In the past decade, the value of cross-border direct investment has grown substantially, to the point where global inward investment flows now approach $1.2 trillion USD; sales of affiliates worldwide are just under $30 trillion USD, far in excess of world trade flows and there are more than 2800 bilateral investment treaties, many of them “south-south”.
The increasing level and expanding nature of international investment flows and associated transactions speak to the recognition by host governments-particularly in the developing markets-of the contribution international investment makes to their sustainable development. Businesses and governments in developing countries, as well as developed countries, are keenly aware of the importance of investment as a driver of growth. Following years of liberalization of investment regulations and an increase in the negotiation of bilateral investment treaties, foreign investment inflows to developing and transition economies now constitute 52% of total global inflows, nearly double the percentage of 2007.
Outward investment also conveys benefits to companies and home governments that frequently may be overlooked. It enables all firms to establish a presence in global markets, particularly the fast growing markets of emerging countries. Moreover, outward investment increasingly enables emerging market firms to establish themselves in industrialized economies. For many global companies, it is not unusual for 50-60% of their total sales and profits to be derived from their affiliates abroad. Outward investment also establishes linkages between domestic and foreign entities, enabling companies to expand their activities and create new jobs at home through exports, and to harness efficiencies on a global scale. Indeed, for some countries, nearly 50% of total exports are accounted for by intra-company exports of parent firms to their foreign affiliates invested in global markets.
Notwithstanding the growth of foreign investment flows and associated economic activity, there are reasons for international investors to be concerned about recent developments and policies-or the lack thereof-that dampen an enabling environment for international investment. These concerns, which are addressed in greater detail in the Guidelines, can be “clustered” into three categories.
- Business confidence regarding sovereign debt policies, macro-economic imbalances, taxation, and regulatory uncertainty
- Re-regulation of foreign investment
- State-owned enterprises (SOEs) & Sovereign Wealth Funds (SWFs)