From poverty to power - Oxfam-Québec

3 POVERTY AND WEALTH PRIVATE SECTOR, PUBLIC INTERESTThese differences may be becoming less significant with time – forexample, as domestic businesses move more quickly into liberalisedglobal financial markets, or as TNCs recognise the need to ‘becomeindigenous’in order to understand their customers better and succeedwith bottom-of-the-pyramid approaches. 151 But governments stillhave to weigh up the costs and benefits to determine what combinationis most likely to lead to overall development.Developing countries face five main challenges in harnessingforeign investment for development:Linkages: Foreign companies tend to be less willing to buy inputsfrom local suppliers, often preferring to source from their own countryor parent company (see the Zambia example on page 177). Especiallyin the case of export industries, this can mean that TNCs’ operationscome to resemble enclave economies, providing few benefits tothe rest of the economy beyond a limited number of jobs. Mexicanproducedinputs to the maquila belt of ‘last touch’ assembly factorieson the US border accounted for just 3.1 per cent of total value in2000. 152 Without such linkages, high headline figures for exports arelargely cancelled out by the high imports required: the difference, orvalue added, is much less impressive. The absence of linkages alsoextends to revenue: many transnational corporations have provedadept at avoiding taxes through tricks such as transfer pricing (see Part 5).Technology transfer: Joint ventures with foreign companies havehelped successful developing countries such as Taiwan to absorb andadapt technologies that would otherwise have taken them years todevelop. In general,‘spillovers’ of technology occur more often wherecompanies have some degree of local ownership. 153 These days, however,proliferating trade and investment agreements restrict the ability ofgovernments to insist on technology transfer, while stronger internationalpatenting rules protect companies that insist on keepingcutting-edge technology to themselves. In light of global warming,encouraging such transfers will be particularly important in helpingcountries to move rapidly to a low-carbon growth model.Profit remittances: Governments need to maximise investment,while corporations expect to be able to use their profits as they see fit.That may involve reinvestment locally, but often it means sendingprofits back to the home country. Profit remittances from developing175