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March 25, 2021updated 30 Sep 2022 10:09am

Investors do not appear to care about media freedom – but they should

By Aisha Majid

The state of press and media freedom in a country appears to bear little direct relationship to how successfully it attracts foreign business investment, according to analysis by Press Gazette and Investment Monitor.

Using data from Press Gazette’s Media Freedom Health Check, which rated the media environment in 166 countries based on 18 indicators, we found that many of the leading countries in terms of Foreign Direct Investment (FDI) have critical media freedom issues.

Even when taking into account other factors such GDP, GDP per capita and physical distance from the investor country, our analysis found no overall relationship between the amount of FDI a country attracts and how well it scored for media freedom. This suggests media repressionon does not seem to be a deterrent to investment.

Five of the 20 countries that attracted the most FDI in 2019 – according to figures in the latest World Investment Report from the United Nations Conference on Trade and Development (UNCTAD) – are places Press Gazette found to have critical issues around media freedom. Those countries are China, Singapore, India, Mexico and Russia.

China, the world’s second-largest economy in terms of GDP, stands out in particular.

Despite its poor track record on democratic freedoms, in 2019 the Asian superpower was the second-biggest recipient of global FDI after the US, attracting 9% of total global FDI inflows. More recent 2020 data, which is available for a smaller group of countries, further shows that China has since taken the US’s top spot.

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Even if investors aren’t currently taking into account how free a country’s media is before spending their money, should they be?

Quinn McKew, who leads human rights non-profit Article 19, says that while foreign investment may help boost press freedom in countries with poor track records on democracy, there are stronger arguments as to why a healthy media should factor into investment decisions up front.

“Having key transparency and anti-corruption measures are absolutely essential for ensuring long-term sustainable economic return,” she says.

“Often foreign direct investment really precedes having strong anti-corruption measures which then leads to a lot of rearguard action. But we’ve seen the absolute essential nature of a free press in uncovering corruption… and ensuring that accountability can happen.

“People are always going to try to exploit systems and cracks. But what you want to have is a regulated business environment that allows you to make rational decisions for investment and a key part of that rational decision is information clarity and the free press is absolutely essential to ensuring that there is enough transparency around issues of bribery and corruption.”

[Read more: How attacks on the media have grown around the world during pandemic]

Also crucial, she says, is the link between democratic values and economic growth.

Research from MIT has shown that countries switching to democratic rule see a 20% increase in GDP over 25 years, compared to if they had remained authoritarian states.

“While FDI may not be following or using press freedom as an indicator, really one of the reasons that it should is related not to press freedom itself, but what press freedom is an indicator of,” says McKew. “If you want the money to go where it’s going to have the best long-term return then that would be in a democracy and press freedom is an indicator of democracy.”

Although we found that the countries that tend to attract the most FDI have a free press, most of this – unsurprisingly – is down to the fact that FDI tends to flow to more developed economies which usually have a better track record on democratic freedoms.

The 166 countries in our Media Freedom Health Check were rated as either green, amber or red based on how free the media environment is, with green countries being those with generally healthy media environments.

The 41 countries that we rated as green attracted 50% of the total FDI that went to the countries rated in our health check – slightly less than their share of GDP (58%). Countries that we scored red received 31% of FDI – more or less equivalent to their GDP share (33%).

As well as looking at overall trends we also looked at 70 specific countries to see if certain places did better than others.

We found that UK and US investors generally follow global trends when it comes to taking into consideration press freedom with neither country appearing to take into account the state of a country’s press when it comes to where to put their money.

Although most UK and US money happens to go to places where the press has a good track record on freedom, these are countries with generally healthy economies. The US, Luxemburg and the Netherlands are for example among the top destinations for British investment.

And neither country is averse to investing in places with poor track records against journalists, although proportionally less UK and US money ends up in places with poor press freedom compared to their GDP.

India – which was rated ‘red’ on our media freedom health check – is among the UK’s top ten FDI destinations. As of 2019, the former colony attracted $74bn (3%) of UK money according to the IMF’s Coordinated Direct Investments Survey (CDIS) which tracks direct investment by sending and receiving economy. Russia, Singapore and Mexico also featured among the top 20 destinations for UK investment.

The picture for US investors is similar. While the top destinations for US investment include democracies such as Canada and the UK, Mexico – one of the world’s deadliest countries for reporters received 4% of US investment – thanks to its proximity to the US and the deep cultural and economic ties between the two countries.

While investing in countries that score poorly on press freedom might make sense on a shorter-term horizon, longer-term this throws up more questions of what investors are trying to achieve with their money, says McKew.

“Authoritarian countries are notorious for having inefficiencies that can be exploited by the marketplace and as long as there’s an openness to capital while rights are being repressed then it seems like that is a way for people to exploit that,” she says. “It’s very difficult to say what needs to come first in terms of chicken and egg but it gets to the broader question of what is the picture that we need to be pushing for globally.”

For at least one country, however, human rights and investment appear to go hand in hand.

Our analysis suggests a link between a free press and flows of Swedish money that cuts above the effect of a country’s GDP.

Countries where we rated the media as ‘red’ received an average of $3.1bn less investment from Sweden than comparable countries with a healthy press.

The Nordic nation has in the past been willing to withdraw investments from countries that don’t meet human rights standards. For example, in 2015, Sweden criticised Saudi Arabia for its human rights record cancelling its arms deal with the country.

“Sweden has certain foreign policy goals and we’ve seen those foreign policy goals in Sweden in better alignment with their economic investment goals,” says McKew, whose organisation works closely with the country on its development agenda. “Swedish citizens, from what I have seen from the outside, routinely expect the government to report on how they are doing externally in terms of supporting their overall human rights agreements and press freedom has been absolutely essential in the Swedish government’s foreign policy for a long time.

“They have been pretty unwavering in terms of support for press freedom and that support is manifested in a number of ways, not just through one narrow foreign policy statement but in terms of how they apply aid, the conditions that they put on aid, and the way that they approach different governments.”

And when it comes to where media companies set up subsidiaries – a key form of making investments abroad – using Monitor Network data, we found another bright spot.

Although we excluded subsidiaries in countries that we could not give a press freedom rating to due to lack of data (including several tax havens), our analysis of the remaining subsidiaries found that these companies are far more likely to set up in countries with a free press. Eighty-four per cent of subsidiaries of the media companies included in the Monitor Network database are located in countries where Press Gazette deemed media freedom to be good by international standards.

But while only a minority of FDI flows follow press freedom, more could be done to raise the importance of a healthy media environment in investment decisions, says McKew.

“What hasn’t effectively been done is clearly bringing in human rights considerations as it’s a bit murky as there aren’t as clear rankings and the tracking is not as clear,” she says. “But I think that’s a little bit of a cop out.

“I would say that the argument needs to be made that if you care about your long-term returns you have to care about press freedom because that is going to be what allows you to have security over how your money is actually being used in the system,” she says.

Additional data work by Ben van der Merwe

Image: Stephane De Sakutin/AFP via Getty Images

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