Capital Markets Consultative Group (CMCG)

Investor Relations Programs: Report of the Capital Markets Consultative Group (CMCG) Working Group on Creditor-Debtor Relations
June 15, 2001

Foreign Direct Investment in Emerging Market Countries—Report of the Working Group of the Capital Markets Consultative Group (CMCG)

September 18, 2003

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1. Foreign private capital flows, including FDI, have become increasingly important in financing growth and investment in the developing world. Such flows dwarf official sector financing, and will continue to remain an important engine of growth in a majority of the EMCs. Foreign private capital flows, and in particular short-term flows, can, however, be volatile as is evident from recent financial crises. In this context, it is more important than ever to improve the monitoring of trends in FDI flows to EMCs and gain insights into investment decisions and structural changes that may affect the trends and direction of such flows, especially since they have increasingly become the dominant factor in net private flows to emerging markets and can potentially be a source of stability at times of volatility in global capital markets.

2. At the meeting of the Capital Markets Consultative Group (CMCG) held in Tokyo in September 2002, the Managing Director of the IMF decided to establish a working group on FDI under the Chairmanship of Stephen Green, Group Chief Executive of HSBC, and Gerd Häusler, Counsellor and Director of the International Capital Markets Departments at the IMF, with a view to better understand recent trends in and future prospects of FDI in EMCs, the investment strategies of large multinational companies, and the determinants of FDI in EMCs. The Working Group consisted of senior representatives from a number of large multinational companies with investments in EMCs across various economic sectors, and also included staff from the IMF and the World Bank. The Working Group has prepared the attached report that was discussed and subsequently endorsed by CMCG members at a meeting held in New York on September 8, 2003.

3. The findings in this report provide officials in countries seeking to host FDI the views from private market participants on the key factors and determinants of FDI that can be helpful in forming policies that strengthen the business environment and support sustainable capital flows. As well, the report adds to the IMF's ongoing surveillance of international capital flows to emerging markets. Finally, the recommendations by private participants to the international financial institutions encourage the Fund and Bank to intensify their work with member countries in strengthening the investment climate and conditions for FDI.

4. The report reflects the views of the Working Group and should not be attributed to the Executive Board, the Management and the staff of the IMF or the World Bank. It has not been discussed by the executive boards of the IMF and the World Bank.


Main Findings




Overview of FDI in EMCs


Motivation, Location, and Decision-Making




Locational Determinants of FDI




Financing, Global Conditions, and Managing FDI Risks


Financing Business Ventures in Emerging Markets


The Role of Banks and International Capital Markets


Controlling and Managing Risks to FDI in Emerging Markets


Conclusions, FDI Prospects, and Country Experiences


Broad Perspectives


Region and Country Experiences


Investor Recommendations

Text Boxes


CMCG Working Group on FDI Flows to EMCs


Key Conclusions


FDI in China and Intellectual Property Rights



Private Flows to Emerging Market Economies (1990–2002)



What is FDI?


FDI Trends in Emerging Market Countries (EMCs)


CMCG Working Group on FDI in Emerging Market Countries—List of Lead Participants