PRESS BRIEFING ON 2001 WORLD INVESTMENT REPORT

The World Investment Report 2001 – Promoting Linkages forecasts a significant drop in foreign direct investment (FDI) in the current year, Georg Kell, Economic Advisor, Executive Office of the Secretary-General, told correspondents at a Headquarters press briefing yesterday.

Introducing the annual Report, which is produced by the United Nations Conference on Trade and Development (UNCTAD), Mr. Kell said that while the figures were not yet out, it may be the biggest drop in as many as three decades.  It was largely due to a drastic decrease in mergers and acquisitions across the Atlantic.  Hence, it would not impact heavily on flows to the rest of the world.  Indeed, FDI flows to the rest of the world was forecast to remain at relatively high levels.

Another highlight of the Report, he continued, was that China's accession to the World Trade Organization (WTO) had spurred an unprecedented surge in FDI in 2000.  The boom was particularly pronounced in Hong Kong, which attracted $64 billion worth of FDI.  Hong Kong and China together attracted over $100 billion in FDI, which was more than 40 per cent of total flows to all developing countries.  That was a strong indication of China's growing importance in the world economy and the important role FDI played therein.  There were hardly any Fortune 500 companies left that did not have a major investment in China. 

With regard to the least developed countries (LDCs), he said that the 49 poorest countries in the world continued to remain marginalized.  While it was true that FDI was today reaching more and more countries –- over 50 countries attracted more than $1 billion in FDI in 2000, as compared to only 17 over a decade ago –- it was also true that the poorest countries were largely left out.  Together they accounted for less than half a per cent of total FDI flows in the world.  Given that official development assistance (ODA) had declined, as well, there was a growing need to explore how to motivate FDI flows to go to those countries where it was most needed.

On major trends, he said that 2000 had seen an 18 per cent increase in FDI flows -– a total of $1.3 billion.  Transnational corporations continued to be the major force behind globalization and economic integration.  In developed countries, the increase was over 20 per cent.  Germany came in second in terms of destination for FDI flows, following behind the United States.  Inflows to the United Kingdom and Canada also increased significantly.  Overall, Europe, North America and Japan continued to play a dominant role, accounting for over 70 per cent of inflows and over 80 per cent of outflows.  Also, out of the     100 leading transnational corporations, 91 were headquartered in those three regions.

Asia, he said, saw the greatest increase in 2000 -– an increase of 44 per cent compared to 1999.  A total of $143 billion flowed into that region.  Hong Kong, China, Republic of Korea and Taiwan, Province of China, saw the greatest increases, with Hong Kong taking over mainland China as the single largest recipient of FDI in that region. 

On the other hand, the picture was mixed when it came to the Association of South East Asian Nations (ASEAN) countries, he noted.  Investment flows there

were still below the crisis level of 1997.  Asian LDCs continued to be marginal players.  Another interesting trend in Asia was that Asian transnational corporations had become far more active towards investors, mainly in their own region.  Today, 35 of the biggest transnational corporations of the developing world were headquartered in Asia. 

The FDI declined in Latin America and the Caribbean by 22 per cent to   $86 billion, he noted.  Argentina and Chile, in particular, saw declines while Brazil and Mexico continued to play a leading role. 

Africa, as a region, now accounted for less than one per cent of global FDI flows, he said.  The decline was highly concentrated -– Angola, South Africa and Morocco.  African LDCs also continued to be marginal players.  Countries which succeeded in attracting more FDI were Egypt, Tunisia, Chad, Mauritius, Uganda and Lesotho.

In Central and Eastern Europe, privatization efforts spurred FDI significantly leading to a record $27 billion in 2000.  Those high levels were expected to continue.  Among the winners were Poland, Slovakia and Hungary, while the losers were Russia and Belarus. 

He added that the Report also contained a detailed analysis of linkages –- the relationship between FDI and the host economy.  Those linkages had gained importance in maximizing the benefits associated with FDI.  The Report examines almost a dozen case studies on how governments, through selected intervention, could help improve those linkages –- by providing information, by targeting particular sectors and industries and by providing support services. 

Finally, he said, the Report contained an overview of what it called the world map of FDI, showing how over the last decade, trends had changed by region and by country.  The penetration of FDI was increasing and more and more countries were being drawn in.  However, a large number of countries still remained outside.

Asked how the events of 11 September would affect FDI by the United States, Mr. Kell said that transaction costs might be increased as a consequence of many of the measures imposed.  There would be short-term and medium-term impacts.  But, FDI, he noted, was not a short-term measure that companies employed.  It was not the highly speculative, motivated capital flows that roamed around the globe.  The FDI had a long-term dimension to it and with a "little bit of luck" would emerge as a stabilizing force in short-term traumatic situations, as it had done in the economic crisis of 1997.

On the link between a decrease in mergers and acquisitions and the projected drop in FDI, he said that mergers and acquisitions counted as FDI because it meant the involvement of a company headquartered in one country in another country.  Mergers and acquisitions in the second half of the 1990s had been soaring and had, therefore, impacted on the overall trends of FDI

significantly.  The UNCTAD, having already tracked mergers and acquisitions

activities for the first half of 2001, had concluded that a significant decline

of mergers and acquisitions was in the making, which suggested that FDI overall was to drop significantly.         

Asked if he thought FDI was a "good thing", he replied that almost all countries had measures in place to attract FDI.  Poverty often had two key causes.  One was governments failing their own people and the other was people not having economic opportunities to earn a living.  Poor people were poor not because they had too many choices regarding employment, but too few.  The FDI offered great opportunities to help the poor help themselves.  Globalization could not work without FDI, and not getting globalization to work was probably the biggest risk being faced. 

The ODA, he added, remained at low levels and there was no reason to believe that the rich countries would all of a sudden engage in a huge transfer of resources.  In that case, FDI remained one of the few sources of hope.

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