A partnership with academia

Building knowledge for trade and development


altAbout 70 students and lecturers from three Russian Vi affiliate universities joined UNCTAD expert, Kalman Kalotay, of the Division on Investment and Enterprise for a videoconference presentation of the latest World Investment Report (WIR) December 2.

The presentation, hosted by the Vi Russian affiliate, St. Petersburg State University of Economics and Finance, also included participants from St. Petersburg State University and the North-West Institute.
Kalotay began with an overview of world FDI, which, after a peak in 2007 and a subsequent drop of nearly 50 percent from pre-crisis levels, began to recover in 2010. The recovery was uneven, however, with FDI flows into developing countries growing by 12 percent while inflows for developed countries and transition economies continued to decline. The 5 percent drop in FDI flowing into transition economies was a consequence of the poor performance of South-Eastern Europe. In contrast, FDI into Russia and the CIS increased by about 2 percent in 2010.
“There has been a dramatic change in the geographical composition of FDI in 2010”, Kalotay said. “For the first time, developing and transition countries represented more than half of the world FDI. They also resisted the crisis better than developed economies.”
Developed countries are still among the most important sources and recipients of FDI, but five of the top FDI recipients and three of the top FDI “exporters” are developing and transition countries. Russia holds an important place in both rankings as the eighth on the list of largest global recipients and sources of FDI.
Among transition economies (non-EU countries only) Russia is the largest recipient of FDI – its FDI inflows increased significantly 2009 (USD 37 billion) and 2010 (USD 41 billion). Other top FDI recipients in the region are Kazakhstan and Ukraine. The remaining transition economies received limited inflows of FDI.
While in 2008 FDI inflows into Russia were higher than outflows, in 2010, Russia became a net capital exporter with USD 41 billion of inflows and 51 billion in outflows.
“Surprisingly and perhaps against conventional wisdom,” Kalotay said, “since 2001, the outward FDI stock of Russia has been higher than that of China.”
FDI prospects for the region look positive, he added. FDI inflows are expected to increase following Russia’s expected accession to the WTO, which should open new investment opportunities in the services sector. FDI outflows are also expected to grow as a result of higher commodity prices and economic recovery in countries with large natural resources.
With regard to national FDI policies worldwide, the year 2010 witnessed a move towards re-balancing the rights and obligations between home and host countries. While measures aiming to liberalize FDI still prevailed (68 percent), restrictive measures kept increased to account for 32 percentof new FDI measures.
In terms of international FDI policies, the growth trend of international investment agreements continued, resulting in over 6,000 investment treaties being in effect worldwide at the moment. These treaties offer protection to two-thirds of global FDI stock.
The WIR 2011 filled a gap in the analysis, by taking on the topic of non-equity modes of international production (NEMs), i.e. contract manufacturing and services outsourcing, franchising, licensing and management contracts.
NEMs in industries such as electronics, pharmaceuticals, footwear, garments, toys and automotive components grow faster than the total production in the industries in which they operate, and generate about USD 2 trillion a year in related sales. They also represent a considerable employment potential. In the world garment industry, for example, nearly half (7 million) of its 15 million workforce work under NEM arrangements.
NEMs also generate large export gains in some industries. The largest share of NEM-related export earnings – USD 250 million out of the total exports of USD 400 million - was recorded in the electronics sector.
However, there are also potential downsides to NEMs – deterioration of working conditions, vulnerability of employment that can be easily displaced, limited local value added or low technology content. Concerns are also expressed about the circumvention of international best social and environmental practices.
The presentation triggered a lively discussion where students and lecturers of participating universities inquired about future investment trends (“what will happen to the world economy if FDI slows down?”), expected developments in investment policy (“will the growth of protectionist measures continue?”, “is it likely that a multilateral investment agreement will be concluded?”) or FDI and transnational corporations as such ( “does the growth of NEMs mean that traditional forms of FDI are not suitable anymore?”, “does state ownership encourage or hinder the internationalization of TNCs?”).