United Nations Conference on Trade and Development report: Mauritius to Welcome Impressive FDI Inflow
The most attractive SIDS for FDI are those rich in mineral resources, those that offer fiscal advantages to foreign capital, and those that have a relatively bigger market size. (Image: Invest Bulgaria Agency)
The 17th edition of Global Investment Trends Monitor released by United Nations Conference on Trade and Development (UNCTAD) which considered 29 Small Island Developing Nations (SIDS), including Mauritius and Seychelles, has shown out that the ratio of inflows to GDP during the period 2004-2013 was almost three times the world average and more than twice the average of developing and transition economies.
Compared to the decade 1994 to 2003, SIDS’ relative ability to attract foreign direct investment (FDI) increased both in terms of current GDP and compared to the world and developing and transition economies.
The ratio of FDI flows to current GDP increased from 5 per cent in 1994−2003 to 7 per cent in 2004-2013 whereas it remained the same in the world as a whole.
The ratio of FDI stocks to current GDP also registered an increase to reach 72 per cent that was significantly higher than the one recorded at the world level, which is set at 30 per cent.
FDI flows and stocks per capita are also higher than the world and developing and transition economies averages, but lower than developed economies.
Moreover, FDI to SIDS is concentrated in a few host countries, it comes from a small number of home countries, where it targets a limited number of activities.It is concentrated in countries rich in mineral resources such as Papua New Guinea, Trinidad and Tobago, and Jamaica; countries offering fiscal advantages such as Bahamas, Barbados, Mauritius and Seychelles; and a few that have a relatively larger market size.
This suggests that the most attractive SIDS for FDI are those rich in mineral resources, those that offer fiscal advantages to foreign capital, and those that have a relatively bigger market size, while, as expected, the combination of remoteness, small population, low income, and lack of natural resources is a deterrent to FDI.
Furthermore, according to the report, only Jamaica, Mauritius, Trinidad and Tobago, and Papua New Guinea make available official sectoral FDI data.
These data shows a high concentration of FDI in the extractive industries in Papua New Guinea, Trinidad and Tobago, whereas FDI flows to Mauritius are directed almost totally to the services sector, with soaring investments in activities such as finance, hotels and restaurants, construction and business in the period 2007–2012.
On the other hand, information on greenfield FDI projects announced by foreign investors in the SIDS between 2003 and 2013 confirms that developed countries are the source of almost two thirds of the announced value of greenfield FDI projects.
Developed-country transnational corporations (TNCs) targeted 63 per cent of their capital expenditures in the SIDS at just the three resource-rich countries of Papua New Guinea, Trinidad and Tobago, and Timor-Leste.
TNCs from developing and transition economies have focused their interest mainly on four SIDS, namely Papua New Guinea, Maldives, Mauritius and Jamaica, which together accounted for 89 per cent of developing and transition economy TNCs’ planned capital expenditure in SIDS.
With recent developments the potential to open new avenues for FDI into SIDS has arisen with China becoming a large investor, coming third place after the United States and Australia.
China has enhanced its economic links with small island developing states since the mid-2000s and this is reflected in the expansion of trade, increased official development assistance (ODA) and more recently the progressive development of FDI.
In the coming years, China is likely to emerge as a dynamic source of external financial flows, including FDI, to SIDS where the Chinese overseas investments and development assistance have already targeted specific industries, particularly extractive and natural resource-based industries, infrastructure and tourism.