Many see foreign direct investment as a key prerequisite for an economic breakthrough in Ukraine. Yet, as this Financial Times article reports, political and security problems in Ukraine prevent FDI from climbing back to its pre-war levels. With the onset of the conflict with Russia, FDI flows to Ukraine experienced an unprecedented decline, falling from $8.5bn in 2012 and $4.5bn in 2013 to just $410m in 2014. Despite a certain rebound, driven by the recapitalisation of foreign-owned banks, FDI has so far failed to return to previous levels.
It is important to note, though, that foreign investment in Ukraine has often served as a veil for local (and sometimes Russian) big business, which uses special purpose entities in Cyprus and other tax havens to secure special legal treatment, conceal the ownership of assets and minimise taxes.
The European Parliament on Thursday slammed Montenegro for its lack of progress in tackling institutional corruption and making any meaningful progress in improving the rule of law. The elaborate façade of prime minister Milo Djukanovic’s charm offensive towards the west is crumbling at his feet as his European interlocutors realise that the emperor is indeed quite naked.
The Central European Aluminum Company (CEAC) invested millions in the KAP smelter in Montenegro, only to see itself stripped of its ownership of the metal plant by the Montenegrin government. Following the government’s refusal to come to the negotiating table, CEAC has been obliged to initiate arbitration proceedings. Read more
By Anders Heede of BDO
Many emerging markets, especially in sub-Saharan Africa, have seen solid GDP growth in the past decade driven mainly by natural resources. But with falling commodity prices and Chinese demand dwindling, those with overly resource-dependent economies are being caught. Companies seeking to invest in emerging markets should be on the lookout for those countries that have invested in diversifying their economies. That will often mean having Ethiopia on their shortlist. Read more
Days ahead of hosting a high-profile international investment conference, Egypt has announced it is slashing its top tax rate in an apparent bid to enhance its appeal to potential investors.
The top rate for corporates and individuals is to be reduced from 25 per cent to 22.5 per cent. But the decision also means the abolition of an additional 5 per cent “millionaire’s tax” levied on annual incomes above one million Egyptian pounds, or $133,000. That levy, introduced last year and intended as an exceptional measure for three years only, had brought the top rate to 30 per cent.
“This definitely makes Egypt more attractive to foreign investors,” said Angus Blair, president of the Signet Institute, a Cairo-based economic think tank. “I thought it was a mistake last year when the tax rate was increased. It was not the appropriate time. Egypt is now more investor-friendly than last week.” Read more
By Kavaljit Singh of Madhyam
It’s official: India and the US will resume negotiations on a high-standard bilateral investment treaty (BIT). In a joint statement on Sunday by Prime Minister Narendra Modi and President Barack Obama, the leaders affirmed their “shared commitment to facilitating increased bilateral investment flows and fostering an open and predictable climate for investment.”
Since 2008, the two countries have been engaged in sporadic discussions to arrive at such a treaty. In the coming days, negotiations will begin on its wording, based on each country’s revised model treaty texts. Read more
By Kavaljit Singh of Madhyam
President Barack Obama’s upcoming visit to India is likely to kick-start stalled negotiations on a bilateral investment treaty (BIT) between the US and India that has been under sporadic discussion since 2008, aimed at facilitating greater cross-border investment flows.
Negotiations will resume based on model treaty texts prepared by each side. In April 2012, the US released a new version of its model BIT. New Delhi launched a review of its investment treaties in mid-2012 in the wake of public outcry over arbitration notices served by 17 foreign companies (including Vodafone and Sistema) challenging various policy measures and demanding billions of dollars in compensation for the alleged violation of India’s BITs. Read more
The World Bank’s annual “Doing Business” rankings have long been a favourite grousing point for policymakers in the developing world and a regular source of tension between the bank and its member countries.
So much so that China – disenchanted with its persistently low place in the rankings – tried to kill them altogether in 2013.
The rankings’ defenders argue there is a good reason for why the annual Doing Business report is the bank’s most popular: It offers an unvarnished assessment of economies’ relative standings in the world when it comes to bureaucratic barriers to business. And that, the defenders contend, makes it a valuable policy tool Read more
In a guest post published here on October 10, Milo Djukanovic, Montenegro’s prime minister, asserts that his country is “proving its commitment to Euro-Atlantic values”. This would be funny if it were not so tragically ironic. It seems that Djukanovic is desperately scrambling to make the best of his recent bad scorecard from the European Commission. Read more
As if to add substance to complaints from emerging market policymakers about being ignored, a matter mainly affecting middle-income countries became the subject of close global attention only when it emerged as a bone of contention between the US and Europe.
The snappily-titled “investor-state dispute settlement” (ISDS) process, where companies have the right to sue governments for disadvantaging their businesses, has been the subject of deep controversy for years. But since the most vocal discontents were nations like Argentina and Venezuela that complain about more or less everything, it took well-organised campaigning and official German opposition to an ISDS chapter in the US-EU Transatlantic Trade and Investment Partnership (TTIP) to make it a central concern. Read more
It’s not just about oil. That is, in a nutshell, Mexico’s message to investors. What about halal food? Or ships? Videogames, anyone?
Oil and gas prospects are obviously at the front of Mexico’s investment prospects – the country’s energy reform is expected to attract as much as $50bn in foreign investment in 2020.
But there’s more, the government says. And not just in the increasingly high-tech manufacturing industry that Mexico has embraced – it is the world’s fourth exporter of cars and first of flat-screen TVs, and its aerospace industry has rocketed. Read more
By Stuart Larkin of the Institute of Southeast Asian Studies
Following his “flipping the switch” on political reform, Thein Sein, Myanmar’s president, has embraced the international donor community – of bilateral and multilateral agencies led by the Asian Development Bank, the World Bank and the IMF – in an agenda of good governance and economic liberalisation. Early reforms have spurred economic growth to around 8 per cent and both government and donors have extrapolated this trend out to 2030 and the attainment of middle income status almost as if it is already in the bag. Not wanting to be seen as a spoiler, neither side has an interest in deviating from this new economic narrative. Read more
By Sunil Sanghai of HSBC
The days of hot and smart money are over. An increasing number of long-term foreign investors are betting heavily on a bright future for India. They were already doing so before the decisive election result in May and we expect this momentum to grow and grow.
Around this time last year, India’s economy seemed to be in a state of flux. The rupee was at an all-time low, inflation was stubbornly high and the equity market was shackled. Foreign institutional investors often looked confused, sucking hot money out of the markets one day only to pour it back the next. Read more
Next year marks the 40th anniversary of China’s recognition of Bangladesh. It’s not a celebrated anniversary for many, least of all the country’s prime minister, Sheikh Hasina. The year, 1975, was also that of the death of her father, the country’s independence hero Sheikh Mujibur Rahman. His struggle against Pakistani domination was bitterly opposed by Beijing, where in 1971 state media described him as a “puppet countenance” and the country’s creation as “fascist nonsense”. It wasn’t until he and most of his family were gunned down that China opened relations with the country. Read more
To see how China is managing its growing clout over trade and investment around the world, it might help to take a look at how an economic hegemon evolved in the past – Britain’s colonists in eighteenth and nineteenth-century India.
In reality, China is still in the East India Company stage of global economic strategy – opportunistic and pragmatic rather than ideological and intellectually coherent. (It is something of an irony that the one-party autocracy of China is proving itself eclectic while the open-market democracy of the US has been doctrinaire.) And while there are some signs that China’s economic statecraft is moving towards the transparent and plurilateral, most of its policies towards other emerging markets are opaque and self-interested. Read more
By Ravi Venkatesan
India will soon have a new government and prime minister. That new leader will not have to do much to woo global companies, who are drawn already to the country’s size, demographics and talent. Instead, India just has to stop scaring companies away. Here things like infrastructure and labour law reform are important, but more than anything else, the new government must focus on making India a less difficult country in which to do business. Read more
Amid the encircling gloom, a boost for the Polish economy on Tuesday: Volkswagen is to spend around 3.4bn zlotys ($1.1bn) to build a factory at Września in Poland’s Wielkopolska province. It will make VW’s Crafter delivery vans, currently built under contract by Daimler at two German factories, from the end of 2016. “Volkswagen has trusted the Poles once again,” said Janusz Piechociński, deputy prime minister. Read more
Why did inflows of foreign direct investment to China jump by a strong 16.1 per cent to $10.8bn in January?
Such a robust performance may seem counterintuitive. The Chinese economy slowed last year. Its manufacturing competitiveness is being eroded by a welter of rising costs. Several high-profile incidents – a corruption scandal at GSK, the UK pharmaceuticals company, a $580m write-down on a China acquisition by Caterpillar, the US machinery giant, and the retreat of Revlon Inc, the cosmetics company, have all raised questions over the longevity of China’s allure.
But even so, say analysts, the country retains its attractiveness for foreign investors simply because it generates superior returns. Read more
The Indian government is keen to draw investors to the country, easing FDI caps in a range of sectors over the last year and a half. But you might think recent financial instability and political uncertainty ahead of this year’s general elections would hurt enthusiasm.
However, an Ernst & Young survey of 500 international investors has found some optimism about Asia’s third largest economy. Read more
If investing is all about value creation, the latest batch of figures from Brazil’s central bank make for sobering reading. They show the rich returns you can make when investing in Brazil goes right – and the huge losses that result when it goes wrong. Over the past three years, foreign direct investors and buyers of Brazilian portfolio assets have suffered value destruction on a colossal scale.
An analysis of central bank figures by beyondbrics shows that ,taken together, flows of foreign direct investment to Brazil and foreign investment in Brazilian portfolio assets were worth more than $260bn between January 2011 and November 2013. Over the same period, in spite of those inflows, the value of such assets held by foreigners fell from $1,351bn to $1,327bn, a loss of $24bn, implying value destruction of more than $284bn in less than three years. Read more
Don't worry, it's not happening
The Aam Aadmi Party (AAP), having assumed power in Delhi just last month, is starting to deliver on the populist promises in its manifesto. On Monday, its target was FDI in multibrand retail as it took advantage of the opt-out clause and rolled back approvals for the state.
For foreign investors, it makes India that bit less attractive. Read more