THE FOREIGN INVESTMENT ADVISORY SERVICE PROGRAM BI-ANNUAL REPORT FOR FY1999 AND FY2000

October 2000

Foreign Investment Advisory Service a joint service of the

International Finance Corporation and

The World Bank

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THE FOREIGN INVESTMENT ADVISORY SERVICE PROGRAM

BI-ANNUAL REPORT FOR FY1999 AND FY2000 Plan of the bi-annual report I. Overview II. The resilience of FDI III. FY99 Program Output IV. OEG/OED Evaluation of FIAS V. Knowledge dissemination VI. Organizational Change VII. Costs and funding VIII. Annexes

I. Overview 1. Tables 1 and 2 give a summary of FIAS operations and funding in FY99 and FY00. During the past two fiscal years FIAS completed more advisory projects (46 for FY99 and 50 for FY00) than were targeted in the business plan for the respective years (44 for FY99 and 46 for FY00). This was done with less than the planned staff years at grades GE and above. 2. Actual expenditures were about $1.5 million below the $7.7 million budgeted for FY99 and $1.3 million below the $8.3 million budgeted for FY00. This budget saving was in good part due to lower benefits and overheads than had been budgeted. To a large extent this saving, in turn, was due to the reduced benefit rate that was possible because the pension plan was overfunded.

Table 1 Overview of FIAS Inputs and Outputs

FY97 FY98 FY99 FY99 FY00 FY00 Actual actual planned actual planned Actual1 Staff years (GE and above) 2 17.9 17.8 19 17.7 20 16.5 Program costs (millions)3

$6.3 $6.5 $7.7 $6.2 $8.3 6.9

Larger advisory projects 31 33 33 35 35 35 Smaller advisory projects 9 13 11 11 11 15 Multi-country conferences and other activities

3 3 2 3 3 1

Research publications 4 2 n.a. 0 n.a. 3 Other publications 2 1 n.a. 1 n.a.

1 Preliminary 2 Includes long-term consultants. 3 For FY96 and thereafter this line includes payments from clients and donors made directly to consultants on FIAS projects that do not pass through FIAS budgets. Details are shown in the Annex budget tables.

3. The budget was funded mainly by IFC (30% in FY99 and 27% in FY00) and the Bank (15% in FY99 and 13% in FY00). Clients provided 24% of the total in FY99, which is above the target of 20% from this source, and 21% in FY00, against a target of 22%. Bilateral and multilateral donors provided the rest of the funding, either directly, as in the support of the Australian and New Zealand governments for the FIAS Asia and Pacific Office (APRO), or through the FIAS trust fund. Contributions to the trust fund amounted to $909,000 in FY99 and $697,000 in FY00. The trust fund balance at the end of FY00 amounted to $5,003,000, down from $6,132,000 at the end of FY99 and $6,331,000 at the end of FY98.

Table 2 FIAS Sources of Funds in FY99 and FY00

(US$ thousands)

FY 99 FY00Budget support: IFC $1,794 $1,848 World Bank 898 913Reimbursement from clients 1,485 1,433Direct donor support 559 445Drawings from FIAS trust fund 1,513 2,310 TOTAL* $6,248 6,949

_______________________ * Total may not add up due to rounding.

II. The Resiliency of FDI Flows 4. The financial crises in Asia, Latin America and Russia have seriously affected long-term financial flows to developing countries and countries in transition. Net private financial flows to those countries dropped by over 21% between 1997 and 1999. Private capital flows however were the hardest hit. In 1999, with $46.7 billion, such flows were cut by 65 percent compared to their pre-crisis level (1997). 5. Yet, FDI flows to developing economies and economies in transition have shown to be a source of stability (Figure 1). While they did not show the impressive growth of the years of the 1990s, FDI flows remained stable from 1997 [$170 billion] to 1998 [$171 billion], and increased to $192 billion in 1999. Except for a small number of countries, such as Indonesia, Malaysia and Russia, in 1998 and 1999, FDI inflows in many countries affected by the financial crises actually rose. Foreign investors expressed their confidence in the long-term prospects of many of those countries. They responded to the improvements in the FDI environment, which governments in

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those countries have introduced, and took advantage of opportunities offered by distressed asset prices and corporate restructuring.

Figure 1: Private net resource flows to developing countries, by type of flow,1990-1999

0

50

100

150

200

250

300

350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

US$

billi

on

FDI flows Portfolio equity flows Other private flows

Source: World Bank. 2000. Global Development Finance.

6. Even though FDI has demonstrated some resiliency to economic crisis, we note changes in the distribution of its flows to developing countries. Asia, a region that had continuously claimed the lion's share of FDI among developing countries since the early 1980s, lost in relative importance, with 40% in the second half of the 1990s, of total inflows to developing countries compared to 50% before the crisis. By contrast, Latin America and Eastern Europe gained in relative importance. In 1998, for the first time in more than ten years, Latin America attracted more FDI than Asia. Are we seeing a trend reversal? It is too soon to say. 7. FDI will remain a major source of external finance for developing countries and countries in transition, even if the financial crisis has reduced its momentum for now, a momentum that has shown a ten-fold increase in a ten-tear period ending in 1996! As FDI is not merely a source of financing, and brings with it technology, management know-how, and access to the international market, it can play an important role in economic development. A lot remains to be

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done by governments to improve the investment environment in their country and to promote FDI in order to position their country to benefit from FDI.

III. Program Outputs Advisory Program 8. In FY99, at the request of their governments, FIAS completed 46 advisory projects in 36 World Bank Group member countries. In FY00, 50 advisory projects were completed in 46 World Bank Group member countries. Annex I lists all these projects. FIAS worked in nine (9) of the countries for the first time, raising the total number of countries that FIAS has assisted in its fifteen years of existence to 118. Topics of advisory assistance

9. FIAS assistance in recent years has focused on eight general types of projects. They include:

• Diagnostics: Broad reviews of various aspects of the investment environment are conducted. These cover policies, laws and regulations, procedures, and investment promotion strategies and institutions. Diagnostic studies often constitute the first FIAS advisory project in a country.

• Policy, Laws and Regulations: Reviews of the rules of the game are done for the purpose

of recommending ways to enhance the FDI environment in a country. The issues addressed include entry restrictions and screening procedures, currency convertibility, access to land, and investment protection under national laws and international conventions.

• Administrative Barriers: Bureaucratic barriers do snarl and slow both investment and

subsequent production. FIAS documents such barriers and pinpoints problems to help governments identify and eliminate counterproductive procedures, and streamline the necessary regulations that remain.

• Investment Incentives: Analysis of incentive systems ensures that they are competitive

and cost effective in enticing investors. • Investment Promotion: FIAS assists in the design of efficient institutions to both attract

FDI and help manage FDI policy, adapting models that have proven effective elsewhere. Assistance also is given to such institutions in their formulation of promotion strategies, on national, regional, or sectoral levels, that identify competitive advantages and target specific opportunities.

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• Building Linkages: Both to increase the benefits of FDI to the domestic economy and to

enhance the FDI environment in a country, assistance is given to governments in the design of programs that foster supply and other relationships between foreign-owned and domestic companies.

• Foreign Investment in Infrastructure: In collaboration with IFC and the World Bank,

assistance is provided to governments in creating suitable legal and regulatory regimes, and in promoting FDI in infrastructure sectors.

• Foreign Direct Investment Data Systems: FIAS assists governments in the design of non-

intrusive systems for collecting and disseminating FDI data, including measuring the impact of investments on such key variables as job creation and export growth.

10. In FY99 FIAS worked in seven of these eight areas and in FY00, FIAS worked in six of these eight areas, as shown below [see Table 3]. The respective total(s) of 53 and 52 indicate that some advisory projects covered more than one topic. 11. Diagnostics: In FY99, nine diagnostic studies were conducted, a number that is close to that of the previous year. Four of these were in first time client countries: FYR Macedonia, Moldova, Palau and the Czech Republic [FIAS worked in Czechoslovakia before]. One was an update of an earlier diagnostic study in the Kyrgyz Republic. The studies for the Czech Republic and the Kyrgyz Republic were done in collaboration with the World Bank. In The Philippines, the study focused on Mindanao, as a subnational region. 12. In FY00, three diagnostic studies were completed in Iran, the Tumen River Economic Development Area (which includes the areas of Southern Primorsky Territory in Russia; Yanbian Prefecture in Jilin Province, China; and the Rajin Sonbong Zone in DPRK), and the State of Andhra Pradesh in India. Each of these diagnostic studies was conducted at a different administrative level: subnational (Andhra Pradesh), national (Iran), and cross-border (Tumen).

13. Policy, Laws and Regulations: For both fiscal years, advice on policy, investment laws, codes and regulations, as well as other aspects of the legal framework for FDI continues to be a much sought-after FIAS product. In FY 99, thirteen projects in eleven countries were completed. In Bulgaria and Nicaragua, FIAS conducted two projects on the legal framework. In each case, one of the two projects was to assist in implementing recommendations. Among the seventeen projects completed in FY00, eleven were reviews of country investment legislation, reflecting efforts on the part of a number of governments to improve the legal framework for FDI.

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Table 3 Topics Covered in FIAS Advisory Work Completed

FY97 FY98 FY99 FY00 Diagnostic 7 10 9 3 Policy, laws and regulations 13 14 13 17 Procedures: Administrative barriers 5 2 8 9 Other 3 FDI in infrastructure 2 3 3 0 Promotion: Institutions 7 11 8 11 Strategy 2 8 7 6 Investment incentives 3 5 3 5 Backward linkages 1 1 0 1 FDI data systems 1 2 2 ___ TOTAL* 44 56 53 52 *Some projects cover more than one topic.

14. Administrative Barriers: Demand for administrative barriers studies rose substantially in FY99, and FIAS completed a total of eight studies. For FY99, four of these studies were completed in Sub-Sahara Africa -- Madagascar, Mali, Mauritania and Senegal, and one each in Eastern Europe (Latvia), the Middle East (Jordan) Latin America (Bolivia) and Asia (Indonesia). 15. Demand for this product in FY00 remained at about the same level as FY99. Three of these studies were completed in Europe -- Bulgaria, Lithuania, and Slovenia. Reflecting the need for FIAS assistance to go beyond the studies, another three were implementation projects -- Senegal, Indonesia, and the Philippines.

16. FDI in Infrastructure: In FY99, FIAS completed three projects in this category in Zambia, Nepal, and Costa Rica. These projects helped to expose our clients to a wide range of views, by bringing them together with the IFC, World Bank, academics and private sector experts to discuss what is necessary for the attraction of FDI into infrastructure.

17. Investment Promotion: The effectiveness of promotion can only be enhanced with the constant improvement of the investment environment. As a result, FIAS advice in this area is rarely limited to promotion and is conducted within the broad perspective of strengthening the FDI environment of the country. In FY99, most of the fifteen investment promotion projects focused on either institution building or various elements of strategy, with several touching on both. FIAS’s advice in this area covered nearly all regions, including: Sub-Sahara Africa (Tanzania), Asia (Mongolia, Pakistan, The Philippines, Thailand), Europe (Slovenia, Hungary, the Kyrgyz Republic) and Latin America (Colombia, Guatemala, Nicaragua). All regions were likewise covered for the FY00 projects: Sub-Sahara Africa (Cape Verde, Ethiopia, Senegal), Asia and the Pacific (China, India, Solomon Islands, Vanuatu), Europe

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(Bosnia and Herzegovina), Middle East (Egypt and Lebanon), and all the advisory projects in Latin America (Costa Rica, Colombia, El Salvador, Guatemala, and Panama).

18. Taxation and Incentives: Though small in number, advisory projects on taxes and investment incentives represent another important activity for FIAS. FIAS uses its understanding of the motivations of different kinds of investors and the worldwide competition for FDI to help clients eliminate ineffective incentives and, where appropriate, to fashion taxation and incentives systems that work well to facilitate investment with transparent, automatic, non-distorting measures. In FY99, FIAS provided such advisory assistance to Bulgaria, Bolivia, and Samoa. In FY00, Cambodia, Fiji, India, Thailand, and Romania received advisory assistance on taxation and incentives.

19. FDI Data: Designing and implementing a non-intrusive system to collect, analyze and disseminate FDI data statistics is another area of FIAS activity. In FY99, we assisted China and Egypt to further strengthen their data collection and dissemination systems using internationally accepted IMF concepts. Small Projects and Implementation Projects

20. Often, client governments seek assistance from FIAS on issues of importance to their FDI environment, but requiring a small amount of resources, yet a quick turnaround time due to deadlines and other reasons. To be responsive to clients, FIAS has set itself up to address such, often difficult to plan for, requests for assistance. Eleven, or a quarter of the total number of advisory projects completed in FY99, fell in the category of “small” projects. Seven of these “small” projects, focusing on FDI-related legal and legal framework issues, were done in Mauritania, Tanzania, Micronesia, Bulgaria, Kyrgyz Republic, Lithuania and Nicaragua. The purpose of two other such projects was to provide information on subjects of interest to clients: private funding of investment promotion agencies [Hungary] and the implication to FDI policy of WTO accession [Russian Federation]. In FY00, 15 of the total projects were "small" projects, almost one third of the total number of projects. Similar to FY99, a few of these projects focused on reviewing investment laws (Kenya, Sierra Leone, Armenia, Russia, Kuwait, Qatar, Turkey, and Yemen).

21. The genesis of “implementation” projects came when FIAS observed that during the course of its advisory projects some of the client countries were facing constraints in implemen-ting the recommendations provided to them. To increase its impact, FIAS started to identify implementation projects as part of its business plans and to devote more resources to such projects. The first implementation projects began in FY95 with an Investment Policy project in Jordan and an Institutional Project in Venezuela.

22. Implementation projects provide a bridge between FIAS’s advisory assistance and the government putting in place FIAS recommendations. These projects build on FIAS’s previous advice and assist in putting together the human, financial or organizational resources necessary for an effective implementation of recommendations. In addition to increasing the impact of

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FIAS’s assistance, implementation projects have, in some cases, supported the building of the capacities of governments.

23. For FY99 and FY00, the 12 implementation projects were as follows:

• Africa: Mauritania Investment Law • Africa: Senegal Administrative Barriers • Asia: China FDI Data Training • Asia: Mongolia Investment Promotion Strategy • Asia: Indonesia Eastern Provinces Administrative Barriers • Asia: Philippines Southern Provinces Investment Policy and Institutional Arrangements • Pacific: Tonga Investment Legislation • Pacific: Vanuatu Investment Promotion Agency • Pacific: Micronesia FDI Legislation • Europe: Bulgaria Enforcement of Arbital Awards and Contracts • Europe: Kyrgyz Republic IPA Review • Latin America: Nicaraguan FDI Legal Framework

24. In Bulgaria, FIAS carried out a combined advisory-implementation project in FY99, wherein the implementation component was built into the original advisory project. After FIAS provided its advice on the enforcement of arbital awards and contracts, through a report and conference. As a follow up, the local consultants, who were involved since the inception of the project, assisted the government in developing an action plan to adopt recommendations. FIAS then played the role of quality controller, keeping in touch with the client and local consultants, and reviewing their progress. 25. In Mongolia, the two-phased implementation project followed FIAS’s assistance to the Foreign Investment and Foreign Trade Agency (FIFTA) following our work on the investment law and recommendations on an investment promotion strategy and institution. Phase one of the implementation project consisted of helping the foreign investment agency establish an effective investor servicing function. FIFTA staff and management developed a workplan for investor servicing, guidelines for implementation, descriptions for specific tasks, the basic elements of tracking and an evaluation system, and an action plan for implementation, with FIAS providing technical inputs and investment promotion skills training (the latter of which was co-managed by MIGA). FIAS also provided inputs for organizing the servicing and follow-up activities related to the World Bank-sponsored Mongolia Investor Conference in June 1998. The second phase of this project involved organizing a workshop on investment promotion strategy for the staff of the FIFTA, to discuss the general concepts of an investment promotion strategy and the issues related to the development of a specific strategy for Mongolia. 26. In Senegal, FIAS has had a series of projects beginning with the administrative barriers study in 1998 and is currently ongoing with the recommendations being implemented as well as the creation of the investment promotion agency in June 2000 and the reform of the tax system. The action plan devised from the administrative barriers study was approved by the President

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and the Council of Ministers in December 1999, after which FIAS delivered a series of rapid-response assistance projects. FIAS has been working successfully with the former and new governments and the efforts have been praised by the current Minister of Finance to World Bank President Wolfensohn during his last visit in Senegal. 27. In the Philippines, the Local Government Units [LGUs] in Mindanao (i.e., the provinces and cities) requested FIAS in late 1997 to examine their potential for taking initiatives within their current authority that would likely increase the level of FDI attracted to the region. A review of the regulatory and procedural environment for FDI and the existing institutional arrangements and strategies for investment promotion were examined in a sample of LGUs. The FIAS conclusion, that there was significant potential for the LGUs to take beneficial initiatives, was accepted by the national government and LGUs, through discussion at a number of seminars and presentations that FIAS arranged. Subsequently, FIAS was asked to design a process by which its recommendations could be implemented. The design, which focused on the fundamental need for regulatory and procedural reform within the general business environment, including detailed institutional arrangements, was submitted to the client - the Mindanao Economic Development Council - in early 2000. Discussions have already been held between the Government of the Philippines and a bilateral development agency regarding funding for a multi-year implementation project, based on the FIAS design. Regional and Income-Level Distribution 28. In both FY99 and FY00, FIAS worked in all regions of the developing world and across four categories of country income levels (see Table 4A and 4B). The regional distribution of FIAS advisory work shows the highest concentration of projects in Europe and Central Asia (ECA) during FY99. Sixteen projects in eleven countries were completed in the region, with nearly half (7) being smaller projects, with most being desk reviews conducted to respond to specific needs of clients, requiring short turn-around time. Half as many projects were completed in each of Africa, Asia and Latin America/Caribbean in FY99. MENA and the Pacific Islands each saw three projects completed. 29. The FIAS work program in the ECA region accelerated in FY99 because many of the countries in transition have reached a stage of their reform process where FIAS advice is particularly relevant. The macro-economic and structural reforms, and stabilization programs have been completed in most CEE countries, and they are now turning their attention to details of the commercial legal framework, regulatory reform, tax reform and other improvements to the business environment, and to investment promotion. FIAS assisted in drafting new investment legislation, conducting studies of administrative barriers to investment, reviewing investment incentives, (re)structuring investment promotion institutions, and developing appropriate investment promotion strategies. 30. For FY00, the highest concentration of projects was in Sub-Saharan Africa where majority of the clients was from the low-income group. Europe retained a high number of completed projects with clients across all the income groups. A long-standing client of FIAS, the

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Asia-Pacific region, completed fourteen projects, while the MENA and Latin American region completed 7 and 5 projects, respectively. 31. The FIAS work program in the Africa region increased dramatically in FY00, where 13 projects were completed in Burkina Faso, Cape Verde, Ethiopia, Kenya, Senegal, Sierra Leone, Zimbabwe, and for the first time, Sao Tome and Principe. This large number of projects was the result of two concurrent forces. First, many African countries continue to lag in their efforts to improve their business climate, which is especially the case in a number of small, isolated economies or countries that have been through severe economic and political turmoil. Therefore, FIAS assistance was aimed at identifying the main issues and offering eventual solutions, based on international best practices, for enhancing private initiatives, including foreign direct investment. The second force was partly the result of FIAS' previous work. Governments focused on the implementation of the recommendations such as the simplification of administrative barriers for FDI and the development of promotion strategies. This assistance was provided to clients that have already been through significant reforms in their investment environment. Moreover, an interesting feature of FIAS' work program in Africa has been the increasing collaboration with regional bodies. There has been a series of regional initiatives aimed at harmonizing the efforts of members’ countries to attract foreign direct investment and to overcome the boundaries of small national markets.

Table 4A Regional and Income Level Distribution of FIAS Advisory Work in FY99

(number of countries/number of projects)

Income Group*

Africa Asia Pacific ECA LAC MENA Total Percentage Share**

Low-income 6/8 4/4 3/6 1/3 14/21 39/46

Lower middle income

4/4 2/2 5/7 4/5 3/3 18/21 50/46

Upper middle income

1/1 2/2 3/3 8/7

High-income

1/1

1/1

3/2

Total

6/8

8/8

3/3

11/16

5/8

3/3

36/46

100/100

* Income Group based on the World Bank’s classification with GNP per capital as the main criterion. ** Total may not add up due to rounding.

32. In terms of income level, about eighty to ninety percent of FIAS clients are low income or lower middle income countries. In the 32 low-income countries, FIAS completed 43 projects,

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the highest proportion on multiple projects in the same country. This reflects the emphasis put on repeat assistance to these countries to position themselves to take advantage of the benefits that FDI may bring to their economic development.

Table 4B Regional and Income Level Distribution of FIAS Advisory Work in FY00

(number of countries/number of projects)

Income Group*

Africa Asia Pacific ECA LAC MENA Total Percentage Share

Low-income

8/12 6/6 1/1 2/2 1/1 18/22 39/44

Lower middle income

1/1

2/2

5/5

6/6

4/4

2/2

20/20

43/40

Upper middle income

2/2

1/1

2/2

5/5

11/10

High-income

1/1

2/2

3/3

7/6

Total

9/13

8/8

6/6

11/11

5/5

7/7

46/50

100/100

* Income Group based on the World Bank’s classification with GNP per capital as the main criterion.

Applied Research 33. FIAS was engaged in applied research in FY99 and FY00, with three papers in the Occasional Papers series published in the course of these two years. Two other research projects were underway during the same period and are expected to be reported in the FIAS Occasional Paper series. The three published three Occasional Papers are:

• Attracting FDI into Infrastructure: Why is it so Difficult? (by Frank Sader) On the basis of FIAS’s experience in advising clients on the policy, legal, regulatory and institutional framework for the private sector participation in infrastructure, the author discusses the difficulties (delays in project start-ups, contract cancellations, legal disputes, etc.) typically faced by investors in the infrastructure sector, and proposes ways for governments interested in attracting FDI in the sector to mitigate them.

• Marketing a County (Revised Edition) (by Louis T. Wells, Jr. and Alvin G. Wint) Ten

years since the original Marketing a County was published, this updated version includes observations of investment promotion in a number of different settings and builds on these observations to review the validity of the main functions discussed in the earlier edition.

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• Administrative Barriers to Investment in Africa: The Red Tape Analysis (by James Emery and Melvin Spencer) On the basis of FIAS’s administrative barriers work in Sub-Sahara Africa, the paper synthesizes the issues most characteristic of such barriers and the approaches that governments have adopted in addressing them. This paper also includes lessons from a case-based approach to improving the investment climate in Mozambique: Mozal in Mozambique (by Louis Wells and Timothy S. Beuhrer) The paper analyzes the way in which an actual investment, i.e., Mozal, an aluminum smelting plant, was used to identify and overcome administrative barriers to investment in Mozambique.

The two other ongoing research projects are:

• FDI and Poverty Alleviation (by Carl Aaron) A review of the contribution FDI makes to

the alleviation of poverty, touching on areas such as employment generation, employment opportunities for women and in underdeveloped regions, and impact on the environment. The paper also looks at the policy implications for governments that wish to enhance the benefits of FDI in such areas. This work was initiated at the December 1998 Singapore Roundtable on the same subject, which FIAS co-sponsored.

• Investing in Africa: Owens-Corning's Botswana Plant (by Debora Spar and Damien

Shiels) This is a case study of how Owens-Corning decided to establish a fiberglass pipe plant in Botswana. The study, which examines the company’s economic and political decision criteria and process, is an illustration of how a major multinational corporation makes an investment decision in Southern Africa.

34. Jacques Morisset, a FIAS staff member, published a paper titled, “Unfair Trade? The Increasing Gap Between World and Domestic Prices in Commodity Markets during the Past 25 Years,” in The World Bank Economic Review, vol. 12, n.3, pp. 503-26, September 1998. The paper analyzes the growing asymmetry between world and domestic prices of commodities. The paper suggests that multinational corporations, as intermediaries, may play a significant role in that asymmetry. Additionally, Jacques Morisset has also sent "Foreign Direct Investment in Africa: Policies Also Matter", for publication in Transnational Corporations, and is forthcoming. This paper discusses why Africa has not been highly successful in attracting foreign direct investment over the past few decades. When these countries were able to lure multinational companies, it was principally the result of their (abundant) natural resources and the size of their domestic market. Still, a few Sub-Saharan African countries have generated the interest of international investors by adopting policy reforms and improving their business environment. This paper identifies which countries and which policies have had the major impact. Conferences and Other Activities 35. To help disseminate information among its government clients, as well as access information relevant to its work, FIAS sponsors a very small number of conferences each year, and participates in conferences sponsored by others. Annex II lists FIAS conference activities.

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36. In FY99 and FY00 FIAS sponsored four conferences:

• FDI in Small Island Economies - October 1998, Washington, D.C. FIAS hosted a conference on FDI in Small Island Economies, attended by representatives of governments in both the Caribbean Islands and the Pacific Islands. FIAS, IFC and World Bank staff, and consultants acted as resource to the conference. The conference discussed what distinguished FDI environments in small islands from those of other countries, as well as the patterns of similarities and differences among the small island economies in their approaches to FDI promotion. Participants explored which approaches seemed most effective, given the constraints facing such countries.

• 1998 Asia High-Level Roundtable on Foreign Direct Investment and its Impact on

Poverty Alleviation - December 1998, Singapore

This Roundtable, the ninth in a series, focused on the direct and indirect impact of FDI on poverty alleviation in the developing countries of Asia and the Pacific region. Particular attention was paid to issues such as employment opportunities and practices, income generation, human capital formation, and environmental protection. The objective of the Roundtable was to identify actions that can be taken to improve the impact of FDI on the welfare of the poor in the region. Representatives from the public and private sectors, NGOs, academic circles and international organizations participated in the conference.

• The Common Interest: Exploring the Harmonization of Investment Policies and

Investment Promotion Strategies in the Caribbean - March 1999, Santo Domingo, Dominican Republic

FIAS joined the Dominican Republic's investment promotion agency, OPI-RD, in co-sponsoring this two-day workshop for representatives from Caribbean countries and regional multilateral institutions. Drawing thematically on a body of work initiated by the Caribbean Community Secretariat (CARICOM), the Workshop included three half-day sessions on:

− Caribbean region economic trends and prospects led by Michael Mortimore, a senior

economist at ECLAC; − postwar experiences of various regions in investment policy harmonization and

lessons that could be of relevance for the Caribbean region. Of particular interest were the perspectives of FIAS office in Sydney, Australia on its work in fostering investment policy harmonization among the Pacific small-island economies. As a background to the discussions, FIAS had prepared a paper titled, “The Harmonization of Foreign Investment Policies: Some Lessons of World Experience and their Relevance to the Caribbean Region;” and

− on the advantages and disadvantages of a Caribbean region-wide strategy and institutional framework for inward investment promotion. MIGA collaborated with FIAS on this module.

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• 1999 Asia High-Level Roundtable on Foreign Direct Investment and Sustainable Human

Development in Asia: Past Experiences and Future Prospects - December 1999, Bangkok.

The tenth and last in a series of high-level roundtables was held in Bangkok in December

1999. It elaborated on the theme of FDI and Poverty Reduction raised in the previous Roundtable, and acted as a capstone to the series. The event was well attended by government officials, NGOs, academics and international organizations, as well as the private sector, with representatives from multinationals operating in the region attending and participating in the greatest numbers to date. The key topics discussed, all with a particular focus on the contribution of foreign investment to sustainable human development included: − National Policies, Supranational Policy Initiatives and FDI in Asia − Investment Incentives and Competition for Foreign Direct Investment − Setting the Agenda: The contribution of FDI to sustainable human development and

poverty alleviation − The Institutional Architecture for promoting and facilitating inward investment:

national and subnational arrangements − FDI in Asia's infrastructure

37. In FY00, FIAS presented a paper in the ITC Executive Forum on the importance of establishing a competitive export environment to achieve success in attracting foreign investment. The audience was primarily composed of an international forum of export development experts. FIAS also presented two notes, on backward linkages and approvals of FDI projects, to the Subcommittee on Investment of the World Trade Organization (WTO). 38. In FY99, FIAS' conference activities in Eastern and Central Europe included an invitation by the OECD to give a presentation about its studies of administrative barriers to investment and how they can be used as a tool in the anti-corruption effort. The presentation was given at a seminar on "Integrity in Private Sector Development in the Russian Federation" in Novgorod, Russia. FIAS co-sponsored a roundtable on investment promotion held in Croatia as part of the multi-country Central Europe Initiative. In FY00, FIAS participated in an OECD-sponsored conference on the investment environment of the Baltic Region and North West Russia, held in January 2000 in St. Petersburg, Russia. FIAS made a presentation about FDI trends in the region, and efforts of various countries to improve their investment environment not only to attract more FDI, but also to obtain more benefits in terms of increased employment, value added, and export earnings. 39. In East Asia, conferences for FY99 included a presentation of a paper at a meeting of the ASEAN FDI Working Group, where FIAS served as a technical resource at a Subregional Investment Working Group workshop for the Greater Mekong Subregion. FIAS also attended the APEC Investment Mart in Korea and made presentations at the APEC FDI Data Collection Seminar, and the ASEAN FDI Data Collection Seminar. For FY00, FIAS made a presentation in Beijing on Financing Infrastructure Investments and Municipal Bonds in a conference sponsored

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by the Central Bank of China. FIAS also participated in the 2nd ASEAN FDI Data Conference held in Bali, Indonesia, which continued a technical support relationship that has been in place for some years. 40. In the Pacific Region, FIAS attended and presented papers at the Annual Forum Economic Ministers' Meeting, at the Heads of Pacific Investment Promotion Agencies Meeting, and at the Training Needs Assessment Framework and Survey Forum during FY 99. In FY00, FIAS completed an assessment of the economic impact of the various policy options available to Pacific Island nations in the development of one of their principal natural resources, tuna fisheries. FIAS also made a presentation on FDI and Gender in the Pacific Forum - Gender Conference held in Fiji. 41. In the Middle East, FIAS made presentations on "The Role of Industrial Clusters in the Promotion of FDI" and "Lessons on Corporate Governance" at the UNCTAD Regional Symposium on Investment in the Arab World in Rabat, Morocco. The conference was organized jointly by UNCTAD and Morocco's Ministry of Finance, and held on 15-18 June 1999. FIAS made a presentation at the OECD Conference on FDI in Infrastructure, held in Istanbul. In FY00, FIAS was invited a Conference organized by the World Bank and the Government of Morocco on the development of small and medium enterprises, Rabat, December 1999. FIAS presented two papers: one on backward linkages and one on administrative barriers that (foreign) investors face. 42. In Latin America, FIAS collaborated with the Inter American Development Bank (IDB) and the Caribbean Community (CARICOM) Secretariat in FY00 to design and develop a multi-stage project for the harmonization of Caribbean Community investment policies, including a detailed plan of execution and terms of reference for several categories of consultants. IDB is supporting the project with a grant of approximately $450,000. UNCTAD is the Project's executing agent. 43. In line with the recommendations of the OEG/OED evaluation of FIAS to encourage training of its staff members and to increase collaboration with other organizations, FIAS sent one of its staff members on a six-month external assignment to the World Economic Forum [WEF] in Geneva, Switzerland. The WEF is a well-known private non-profit organization, of which IFC is an institutional member. The objectives of the assignment included enhancing the collaboration between the World Economic Forum and FIAS, and developing FIAS’s network with business leaders. 44. While at the WEF, the FIAS staff member was responsible for launching and organizing a new type of project –Business Interaction Groups (BIG), which was aimed at bringing together international business people and government leaders from selected emerging countries to discuss ways to improve the business environment in those countries. As noted in a letter from the WEF’s President to the IFC Executive Vice President, the BIG Project has been successfully launched in more than 10 countries, including Poland, South Africa and Brazil, with the participation of key government and business leaders. Prospects for further collaboration with the WEF include follow-up activities to the BIG project.

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Collaboration and Coordination within the World Bank Group 45. One of the advantages that FIAS has is its close working relationships within the Bank Group. This allows FIAS to get valuable inputs to our advisory projects and our working papers from many of our colleagues, and in turn, FIAS contributes to various Bank Group projects such as the CAS, CDF and PSD projects. Examples of such collaboration are described below. 46. FIAS coordinated closely with the World Bank in Latvia over the last two fiscal years. While FIAS undertook a study of administrative barriers to investment, the Bank sponsored a survey of perceptions of corruption in the business community, the civil service, and the population at large. The two reports were released at almost the same time and were highly consistent: regulatory procedures seen as susceptible to corruption in the FIAS report were mostly the same ones perceived as corrupt by the business community. Many of the recommendations of the FIAS report are now included in the structural adjustment loan (SAL) matrix. 47. At the request of the Government of Latvia in FY00, the FIAS "implementation assistance" project (for earlier recommendations to remove administrative barriers to investment) cooperated closely with the Bank's SAL to the country, focusing on reform of the various Government Inspectorates that regulate business activities. 48. In FY99, FIAS also worked closely with the Bank in Macedonia. FIAS gave a presentation about the environment for FDI at the Bank/Government country retreat in January. Recommendations from the FIAS report are being included in the EFSAL matrix. In FY00, FIAS and the World Bank joined forces on legal reforms to improve the investment environment in Macedonia, in support of the Bank's preparations for an FSAL. 49. In Romania, FIAS collaborated with the World Bank country team to develop a study of administrative barriers to investment, the recommendations of which were used to develop a Government Action Plan to improve the business environment. In the Russian Federation, FIAS assisted the World Bank Lead Economist in a review of the new Investment Law, which was part of the conditionality for a Structural Adjustment Loan. 50. As part of the Investment Compact for S.E. Europe, FIAS, the Bank, MIGA and the IFC have worked together with the IMF, OECD, the relevant country governments, and bilateral donors to undertake a diagnostic review of the investment environment in each of the countries in the region and to lay the groundwork for needed assistance. This will be an on-going activity for the next few years.

51. In Sub-Saharan Africa, FIAS collaborated with the Bank in a number of countries on the review of administrative barriers. In FY99, projects in Madagascar, Senegal, Mauritania and Mali, were partly initiated by the Bank, as part of its PSD efforts in these countries. Whether these projects were co-funded with the Bank or not, FIAS worked closely with our colleagues in

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the Bank in the course of the execution of the projects, as well as in setting up the stages for implementing our recommendations, many of which were included in the PSD work program of the Bank in these countries. In FY00, FIAS continued to develop a strong relationship with the World Bank regional offices. Cross-support was directly provided in two projects (Burkina Faso and UEMOA) and several other projects were partly co-funded by the Bank such as Senegal and Mauritania. Additionally, in May of FY00 FIAS participated in a World Bank Group Mission to Nigeria with the Regional PSD Department for Africa (preparing a Private Sector Assessment) and the SME Department (preparing an SME Map of the country). FIAS is preparing a diagnostic report on the environment for FDI in Nigeria (focusing on non-oil sectors) and implementation suggestions. At the same time, FIAS is contributing a foreign investment and licensing section to the PSA report. FIAS worked closely with the IFC office in Lagos and the UNDP (the co-financer) on this project. 52. In the Latin America region for FY00, FIAS collaborated with the Bank's regional private sector cluster, LCSFR, in the strategy and institutional design of a new investment promotion agency in Guatemala, and in the design of the investment climate component of a proposed loan in Nicaragua. Discussions have also been held with LCSFR over the design of a proposed Competitiveness loan in Honduras. 53. FIAS has been working closely with the Country Department of the World Bank for the last three years in Cambodia. The Bank had discussed with the Royal Government of Cambodia (RGC) the inclusion of conditions related to the Law on Investment (LOI) in a proposed Structural Adjustment Credit (SAC), derived from the previous FIAS review of Cambodia's system of investment incentives. Subsequently, the Bank entered into negotiation with the Government over the SAC conditions and requested FIAS assistance in helping them reach agreement with the Government. It became clear that, unless the Government and the Bank could reach agreement on the SAC conditions related to the LOI it was unlikely that the SAC would go ahead. Consequently, FIAS assisted the Bank and the RGC to reach agreement over the proposed conditions to be attached to the proposed SAC. The assistance included:

• an analysis of the marginal effective tax rates faced by foreign investors in Cambodia with and without the reforms and relative to Cambodia's ASEAN neighbors;

• ad hoc advice to the Bank during its negotiations; and • participation in the Bank's SAC negotiating mission to Cambodia

54. In FY99-2000 FIAS was a sponsor and financial contributor to the World Bank Group initiative known as the World Business Environment (WBES). In partnership with other institutions (including EBRD, IADB and Harvard CID), the WBES assesses the state of the enabling environment for private enterprises in a comparable manner in a large number of countries. Results from the World Business Environment Survey are now becoming available for 81 countries and territories worldwide. WBES provides comparable indicators of governance, regulation, financing constraints, public service quality. These results include responses from nearly 10,000 enterprises.

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•

• •

• • • •

•

•

IV. OEG/OED Evaluation of FIAS 55. An evaluation of FIAS conducted jointly by IFC’s Operation Evaluation Group (OEG) and IBRD’s Operations Evaluation Department (OED) was completed during FY99. It established that FIAS has earned a reputation as a leader in its field, with a quality product and a strong brand name. The previous independent evaluations, the questionnaires to clients, and interviews overwhelmingly gave FIAS high marks. Clients, and the World Bank and IFC staff generally rated FIAS's reports and advice on par with World Bank economic and sector work. According to the evaluation, FIAS's clients have had better and more successful economic policies than other developing countries, and there were demonstrable results following FIAS's assistance. Furthermore, nearly two-thirds of clients have had repeat assignments, and that percentage will increase as reform programs mature. 56. This evaluation was the first independent evaluation of FIAS's worldwide activities. It was based principally on interviews with 260 people: clients, donors, investors and businessmen, government officials, competitors, consultants, World Bank Group staff, and FIAS's management and staff. These interviews were supplemented with a questionnaire to 119 clients, and phone interviews of others. Officials in some countries where FIAS has not worked and where FIAS has worked, but not recently, were interviewed. Two earlier independent, regionally focused evaluations and FIAS's impact assessments were also drawn upon. 57. The evaluation addressed seven specific questions:

What characteristics distinguish FIAS's clients from other low- and middle-income countries? How do clients, the World Bank, and IFC rate the quality of the advice of FIAS? Have clients accepted the advice and acted on its recommendations? What have been the results? What factors cause clients to accept and act on the advice of FIAS? Is FIAS efficient? Is there synergy between FIAS and the World Bank? Between FIAS and the IFC? How effectively has FIAS fulfilled its development mandate?

58. The evaluation provided recommendations along three lines: (a) institutional renewal; (b) improved evaluation and dissemination; and (c) supervisory and administrative improvements.

59. Among the specific recommendations, many of which FIAS is currently implementing, are the following:

FIAS should work more actively with other Bank Group managers to devise implementa-tion strategies for its recommendations to clients.

FIAS should develop and implement a program of self-evaluation.

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•

•

•

•

FIAS should develop a more extensive publication series, covering both accumulated knowledge and original research.

FIAS should disseminate its work more actively within the WBG.

FIAS should explain to clients that its fees seldom amount to more than the cost of travel and consultants, and other expenses not including FIAS staff time.

FIAS should write down formal policy statements and procedural guidelines.

60. FIAS has initiated a number of actions to implement many of the recommendations. The number of projects initiated and/or co-funded by the Bank, as part of the Bank’s country programs, have increased, with outcome of the projects feeding back into those programs. As part of the program of self-evaluation, operational documents, such as the project brief, have been modified to facilitate this process, and project completion reports are prepared at the conclusion of a project. In addition, a self-evaluation for FY95-FY97 projects was completed, and impact summaries will be produced every three years. To disseminate more its acquired knowledge, FIAS has revamped its website, made it self-standing and intends to continue to improve it, both in terms of its content and presentation. FIAS will continue to publish papers in its Occasional Paper Series. In 1999, FIAS has instituted the FIAS Seminar Series to discuss current FDI issues within the World Bank Group. In 2000, the seminar series is being co-sponsored with PREM.

V. Knowledge Dissemination 61. Increasing the dissemination of knowledge gained over fifteen years of working in over 118 countries was an important recommendation of the OEG/OED evaluation. That knowledge and expertise was shared with client governments in the course of FIAS advisory work and though conferences and roundtables. Some of this knowledge was also developed as a result of applied research and was shared through the FIAS Occasional Papers series. 62. The OED/OEG evaluation recommended that more needs to be done by FIAS both to develop and systematize our knowledge, and to disseminate it within the World Bank Group and beyond. With the onset of the financial crisis in Asia and the concomitant fear that a crisis of global dimensions was possible, the need to disseminate knowledge about FDI in the development process has become even more pronounced and important. 63. To add to its previous efforts in disseminating knowledge about FDI, through conferences and the Occasional Paper series, and as initial steps, FIAS has established the FIAS Seminars on FDI Issues, has overhauled its website, and is producing a series of “ wisdom notes.”

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FIAS Seminars on FDI Issues 64. Reaching out to the World Bank Group Community: The World Bank’s work on private sector development has increased over the last decade. The scope of FIAS’s work on FDI overlaps and intersects with the Bank’s PSD effort. To share FIAS’s knowledge on FDI issues with a wider audience within the Bank Group, FIAS is sponsoring a series of seminars on such issues. 65. For FY99 and FY00, FIAS organized nine seminars, three of which are sponsored jointly with either the Globalization Thematic Group in the PREM network, or the Business Environment Thematic group in the FPSI network during FY99. The first seminar was held in May 1999. And the last was held in June 2000. All the later seminars have been co-sponsored with the PREM network. The subjects that the seminars cover include the following:

• • • • • • • • •

whether or not incentives matter in the promotion of FDI; challenges faced in removing administrative barriers to FDI; the contribution of FDI to poverty alleviation; marketing a country for FDI; upgrading local industry through FDI; FDI strategies of MNCs; trends and challenges in FDI Statistics; FDI in Africa and a case study of Botswana; and Rules-based competition for FDI.

66. Each of these subjects addresses important, and sometimes contentious, issues relating to FDI. The seminars are meant to raise the awareness of Bank staff about both nature of the issues, and what is known about their solutions. 67. Impact: Initial feedback obtained on the three seminars that have been held to date indicate that the timing of these seminars could not have been better. The series will be helpful in calling attention to FIAS experience of FDI policies that have worked, highlighting the pitfalls of giving misguided policy advice, and refining the arguments on the priorities important for future FDI growth. FIAS is likely to continue offering such seminars, especially responding to the demands and interests of our colleagues in the IFC and the Bank. FIAS Website 68. The new and improved FIAS website (http://www.fias.net) was launched on April 28, 1999 as a freestanding website as well as part of the World Bank's and IFC homepages. The new website includes information about the services that FIAS provides and FIAS projects worldwide listed by region. It also includes publications (Occasional Papers Series, FDI News, and Lessons of Experience) and a calendar of events, such as the schedule and topics of the FIAS Seminar Series. There is also a Question/Comment field available for external inquiries regarding FIAS

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and FDI issues. Since the launch there have been about 75 questions/comments/inquiries ranging from requests for publications to general and more in-depth questions pertaining to FDI. FIAS staff respond to these inquiries or refer the inquirer to relevant sources of information. Still, FIAS intends to make major improvements in its website on content and presentation. Wisdom Notes 69. The FIAS Wisdom notes are relatively short summaries of knowledge gained by FIAS staff in the course of advisory and research work. They will cover a variety of subjects, and will be a continuing series. Two of the notes were completed in the past two fiscal years dealing with the subjects of investment incentives and screening of investments. They are currently available for downloading at the FIAS Website. The Wisdom Notes series will cover various aspects of other topics, including, investment promotion, linkages between foreign and local firms, FDI in infrastructure, and FDI data systems. Currently, FIAS is preparing a paper on international best practice in investment legislation, as part of this series of "wisdom notes" about FIAS' lessons of experience.

VI. Organizational Change 70. To take advantage of synergies within the World Bank Group and improve client services in the area of private sector development, the Bank management established the Private Sector Advisory Services (PSAS). Beginning January 2000, PSAS has integrated the services of three units: the Bank’s Private Sector Development Department, the International Finance Corporation’s Corporate Financial Services, and FIAS. The synergies that PSAS is in a position to exploit are between policy advice and transactions work, as well as between various elements of PSAS services in private sector development, including, in the case of the FIAS program, between FDI and business environment, FDI and corporate governance and FDI and privatization. 71. The mandate of the FIAS program remains the same, i.e., to provide advisory assistance to developing economies and economies in transition in their efforts at improving their private foreign direct investment environment to attract more and better FDI, as part of their approach to sustainable development and poverty reduction. The FIAS program resides in the Business Environment and Foreign Investment Practice Group, a unit under PSAS. The FIAS program continues to be headed by a General Manager, under the supervision of a Supervisory Committee, chaired by the Executive Vice-President of IFC, with a Vice-President of IFC and a Vice-President of the Bank as the other two members. 72. The FIAS program retains its brand name and logo. The integrity of the FIAS Trust Fund will remain, as its resources will not be used for any activities directly linked to ongoing or planned lending, and to investment activities of the World Bank Group.

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VII. Costs and Funding Costs 73. Total costs of delivering the FY99 program amounted to US$6.2 million, below the $6.5 million of the previous year, and well below the budgeted $7.7 million. The cost of the FY00 program totaled $6.9 million, again below the budgeted $8.3 million. There are a number of reasons for the cost savings. Due to the good performance of the World Bank pension fund, the cost of benefits in both years was reduced from 80 to 50 percent of staff salaries. Moreover, a reduction in benefits in FY98 was credited in FY99, explaining the sharp drop in “other costs” shown below in Table 5. Operational staff was held below the budgeted level because of FIAS management’s concern about the future level of funding that would be available. Nevertheless, in each year, total personnel costs still increased slightly over previous years, as consultant cost increased. In FY99, consultant travel also increased significantly, although this figure includes the cost of bringing government representatives to FIAS conferences and roundtables. Total costs are broken down into main categories in Table 5, with more details in Annex III, Page 1.

Table 5 FIAS Administrative Expenses by Major Expense Category /a

(US$ thousands)

FY98 FY99 FY00 /f Staff Cost 2,788 2,611 2,667 Consultant and Temporary 1,157 1,499 1,764 Total Personnel Costs 3,945 4,110 4,431

Staff Travel 690 657 823 Consultant Travel 555 788 482 Total Operational Travel 1,246 1,445 1,305

Office Occupancy 271 353 348 Office Equipment 83 6 10 Other Operating Costs /b 253 249 224 Other Costs /c 746 86 630 Total Operating Costs 1,353 694 1,212

Total Admin. Expenses /e 6,544 6,248 6,949 Special Projects /d Total Admin. Expenses /e 6,544 6,248 6,949

/a Accrual adjustments included in the various line items.

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/b Includes: Group Training - follow-up costs associated with regional conferences; Service & Support Fee; Personnel Support; and Trust Fund Administration Fee. /c Includes: Representation, Hospitality, Contractual Services, Communications, Internal Computing Costs, Language and Presentation Services, Staff Training, Miscellaneous, Supplies and Other, Depreciation Charges, and Overheads. /d For FY97 this line covered mainly consultant fees and travel expenses that were paid directly by clients and donors and did not pass through the FIAS administrative budget. These Expenses for FY98 ($110,000) and for FY99 ($321,594) are reflected in the lines for consultant fees and travel. /e Totals may not add, due to rounding. /f Preliminary Funding 74. Budget support from IFC and the IBRD continued at a constant level in real terms, and maintained the ratio of two to one of the IFC and IBRD contributions. The $1,794,000 from IFC and the $898,000 from the IBRD constituted 43 percent of the total FIAS costs in FY99. In FY00, IFC’s $1,848,000 and IBRD’s $913,000 amounted to 40 percent of the total costs. More details on the funding are presented in Annex III, Page 2. 75. Direct donors support, that is targeted donations, amounted to $559,000 and covered less than nine percent of the total FIAS costs, a reduction of three percent from FY98. In FY00, such a support amounted to $445,000 or 6 percent of the total FIAS costs. While this type of support dwindled from the late 1980s and early 1990s, when the UNDP and USAID supported FIAS advisory work, mainly in Asia and Africa, the interest on the part of some bilateral donors to target additional support to selected regions leads us to believe that drawing on such a support in the coming two to three years will increase. UNDP has continued to support the work of FIAS, though at a lower level than in the past. Switzerland is providing support for our work in Africa and the Balkans. A major direct support is currently coming from Australia and New Zealand, with their contributions to the funding of our Asia/Pacific Regional Office. APRO covers our program in Asia and the Pacific Islands from Sydney, Australia. 76. Reimbursements from clients totaled $1,485,000 in FY99, or 24 percent of all FIAS costs, the highest percentage in the history of FIAS, and $1,433,000 for FY00, or 21 percent of total costs, against a target of 22 percent. Such costs include overheads, management salaries, research, conferences, publications, and first-time advisory assistance to new clients, which is usually performed gratis. In the past, twenty percent of FIAS costs have been the target for client’s contributions, but FIAS is striving to increase the ratio over time, while trying to mini-mize the significant amount of staff time that it often takes to secure client contributions. 77. Drawings from the FIAS Trust Fund, which is the residual source of financing, amounted to $1,513,000 in FY99 and $2,310,000 in FY00, and represented 24 percent and 33 percent respectively of total costs. While FY99 is consistent with FY98 in terms of percentage of total costs, the increase in the draw down of the Trust Fund in FY00 is due to the combination of a higher total costs for a bigger program and a lesser utilization of direct donor support.

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Contributions to the FIAS Trust Fund were down to $909,000 in FY99 and $697,000 in FY00, compared to $1,318,000 in FY98. We believe that the reductions in the contribution in FY99 reflect the three-year funding cycle of FIAS, and in FY00, the organizational adjustment of the FIAS program. 78. The balance remaining in the FIAS Trust Fund at the end of FY00 is $5,003,000, a decrease from that at the end of FY98 and FY99. Unlike in FY00, lower than expected total FIAS costs and a higher amount of contributions from clients in FY99 softened the effects of the decreases in the contributions to the Trust Fund between FY98 and FY99. Another three-year cycle will start in FY2001. During that cycle, FIAS management has determined that contributions to the trust fund and other direct donor support will have to be about $2.5 million per year in order to support activities at their current level.

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FIAS Advisory Projects Completed in FY99 (46) FIAS Projects in Sub-Saharan Africa (8)

• A study of administrative barriers to investment was conducted in Mali. • Two projects were completed in Tanzania: a review of Zanzibar’s draft investment law and

a review of Tanzania’s investment promotion agency and a proposed strategic plan. • In Mauritania, two FIAS projects were completed: implementation of the investment law

and a study of the administrative barriers to investment. • A study of administrative barriers to investment was conducted Senegal. • The modalities of facilitating foreign investment in infrastructure were examined in Zambia. • In Madagascar, an assessment of administrative barriers to investment was prepared. FIAS Projects in Asia and the Pacific (11)

• Further work on establishing a system for collecting FDI data was completed in China. • FDI in infrastructure was the focal point of a project in Nepal. • In the Philippines, impediments to foreign investment at the local government level in

Mindanao were identified, and possible remedies were examined. • In the Pacific, Samoa’s investment incentive regime was evaluated. • FIAS assisted in the development of State FDI legislation in Micronesia. • In Indonesia, FIAS examined the various permits and licenses required to establish foreign-

owned enterprises. • Impediments to the establishment and operation of foreign investments in Vietnam were

examined. • As a follow-up to a previous project, FIAS assisted in the implementation of an investment

promotion strategy in Mongolia. • A diagnostic assessment of the foreign investment climate of Palau was prepared. • In Pakistan, FDI policy was reviewed and an assessment of the investment promotion

agency was conducted. • In Thailand, FIAS advised the Government on the impact of WTO rules on FDI promotion. FIAS Projects in Europe (16)

• FIAS carried out 2 projects in Armenia: a review of the FDI legislation and assistance on an

investor survey.

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• In Bulgaria, FIAS conducted 3 projects: it prepared a review of investment incentives, reviewed the enforcement of arbitral awards and contracts and also assisted in the implementation of the enforcement of arbitral awards and contracts.

• An assessment of the FDI implications of WTO accession in Russia was conducted. • A diagnostic study of the foreign investment environment in FYR Macedonia was prepared. • FIAS also reviewed draft foreign investment laws in Lithuania. • A review of FDI policy and promotion in Slovenia was concluded. • In the Czech Republic, FIAS prepared a diagnostic reassessment of the foreign investment

climate as a contribution to the World Bank’s Country Economic Memorandum. • In Hungary, FIAS assessed the possibilities of private funding for investment promotion

agencies. • A study of the administrative barriers to investment in Latvia was conducted. • A diagnostic review of the investment environment was conducted in Moldova. • Three projects were completed in the Kyrgyz Republic: a diagnostic update of the foreign

investment environment as part of a World Bank project, a review of draft foreign investment laws and advisory assistance on how to implement previous recommendations in the institutional framework for foreign investment.

FIAS Projects in Latin America and the Caribbean (8)

• In Costa Rica, FIAS helped develop legal and institutional approaches to facilitate FDI in

infrastructure. • There were two projects conducted in Bolivia: administrative barriers to investment were

identified and a study of the country's incentives system was reviewed. • In Guatemala, FIAS developed an investment promotion strategy and suggested an

institutional framework for investment promotion. • Three projects were completed in Nicaragua: assistance on the establishment of an

investment promotion agency; an examination of the legal framework for FDI and assistance in implementation of a new legal framework for FDI.

• In Colombia, FIAS developed an investment promotion strategy and institutional framework for investment promotion.

FIAS Projects in the Middle East and North Africa (3)

• FIAS conducted one project in Egypt: assistance in the development of an FDI database. • FIAS conducted a review of administrative barriers to foreign investment in Jordan. • FIAS examined the legal framework for foreign investment in Iran.

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FIAS Advisory Projects Completed in FY00 (50)

FIAS Projects in Sub-Saharan Africa (13) • FIAS participated in two seminars/conferences for COMESA to disseminate the best

practices of investment promotion agencies at the regional level and to give a presentation outlining the issues and challenges for regional investment promotion in order to assist in developing a framework for a regional investment function.

• Another seminar/workshop to assist the East African Community with the harmonization of the investment codes for Uganda, Kenya, and Tanzania was organized. FIAS commissioned and presented several technical papers at the workshop on best practices in investment laws and their harmonization.

• In conjunction with the World Bank PSD team, provided assistance to the Government of Burkina Faso in its effort to reform the institutional, administrative, and regulatory framework for private investment, including FDI. Additionally, in a project jointly funded by the World Bank and the Swiss Government, FIAS assisted the Burkina Faso's Government in designing an action plan to streamline company registration procedures, revise the fee structure, and improve the information system.

• Training was provided to the Ethiopian Investment Agency to help strengthen its capacity for investment promotion.

• In Kenya, the draft of the Investment Code was reviewed • Three projects in Senegal were completed: FIAS disseminated recommendations that were

included in the previous administrative barriers study with the objective of helping the government identify priorities and actions; FIAS reviewed the draft Decree on the creation of the Investment and Export Promotion Agency; and assistance was provided to the Prime Minister's Office in designing an action plan aimed at streamlining administrative procedures. Approved by the Ministers' Council in December 1999.

• A desk review of the Administrative and Institutional Reforms of Sierra Leone was conducted.

• Conducted an Administrative Barriers study to identify Zimbabwe's bureaucratic impediments to FDI.

• Provided assistance to Cape Verde's Investment and Export Promotion Agency (PROMEX) in its effort to upgrade its activities and design a new investment promotion strategy for the next few years.

FIAS Projects in Asia and the Pacific (14)

• FIAS conducted a study of impediments to cross-border trade and investment in the Tumen

River Economic Development Area (which consists of Southern Primorsky Territory in Russia; Yanbian Prefecture in Jilin Province, China; the Rajin Sonbong Zone in DPRK; and

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Eastern Mongolia) for the UNDP Tumen Secretariat, which culminated in the "TREDA Advocacy Workshop 2000: Stimulating Trade, Investment and Growth In and Around the Tumen Region". In addition to the fieldwork and the Background Paper based on it, FIAS task-managed the preparation of two other papers for the Workshop: 'Trade and Investment Synergies in the Tumen Region' and 'Regional Economic Development Areas in Asia: Trade, FDI and a New Framework for Analysis'.

• The Government of Cambodia was assisted in moving from discretionary, expectation based investment incentives to automatic, performance based incentives available to all qualifying investment expenditures in order to offer a competitive general tax environment to all investors.

• In China, guidance was provided in the development of a national foreign investment promotion program.

• This first project at the sub-national level in India looked at the state-level entry procedures for foreign investment, the fiscal incentives offered to investors, and the arrangements in place for investment promotion. A national and international survey of investor perceptions of the investment climate in Andhra Pradesh was also conducted.

• Designed a program to overcome administrative and other barriers to the flow of FDI for the Eastern Provinces of Indonesia.

• Thailand's investment incentives were reviewed and proposals for changes were made. • As a second stage of assistance to the sub-national governments in the southern Philippine

provinces of Mindanao, FIAS designed a process for implementing the recommendations previously provided, specifying the institutional arrangements necessary and defining the broad terms of reference for the main agencies and players involved.

• FIAS collaborated with the World Bank to advise the Vietnamese authorities on their proposal to establish an Open Economic Zone regime along the lines of the Special Economic Zones in China. FIAS mobilized economic zone experts and investment policy experts to share experience on zone objectives, location, design and management with the Vietnamese Investment Zone Authority and other government departments. The advantages and disadvantages of the proposal for the first zone were discussed.

• FIAS assisted the Pacific Regional Forum Secretariat with the 1999 Meeting for the Heads of Investment Promotion Agencies, which included providing assistance with the development of the meeting agenda, the preparation and presentation of training course outlines, as well as presentations on a number of other topics at the meeting.

• Assisted the Government of Fiji in reforming its investments incentives system to provide an investment friendly tax regime that is transparent and non-discretionary.

• In Micronesia, a comprehensive FDI legislative review was conducted and advice on revisions to individual State legislation was provided.

• Provided drafting guidelines for the Solomon Islands' new investment promotion agency and for new foreign investment legislation to replace the existing Investment Act.

• In Tonga, FIAS provided an explanatory report with recommendations and drafting guidelines for amending the Licenses Act, for creating new foreign investment legislation, and for repealing the Investment Development Incentives Act.

• Provided drafting guidelines for Vanuatu's new investment promotion agency.

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FIAS Projects in Europe (11)

• The Investment Law of Armenia was reviewed and assistance was provided in implementing a revised law.

• Reviewed the Investment Law of the Russian Federation at the request of the World Bank. • In Bosnia and Herzegovina, FIAS provided assistance in the development of an

institutional framework for the newly established Foreign Investment Promotion Agency (FIPA).

• A study of administrative barriers to investment was conducted in Lithuania. • A proposal for a program to promote backward linkages between foreign direct investors

and domestic firms was developed for the Czech Republic. • In Romania, FIAS reviewed the country's investment incentives and made proposals for

improvements in its corporate tax and incentive policies. • The Slovak Republic's FDI Laws and Regulations and Tax Laws were reviewed. • Assisted the Government of Bulgaria in identifying ways to streamline procedures

associated with the establishment and operation of private investments. At present, the Government is working jointly with FIAS to implement the various reform initiatives.

• Moldova's draft Investment Policy Strategy document prepared by the Ministry of Economy and Reforms for parliamentary discussion was reviewed.

• A study of administrative barriers to investment was conducted in Slovenia. • As a follow up to a prior project, FIAS assisted the Government of the FYR of Macedonia

in implementing legal reforms that were previously recommended. FIAS Projects in Latin America and the Caribbean (5)

• Completed its advice on the organizational development of ONI - El Salvador's National Investment Office.

• Conducted a desk review of the strategy and business plan of Guatemala's investment promotion agency.

• Provided advice on improving the structure and governance of Costa Rica's national investment promotion agency.

• Helped Colombia's national investment promotion agency (COINVERTIR) restructure its organization and funding.

• In Panama, lessons of experience on investment policy and promotion were compiled. FIAS Projects in the Middle East and North Africa (7)

• Developed a general strategy for more pro-active investment promotion in Egypt. • Conducted a comprehensive review of Iran's investment climate • Reviewed amendments to Yemen's investment code in conjunction with the IMF.

29

• Reviewed Qatar's, Kuwait's, and Turkey's FDI Law. • Provided assistance to the Investment Development Authority of Lebanon in the

establishment of a one-stop shop service.

30

FIAS Conferences Completed in FY99 (10) Asia and Pacific

• FIAS co-sponsored the 1998 Asian High-Level Roundtable on FDI and Its Impact on

Poverty Alleviation, held in Singapore. It also took part in the APEC FDI Data Collection Seminar and the ASEAN FDI Data Collection Seminar.

• There were also three Pacific Regional Conferences: the Annual Foreign Economic

Minister's Meeting, the Annual Forum IPA Meeting, and the Training Needs Assessment Framework and Survey Forum.

Europe and Central Asia

• FIAS made a presentation at the OECD Conference on FDI in Infrastructure in Istanbul. • A roundtable on investment promotion was held in Croatia as part of the multi-country

Central Europe Initiative. Latin America and the Caribbean

• FIAS co-organized a conference entitled the IPA Roundtable Conference for the Caribbean

Region. Global

• In Washington a Seminar on FDI in Small Island Economies was held.

31

FIAS Conferences Completed in FY00 (9)

Asia and Pacific

• FIAS co-sponsored the 1999 Asia High-Level Roundtable on Foreign Direct

Investment and Sustainable Human Development in Asia: Past Experiences and Future Prospects, held in Bangkok. It also took part in the 2nd ASEAN FDI Data Conference held in Bali, Indonesia and FIAS made a presentation in Beijing on Financing Infrastructure Investments and Municipal Bonds in a conference sponsored by the Central Bank of China.

• In the Pacific region, FIAS completed an assessment of the economic impact of the

various policy options available to Pacific Island nations in the development of one of their principal natural resources, tuna fisheries. FIAS also made a presentation on FDI and Gender in the Pacific Forum - Gender Conference held in Fiji.

Europe and Central Asia

• FIAS made a presentation on FDI trends in the region and efforts of various countries to improve their investment environment in an OECD-sponsored Conference on the Investment Environment of the Baltic Region and North West Russia, held in January 2000 in St. Petersburg, Russia.

Middle East and North Africa

• FIAS presented two papers on Backward Linkages and was administrative barriers that (foreign) investors face in a Conference organized by the World Bank and the Government of Morocco on the development of small and medium enterprises, which was held in Rabat in December 1999.

Global

• FIAS presented a paper in the ITC Executive Forum on the importance of establishing a competitive export environment to achieve success in attracting foreign investment.

• FIAS presented two notes: on backward linkages and on FDI approvals, to the Subcommittee on Investment of the World Trade Organization (WTO).

32

33

ANNEX IIIPage 1 of 3

Actual Actual Budget Actual Budget FY2000 FY97 FY98 FY99 FY99 FY2000 (Preliminary)

AUTHORIZED POSITIONS 1. HIGHER LEVEL 17 19 19 19 20 18.0 2. SUPPORT 9 9 11 9 8 8.0

STAFFYEARS 1. HIGHER LEVEL 14.9 14.8 16.0 15.2 18.0 14.5 2. SUPPORT 8.2 9.0 9.0 8.3 8.0 7.1 3. CONSULTANT - Short Term 1.0 2.0 2.0 1.5 1.0 1.0 4. CONSULTANT - Long Term 2.0 1.0 1.0 1.0 1.0 1.0

DISCRETIONARY COSTSSALARIES 1,573.9 1,692.6 1,822.0 1,762.9 2,038.2 1,758.0 TEMPORARY 114.8 125.9 199.9 132.6 131.4 89.6 OVERTIME 4.9 1.9 31.2 3.1 29.5 4.1 TRAVEL - STAFF 645.5 690.3 633.0 656.8 730.6 823.3 TRAVEL - CONSULTANT 568.1 555.5 654.6 788.0 679.3 482.2 REPRESENTATION 8.6 14.3 16.9 9.4 19.8 11.5 HOSPITALITY 1.7 1.1 1.1 0.4 1.1 2.4 CONSULTANT FEES 1,176.1 1,031.2 1,409.1 1,366.7 1,458.5 1,674.7 CONTRACTUAL SERVICES 74.1 178.0 167.1 118.9 172.1 270.7 COMMUNICATIONS 40.6 51.7 68.2 39.3 78.4 46.5 INTERNAL COMPUTING COSTS 31.0 21.6 38.4 12.8 39.6 39.0 LANGUAGE AND PRESENTATION SERVICES 64.2 21.7 57.1 28.9 67.2 36.6 STAFF TRAINING 9.6 9.4 37.7 19.6 38.7 47.4 GROUP TRAINING FOR CLIENTS 31.4 47.6 58.9 43.3 60.5 21.6 MISCELLANEOUS 107.0 (16.9) 6.2 (315.3) 6.2 (9.5)

SUB-TOTAL 4,451.4 4,425.8 5,201.4 4,667.4 5,551.1 5,298.3

OTHER COSTSOFFICE OCCUPANCY 261.4 271.3 337.2 353.2 346.7 348.4 /a

OFFICE MACHINES/SOFTWARE 50.9 82.7 55.7 5.5 57.4 10.4 SUPPLIES AND OTHER 14.0 19.4 6.9 9.3 7.0 19.3 DEPRECIATION CHARGES - - 5.5 - 5.7 -

TOTAL DISCRETIONARY & OTHER COSTS 4,777.7 4,799.3 5,606.8 5,035.4 5,967.9 5,676.4

BENEFITS 1,198.9 1,093.7 1,463.4 844.8 1,631.8 904.4 OVERHEADS 128.5 445.4 257.3 162.5 288.9 165.9

TOTAL (INCL. BEN. & OVERHEADS) 6,105.1 6,338.3 7,327.5 6,042.7 7,888.6 6,746.7

SERVICE & SUPPORT FEE 161.9 139.9 290.5 145.6 342.0 142.5 PERSONNEL SUPPORT - - - - - - SUPERVISION COSTS - - - - - - TRUST FUND ADMINISTRATION FEE 66.6 65.8 62.0 60.2 /b 63.9 60.0 /bREIMBURSEMENTS (Clients & USAIDTF) - -

TOTAL PROGRAM COSTS * * 6,333.6 6,544.0 7,680.1 6,248.6 /c 8,294.5 6,949.2 /c

/a FIAS was charged for Off ice Occupancy costs of $314,820 in FY00. After review ing the actual space allocated to FIAS in FY00 it w as determined that this amount should be reduced by $94,247. FIAS off ice Occupancy charge for FY01 w ill be adjusted to account for the credit due to FIAS./b Est imated./c Including est imates direct ly to be paid by clients or donors.

* * Totals may not add due to rounding.

10/13/2000

Staf f ing and Budget by Expense Category FY1997-2000

34

ANNEX III

Page 2 of 3

FY97 FY98* FY99FY2000

(Preliminary)

Total Uses of Funds 6,334 6,544 6,249 6,949

Sources of FundsA. Contribut ions of Bank Group IFC 1,691 1,742 1,794 1,848 IBRD 846 873 898 913

Subtotal 2,537 2,615 2,692 2,761

B. Reimbursements from Clients /a 1,085 1,307 1,485 1,433

C. Cross Support

D. Direct Donor SupportUNDP 12 141 160 184 Bilateral- USAID (7) (2) - CIDA 2 - Sw itzerland (Africa) /a 60 30 - Sw itzerland (Balkans) /b- Australia/New Zealand Trust Fund 354 639 339 231 Subtotal 359 780 559 445

Net draw n from the Trust Fund 2,353 1,842 1,513 2,310

Total Sources of Funds 6,334 6,544 6,249 6,949

FIAS TRUST FUND ANALYSIS

Trust Fund Beginning Balance 6,794 6,452 6,331 6,132

Less: Operat ing Expenses (2,353) (1,842) (1,513) (2,310)

Plus: Interest Earned (excl. TF Admin. costs) 402 390 401 481

Plus: Interest Earned by FIAS/APRO TF (US$ est) 5 13 4 4 Plus: Contribut ions to the Trust Fund 1,604 1,318 909 697

Trust Fund Ending Balance 6,452 6,331 6,132 5,003

---------------------------------

/a Amounts show n represent draw ings from the fund. For the FIAS Africa program, FIAS received $500,000 from

Sw itzerland.

/b For the FIAS program in the Balkans, FIAS received in FY2000 $250,000 from Sw itzerland.

* FY98 results w ere restated during FY99.

Note: Totals may not add due to rounding.

10/13/2000

SOURCES AND USES OF FUNDS(Current $'000)

35

ANNEX III

Page 3 of 3

FY97 FY98 FY99 FY2000

Canada 217 417 *

Ireland 50 Italy 130 Japan 400 363 Luxembourg 102 48 Netherlands 278 266 (6)

Norway 149 144

Portugal 100 150 Spain 50 100 Sweden 252 237 Switzerland 674 United Kingdom 139 132 136

TOTAL 1,604 1,318 909 697

_______________* US$ equivalent estimated

DATA AS OF: 10/13/2000

Contributions to the FIAS Trust Fund(Current $'000)

tandaya N:\TERESA\FIAS\Annual Report FY2000\FullReport.doc May 5, 2004 4:48 PM