Role of IFCs in facilitating foreign direct investment

Tuesday 30 June 2015

Jersey has attracted more than US$65 billion and distributed in excess of US$75 billion of Foreign Direct Investment (FDI), adding considerable value to the global economy as a result, according to the findings of a new report commissioned by Jersey Finance and published last week.

The report, produced by global management advisory firm Investment Consulting Associates and entitled ‘Jersey’s Contribution to FDI’, identifies the strengths of Jersey’s finance industry in facilitating FDI, its contribution to the global economy and the appeal of IFCs more widely in supporting cross-border investment.

Launched at a Jersey Finance ‘Africa Investment Seminar’ held in London and at a Members Briefing in Jersey last week, the report found that Jersey attracted a stock of inbound FDI totaling US$65.7 billion in 2012. The main source of this was the UK (56.3% of the total), whilst FDI was also sourced from Ireland (14.6%) and Russia (7.8%) as well as India, France and South Africa.

In addition, the stock of outbound FDI distributed globally by Jersey in 2012 was US$75.8 billion, with the UK again accounting for the largest share (44.8% of the total). The next biggest destinations were the Netherlands (10.3%) and Germany (7.9%), as well as Russia, Poland and Hungary.

Highlighting Jersey’s role in facilitating ‘Greenfield’ projects, the report highlighted that Jersey-originated FDI supported 94 projects between 2003 and 2014. These projects had an aggregated value of US$13.34 billion and created over 39,000 foreign jobs. These Greenfield projects included construction and natural resources projects in emerging and developing markets, as well as service industries such as financial, business and software services in developed countries and other IFCs.

Countries in the Island’s top 20 for both capital invested and jobs created abroad included Poland, Turkey and Netherlands. Moreover, several African developing markets including Uganda, Mozambique, Egypt and Senegal have also benefited directly and indirectly from FDI originating from Jersey.

Overall, the report found that total global FDI by corporate investors increased from US$1.33 trillion in 2012 to US$1.41 trillion in 2013, whilst investments routed through IFCs continue at historically high levels and account for a 6% share of global FDI flows, amounting up to almost US$80 billion in 2013.

Highlighting that a growing amount of capital is flowing across borders, the report concluded that IFCs provide investors with essential services that facilitate FDI and that investors continue to find Jersey a particularly attractive centre because of the strengths of its financial markets and the quality of the services it offers, as well as the suitability of its vehicles and the stable institutional, tax and regulatory environment it provides for cross-border transactions.

Within the report, FDI was defined as investment by corporate investors in a company or entity based in another country, investment by wealthy individuals to optimise their international investment revenues or Greenfield investment which creates new physical operations such as factories, distribution centres, service centres and regional headquarter.

Geoff Cook said: “This new report provides a timely and objective insight into the role of IFCs in mobilising investments globally and builds on the findings of last year’s ‘Value to Africa’ report, which identified for the first time the scale of Foreign Direct Investment that the African continent needs to realise its growth potential.

“As well as evidencing the substantial volume of FDI Jersey is handling and the considerable value that is adding to the global economy, the report also shows clearly that investors find Jersey an attractive centre because of the strengths of its financial framework and the quality of the services it offers.  This provides an appealing proposition not just for attracting significant inflows of capital but also for distributing that capital efficiently and stimulating economic development in many different countries across the globe.”

The report follows the publication in 2014 by Capital Economics of the ‘Jersey’s Value to Africa’ paper, which highlighted that, whilst Africa is one of the fastest growing regions globally, to sustain that growth it needs to invest US$85 trillion in infrastructure by 2040 and that this could not be generated locally or through international aid. The paper estimated that US$6.1 trillion would need to come from outside the continent through FDI.