Foreign direct investment (FDI) outflows from the OECD area to the rest of the world picked up from USD 593 billion in 2003 to USD 668 billion in 2004. However, direct investment inflows continued on a downward trend, reaching a comparatively low USD 407 billion in 2004. Outward FDI from the United States reached USD 252 billion in 2004 to hit an all-time record. While this to some extent reflects the weakness of the dollar it also points to a very strong interest among US companies in acquiring corporate assets abroad. Conversely, direct investment into Germany and France, the two largest economies of the European continent, fell sharply in 2004. The downturn largely reflects a repayment, out of Europe, of inter-company loans and other positions between related enterprises. OECD countries’ traditional role as net providers of FDI to the rest of the world grew even more pronounced in 2004. Net outflows, estimated at USD 261 billion, were the highest in recorded history. Most of this money went to developing countries. As in earlier years, China and a couple of Asian financial centres remain the largest recipients, but FDI into a range of countries, including Russia, India and much of South America, has also picked up lately. On top of this, several of the more advanced developing countries are emerging as outward investors, their national companies establishing subsidiaries in neighbouring countries and increasingly also on a more global basis.

This special focus reproduces three of the background documents prepared in support of the work on the Policy Framework for Investment. They include three of the central policies covered by the Framework: trade policy, competition policy and tax policy. Each article explains the relevance of the policy area in question for investment and articulates issues to consider in governments’ efforts to mobilise more and better investment. All three articles have benefited from discussions in the Task Force overseeing the development of the Policy Framework for Investment as well as in the various OECD committees with expertise in the relevant areas.

Adequate physical infrastructure is a key element of a sound investment climate and development agencies can help countries mobilise private investment through ODA spent on relevant infrastructure. However, the developing world needs far more financing for infrastructure than can be provided through ODA and domestic public finances alone. Given the shortage of public funds in most developing countries, the obvious solution is to invite greater private sector participation, but this too is problematic since investing in infrastructure projects in many parts of the world is not financially viable from a private sector perspective. One solution is to expand the use of public-private partnerships (PPP) in utilities, relying on ODA to enhance the quality of projects, reduce risks and raise profitability. The present article reviews recent experiences with private participation in infrastructure in developing countries, enumerates some of the obstacles that have been encountered and proposes ways in which development agencies may overcome the obstacles to maximise the benefits of PPPs for development.

The focus of the present article is the linkage between official development assistance (ODA) and private investment in Vietnam. The evidence that it reviews relates to the period following the introduction of Doi Moi (Vietnam’s economic reform programme) in the late 1980s. During this period economic growth rates have been impressive and Vietnam has been a major recipient of ODA. ODA has been helpful in overcoming obstacles to economic growth such as a scarcity of resources and know-how, outdated technology, poor infrastructure and institutional failures. It has also helped build the competence, or inclination, at different levels of government to correct these problems. The success stories so far include an ODA-backed revision of enterprise legislation that is credited with creating hundreds of thousands of jobs in the formal economy and a small number of infrastructure projects that spurred an explosive enterprise creation in the concerned areas. Macroeconomic evidence of the linkage from ODA to investment, however, remains elusive.