Dear Colleagues,
It is my pleasure to share with you the key findings of the theme chapter
of UNCTAD's World
Investment Report 2016:
Investor
Nationality: Policy Challenges.
Investor nationality is blurring as a result of complex MNE ownership structures.
This has important investment policy implications, because most countries
have rules and regulations that distinguish between domestic and foreign
investors, and because international investment agreements provide benefits
to investors based on their origin.
The Report maps MNE ownership links worldwide with 4.5 million data entries,
shows how investor nationality is becoming increasingly difficult to ascertain,
and presents how policymakers around the world are dealing with the consequences.
Highlights:
- More than 40 per cent of foreign affiliates
worldwide have multiple "passports". These affiliates are part
of complex ownership chains with multiple cross-border links involving
on average three jurisdictions. These types of affiliates are much more
common in the largest MNEs: 60 per cent of their foreign affiliates have
multiple cross-border ownership links to the parent company. The nationality
of investors in and owners of foreign affiliates is becoming increasingly
blurred.
- "Multiple passport affiliates"
are the result of indirect foreign ownership, transit investment through
third countries, and round-tripping. About 30 per cent of foreign affiliates
are indirectly foreign owned through a domestic entity; more than 10 per
cent are owned through an intermediate entity in a third country; about
1 per cent are ultimately owned by a domestic entity. These "investor
nationality mismatch" cases involve almost half of foreign affiliates
in developed economies, and more than a quarter in developing economies.
- Rules on foreign ownership are widespread:
80 per cent of countries restrict majority foreign ownership in at least
one industry. The trend in ownership-related measures is towards liberalization,
through the lifting of restrictions, increases in allowed foreign shareholdings,
or easing of approvals and admission procedures for foreign investors.
However, many ownership restrictions remain in place in both developing
and developed countries. The blurring of investor nationality has made
the application of rules and regulations on foreign ownership more challenging.
- Policymakers should be aware that ownership
complexity has a multilateralizing effect on bilateral and regional investment
treaties. For example, up to a third of apparently intra-regional foreign
affiliates in major (prospective) megaregional areas are ultimately owned
by parents outside the region, raising questions about the ultimate beneficiaries
of these treaties and negotiations.
- Based on this analysis, the World Investment
Report 2016 advocates a re-evaluation of ownership-based regulations.
Rethinking ownership-based policies means securing the effectiveness of
ownership rules and considering alternatives. On the one hand, policymakers
should test the "fit-for-purpose" of ownership rules compared
to mechanisms in investment-related policy areas such as competition, tax,
and industrial development. On the other, policymakers can strengthen the
assessment of ownership chains and ultimate ownership and improve disclosure
requirements. However, they should be aware of the administrative burden
this can impose on public institutions and on investors. Overall, it is
important to find a balance between liberalization and regulation in pursuing
the ultimate objective of promoting investment for sustainable development.
Please note that the UNCTAD
World
Investment Forum 2016 will take
place in Nairobi, Kenya, 17-21 July 2016.
With best regards,
James X. Zhan
Director, Investment & Enterprise
Team Leader, World Investment Report
United Nations Conference on Trade & Development
Palais des Nations, Geneva
Tel: +41 22 9175797
www.unctad.org/diae
http://www.worldinvestmentreport.org/
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