Investment treaties may attract investment but the fallout from treaty disputes ultimately benefits neither party. fDi considers potential solutions.

Governments are often eager and ready to sign investment treaties. They are good politically and they encourage investment and growth. But in their haste, are governments forgetting that investment agreements also involve commitments and obligations?

The increase in costly investment disputes arising from treaties suggests that either governments do not seriously consider the long-term consequences or do not have sufficient control of the many regional and provincial governments in their country to ensure that agreements are not breached.

The investment boom in China is positive for other developing nations rather than to their detriment, according to research sponsored by the Asian Development Bank.

It looks as though 2005 will be an active year for US-oriented direct investment. About $500bn in retained US corporate profits has been sheltered abroad and companies have a one-year option to bring it home with a 5.25% corporate tax rate instead of the normal 35% rate (which led to the profits staying offshore).

The United Nations Conference on Trade and Development (Unctad) has released its estimates of FDI flows for 2004 (www.unctad.org/press). The good news is that the downturn is over: after three years of decline, world FDI flows rose from $580bn in 2003 to $612bn in 2004. The even better news is that this recovery was led by the developing countries: they attracted $255bn in 2004, compared with $173bn in 2003.

The number of companies providing non-financial reports is growing rapidly but much remains to be done if these reports are to be taken seriously, according to a recent in-depth study into corporate and social responsibility (CSR) reporting.

•  Mexico’s new tax law, passed in November 2004 and effective in January 2005, reduces the corporate income tax rate from 32% to 30% this year, with additional reductions scheduled for 2006 (29%) and 2007 (28%). Stock-option benefits are now considered taxable salary for non-residents who receive a salary in Mexico. The new law enacts a comprehensive controlled foreign corporation (CFC) legislation, under which a CFC can qualify for preferential tax treatment if it is subject to tax outside of Mexico.

2004 appears to have been a watershed year for investment in life sciences, with most indicators signalling a return to growth. In the US, venture capital funding rose in 2004, the first time in four years, aided by growing economic optimism, specifically in technology and health care, according to research by VentureOne and Ernst & Young.

Venture capital firms in the US invested $6.6bn in biotech and other health-related companies last year.

The ICT industry is one of the main clusters that investment promotion agencies worldwide are trying to attract to their areas. IPAs are watching investment trends to identify any new sub-segments or geographical markets where investment is increasing.

The latest data from IBM-PLI’s Global Investment Locations Database show that the investment increase in 2003 continued in 2004.

Ernst & Young’s Real Estate Advisory Services annual corporate real estate survey (2005) of multinationals operating in Europe concludes that there is a growing awareness of real estate as a supporting asset.

The previous 2004 study showed corporate real estate in the Netherlands was a neglected “business tool for success”, especially when comparing with real estate management in the US and the UK. The new study finds that companies give more priority to their core business and competences.

KPMG’s annual survey of automotive executive opinions, conducted in October and November 2004, is based on 120 interviews with North American, European, and Asian-based executives from vehicle manufacturers, and Tier 1, 2 and 3 suppliers.

It highlights the issues that are most important to auto industry executives and tracks changes in their views.

As European markets show signs of economic recovery, hope of stronger investor demand in the real estate sector is sparked. Karen E Thuermer reports on the latest statistics and developments in the sector.

Europe is a heterogeneity of markets with a vast offering of products. For the office sector, overall, net demand has improved in the past year – although Jones Lang LaSalle reports that the market is still weak and patchy across Europe.

Tourism is a big employer and income earner in Europe, and hotel investment can be seen as a barometer of the industry’s health.

New developments in Sweden’s Kista Science City are an example of how science parks can help to build up profile to attract investors.

Science park developments have had a profound impact on changing the economics and real estate scene in a host of cities across Europe. Liege in the Belgium province of Wallonia is developing its 50-hectare Science Park campus, which is capable of being expanded by up to 125 hectares.

Lithuania’s economy looking healthy, boosting investor confidence. The capital’s programme of reconstruction and renewal of historic buildings is, in turn, encouraging large scale real estate projects.

In the aftermath of the tsunami, Sri Lanka must rebuild its damaged tourism sector. Tourism minister Anura Bandaranaike tells fDi how he plans to do it.

In a briefing following the Indian Ocean tsunami disaster, US under secretary Alan Larson argued that FDI could help developing countries more effectively than aid. Karen E Thuermer reports.

The media have reported on how governments worldwide have reached deep into their pockets to assist in the tsunami relief effort in south-east Asia. The US government, for example, placed 2400 relief workers in the region, 26 ships with supplies nearby and 96 aircraft to fly in food and supplies.

“The US Department of Defense is spending $5m-$6m a day on tsunami relief, which is not part of the $360m+ and rising pledged by the US government,” Alan Larson, under secretary, economic, business and agricultural affairs told a National Press Club briefing on January 13 in Washington, DC.

The forecast is bright for the Dominican Republic’s tourism industry and there are plans to move up the value chain. Courtney Fingar reports.

The Dominican Republic’s new president is a hit with locals and foreign investors alike.

With president Leonel Fernandez back in office in the Dominican Republic, in the words of real estate developer Pierre Schnebelen: “It’s a whole new ballgame” – a fitting metaphor for the baseball-mad country.

Mr Schnebelen is the mastermind behind the first big tourism project to go onstream since the president got back in power, Atlantica. “It has certainly made things more comfortable for us,” he says. “The president has supported this project since day one,” and attended the opening.

It is no wonder that Mr Fernandez is so supportive: Atlantica will provide thousands of jobs for the Dominican economy, and development of the tourism sector is a key part of the administration’s economic game plan.

Dubai has won the title of Middle Eastern City of the Future in fDi’s 2005/06 competition. Charles Piggott reports.

Runner-up: Jubail Industrial City, Saudi Arabia

Dubai is the winner of fDi’s Middle Eastern City of the Future 2005/06 competition. Time and time again, it has shown what can be achieved when oil resources are invested wisely. Although Dubai’s rapid economic growth began in the 1960s with the first production of oil, the city’s wealth is no longer dependent on natural resources: in 2003, tourism overtook oil revenues as the prime source of income.

Runner-up: Dubai, United Arab Emirates

Rapid GDP growth from strong oil exports and massive foreign investment in Saudi Arabia’s main industrial city mark Jubail out for strong economic performance in the next few years. Three decades after US engineering firm Bechtel Corporation put in place the massive industrial infrastracture, Jubail has become one of the Middle East’s most important industrial centres.

Runner-up: Cairo, Egypt

Extremely low property rents and some of the lowest wage levels in the Middle East make Aden in Yemen the most cost-effective location in this year’s competition. Office rents in Aden are on average $75 per square metre per year, less than half that in many other Middle Eastern cities, which can command rents of $300 per square metre or more. Salaries in Aden are also a fraction of those in more developed countries with unskilled labour rates on average $0.91 per hour.

Runner-up: Haifa, Israel

Beirut’s excellent schools and internationally renowned universities make it fDi’s choice for best human resources in the Middle East. Not only does Beirut boast the highest proportion of graduates, the judges also ranked the city top for the quality of its academic institutions.

Runners-up: Jubail Industrial City, Saudi Arabia and Manama, Bahrain (tie)

Dubai is the pre-eminent transport hub in the Middle East, thanks to its busy airport and ports, which have grown rapidly in the past four decades. Dubai’s main ports of Jebel Ali, Port Rashid, Hamriya Port and Dubai Creek serve more than 13,000 vessels each year and handle a significant share of the world’s shipping cargo.

Runner-up: Haifa, Tel Aviv and Jerusalem, Israel (tie)

Dubai is the most “connected” city in fDi’s Middle Eastern Cities of the Future 2005 competition. Its adult population has the highest density of mobile phone ownership, at 98%, and the highest rate of internet connection, with 39% online.

Runner-up: Dubai, United Arab Emirates

Doha and Dubai tied on points for strategy but the judges gave the final vote to Doha. The city came out top for its excellent investment promotion and recent FDI deals.

Since sanctions were lifted, Libya has been working hard to dispel foreign investors’ concerns and speed up its ambitious privatisation programme, finance minister Mohamed Ali El Huwej tells Blanca Riemer.

Umbria’s regional development agency is promoting the area to investors on a number of fronts and emphasising its underused resources, including hot springs and a stock of mediaeval buildings. Nick Kochan reports.

Anda Networks was founded in the US but most of its employees are based in China. Courtney Fingar finds out why the company took the route to a unique hybrid business model.

Many politicians, voters and special interest groups in the US get vexed about outsourcing. So what do they think about Anda Networks? Of the US-born technology company’s nearly 80 employees, roughly 75% are based in China.

While the Anda structure might look like what president and CEO Charles Kenmore calls “extreme outsourcing”, in reality, he says, “we in-source, with 100% of our folks in China being Anda employees”. He also stresses that there is not a single expat in the company’s Chinese operations – that is all part of the model.

After several decades of economic decline, Liverpool is on the road to recovery. Council leader Mike Storey tells Courtney Fingar how a policy of encouraging investment and welcoming business has turned around the city’s fortunes.

Last October, the UK Conservative MP and Spectator editor Boris Johnson created a furore by accusing Liverpudlians of clinging to a collective victim mentality.

Merger activity signals a coming resurgence in the logistics arena. Karen E Thuermer reports on developments in the industry across the globe.

Sviluppo Lazio has revealed the results of a survey on investors views of the region. Meanwhile, it is pressing ahead with its new strategy objectives.

Russian governors and corporate executives arrived in the US capital in late 2004 for the Golden Galaxy Awards and took the opportunity to promote their regions, as fDi reports.

Social responsibility is high on the Aegean Free Zone’s list of development priorities.

Australia is doing well in the competition for foreign capital. Stephen Timewell reports on the economy of the state of Victoria and what it is offering investors.

Advanced manufacturing, which emphasises innovation, could help the US to keep pace with global competition but there are long-term problems to address. Karen E. Thuermer reports.

Puerto Rico offers key advantages to knowledge-based industries, making the island a popular FDI destination.

Arizona is the perfect incubator for innovation. The US state provides businesses with access to educational excellence and industry experience.

With the old textile quota regime abolished, producers are repositioning themselves to capture a piece of the global market. Courtney Fingar reports on the likely winners and losers.

The new year brought a new look for the global textile market, with the expiry of a quota system that has coloured it for three decades. Whether this is an improvement on the old look depends on who you ask.

The World Trade Organisation’s Multi-Fibre Agreement, which ended on January 1 this year, is now viewed by many as having distorted world textile trade.

Turkey, another contender in the textiles market, is focusing on producing high value-added products and becoming a leader in the field of fashion and design. There are plans to establish a fashion institute as part of a EU-funded project; a communique is being drafted to articulate requests coming from the fashion sector.

Turkey regards itself as having competitive advantages in fashion, design and production quality, and is proud of its prompt production and delivery times. But still, the government is keenly aware that it must help the country’s textile industry to adapt to the stiff competition that it will face in international markets.

China is tightening up regulations on transfer pricing to stem the growth of tax evasion among foreign companies. Klaus Koehler reports on the Advance Pricing Agreement Rules.

Some developing countries have failed to reap the benefits of globalisation because multinational companies are neglecting corporate social responsibilities. Mohamed Elkeiy looks at progress on this front.