One of the most lucrative new global investment opportunities is in agricultural land in developing countries. Credit: Patrick Burnett/IPS

By Carey L. Biron
WASHINGTON, Dec 6 2012 (IPS)

Foreign direct investment (FDI) both into and out of developing countries is at or nearing record levels, an arm of the World Bank reported on Thursday.

“Uninterrupted by the slowdown in the global economy, FDI outflows originating in developing countries increased by an estimated 11 percent in 2012 to reach a new record level of 237 billion (dollars),” states a new report by the Multilateral Investment Guarantee Agency (MIGA), a member of the Washington-based World Bank Group tasked with promoting FDI into emerging economies.

This is in line with broader trends showing investments both into and out of developing countries to be substantial and broadly on the rise. This year, MIGA reports, 36 percent of all foreign investment flowed into developing countries, while 14 percent of FDI monies originated in those counties.

The majority of investment outflows are coming from the so-called middle-income countries, with Brazil, China, Russia and India alone accounting for around 64 percent of these investments over the past year. Of these, China’s state-owned entities set new records in overseas investment in 2012.

(Separately on Thursday, the International Monetary Fund, also based here in Washington, released new results from a survey of country-by-country bilateral investments, including information on both inward and outward flows.)

For the most part, investment trends in nearly all parts of the world have been relatively weaker over the past year following both political instability and the global economic downturn, though Latin America has been a notable exception. As such, this year’s figures for inflows into developing countries were likewise down by around seven percent, to around 600 billion dollars.

Nonetheless, MIGA analysts say that they expect investments to developing countries to rebound this coming year and to exceed previous records set in 2008, just prior to the global financial meltdown that has particularly wracked “traditional sources” of investment, primarily in the West.

Further, this past year set a record for foreign investments originating in developing countries, at around 240 billion dollars. “Notably”, MIGA reports, “about a quarter of developing countries’ outward FDI currently goes into other developing countries (‘South-South’ investment).”

Double-edged sword

FDI into developing countries “has remained a significant engine of growth even as the global economic picture has weakened,” Izumi Kobayashi, MIGA’s executive vice-president, said Thursday.

Still, activists throughout the world have increasingly been warning that foreign investment into developing countries is bringing with it significant problems.

The new report, which is more broadly focused on political risk in FDI, doesn’t go into detail on what is making up most of these investments. However, it does give a breakdown by industry type of 438 multinational executives investing in developing countries who responded to the MIGA survey referenced above in mid-2012.

Of those, the largest by far was the financial sector, based far more than anywhere else in the United States. In this, one broad new investment trend is illustrative.

According to a new report released Tuesday by the Oakland Institute, a land-use watchdog, one of the most lucrative new global investment opportunities is currently in agricultural land in developing countries. Yet remarkably little information is publicly available on this trend.

Oakland Institute researchers suggest that the private financial sector may have invested up to 25 billion dollars in farmland and agriculture in developing countries in recent years, an amount that could double or triple in the near future.

“These kinds of investments are mis-investments in communities, in agriculture,” the Oakland Institute’s Anuradha Mittal told IPS recently. “Yet many have chosen to ignore the clear evidence that has been brought forward.”

Agricultural funds are often “portrayed as positive social investment”, the institute’s researchers say, aimed at counteracting hunger and the effects of climate change. Yet such large-scale deals, they warn, have been found to negatively impact on food security, local livelihoods and the environment.

International guidance

Such issues were central to this week’s U.N. Forum on Business and Human Rights, which drew a thousand participants from 85 countries to Geneva. The event was the first of its kind, to discuss how to implement the landmark Guiding Principles on Business and Human Rights put forth by the United Nations last year.

The Guiding Principles aim to address “the widening gap between the scope and impact of economic and financial actors,” the U.N. high commissioner for human rights, Navi Pillay, told the forum on Tuesday, warning that enhanced legal standards and assurances of accountability would be required.

In the event’s keynote address, John G. Ruggie, the former special representative for business and human rights, noted that in recent years “the rights of multinational corporations to operate globally increased greatly … However, the protection of people in this transformed economic context did not keep pace.”

While the Guiding Principles mark a first broad international consensus on the issue, Ruggie warns that “states are not generally required … to regulate the extraterritorial activities of businesses domiciled within their jurisdiction … National courts appear not to share a consistent understanding regarding the applicability to companies of international standards prohibiting gross human rights abuses.”

Many have been particularly keen to see how the United States, home to more, and more active, multinational companies than any other country, would act. Since the passage of the Guiding Principles, Washington has put in place rules that would force U.S.-based companies to publicise payments made to foreign governments, and would require additional transparency in the extractives industry.

A case currently before the U.S. Supreme Court will also decide the extent to which U.S. courts will be able to prosecute for alleged human rights infringements that take place overseas.

Currently, however, the first two rules are under litigation brought by industry interests, while the prospects of the latter case are seen by many as dubious.

Small retailers in Kolkata keep their shops closed in protest against FDI in retail. Credit: IPS

By Sujoy Dhar
KOLKATA/NEW DELHI, Oct 2 2012 (IPS)

Thousands of shopkeepers in Sir Stuart Hogg Market in Kolkata, the business hub of eastern India’s biggest city, are all talking about one thing: what they will do when multinational companies invade their ancient marketplace.

Also known as the New Market, this shopping centre was opened in 1874 when Kolkata was still the capital of British India, and has since been a haven for local vendors and traditional retailers.

Now its streets are abuzz with questions about the impact of Prime Minister Manmohan Singh’s recent decision to pass reforms that will allow 51 percent of foreign direct investment (FDI) in multi-brand retail, effectively opening India’s many doors to giant supermarket chains and other multinational retailers.

Singh’s government says its decision to allow investment in the country’s retail, aviation and broadcast sectors is a bid to revive growth and confidence in Asia’s third largest economy.

But local retailers feel it will pave the way for big brands like Walmart, Tesco and Carrefour to exploit the huge Indian consumer market, currently estimated at roughly 500 billion dollars.

“I am absolutely against it (the reforms) – it will kill us,” said Rajkumar, a retailer in south Kolkata’s Dhakuria whose cramped shop boasts every stationery product imaginable.

“When a Spencer’s supermarket (a leading retail chain in India) came up in our neighbourhood South City Mall some years ago it definitely hit our retail shops since we have no sprawling space to (allow customers to) cart purchases in trolleys and shop in style. Now FDI in retail will be a final blow,” he said.

Opposition

Besides opposition groups like the Communist Party or the Hindu nationalist Bharatiya Janata Party (BJP), the announcement last month also sparked a strong backlash from the ruling coalition’s second biggest constituent, the Trinamool Congress, which announced withdrawal of support for the Singh government over the issue and ordered all its central ministers to resign.

The Confederation of All India Traders (CAIT) are also extremely concerned.

According to Anil Sharma, CAIT’s FDI research committee convenor, a few retailers might prosper as result of the reforms but many others will perish.

“The government must clarify how (the reforms) will impact traders, farmers, small and medium enterprises (SMEs) and consumers,” Sharma told IPS. “There should be a regulatory authority with enough teeth to ensure that small traders do not suffer and that (adequate) cold storage facilities and warehouses are constructed to ramp up the infrastructure.”

According to Sharma, the government’s prediction that FDI in retail will create around 10 million jobs in three years, with four million jobs created directly and the rest in backend logistics, is “highly imaginative”.

“If four million jobs are to be created in India in three years, even Walmart, which has the largest average (number of) employees per store, will need to open over 18,600 supermarkets in India, which means 644 retail stores in each of the 53 metropolitan cities where they are permitted to operate.

“Global experiences of organised retail have clearly shown that instead of creating employment, mega retail corporations actually reduce employment,” he added.

One of India’s leading economists, Jayati Ghosh, agrees.

“Walmart’s global operation is capital intensive. They will completely transform the supply chain and it will be no good for jobs,” Ghosh, a professor at the New Delhi-based Jawaharlal Nehru University, told IPS.

“There will be a negative impact on the employment scene, since the majority of the 40 million people (currently) employed in retail trade in India are self-employed, and they will not be able to compete with large supermarkets.

“One Walmart can displace about 1,400 small shops that create 5000 jobs,” she added.

“What we can demand from the government now is the (creation) of infrastructure to store post-harvest produce. There should be more cold storage (facilities) and warehouses.”

Government defense and public support

Deputy Chairman of India’s Planning Commission, Montek Singh Ahluwalia, a strong advocate of the reforms, said in an interview with the CNN IBN channel on Sept. 24, “We are running a very inefficient retailing system in which the farmer gets very little and the consumer pays too much.

“If you want the modernisation of the retail sector, you want upward pressure in the quality of employment. Modern retail produces better quality jobs. If the labour growth is going down to one percent or so and GDP is growing at eight to nine percent, jobs will be created in many different sectors,” he argued.

Various big industrial players also support the move.

According to Rajkumar N Dhoot, president of the Associated Chamber of Commerce and Industry of India (ASSOCHAM), the decision to allow FDI in multi-brand retail will also improve India’s image in the eyes of foreign investors.

“Today, we live in a globalised environment. We all know how precarious the global economy is and how our own exports, both goods and services, are being hit in the western markets,” he said in reference to the need for increased FDI.

Even some local shopkeepers in New Market seem unfazed by the imminent arrival of massive competitors.

“I do not think a Walmart can completely kill us,” Subir Saha, who runs a crockery and utensil shop in New Market, told IPS. “When the shopping malls came up in the city (they) did affect our business, but we survived it and are still here.”

Farhad Ali, a garment-store owner, echoed his sentiment: “People come to us for many reasons, from low price tags to unique collections,” he told IPS.

But experts claim the belief that huge retailers will not destroy the local market is optimistic.

According to Ghosh, “In the beginning the situation will be better (for some job-seekers and consumers). But this will be part of a strategy by these companies to establish themselves in the market. Once it is done, they will start doing the unpleasant things,” she said, citing examples of Thailand and Malaysia, whose local retailers and farmers were hit hard by the entry of multinational retailers into the domestic market.

(END)