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Vi's Eveliina Kauppinen (left) and UNCTAD's Kalman KalotayThirty-six students from Vi core member, the University of Sarajevo, joined UNCTAD for a videoconference presentation to discuss findings of the latest World Investment Report (WIR) December 9.

WIR co-author Kalman Kalotay, of UNCTAD’s Division on Investment and Enterprise, began with an overview of global foreign direct investment (FDI) trends.

 In 2015, global FDI witnessed a 38 percent jump, Kalotay reported. FDI flows totaled USD 1.76 trillion, the highest value since 2007. According to the report, the principal factor behind the global rebound was a surge in cross-border mergers and acquisitions.

The share of developed economies in world FDI increased from 41 percent in 2014 to 55 percent in 2015, reversing a five-year trend during which developing and transition regions had become the main recipients of global FDI.

"In terms of FDI, the picture is not so brilliant for the transition economies," he said. "This is due to a decline in FDI flows to the Commonwealth of Independent States, especially the Russian Federation."

According to the latest WIR, FDI inflows to transition economies in 2015 dropped to only 40 percent of the 2013 mark.

"After huge transactions recorded in 2007, FDI remained not very high in Bosnia and Herzegovina, and underwent large fluctuations, replicating the trends of other countries of the Central European Free Trade Agreement (CEFTA)," Kalotay said. "We are still waiting for a year in which FDI in Bosnia will exceed the billion-dollar mark, and enter on the radar screen of large investors."

Turning to sectoral composition of FDI, the share of manufacture in transition countries, at 15 percent, is particularly low compared to the world average of 27 percent.

"The conclusion is very clear: We are living in the age of services," he said. "This also applies to transition economies, where the share of services in FDI is 70 percent." 

The presentation concluded with a discussion of the increasing complexity of the ownership structures of multinational enterprises, this year’s WIR special topic. According to the report, firms and especially affiliates of multinational enterprises (MNEs) are often controlled through hierarchical webs of ownership involving a multitude of entities with multiple cross-border links.

"When MNEs have foreign affiliates, they own them directly in only in 44 percent of the cases," Kalotay pointed out. “In the rest of the cases, the direct owner is  based in a third country. This mismatch is quite common, and it makes the ‘foreignness’ of an investment difficult to assess properly."

This finding has important implications in the context of bilateral investment treaties and investor-state disputes.

"It means that if an MNE has a problem with a State, it would have the possibility to file a claim through intermediate entities based in a country with which investor-State disputes are governed by a bilateral or regional treaty," Kalotay explained.

The WIR 2016 proposes a new framework for handling ownership issues.