PRESS CONFERENCE BY UNCTAD ON 'WORLD INVESTMENT REPORT 1997'

Press Briefing

PRESS CONFERENCE BY UNCTAD ON 'WORLD INVESTMENT REPORT 1997'

At a Headquarters press conference this morning, Georg Kell, Economic Affairs Officer at the Executive Office of the Secretary-General, said 1996 saw another record in foreign direct investment (FDI) which totalled $350 billion -- a 10 per cent increase over the 1995 figure, according to the World Investment Report 1997, a publication of the United Nations Conference on Trade and Development (UNCTAD).

Mr. Kell, who was until recently Officer-in-Charge of UNCTAD's New York Office, launching the 1997 report, said ongoing globalization, privatization and a wave of mergers and acquisitions were fuelling the trend. It was anticipated that the boom in foreign direct investment would continue, and indications from surveys were that new records would be seen in the years to come as well.

In many countries new records of inflows and outflows of investment were being seen, he said. The United States, the European Union and Japan continued to dominate the scene, accounting for about 85 per cent of all foreign direct investment outflows. The United States remained, by far, the most important host of foreign direct investment and source of investment outflows of $85 billion, much of that going to Europe.

Mr. Kell said western Europe, grouped together, accounted for 50 per cent of global foreign direct investment outflows, much of which went to the United States. The actual capital component of foreign direct investment was four times higher than the investment flows themselves. As in previous years the World Investment Report contained a list of the 100 largest transnational corporations around the world. For the first time, two transnational corporations from the developing countries were on the list.

The share of developing countries in absorbing foreign direct investment had increased by 34 per cent over the previous year, suggesting that the gap between them and the developed countries on the FDI side was narrowing, he said. Inflows into the developing countries accounted for 34 per cent, totalling $129 billion of the $350 billion overall. There were major differences in the investment flows between regions and between countries within a region. Asia, once again, was setting new records. Investment flows to developing countries there had increased by 25 per cent to $81 billion, which was about two-thirds of all foreign direct investment flows to developing countries. Foreign direct investment originating in developing countries was localized to 90 per cent in developing countries of Asia. China, for the second time, was the second most important host to foreign direct investment, recording a new inflow of $42 billion in 1996 -- second to the United States with $85 billion. He noted that India had also increased tremendously its attractiveness for foreign direct investment which had jumped by 34 per cent to $2.6 billion in 1996.

There were also some new records in Latin America, Mr. Kell said. Foreign direct investment flows to the region rose by more than 50 per cent to $39 billion, with Brazil leading with $10 billion, nearly double the previous figure. It was followed by Mexico, $7.5 billion, and Argentina $4.3 billion. A combination of forces was stimulating the investment flows -- privatization, liberalization and the drive towards integration.

Turning to Africa, he said there were also "new signs of vitality" there, although overall, the region continued to be marginalized. The investment flows to the region, as a whole, remained unchanged at slightly above $5 billion. Only two countries -- Nigeria and Egypt -- accounted for almost all of it, at 60 per cent. Overall, there were improved growth prospects, improvements in governance and stability, despite the negative stories about the region. "Tremendous progress" had been made in many countries of the region, and there were indications that foreign direct investments would pick up there soon. "We have a lot of hope that South Africa will act as a new growth pole", he said. There were new trends showing that African transnationals from South Africa were investing in neighbouring countries, and that Asian transnationals were attracted to South Africa.

Mr. Kell said the 1997 report contained a special section entitled: "Foreign Direct Investment, Market Structure and Competition Policy". It noted that the expansion of international production would not have been possible had it not been for the liberalization of foreign direct investment and trade regimes. From 1991 to 1996, there had been almost 600 changes in regulatory regimes, 95 per cent in the direction of more relaxed rules. Liberalization and globalization of production was yielding many economic benefits, he said, adding however that there was also the danger that the evolution of efficient and well-functioning markets could be undermined.

Building and sustaining a competition culture was imperative, he stressed. It was increasingly recognized that foreign direct investment could, under certain conditions, increase market concentration, not just international, but at the regional levels and thus raise the prospects for restrictive and anti-competitive practices.

He further stressed that there must be increased emphasis on competition policy. Countries should be in a position to enforce them and to have a strong institutional backing for that. Some new institutions might also be established. Responding to questions, Mr. Kell also said that a new policy on foreign direct investment recently announced in China was less restrictive and investors were taking advantage of it. With the onset of possible privatization of state-owned corporations, which contributed up to 50 per cent of national output, there was tremendous potential for further dynamism in China's economy. India had traditionally had a very restrictive approach to foreign investment, he said, and added that there were expectations that there would be more changes in the regulations. That also explained why there was a

UNCTAD Press Conference - 3 - 19 September 1997

new record level of foreign direct investment in India in 1996, he said, and observed that a similar increase was expected in 1997.

He told a questioner that South Africa would be the "locomotive engine" for foreign direct investment in Africa but initially it would primarily be concentrated in neighbouring countries. There was evidence of South African investment activity in Bostwana and Zimbabwe. South Africa was also viewed as the possible entry point for foreign direct investment into Africa. Malaysia and other Asian countries considered South Africa as a springboard for that purpose.

Asked why it was difficult to attract more foreign direct investment into Africa, Mr. Kell said one explanation was that historically there had been a lot of political instability in the region. There had also been a tendency in industrialized countries of the North to forget Africa. The big rush was to Asian emerging markets. Another reason was misconceptions about the continent. "The messages had been lumped together and the negative perceptions prevailed", he said.

He also said that there were 54 countries, each with very different characteristics. Many of the African countries had rich potential to attract foreign direct investment which often was overlooked, as a result of negative perceptions and the rush to Asia.

He said that there were some concrete evidence that in some African countries the rate of return on foreign direct investment was far higher than in other developing regions. "We have tried to advertise that and we'll do that more and more, and hope that more and more potential investors would look at the continent." There were a series of initiatives, including one in the United States, which recognized that there was a potential which had not been exploited yet, he added. "We are optimistic that a new momentum and a positive image would emerge slowly, step by step."

Asked what attracted foreign direct investment to Nigeria given the political instability there, Mr. Kell said it was basically due to the country's oil resources. Foreign direct investment to Nigeria and Egypt had been diversified and had been going increasingly into the non-traditional sectors of investment, such as services.

He also told another questioner that foreign direct investment was encouraged by UNCTAD which, as an institution, also promoted it. UNCTAD organized seminars and sent teams to countries to assist in regulatory questions. "We welcome moves to stimulate foreign direct investment. The biggest challenge for the international community today is what to do in order to make sure that foreign direct investment also goes into those countries which have already liberalized but where market signals are not strong enough to attract FDIs", he added.

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