Publication: Divestment Drivers and FDI Retention
Loading...
Date
2023-09-13
ISSN
Published
2023-09-13
Author(s)
Editor(s)
Abstract
Affiliates of foreign multinationals offer potential growth and benefits through years of successful operation and successive expansions, including through job creation, new skills and technologies, and deeper participation in global value chains. In fact, reinvestment has become an increasingly important part of global foreign direct investment flows. This is evidenced by the share of reinvested earnings in global foreign direct investment (FDI) growing from 30 percent in 2005 to more than 40 percent since 2018. The need to address the issue of divestment is made more urgent by extraordinary crises. The COVID-19 pandemic, the war in Ukraine, inflation, growing geopolitical tension, volatile energy prices, climate change, an acceleration in the emergence of disruptive technologies, resurgent protectionism and related challenges in global value chain integration, the possibility of a global minimum corporate tax, have led to disruptions in business plans of multinationals. The need to address the issue of divestment is urgent, given the extraordinary crises and trends that now present investors and policymakers with extreme economic uncertainty. The aim of this note is to fill that gap and ultimately help host country investment agencies with more timely identification of potential divestment risks. Based on a literature review and the World Bank’s operational experience, this note explores the following three questions: (1) what are the drivers of divestment decisions, including the cancellation of expansion plans; (2) are there any early warning signs of divestment likelihood that could be discernible to retention agencies (that is, agencies leading government efforts to better retain investment); and (3) how can retention agencies leverage this knowledge to enable better FDI retention This note aims to serve as a starting point, documenting available literature on the topic. It ultimately aims to support retention agencies in taking more informed steps and decisions to better retain investment.
Link to Data Set
Citation
“Priyanka, Kher; Griffin, Carlos. 2023. Divestment Drivers and FDI Retention. Equitable Growth, Finance and Institutions Insight - Trade, Investment and Competitiveness. © World Bank. http://hdl.handle.net/10986/40344 License: CC BY-NC 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Related items
Showing items related by metadata.
Publication Promoting Foreign Investment in Fragile and Conflict-Affected Situations(World Bank Group, Washington, DC, 2014-04)Fragile and conflict-affected situations might appear incapable of attracting significant flows of foreign investment due to their often negative international images and weak enabling environments. However, during the last eight years, foreign investment into these economies has grown almost three times more quickly than flows into the rest of the world, albeit from a very low starting point. Untapped natural resources, reconstruction needs, and severely underserved consumer demand present domestic and foreign investors with significant opportunities, many of which continue to go unrealized. This note provides guidance to investment policymakers and promoters in fragile and conflict-affected situations, whose work is needed to bring those opportunities to fruition.Publication Drivers of Convergence in Eleven Eastern European Countries(World Bank, Washington, DC, 2012-08)This paper investigates the drivers of growth and prosperity in a group of eleven European countries -- Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, and Slovakia (the EU11). Since the EU11 began the transformation process, this group of emerging countries has made impressive strides as developing market economies and is anchoring development in European Union institutions. There are reasons to believe that the convergence of EU11 income per capita to Western European levels will continue, but will proceed more slowly. The paper concludes that trade and financial integration have sped along at a spectacular pace in the EU11 in the recent past, although trade in modern services and the integration of government bond and equity markets are somewhat behind. As in the rest of Europe, demographic developments will pose huge challenges for the sustainability of public finance in the EU11 economies. In the next several decades, the EU11 labor force is expected to contract more than labor forces in the rest of the European Union, making it even more urgent that countries in the region reform pension systems, change migration policy, and find incentives to attract talent to the region. Closing the gap with the rest of the European Union in educational attainment levels and improving education quality might significantly soften the constraints imposed by the demographic threats and produce sizable returns in terms of additional income convergence.Publication Policy Options to Mitigate Political Risk and Attract FDI(World Bank, Washington, DC, 2020-08-12)Political risks covers a wide range of issues, and this note focuses on a subset of political risk: the risks that arise from government actions, whether political or regulatory, that can affect the profitability of an investment in a foreign country. Policies adopted and implemented by governments can directly mitigate these risks. Bad governance and economic crises are two big drivers of political risk. Both are currently prevalent globally, but especially in developing countries. The purpose of this note is to summarize how political risk caused by government actions can impact foreign investment, and what tools countries can use to manage and mitigate such risks.Publication World Investment and Political Risk 2013(Washington, DC: World Bank Group, 2014)This report seeks to understand investors' perceptions of political risk as they affect Foreign Direct Investment (FDI), as well as the role of the political risk insurance industry in mitigating these risks. It is found that investors continue to rank political risk as a key obstacle to investing in developing countries, though investors classify macroeconomic instability as their top concern over the medium term. The report confirms a continued increase in the use of political risk insurance as a risk-mitigation tool and reaffirms the industry's health and resilience. Providers have met the challenge of these years with new products and innovative ways to use existing tools as well as substantial capacity to meet growing demand. It also looks at breach of contract risk and its causes. The research helps guide investors and insurers when they participate in a project that involves a contract with a developing-country government entity. As private and public sectors continue to increase their cooperation in service of bringing important investments to fruition, this research is particularly timely.Publication Investment Promotion Essentials : What Sets the World’s Best Investment Facilitators Apart From the Rest(World Bank, Washington, DC, 2009-09)More than 70 percent of investment promotion intermediaries may be missing out on foreign investment by failing to provide investors with accurate and timely information, according to the global investment promotion benchmarking 2009 report. This function, known as 'investment facilitation,' is one of the simplest and most cost effective, yet it is neglected at many agencies. A new survey by the investment climate advisory services of the World Bank Group has identified 14 common practices of the top-performing agencies in the benchmarking study. Weaker performers can inexpensively implement many of these practices to win a larger share of the trillion-dollar market for foreign investment.
Users also downloaded
Showing related downloaded files
Publication Remarks to the Annual Meetings 2020 Development Committee(World Bank, Washington, DC, 2020-10-16)David Malpass, President of the World Bank Group, announced that the Board approved a fast track approach to emergency health support programs that now covers 111 countries. Most projects are well advanced, with average disbursement upward of 40 percent. The goal is to take broad, fast action early. The operational framework presented back in June has positioned the Bank to help countries address immediate health threats and social and economic impacts and maintain our focus on long-term development. The Bank is making good progress toward the 15-month target of 160 billion dollars in surge financing. Much of it is for the poorest countries and will take the form of grants or low-rate, long-maturity loans. IFC, through the Global Health Platform, will be providing financing to vaccine manufacturers to foster expanded production of COVID-19 vaccines in both part 1 and 2 countries, providing production is reserved for emerging markets. The Development Committee holds a unique place in the international architecture. It is the only global forum in which the Governments of developed countries and the Governments of developing countries, creditor countries and borrower countries, come together to discuss development and the ‘net transfer of resources to developing countries.’ The current International Financial Architecture system is skewed in favor of the rich and creditor countries. It is important that all voices are heard, so Malpass urged the Ministers of developing countries to use their voice and speak their minds today. Malpass urged consideration of how we can build a new approach to debt restructuring that allows for a fair relationship and balance between creditors and debtors. This will be critical in restoring growth in developing countries; and helping reverse the inequality.Publication Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises(Washington, DC: World Bank Group, 2013-10-28)Eleventh in a series of annual reports comparing business regulation in 185 economies, Doing Business 2014 measures regulations affecting 11 areas of everyday business activity: Starting a business, Dealing with construction permits, Getting electricity, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, Closing a business, Employing workers. The report updates all indicators as of June 1, 2013, ranks economies on their overall “ease of doing business”, and analyzes reforms to business regulation – identifying which economies are strengthening their business environment the most. The Doing Business reports illustrate how reforms in business regulations are being used to analyze economic outcomes for domestic entrepreneurs and for the wider economy. Doing Business is a flagship product by the World Bank and IFC that garners worldwide attention on regulatory barriers to entrepreneurship. More than 60 economies use the Doing Business indicators to shape reform agendas and monitor improvements on the ground. In addition, the Doing Business data has generated over 870 articles in peer-reviewed academic journals since its inception.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication World Development Report 2011(World Bank, 2011)The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.