UN predicts a fall in foreign direct investment for 2002

UN predicts a fall in foreign direct investment for 2002

The United Nations Conference on Trade and Development (UNCTAD) today predicted that the inflow of world foreign direct investment (FDI) would decline by 27 per cent this year, to about $534 billion, as China overtakes the United States for the first time as the largest recipient of overseas investment in the world.

The United Nations Conference on Trade and Development (UNCTAD) today predicted that the inflow of world foreign direct investment (FDI) would decline by 27 per cent this year, to about $534 billion, as China overtakes the United States for the first time as the largest recipient of overseas investment in the world.

Reflecting the pattern of 2001, the decline will be larger in developed countries, about 31 per cent, than in developing countries (23 per cent) and Eastern Europe (1 per cent), UNCTAD said. Meanwhile, FDI into 25 developed countries will fall to $349 billion in 2002, down from $503 billion last year, despite 10 of those countries expecting to receive higher inflows. Last year, only three developed countries – France, Italy and Greece – saw an increase in FDI.

The "uncertain economic situation and weak stock market are undermining business confidence, with a sharp impact on cross-border mergers and acquisitions and corporate investment expansion plans," UNCTAD said, noting that more than half of the 85 countries it surveyed would receive lower FDI flows in 2002 than in 2001.

Completed mergers and acquisitions across borders between January and September 2002 fell by 45 per cent to $250 billion, from $460 billion, for the same period last year, with the decline was most drastic in the United States, which received the largest FDI in 2001. In absolute terms, UNCTAD predicted the largest declines likely to be experienced by the United Kingdom and the United States because foreign firms within the US paid more money to their parent bodies outside of the country than they received from them.

According to UNCTAD, some developing countries and countries in Central and Eastern Europe are less affected by the general global FDI decline because of the competitive pressures faced by transnational corporations in those countries. Those pressures, the UN agency said, are aggravated by the global economic slowdown and the need to cut production costs by operating in less expensive locations.

"This development, and especially the substantial decrease in FDI flows into the US, may conceivably lead to China's supplanting the US as the single largest recipient of FDI inflows worldwide this year," UNCTAD said.