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| Biggest
drop in foreign investment in 30 years (Inter Press Service) By Gustavo Capdevila September, 2001. Foreign investment is expected to fall 40 percent this year due to the slowdown in global economic growth, although flows to developing countries will be just 6 percent down from last year's record high, the United Nations Conference on Trade and Development (UNCTAD) reports. Estimated global flows of foreign direct investment (FDI) are likely to total around US$760 billion this year, according to UNCTAD Secretary-General Rubens Ricupero. The UN agency's estimates are based on information received from 51 countries up to September 3, and thus fail to reflect the repercussions of last week's tragic events in the United States, said Ricupero. During Tuesday's presentation of the World Investment Report 2001: Promoting Linkages in Geneva, the UN official declined to speculate on the effects on the international economy of the September 11 terrorist attacks in New York and Washington. The report underlines that the 40 percent drop in FDI with respect to last year's record high of $1.3 trillion was the sharpest fall reported in the past 30 years, and the first decline registered since 1991. Nevertheless, FDI flows are expected to be higher this year than in 1998, and higher than the 1996-2000 average. Inflows of FDI reported by highly industrialized economies are projected to drop 49 percent, which will account for much of the decrease in foreign investment this year. Last year, industrialized economies reported inflows of $1.005 trillion, compared to the $510 billion expected this year. On the other hand, FDI is projected to decline just 6 percent in developing countries, which means their share of total FDI will rise 30 percent, eclipsing the proportion reported in 1998. The slump in FDI is largely due to an ebb in the number of cross-border mergers and acquisitions, Ricupero explained. The 50 and 18 percent increases in FDI in 1999 and 2000 were due to operations such as last year's $200 billion acquisition of Mannesmann (Germany) by VodafoneAirTouch (United Kingdom). But the trend towards "megadeals" has waned as a consequence of the slowdown in overall economic growth, said Ricupero, although it is likely to change once again when growth picks up in the world's leading economies. Besides providing statistics on FDI flows, the report urges countries to see investment as an element that bolsters domestic activity. Investment should create "linkages" between the subsidiaries of transnational corporations and the companies that provide local capital, whether small, medium or large, said British economist Sanjaya Lall, one of the report's authors. UNCTAD encourages such inter-business ties, which offer benefits to subsidiaries of foreign companies as well as local firms, and which enable the sharing of know-how and techniques. The report recommends policies aimed at fomenting such linkages, based on successful experiences in countries such as India, Ireland, Malaysia and Singapore. The authors say fast growth of FDI gives a greater weight to international production in the global economy, making it the chief force of international economic integration. In that sense, the 63,000 transnational corporations that lead FDI flows with their 800,000 foreign subsidiaries have an increasing influence on trade patterns, and represent around two- thirds of global commerce. Industrialized countries continued to dominate FDI flows last year, as recipients (71 percent) as well as providers (82 percent). The United Kingdom and France surpassed the United States as the largest foreign investor. However, the United States continued to head the list of recipient countries. FDI flows to and from Asia hit record highs in 2000. Investment was especially concentrated in China's special administrative region of Hong Kong, which overtook the rest of China as the single biggest source and recipient of FDI in Asia. The $143 billion invested in Asia represented a 44 percent increase with respect to 1999, while the region's outflows of FDI increased 140 percent to $85 billion. However, flows to Southeast and South Asia dropped. Investment in Latin America and the Caribbean fell 22 percent in 2000. The largest recipients in that region were Brazil and Mexico, while Chile was the biggest source of FDI. Africa, meanwhile, experienced a drop of 13 percent, to $9.1 billion. The main recipients were Angola, Egypt, Nigeria, South Africa and Tunisia. South Africa was the chief source of FDI within the region, accounting for 40 percent of the total outflow of $1.3 billion. |
