HEADQUARTERS PRESS BRIEFING: LAUNCHING OF 'WORLD INVESTMENT REPORT 2002'

HEADQUARTERS PRESS BRIEFING:  LAUNCHING OF 'WORLD INVESTMENT REPORT 2002'

Global flows of investment funds dropped by half last year, according to the World Investment Report 2002, whose launch was announced by Georg Kell, Executive Head of the Global Compact in the Executive Office of the Secretary-General, at a Headquarters press briefing this morning.

Globalization, however, was certainly still alive, said Mr. Kell.  Transnational corporations continued to expand their role in the world economy. But the Least Developed Countries (LDCs) still received a minute portion of foreign investment, and required efforts beyond policy liberalization to attract more funds.

The World Investment Report was the most comprehensive review of trends in foreign direct investment (FDI), and the best indicator of trends in globalization, Mr. Kell said.  It was an annual publication of the United Nations Conference on Trade and Development (UNCTAD).  Launched in 80 countries simultaneously today, the information contained was under embargo until 1:00 p.m. New York time.  At this morning's press briefing, Mr. Kell was introduced by Sue Markham of the United Nations Department of Public Information.

Last year's drop in FDI was, he said, largely due to a decrease in mergers and acquisitions among developed countries, which had stalled the hyperactivity of 2000 and 1999.  Within those economies, the drop was between 50 per cent and 60 per cent.  Investment in Latin America had declined for the second year in a row, led by Brazil, where privatization had played itself out, and Argentina, where there was a recession.

According to the report, Mr. Kell said, foreign investment in the Asia and Pacific Region dropped in general, weighted down by the end of Hong Kong's record inflows as China acceded to the World Trade Organization.  Other Asian countries, particularly India, along with European economies in transition, had recorded some gains.

The report said that while world FDI flows had dropped, expansion of transnational corporations had continued to be driven by trade liberalization, technology change, lower transportation costs and competitive pressure.  There were now more than 65,000 transnational corporations with over 850,000 affiliates.  Employing over 54 million people, their activity now accounted for roughly one-tenth of global gross domestic product and about one-third of global export trade. 

In some developing countries, transnationals accounted for 50 per cent of exports, Mr. Kell said.  The report contained country by country statistics showing how FDI and foreign affiliates were increasingly shaping export patterns that transcended national boundaries.  Those patterns related to the way in which big companies looked at the world economy and how they positioned themselves within that economy.

Investment Press Briefing            - 2 -            17 September 2002 

The report, he said, warned that there was a risk of a race to the bottom among developing countries, due to competitive pressure.  Many countries were attempting to undercut each other in offering incentives for foreign investment. The report therefore called for policy responses, and policy coordination, to mitigate that trend. 

The report also included two new indices developed by UNCTAD.  The "performance index" measured country share of FDI compared to global flows -- in comparison, in turn, to national GDP compared to global GDP.  The "potential index" quantified the potential of a country for attracting FDI, accounting for political, structural and economic factors.  By comparing the two indices, the report is able to pinpoint "front runners" in attracting FDI among the countries of the world.

There was also a new section on Africa and the LDCs in the report, he said, which showed that those were somewhat "punished" by markets despite policy liberalization.  It confirmed that policy liberalization was not enough.  If an economy was somewhat small and poor, markets tended to avoid it.  So it suggested that special efforts might be required to promote long-term capital flows to those countries.

In response to correspondents' questions, Mr. Kell emphasized that poor countries were often punished for being poor.  There were some countries that were stable and whose governments were doing their best to create an environment attractive to investors.  But if that country had an economy half the size of New Jersey's, the response of institutional investors was often "Why bother?"  There was often, also, tariff discrimination against refined products from small, poor countries.

Under the auspices of the Global Compact, UNCTAD had launched a global campaign to reduce transaction costs and attract more FDI to poor countries.  The consensus reached in related meetings was that companies were willing, in principle, to invest more in such countries but domestic business, as well as national governments, must be involved in that effort.

There was, he said, "political insurance" provided by the World Bank for direct investment in poor countries.  But what was needed was a global scheme for long-term structural change, to comprehensively address the investment disadvantages of those countries.  For that purpose, incentives needed to be designed, along the lines of previously designed trade incentives.

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