UNCTAD’s Unbound Value Chains
UNCTAD’s 2012 World Investment Report charted a global FDI “sharp decline” of almost 20 percent to $1.35 trillion, although developing economies for the first time took over half as trade overwhelmingly goes through integrated value chains. This year’s result should be flat as the total continues to reflect the mid-2000s pre-crisis average, pending the release of record multinational firm cash piles. Asia and Latin America accounted for $600 billion of the $700 billion sum as Africa was steady at $50 billion, and European transition countries received $90 billion. The BRICS themselves were sources for $150 billion or one-tenth the world aggregate, with China ranking just behind the US and Japan. Developed nation inflows fell one-third, with North America, the EU and Australia all off. Offshore financial center-based allocation was again high at $80 billion, with a multiple of that figure channeled through anonymous tax-advantaged special purpose vehicles singled out for greater scrutiny and transparency at the June UK-hosted G-8 summit. Foreign affiliates of global enterprises had $25 trillion in sales and $1.5 trillion in income and represented one-quarter of “greenfield” projects. South Asia and the Central America/Caribbean regions lost ground, while low-income destinations like Cambodia and Myanmar improved. Russia provided 90 percent of outbound FDI in the former CIS, and Korea was the top investor in landlocked developing countries. Financial services have been a growth area in the poorest states, while Trinidad and Tobago with its energy riches was a prime island target. Governments were “more selective” with regulation and screening and industrial policy application, with particular focus on cross-border mergers and acquisitions, the agency wrote. Over 20 percent of deals were withdrawn mainly in the extractive sector, as “investment protectionism” heightens in the absence of a shared G-20 commitment and definition. Only 20 new bilateral treaties were signed, the lowest in 25 years although sustainable development provisions now routinely feature. Almost 60 arbitration cases were filed in contrast, the highest annual load to date.
Value chains control 60 percent of international trade and multinational headquarters set the supplier and reporting relationships. Per-capita income growth in their locations tends to exceed the geographic average, but lower end assembly operations limit the effect. Transfer pricing practice can also stifle gains and working conditions may be dangerous, as illustrated by fires and building collapses in Bangladesh textile factories. Potential bases must offer both good physical and “soft” infrastructure like trained workers and cooperative bureaucracy, but domestic hubs should insist on strong environmental and social protections in the bargain, the UN arm recommends. The findings coincided with US President Obama’s unveiling of new external climate change initiatives just prior to an African trip to promote additional business and banking ties. His proposals aim to refine agreements with big polluters China and India to cut carbon emissions and advance solar and wind alternatives as elements of more neighborly behavior.
