
Italy
20
584.4
657.4
88.9
20
9
23
43
Rosneft
Russian Federation
100
-
621.1
-
-
-
24
34
Surgutneftegaz
Russian Federation
-
-
550.7
-
-
-
25
19
National Oil Corp
Libyan Arab Jamahiriya
100
-
491.2
-
-
-
26
-
Petoro
Norway
100
-
483.5
-
-
-
27
14
Statoil
Norway
64
52.8
464.7
11.4
5
2
28
26
ONGC
India
74
34.8
403.7
8.6
5
5
29
-
Uzbekneftegaz
Uzbekistan
100
-
391.7
-
-
-
30
48
Repsol-YPF
Spain
-
365.8
369.5
99.0
9
-1
31
37
Qatar Petroleum
Qatar
100
-
365.3
-
-
-
32
29
Petroleum Development Oman
Oman
60e
-
344.1
-
-
-
33
35
Sibneftf
Russian Federation
30.5g
-
343.8
-
-
-
34
-
Sinopec
China
77
48.9
316.6
15.4
6
6
35
-
Turkmengaz
Turkmenistan
100
-
310.3
-
-
-
36
-
Abu Dhabi Petroleum Co
United Arab Emirates
-h
-
284.4
-
-
-
37
46
Norsk Hydro
Norway
44
34.9
248.6
14.0
5
5
38
44
Petronas
Malaysia
100
97.7
242.4
40.3
11
10
39
38
Ecopetrol
Colombia
100
-
221.1
-
-
-
40
32
Egyptian General Petroleum Co
Egypt
100
-
214.0
-
-
-
41
50
CNOOC
China
71
46.1
211.0
21.8
2
1
42
-
Sultanate of Oman
Oman
100
-
206.4
-
-
-
43
28
Nederlandse Aardolie Mij
Netherlands
-i
-
198.8
-
1
1
44
30
Yukos
Russian Federation
-
-
192.4
-
-
-
45
36
Tatneft
Russian Federation
33
-
191.2
-
1
1
46
41
Inpex
Japan
29j
128.8
185.9
69.3
6
2
47
49
Slavneft
Russian Federation
20k
-
182.2
-
-
-
48
45
A.P. Moller-Maersk
Denmark
-
30.4
181.5
16.7
3
2
49
-
BG
United Kingdom
-
114.3
172.8
66.2
8
6
50
39
Sidanco
Russian Federation
-j
-
171.8
-
-
-
Source:  UNCTAD, based on data from IHS.
a
Excludes oil sands production. The production of joint ventures is counted under both the partner companies and the joint ventures themselves.
b
ConocoPhillips owns 20% of the shares, its Russian partners 80%.
c
Abu Dhabi National Oil Co (ADNOC) 60%, Abu Dhabi Petroleum Co 40%.
d
BP 50%, other partners 50%.
e
Sultanate of Oman 60%, Partex (Gulbenkian Foundation) 2%, Total 4%, Royal Dutch Shell 34%.
f
Sibneft was acquired by Gazprom in 2005.
g
Itera (Russian Federation) 15.25%, Gazprom 61%, other partners 23.75%.
h
Partex (Gulbenkian Foundation) 5%, ExxonMobil 23.75%, BP 23.75%, Total 23.75%, Royal Dutch Shell 23.75% 
i
ExxonMobil 50%, Royal Dutch Shell 50%.
j
Inpex Holdings is owned by the Ministry of Economy, Trade and Industry of Japan (29.3%) and other partners (70.7%).
k
TNK-BP 50%, Gazprom 40%, ENI 10%.
j
TNK-BP 82%, Other partners 18%.

118
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
Table IV.9. The world’s largest oil and gas service TNCs, ranked by foreign assets, 2005
(Millions of dollars and number of employees) 
Rank
Corporation
Country
Foreign assets Total assets Foreign sales Total sales Number of employees
1
Schlumberger
United States
11 272.0
17 746.0
10 436.0
14 309.0
60 000
2
Halliburton
United States
6 562.4
15 048.0
15 339.0
21 007.0
106 000
3
Aker
Norway
5 159.0
8 131.2
6 297.5
9 172.6
37 000
4
Weatherford International
United States
4 587.9
8 580.3
2 724.0
4 333.2
25 100
5
Transocean
United States
4 437.0
10 457.2
2 244.0
2 891.7
9 600
6
Noble Corp.
United States
3 208.1
4 346.4
1 067.3
1 382.1
5 600
7
Pride International
United States
2 950.9
4 086.5
1 766.9
2 033.3
12 200
8
Globalsantafe Corp.
United States
2 754.6
6 193.9
1 583.7
2 263.5
5 700
9
Nabors Industries
United States
1 755.3
7 230.4
1 169.5
3 459.9
22 599
10
Ensco International
United States
1 603.6
3 614.1
620.1
1 046.9
3 700
11
Petroleum Geo Services
Norway
1 333.6
1 693.7
850.3
1 142.7
5 130
12
Diamond Offshore Drilling
United States
1 023.9
3 606.9
552.6
1 221.0
4 500
13
Acergy
Luxembourg
903.4
1 377.7
1 386.6
1 396.2
..
14
Prosafe
Norway
886.8
1 058.3
254.2
282.1
665
15
Rowan Companies
United States
627.6
2 975.2
142.9
1 068.8
4 577
16
BJ Services
United States
518.7
3 372.4
1 423.0
3 243.2
13 600
17
Abbot Group
United Kingdom
433.0
966.1
330.5
647.2
4 759
18
Ensign Energy Services
Canada
336.7
1 303.2
516.8
1 301.8
8 500
19
Smith International
United States
312.0
4 055.3
3 058.3
5 579.0
14 697
20
Complete Production Services
United States
92.3
1 121.7
147.8
757.7
..
Source:  UNCTAD, largest TNCs database.
Figure IV.9. World production of oil and gas, 
on international human rights grounds 
by types of companies, 2005
(Billion barrels of oil equivalent)
due to the conflict in the Darfur region 
(Canning, 2007: 57).42 Sudan accounts 
for a significant share of the foreign 
oil reserves exploited by Chinese 
companies, and  CNPC’s upstream 
and refining investments in Sudan are 
by far the company’s largest overseas 
venture.43 ONGC and Petronas also 
have extraction operations in Sudan,44
whereas CNPC and Petronas, as well 
as ENI and Total, are present in the 
Islamic Republic of Iran (table IV.10).
Historically, developed-country 
TNCs have controlled the value chain, 
especially due to their dominant 
position in technology, transportation 
and distribution networks (Accenture, 
Source:  UNCTAD, based on data from IHS.
2006: 13). However, in the past few 
as Ecuador. CNPC has also invested jointly with 
years, that situation has changed 
local firms in countries such as the Islamic Republic  somewhat. Developed-country TNCs no longer 
of Iran, Sudan and Venezuela, while Sinopec has  dominate technical project management, which is 
invested in Colombia and the Russian Federation  often outsourced to specialized service companies. 
(table IV.10).39
That development has helped the local State-owned 
partners to increase their technological independence 
A few State-owned oil TNCs, in particular  in that they can now hire service companies directly, 
from China and India, have invested in some host  without the intermediation of the traditional majors 
countries which large private oil companies may  (Accenture, 2006). Moreover, some transition-
have difficulty entering. Such difficulties are due to  economy oil and gas firms, especially Russian TNCs, 
sanctions imposed on them by individual countries  have invested in several overseas downstream projects 
or to other pressures on companies to divest. That  with a view to controlling distribution channels linked 
is true not only for the above-mentioned projects in  to those activities. The best-known examples are 
Uzbekistan40 and the Islamic Republic of Iran,41 but  those of Gazprom’s pipeline and distribution projects 
also in Sudan, which is under United States sanctions 

CHAPTER IV
119
 Figure IV.10. Oil and gas production of selected TNCs outside their home country, 2005
(Millions of barrels of oil equivalent)
Source: UNCTAD, based on data from IHS.
Box. IV.5. Examples of outward expansion of oil and gas TNCs from developing and transition economies

Petrobras had production affiliates in 8 host countries in 2005, and exploration and downstream activities in 10
other locations (Ma and Andrews-Speed, 2006).

Activities of Chinese State-owned oil companies, involving exploration, production, transportation, refining and 
service contracts, are spread over 46 countries, mostly developing ones (Ma and Andrews-Speed, 2006).a As 
for Chinese TNCs, while CNOOC was not successful in its bid for Unocal (United States), it has assured major 
contracts in other developed countries, such as Australia and Canada (WIR06: 58).

ONGC Videsh (India) has focused especially on oil production in the Russian Federation (Sakhalin 1 project), 
while Indian Oil Corporation invested in the Libyan Arab Jamahiriya in 2004-2005.b

 In the Republic of Korea, State-owned KNOC has taken the lead in overseas oilfield development projects. As 
of June 2006, it was taking part in 26 oilfield development projects in 14 countries. In 2006, it expanded into 
Australia, Kazakhstan, Nigeria, the Russian Federation and Yemen (Republic of Korea, MOCIE, 2006).

Petronas’ (Malaysia) international expansion began in the 1990s. In its early phase, the company focused more 
on upstream activities in neighbouring South-East Asian countries. It first moved downstream and outside the 
region in 1996, when it acquired a South African refiner and player in a petrol station group (Jayasankaran, 
1999). Subsequently, since the late 1990s, it has focused its overseas push on explorations in Africac and West 
Asia (Islamic Republic of Iran), as well as being involved in pipeline construction and retailing worldwide 
(e.g. China, India, Argentina, South Africa, Sudan and the United Kingdom). As of March 2007, Petronas had a 
presence in 33 countries abroad (Pananond, 2007), including 11 main production locations.

The overseas expansion of Russian oil and gas TNCs serves to secure access to markets, especially developed-
country markets, through downstream integration. They also have important upstream exploration and extraction 
activities in various members of the CIS or in developing countries with long-standing historical links with the 
Russian Federation. Many of these exploration and extraction rights have been inherited from the pre-transition 
period. In 2002, Lukoil, the largest privately owned oil TNC, derived about 5% of its production from fields 
abroad, including Kazakhstan and Uzbekistan (Vahtra and Liuhto, 2006: 28). State-owned Rosneft participates 
in foreign upstream ventures via intergovernmental deals in various CIS countries and Afghanistan.

In the case of Thailand’s State-owned PTT, its interest in overseas expansion started only in the late 1990s, and 
was concentrated mainly in the South-East Asian region, although its exploration affiliate has started to venture 
into West Asia and Africa. PTT is also taking the lead in a future trans-ASEAN gas pipeline project (Crispin, 
2004).
Source: UNCTAD.
a
By the end of 2005, CNPC alone owned oil and gas assets in 23 countries, including 12 main production locations.
b
In 2005 and 2006, ONGC Videsh made nine acquisitions abroad: in Cuba, Egypt, the Libyan Arab Jamahiriya, Myanmar, Nigeria, Qatar, 
the Syrian Arab Republic and Viet Nam. With these acquisitions, the company had a presence in 21 projects as of 31 March 2006, including 
one pipeline project (Jain, 2007).
c
Sudan (1999), Gabon (1999), Chad (2000), Cameroon (2000), Algeria (2001), Mozambique (2002), Ethiopia (2003) and Niger (2005).

120
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
emen
Y
-
-
X
-
-
-
-
-
-
-
iet Nam
V
X-
-
-
X
-
-
X
-
X
enezuela
V
---
X
X
---
X
X
X
X
Uzbekistan
X
-X-
X
----
Emirates
United Arab 
-
-----
X
urkmenistan
T
-X-X-X
-X-X
X
-X-X-X
-----
------
X
------
unisia
T
-
-
X
X
----
X
----
X
obago
T
rinidad and 
T
-
X
-
-----
X
X
---
imor Sea JDA
T
a
-
-
X
X
Thailand
-------
-
--------
----------
Republic
Syrian Arab 
-X
X
-X-X-
-X-X
X
---------
X
-X-X
Sudan
----
X
-
---
----
X
------
------------
X
Russian Federation
X-
X
-
X
X
X
X
X
X
Qatar
-
X
---
Philippines
-X
---------------
X
------------
-------
Peru
-X-X-X
X
X
X
Papua New Guinea
----
-
-X-
----------
----
-----
Pakistan
-X-
X
X
----
X
Oman
X
X-
X
----
------
-X
Nigeria
X
X
X
X
Myanmar
-X-
-
X
X
-X-X
Mongolia
-
-
-
-
Malaysia/Thailand JDAa
-X-X
-
-
Malaysia
----
-
--------
-----------
-X-X-
Jamahiriya
Libyan Arab 
-------
--
----
---------------------
X
X
------------
X
-------------------------
--------------
Kazakhstan
X
X
X
--
X
X
Iran, Islamic Republic
-X-X-
X
X-X-
---------
X
---------------------------
------------------
-
Indonesia
-
X
X
XXXX
X
X
X
-
India
Host developing and transition locations
-X-X-X-
-X-X
-X-X
-X-X
X
X
Gabon
-
-
-
Equatorial Guinea
X
--
-X-X
---
--
---
-
-
Egypt
X
----
-
X
X
----------------
X
-------
------
X
----
X
Ecuador
-X-X-
X
-
----
X
X
X
X
X
X
Dem. Rep. of the Congo
-
-
-
-
-
-
X
Congo
---
-
X
-
X
----------------------
-
-
Colombia
X
----
---
X
X
---------------------------------
X
X
X
China
------
X
-X
X
X
X
X
-----
Chad
X
XXXXX
X
Cameroon
X
X-X-
X-
-
Brunei Darussalam
X
Brazil
----
X
-----
-----
---------
Bolivia
X
-
X
X
.10. Main foreign production locations of selected oil and gas TNCs, 2005
Bangladesh
----
-
-
----------
-X-X
X-X-
-
------
-X
-------
Azerbaijan
X
X
X
-
X
-
X
Argentina
-
--------
-
--------------------
able IV
X
X
X
X
X
T
Angola
X
X
-X-
-
X
X
---------
X
X
-
X
--------------------
Algeria
-------------------------------------------
-
-
-
-
X
-------------------------------
----------
-
---------------------
X
-
X
-X-X
-----------
X-X-
-
-
---------
-------------------
-----------------------------------------------
------------------------------------
-------------
X
-----
Other developed countries
-
1
1
2
-
-
-
1
1
-
1
-
1
-
-
-
-
-
-
1
-
-
1
-
-
estern Europe
W
1
4
1
5
-
4
-
1
4
-
3
-
2
1
-
-
-
-
1
-
1
-
-
1
-
Host
North America
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
developed
countries
1
2
2
1
1
1
1
2
1
Number of foreign locations
2
5
1
23
19
2
14
27
1
8
24
2
16
8
20
5
5
9
6
5
1
2
1
1
6
3
8
Area.
Home country 
Russian Fed.
United States
United Kingdom
United Kingdom / 
Netherlands
China
France
Algeria
Kuwait
United States
Russian Fed.
United States
Brazil
Italy
Norway
India
Spain
China
Norway
Malaysia
China
Netherlands
Russian Fed.
Japan
Denmark
United Kingdom
AD, based on data from IHS.
UNCT
:
. Moller-
JDA: Joint Development 
otal
atneft
Company
Gazprom
ExxonMobil
British Petroleum
Royal Dutch Shell
CNPC
T
Sonatrach
Kuwait Petroleum
Chevron
Lukoil
ConocoPhillips
Petrobras
ENI
Statoil
ONGC
Repsol-YPF
Sinopec
Norsk Hydro
Petronas
CNOOC
Nederlandse
Aardolie Mij
T
Inpex
A.P
Maersk
BG
Source
a















































































CHAPTER IV
121
Figure IV.11.  Selected foreign production locations of oil and gas TNCs, 1995 and 2005
1995
2005
 China
                             India                  Brazil                     Malaysia            Russian Federation
CNOOC
CNPC/PetroChina
SINOPEC
ONGC
Petrobas
Petronas
Lukoil
Source:  UNCTAD, based on data from IHS.

122
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
in Western Europe, as well as Lukoil’s expansion  meet the needs of its own downstream refining or 
into the gas station business in Western Europe and  manufacturing activities, to sell the minerals directly 
the United States (Vahtra and Liuhto, 2006: 28-29;  in host, home or international markets, or to secure 
WIR99: 89; WIR01: 119). 45 Developing-country  the strategic requirements of energy or other minerals 
firms that have invested in overseas projects include  for its home country (as formulated by the country’s 
Saudi and Kuwaiti State-owned oil companies that  government). The first reason has been important 
have partnered with the Chinese firm, Sinopec, in  historically for petroleum production, but less so 
two separate refining and petrochemical ventures in  after the nationalizations of oil and gas extraction and 
China (Tan, 2006).
refining industries and with the development of new 
commodity exchanges (which provide opportunities 
for spot transactions, as well as futures and options 
C.  Drivers and determinants  trade). However, it remains important for vertically 
integrated TNCs in metallic minerals. The second 
Although traditional explanations of FDI and  reason has driven the overseas expansion of most 
international production generally apply also to the  privately owned extractive TNCs and some State-
extractive industries, at least three special features  owned oil companies, such as Petrobras, Petronas and 
of resource extraction should be kept in mind  Statoil. The third reason explains overseas expansion 
(chapter III). First, most investments in extractive  in extractive activities by both privately owned and 
industries are capital-intensive and risky, with long  State-owned TNCs.
gestation periods. Therefore, companies need to be 
Recently, the growing demand for various 
financially strong and able to manage a high degree  minerals has been a key driver of the overseas 
of risk (Vernon, 1971). Secondly, more than other  expansion of State-owned TNCs from Asia (Hoyos, 
industrial activities, mineral extraction can engender  2007; Gardiner, 2006; Zweig and Bi, 2005). For 
considerable environmental and social impacts that  example, the Government of India has mandated 
investors need to address. Thirdly, as some mineral  its State-owned oil companies to secure stakes in 
resources, notably oil and gas, are regarded as  overseas oil deposits. ONGC Videsh has an objective 
strategically important to countries, motivations  of acquiring the equivalent of 60 million tonnes of 
other than purely economic ones often influence  oil per year by 2025, which corresponds to a tenfold 
investment decisions.
growth over its 2006 level (Mitchell and Lahn, 2007: 
Drivers and determinants of investments by  3). KNOC is expected to increase the share of its 
TNCs in extractive industries differ between various  foreign production from 4% of the total crude oil 
stages in the value chain, and between industries and  imports into its home economy in 2005 to 35% by 
companies. This section discusses the motivations and 
2030 (Mitchell and Lahn, 2007: 3). China’s “going 
determinants of FDI and TNC activities in extractive  global” strategy outlined in 2000 is among the most 
industries, with particular attention to the diverging  explicit recent policy initiatives taken to boost FDI 
patterns in the oil and gas and the metal mining  overseas (WIR06: 209-210).46
industries, and to the rise of extractive-industry 
Market-seeking motives are generally of 
TNCs based in developing and transition economies.  limited importance for exploration and extraction 
The analysis is structured according to the factors  activities, but figure among the drivers of investment 
motivating the internationalization of production by  in overseas downstream activities. This applies, 
firms, and ownership, internalization and locational  in particular, to companies based in mineral-rich 
advantages that determine whether and where TNCs  countries, such as Kuwait, the Russian Federation and 
engage in international production activities.
Saudi Arabia. These primarily upstream-based firms 
1.  Motivations for 
strengthen their market position largely by moving to 
downstream markets and capturing the value added 
internationalization
associated with the production and sale of finished 
products (Baker Institute, 2007: 4). Increased control 
The motivations for extending production  over downstream activities also offers the strategic 
activities in extractive industries across national  advantage of securing long-term demand in consumer 
boundaries can be grouped into resource-seeking,  markets. In addition, since relative profits between 
market-seeking, efficiency-seeking and strategic-
upstream and downstream activities may vary over 
asset-seeking (Dunning, 1993 and 2000; WIR98).
time, vertical integration allows a firm to diversify, 
Natural-resource-seeking motives dominate  which helps mitigate risk.
FDI and other forms of TNC involvement in 
Efficiency-seeking motives are relevant 
upstream (exploration and extraction) activities.  for investments in the processing or early metal-
A TNC may seek resources for three reasons: to  manufacturing stage, where TNCs seek to exploit 

CHAPTER IV
123
differences in costs of production between countries.  governance of several parts of the value chain. 
They are sometimes combined with market-seeking  They may also be linked to such institutional assets 
motives, especially when transportation of the  as corporate culture, leadership or management 
product is difficult or costly. In the case of refining,  diversity, or privileged access to home or host 
minimizing the costs of transportation may justify  markets, or benefit from having a presence in many 
processing close to the source of the minerals, while  different markets. Some ownership advantages may 
considerations of access to markets and maximizing  be firm-specific (such as proprietary technology, 
the scale of production may prompt locating it closer  or management and organizational skills), while 
to the consumer (Tavares et al., 2006).
others are linked to particular features of the home 
Strategic-asset-seeking motives can be linked  country (such as access to finance and risk-reducing 
especially to the rise of cross-border M&As by TNCs 
instruments). Home-country specific advantages can 
in the extractive industries. Companies may invest to  also include physical infrastructure, the innovatory 
acquire strategic assets in the form of know-how and  system or educational facilities, which may be unique 
technology from other companies or from specialized 
to a country and internalized by its TNCs.
technology providers, or to speed up their rise to 
One of the main firm-specific advantages for 
global status by accessing the resources, capabilities  both traditional and new TNCs vis-à-vis domestic 
and markets of the acquired firms. Such motives  firms in a host country is their access to finance. 
may therefore be especially important for new TNCs  For large and capital-intensive extraction projects, 
from emerging market economies that are eager to  financial strength and sheer size are particular assets 
develop their competitive assets rapidly (Dunning  of major TNCs, which often have internally generated 
and Narula, 1996; WIR06; Jain, 2007). Finally, pre-
funds to draw upon. For example, in iron ore production 
emptive motivations may be at play as firms seek to  for export, only the very largest companies have the 
merge with a competitor to eliminate competition  potential to invest in the infrastructural installations 
and erect barriers against others, and to strengthen  (e.g. railways, ports and handling systems) needed 
their global positioning (Caves, 1971; Vernon, 1971;
to compete in the global market. In this segment, 
WIR00).47
the three top companies (CVRD, Rio Tinto and BHP 
Strategic considerations relating to home  Billiton) control 74% of the world market.48 Even 
economies may play a more direct role in FDI by new 
with respect to alternative sources of finance, such as 
TNCs from developing and transition economies  borrowing and raising funds through stock markets, 
– many of which are State-owned – than in FDI  traditional TNCs may be in a privileged position 
by traditional TNCs. In the former cases, home  in terms of their ability to raise funds. Their long 
governments may influence corporate motives and  experience with similar projects combined with the 
strategies, resulting in the extracted raw materials  expertise required may make lenders and investors 
going directly to home countries rather than entering  more willing to financially support one of their 
international markets. This may result in implicit  projects, rather than one implemented by firms newly 
restrictions on the end destination imposed by a  venturing into production abroad.49
given home country (Nitzov, 2007). In addition, as in 
With some important exceptions, proprietary 
the case of Russian TNCs, the State may encourage  technology is of limited importance as an ownership-
a process of international expansion with the aim of  specific advantage for the internationalization of 
increasing control over downstream markets (Vahtra  most extractive-industry firms. The technologies 
and Liuhto, 2006).
used in most oil and gas extraction and metal mining 
operations are relatively well known today, and can 
2.  Determinants of TNC activity
be obtained in the market from specialized providers. 
However, for certain technologically advanced 
projects – as in the case of very deep offshore oil-
a.  Ownership-specific advantages
drilling, liquid natural gas extraction, unconventional 
oil and alternative energy projects – specialized 
As in other economic activities, TNCs in  know-how and expertise constitute key firm-specific 
extractive industries rely on some kind of competitive 
assets for some TNCs. Some new contenders, 
advantages when they undertake FDI or expand  including Petrobras and Petronas, have managed to 
internationally by means of other contractual forms  develop world-class capabilities in deep offshore 
(Dunning, 1993 and 2000). These “ownership”  exploration. While proprietary technology may 
advantages may derive from privileged access  be of limited importance as an ownership-specific 
to capital, technology, superior organization and  advantage for firms in extractive industries, expertise 
management know-how, size and/or the common  in terms of the ability to manage long-term projects 

124
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
and associated risks is critical.50 Such management  way of export credits, subsidized loans or investment 
and organizational practices and skills are developed  guarantees.
within firms, often over long periods of time. Even 
But  State  ownership can also be a 
if, in principle, technology can be acquired from  disadvantage. Many State-owned companies in 
external sources, it takes specialized know-how to  the extractive industries have been used as milking 
make use of it in an effective way.
cows by their owners (governments), with too few 
Access to markets (due to name recognition  funds left to undertake reinvestments (Radetzki, 
worldwide and goodwill in home countries) and  forthcoming). Even the world’s largest copper 
to transportation and distribution channels are  producer, Codelco, has at times found it difficult to 
other potentially important ownership advantages,  reconcile the expectations of its owner with the need 
particularly in oil and gas extraction (Accenture,  to develop its production capacities. The policy of 
2006). In the past, it was one factor behind FDI in  transferring all corporate profits to the State has meant 
oil exploration and extraction by some developed-
that investments by Codelco had to be financed from 
country TNCs that began as distributors of imported  the depreciation allowance of the company and from 
oil (Yergin, 1991). Traditional TNCs still have a  debt.55 In oil and gas, Mexico’s State-owned Pemex 
strong position in downstream industries. Countries  was reported to have paid $54 billion in taxes and 
with high petroleum demand tend to have large  royalties in 2006 alone, accounting for nearly 40% of 
refinery capacities.51 As of January 2005, 89% of  government revenues. As a result, it reported losses 
the world’s crude oil refinery capacity was located  (after taxes) over the period 2000-2005, and showed 
in non-OPEC countries. At the same time, the  only $3.9 billion in net profits in 2006 – despite high 
fastest growing markets for petroleum products  oil prices – compared with sales of $97 billion.56 Loss-
are in emerging market economies, thus giving the  making has led to underinvestment in exploration.57
new contenders (e.g. those from China and India) a  Such cash-stripped companies generally have a slim 
potential advantage (Accenture, 2006).
chance of expanding internationally.
The financial strength of TNCs is sometimes 
linked to home-country institutional arrangements.  b.  Internalization advantages
For example, large State-owned TNCs, such as 
those based in China and India, derive advantages 
International vertical integration aimed at 
from access to subsidized finance and investment  controlling the trade or supplies of raw materials has 
insurance when investing abroad (WIR06). Financial  traditionally been a major feature of both oil and gas 
backing by their home countries can enable them to  and metal mining TNCs (Morse 1999; Vernon 1971), 
assume greater risks when investing abroad and they  especially in times of high demand and high mineral 
could also be willing to pay more to access mineral  prices (Caves, 1971; Hennart, 2000; Jones, 2005; 
resources. A new record in signature bonuses was  Williamson, 1990). These strategies have been related 
reached in 2006 when Sinopec, outbid its competitors 
to the minimization of transaction costs. However, 
by paying a $2.2 billion signature bonus in return for  the degree of internalization has diminished over 
the right to explore for oil in two Angolan blocks.52
time, partly as a result of nationalizations (Radetzki, 
Chinese oil TNCs have also appeared to be more  forthcoming). Especially in the oil and gas industry, 
willing to invest in non-core business to secure  internalization and vertical integration have been 
control over production. For example, in a licensing  hampered by restrictive host-country policies. Some 
round in Nigeria in May 2006, CNPC was awarded  oil-rich host countries prohibit TNC participation 
four oil exploration and extraction licences in return  in oil and gas exploration and others allow TNCs 
for agreeing to invest around $4 billion to revamp  to participate only under various contractual 
a refinery and construct a hydro power plant and  arrangements with State-owned local partners 
a railway line in that country (Mitchell and Lahn,  (chapter VI). The main reason for these restrictions is 
2007).53
the desire of host country governments to control the 
There may be several reasons why these State-
production of oil and gas, which are perceived to be 
owned TNCs are able and willing to pay more than  strategic energy resources, and from which resource 
traditional TNCs for access especially to oil and gas  rents can be very high.
reserves abroad (Mitchell and Lahn, 2007).54 They 
may incur lower costs of capital, because interest rates 
c.  Locational advantages
in their home base are lower than in other markets. 
The State as a shareholder may require fewer or no 
As in other industries, extractive-industry 
dividends from them if it places a strong emphasis on 
TNCs decide where to invest abroad based on three 
energy security. In some cases, there may be direct  broad locational factors: the economic characteristics 
government participation in financing the projects by 
of a location, the general policy environment of 
potential host countries, and the extent of business 

CHAPTER IV
125
facilitation versus legal restrictions in the given 
Investments in the processing stage of 
economic activity (WIR98).
extractive activities are determined to a lesser extent 
The existence and extractability of natural  by the availability of mineral deposits, although some 
resources are the most important economic  refining and smelting activities may benefit from 
determinants of where TNCs invest in mineral  close proximity to a mine. Access to inputs needed in 
exploration and extraction. While the (likely)  the refining process play a major role. For example, 
presence of mineral deposits is a necessary  in the aluminium industry access to cheap energy 
requirement to attract resource-seeking investment,  is valuable and locations that offer opportunities 
it is not a sufficient condition. Many developing  for energy generation (e.g. rivers) are preferred for 
countries that are endowed with metallic minerals  refining plants. The need for cheap energy is also a 
have traditionally been unable to attract FDI. For  factor encouraging integration of TNC activities in 
companies to be willing to engage in exploration and  the extractive industries with the energy business of 
or extraction, they need to assess whether the volume 
host countries (Stuckey, 1983; Whiteway, 1996).
and quality of minerals are likely to be sufficient 
to make an investment profitable. This requires, 
D.  Conclusions
among other things, access to basic geological data. 
If the chances of finding significant deposits are 
This chapter demonstrates that significant 
perceived to be promising, a company will consider  changes are under way in the extent and nature of 
the expected risk-return ratio: the higher the risk, the  TNC involvement in extractive industries. Some of 
greater the expected return has to be for it to invest.  its findings can be summarized as follows:
It also takes into account the political, environmental 
and social risks. However, as noted above, the  • While extractive industries account for a small 
willingness to take risk and the assessment of risk 
share of global FDI, they constitute the bulk of 
differ considerably between companies.
inward FDI in a number of low-income countries.
In addition to the legal and regulatory systems  • The boom in mineral prices has fuelled a rise in 
that determine in particular whether and in what 
global investments in both the metal mining and 
form TNCs are allowed to invest in exploration and 
oil and gas industries. Indeed, those industries 
extraction. The overall macroeconomic and political 
account largely for the recent increases in FDI in 
environment is also generally of high significance 
Africa, Latin America and the CIS. The boom has 
for all forms of investment. The importance of 
similarly triggered a series of cross-border mega 
policies and institutions as locational determinants 
mergers in these industries, resulting in higher 
was confirmed in a survey of 39 mining TNCs 
levels of market concentration.
and factors influencing their investment decisions  • The extent and nature of TNC involvement vary 
(Otto, 1992). Out of the 20 highest ranked criteria, 
considerably between the metal mining and the 
all but two (geological potential and measure of 
oil and gas industries. In the former, widespread 
profitability) were in one way or another related to 
nationalizations in the 1960s and 1970s were 
government policies or regulatory systems. The top 
in most cases subsequently reversed through 
ten among them, ranked by importance attached 
liberalization and privatizations. As a result, 
to them by TNCs, were: security of tenure; ability 
major privately owned TNCs today dominate 
to repatriate profits; consistency and constancy 
the global production of metallic minerals. 
of mineral policies; management control; mineral 
Conversely, the nationalizations of the oil and 
ownership; realistic foreign-exchange regulations; 
gas industry permanently changed its structure, 
stability of exploration and extraction terms; ability 
and companies with majority State ownership are 
to predetermine tax liability; ability to predetermine 
now the dominant producers. This trend has been 
environment regulations; and the stability of fiscal 
accentuated over the past decade.
regime.
• Despite the global dominance of majority State-
Extractive-industry TNCs need to be able to 
owned companies with a strong focus on domestic 
combine the availability of resources with access 
production, in a number of countries foreign 
to good physical infrastructure (ports, roads, 
affiliates of TNCs play a significant role in oil 
power, and telecommunication). The importance of 
and gas extraction. In several African countries, 
supporting infrastructure varies by project, however. 
for example, they account for well over 50% of 
A gold mine may be easier to develop even when 
domestic production. In metal mining, as well, 
basic physical infrastructure is weak, as its output 
foreign affiliates account for a particularly large 
can be transported by air. By contrast, an iron ore 
proportion of the production of low-income 
mine requires well functioning roads and ports to be 
countries.
economically feasible.

126
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
• A distinct feature of the global extractive industries 
management skills and sometimes technology, 
in the past few years has been the rise of outward 
besides providing access to markets.
FDI from the emerging market economies, a trend  • The interaction of TNC strategies and government 
that was also highlighted in the WIR06. This has 
policies is instrumental in shaping the ownership 
been driven particularly by TNCs from selected 
and production structures in the extractive 
Asian economies, such as China, India, Malaysia 
industries (chapter VI). Given the continued high 
and the Republic of Korea, but also by Brazilian, 
levels of mineral prices (chapter III), it is likely that 
Kuwaiti and Russian companies. Whereas the 
the intense investment activity will be sustained 
trend towards more South-South investment is the 
for some time as companies seek to meet the high 
most visible in oil and gas, similar developments 
level of demand.
have also been observed in metal mining.
• TNCs in extractive-industries invest overseas for 
• With few exceptions, these new TNCs remain 
the same three broad reasons as TNCs in other 
under State control. Although their level of 
industries: the economic characteristics of the 
internationalization is understandably much lower 
location, the policy and institutional framework 
than the traditional, privately owned oil and gas 
of the potential host country, and the impact of 
majors, a number of them are moving rapidly to 
either legal restrictions or business facilitation 
gain an international foothold in different oil and 
on the conditions of entry and operations. In the 
gas projects.
exploration and production stages, such locational 
• The expansion of State-owned TNCs from China 
decisions are determined first and foremost by the 
and India stems from the rising energy demands 
availability of extractable resources, and the quality 
of their fast growing economies. They are actively 
of the physical infrastructure such as ports, roads, 
seeking to secure access to foreign energy 
power and telecommunications. In processing 
supplies through equity investments in oil and gas 
activities, investments are more market-seeking 
extraction projects. Backed financially as well as 
and efficiency-seeking, and depend less on the 
politically by their respective governments, a key 
location of natural resources and the evolution 
objective for them is to expand production for 
of their prices. The locational decisions of such 
export to their home economies.
firms, like those of firms in manufacturing or 
• In both the oil and gas and the metal mining 
services, are influenced more by factors such as 
industries, a number of specialized service 
availability of infrastructure, cheap energy and 
providers have emerged. For example, in metal 
human resources, as well as proximity and access 
mining in 2005, specialized “junior” exploration 
to markets. In all stages of natural-resource-based 
companies for the first time reported greater 
activities, government policies and institutions 
exploration expenditures than the major mining 
have a major influence on locational decisions 
companies. Similar developments have occurred 
(chapter VI).
in oil and gas. As a result of greater specialization, 
Taken together, the recent changes in extractive 
there are new opportunities to source services  industries have resulted in a more multifaceted 
from specialized companies. Nevertheless, many  TNC universe that continues to change in dynamic 
countries prefer to involve TNCs in exploration  ways and on different trajectories, depending on the 
projects, especially in metal mining, but also for  mineral, region and country. These dynamics raise 
technologically difficult oil and gas projects. TNCs 
questions about their impact on developing countries 
remain a major source of financial resources,  – an issue addressed in the next chapter.

CHAPTER IV
127
Notes
1
16
Only a few world-class State-owned companies remain 
today, such as Codelco (Chile) and LKAB (Sweden), or risky 
FDI and TNCs, “national oil companies” that invest abroad are 
assets with only long-term potential, such as the remainder of 
thus included in the universe of TNCs. 
Gécamines (the multi-metal mining company founded in the 
2
This Report draws on statistics from UNCTAD’s FDI/TNC and 
early twentieth century in the Democratic Republic of Congo), 
cross-border M&A databases (www.unctad.org/fdistatistics), as 
the aluminium industry of Venezuela and some Indian State-
well as unpublished data provided by IHS (http://www.ihs.com) 
owned metal mining companies. In the CIS, only a limited 
and the Raw Materials Group (http://www.rmg.se) (on oil and 
production capacity remains under State control. In China, 
gas, and metal mining, respectively).
mining activities continue to be largely under the control of 
3
In 1914, more than half of the outward FDI stock of the United 
the central Government or regional or local public authorities. 
Kingdom was reported to be in resource-based industries 
However, several partial privatizations and initial public 
(Houston and Dunning, 1976), mainly extractive, of which most 
offerings have successfully been carried out in Chinese metal 
was located in developing countries (Corley, 1994). Similarly, 
more than half of the United States FDI stock was concentrated 
17
The distinction between these companies and the medium-sized 
in resource-based industries in developing countries (Wilkins, 
companies is somewhat arbitrary, mainly based on the fact that 
1970). 
the latter usually focus on production at the mining stage only. 
4
In 2005 the Netherlands replaced the United Kingdom as the 
18
Data from the Raw Materials Group.
number one source of extractive-industry FDI. This change in 
19
BHP Billiton and Anglo American are currently headquartered 
ranking was prompted partly by the reorganization of Royal 
in developed countries. However, they have their roots in 
Dutch Shell, mentioned in box IV.1.
South Africa, where they were originally established and 
5
At the end of 2005, 15% of China’s outward FDI stock ($9 
headquartered. 
billion) was in mining (UNCTAD, FDI/TNC database (www.
20
State ownership in 1995 played a more important role than in 
unctad.org/fdistatistics)).
2005 as governments at that time still held majority ownership 
6
In oil and gas, as of June 2006, companies from the Republic of 
in CVRD and KGHM Polska Miedz – shares that were reduced 
Korea were involved in 72 projects in 28 countries worldwide. 
to minority holdings by 2005 – and the Russian Government 
Asia and Oceania (excluding West Asia) were the leading 
owned 49% of Norilsk Nickel, a participation that was 
destinations (22%), followed by North America (21%) and Latin 
subsequently sold (see annex table A.IV.5).
America and the Caribbean (21%). A survey of 35 mineral-
21
For example, Anglo American is active in coal, copper, gold 
resource-related companies in the Republic of Korea forecasts 
and nickel production, and BHP Billiton has interests in coal, 
that their investments in overseas mineral resource development 
copper, iron and nickel, as well as oil.
will reach $3.7 billion in 2007 (Republic of Korea, MOCIE, 
22
With the acquisition of Inco (Canada) in 2006, CVRD owns 
2006).
now foreign metal mining production, however.
7
Other large-scale acquisitions included Goldcorp’s (Canada) 
23
Norilsk Nickel has however foreign production in gold.
purchase of Glamis Gold (United States), Sinopec’s 49.9% 
24
stake in Udmurtneft, CNOOC’s investment in Nigeria, Royal 
Anglo American is on the iron ore, copper, nickel and zinc top 
Dutch Shell’s acquisition of BlackRock Ventures (Canada), and 
lists, BHP Billiton on the iron ore, copper and nickel top lists, 
CITIC’s (China) acquisition of Nations Energy (Canada) (annex 
and Rio Tinto on the iron ore, copper and gold lists. In turn, 
table A.IV.4).
8
In the period 1960-1969, petroleum and other mining 
single-metal specialists.
together represented an average of 45% of the total number of 
25
Over the period 1995 to 2005, Norilsk Nickel moved from a 
expropriations by developing-country States. This proportion 
strong focus on mining to a vertically integrated approach. The 
rose to 62% in 1970-1976 (UNCTC, 1978: 14-18).
9
Examples include Zambia (copper), Ghana (gold), Peru (base 
from 93.8 to 127 kilotonnes, and that of Monchegorsk nickel/
metals and oil), Argentina and Bolivia (base metals and oil) and 
BHP Billiton
the Russian Federation (oil in the early 1990s).
started moving into vertical integration in 1995 with no control 
10
somewhat: from 74% in 1989-1991 to 78% in 2003-2005 (annex 
152 kilotonnes of mine production and 144 kilotonnes of 
table A.I.11).
11
For example, in 2005, the FDI stock in the extractive industries 
through the acquisition of Montelibano Nickel Complex 
of those countries was $36 billion, higher than the stock in a 
(Colombia) and of WMC’s assets, including the Kwinana nickel 
traditional mining country, South Africa ($27 billion) (annex 
table A.I.9).
(information from the Raw Materials Group).
12
In 2004, the share of oil and gas exceeded 60% of total FDI 
26
Mittal Steel, which merged with Arcelor in early 2006, has 
gradually built a position among the top 10 iron ore producers by 
that industry has also accounted for the largest share of FDI in 
taking over fully integrated (often loss-making) steelworks. The 
Algeria, the Libyan Arab Jamahiriya and Sudan in recent years 
company made acquisitions of this type over the period 2005-
(WIR05).
2006 in Algeria, Bosnia, Kazakhstan, Mexico, Ukraine and the 
13
FDI in oil and gas increased sharply in Colombia and Ecuador 
United States. In South Africa, Mittal did not acquire ownership 
in 2005; and in Venezuela, it amounted to $1 billion. It also 
of the former Iscor mines, but made sure it had access to iron 
increased in Argentina and Trinidad and Tobago in 2004 (the 
most recent year for which their data are available). FDI in 
investments into pure iron ore mines in Liberia and Senegal, 
metal mining was buoyant in Argentina, Chile, Colombia 
although the latter transaction is being contested.
and Peru (WIR06). In Bolivia, uncertainties surrounding the 
27
Severstal has integrated upstream into coal and iron ore 
implementation of its restrictive new 2005 law relating to oil 
mining within the Russian Federation, and is planning similar 
and gas led to a fall in FDI (WIR06: 71-72).
investments abroad.
14
In Venezuela in 2006, the Government transformed the risk 
28
“Steel mills trying to regain some control of input costs”, MEPS 
service contracts of foreign companies into joint ventures with 
Steel News
its State-owned petroleum company, Petróleos de Venezuela 
accessible at: www.meps.co.uk/viewpoint6-05.htm).
(chapter VI).
29
15
and 12, as some of the large oil and gas TNCs merged (reducing 
been signed under the Gas Investment Law of 19 September 
their number) and new ones entered the list.
2003. These contracts are currently categorized as “surface 
exploration” rights (information provided by IHS).

128
World Investment Report 2007: Transnational Corporations, Extractive Industries and Development
30
According to Bakes Institute, 2007, they ranked 14th, 17th, 
43
The company holds a 40% stake in the Greater Nile Petroleum 
Operating Corporation, the biggest extractive venture in Sudan 
largest reserves worldwide.
and has also invested in downstream operations.
31
In the Russian Federation between 1995 and 2005, State  44
“Oil-hungry China takes Sudan under its wing,” Telegraph 
ownership increased from minority to majority in Gazprom, and 
online edition, 23 April 2005, http://www.telegraph.co.uk/news/main.
decreased from majority to minority in Sibneft, Slavneft and 
jhtml?xml=/news/2005/04/23/wsud23.xml&sSheet=/news/2005/04/23/
Tatneft. It also decreased from a majority to a minority share in 
ixworld.html; and Hoyos, 2006.
ENI (Italy) and Abu Dhabi Co Onshore Operator (United Arab 
45
Gazprom has downstream equity investments in over 20
Emirates).
countries, including several EU member States, Turkey, and 
32
Lukoil (Russian Federation), for example, is 100% privately 
members of the CIS. In the CIS, the company is practically the 
owned.
sole supplier of natural gas (Vahtra and Liuhto, 2006: 28-29). 
33
“PetroChina announces A-share listing, boosts shares”, Interfax-
China
 (Shanghai), 20 June 2007.
possesses a retail network of some 1,000 gas stations in the CIS 
34
“Monthly Energy Chronology - 2000” (Washington, DC, 
and Central and Eastern Europe. In addition to its acquisitions of 
Energy Information Administration; available at: www.eia.doe.
gov/emeu/cabs/chrn2000.html).
Marketing in 2000, which controls 1,300 gas stations in the 
35
In Saudi Arabia, policy-making and regulation are the 
United States, and in 2004 it acquired an additional 800 stations 
prerogatives of the Ministry of Petroleum and Minerals, while 
from ConocoPhillips. 
operations are left to Aramco. Aramco has an independent 
46
In October 2004, the National Development and Reform 
Commission and the Export-Import Bank of China issued 
Treasury and dividends to its shareholders. It has been observed 
a circular which established, as one of four priorities, the 
promotion of resource exploration projects to mitigate the 
domestic shortage of natural resources.
focus on its long-term goals without the risk that its strategy 
47
Gaining advantages of size and scale is one of the main drivers 
time there is a change of government (Al-Naimi, 2004).
an added driver, leading to a wave of “mega mergers” as in the 
36
Excluding North America.
late 1990s (Stonham, 2000). For example, the merger of Exxon 
37
The new Seven Sisters are considered to be: Saudi Aramco (Saudi 
with Mobil enhanced the position of the newly formed company 
Arabia), Gazprom (Russian Federation), CNPC (China), NIOC 
in Asia (Gilley, 1998).
(Islamic Republic of Iran), Petróleos de Venezuela (Venezuela), 
48
Data from the Raw Materials Group.
Petrobras (Brazil) and Petronas (Malaysia) (Hoyos, 2007).
49
In recent years, adherence to international social and 
38
Asian Development Bank, “Central Asia Regional News”, 
environmental standards, such as those established by the 
December 2005 Monthly Digest (http://adb.org/Carec/Central-
Asia-News-Digest /2005/December-2005.pdf).
39
ONGC (India) and Sinopec (China) in August 2006 jointly 
WIR06). In this context, the well-established TNCs may have an 
acquired a stake in Omimex de Colombia, owned by Omimex 
advantage over the new contenders.
Resources (United States) (“ONGC, Sinopec buy half of  50
The cost of off-the-shelf technology sourcing can be another 
Colombian oil company” (Houston, TX, Rigzone; accessible 
factor holding back overseas expansion. Technologically less 
at: www.rigzone.com/news/article.asp?a_id=35185). The joint 
developed TNCs have to add the price of purchasing technology 
purchase of the Syrian Al Furat Petroleum Co. and the joint 
from outside providers to the full costs of their overseas 
expansion. 
Republic of Iran are two additional examples of partnerships
51
(Financial Times, 13 January 2006; “BBC interviews CK on 
China-India trade talks, oil exploration,” China Knowledge,
“Non-OPEC Fact Sheet” (Washington, DC, Energy Information 
17 March 2006, http://chinaknowledge.com/news-detail.
Administration, June 2005; available at: http://www.eia.doe.
aspx?id=2418).
gov/emeu/cabs/nonopec.html).
40
In 2005, the EU imposed sanctions on Uzbekistan due to human 
52
See http://www.globalinsight.com/SDA/SDADetail5873.htm.
rights violations. These sanctions affect the arms trade directly, 
53
CNPC is involved in similar arrangements also in Algeria 
and Sudan, while ONGC has entered into similar agreements 
“Europeans set arms embargo to protest Uzbeks’ crackdown”, 
in Nigeria, and Petronas in Sudan (Mitchell and Lahn, 2007; 
New York Times, 4 October 2005: A6.
Accenture, 2006).
41
Under the Iran-Libya Sanctions Act passed in 1996, the United 
54
See also Global Witness, Oil Transparency 2007; available at: 
www.globalwitness.org.
more annually in oil and gas projects in the Islamic Republic of 
55
Of the $3 billion worth of investment over the period 1994-1999, 
Iran (Katzmanm, 2001). It thus hinders investments not just by 
66% came from depreciation, and the rest from selling assets 
United States TNCs, but also by companies with major business 
and contracting a debt of $625 million (“Latin America: Beating 
interests in the United States (Canning, 2007: 57). 
the oil curse”; Business Week online, 4 June 2007; accessible at: 
42
The United States Executive Order 13067 “Blocking Sudanese 
www.businessweek.com/magazine/content/07_23/b4037051.
Government Property and Prohibiting Transactions with Sudan” 
htm?campaign_id=nws_insdr_may25&link_position=link2). 
was issued on 4 November 1997 (see www.clintonfoundation.
56
Ibid.
org/legacy/110397-executive-order-13067-on-imposing-sanctions-on-
57
It has been estimated that if there is no new discovery of oil by 
sudan.htm for the full text).
2017, Mexico may risk becoming a net oil importer (ibid).


CHAPTER V
DEVELOPMENT IMPLICATIONS 
FOR HOST COUNTRIES
Mineral endowments 
provide  to markets and  distribution channels. 
opportunities for economic development  TNC involvement may be a way for a
and poverty  alleviation  in the countries  country to at least partly overcome these
where they are located. As noted  in  constraints,  leading to both  direct and 
chapter III, some of today’s developed and  indirect economic gains. In addition, 
developing countries  have successfully  TNCs may contribute to higher  levels of 
leveraged  their mineral resources for  efficiency, productivity and  innovation 
accelerating their development process.  in the industries concerned. On the other 
In other cases, the  development  impact of  hand, their activities may  also  generate 
extractive activities  has  been and remains
or  increase economic, environmental 
disappointing. In many developing and  and social costs. By definition, foreign 
2007
transition economies, TNCs play an
investment implies that a part of the value
important role  in mineral extraction and  created  will  be allocated to the TNCs 
related activities (chapter IV), and can  involved, and, by extension, to their home 
therefore  have a significant  impact on
countries. Unequal  bargaining power 
the  development of those countries. This  between  large TNCs and governments
chapter draws on available evidence to  may lead to less than optimal outcomes of 
analyse their economic, environmental  negotiations for a host country, especially
and social  impacts on those countries.
since the short-term  profit maximization 
Although the different determining factors  motives of the TNCs do not necessarily
are  intertwined, and counterfactuals are
coincide with the longer term development 
hard to construct, the chapter seeks to  objectives of a host country.
isolate TNC-specific impacts wherever 
Figure V.1 sets out an analytical
possible. The analysis concentrates on
framework for assessing 
whether,
upstream activities  (i.e. exploration and  and under what circumstances, TNC
extraction), but other parts of the value  involvement may help developing countries 
chain are also considered, as appropriate.
exploit their natural resources in a way
that  promotes sustainable  development. 
A. A framework for 
The economic, environmental and social 
benefits and costs are interdependent and 
assessing implications  mutually reinforcing.
for host countries of 
Development impacts are context-
TNC involvement in 
specific and their assessment calls for 
a  dynamic,  historical perspective. The 
extractive industries
factors determining the impacts of an
extractive-industry project, with or without 
TNC  involvement  in extractive
TNC  participation, can be specific to
industries may have both positive and  the industry, country or company. Many 
negative effects on a host  developing
underlying causes of the net results are
economy. In exploiting their mineral
related to the nature of the extractive 
resources, developing countries often face  industries (chapter III); and there are
constraints, for example, with respect to
significant differences between various 
capital and foreign exchange, technical  types of extractive  industries as well as 
and managerial capabilities, and access  between various stages in the value chain.

130
World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure V.1. Development implications of TNC participation in extractive industries: an analytical 
framework
Source: UNCTAD.
Country-specific factors include the magnitude  capabilities for undertaking the investment are 
and quality of mineral endowments, the size of the  lacking, TNC production represents a direct addition 
economy, the institutional environment, government  to output and income for the host economy; the 
policies and domestic capabilities. Firm-specific  significance of this depends on the size and nature 
factors are related to the characteristics and activities  of TNCs’ local value-creating activities and their 
of TNCs. The analyses in the sections below  positioning along the value chain. Indirect effects 
consider not only the effects on the host economy  depend on the extent of local procurement, forward 
as a whole, but also the interests and concerns of  linkages and various spillovers, as well as the 
various stakeholders, including central and local  multiplier effects of the income generated. Where 
governments, local communities (including, in  domestic enterprises exist, the net outcome is also 
certain cases, indigenous peoples), labour and  influenced by the impact on competition: whether 
suppliers. Throughout, wherever possible, it seeks  domestic enterprises benefit from or are crowded out 
to consider different counterfactuals: extraction with  by the entry of TNCs. Compared with FDI in other 
TNC participation or no extraction; and extraction  industries, the limited scope for linkages between 
by TNCs or by domestic enterprises, as well as by  foreign affiliates and local firms in extractive 
different types of TNCs.
industries may constrain TNCs’ indirect contribution 
to local value creation. Thus the volume of value 
B. Economic impact
added and income created by foreign affiliates 
themselves strongly influence the overall economic 
impact. Equally, if not more important, the extent to 
TNC involvement in the extractive industries  which the value created is captured locally through 
can have an economic impact at local and national  taxes, wages and sometimes shared profits affects 
levels. TNCs invest and participate in business  the net results of TNC involvement. For many 
activities at various stages along the value chain and  developing countries, potentially the most important 
in different forms (chapter IV). Their participation  economic benefit of TNC activities in extractive 
can make direct economic contributions (section  industries is the generation of government revenues. 
B.1) and indirect ones (section B.2), and may 
It is difficult to make generalizations 
also have significant implications for the overall  about the economic impacts. They depend on the 
macroeconomic performance of a host country  characteristics of the TNCs involved, as well as on 
(section B.3).
the forms of TNC involvement – equity participation 
TNCs may help create value in the host  or a contractual arrangement, greenfield investments 
economy directly through various equity or non-
or cross-border M&As. Furthermore, there are 
equity forms of involvement, and indirectly via  significant differences between oil and gas and 
linkages with, and spillovers to, other economic  metal mining activities, between various minerals, 
entities. Where local financial resources and  and between investments at different stages of 

CHAPTER V
131
the value chain. The scope for benefits is also  institutions, but funding from such sources may not 
influenced by  various host-country factors. In terms  be available to domestic enterprises in all countries. 
of markets, increased production of minerals can 
The importance of TNC participation for 
either serve domestic markets, as in large emerging  raising the necessary financial resources and 
economies, such as China and India,1 or it can target  undertaking investment varies among extractive 
foreign markets, which is largely the case for other  industries and countries. In the metal mining 
developing economies. The economic impacts  industry, years of underinvestment by State-owned 
at any given point in time are also affected by the  enterprises following a wave of nationalizations in 
international economic environment, notably global  the 1960s and 1970s led many developing countries 
market conditions and commodity prices.
to return to a policy of attracting TNCs in order 
to halt a further decline of production and exports 
1. Direct economic effects
(chapter IV). This reopening to FDI has helped boost 
investment in a number of extraction activities. In 
As in other industries, TNC participation  Zambia, for example, FDI has been instrumental in 
in the extractive industries can increase financial  rehabilitating the declining copper industry, initially 
resources for investment, improve management,  through TNC takeovers of State-owned mines, and 
transfer technology and enhance technological  later through greenfield investments in new mines 
capabilities, generate employment and skills,  and post-privatization investments in acquired mines 
and increase production and income in the host  (UNCTAD, 2007m). In Ghana, foreign companies 
economy. It may also accelerate modernization and  have invested over $5 billion in new gold-mining 
enhance the competitiveness of domestic industries.  projects since 1986. Similarly, in Peru, the FDI 
Moreover, often the most important direct economic  stock in metal mining rose from practically none 
contributions of FDI in extractive industries – more  in 1992 to $3 billion in 2005, and 90% of the $10 
so than in other industries – are its promotion of  billion investment in the country’s mining industry 
exports and generation of government revenues.  during the past 15 years has been by foreign TNCs.5
However, foreign participation implies that part  The country’s ranking in terms of reserves and 
of the total income generated will be captured by  production of a number of minerals, such as zinc 
the TNCs involved; in some cases, their relatively  and silver, has improved as a result of the increasing 
strong bargaining power enables them to receive  investment in exploration operations and production 
a significant share of this income (by negotiating  activities by TNCs.
particularly favourable contractual arrangements), 
In the oil and gas industry, State-owned 
and sometimes they may use transfer prices to  oil companies have dominated investment and 
reduce or avoid taxation. 
production in most oil-producing developing 
countries in West Asia since the oil nationalizations 
a.  Financial contributions
of the early 1970s (chapter IV). In other developing 
and transition economies, TNCs have been actively 
Large-scale extractive activities are highly  involved over the past decade, through concessions, 
capital-intensive (chapters III). At the project level,  joint ventures, production-sharing agreements and 
for example, investment in Minera Escondida in  service contracts (chapters IV and VI). In countries 
Northern Chile totalled $4 billion between 1991  such as Azerbaijan and Kazakhstan in the CIS, 
and 2004 (ICMM/World Bank/UNCTAD, 2006),2
Angola, Equatorial Guinea and Egypt in Africa, 
and Petrobras’ planned investments in offshore oil  Indonesia and Myanmar in Asia, and Ecuador and 
fields in the Gulf of Mexico over the next decade  Peru in Latin America, foreign capital injected 
are expected to amount to $15 billion.3 At the  by TNCs has helped in the undertaking of various 
country level, building an oil and gas industry or  extractive projects. In Bolivia, during the 1990s, the 
revitalizing a mining industry can cost many billions  lack of domestic funding was a major reason for the 
of dollars.4 Only a limited number of companies in  Government to privatize its national oil company, 
developing countries have the financial resources  Yacimientos Petrolíferos Fiscales Bolivianos, 
necessary to undertake such investments. Lack of  which allowed the country to exploit deposits 
funds can therefore constitute a substantial barrier  discovered earlier.6 TNC investment in distribution 
to exploiting a mineral deposit. The participation  infrastructure, such as pipelines, has also enabled 
of TNCs, with access to large-scale funding from  developing and transition economies to enhance 
internal or external sources, represents one way  their exports of oil and gas. 
to overcome such financial constraints. Of course 
In the past decade, the international expansion 
there may be other alternatives for accessing funds,  of TNCs from a number of developing countries 
such as borrowing in international financial markets  has opened a new source of finance for extractive 
or from intergovernmental development-finance  projects in other developing countries (chapter 

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
IV). Many of these TNCs are State-owned, and  extracted minerals are also willing to participate in 
are financially supported by their home-country  such consortia. 
governments, for example through export-import 
Different types of financing have different 
banks. 
implications for economic development. In 
Financial constraints may be less of a problem 
general, the greater the capabilities and competitive 
for developing countries where State-owned  strength of a country’s enterprises, private or State-
mining enterprises have access to funds from their  owned, the more choice they have in accessing 
respective governments, and some of which have  project financing. Developing countries with 
large and successful operations that generate profits, 
relatively strong domestic technological and 
enabling reinvestment. A number of State-owned oil 
managerial capabilities and a robust institutional 
companies from developing countries and transition 
structure can draw on national and international 
economies, such as CNPC and CNOOC (China),  capital markets for funds to exploit their mineral 
Petrobras (Brazil), PDVSA (Venezuela) and Rosneft 
resources, which allows them greater control. For 
(Russian Federation), have been successful in raising 
countries with lower capabilities, an alternative is 
capital in international capital markets through bank 
for the governments to borrow from development 
loans or initial public offerings (IPOs).7 However, 
institutions. One feature of TNC-based financing 
significant technological and managerial capabilities 
is that it does not generate foreign debt for host-
and success in running profitable operations are  country governments. Instead, countries have to 
necessary for such access to financial markets. In  offer part of the resource rents in exchange for the 
the case of Petrobras, for example, its excellence in 
participation of the TNCs. Such financing is usually 
offshore oil and gas exploitation technology opened 
more expensive than that from other sources, as the 
the door to private financing for the development of 
rate of profits of foreign firms normally exceeds the 
a deposit in Brazil at the cost of $4 billion (ECLAC, 
rate of interest on international loans (WIR99: 161). 
2002: 155). 
Meanwhile, a key advantage of TNC involvement 
For poorer countries, the main alternative to 
in the financing of a mining project is that TNCs 
turning to TNCs for capital has been to borrow from 
bring not only capital, but a bundle of additional 
a development finance institution that is prepared to 
assets, in the form of technology, management and 
accept high-risk investments. As such opportunities 
other know-how, which are of particular value when 
are limited, many low-income developing countries 
domestic capabilities are scarce, and they can share 
that have used them to finance exploration (e.g.  the risks associated with various extraction-related 
Equatorial Guinea, Guinea-Bissau and the United  activities.
Republic of Tanzania) or midstream activities (e.g. 
an oil pipeline in Chad) have subsequently turned to 
b.  Technology contributions
TNCs for investment. In Latin America, the planned 
creation of Banco del Sur, a regionally controlled 
For some extraction projects, access to 
multilateral lender, may become a new source of  technology and know-how can be a major reason 
finance for regional development, including for  for countries to rely on TNCs. While many metal 
extractive industries.8
mining projects involve mature technologies that 
are obtainable in the open market, not all countries 
Large-scale extractive projects are today  possess the necessary skills and capabilities to make 
frequently based on multinational public-private  good use of them. Moreover, some projects – such 
partnerships, in which a group of governments  as deep-water oil extraction or the production of 
and companies share varying degrees of control  liquefied natural gas – are technically challenging. 
over the financing, exploration, production and  This may explain why TNCs play a more important 
marketing of mineral resources (Likosky, 2006).  role in developing countries in the development of 
A foreign government may become involved in  deep-water oil and gas deposits, while the richest, 
a project through an export credit agency which  most easily accessible and profitable oil deposits 
advances loans to a project company, as in the  – such as those in West Asia – tend to remain in the 
case of the Camisea project in Peru, the Baku-
hands of State-owned oil companies (chapter IV). 
Tbilisi-Ceyhan project and the Chad-Cameroon  In addition, the transfer of technology – including 
pipeline project.9 Intergovernmental organizations  proprietary technology that TNCs are often 
may also sometimes participate. For example, the  willing to provide only to their affiliates – and the 
Inter-American Development Bank is involved in  strengthening of domestic technological capabilities 
the Camisea project, and the International Finance  are reasons why many countries seek to attract FDI 
Corporation (IFC) is providing part of the financing 
into their extractive industries. 
for the Baku-Tbilisi-Ceyhan project and the Chad-
Cameroon pipeline as well as for the Ahafo gold 
As in other industries, most of the innovation 
mine in Ghana. Sometimes the customers of  and technological development in the extractive 

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133
industries  are  undertaken  by  developed-country  industries. However, some oil companies from 
TNCs, generally in their home countries (WIR05). 
developing countries – such as Petrobras (Brazil) 
Because of their ownership-specific advantages  and Petronas (Malaysia) – are now as operationally 
(chapter IV), such TNCs bring knowledge and  competitive as their counterparts from developed 
improvements in exploration and extraction  countries (chapter IV). In addition, there is a 
techniques that may not otherwise be locally  view among State-owned oil companies in some 
available. Developing countries that possess  developing countries that TNCs from other 
sufficient engineering expertise and technically  developing countries may “understand their 
competent State-owned oil companies (such as  requirements better” than TNCs from developed 
for example Saudi Aramco or Petrobras) have  countries (Accenture, 2006: 13; WIR06). 
mostly relied on arm’s length transactions for the 
International service providers – TNCs that 
acquisition of technology. Some of them have  specialize in activities related to particular stages 
successfully developed the skills and knowledge  of the value chain – have increasingly become 
required for the effective exploitation of their  important sources of technology and know-how 
natural resources. 
(chapter IV). Their emergence in both the oil and gas 
Even countries with sufficient expertise  industry and the metal mining industry provides new 
in the oil industry sometimes turn to TNCs for  opportunities for the unbundling of the production 
certain projects. State-owned companies often  process. This might make it easier for developing 
cooperate with TNCs in the development of oil  countries to acquire the specific knowledge they 
and gas fields that are difficult to access, and for  need at various stages, particularly expertise in 
the extraction of heavy crude oil.10 For instance,  managing long-term, high-risk and capital-intensive 
Kuwait turned to such firms for the development  projects. However, the effective use of unbundled 
of oilfields in its northern region, which requires  assets and specialized contractors requires the host 
advanced technology and highly qualified personnel 
country to have a trained and experienced cadre of 
(Bahgat, 2000: 28). The Russian Federation, where 
technical and management personnel with sufficient 
indigenous enterprises have developed and applied  expertise and practical experience necessary to 
many modern technologies, still relies on foreign  bring together and coordinate a variety of suppliers 
expertise for the long-distance horizontal drilling  of technology, engineering firms and construction 
capabilities needed to exploit the huge oil and  companies. 
gas reserves off Sakhalin Island. In Venezuela, 
the Government has involved TNCs in order to  c.  Employment impacts
maximize production of the abundant deposits of 
extra-heavy crude oil in the Orinoco River basin.11
Extractive industries generally make only 
a limited contribution to employment at the macro 
By bringing in advanced technology and 
managerial expertise, TNCs can potentially  level (table V.1).13 This applies to both oil and 
contribute not only to the establishment of new  gas and metal mining, and especially to projects 
industries or activities that might not otherwise  involving TNCs, as they tend to use more capital-
be developed, but also to improving efficiency  intensive technologies than domestic companies in 
in the short and long run in extractive and related  developing countries.14 Advances in technology 
activities. Technology spillovers from foreign  brought into a host country by TNCs may reduce 
affiliates to domestic companies are potentially  labour intensity in exploration and production 
important for the development of developing  activities as the new machinery and processes 
countries’ indigenous technological capabilities.  increase labour productivity.15 In addition, large 
However, due to a lack of human, physical and  numbers of expatriates are sometimes involved. 
institutional capacities to absorb them, such  Nevertheless, while the overall impact on host-
spillover effects often tend to be very limited in  country employment tends to be small, large-
low-income countries, as are backward and forward 
scale extractive projects can have significant 
linkages (WIR99;  WIR01; section B.2.a). Where  employment effects at the local level. Moreover, 
such deficiencies can be overcome, technology and 
TNCs’ contributions in terms of training and 
managerial know-how can eventually spread to  skills upgrading may be important for developing 
domestic companies through various channels. In  countries.
China, for example, the development of CNOOC’s 
The small direct contribution to employment 
technological capability in offshore oil exploration  creation by the mining industry is in sharp contrast 
has been largely based on its cooperation with TNC 
to its often significant contributions to revenue and 
affiliates in the country.12
income (section B.1.e).16 For example, in Botswana, 
TNCs from developed countries are still  where the mining industry accounts for 40% of 
the technology leaders in the world’s extractive  GDP, 90% of exports and 50% of government 

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Table V.1. Total employment and employment in extractive industries, 
selected developing countries, latest year
United Rep. of 
Item
Indonesiaa
Malaysiab
Tanzaniac
Viet Nama
Total employment (thousand)
85 702
6 391
16 915
35 386
Total employment in extractive industries (thousand)
774
33
29
110
Employment in extractive industries as % of the total employment
0.9
0.5
0.2
0.3
66
6
1
8
Source:  ILO and UNCTAD.
a
Data for 1996.
b
Data for 1989.
c
Total data for 2001; foreign-affiliate data for 2000.
revenues, it employed only 9,200 people, or around  State-owned mines had to be restructured (MMSD, 
3% of the total labour force (UNCTAD, 2007i).17
2002). 
In Chile, the contribution of mining to national 
The contribution of the oil and gas industry 
employment fell from 2% to 0.84% between 1986  to total national employment is also generally small, 
and 2005, with employment in copper production  with or without TNC involvement. Many OPEC 
declining from 1.03% to 0.76% (UNCTAD, 2007j).  countries rely on oil for the bulk of their income 
In contrast, the contribution of mining to GDP rose  and exports, but the direct employment generated 
from about 8% in the 1980s to 16% in 2005. In  by the industry is limited. In Saudi Arabia, for 
Peru, the mining industry employed 101,200 people  example, less than 1.5% of the working population 
in 2006, accounting for only 0.7% of the working  is employed in this industry (Accenture, 2006), yet it 
population of the country. Of these, 35,870 were  accounts for 45% of GDP, 90% of exports and 75% 
employed by foreign affiliates: 14,430 directly and  of government revenues. A similar situation exists 
21,440 indirectly.18 Yet the share of the mining  in oil-rich countries where TNCs play an important 
industry in the country’s GDP has been about 7% in  role in oil and gas production. In Equatorial Guinea, 
recent years.
for example, where foreign companies account for 
The use of advanced technologies and  more than 92% of oil production (figure IV.5), the 
modern exploration and production techniques by  number of people directly employed in the oil and 
TNCs may sometimes reduce overall employment in  gas industry has been estimated at less than 10,000 
the extractive industries as a result of productivity  (or about 4% of the working population), and these 
improvements. The employment of semi-skilled  are mainly expatriate workers (Frynas, 2004), while 
local people in particular may be jeopardized further  it accounts for 86% of the country’s GDP. 
as the industry moves towards ever higher levels of 
In low-income countries, especially in Africa, 
automation, and smaller and more specialized labour  the proportion of expatriate workers involved 
(MMSD, 2002). In Ghana, for example, there was a  in extractive industries can be very high. In the 
gradual reduction in the levels of local employment  United Republic of Tanzania, much of the labour 
in the country’s mining industry during the period  recruitment by TNCs takes place in the commercial 
1995-2005, when foreign companies’ share of  capital, Dar es Salaam, or in countries with a 
mining production increased rapidly, leading to a net  long tradition of skilled labour in mining such as 
loss of more than 7,000 jobs (table V.2). One reason  Australia, Canada, Ghana, Namibia and South 
was technical, as all post-reform mining projects  Africa (Mwalyosi, 2004). Local managers and 
have been capital-intensive surface operations,  professionals may be particularly difficult to recruit 
where more sophisticated techniques have enhanced  locally, as in Ghana where expatriates are mainly at 
labour productivity. Another reason was that former  the senior level. 
Table V.2. Employment in Ghana’s mining industry, 1995-2005
Item
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
 Total employment in the mining industry 
22 519
21 030
20 343
21 261
17 858
16 537
16 340
14 311
16 056
15 525
15 396
 Expatriate staff (A) 
 234
 229
 221
 261
 242
 233
 205
 242
 188
 166
 181
 Ghanaian senior staff (B) 
2 511
3 143
2 862
2 804
2 442
1 697
1 807
1 813
1 901
1 736
1 905
 Ghanaian junior staff 
19 774
17 658
17 260
18 196
15 174
14 607
14 328
12 257
13 968
13 622
13 310
 Ratio of A to B (%) 
9.3
7.3
7.7
9.3
9.9
13.7
11.3
13.3
9.9
9.6
9.5
Source:  Minerals Commission of Ghana.

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As noted, despite their low labour intensity,  the structural adjustment programme has displaced 
large-scale extractive projects can have a significant  thousands of artisanal gold miners (Hilson and 
employment effect at the local level (especially if  Potter, 2005).20  Finding a solution to the potential 
there are few other employment opportunities). For  conflict between small-scale mining, which is more 
example, in metal mining, the Obuasi mine (Ghana),  labour-intensive, and industrial mining, which is 
owned by AngloGold Ashanti, employs about  safer and more efficient but less labour-intensive, 
6,700 local staff (ICMM/World Bank/UNCTAD,  is an important issue in many developing countries 
2006), and in oil and gas, the Sakhalin-2 project  (chapters III and VI).
employs nearly 17,000 people, over two thirds of 
A number of extractive-industry TNCs 
them Russians. In its next operational phase, the  invest in human resource development by offering 
Sakhalin-2 consortium will create 2,400 permanent  training and skills upgrading to their workers 
jobs, of which a similar share is likely to be taken  (UNCTAD, 2002). In 1999, Minera Escondida in 
by Russians. Foreign investments in oil and gas  Chile established a specialized training centre that 
extraction in the region have contributed to reducing  helps develop the occupational skills required in 
unemployment in Sakhalin to the lowest rate  various mining operations (box V.1). In Botswana, 
(0.2%) among the different regions of the Russian  Debswana – a joint venture between the Government 
Federation.19
and De Beers – has established an intensive training 
The overall impact of TNC activities in  and apprenticeship programme. It also offers its 
extractive industries on local employment can be  employees scholarships for advanced training both 
significantly enhanced by multiplier effects, as  within and outside the country (UNCTAD, 2007i). 
indirect employment may occur at different stages  In the oil industry as well, TNC contributions have 
of the value chain. According to some estimates,  helped create the general oil and gas workforce as 
the Obuasi mine has created some 30,000 indirect  well as skilled engineers (Accenture, 2006). For 
jobs (ICMM/World Bank/UNCTAD, 2006). In  some developing countries, engineers trained by 
Mali, three gold mines (Morila, Sadiola and  TNCs in sophisticated technologies are particularly 
Yatéla) employed some 1,000 workers each, with a  valuable. In China, since the 1980s, international 
multiplier effect of six to eight (Cole-Baker, 2007).  oil companies such as ConocoPhillips, ExxonMobil 
While the direct employment created by Minera  and Shell have helped produce qualified local 
Escondida in Chile was about 2,800 people in 2004,  engineers for offshore oil exploration.21 While 
the total employment, including contractors and  TNCs themselves benefit from such training, 
other induced employment may have been as much  as it eliminates the need to hire more expensive 
as 15,000 people (Dietsche et al., 2007a: 40–41). 
expatriate engineers from their home countries, it 
The net impact on the local employment  can constitute a valuable contribution to human 
depends partly on how large-scale extraction  resource development for the industry in the host 
activities affect employment in pre-existing activities 
country.
in mining areas (e.g. artisanal and small-scale 
mining or agriculture). In the metal mining industry,  d.  Enhancement of exports
the entry of TNCs may displace or diminish such 
activities, with adverse effects on employment in 
Exports are an important means for a 
artisanal and small-scale mining. For example, the  country to allocate resources efficiently based on 
rapid rise in exploration and excavation activities  its comparative advantages. They also help generate 
by TNCs in Ghana since the implementation of  the foreign exchange required to finance its imports 
Box V.1. Fostering skills in the mining industry: the case of CEIM in Chile
The Centro de Entrenamiento Industrial y Minero (CEIM), the industrial and mining training centre founded 
in 1999, belongs to the Escondida Educational Foundationa and is a non-profit organization. Its main mission is to 
foster excellence in the mining industry. The Centre has developed several programmes to improve employment 
opportunities for local workers within a particular region (Region II) in Chile. It has an alliance with the British 
Columbia Technological Institute of Vancouver, Canada, which allows the Centre to manage, develop and certify its 
skills training programmes under an international certification scheme (CEIM-BCTI). Another alliance with Minera 
Escondida and 20 other companies has further strengthened the Centre. It is expected to train 350 technicians in 
electronics, electrical engineering, heavy machinery and industrial machinery every year, beginning in December 
2006.
Source:  Dietsche et al., 2007a.
a The Minera Escondida Foundation is a non-profit organization created in 1999 to develop projects in support of education, health, youth 
and indigenous people (see www.bhpbilliton.com).

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
of goods and services, including those needed for  adding transport capacity for 400,000 barrels per 
industrialization, and thereby, to promote economic 
day (ECLAC, 2004: 48). In many other developing 
growth. While most countries’ extractive industries 
countries, such as the oil-producing countries in 
are export-oriented, TNCs can help boost mineral  West Asia, it is the State-owned companies that are 
exports by facilitating an expansion of production  controlled and managed without TNC participation 
and through their access to global markets.22 At 
that have successfully expanded oil exports.
the same time, the involvement of TNCs in trading, 
Compared to exports of manufactured 
including intra-firm trading activities, has sometimes 
goods, which can help firms from developing 
given rise to concerns about the limited value added 
countries obtain economies of scale, expand scope 
to minerals before exporting, and the use of transfer 
of production, and learn from their experience in 
pricing. 
export markets (WIR02), exports of unprocessed 
For a number of developing countries,  minerals yield much fewer potential benefits of 
revenues from a single mineral account for a large 
these kinds. If countries could add value to the 
share of their total export earnings (chapter III).23
minerals extracted before they are exported, export 
In recent years, high mineral prices have reinforced 
revenues as well as the potential for learning 
this pattern. In Chile, for example, the share of  could increase significantly. However, in many 
copper in the total exports of goods rose from an  developing countries, most minerals are exported in 
average of 38% in 1991-2003 to 61% in 2006.24
unprocessed form (section B.2.a). 
Evidence from countries in which TNCs dominate 
While TNC participation is likely to boost 
mineral production (chapter IV) suggests that their  the export revenues of host countries, their affiliates 
entry has led to significant export growth: 
may also have a higher propensity to import various 
inputs from foreign suppliers. Foreign affiliates 
• In Ghana, after the entry of FDI on a large scale, 
may also repatriate their profits, thereby reducing 
gold exports, mainly by TNCs, rose threefold  the positive effects of the increased export revenues 
from 1990 to 2004, increasing their share of the 
their participation may generate. This could also 
total exports of the country from a quarter to 37% 
reduce the effects from improvements in the terms-
(UNCTAD, 2005b: 48-50). 
of-trade (as a result of the recent increase in mineral 
• In Zambia, the production and exports of copper 
prices) on the national income of a host country 
have grown significantly since the late 1990s.  (section B.3; UNCTAD, 2005c). Reflecting the 
This has been a direct result of FDI that revived 
complex relationship between trade and investment, 
the industry (UNCTAD, 2007m). In 2006, exports 
a rapid growth of exports is likely to influence 
of copper and cobalt by TNCs were $3.2 billion, 
the balance of payments, and possibly also the 
about four fifths of the country’s total exports.25
real exchange rate. Such an effect underlines the 
• In the United Republic of Tanzania, since gold  importance of well-conceived macroeconomic 
mining was opened up to FDI in the 1990s  policies for mineral-exporting countries (section 
and TNCs assumed a dominant role in gold  B.3, chapter III, chapter VI). 
production, it has emerged as an important 
export-oriented industry (UNCTAD, 2002). From 
e.  Generation of government revenue
no export earnings prior to 1990, gold exports 
earned $640 million by 2005, and TNCs’ total 
For many mineral-exporting developing 
mineral exports reached $693 million in 2005,  countries, the most important direct contribution 
accounting for 43% of the total exports of the  of mineral extraction is increased income for the 
country.26
host country, much of which takes the form of 
• FDI has played a major role in enhancing Peru’s 
government revenues. When extraction involves 
export performance. Between 1990 and 2006,  TNC participation, the income accruing to the host 
exports of metallic minerals surged from about  country depends both on the amount of the value 
$1.5 billion to $15 billion, with their share in  created, and on how that value is shared between 
total exports rising from 42% to 62% (UNCTAD, 
the host-country recipients (i.e. labour, other input 
2007k).
providers and the government) and the TNC. 
In the oil and gas industry, TNCs have  Capturing the maximum value created by TNCs 
similarly helped countries such as Angola, Argentina, 
is a major concern of host countries with regard 
Azerbaijan, Ecuador, Indonesia, Kazakhstan and  to TNC participation (chapter VI). It assumes 
Peru increase production and exports over the  particular significance in the extractive industries, 
long term.  In Ecuador, an oil pipeline constructed  especially when a sizeable proportion of the value 
by a consortium of TNCs during the period 2001-
of minerals sold consists of resource rents.27 Their 
2003 facilitated increased exports of crude oil by  distribution between the TNC and the host country 

CHAPTER V
137
is negotiated as part of the terms and conditions for 
to 16.3% over the next two years.33 During 2004-
TNC participation. Although salaries and wages  2006, foreign mining companies in Peru paid 
paid to local employees and inputs purchased  $3.5 billion in income taxes, equivalent to 14% of 
from local suppliers generate incomes to varying  their export revenues.34 In the United Republic 
degrees in different extractive industries, capturing  of Tanzania, out of earnings of $2.8 billion from 
a significant share of the mineral rents through taxes 
mineral exports during 1999–2005, the Government 
and other payments to the government is particularly 
received some $252 million (9% of export revenues) 
important for host countries. 
in the form of various tax payments and royalties. 
Increased production and exports due to  In 2005, this contribution accounted for 4% of 
TNC involvement in extractive industries do not  total government revenues.35 In Zambia, the $75 
automatically generate large government revenues.  million in government revenues from copper mining 
The fact that TNCs are involved means, by  corresponded to less than 5% of the value of copper 
definition, that a certain proportion of the revenues 
and cobalt exports in 2005.36 In these and other 
will go to them rather than to the host economy.  developing countries, various stakeholders have 
However, if the participation of TNCs helps expand 
expressed dissatisfaction with the share of revenues 
the scale of production and, by extension, the  remaining in the country, and a number of countries 
overall size of the revenues, then, depending on the 
have taken steps to increase the government’s take 
terms and conditions governing TNC participation, 
(chapter VI).37
the amount of the government’s revenue may still be 
Low taxes and royalty payments as a share of 
greater than if no TNCs had been involved. 
export revenues are not the same as low shares in 
Governments raise revenues from extractive  mining profits. The latter are the difference between 
industries through direct ownership (wholly State-
total revenues and costs and may be low in the early 
owned companies or joint ventures), taxes, levies,  years of mining projects as firms try to recover their 
royalties and/or other payments under various  fixed costs. It often takes time for an extractive-
contractual arrangements (including production-
industry project to generate significant government 
sharing agreements). The approach chosen differs  revenues. This is partly because most countries 
between the oil and gas and metal mining industries 
offer accelerated depreciation and other incentives 
(chapters IV and VI). Data on the distribution of  to investors to allow them to recover, over a period 
revenue between host developing countries and  of time, the significant cost outlays involved in 
TNCs are generally scarce, which complicates  such projects so as to reduce risk and encourage 
international comparisons and assessments. investments.38 Thus tax payments may not become 
Various studies of fiscal regimes suggest that the  due until several years after a project begins to 
government’s take in revenues generated from oil  generate export revenues. 
and gas activities over the lifetime of a project vary 
In Peru, for example, income taxes from 
widely (between 25% and 90%);28 the corresponding 
the mining industry were very small during the 
range in metal mining is between 25% and 60%  entire decade of the 1990s (UNCTAD, 2007k). 
(Land, 2007; Otto, Batarseh and Cordes, 2000). 
As late as in 1998–1999, they amounted to well 
Government revenues collected from below $100 million per year, or about 7% of total 
projects undertaken by TNCs can be compared  government revenues. As the benefits to companies 
to the companies’ revenues or profits. In Mali,  from accelerated depreciation gradually declined, 
for example, the total income tax paid by the  and as metal prices increased, the picture changed 
Sadiola mine was $20 million during 2000–2003,  dramatically. Between 2000 and 2006, the annual 
accounting for 3% of its gross revenue and 10% of 
income tax revenue from mining companies rose 
its income before tax; and the mines of Morila and 
from $70 million to $1.8 billion (figure V.2), and 
Yatéla in the same country did not pay any income 
from 10% to 43% of total government revenue.39
taxes during that period because of tax holidays  During the same period, the annual income tax 
(Cole-Baker, 2007).29 Such firm-level data on  revenue from the oil and gas industry rose from $35 
profitability and tax payments are generally hard  million to $296 million, corresponding to 5%-7% of 
to obtain.30 Comparisons are often made instead  total government revenue (figure V.2).
between a government’s revenue and the country’s 
The sharing of mineral rents is also 
mineral exports.31 In Chile, the total copper exports 
influenced by TNCs’ accounting practices, financial 
of the 10 largest private mining companies (nine of 
behaviour and possible transfer-pricing activities. 
which are foreign-owned) during the period 1991-
By manipulating transactions that are internal to 
2003 were estimated at some $33 billion, while  them, TNCs may, to some extent, choose where 
their tax payments were $2.1 billion (6.5% of their 
to declare profits to minimize their tax burden 
copper export revenues).32 This share increased  (WIR99). In Chile, it took considerable time before 
.

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
Figure V.2. Income tax revenue from mining and oil and gas 
This has prompted criticism that 
industries, Peru, 2000-2006
the conditions offered by some 
developing countries for FDI 
projects in extractive industries 
have been overly generous, 
resulting in a disproportionately 
low share of government revenues 
in the total rents.44    Against the 
backdrop of high mineral prices, 
several countries have made 
changes in their fiscal regimes 
related to the extractive industries 
(chapter VI). The recent price boom 
has also led various stakeholders, 
such as local communities  and 
 
workers, to demand a larger share 
Source:  Superintendencia de Administración Tributaria, Peru.
of the revenues from mining. 
 
The increasing number of strikes 
following the price boom shows 
the affiliates of foreign mining companies started  that workers are anxious to increase their share 
to pay any taxes, with the exception of Minera  of the revenues (PricewaterhouseCoopers, 2006; 
Escondida. While the accelerated depreciation 
allowance explained part of this, the tax system was  chapter VI).45
also designed in a way that encouraged companies 
As already noted, governments can also 
to finance their investment through intra-company  secure a share of the resource rent through equity 
loans, the repayment of which reduced their net  ownership; State ownership or joint ventures with 
revenues for several years (UNRISD, 2005). These  TNCs are commonly used modes, especially in the 
factors help explain why in Chile, following the  oil and gas industry (chapters IV and VI). Some 
FDI boom in mining, the share of the State-owned  examples also exist in metal mining. In Chile, for 
company, Codelco, in the country’s total copper  example, State-owned Codelco has entered into a 
production fell from 85% in 1980 to around 32%  joint venture with Phelps Dodge Mining Co. (now 
in 2005,40 while its contribution to the Government  part of Freeport-McMoRan Copper & Gold).46 In 
was substantially higher than that of the foreign  Botswana, diamonds are mined by Debswana, a 
affiliates (figure V.3), and despite this it showed  50-50 joint venture between the Government of 
greater profitability. Since 2003, tax revenues from  Botswana and De Beers, through which Botswana 
foreign affiliates have started to rise, but 
they were still below those from Codelco 
Figure V.3. Contributions to fiscal revenues by Codelco and 
in 2006. 
the 10 largest private mining enterprisesa in Chile, total of 
1991-2002, 2003-2006
The issue of retained value through 
(Millions of dollars)
tax revenues, long a concern of developing 
countries that host TNCs in extractive 
industries, has attracted renewed attention 
during the recent price boom which has 
contributed to increased corporate profits 
and higher tax revenues, as highlighted 
in the case of Peru (figure V.2). Between 
2002 and 2006, the net profits of 40 of 
the world’s largest mining companies41
rose from $4 billion to $67 billion 
(PricewaterhouseCoopers, 2007b). At 
the same time, the total income taxes 
paid by these companies rose from $2 
billion to $27 billion (Ibid.).42 However, 
data on the allocation of the taxes by 
country are not available. It seems that 
a significant proportion may have gone  Source: The Chilean Copper Commission, Ministry of Finance of Chile and 
Codelco.
to the home countries of the TNCs.43 
a
Data on taxes in 2005 and 2006 correspond to all private mining enterprises (including 
the 10 largest ). 

CHAPTER V
139
receives a large share of the rents. The Government  conditions in the industries and markets. Ultimately, 
of Botswana also has significant ownership shares  the development implications of the government 
in some other mining companies, many of which  revenues generated from mineral extraction (with 
are listed on the Botswana Stock Exchange (as  or without TNCs) will be determined by how the 
dual listings given that their primary listings are  funds are managed and used vis-à-vis the country’s 
in London, Toronto or Australia) (table V.3). This  development objectives and the needs of both current 
gives the Botswana public, particularly institutional  and future generations (chapter III). Governments 
investors, an opportunity to take an ownership stake  may need to neutralize the impact of large windfall 
in these mining projects, and, accordingly, a share in  revenues on greater aggregate demand, inflation and 
the rents. 
exchange rate appreciation. This requires prudent 
The sharing of revenue from a particular  fiscal management aimed at revenue sterilization 
mining project between a TNC and a host country  for example, by accumulating budget surpluses, 
partly reflects their relative bargaining power  paying off debt, and/or channelling revenues into 
(Vernon, 1971; Moran, 1974).47 Countries that have  a stabilization fund48 that could be used to prop up 
rich deposits and considerable domestic capabilities  the budget when aggregate demand is insufficient 
to exploit them are in a better position to reap a  and output and real incomes are falling.49 Without 
larger share of the rents through advantageous  appropriate policies and institutions in place, there 
ownership and tax arrangements. The evolving  is an increased risk that the government revenues 
balance of bargaining power between TNCs  will do little to promote sustainable development 
and host-country governments may explain the  (chapter VI).
dynamics of rent sharing over time and the changes 
in tax regimes and ownership arrangements in many 
2. Indirect economic effects
developing countries. In Botswana, for example, 
the Government’s shareholding in Debswana was 
In addition to their direct effects on the host 
initially 15%, but later increased to 50%. The  economy  through the various channels discussed 
volatile nature of mineral prices influences the  above, TNC activities in extractive industries can 
relative bargaining power. In periods of low prices,  indirectly affect host countries, for instance through 
the profitability of resource extraction projects tends  their impact on business linkages and infrastructure 
to decline, reducing the bargaining position of a  development. In addition, by participating in 
country in its efforts to attract investment, and vice  extractive industries in host countries, TNCs 
versa. 
can inject competition into these industries, 
To conclude, the net flow of revenue and  and in so doing help boost economic efficiency 
income generated for a host country from TNC  through reduced production costs, innovation and 
operations in the extractive industries depends  technological change.50 However, in countries with 
on how TNC participation affects the overall size  weaker domestic capabilities, the participation of 
of the value created, the nature of the revenue-
TNCs may drive existing domestic enterprises, 
sharing (or capturing) mechanisms in place, and  and particularly artisanal and small-scale mining 
the extent to which they can be adapted to changing  firms, out of business. Such crowding out could 
Table V.3. Ownership structure of major mining companies in Botswana, 2005
Company
Mineral
Main mines
Ownership
Listings
Public & misc. 38%; LionOre 
Toronto Stock Exchange (TSE)
BCL
Nickel, copper, cobalt Selebi-Phikwe
(Canada) 29%; Government of 
Botswana (GoB) 33%
Botswana Stock Exchange (BSE)
Anglo American (21%); De Beers 
Botswana Ash
Soda ash & salt
Sua Pan
(21%); GoB (50%); banks (8%)
Orapa, Jwaneng, Letlhakane, 
Debswana
Diamonds and coal
De Beers (private)a 50%; GoB 50%
Damtshaa, Morupule
Australian Stock Exchange
Diamonex
Diamonds
Lerala
Diamonex (Australia) 100%
BSE
TSE
Mupane Gold
Gold
Mupane
Iamgold (Canada) 100%
BSE
TSE
Tati Nickel
Nickel, copper, cobalt Phoenix
LionOre (Canada) 85%; GoB 15% BSE
Source: UNCTAD.
a
Owned by Anglo American (United Kingdom) (45%), Central Holdings (South Africa) (40%) and Government of Botswana (15%).

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affect host-country enterprise development in  with domestic providers of knowledge-intensive 
extractive industries; it may also have adverse  and high value-added services are often weak. The 
impacts on employment (section B.1.c) and trigger  experience of low-income developing countries in 
conflicts between foreign companies and domestic  building up their domestic capabilities in these areas 
stakeholders (section D.2). 
has generally been disappointing. In most of them, 
international suppliers meet the growing demand for 
a.  Linkages
such services, sometimes through locally established 
affiliates. In Ghana, for example, 60 mining support 
Through linkages between foreign affiliates  service companies, mostly foreign-owned, had been 
and domestic enterprises, TNC participation may  established by 1998, providing various services 
play a catalytic role in the development of related  (including geological, engineering and drilling) to 
industries (WIR01) and, under certain conditions,  the foreign-invested mines. Services such as haulage 
of an extractive industry cluster. Linkages can take  and construction were dominated by local firms 
place along and beyond the extractive-industry  (Aryee, 2001). 
value chain. Backward linkages occur when foreign 
Forward linkages in metal mining can 
affiliates acquire inputs (goods or services) from  involve the development of processing and various 
local suppliers, and forward linkages occur when  manufacturing activities. TNC participation can 
foreign affiliates sell outputs (minerals) to domestic  help provide inputs that encourage the emergence 
buyers. Linkages can be developed with domestic  of refining, smelting or manufacturing activities, 
firms or with other foreign affiliates in the host  and contribute to the creation of industrial clusters 
country. Linkages with the latter may generate a  (Ramos, 1998). Foreign investment in gold mining, 
lower degree of local value added than those with  for example, has fostered the development of a 
the former, but they can nevertheless be important  jewellery manufacturing industry in Indonesia 
especially in countries where domestic capabilities  (Leyland, 2005). In many other mineral-rich 
are at a nascent stage.
developing countries, however, little processing 
However, a common feature of the extractive  and manufacturing have emerged. Small, low-
industries, especially when TNCs are involved,  income developing economies typically do not have 
is the relatively limited incidence of linkages with  the capacity to enter into the smelting and refining 
domestic suppliers, particularly as compared with  stages of the value chain, which are capital-intensive 
manufacturing and services sectors (chapter III).  and tend to have larger economies of scale (Mintek, 
In Africa, where the extractive industries still  2007). Although some developing countries 
account for the largest proportion of FDI (chapter  succeeded in establishing capacities for smelting 
IV), “the tendency of FDI to reinforce enclave-
or other types of processing of metallic minerals 
type development appears to be a real danger, with  decades ago (Radetzki, 1993), divergent views 
external integration privileged over the internal  between TNCs and host-country governments about 
integration of the local economy” (UNCTAD,  the location of such activities are likely to persist.
2005b: 35). Similar concerns exist in Latin America. 
In  the oil and gas industry, oilfield services 
According to one study, “extractive activity carried  now account for the bulk of the total cost of oil 
out by TNCs […] mainly uses imported inputs […],  production (chapter IV).51 The size of the oilfield 
with the result that it is poorly integrated into local  services market in Africa alone has been estimated 
productive structures (except in the case of natural  at about $30 billion per year (UNCTAD, 2006d), 
gas), and gives rise to very few productive linkages”  the bulk of which is served by large services TNCs 
(ECLAC, 2004: 48). 
(table IV.9). The value of the oilfield services 
While a booming metal mining industry
market in Nigeria, for example, was about $8-10 
can help promote supplier-buyer relationships in  billion (Kupolokun, 2004), yet only one tenth of 
various related services, manufacturing and other  these services were contracted to local companies. 
activities that produce inputs for exploration, most  This suggests a high potential for enhancing the 
equipment used by exploration projects tends to be  participation of local contractors in the supply chain 
imported (Otto et al., 2006). In Chile, for example,  (UNCTAD, 2006d). Moreover, the share of local 
backward linkages of the copper mining industry  content in the country is very low in comparison 
with domestic manufacturing have generally with some other oil-producing developing countries 
been weak: most of the machinery, trucks and  such as Brazil and Malaysia (table V.4). In 
sophisticated inputs are imported (UNCTAD,  developing and transition economies with stronger 
2007j). Although supplies of services such as  domestic capabilities, there is greater scope for 
construction, transportation, catering and cleaning  backward linkages. The Sakhalin-2 project in the 
are more likely to be sourced locally, linkages  Russian Federation has awarded $8.3 billion worth 

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141
Table V.4. Local content in supplies to upstream oil and gas activities, and GDP,
selected oil-producing countries, various years
Item
Brazil
Indonesia
Malaysia
Mexico
Nigeria
Local content in supplies to upstream oil and gas activities (%), 2000
70
25
70
Largely local
5
GDP ($ million), 2005
799 413
281 276
130 770
768 437
113 461
GDP per capita ($), 2005
4 289
1 263
5 159
7 180
 863
Source:  UNCTAD and Heum et al., 2003: 21.
of contracts to Russian companies (UNCTAD,  skills in the local work force can make it difficult 
2007l). The proportion of contracts awarded to  to source locally or expand activities downstream. 
Russian firms, above 50% in 2006, is expected to  For example, in Mongolia significant organizational 
grow further during the operational phase (Ibid.).  development and capacity-building of local firms is 
Indonesia has managed to achieve 25% local  needed in order for them to meet new demand by the 
content, while other developing countries such as  emerging mining industries and for those industries 
Brazil, Malaysia and Mexico have performed much  to create significant multiplier effects (Slowey and 
better (table V.4).
Lewis, 2004). Limited linkages also exist in the oil 
Crude output in the oil and gas industry can  and gas industry in developing countries, particularly 
feed into the rest of the economy as intermediate  in LDCs (Nordås, Vatne and Heum, 2003).
inputs: crude oil for the petroleum refining 
While data limitation makes it difficult to 
industry and gas and its liquid feedstocks for the  directly compare TNCs and domestic companies, 
petrochemical industry. Such forward linkages have  the available evidence suggests that domestically 
helped the development of the manufacturing sector  owned mining or oil companies tend to have 
not only in some developed countries but also in a  stronger local linkages. In Chile, for example, 
number of developing and transition economies.  a relatively high level of local refining activities 
Although domestic efforts are crucial in this process,  were recorded when the State-owned enterprises 
TNC presence may also play a role. Newcomer  dominated the value chain of copper production. 
TNCs in the global oil and gas industry seem to  In the 1980s, when Codelco was the principal 
be more willing to invest in downstream activities.  producer of copper, the share of refined output in 
For example, CNPC (China) built the Khartoum  the country’s total copper exports was nearly 70%. 
Refinery in Sudan, with an annual oil refining  Since 1989, that percentage has been declining, to 
capacity of 2.5 million tons in 2003. In Nigeria, the  58% in 1995 and 53% in 2005, largely due to the 
development of downstream capacities was a key  impact of foreign investment, mainly in Minera 
criterion in the recent bidding rounds for licences,  Escondida.52 In the oil and gas industry as well, the 
and Chinese oil companies were willing to invest in  links and stimulating effects of extractive industries 
downstream activities (Accenture, 2006; Mitchell  on the domestic economy seem to be stronger 
and Lahn, 2007). In oil-producing countries in West  in countries where State-owned oil companies 
Asia, domestic State-owned oil companies have  dominate oil and gas production (table V.4). In oil-
successfully expanded from upstream exploration  producing countries in West Asia, for instance, the 
and production to downstream manufacturing  inputs of goods and services provided to the oil and 
activities, particularly petrochemicals, often through  gas industry by local sources rose significantly after 
alliances with TNCs with a global marketing  nationalization of that industry (Al-Moneef, 2006). 
presence (Al-Moneef, 2006).
It was also after nationalization that oil and gas 
There are several reasons for the frequently  production led to the development of refining and 
low incidence of linkages between foreign affiliates  petrochemical industries in those countries. 
and local firms in extractive industries. Some are 
To accelerate development and improve 
related to constraints regarding the availability,  the long-term welfare of a country and its people, 
quality and cost of local inputs, economies of scale  its non-renewable natural resource wealth needs 
that inhibit processing activities, and the lack of  to be transformed into a broader industrial base. 
efficiency and competitiveness of domestic firms.  TNCs can be a driving force behind the emergence 
In addition, foreign affiliates may prefer to source  of independent domestic suppliers and industrial 
inputs from non-resident suppliers with whom  clusters only if host countries are able to develop 
they have long-established relationships. In low-
their domestic capabilities. Proactive policies and 
income countries, a lack of suppliers with the  supporting institutions can play an important role in 
required capabilities and a shortage of appropriate  this respect (chapter VI).

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
b. Infrastructure development
the mineral extraction takes place in more populated 
areas, new infrastructure may benefit more people. 
TNC activities in extractive industries are  Finally, benefits may be linked to the life cycle of a 
often associated with the development of public  project, as the infrastructure created to support the 
utilities including electricity and water supply in  project may not be maintained once it closes.
a region, and of transportation infrastructure like 
roads, railways and ports. Such facilities are often 
3. Overall impact: implications 
necessary for the extraction, transport and export of 
for macroeconomic performance 
some minerals.53
There are many such examples. For 
What are the implications of the direct and 
the operations of Minera Escondida in Chile  indirect effects of TNC activities in extractive 
considerable investments for the supply of power  industries for the overall economic performance of 
and water were required, as well as an extensive  a host developing country? The TNC participation 
road development programme (Dietsche et al.,  may significantly influence the economic 
2007a). The privatization of Zambia Consolidated  performance of host countries at the macro level, in 
Copper Mines Limited (ZCCM) in the late 1990s  terms of macroeconomic stability, economic growth 
was followed by significant investments by TNCs  and income distribution. Much of the impact relates 
in Zambia’s infrastructure and urban development.54
to the development of the extractive activities in 
In the United Republic of Tanzania, there have  general (chapter III), but TNCs can play a specific 
been steady infrastructural developments in the  role.
Mwanza region as a result of the development of 
In terms of macroeconomic stability, arguably 
the Lake Victoria Goldfields over the past decade.  the most important effects from TNC activities in 
The improved roads, airport facilities, hotels and  extractive industries arise from their influence on 
ancillary services have contributed to an increase  the balance of payments of a host country, with 
in tourism in the northern part of the country.55
potential implications for inflation and the real 
Large foreign-invested oil and gas projects may  exchange rate (chapter III). On the one hand, both 
also lead to the development of local infrastructure.  capital inflows in the investment phase and export 
For example, the Sakhalin-1 and Sakhalin-2  revenues in the operation phase can have a positive 
projects in the Russian Federation required the  impact on a country’s balance of payments. In 
improvement of roads, bridges, airport and seaport  Botswana, for example, mineral exports by TNCs 
facilities, railways, public medical facilities, waste  have enabled the country to run current account 
management, telecommunications and other forms  surpluses and to accumulate substantial foreign 
of infrastructure. The Sakhalin-2 project alone  exchange reserves, which have helped it earn the 
involves a $390-million infrastructure upgrade  highest credit rating in Africa.58 On the other hand, 
programme.56
during the construction of a large mining project, 
Such investments can be important for low-
imports of equipment and services may have the 
income countries, particularly LDCs, where the lack  opposite effects, as will the subsequent repatriation 
of infrastructure is a major obstacle to economic and  of profits. In Chile, for example, the recent 
social development. TNCs may play an important  commodity price boom has led not only to a surge 
role in this respect, but their contributions to  in the share of FDI financed through reinvested 
infrastructure can also be controversial. The extent  earnings but also to an increase in the repatriation 
to which new infrastructure brings broader benefits  of profits by foreign affiliates (chapter II). Between 
to a host economy depends, among other things,  2003 and 2006, the latter grew from $2 billion to 
on the specificity of the assets and infrastructure  $13 billion.59
developed and the project’s location. Specialized 
In terms of economic growth performance, 
transportation infrastructure, such as pipelines  TNC involvement in extractive industries generates 
for long-distance oil and gas transportation and  income in the forms of wages and other payments 
helicopter services for transporting gold and  for host-country inputs and, most importantly, 
diamonds, may be confined to the extractive projects  government revenues (section B.1.e). The latter 
with few benefits for the country. By contrast,  may help developing countries overcome initial 
the building of roads, railways and harbours for  constraints on their economic growth, such as 
transporting copper or iron ore can benefit the  low levels of saving and investment, and provide 
economy as a whole. The scope for broader benefits  financial resources for investment in infrastructure 
also depends on the location of a project. If a mine  and human capital. Provided the revenues are 
is located in a remote area, as in the cases of Minera  appropriately used, this can give a “big push” to 
Escondida and the Sakhalin projects, benefits to  the growth of a host economy.60 At the same time, 
surrounding areas may be marginal.57 Conversely, if  resource extraction may also have a negative effect 

CHAPTER V
143
Figure V.4. Growth rates of GDI and GNI, and FDI income, Chile and Peru, 2003-2006 
Source:   UNCTAD.
on industrialization and long-term economic growth  industries has generally been poor, as highlighted in 
by strengthening various distorting effects.61 The  the case of Nigeria (box V.3).
manner and extent of revenue sharing between 
In addition, even if TNC participation in 
TNCs and the host country significantly influence  extractive industries contributes to economic 
the extent to which extractive industries contribute  growth in the host country as a whole, the benefits 
to economic growth. Also, high FDI income may  may not be well distributed and the well-being of 
reduce the positive impacts of any terms of trade  most of the citizens may not improve. For example, 
improvements on national income. This has been  in Equatorial Guinea, where TNCs dominate oil 
apparent in Chile and Peru in recent years, as  production (chapter IV), the rapid growth of GDP 
highlighted by the gap between the growth rates of  since the early 1990s has not been accompanied 
gross  domestic income (GDI) and gross national
by an improvement in the economic and social 
income (GNI) (figure V.4).62 Furthermore, foreign  welfare of the majority of the people. Although 
companies may have a greater propensity to use  GDP per capita reached $4,100 in 2004, the country 
foreign suppliers of various inputs, thereby limiting  ranks 120 in the Human Development Index: 57% 
TNCs’ indirect contributions to domestic value  of its people have no sustainable access to potable 
creation through local procurement and other  water, the majority of the people live on less than a 
linkages to domestic enterprises (section B.2.a). 
dollar a day, and the average life expectancy is 43 
Positive contributions to the economic  years (UNDP, 2006a). This situation is attributed 
growth of TNC-led extractive industries have been  to a lack of transparency and accountability in 
observed in some low-income countries. In Ghana,  the management and deployment of the country’s 
for example, the share of mining in GDP rose from  mineral wealth (World Bank, 2002). 
1.5% in the mid-1980 to 5.7% in the second half 
Similar problems prevail in several other host 
of the 1990s, despite generally low gold prices  developing countries, especially in Africa. Indeed, 
during that period. GDP per capita, after declining  the way government revenues are managed and used 
in 1980–1989 by 0.6% annually, started growing  significantly influences the distribution of income. 
again, reaching an average growth rate of 1.9% in  While resource revenues can be used to improve the 
1990–2004, and accelerating to 3% in 2003–2004  welfare of the host-country population and for long-
(UNCTAD, 2005d: 329). Botswana’s abundance  term economic growth, under certain circumstances 
of diamonds, exploited jointly with TNCs, has  they may be appropriated by small groups, and 
contributed to the country’s strong economic growth  consumed rather than invested. If this occurs, 
(box V.2). These and other successful examples  capital accumulation and productivity growth, 
notwithstanding, it has been argued that resource-
which are crucial for economic development, cannot 
rich economies have tended to grow less rapidly  be realized, and the country (or at least the majority 
than resource-poor economies (box III.2), though  of its population) may end up worse off.
the specific role of TNCs, if any, in this context has 
To sum up, the extent to which TNC 
not been much studied. However, it is a fact that the  participation promotes the overall economic 
growth performance of a number of host countries  performance of a host country depends on many 
in which TNCs play a significant role in extractive  factors, including the scale of TNCs’ value-

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Box V.2. TNC activities in extractive industries and host-country economic development: 
the experience of Botswana 
Over the 30-year period from 1970 to 2000, Botswana was the fastest-growing economy in the world 
(box figure V.2.1) and the structure of its economy was transformed. At the time of the country’s independence 
in 1966, agriculture accounted for 40% of GDP, while mining was virtually non-existent; by 2006 agriculture 
accounted for 2% of GDP and mining for 40%. As a result of mineral-led economic growth, the country has 
progressed from being one of the poorest countries in the world to becoming an upper-middle-income developing 
country, and it is the only country ever to have graduated from LDC status.a
Box figure V.2.1. GDP growth and GDP per capita, Botswana, 1961-2005
Source:  UNCTAD.
The impact of TNCs on Botswana’s economy has been integrally linked with that of the mining industry 
as a whole, as almost all the mining companies are either wholly owned by TNCs or are operated as joint 
ventures with the Government. Over the period 1975-2006, the industry directly contributed to 46% of total 
GDP growth, with a particularly strong impact in the early part of the period (box table V.2.1).
Diamonds accounted for about four fifths of 
Botswana’s total exports during the period 2001-2005,b which 
Box table V.2.1. Contribution of mining and 
made the country the world’s largest producer and exporter 
other industries to GDP growth in Botswana, 
of diamonds in value terms. Through its joint venture with 
1975-2006
De Beers, the main TNC involved in its diamond mining, 
(Per cent)
Botswana has exploited its key natural resource and gained 
a significant share of the profits.c A combination of mineral 
Period
1975-1985 1986-1995 1996-2006 1975-2006
wealth and foreign investment has yielded considerable  Mining
73.6
20.4
49.0
45.6
Other industries
26.4
79.6
51.0
54.4
development benefits for Botswana, in terms of rapid growth, 
rising living standards and extensive investment in social  Source: Central Statistical Office of Botswana.
and economic infrastructure, along with healthy fiscal and 
balance-of-payments positions. 
The contributions of TNCs to Botswana’s economic development have taken place in the context of an 
open and transparent mineral licensing and taxation regime, and a competent institutional structure. Foreign 
investment in mining has been encouraged. Leveraging its strong bargaining position, the Government has 
negotiated favourable rent-sharing arrangements with TNCs.d Although the Government has an ownership stake 
of 15%-50% in major mining projects, it has not assumed a direct operational role in the mining ventures. 
Source: UNCTAD.
a
Income per capita has risen from $76 at independence in 1966 to $5,500 in 2005/06.
b
Other important mineral exports include copper and nickel. Their share in Botswana’s total exports during 2001-2005 was 8%. 
c
De Beers’ origins lie in the South African diamond industry. Over time, the company dominated the global diamond industry 
worldwide. At its peak, De Beers was responsible for marketing more than two thirds of global rough diamond production, and 
exerted significant control over pricing.
d
In the mid-1970s, the Government used the opportunity provided by De Beers’ applications for further mining licences to reopen 
negotiations on the terms of the agreement between them. It was criticized for driving too hard a bargain, which it was claimed 
would discourage further FDI (Hartland-Thunberg, 1978). However, despite the less favourable agreement, De Beers expanded its 
operation in Botswana. In the mid-1980s, Debswana gained a 5% stake in De Beers, which gave the Government indirect ownership 
of the TNC. More recently, the Government has again negotiated with De Beers. In return for renewing its licences, the Government 
has secured commitments from the company to undertake downstream activities in Botswana. 

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145
Box V.3. TNC activities in extractive industries and economic development in Nigeria
Nigeria started oil production in 1958. In spite of having been a significant oil producer for decades, the 
country has not been able to transform its oil resources into economic growth. Its growth performance has been 
slower than that of most other oil-producing countries, and many other sub-Saharan African countries (Heum et 
al., 2003). 
Nigeria’s oil extraction and production has long involved the participation of Shell.a The TNC began 
operating in Nigeria’s oil industry well before that country’s independence, and is still the leading oil-producing 
company in the country.b Indeed its operations have contributed significantly to increasing Nigeria’s exports – 
total oil revenues were roughly $350 billion during the period 1965-2000 (Sala-i-Martin and Subramanian, 2003). 
Historical data on government revenues from Shell’s operations in Nigeria are not available; in 2005 and 2006, 
they amounted to $4.3 billion and $3.5 billion , respectively, in the form of taxes and royalties.c
GDP growth in Nigeria has been lower than that of its non-oil-producing neighbouring countries, and 
more than half of Nigerians still live below the poverty line. The country’s poor economic performance can be 
explained largely by its inability to develop its human resources and build a broader industrial base (Heum et al., 
2003). The share of manufacturing in GDP had remained at a very low level during the period 1960-2000, and the 
industrial base continues to remain extremely narrow and heavily dependent on oil. The windfall revenues from 
oil have had only a minor impact on non-oil value creation and private consumption (Bevan, Collier and Gunning, 
1999). Moreover, the inequitable allocation of revenues from oil and gas continues to adversely affect development 
(UNDP, 2006b). Indeed, despite its oil wealth, Nigeria ranks 159 among 177 countries in the Human Development 
Index (UNDP, 2006a).
Source: UNCTAD.
a
In 1937, the company was granted an oil exploration licence covering the entire country.
b
Shell Petroleum Development Company of Nigeria Limited (SPDC) is a joint venture operated by Shell which accounts for more than 
40% of Nigeria’s total oil production. The joint venture is owned by Nigerian National Petroleum Corporation (55%), Shell (30%), 
TotalFinaElf (10%) and Agip (5%).
c
The Shell Sustainability Reports 2005 and 2006 (www.shell.com/nigeria).
creation activities in the host country, the sharing  the appropriate capabilities and resources, they will 
of revenues between TNCs and the host country,  be responsible for any environmental degradation.63
and the capabilities of domestic enterprises and  On the other hand, some TNCs may use more 
institutions. Whether inputs are sourced locally or  advanced and environmentally friendly production 
imported from abroad will also influence the degree  technologies and techniques than their domestic 
of TNC contribution to local value creation. Most  counterparts and may also employ and diffuse higher 
importantly, appropriate institutions and policies  standards of environmental management.
can help eliminate or mitigate various distorting 
The environmental impacts of extraction 
effects and leverage TNC participation in extractive  projects are influenced by the type of minerals 
industries for economic development. In particular,  extracted, the technology used, the scale of 
how government revenues are managed and used  the extraction activities and the location of the 
considerably influences the final impact. This in  projects, all of which are partly determined by 
turn depends, among other things, on the overall  the strategies and activities of TNCs. The larger 
institutional and policy environment of the host  a mine or an oil field, the greater is its potential 
economy (chapter VI)
environmental impact on the surrounding area 
and even beyond. The environmental impacts 
C. Environmental impact
also depend on the geological structures and the 
techniques of extraction.64 Furthermore, risks 
Extractive activities, regardless of who  increase when mining is undertaken in the proximity 
performs them, incur environmental costs. Metal  of other economic activities, such as agriculture 
mining has been identified as a highly polluting  and fishing, and especially if there is a risk of water 
industry, and oil and gas extraction is also associated  contamination. Many mineral deposits are found in 
with a variety of environmental risks (chapter  environmentally protected areas (usually protected 
III). Given that certain negative environmental  forests), which serve to regulate water flows, prevent 
consequences are unavoidable, the question is  floods, control soil erosion, prevent intrusion of 
to what extent TNC participation contributes to  sea water, maintain soil fertility and help protect 
reducing or accentuating them. Clearly, when TNCs  the surrounding ecosystem. If badly managed, 
are the only firms capable of undertaking extraction  the extraction of such deposits can therefore have 
activities owing to the lack of domestic firms with  disastrous environmental impacts. Government 

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policies and environmental regulations in the host  under the New Order regime (1966–1998) legally 
country – including their effective implementation  allowed foreign investment in mining in protected 
and enforcement – as well as pressures from  areas, which prompted criticism from various 
various stakeholders, such as shareholders, lenders,  stakeholders, including indigenous peoples and 
NGOs and local communities, can influence the  NGOs, both within and outside the country (Erman 
environmental practices of TNCs. 
and Aminullah, 2007).66 Environmental problems 
In the metal mining industry, fears of adverse  resulting from the dumping of tailings into the sea 
environmental consequences often trigger opposition 
and rivers by Newmont Mining (United States) in 
to foreign-invested mining projects, particularly by  North Sulawesi and Freeport-McMoRan (United 
environmentalists and local communities, who are  States) in Papua badly damaged the image of TNCs 
among the first to be affected. This has been the  in extractive industries in Indonesia (Ibid.). The 
case, for example, in Ecuador and Peru (ECLAC,  environmental impacts of mining by TNCs in some 
2004: 49).65 However, in some instances, the  sub-Saharan African countries have been mixed (box 
pressure to achieve high economic growth rates,  V.4; Extractive Industries Review Secretariat, 2003).  
create employment and attract FDI has tempted 
Once the minerals have been extracted, 
developing countries to accept foreign-invested  the mine and its surrounding environment should 
mining projects that are particularly environmentally  be restored to its previous state.67 Traditionally, 
risky. In Indonesia, for example, the Government  however, it has been common to abandon a mine 
Box V.4. Environmental impacts of FDI in the metal mining industry in selected African countries
In mineral-rich sub-Saharan African countries such as Ghana, the United Republic of Tanzania and Zambia, 
the environmental impact of TNC activities in the metal mining industry has been mixed. Whereas significant 
negative consequences in terms of deforestation and air and water pollution have been observed, TNCs have also 
introduced more environment-friendly technologies and higher standards of environmental protection compared to 
those of the local artisanal miners. 
Ghana. Mineral extraction and processing are estimated to account for some 10% of Ghana’s industrial 
pollution (Boocock, 2002). Exploration and mining in forest reserves is a major environmental issue in the country. 
Foreign-invested mines have contributed to air and water pollution, and have been rated poorly in an official 
assessment of their environmental practices.a However, the evidence also shows that improved environmental 
performance in mining is directly linked to the introduction of new technologies through FDI. For example, 
emissions of sulphur dioxide and arsenic at the Obuasi mine used to be 1,000 times higher than internationally 
accepted standards (Aubynn, 1997), but they have been largely reduced with the introduction by TNCs of a new 
technology for gold extraction. The TNCs were motivated more by conditions attached to loans than by domestic 
legislation (Warhurst, 1998). Although large-scale mining has also contributed to water pollution, the major 
problem in gold mining is caused by the use of mercury by artisanal miners (Boocock, 2002). 
United Republic of Tanzania. Gold mining activities of TNCs have led to various environmental problems 
in the country (Kulindwa et al., 2003; George, 2003). Dust pollution in the area around the Geita Gold Mine has 
contaminated drinking water sources of nearby villages. As a result, the mining firm has had to supply tap water to 
the local community (George, 2003). TNCs have introduced an environment-friendly technology for gold mining, 
but at the same time, the large scale of their operations has resulted in significant land clearance and considerable 
deforestation. For example, the Geita Gold Mine has acquired 110 square kilometres in the Geita Forest Reserve, 
of which a significant proportion has been cleared (Ibid.).
Zambia. Air and water pollution from copper mining has caused major environmental problems in Zambia 
(Boocock, 2002). Kabwe, a mining town, is known as one of the world’s most polluted places from decades of 
copper mining.b During the privatization of ZCCM in the late 1990s, foreign investors were exempted from the 
environmental liabilities of the past activities of that company, and compliance with environmental regulations was 
deferred (Ibid.). After the privatization, the new technologies used by TNCs had positive environmental impacts 
by reducing sulphur dioxide emissions and the concentration of metals in waste dumps. However, other TNCs 
continue to cause environmental damage. For example, Chiman, a mine opened by Chinese investors in 2005, had 
been emitting air pollution beyond the statutory limits, affecting hundreds of residents of nearby townships before 
the Government shut it down in May 2007.c
Source: UNCTAD.
a
The Ghana Environmental Protection Agency publishes an annual rating of mining companies based on their environmental 
performance. The rating consists of five categories, from A to E (best to worst). In 2000, only one company received a B rating while 
others rated from C to E (Boocock, 2002).
b
See www.blacksmithinstitute.org/site10d.php.
c
“Zambia closes Chinese mine over air pollution: lack of pollution controls threatens health of area residents”, Agence France Presse,
15 May 2007 (www.industry.com).

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147
Box V.5.  Environmental impact of TNC activities in the Niger Delta
Oil exploration and production by TNCs has had significant impacts on the environment in the Niger Delta 
in Nigeria. In this area of natural wealth and extremely low income, environmental degradation and poverty are 
interlinked, as the poorest people of the Delta are often the worst affected by the environmental impacts of TNCs’ 
oil extraction activities, not only in terms of their health, but also their livelihoods.  
Major environmental problems include the destruction of freshwater ecosystems from the construction of 
canals which has caused saltwater to flow into freshwater zones; oil spills, of which some 5,400 incidents were 
officially recorded between 2000 and 2004;a air pollution resulting from most of the gas produced being flared; and 
the depletion and illegal logging of forests to enable exploration and production activities by TNCs. In addition, 
unrecycled and untreated waste generated by oil operators has been discharged onto land, mangrove and freshwater 
swamps as well as into the sea. However, it is not only TNCs that have caused environmental damage; Nigerian oil 
firms in the region have also been very lax in their environmental practices (Litvin, 2003).
In some respects, the situation has improved over time. Currently, most foreign facilities have been certified 
under ISO 14001 relating to environmental management standards. Shell Nigeria, for example, has undertaken a 
series of investments in gas collection and utilization projects, with a view to eliminating gas flaring by 2009.b
However, it should be pointed out that the date for ending gas flaring in Nigeria’s oil industry has repeatedly been 
postponed (Idemudia, 2007). 
Source: UNCTAD.
a
See “5,400 spills threaten Niger Delta-Ugochukwu”, Daily Champion, 24 November 2004, http://allafrica.com/stories/printable/ 
200411240494.html.
b
According to the company, between 2000 and 2005, its gas flaring was reduced by 30%. Shell Nigeria is committed to ending 
continuous flaring at the Shell Petroleum Development Company of Nigeria joint venture’s more than 1,000 wells during 2009 (Shell 
Sustainability Report 2006, www.shell.com/nigeria).
site (Peck, 2005), which can lead to various  more closely monitored. As a result, those that cause 
environmental problems such as acid mine environmental damage face greater reputational 
drainage, surface and groundwater pollution, soil  and financial risks (Bond and Weber-Fahr, 2002). 
contamination, landslides due to collapse of waste  Growing environmental awareness among the 
and tailings dumps (Balkau, 1999). Today, most  large, established TNCs in both metal mining and 
large TNCs have made substantial progress in  oil and gas extraction can be considered a positive 
restoring mine sites following their closure, and  development. Accidents still occur, but their 
it is mainly the artisanal and small-scale miners  environmental practices have generally improved 
that now pose a problem in developing countries  over the past decade. Nowadays, most large mining 
(OECD, 2002; Peck, 2005).68 Nevertheless, the  TNCs apply their home-country environmental 
environmental legacy left by TNCs’ past mining  standards to their new projects abroad. Many 
activities still frequently leads to environmental  have also established industry-wide guidelines 
problems (Danielson and Lagos, 2001), sometimes  or codes of conduct covering the performance of 
requiring them to share the responsibility for  subcontractors.69 However, some new entrants in 
cleaning up.
the global extractive industries have emerged from 
In the oil and gas industry as well, TNC  home countries with relatively weak environmental 
activities have had negative environmental impacts.  legislation. It is important for these emerging TNCs 
In the Niger Delta in Nigeria, for example, oil spills,  to implement good practices and apply higher 
the flaring of excess gas and deforestation from  standards of environmental protection, which will 
oil exploration and production activities by TNCs  benefit both themselves and the host countries in 
have had damaging effects on the environment (box  which they operate (chapter VI). 
V.5). In Equatorial Guinea, on the other hand, oil 
The environmental performance of large, 
companies appear to be respecting internationally  established TNCs is often superior to that of 
accepted oilfield practices and environmental  domestic enterprises, particularly of artisanal 
standards (World Bank, 2002: 8).  
and small-scale miners (e.g. Ericsson and Norås, 
The environmental performance of companies  2005). Chile’s mining industry, in which State-
varies. Some TNCs are attaching increasing  owned enterprises, TNCs and joint ventures are 
importance to higher environmental standards when  involved, enables comparisons of their relative 
undertaking investments, partly in response to  performance. Early studies (e.g. Borregaard, 
external pressure by various stakeholders, and partly  Blanco and Wautiez, 1998) highlighted the gap in 
out of self-interest. TNC activities have become  environmental performance between foreign and 
more visible, and environmental issues today are  Chilean companies in the 1980s and 1990s. But this 

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gap narrowed in the 1990s (Borregaard and Dufey,  corruption, and even armed conflict among different 
2002). Most of the remaining differences are related  groups seeking to benefit from the revenues 
to environmental management skills (Ibid.), while  generated by extractive activities (section D.4). 
concerns related to TNC-operated extractive projects  TNCs can introduce higher standards in dealing 
have more to do with the large scale of their projects  with various social issues, but they can also become 
and, thereby, their larger environmental footprints.
associated with specific problems. 
TNCs may introduce and diffuse higher 
Generalizations are difficult to make, as 
standards and more advanced technologies for  the outcome depends largely on the specific host-
environmental protection. Empirical evidence country situation. Negative social and political 
suggests that “FDI in the mining sector can reduce  effects have been observed mainly in mineral-
or increase pressures on the environment, as  rich, poor countries with weakly governed 
compared with domestic investment, depending on  States. Problems are often associated with the 
the geographical location and whether regulatory,  characteristics of certain minerals, poor governance 
technology or scale effects are considered” (OECD,  structures, and weak institutional capacities of host 
2002: 10). In Peru, foreign investment has stimulated 
countries in the formulation and implementation of 
the use of more environment-friendly technologies  laws and regulations. 
and catalysed a technological transformation in the 
country’s mining industry,70 which has contributed 
1. Health and safety impacts
towards a better environmental performance of the 
whole industry (Pascó-Font, 2000). 
TNC activities in the extractive industries can 
The overall environmental impact depends  have health and safety impacts not only on people 
largely on host-country regulations and the  working in those industries (occupational health 
institutional competence of governments for and safety), but also on nearby communities, for 
implementing them. Given the necessary framework  example, through air and water pollution resulting 
and conditions, favourable effects in terms of  from those activities (discussed in the previous 
improved standards and their diffusion, including  section).71
through spillovers to domestic firms, could follow. 
Mining in general has been identified as 
For governments, the challenge is to minimize  among the most hazardous industries.72 However, 
and manage the environmental stress caused by  the occupational safety and health implications vary 
extractive activities, regardless of whether these are  significantly between different mining activities 
undertaken by domestic firms or by foreign TNCs.  and countries. In the working environment of a 
Host-country policies and regulatory measures  surface mine, for example, airborne contaminants 
need to be designed and implemented in a way that  (such as rock dust and fumes), excessive noise, 
encourages companies to adopt the highest possible  vibration and heat stress can create health problems 
standards of environmental protection and to reduce  for mineworkers who are subject to a frequent 
negative impacts resulting from their activities  and prolonged exposure to them. In this context, 
(chapter VI).
a distinction can be made between industrial and 
artisanal mining. TNCs’ extractive activities belong 
D. Social and political 
to the former category, and are usually larger in 
scale, better regulated and safer (Dreschler, 2001). 
impacts
Informal artisanal mining, on the other hand, takes a 
particularly heavy toll in terms of death and injuries 
The social and political impacts of TNC  in countries where large numbers of people are 
involvement in extractive industries, more than in  engaged in this hazardous activity, due to the lack of 
other industries, have been the focus of considerable  controls and regulations.
attention. Concerns related to health and safety have 
Historically, coal mining has been associated 
consistently presented a challenge to the extractive  with major health and safety risks related to slope 
industries (section D.1). Social concerns often also  failure, the collapse of underground mining 
arise from the relationship between TNCs and the  roofs, gas explosions and unhealthy air quality. 
local communities residing in the vicinity of their  Improvements in mining methods and protection 
extractive operations, the influx of migrant workers  technologies have greatly reduced these risks in 
and various related issues (section D.2). Additional  modern coal mines, where more than 90% of coal 
risks are associated with human rights abuses,  is now produced using mechanical automation 
committed directly or indirectly by TNCs (section  techniques. In addition to technical improvements, 
D.3). Political problems may stem from disputes  TNCs have transformed their safety record by 
over the distribution of the resource revenues,  making safety a priority (Rui, 2005). Therefore, 

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Box V.6. Worker safety in coal mines in China
China produces one third of the world’s coal output, but accounts for four fifths of the world’s coal-mine 
fatalities. In 2003, the death rate per million tons of coal mined in China was 130 times higher than in the United 
States, 250 times higher than in Australia and 10 times higher than in the Russian Federation.a There has been a 
significant and widening gap between the safety record of Chinese domestic coal mines and that of coal-mining 
TNCs worldwide (Rui, 2005 and forthcoming). In the past five years, the situation has improved. However, in 
2006, while TNC-operated mines had close to zero deaths per million tons of coal extracted, the average overall 
rate in China was still more than 2 deaths per million ton, mainly due to a particularly high death rate in township 
and village enterprises (box table V.6.1). 
In 2005, 23,000 privately owned 
and collective-owned coal mines produced 
Box table V.6.1. Safety performance of different types of coal 
38% of the coal mined in China, but 
producers in China, 1999-2006
accounted for 70% of related deaths and 
(Deaths per million tons)
accidents. The Government acknowledges 
Coal producer
1999 2001 2002 2003 2004 2005 2006
that the rates of severe and particularly 
large accidents “were consistently high” 
Key State-owned enterprises
1.0
1.5
1.3
1.0
0.9
0.9
0.6
Local State-owned enterprises
3.5
4.7
3.7
2.0
2.3
2.0
1.1
(China National Coal Association, 2005). 
Officially, the number of deaths has been 
Township and village enterprises
11.0
18.5
12.2
13.4
5.6
5.5
4.4
National average
4.5
5.3
4.6
3.6
3.1
2.8
2.0
over 4,700 per year since 2000.b Unofficial 
estimates put the numbers even higher, 
Source:   Rui, 2005 and forthcoming; China National Coal Association, various years.
reflecting the fact that township and village 
mining enterprises usually do not publish 
details of accidents and deaths.
Source:  UNCTAD, based on Rui, 2005 and forthcoming.
a
Chinese Academy of Social Science, 2006.
b
Source: State Administration of Work Safety and State Administration of Coal Mine Safety, China (www.chinasafety.gov.cn).
the incidence of multiple fatalities is now rare in 
2. Social impacts on the local 
the developed world, and relatively uncommon 
community
in TNCs’ operations in developing countries. 
By contrast, domestic coal producers in many 
Local communities are the most directly 
developing countries have not yet attached the same  affected by TNC activities in extractive industries. 
priority to safety considerations. For example, in  On the one hand, their well-being can be enhanced 
China, over 60% of all coal-mining operations still  by the economic contributions of TNCs, such 
use non-mechanical methods, resulting in a large  as job creation and higher incomes, or through 
number of serious accidents (box V.6).
improvements to local infrastructure and social 
In the oil and gas industry, the frequency of  services. Such contributions can help reduce local 
accidents is lower than in mining and many other  poverty and increase social welfare in absolute 
industries.73 However, because the products of the  terms. On the other hand, there may also be various 
industry are combustible and potentially explosive,  social costs.77 These cannot always be attributed to 
accidents such as fires and explosions can have  TNCs per se, but to the inherent characteristics of 
serious consequences. In July 1988, for example,  extractive activities. However, given their prominent 
167 workers were killed when the Piper Alpha  role in the mineral production of many developing 
North Sea rig of Occidental Petroleum (United  countries (chapter IV), TNCs inevitably become 
States) exploded after a gas leak.74 After this worst  associated with related problems (Ballard and 
oil-rig disaster in the world, TNCs tightened up  Banks, 2003). 
their safety procedures. Now, they generally attach 
Several factors underlie the social impacts 
greater importance to high safety standards; in  of TNC involvement on the local community. 
many cases, these standards are higher than those of  First, adverse social consequences are associated 
indigenous companies in developing and transition  with the relationship between TNCs and local 
economies. The Sakhalin-1 Project, for example, has  communities within the general area or region where 
had an accident rate which is more than four times  the extractive operations are located. Resource 
lower than the average for the Russian oil and gas  extraction operations are cadastral in that their 
industry.75 In spite of the higher health and safety  areas of operation are delineated, which implies 
standards being adopted by TNCs, additional efforts  that the groups of people living in those areas enter 
are needed to further reduce the health and safety  into an economic relationship with the company; 
risks posed by their activities.76
they are defined as “landowners” or “mining lease 

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
residents” and gain access to a range of benefits  extractive industries may threaten their culture and 
or compensation from the company. The people  interdependence with biological diversity, disrupt 
that reside in the vicinity but outside the lines of  their traditional lifestyles and affect their social 
demarcation have no such access to benefits and  welfare (box V.7). 
are often marginal in terms of economic relations 
TNC entry may also create tensions between 
with the company. Conflicts around the large-scale  local communities and migrant workers. As noted 
mining sector that prevail in some developing  above, there is often a need to bring in workers 
countries are driven as much by this marginalization,  from other parts of a host country, or expatriate 
as by the distribution of benefits to the insider  workers, to operate a large mine.  This can lead  
groups (Banks, 2007).78
to a  reconfiguration of local social structures, 
There are various sources of potential  relationships and identities. Some studies suggest 
tension at the community level, including the use  that FDI in mining operations in the United Republic 
and management of land, the relocation of people  of Tanzania is a “successful vehicle for social 
(including indigenous populations), and accordingly  integration”, as the mining firms attract labour from 
the loss of land and livelihoods.79 Indeed, the latter  all over the country (Kulindwa et al., 2003), while 
has been the main grievance against mining activities 
others have a much less positive assessment of their 
in Indonesia. For example, in the construction of  impact on local communities (George, 2003). With 
the Kelian Mine in Indonesia by Rio Tinto (United  or without TNC involvement, the influx of migrant 
Kingdom) and the local PT KEM, the land and  workers, contractors and others linked to large 
assets of the local people were expropriated; some  extractive projects can be socially disruptive for 
were compensated, but at rates considered unfair by  local communities (Banks, forthcoming), sometimes 
the community (Oxfam Community Aid Abroad,  causing them to suffer from various social 
2001). In the case of the Soroako project in South  pathologies, such as increasing levels of alcoholism, 
Sulawesi, Indonesia operated by Inco (Canada),  prostitution, gambling, violence and lawlessness, as 
much of the agricultural land adjacent to the mine  well as diseases, including HIV/AIDS.80
was requisitioned for the mine’s infrastructure, 
Social problems can also be associated with 
including an airport, a sports oval and a golf  the closure of mines operated by TNCs (e.g. the 
course. Local communities were excluded from  Misima mine in Papua New Guinea and the Kelian 
negotiations regarding the land, and compensation  mine in Indonesia). After deposits are exhausted or 
for the acquired land was perceived to be inadequate  become uneconomical to extract, and TNCs close 
(Ballard, 2001). When the communities are included, 
their operations and leave, local populations might 
it can spark off internal disputes and questions  be left with no alternative employment opportunities, 
about identity as people strive for recognition as  a scaled down infrastructure and destroyed land. 
“landowners” to claim eligibility for compensation  For instance, one of the issues for the joint venture 
(Banks, 2005). Moreover, social problems may erupt  involving TNCs at the Porgera gold mine in Papua 
as a result of disagreements over compensation.  New Guinea is how to facilitate and improve the 
In the cases of the Kelian Mine in Indonesia and  scope for small-scale mining once its large-scale 
the Bulyanhulu Mine in the United Republic of  operations end (Banks, 2007). 
Tanzania, for example, it was alleged that the 
In response to such challenges, more and 
relocated people experienced a dramatic fall in their  more TNCs are becoming aware of the social effects 
living standards due to inadequate compensation  of their activities. In the context of responsible 
(Oxfam Community Aid Abroad, 2001; Extractive  investment, they have been focusing on meeting 
Industries Review Secretariat, 2003).
the needs of local communities in order to obtain 
In addition, large mines usually need ample  a social licence – an implicit de facto licence for 
and stable supplies of electricity, water and other  mining from civil society (in addition to an explicit 
utility services. When TNCs’ mining operations are  de jure licence from the State). Accordingly, 
in regions where these services are inadequate or  extractive-industry TNCs are frequently helping 
unreliable, competition for them may create tensions  local communities improve roads, health and 
between the TNCs and the local community.  education facilities and water systems. Some 
Furthermore, crowding-out effects on artisanal  improvements have resulted in limited or only short-
miners may trigger conflicts between foreign and  term benefits for communities, while others make 
domestic operators. For example, the displacement  positive contributions over longer periods: 
of artisanal gold miners in the United Republic of 
Tanzania has exacerbated conflicts between them  • In Botswana, two major mining companies 
and those that have displaced them (Hilson and 
(Debswana and BCL) have invested extensively 
Potter, 2005). For indigenous peoples who usually 
in health and education facilities in local 
live in vulnerable environments, TNC activities in 
communities. Both companies operate hospitals 

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Box V.7. Social impacts of extractive-industry TNCs on indigenous peoples: selected cases
 Indigenous peoples usually live in vulnerable environments that may also constitute reservoirs of 
biodiversity. A large number of them still occupy their traditional lands, and rely on subsistence activities 
such as hunting, fishing, trapping, gathering or herding. Their survival depends on the survival and sustenance 
of their ecosystems. The land is also at the core of their collective identity and spirituality. Yet many TNC 
activities in extractive industries take place in areas inhabited by indigenous peoples, and they can have serious 
environmental impacts on those areas, as noted earlier, affecting the inhabitants’ livelihoods and way of life. The 
loss of biodiversity or alteration of their ecosystems as a result of TNCs’ activities can therefore have dramatic 
consequences.a In addition, various cases of abuse and violations of their social, cultural, economic, civil and 
political rights have been reported.b
Ok Tedi mine in Papua New Guinea. The Ok Tedi copper and gold minec is located in the Star Mountains 
of Papua New Guinea, an area inhabited mainly by indigenous peoples. Since the late 1980s, almost 2,000 square 
kilometres of downstream lowland rainforest has been flooded and destroyed by tailings and waste rock from the 
mine. This has caused environmental and social harm to the 50,000 people who live downstream of the mine. 
Their means of subsistence and activities have been disrupted as a result of heavy water effluents, and air and 
soil contamination generated by the mining operations. Various indigenous peoples have suffered from chronic 
illnesses, including rashes and sores caused by pollution. In 1994, 30,000 landowners from Papua New Guinea 
brought a legal claim against the mining company BHP (now BHP Billiton). A negotiated settlement worth 
approximately $500 million in compensation and commitments to tailings containment was reached in June 1996, 
though this may not have been entirely successful in addressing the issues (Kirsch, 2007). 
ChevronTexaco’s oil operations in Ecuador. From 1964 to 1992, Texaco (now part of Chevron) built and 
operated oil exploration and production facilities in the northern region of the Ecuadorian Amazon. Before the oil 
company arrived, an area of more than 400,000 hectares was pristine rainforest, with six indigenous communities 
and about 30,000 indigenous peoples living in the natural environment. Heavy pollution caused by oil extraction, 
production and transportation had serious consequences. The construction of exploration roads was followed by an 
influx of settlers who damaged the surrounding forests through logging, extensive agriculture and the introduction 
of domestic animals. In addition, the new settlers and foreign workers introduced various diseases among the 
indigenous communities. The result was an exploding health crisis among the region’s indigenous and farming 
communities, including rising levels of cancer, reproductive problems and birth defects.
The Chad-Cameroon pipeline project and the Bagyéli people. The Chad-Cameroon pipeline project involves 
a consortium of companies: ExxonMobil (United States) is the operator, with 40% of the private equity, Petronas 
(Malaysia) has a share of 35% and Chevron (United States) has 25%.d The 1,070-kilometre pipeline cuts through 
some of Africa’s old growth tropical rainforest and through the villages of the Bagyéli indigenous communities. 
These communities depend on the forest and forest products for their subsistence-based lifestyle. Less than 5% 
of the affected Bagyéli are employed in the pipeline project. However, its impact on their social welfare has been 
considerable. Increased logging, the loss of water resources, and noise and river pollution have damaged their 
hunting grounds and fishing areas; while the destruction of the surrounding forest and medicinal plants have caused 
cultural and health problems. 
Source:  UNCTAD, based on Kirsch, 2002 and 2007; Forest Peoples Programme, at: www.forestpeoples.org; and 
AmazonWatch, at: www.amazonwatch.org.
a
See conclusions of the 2001 OHCHR workshop on indigenous peoples, private sector natural resource, energy and mining companies 
and human rights (United Nations Document No. E/CN.4/Sub.2/AC.4/2002/3).
b
See the report of the Special Rapporteur on indigenous people (United Nations Document No. E/CN.4/2003/90)
c
The Ok Tedi mine is operated by Ok Tedi Mining Ltd (OTML) which is majority-owned by the PNG Sustainable Development Program 
Limited (PNGSDP). Prior to 2002, it was majority-owned by BHP Billiton.  PNGSDP is the result of an agreement between BHP 
Billiton and the Papua New Guinea Government. Under the agreement, all of the dividends from OTML that would once have gone 
to BHP Billiton now go to PNGSDP, which has the role of spending profits from the mine wisely on development in Papua New 
Guinea. As a company “limited by guarantee”, PNGSDP does not have shareholders (see http://www.pngsdp.com/companyprofile.html; 
PNGSDP, Annual Report 2002).
d
The project also benefited from World Bank and IFC loans. 
that are open to both company employees and  • In Indonesia, Freeport-McMoRan Copper & 
the general public. Debswana has been actively 
Gold has been donating 1% of its gross revenues 
addressing the HIV/AIDS problem, and was the 
to support community development projects at 
first company to provide anti-retroviral therapy 
the village level. Since 1996, it has contributed 
(ART) to employees and family members free of 
$61 million to the Freeport Fund for Papua 
charge (UNCTAD, 2007i).81
Development, a programme managed together 
• In Chile, Minera Escondida donates 1% of its 
with an NGO and the leaders of local tribes and 
pre-tax income to corporate social responsibility-
churches (Erman and Aminullah, 2007).
related projects in the country (UNCTAD, 2007j). 

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World Investment Report 2007:  Transnational Corporations, Extractive Industries and Development
• In the United Republic of Tanzania, some mining  countries that are characterized by a combination 
TNCs have launched specific social investment  of relatively low national income, current or recent 
programmes in various areas such as health and  conflict exposure, and weak or corrupt governance” 
education to increase the well-being of local  (Ibid., para. 27).
communities. The total expenditures were $30 
According to the same survey, a variety of the 
million for the period 1999-2005.82
alleged violations of human rights were committed 
TNC involvement in local community by public (often government-controlled) and private 
development is not without its problems. One issue  security forces protecting company assets.84 The use 
is whether it causes some States to abdicate some  of such forces by some TNCs in weakly governed 
of their core functions, such as providing basic  States or conflict zones has prompted concerns 
education or health care. A firm’s investment in  regarding the use of indiscriminate force.85 There 
social infrastructure may be motivated by factors  have been many reported abuses by private security 
other than advancing the best interests of the local  forces,86 as well as a large number of charges against 
community; it may respond to the priorities of  private firms acting on behalf of TNCs.87  Another 
specific government officials rather than to those of  problem occurs when TNCs rely on State forces to 
the wider community. Or their investment may serve  provide security. While these forces may be under 
to assuage local fears and serve public relations  the control of a host-State entity, TNCs might still 
purposes. Community development projects should  be held accountable for their behaviour when they 
identify the needs of the local community through  support their actions either by paying their salaries, 
a needs assessment exercise conducted prior to the  or providing intelligence or other services such as 
inception of a project. However, this may not always  transportation. 
happen. For example, according to one study, 
some of the schools, hospitals and clinics built in 
4. Corruption, conflict and other 
Sudan by Petrodar Operating Company (British 
political issues
Virgin Islands),83 appeared not to be “primarily 
designed to serve the needs of the people” and to 
TNCs in extractive industries are more likely 
“remain poorly utilised or even empty” (ECOS,  than those in other industries to retain a presence 
2006: 23). This might be avoided by linking  in conflict zones, because these areas are often 
community development programmes of TNCs  endowed with minerals associated with high rents. 
to the development planning processes of local  TNC participation can reinforce adverse political 
governments (Frynas, 2005: 583–587).
impacts, often related to the distribution of resource 
revenues. The quality of governance is a key factor 
3. Human rights implications
in determining whether a mineral-resource-rich 
country will succumb to such interrelated political 
TNC participation in extractive industries  problems as disputes over the resource rent, 
has been criticized as having a potentially adverse  corruption, or even armed conflict or war.
impact on the human rights situation in some host 
Corruption is often endemic in societies that 
countries. Alleged human rights abuses include  rely on extractive industries as their main source of 
the disappearance of people, arbitrary detention  income – with or without TNC involvement (Leite 
and torture, loss of land and livelihoods without  and Weidmann, 2001; Ross, 2001; Sali-i-Martin 
negotiation and without adequate compensation,  and Subramanian, 2003: 9). TNCs can add to the 
forced resettlement, the destruction of ritually or  problem by adhering to non-transparent business 
culturally significant sites without consultation or  practices, for example in host countries that treat 
compensation and labour rights violations. In other  the amount of revenues generated by extractive 
instances, the dislocation of local populations has  industries as a State secret (Catholic Relief Services, 
been linked to crimes against humanity.
2003: 1). TNC participation may not only add to 
In a survey of alleged corporate human  corruption in a country; it can also extend support 
rights abuses, as many as two thirds of the total  to authoritarian regimes, for example by providing 
of 65 abuses reported by NGOs were related to  governing elites with access to funds (Shankleman, 
the extractive industries (United Nations, 2006),  2006: 3). 
and they occurred mainly in poor countries with 
Many conflict-prone States are desperately 
weakly governed States. As noted by the Special  poor, despite significant mineral resources (UNDP, 
Representative of the Secretary-General of the  2005: 165). TNCs are often the only avenue for 
United Nations on human rights and transnational  some of them to exploit their resource wealth. But a 
corporations and other business enterprises: “there  foreign investor and the resulting inflows of revenue 
is clearly a negative symbiosis between the worst  can contribute indirectly to conflict by sustaining 
corporate-related human rights abuses and host  regimes that fail to address socio-economic 

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and political grievances and/or by providing an  stakeholders, influence the behaviour of TNCs and 
economic incentive for the confl