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FDI to Exceed 1 Trillion Dollars - Social and Economic Policy - Global Policy Forum FDI to Exceed 1 Trillion Dollars
By Mithre J. Sandrasagra
Inter Press Service
October 3, 2000Foreign Direct Investment (FDI) will surpass the one trillion dollar mark this year says a report published Tuesday by the UN Conference on Trade and Development (UNCTAD). ''Cross-border mergers and acquisitions, including the purchase by foreign investors of privatised state-owned enterprises, are driving the foreign investment volumes to new records,'' said UNCTAD Secretary-General Rubens Ricupero.
''A global marketplace for firms is emerging. Companies are being bought and sold across borders on an unprecedented scale,'' added Karl P. Sauvant, chief author of the report entitled 'World Investment Report 2000: Cross-Border Mergers and Acquisitions and Development' (WIR2000). FDI is the largest source of external finance for much of the developing world. Governments recognise the importance of attracting FDI, and value it over portfolio investment and bank lending especially during financial crises, according to UNCTAD.
FDI to developing countries rose last year to 208 billion dollars (from 179 billion in 1998), while FDI flows into developed countries climbed last year to 636 billion dollars (from 481 billion in 1998), according to WIR2000. More significantly, FDI outflows from developing countries last year almost doubled, to 66 billion dollars symbolising these countries' burgeoning desire to access the West's rapidly growing market. The report emphasised the fact that cross-border - characteristically North-South - mergers and acquisitions, particularly those involving large firms, vast sums of money and major restructuring of the activities of the firms, are among the most visible faces of globalisation.
Worldwide annual sales of foreign affiliates by transnational corporations (TNCs) in 1999 climbed from 3 to 14 trillion dollars between 1998 and 1999, according to UNCTAD figures. Ricupero stresses that ''International production by TNCs - numbering some 63,000 today, with approximately 700,000 foreign affiliates - now spans virtually all countries and economic activities, rendering it a formidable force in today's world economy.''
Over the last two years foreign investors have profited immensely from the privatisation of many Latin American services that used to be government controlled including electricity services in El Salvador, Guatemala and the Dominican Republic; telecommunications providers in El Salvador and Guatemala; and airport concessions in Costa Rica and the Dominican Republic. The report notes that merger and acquisition activity in the region is gathering pace, headed by large North American and European companies - most notably Repsol of Spain which has invested over 15 billion dollars during the last two years in Argentina.
FDI to Latin America and the Caribbean climbed most steeply last year to exceed 90 billion dollars, while inflows to all of the developing countries in Asia grew to 106 billion. Record levels of FDI poured into Brazil, Argentina, Chile and Bolivia last year, according to WIR2000, which cites long-term growth prospects and major privatisation as the main factors behind the rapid rise in FDI by TNCs in many Latin American countries.
FDI flows to Central and Eastern Europe and to Africa, however, remained quite modest according to the report - at 21 billion and 9 billion dollars respectively. Investments by TNCs going into Africa only represent 1.2 percent of global FDI flows and just five percent of total FDI into all developing countries. Furthermore, approximately 70 percent of the total of 1999 FDI into Africa was concentrated in only five countries - Angola, Egypt, Nigeria, South Africa and Morocco.
South Africa and Egypt are considered the most attractive African locations by investors. In general, the more developed countries are more attractive to investors raising fears that FDI may increase the gap between the rich and the poor in these regions. WIR2000 stresses that the ''real challenge for the continent lies ahead: integration into the global economy, including integration into the regional or global productivity networks of TNCs.''
''Only then will the continent become a more prominent player in the world market and benefit more from FDI,'' the report says. Tourism, natural resource industries, or industries for which the domestic market is important - such as telecommunications - were considered the most promising in their potential to attract FDI, said the report. Textile and clothing manufacture for which the international market is important, ranked low.
UNCTAD, working with the International Chamber of Commerce to bolster TNCs investment interest in Africa, has put together a publication called 'FDI in Africa: Performance and Potential', and has to date produced investment guides for Ethiopia and Mali; others will follow. Total FDI flows into developing Asia (including central Asia, West Asia and the countries in the Pacific) rose significantly last year to almost 106 billion. This is up from 97 in 1998 and contrary to a decline widely anticipated in the wake of the 1997-98 financial crisis.
Despite a decline last year, China's prospects of attracting FDI in the future are seen as good, particularly in light of its expected accession to the World Trade Organisation (WTO), states WIR2000. The largest number of leading firms on UNCTAD's latest list of the 50 largest TNCs from the developing world (measured in terms of foreign owned assets) were from Asia - dominated largely by companies based in the Republic of Korea, Hong Kong and Singapore.
GPF Note: Find the following information relating to the World Investment Report on the UNCTAD website:
UNCTAD Publications: The WIR - More Information about the Report.
Download an Overview of the WIR. You need Adobe Acrobat to view it.
TAD/INF/2855 - Press Release "Survival in Global Business Arena is Key Driver of Cross-Border Merger and Acquisitoon Boom"
TAD/INF/2856 - Press Release "Global Foreign Investment to Exceed $1 Trillion, UNCTAD Predicts"
TAD/INF/2857 - Press Release "FDI to Africa Rises in 1999, but Continent Must Become Bigger Market Player, Says UNCTAD Report"
TAD/INF/2858 - Press Release "Prospects Brighten for Foreign Investment in Asia"
TAD/INF/2859 - Press Release "Foreign Investment Increases to Central and Eastern Europe, Topped by Poland and Czech Republic"
TAD/INF/2860 - Press Release "FDI in Latin America Hits Record Levels, Fuelled by Long-Term Growth Prospects, Privatizations"
More Information on UNCTAD
More Information on Financing for Development
More Information on Transnational Corporations
More Information on Worldwide Mergers
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