Investment capital from developing countries on the increase, UN study says

While established, capital-rich countries have long been supplying foreign direct investment (FDI) to the rest of the world, the share of capital flows from emerging economies is increasing rapidly, according to a study launched by the United Nations today.

The World Investment Report is published by the United Nations Conference on Trade and Development (UNCTAD). Besides data on investment flows, the 2005 Report also contains the first major study of the internationalization of research and development.

The report was introduced at a press conference at UN Headquarters by Georg Kell, Executive Head of Secretary-General Kofi Annan’s Global Compact initiative, which seeks to advance good corporate citizenship and responsible globalization.

The two-way flow of FDI signalled the start of a new role for developing countries in international business, a development likely to peak in five to 10 years’ time, said Kai Hammerich, Director-General of “Invest in Sweden” and the President of the World Association of Investment Promotion Agencies, who joined Mr. Kell at the press conference.

“The fact that we have these two-way streets of investment will open up strategic alliances between corporations in developed and developing countries that will be different in nature and scope from those of the past,” Mr. Hammerich said.

The report says that after three years of gradual decline, total FDI picked up again last year, during which UNCTAD estimated the flow of FDI at $9 trillion dollars. The rise was due exclusively to the increase of $230 billion in FDI to developing countries, amounting to almost 40 per cent of total FDI that year.

High inflow of FDI to a particular country signifies the existence of market-building opportunities and good growth prospects. China, including Hong Kong, was at the leading edge of this phenomenon, receiving the largest share of FDI flows to the developing world, in the amount of $94 billion.

Relatively high growth rates and increased stability in Latin America has also led to a 44 per cent or $70 billion increase in FDI in that region. Brazil and Mexico are the top FDI recipients there, whereas flows declined in Bolivia and Venezuela.

In contrast, the flow of FDI to Africa remains unchanged from last year, with the continent only receiving three per cent of the world’s total. Mr. Kell said the flow of FDI into Africa is commodities-driven – for instance, by the high price of oil and other natural resources – and not largely directed at market building, as it is in the case of East Asia.