IN­VEST­MENT slows to a trickle

Sub-Sa­ha­ran Africa re­ceived only 6.5% of all green­fields for­eign di­rect in­vest­ment in 2015, writes De­wald van Rens­burg

CityPress - - Business -

The UN Com­mis­sion on Trade and De­vel­op­ment (Unctad) re­leased its an­nual World In­vest­ment Re­port this week. The global tally of all mea­sur­able for­eign di­rect in­vest­ment (FDI) once again shows that sub-Sa­ha­ran Africa re­ceived less than 3% of all FDI, mak­ing it eas­ily the most mar­ginal re­gion in the global econ­omy.

FDI is de­fined as rel­a­tively last­ing flows of money be­tween coun­tries that re­sult in own­er­ship of more than 10% in a com­pany or as­set. It can be roughly di­vided into merg­ers and green­field projects.

From a de­vel­op­ing world per­spec­tive, the flow of green­fields money has been rel­a­tively strong. But merger ac­tiv­ity is con­cen­trated in the de­vel­oped world.

Ac­cord­ing to the re­port, sub-Sa­ha­ran Africa re­ceived 6.5% of all green­fields in­flows – but this has de­clined from 2014 (see box).

The con­ti­nent’s FDI in­flows were roughly equal to that of In­dia, but less than that of ei­ther Brazil or China.

The end of the so-called com­modi­ties su­per­cy­cle has led to cut­backs in min­ing in­vest­ment all over the world. Th­ese had been par­tic­u­larly im­por­tant to Africa.

But not all in­vest­ment is equal. Much of the FDI mea­sured across the globe last year was of the kind that was less use­ful.

“In this con­text, a con­cern is the ap­par­ent pull­back in pro­duc­tive in­vest­ment by multi­na­tional en­ter­prises,” says Unctad.

The­o­ret­i­cally, merg­ers and ac­qui­si­tions (M&As) do have pro­duc­tive ef­fects be­cause new own­ers bring with them both tech­nolo­gies and in­ter­na­tional best prac­tice, which in­crease pro­duc­tiv­ity.

“Although FDI through cross-border M&As can boost pro­duc­tive in­vest­ments, a num­ber of deals con­cluded in 2015 can be at­trib­uted to cor­po­rate re­con­fig­u­ra­tion,” says Unctad in its re­port. This is “par­tic­u­larly pro­nounced” in the US and Europe. Tax in­ver­sions are when large con­glom­er­ates es­sen­tially buy them­selves so they can re­lo­cate their head of­fices to friend­lier ju­ris­dic­tions.

“Tax has even be­come a driv­ing force of M&A trans­ac­tions per se, as wit­nessed by in­ver­sion deals in which US multi­na­tional en­ter­prises re­domi­cile through a trans­ac­tion with a for­eign com­pany, mak­ing the for­eign com­pany the new par­ent en­tity,” Unctad says.

The struc­ture of multi­na­tional cor­po­ra­tions in the global econ­omy is get­ting more com­pli­cated, the re­port says.

It is be­com­ing in­creas­ingly dif­fi­cult to as­sign a “na­tion­al­ity” to cor­po­ra­tions – or even to dis­cern which ones are local as op­posed to for­eign.

This mat­ters be­cause many of the world’s trade and in­vest­ment rules are based on na­tion­al­ity.

“In­vest­ment poli­cies ‘trig­gered’ by na­tion­al­ity and own­er­ship are ubiq­ui­tous,” says the re­port.

About 80% of coun­tries have one or more in­vest­ment rules that bans for­eign com­pa­nies from own­ing 50% of a com­pany in some or other sec­tor. This is like the rule South Africa wanted to in­tro­duce for the pri­vate se­cu­rity sec­tor.

And in­ter­na­tional trade deals usu­ally have ar­bi­tra­tion clauses that give com­pa­nies from sig­na­tory coun­tries the right to take other sig­na­tory coun­tries to in­ter­na­tional ar­bi­tra­tion if they act con­trary to the deals.

The largest ar­bi­tra­tion fo­rum of this kind is the In­ter­na­tional Cen­tre for the Set­tle­ment of In­vest­ment Dis­putes (Ic­sid), which is af­fil­i­ated to the World Bank.

Ac­cord­ing to Unctad, a third of all the com­pa­nies that lodge Ic­sid dis­putes do so in terms of in­vest­ment treaties to which their home coun­tries are not even party.

Th­ese dis­putes can be im­por­tant. South Africa had to set­tle one with a group of Italian in­vestors a few years ago to avoid hav­ing the coun­try’s em­pow­er­ment char­ter for the min­ing in­dus­try de­clared a con­tra­ven­tion of a bi­lat­eral in­vest­ment treaty.

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