Record foreign investment in 2007, but financial crisis prompts new caution – UN

Global foreign direct investment (FDI) increased by 30 per cent in 2007 to reach an all-time high of $1.8 billion, but the economic downturn and financial instability is prompting a new sense of caution for the coming years, according to a United Nations report released today.

“The worldwide slowdown appears to augur lower FDI activity for 2008,” the UN Conference on Trade and Development (UNCTAD) said in World Investment Report 2008: Transnational Corporations and the Infrastructure Challenge, its yearly review of investment trends.

The 2007 flows surpassed the previous record set in 2000 by some $400 billion, despite the global financial and credit crises which began in the second half of the year.

But the number of trans-national corporations (TNCs) planning large increases in investment overseas over the next three years has dropped significantly from 2007, although a majority still plan increases, albeit at a more moderate level, according to the report, based on 226 responses to queries sent to the world’s largest TNCs.

The upward trend in 2007 was apparent in nearly all regions and sub-regions and in all three economic groupings: developed countries, developing countries, and transition economies of South-East Europe and the former Soviet Commonwealth of Independent States.

The stock of FDI worldwide reached $15 trillion, representing the significant scale of activities of some 79,000 TNCs worldwide which own about 790,000 foreign affiliates.

FDI to developed countries amounted to over $1.2 billion, with the United States remaining the largest recipient, followed by the United Kingdom, France, Canada, and the Netherlands.

FDI to developing countries reached their highest level ever at $500 billion – a 21 per cent increase over 2006. While South Asia, East Asia, South-East Asia, and Oceania accounted for half of all FDI into developing countries, Latin America and the Caribbean recorded the largest increase – 36 per cent at $126 billion.

Inflows to West Asia – $71.5 billion in 2007 – have been growing in recent years and have exceeded those to Africa since 2004. All the same, investment in Africa also reached a historic high at $53 billion. The least developed countries (LDCs) attracted $13 billion, also a record.

As for 2008 and beyond, the report demonstrates the quickly growing international ambitions of companies from the developing world, particularly Asia, while FDI prospects for companies from developed countries, especially North America and Japan, have dimmed as compared to a year ago.