Most national policy changes continued to encourage FDI, though less favourable measures became more frequent.
Despite growing concerns and political
debate over rising protectionism, the overall policy
trend remains one of greater openness to FDI.
UNCTAD's annual survey of changes in national
laws and regulations that may influence the entry
and operations of TNCs suggests that policymakers
are continuing in their efforts to make the investment
climate more attractive.
In 2007, of the almost 100
policy changes identified by UNCTAD as having a
potential bearing on FDI, 74 aimed at making the
host country environment more favourable to FDI.
However, the proportion of changes that were less
favourable to FDI has been increasing over the past
few years.
As in 2006, most of the new restrictions
introduced were concentrated in the extractive
industries, particularly in Latin America (e.g. Bolivia,
Ecuador and the Bolivarian Republic of Venezuela),
but they were also apparent in other countries as well.
Several governments, including those of the United
States and the Russian Federation, adopted stricter
regulations with regard to investments in projects
that have potential implications for national security.
Government concerns also appear to be directed
towards investments in certain infrastructure areas
and those undertaken by State owned entities.
The number of international investment
agreements (IIAs) continued to grow, reaching a total
of almost 5,600 at the end of 2007. There were 2,608
bilateral investment treaties (BITs), 2,730 double
taxation treaties (DTTs) and 254 free trade agreements
(FTAs) and economic cooperation arrangements
containing investment provisions. The shift in treatymaking
activity from BITs towards FTAs continued,
as did the trend towards renegotiation of existing BITs.
The global financial crisis had a limited
impact on FDI flows in 2007, but will
begin to bite in 2008.
The sub prime mortgage crisis that erupted
in the United States in 2007 has affected financial
markets and created liquidity problems in many
countries, leading to higher costs of credit. However,
both micro and macroeconomic impacts affecting the
capacity of firms to invest abroad appear to have been
relatively limited so far. As TNCs in most industries
had ample liquidity to finance their investments,
reflected in high corporate profits, the impact was
smaller than expected.
At the macroeconomic level,
developed country economies could be affected both
by the slowdown of the United States economy as
well as by the impact of the turmoil in the financial
markets on liquidity. As a result, both inflows to and
outflows from these countries may decline. On the
other hand, the relatively resilient economic growth
of developing economies may counteract this risk.
In addition to the credit crunch in the United
States, the global economy was also affected by the
significant depreciation of the dollar. While it is
difficult to isolate the effects of exchange rate changes
from other determinants of FDI flows, the sharp
weakening of the dollar helped to stimulate FDI to the
United States. European FDI to the United States was
spurred by the increased relative wealth of European
investors and reduced investment costs in the United
States.
Moreover, companies exporting to the United
States have suffered from the exchange rate changes,
which have induced them to expand local production
in the United States. This is illustrated by changes in
the strategy of several European TNCs, particularly
carmakers, that plan to build new or expand existing
production facilities in that country.