Prolonged slump in global economy cuts foreign investment in half - UN report

The prolonged economic recession and weakening business confidence that has clouded global financial markets for more than a year also diminished world flows of foreign direct investment by more than half in 2001, according to a report released today by the United Nations Conference on Trade and Development (UNCTAD).

The report's principle finding - that total foreign direct investment flows dipped to $735 billion - also notes that the largest downturn in a decade was concentrated in developed countries. This was largely due to a decrease in mergers and acquisitions among the most developed nations, coupled with uncertainties that pressured world markets following the 11 September terrorist attacks in the United States.

Meanwhile, the World Investment Report 2002, launched in 80 countries today, finds only modest declines in flows to developing countries - down only about 14 per cent - and even a small increase to countries in Central and Eastern Europe of about 2 per cent. Investment in Latin America had declined for the second year in a row, led by Brazil, where privatization had played itself out, and Argentina, where there was a recession. Foreign investment in the Asia and Pacific region dropped in general, as China acceded to the World Trade Organization.

Georg Kell, Executive-Head of the Global Compact and a top UN economics expert, said the UNCTAD report was the most comprehensive review of global investment trends and the best way to track the footprint of globalization. He told reporters at a press conference at UN Headquarters in New York that even though worldwide foreign direct investment flows had dropped, "transnational companies (TNCs) continue to expand their role in the global economy."

According to the report there were now about 65,000 TNCs, with over 850,000 affiliates employing more than 54 million people. Transnational corporations now account for one tenth of global gross domestic product (GDP). Policy liberalization, rapid technological change, lower transportation and communication costs as well as competitive pressure were all driving forces behind this trend, Mr. Kell added. But the Least-Developed Countries (LDCs), still received a minute portion of foreign investment, and required efforts beyond policy liberalization to attract more funds.

"Markets bet on success," Mr. Kell stressed, and sadly, "poor countries are often punished for being poor." There were some countries that were stable and where governments did their level best to create an environment to attract investors, he noted, but investments were often not forthcoming. There was often also tariff discrimination against refined products from small, poor countries.