By Sumadhu Weerawarne
Sri Lanka needs to enhance its national production capacity partly through policy and increased training both in the labour and management sectors, said former General Secretary of the UNCTAD Dr. Gamani Corea at the launch of the World Investment Report of the UNCTAD.

He added that there was a need for improved infrastructure to attract more investment. But he added that foreign investment should be viewed from the perspective improving one’s national capacity. "Development in the last resort is this," he added. FDI on the scale of mergers and acquisitions he said raised questions on its pact on national sovereignty, as smaller local industries could be forced out, reducing their role in the national economy to a minimal level. "It can even impact on the values and culture of a country, say through changes in food patterns, media, etc. The new values would be at variance with the values of developing countries," he added.

To stem the prospect of oligopolies and monopolies due to the boom in cross border mergers and acquisitions (M&As), he added there is a need for competitive policy internationally, and domestic legislation. The report predicted that Foreign Direct Investment (FDI) inflows by transnational corporations would cross the USD 1 trillion mark this year, following 1998’s USD 865 billion mark. This is largely on account of the increase in transnational mergers and acquisitions. These have arisen at an annual rate of 42% over the past 20 years.

The FDI according to the report was largely within the sphere of developed countries, with some Latin American and South East Asian developing states benefiting somewhat. Developing countries constituting a vast majority of the world’s population just a fourth of the total FDI inflows (USD 207.6 billion. The overall FDI inflows to South Asia declined in 1999 by 13% over the last year to USD 3.2 billion. India (USD 2.2 billion) was the single largest recipient in the region, followed by Pakistan (USD 0.5 billion). Sri Lanka attracted USD 0.202 million, USD 4 million short of its inflow for 1998 and under half of its inflow for 1997. In terms of mergers acquisitions, sales of Sri Lankan entities attracted just USD 18.4 million in 1999, under a fourth of what it attracted in 1998 (USD 96 million), and under a tenth of what it attracted in 1997 (USD 275 million). The country currently has 305 foreign affiliates within its shores.

The report raised the importance of competition policy, on the rationale that it was important to avoid the replacement of foreign investment regulatory barriers by anti-competitive practices of transnational corporations, which would in effect, set up monopolies through mergers and acquisitions. The conclusion was that the policy initiatives to stem the "effects" of cross border mergers and acquisitions should emerge at both international and national levels. "This means the competition authorities need to have in place, and to strengthen cooperation mechanisms among themselves at the bilateral, regional and multilateral levels... International action is particularly important when dealing with cross border mergers and acquisition with global dimensions, especially for small countries that lack the resources to mount and enforce such policies on their own," it added.

Dr. Corea added that a UN initiative to formulate a code of conduct for transnational companies as early as in the 70s had been thwarted with developed countries calling it statist or interventionist and opposed to open market policy. The need he said was for the developing countries as a bloc to formulate such guidelines on their own or force the developed countries by the strength of their numbers to heed equitable policies.

He added that the crux of development being the improvement of the national capacity of a country, that FDI should be viewed from that perspective.