*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
| w: | t: @CCSI_Columbia

"China's outward FDI and international investment law", "Policy
options for promoting FDI in the LDCs", “The negotiations of the
United Nations Code of Conduct on Transnational Corporations:
Experience and lessons learned”, and *Improving the International
Investment Law and Policy Regime: Options for the Future are*
available at

View this email in your browser

*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 165  January 18, 2015
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Maree Newson ([log in to unmask])
*A new foreign direct investment accounting methodology for economic
development organizations*
Henry Loewendahl*** <#1897558698__edn1>

Governments and international organizations use the International Monetary
Fund (IMF) and Organisation for Economic Co-operation and Development
(OECD) accounting method to measure and report on foreign direct investment
(FDI) flows and stocks. The IMF/OECD method recommends defining FDI as 10%
or more foreign equity in a local entity. The United Nations Conference on
Trade and Development measures FDI performance as a country’s share of
global FDI relative to its share of gross domestic product.

There are approximately 10,000 economic development organizations (EDOs),
including investment promotion agencies, in the world with a remit for
investment promotion.[1] <#1897558698__edn2> Government expenditures
worldwide for attracting FDI are an estimated US$50 billion a year.[2]

Because FDI is critical for economic development and a significant amount
of taxpayers’ money is being spent on attracting FDI, this raises a key
question: how are EDOs accounting for FDI?

The author consulted with national and subnational EDOs in developed and
developing countries and with international organizations involved in FDI.
Ten common elements in EDO accounting methods were identified:

   1. Mandate to promote greenfield FDI only.
   2. Announced FDI is recorded, not only realized investment.
   3. Focus on FDI projects, jobs and capital investment not FDI flows.
   4. Capital investment defined as the total amount the company is
   investing, even if the capital is raised locally.
   5. FDI defined as more than 50% foreign equity.
   6. The location of the ultimate parent firm’s headquarters is recorded
   as the source country.
   7. Qualification that announced investments will take place through
   evidence that the company will make the investment and has started the
   investment process.
   8. Validation over time that announced investments have been realized.
   9. Recording the role of the EDO in securing the project.
   10. Assessing the quality of investment attracted, typically based on
   size of projects, average salaries and research and development and
   headquarters operations.

While there is homogeneity in the common elements in FDI accounting, every
EDO does it differently. Most EDOs have developed accounting methods ad-hoc
or not at all.

As the official IMF/OECD accounting method is not designed for investment
promotion, there is a clear need for an internationally accepted FDI
accounting method for EDOs. As one EDO from a developing country put it:
“Most EDOs do not know the criteria that should be used for the
qualification of FDI successes or for evaluating their role in the
success.” Another EDO from a developed country stated that: “If the
government is going to give you $10 million you need to show the return on

I propose therefore a standardized accounting method for EDOs to attract
greenfield FDI based around eight key areas:

   1. *Company information:* Company name; type (public/private);
   percentage foreign equity; origin country of the ultimate parent.
   2. *Project details and status:* Project type (new/expansion/merger and
   acquisition/joint venture); project status (announced/opened); description
   of the project.
   3. *Location and sector information: *Location of the investment down to
   site address; the International Standard Industrial Classification sector
   code or similar for each project, together with the business function.
   4. *Investment and employment*: Total capital investment and jobs to be
   created within three years; validation of investment and jobs over time.
   5. *Qualification that announced investments will happen*: Evidence from
   investors that their projects will happen (project information; business
   plan; an official press release or written declaration) and/or that the
   investment process has started (company registration; proof of a real
   estate transaction and recruitment).
   6. *Evidence of EDO involvement in securing the investment: *Inbound
   enquiry from EDO marketing activities; meeting the companies and providing
   business case information or an incentives package *before* companies
   announced their investments; organizing site visits for companies;
   providing services to help facilitate their investment.
   7. *Quality of investment: *The technology level of each project using
   international definitions; average salary levels; identifying strategic
   projects that are high tech and have high levels of investment and job
   8. *Return on investment: *Key metrics are cost per project, cost per
   job and the investment multiplier relative to EDO budgets. Return on
   investment of incentives should also be calculated.

By adopting a uniform accounting methodology for greenfield FDI, EDOs would
have a framework for how to record and measure such FDI, organizational
performance and return on investment. If EDOs publish their FDI results,
FDI trends and EDO performance could be compared consistently across and
within countries.

The accounting method can be further developed for EDOs that have a mandate
to promote other types of FDI (e.g., by measuring safeguarded jobs in the
case of acquisitions) and to encompass a wider evaluation of the direct and
indirect impact of FDI.

* <#1897558698__ednref1> Henry Loewendahl ([log in to unmask]) is
CEO of WAVTEQ Limited. The author is grateful to Maria Borga, Magnus
Runnbeck and Mira Wilkins for their helpful peer reviews. *The views
expressed by the author of this Perspective do not necessarily reflect the
opinions of Columbia University or its partners and supporters. Columbia
FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.*
[1] <#1897558698__ednref2> Author’s estimate.
[2] <#1897558698__ednref3> Including investment promotion budgets,
incentives awarded to foreign investors and investor development (training,
skills, R&D, infrastructure, utilities, supplier development). *See *
for volume of incentives.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Henry Loewendahl, ‘A new foreign direct
investment accounting methodology for economic development organizations,’
Columbia FDI Perspectives, No. 165, January 18, 2016. Reprinted with
permission from the Columbia Center on Sustainable Investment
( <>).” A copy should
kindly be sent to the Columbia Center on Sustainable Investment at
[log in to unmask] <[log in to unmask]>. *

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Maree Newson, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 164, Anne van Aaken, "International investment law and
   decentralized targeted sanctions: an uneasy relationship,” January 4, 2016.
   - No. 163, Moataz Hussein, “Toward balanced Arab regional investment
   regulations,” December 21, 2016.
   - No. 162, Robert Basedow, “Preferential investment liberalization under
   bilateral investment treaties: How to ensure compliance with WTO law?”
   December 7, 2015.

*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - *On January 21, 2016* from 4-6 pm, CCSI and the Center on Global Legal
   Transformation will co-host a joint event at Columbia Law School that
   combines a book launch of *Governing Access to Essential Resource*s,
   edited by Katharina Pistor and Olivier De Schutter, and a preview of CCSI’s
   forthcoming report, *Land Deal Dilemmas: Grievances, human rights, and
   investor protection*. This event draws on the research contained in the
   book and report to consider how we govern “essential” resources – those
   necessary for the survival of human beings – and whether existing property
   rights regimes are adequate for the task, particularly in the context of
   land-based concessions awarded by host governments to foreign investors.
   Speakers include *Nikhil Anand*, *Richard Brooks*,* Kaitlin Cordes, Lise
   Johnson, Susan Karamanian, Katharina Pistor*, and *Peter Rosenblum*.* To
   register, and for more information, please visit our website
   - *On January 29, 2016*, the CCSI/Global Economic Governance Programme
   at Oxford University online forum on New Thinking on Investment
   Treaties continues with a talk by *Lauge Poulsen* on “The Politics of
   Investment Treaties in Developing Countries.” *For more information and
   for the schedule of speakers, please visit our website **here
   presentations will be posted here
   Please subscribe to the channel and visit our website for updates*.
   - *On February 4, 2016*, CCSI's Fall 2015 International Investment Law
   and Policy Speaker Series, co-sponsored by Crowell & Moring LLP and Baker &
   McKenzie LLP, concludes with a talk by *Robert Howse*, Lloyd C. Nelson
   Professor of International Law, New York University School of Law, on
   “Courting the Critics of Investor-State Dispute Settlement: The EU Proposal
   for a Judicial System for Investment Disputes.” The talk will take place at
   Columbia Law School, Jerome Greene Hall, Room 546 (435 W 116th Street,
   between Amsterdam and Morningside Avenues) from 12:10pm-1:00pm. Past
   speakers and select videos are available on our website

Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Columbia University
*Copyright © 2016 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
[log in to unmask]

*Our mailing address is:*
Columbia Center on Sustainable Investment (CCSI)
Columbia Law School - Earth Institute, Columbia University
435 West 116th Street
New York, NY 10027

Add us to your address book

unsubscribe from this list
update subscription preferences

[image: Email Marketing Powered by MailChimp]

AIB-L is brought to you by the Academy of International Business.
For information:
To post message: [log in to unmask]
For assistance:  [log in to unmask]
AIB-L is a moderated list.