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USD $131 Billion in Foreign Direct Investment is Deterred Due to Opacity According to New PricewaterhouseCoopers Study.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 24, 2001

Individual Countries Losing as Much as USD $40 Billion in Foreign Direct Investment as a Result of Opaque Economic and Business Practices

Value-neutral "Scorecard" of Economic Behaviors Provides Formula to Help Governments Identify Most Prominent Causes of Deterred Investment

According to a new study released today by PricewaterhouseCoopers, countries rated most opaque by its recent Opacity Index have lost an estimated USD $131 billion in foreign direct investment (FDI) due to capital flight to countries with greater transparency.

This indicator is the first of its kind linking the impact of policy changes in the area of transparency to economic growth and investment.

In a report published by its Endowment for the Study of Transparency and Sustainability, PricewaterhouseCoopers introduces the FDI-Transparency Accelerator, a concept that supports a distinct connection between direct investment, transparency, and a country's economic performance. According to this model, a growing economy attracts inflows of foreign direct investment. A relatively transparent environment maximizes the economic benefits of that investment. This in turn accelerates the cycle and closes a circle in which all participants benefit. Economic benefits include raised employment, increased wages, and enhanced productivity.

"Every unit of deterred FDI is a lost opportunity for faster economic growth," said James Schiro, Chief Executive Officer of PricewaterhouseCoopers. "Our hope is that measuring opacity and its impact on deterred foreign direct investment will demonstrate to countries the need for and real economic benefits of change."

Using the FDI-Transparency Accelerator as a guideline, a country can begin to achieve economic growth, but only if it takes the necessary steps to decrease opacity. According to the study, corruption and legal, regulatory, accounting and economic opacity can curtail the positive effects of FDI on economic growth. A lack of transparency undermines the positive relationship between FDI and growth that occurs in a more transparent environment.

PricewaterhouseCoopers estimates deterred FDI in two steps. First, it establishes a low opacity benchmark score for four countries with the lowest opacity score in the sample: these include Singapore, the United States, Chile, and the United Kingdom. Second, it estimates how much more FDI the country would attract if it succeeded in reducing opacity to the benchmark level. [Note: For a more complete discussion of methodology, please see the full report available on www.opacityindex.com.]

The new report provides governments with an analytic tool to identify the most prominent causes of deterred foreign direct investment. It suggests that a country can increase its levels of inward foreign investment by reducing corruption, as well as legal, regulatory, economic and accounting opacity. This study is part of a larger initiative to analyze the impact of opacity on the global economy.

PricewaterhouseCoopers released its first Opacity Index in January 2001, measuring the effect of opacity on the cost of capital. In the coming months, the firm will further develop and refine the index. PricewaterhouseCoopers launched this initiative to inform the policy debate both in individual countries and in global forums dedicated to these issues.

Note to Editors:

The number USD $131 billion is the sum of deterred FDI for half of the countries in the sample with the highest opacity. The real amount of FDI these countries would attract collectively, if they were all to reduce their opacity, would be less than USD $131 billion due to competition among them for capital.

A complete version of the report Investigating the Costs of Opacity including methodology, supplemental findings, appendices and bibliography can be found at www.opacityindex.com.

PricewaterhouseCoopers (www.pwcglobal.com), the world's largest professional services organisation, helps its clients resolve complex business issues and measurably enhances their ability to build value, manage risk and improve performance in an Internet-enabled world.

PricewaterhouseCoopers refers to the member firms of the worldwide PricewaterhouseCoopers organisation.
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Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

 
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Date:Apr 24, 2001
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