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Most emerging economies, including India, South Africa and the Russian Federation, besides China and Turkey, have come in for qualified praise for their “continued moves towards eliminating restrictions to international capital flows and improving clarity for investors”.
This was highlighted in a joint report undertaken by the Organisation for Economic Cooperation and Development (OECD) and the Geneva-based UNCTAD and WTO for the G-20 and released in Paris on Tuesday.
The report highlighted that most G-20 governments have put in place some “restrictive trade measures over the past six months but have on the whole honoured their pledge to keep international investment”.
Stating that seven countries amended investment-specific policies (those not designed to address national security or emergency concerns) during the reporting period from October 2010 to April 2011, it said investment-specific policy changes were more common in emerging markets than in mature markets.
It said India's new consolidated foreign direct investment (FDI) policy, which came into force on April 1,, facilitates the expansion of established foreign-owned enterprises, allows the conversion of non-cash items into equity (with approval from the government) and permits FDI in certain agricultural activities.
The policy developments recounted in the latest report took place against the backdrop of a recovery and marginal increase of global FDI inflows in 2010, following steep declines in 2008 and 2009.
FDI flows to G-20 countries continued to increase in the last quarter of 2010, resulting in a three per cent rise in 2010 as a whole compared with 2009.
However, it said, global FDI inflows remain some 25 per cent below the pre-crisis average 2005-2007 and nearly 50 per cent below the 2007 peak.
Inflows to recover
FDI flows are likely to recover further this year, reflecting improvements in macroeconomic conditions and rebounding corporate earnings, even as grim forebodings in the form of “tightened fiscal policy, fluctuations in commodity prices, regional political instability and uncertainty over sovereign debt may reverse this uptrend in the near to medium term”, the report warned.
It further contended that more than two-and-a-half years after the financial turmoil in late 2008, nine G-20 members continue to implement emergency measures to assist individual enterprises in the financial or non-financial sector that excludes India but includes Canada, France, Germany, Italy, Japan, Korea, the Russian Federation, South Africa and the UK.
Pointing out that the process of unwinding assets and liabilities resulting from emergency measures proceed “slowly”, it said at the end of the reporting period, six countries —Australia, Germany, Italy, Japan, the UK and US — held legacy assets and liabilities in several hundred financial firms, exceeding $1.5 trillion for the financial sector alone.
Less than a fifth of the financial firms that had received crisis-related support have fully reimbursed loans, repurchased equity or relinquished public guarantees, it added.
It said G-20 countries continue to conclude international investment agreements (IIAs) to attract foreign investment and work towards greater predictability and sophistication of these IIAs and related areas such as investor-State dispute settlement systems.
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