OVERVIEW ANOTHER YEAR OF FDI GROWTH the highest iny for the second consecutive amounting to $34 billion was a worldwide phenomenon. billion,the largest ever FDI inflow to that region. Inflows of foreign direct investment(FDI) were subs tantial in 2005.They rose FDI inflows due to differences in data reporting 7aes920ohionadaYDa5eadncasedabd subregions,in some to unprecedented levels, and far below the 2000 peak of $1.4 trillion.Similar nificant increases in outward investment b in the he recent upsurge in e It also refl and transition economies a s sources of FDI is economic performance in many developing and Negligible or sma until the 5133 billio ransition economies ast year corresponding to some1%of the wor nflo dalhp2lhcaorofhtixepoaareexplored s-border M&As share of eve somewha io59oieohan36dDl collective investment funds. Cross-border M&As.especially those of Independent States (CIS)was about 4% involving companies in developed countries have of deals rose by 20% Despite a decline in the evel of inward FDI,th the first vear of the cross-border Moom of 1999-2001.The recent surge in M Among developing eco omies.the list of the larges oy the re were 141 mega deals valued at more than $1 billion op.followed by Singapore.Mexico and Brazi member ropean billion in 2005-more than twi billion.or almost half of the world total.South. East and South-East Asia subregion accounting for about three quarters o A new feature of the recent M&A boom is xperienced interest rates and increasing financial integration
OVERVIEW ANOTHER YEAR OF FDI GROWTH Foreign direct investment in 2005 grew for the second consecutive year, and it was a worldwide phenomenon. Inflows of foreign direct investment (FDI) were substantial in 2005. They rose by 29% – to reach $916 billion – having already increased by 27% in 2004. Inward FDI grew in all the main subregions, in some to unprecedented levels, and in 126 out of the 200 economies covered by UNCTAD. Nevertheless, world inflows remained far below the 2000 peak of $1.4 trillion. Similar to trends in the late 1990s, the recent upsurge in FDI reflects a greater level of cross-border mergers and acquisitions (M&As), especially among developed countries. It also reflects higher growth rates in some developed countries as well as strong economic performance in many developing and transition economies. Inflows to developed countries in 2005 amounted to $542 billion, an increase of 37% over 2004, while to developing countries they rose to the highest level ever recorded – $334 billion. In percentage terms, the share of developed countries increased somewhat, to 59% of global inward FDI. The share of developing countries was 36% and that of South-East Europe and the Commonwealth of Independent States (CIS) was about 4%. The United Kingdom saw its inward FDI surge by $108 billion to reach a total of $165 billion, making it the largest recipient in 2005. Despite a decline in the level of inward FDI, the United States was the second largest recipient. Among developing economies, the list of the largest recipients compared with previous years remained stable, with China and Hong Kong (China) at the top, followed by Singapore, Mexico and Brazil. Regionally, the 25-member European Union (EU) was the favourite destination, with inflows of $422 billion, or almost half of the world total. South, East and South-East Asia received $165 billion, or about a fifth of that total, with the East Asian subregion accounting for about three quarters of the regional share. North America came next with $133 billion, and South and Central America followed with $65 billion. West Asia experienced the highest inward FDI growth rate, of 85%, amounting to $34 billion. Africa received $31 billion, the largest ever FDI inflow to that region. Global FDI outflows amounted to $779 billion (a different amount from that estimated for FDI inflows due to differences in data reporting and collecting methods of countries). Developed countries remain the leading sources of such outflows. In 2005, the Netherlands reported outflows of $119 billion, followed by France and the United Kingdom. However, there were significant increases in outward investment by developing economies, led by Hong Kong (China) with $33 billion. Indeed, the role of developing and transition economies as sources of FDI is increasing. Negligible or small until the mid-1980s, outflows from these economies totalled $133 billion last year, corresponding to some 17% of the world total. The implications of this trend are explored in detail in Part Two of this Report. It was spurred by cross-border M&As, with increasing deals also undertaken by collective investment funds. Cross-border M&As, especially those involving companies in developed countries, have spurred the recent increases in FDI. The value of cross-border M&As rose by 88% over 2004, to $716 billion, and the number of deals rose by 20%, to 6,134. These levels are close to those achieved in the first year of the cross-border M&A boom of 1999-2001. The recent surge in M&A activity includes several major transactions, partly fuelled by the recovery of stock markets in 2005. There were 141 mega deals valued at more than $1 billion – close to the peak of 2000, when 175 such deals were observed. The value of mega deals was $454 billion in 2005 – more than twice the 2004 level and accounting for 63% of the total value of global cross-border M&As. A new feature of the recent M&A boom is increasing investment by collective investment funds, mainly private equity and related funds. A number of factors, including historically low interest rates and increasing financial integration
have led to undertake dire reached $135 billion in 200s and accounted for lapan the united kingdom and the united states oftotal cross-border M&As.Unlik other accounted for 73 of the top 100 firms.while 5 opio0non-inanc1alRNCgaheGeneftheobe positions wit hatime horizon of 5 to 10 years (or and Ford,which together account for e The aute followed by pharmaceuticals and the same time foreign ownershin can hring marker access and new technologies,and private equity de re development. y0acstimatedsg workers.In 2004,there were five companies fron ist of the top Most intrise in FDI was in natural e State-owned. These five companies-Hutchison Mampo (Hong China Petrona most from the surge of mit d。 observations are World Imvesiment Report has published a list of M&As.which accounted for a significant share of the topd TNCs,but nflows.The predominance ervices in cros firms were from Hong Kong (China)and Taiwan m S ore and 10 fr (four percentage points lowe headquarters in Asia:the remain ing were equally and the steep rise of FDI into the prima distributed between Africa and Latin America (with a sixfold Liberalization continues,but some protectionist tendencies are also emerging. There has heen s In terms of regulatory trends relating to of transnational corporations. faci tated FDI.They have involved Transnational simplifie orations (TNC ost of e FDI Howeve the ere have also related to natural resources)a number of majo EU and the State-owned ses are also increa ore UNCTAD.the universe of TNCs no ab P& nited Ki nd port n parent compan with over 70.00 firm.along with that firm's ma an estimated value added.employed om Europe concers were voiced over a bid by Mitta to the and rope The tnC universe continues to be dominated by firms from the Triad -the EU.Japan and the the liberalization of services. Some notable regulatory steps were also taken to protect
xviii World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development have led private equity firms to undertake direct investments abroad, which are estimated to have reached $135 billion in 2005 and accounted for 19% of total cross-border M&As. Unlike other kinds of FDI, private equity firms tend not to undertake long-term investment, and exit their positions with a time horizon of 5 to 10 years (or an average of 5-6 years), long enough not to be regarded as typical portfolio investors. Thus host countries, and developing ones in particular, need to be aware of this difference in time horizon. At the same time, foreign ownership can bring market access and new technologies, and private equity investment can help host-country enterprises at a critical juncture to move to a new phase of development. Most inflows went into services, but the sharpest rise in FDI was in natural resources. Services gained the most from the surge of FDI, particularly finance, telecommunications and real estate. (Since data on the sectoral distribution of FDI are limited, these observations are extrapolated from data relating to cross-border M&As, which accounted for a significant share of inflows.) The predominance of services in crossborder investments is not new. What is new is the further and sharp decline in the share of manufacturing (four percentage points lower in cross-border M&A sales over the preceding year) and the steep rise of FDI into the primary sector (with a sixfold increase in cross-border M&A sales), primarily the petroleum industry. There has been a significant increase in developing-country firms in the universe of transnational corporations. Transnational corporations (TNCs), most of them privately owned, undertake FDI. However, in some home countries (notably in the developing world) and in some industries (especially those related to natural resources) a number of major State-owned enterprises are also increasingly expanding abroad. According to estimates by UNCTAD, the universe of TNCs now spans some 77,000 parent companies with over 770,000 foreign affiliates. In 2005, these foreign affiliates generated an estimated $4.5 trillion in value added, employed some 62 million workers and exported goods and services valued at more than $4 trillion. The TNC universe continues to be dominated by firms from the Triad – the EU, Japan and the United States – home to 85 of the world’s top 100 TNCs in 2004. Five countries (France, Germany, Japan, the United Kingdom and the United States) accounted for 73 of the top 100 firms, while 53 were from the EU. Heading the list of the global top 100 non-financial TNCs are General Electric, Vodafone and Ford, which together account for nearly 19% of the total assets of these 100 companies. The automobile industry dominates the list, followed by pharmaceuticals and telecommunications. However, firms from other countries are advancing internationally. Total sales of TNCs from developing countries reached an estimated $1.9 trillion in 2005 and they employed some 6 million workers. In 2004, there were five companies from developing economies in the list of the top 100 TNCs, all with headquarters in Asia, three of them State-owned. These five companies – Hutchison Whampoa (Hong Kong, China), Petronas (Malaysia), Singtel (Singapore) Samsung Electronics (the Republic of Korea) and CITIC Group (China) – topped the list of the largest 100 TNCs from developing countries. (Since 1995, the World Investment Report has published a list of the top 50 TNCs, but in this Report the list has been expanded to cover 100 TNCs.) In 2004, 40 of the firms were from Hong Kong (China) and Taiwan Province of China, 14 from Singapore and 10 from China. Altogether, 77 of the top 100 TNCs had their headquarters in Asia; the remaining were equally distributed between Africa and Latin America. Liberalization continues, but some protectionist tendencies are also emerging. In terms of regulatory trends relating to investment, the pattern observed in previous years has persisted: the bulk of regulatory changes have facilitated FDI. They have involved simplified procedures, enhanced incentives, reduced taxes and greater openness to foreign investors. However, there have also been notable moves in the opposite direction. In both the EU and the United States, growing concerns have arisen over proposed foreign acquisitions. In early 2006, the acquisition by DP World (United Arab Emirates) of P&O (United Kingdom), a shipping and port management firm, along with that firm’s management of some ports in the United States, led to United States protests on the grounds of security. Similarly, in Europe concerns were voiced over a bid by Mittal Steel to acquire Arcelor, and broader European opposition to the EU’s own directive relating to the liberalization of services. Some notable regulatory steps were also taken to protect
OVERVIEW Xix ommodity prices and strong demand for petroleum edmbeaotfta6oSpe5a uch as petroleum and infrastructure.For example Equatorial Guinea,the Li an a the they Mau dominate the industry,but a number of developing The web of inte relevance to FDI continued to expand.By the end 二 al in estment A africa declinec in such rule making.including agreements and various economic cooperation Telecommunicazioni of italy through Weather ngements dealing with investment.The gypt.Most of the FDI from Sout出 n Africa,went t tend to dea al with a set of iss s,1n Manufacturing attracted less FDI than natural resou and th hiom RocuelRge5ctptxpo-oieale& foreign investment they also mean tha production facilities in South Atrica,generating governments and firm have to deal with a rapidl opp ragmented 00 worker to 30m divestment in Africa attracted much higher levels of FDI Lesotho These divestments tha 117 marke access(as provided by Act and the eu's e s not in itsell continued to be low,at just ove 3 h Af icient to attract and retain If African countries are to become internationally result of the acq isition of ABSA(South Africa) sential that they strengthen t the rest of the econom by buildingan fosterin As in the past, omestic capabili Sudan.mosCs FDL upportive of private investment nd the o s remained the United States There have been positive developments in edom.along with France and erm many Africa the form of greenfield investments. related to investment and taxation.Howeve FDI flows to Africa an2005 mainly into and boost the c nes s of local
OVERVIEW xix economies from foreign competition or to increase State influence in certain industries. The restrictive moves were mainly related to FDI in strategic areas such as petroleum and infrastructure. For example, the Latin American oil and gas industry became the focus of attention, particularly following the Bolivian Government’s decision to nationalize that industry in May 2006. The web of international agreements of relevance to FDI continued to expand. By the end of 2005, the total number of bilateral investment treaties (BITs) had reached 2,495, and double taxation treaties (DTTs) 2,758, along with 232 other international agreements containing investment provisions. A number of developing countries are actively involved in such rule-making, including through more South-South cooperation. A notable trend involves the conclusion of further free trade agreements and various economic cooperation arrangements dealing with investment. The universe of international investment agreements (IIAs) is becoming increasingly complex. The recent IIAs tend to deal with a broader set of issues, including public concerns related, for example, to health, safety or the environment. While such quantitative and qualitative changes may contribute to creating a more enabling international framework for foreign investment, they also mean that governments and firms have to deal with a rapidly evolving system of multilayered and multifaceted set of rules. Keeping this framework coherent and using it as an effective tool to further countries’ development objectives remain key challenges. Africa attracted much higher levels of FDI. In Africa, FDI inflows shot up from $17 billion in 2004 to an unprecedented $31 billion in 2005. Nonetheless, the region’s share in global FDI continued to be low, at just over 3%. South Africa was the leading recipient, with about 21% ($6.4 billion) of the region’s total inflows, mainly as a result of the acquisition of ABSA (South Africa) by Barclays Bank (United Kingdom). Egypt was the second largest recipient, followed by Nigeria. As in the past, with a few exceptions such as Sudan, most of the region’s 34 least developed countries (LDCs) attracted very little FDI. The leading source countries remained the United States and the United Kingdom, along with France and Germany further behind. Most of the FDI was in the form of greenfield investments. FDI flows to Africa in 2005 went mainly into natural resources, especially oil, although services (e.g. banking) also figured prominently. High commodity prices and strong demand for petroleum led to an increase in exploration activities in a number of African countries, including Algeria, Egypt, Equatorial Guinea, the Libyan Arab Jamahiriya, Mauritania, Nigeria and Sudan. TNCs from the United States and the EU continued to dominate the industry, but a number of developingcountry TNCs, such as CNOOC from China, Petronas from Malaysia and ONGC Videsh from India, are increasingly expanding into Africa. Total FDI into six African oil-producing countries – Algeria, Chad, Egypt, Equatorial Guinea, Nigeria and Sudan – amounted to $15 billion, representing about 48% of inflows into the region in 2005. Although outward FDI from Africa declined in 2005, several African TNCs deepened their internationalization, including through cross-border M&As. For example, Orascom, acquired Wind Telecommunicazioni of Italy through Weather Investments of Egypt. Most of the FDI from South Africa, the leading investor in Africa, went to developing countries in 2005. Manufacturing attracted less FDI than natural resources and services. However, some sectorspecific developments are worth highlighting. Automotive TNCs have set up export-oriented production facilities in South Africa, generating employment opportunities and export revenues. Conversely, fragmented markets, poor infrastructure and a lack of skilled workers, coupled with the ending in 2005 of the quotas established under the Multi-Fibre Arrangement (MFA), contributed to some divestment in the ready-made garments industry in countries like Lesotho. These divestments suggest that preferential market access (as provided by the United States’ African Growth and Opportunities Act and the EU’s Everything But Arms initiative) is not in itself sufficient to attract and retain manufacturing FDI in a globalizing environment. If African countries are to become internationally competitive, it is essential that they strengthen the necessary linkages between their export sectors and the rest of the economy by building and fostering domestic capabilities in areas such as physical infrastructure, production capacity and institutions supportive of private investment. There have been positive developments in terms of regulatory regimes, and many African countries have signed new bilateral agreements related to investment and taxation. However, attracting quality FDI – the kind that would significantly increase employment, enhance skills and boost the competitiveness of local enterprises – remains a challenge. Africa’s industrial progress
中 South,East and Souh-Eastsi is countries).with outflows of $68 billion in 2005 Although this s implies a drop of 11%from 200 the r developing countries, FDI inflows into South,East and South-East 、sro reached sl6baoQ八oout two thirds we是 s (Si apore)purchase Kong.ChinaS3d llo)The Sou-ast sia Kingdom)in 2006,and CNPC's(China)takeover of Petrokazakhstan in 2005.China and India hav rec Asla were much gh th while west Asia received an with the highest level ever for India of unprecedented level of inflows FDI inflows into the 14 economies of west Asia soared by 85 the highest rate in the ures for inwar d stock show 5.High ast decade from about 44%in 199s to oGDP growth weream ng the with a corresponding decline rove thi are of n emphasis on privatization involving FDI notabl facturing FDI has bee in services attracted to South,East and South-East Asia and the and although specif Emirates location hav changed eiiuaiciaoagonlondnandordey ially the automotive has heel ng new investmen FDI in West Asia in 2005.The in that country In China investment in FDI inflows in West Asia have gone mainly into manufacturing is mo edsome $2 billion in 2005.There istt t itas mos in the energy industry. continue to open up th tak 2005.particularly in services For example India West Asia is becoming a signific rand r petrodollars have gone into bank deposits and rations of foreign portfolio purchases a road,particu y in th s and travel age few measures wer 11 rder M&As in countries such as the Republic phas of Korea as well as develoned c ountries One motivation for
xx World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development requires competitive production capacity, in addition to better market access. South, East and South-East Asia is still the main magnet for inflows into developing countries ... FDI inflows into South, East and South-East Asia reached $165 billion in 2005, corresponding to 18% of world inflows. About two thirds went to two economies: China ($72 billion) and Hong Kong, China ($36 billion). The South-East Asian subregion received $37 billion, led by Singapore ($20 billion) and followed by Indonesia ($5 billion), Malaysia and Thailand ($4 billion each). Inflows to South Asia were much lower ($10 billion), though they grew significantly in several countries, with the highest level ever for India of $7 billion. Over half of the inflows to the region came from developing home economies, mostly within the region. The figures for inward stock show significant growth in the share of these sources over the past decade, from about 44% in 1995 to about 65% in 2004, with a corresponding decline in the share of developed-country sources. Manufacturing FDI has been increasingly attracted to South, East and South-East Asia, although specific locations have changed as countries have moved up the value chain. The sector continues to attract large inflows, especially in the automotive, electronics, steel and petrochemical industries. Viet Nam has become a new location of choice, attracting new investment by companies such as Intel, which is investing $300 million in the first semiconductor assembly plant in that country. In China, investment in manufacturing is moving into more advanced technologies; for example, Airbus plans to set up an assembly operation for its A320 aircraft. There is, however, a shift towards services in the region, in particular banking, telecommunications and real estate. Countries in South, East and South-East Asia continue to open up their economies to inward FDI. Significant steps in this direction were taken in 2005, particularly in services. For example, India is now allowing single-brand retail FDI as well as investment in construction, and China has lifted geographic restrictions on operations of foreign banks and travel agencies. A few measures were also introduced to address concerns over crossborder M&As in countries such as the Republic of Korea. South, East and South-East Asia is also an emerging source of FDI (among developing countries), with outflows of $68 billion in 2005. Although this implies a drop of 11% from 2004, Chinese outflows increased and seem set to rise further in the next few years. Many of the region’s countries have accumulated large foreign reserves, which may lead to more outward FDI. Among the main recent FDI deals involving companies from this region were Temasek’s (Singapore) purchase of an 11.5% stake in Standard Chartered (United Kingdom) in 2006, and CNPC’s (China) takeover of Petrokazakhstan in 2005. China and India have been energetically pursuing the acquisition of oil assets, and have even cooperated on some bids. … while West Asia received an unprecedented level of inflows. FDI inflows into the 14 economies of West Asia soared by 85%, the highest rate in the developing world in 2005, to reach a total increase of about $34 billion. High oil prices and consequently strong GDP growth were among the main factors that drove this increase. In addition, the regulatory regime was further liberalized, with an emphasis on privatization involving FDI notably in services: for instance, power and water in Bahrain, Jordan, Oman and the United Arab Emirates, transport in Jordan, and telecommunications in Jordan and Turkey. The United Arab Emirates collectively received inflows of $12 billion, to become the largest recipient of FDI in West Asia in 2005. The next largest was Turkey, primarily on account of a few mega cross-border M&A sales in services. FDI inflows in West Asia have gone mainly into services, including real estate, tourism and financial services. Much of the FDI in real estate has been intraregional. There is also increasing FDI in manufacturing, especially in refineries and petrochemicals, in which Saudi Arabia alone received some $2 billion in 2005. There is little FDI in the primary sector, as most West Asian countries do not permit it in upstream activities in the energy industry. West Asia is becoming a significant outward direct investor. Traditionally, most of the region’s petrodollars have gone into bank deposits and portfolio purchases abroad, particularly in the United States. This is changing in both form and location. Unlike the previous periods of high oil revenues, the present phase is witnessing substantial outward FDI in services, in developing as well as developed countries. One motivation for
OVERVIEW Xxi this has been to forge stronger ties with Venezuela rev related FDI soared to $12 billion.a 134%rise Deals such entioned acquisitio and in Ec ador it increased by 72%in the first hal f200 nearly 60%to $2 billion,in Chile billion and in Argentina to $85 Fuiian. China d a possible Saudi equity Notwithstanding significant differences Andra Pradesh.India s ONG in a refinery in accross there appears to be a trend Latin america and the caribbea continued to receive substantial FDI. es aHmgcmodipnces,severa governments on,representing a small rise over200 rule ore fin 200 commodity prices were at record lows For Economic growth and high commodity prices were and gas resources have been region registered surpassing those of the world ave under private control,and created new State-owne ong d commoditie t proportion of broader shift in policy is un der way in som I inflows consisted reinveste mes Trends varied b Regional in Brazil and Me 03% investment experience Trade Agreement of the Americas stalled owing %and1%in on by five cou tal ding and the United States were suspended following rally the share of FDI in total FDI flow scontinued to decline.from4 2004 a ver FDI outflows from Latin America and th Caribb eased by 19%to $33 billion in 2005 n are NCs utilities ithd in to S) a significant share of these investments is within ufactu ount at regiltaksoconibheg n Colom ru,Grupo hint's(Argentina FDI flows to South-East eur nd the and Camargo Correa's(Brazil)acquisi ion of the Commonwealth of inde cement-maker,Loma Negra(Argentina). remained relatively high.. number FDI flows to South-East Europe and the CIS hcor reenicncun nremained at a relatively high level (40 year.Inflows were fairly concentrated:three ent on TNO Cs in the countries-the Russian Federation,Ukraine and
OVERVIEW xxi this has been to forge stronger economic ties with the emerging Asian giants, China and India, but investment has also gone into Europe and Africa. Deals such as the above-mentioned acquisition of P&O by DP World, and the purchase of Celtel International (Netherlands) by Kuwait’s Mobile Telecommunications illustrate this trend. Notable cases of South-South FDI include the purchase of a 25% share by Saudi Aramco in a refinery in Fujian, China, and a possible Saudi equity partnership with India’s ONGC in a refinery in Andhra Pradesh, India. Latin America and the Caribbean continued to receive substantial FDI. Latin America and the Caribbean saw inflows of $104 billion, representing a small rise over 2004. Excluding the offshore financial centres, inflows increased by 12%, to reach $67 billion in 2005. Economic growth and high commodity prices were contributory factors. The region registered exceptional GDP growth rates in 2004-2005, surpassing those of the world average for the first time in 25 years. Strong demand for commodities contributed to a noticeable improvement in the regional trade balance. A significant proportion of the FDI inflows consisted of reinvested earnings, reflecting a marked increase in corporate profits. Trends varied by country: while inflows decreased in Brazil (- 17%), Chile (-7%) and Mexico (-3%), they rose significantly in Uruguay (81%), more than trebled in Colombia, almost doubled in Venezuela, and increased by 65% and 61% in Ecuador and Peru respectively. Sectorally, the share of FDI in services in total FDI flows continued to decline, from 40% in 2004 to 35% in 2005 – a very low share compared with other regions. Some TNCs continued to withdraw from the region, in part due to disputes with host governments in areas such as public utilities (e.g. the withdrawal from Argentina of Suez and EDF (both French firms)). Manufacturing accounted for just over 40% of inflows, including a relatively large number of M&As, such as SABMiller’s takeover of breweries in Colombia and Peru, Grupo Techint’s (Argentina) purchase of the steel-maker Hylsamex (Mexico), and Camargo Correa’s (Brazil) acquisition of the cement-maker, Loma Negra (Argentina). Even though a number of countries in the region introduced more restrictive policies, FDI in the primary sector grew significantly, attracting nearly 25% of inflows. Despite introducing a requirement on TNCs in the petroleum industry to operate under new contracts Venezuela received FDI inflows of $1 billion. In Colombia, petroleumrelated FDI soared to $1.2 billion, a 134% rise, and in Ecuador it increased by 72% in the first half of 2005. Investment in the mining industry also expanded. In Colombia, for example, it grew by nearly 60% to $2 billion, in Chile to $1.3 billion, in Peru to $1 billion and in Argentina to $850 million. Notwithstanding significant differences accross countries, there appears to be a trend towards greater State intervention in the region, above all in the oil industry, and other natural resources. As a result of the large windfall earnings generated by the exploitation of natural resources and high commodity prices, several governments are introducing rules that are less favourable to FDI than those established in the 1990s, when commodity prices were at record lows. For instance, oil and gas resources have been nationalized in Bolivia; and the Government of Venezuela took control of 32 oilfields previously under private control, and created new State-owned companies in sectors such as sugar processing, retailing and communications. In addition, a broader shift in policy is under way in some countries, which aims at addressing income inequalities attributed to previous policy regimes. Regional cooperation in the area of investment experienced several setbacks in 2005. Negotiations on establishing a 34-country Free Trade Agreement of the Americas stalled owing to opposition by five countries (including Argentina and Brazil); the free-trade talks between Ecuador and the United States were suspended following a takeover by the Government of Ecuador of Occident Petroleum’s production infrastructure. FDI outflows from Latin America and the Caribbean increased by 19% to $33 billion in 2005, with TNCs from the region acquiring assets mainly in telecommunications and heavy industries. As a significant share of these investments is within Latin America and the Caribbean, it also contributes to FDI inflows into the region. FDI flows to South-East Europe and the Commonwealth of Independent States remained relatively high... FDI flows to South-East Europe and the CIS in 2005 remained at a relatively high level ($40 billion), increasing only slightly over the previous year. Inflows were fairly concentrated: three countries – the Russian Federation, Ukraine and