Publication: Divestment Drivers and FDI Retention
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2023-09-13
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2023-09-13
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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.
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“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.”
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