WORLD FDI FLOWS GREW AN ESTIMATED 6 PER CENT IN 2004, ENDING DOWNTURN

(Reissued as received.)

GENEVA, 11 January (UNCTAD) -- Global foreign direct investment (FDI) inflows in 2004 are estimated to have risen by 6 per cent to $612 billion, according to UNCTAD (United Nations Conference on Trade and Development) data released today (see table).  As in 2003, however, flows to developed countries slumped, but that decline was offset by rising flows to developing countries and Central and Eastern Europe (CEE).  Not only did this put an end to the global FDI downturn that had begun in 2001, it also meant that investment flows to developing countries and CEE surpassed their respective previous records.  “This increase is good news for developing countries, which now account for an estimated 42 per cent of world FDI inflows, compared to 27 per cent during 2001-2003”, says Karl P. Sauvant, Director of UNCTAD’s Investment Division.

The $321 billion flows to developed countries marked a 16 per cent drop from the previous year’s $380 billion.  As with earlier downturns, this continued decline was due primarily to large repayments of intra-company loans by some host countries, particularly Belgium, Germany and the Netherlands.  Germany had an exceptional FDI performance due to specific transactions.  Luxembourg and Spain, both major recipients of FDI in 2003, received lower inflows last year, while flows into the United Kingdom and the United States, two of the largest traditional host countries, recovered.  The United States topped China ($121 billion), becoming again the world’s largest recipient.  Overall, UNCTAD is predicting that FDI flows will expand over the medium term because the main fundamentals that drive FDI –- a broad-based economic recovery, equity market valuations, and mergers and acquisitions (M&As) –- are in place.

Inflows to developing countries last year are estimated to have totalled $255 billion, up 48 per cent from 2003 and a historic high.  That increase was felt in each developing region.

-- FDI inflows to Africa account for only 3 per cent of global FDI inflows.  From this low base, they mounted for the second consecutive year, to $20 billion (see table).  A large part of this increase stems from investment in natural resource exploitation, driven by a strong rebound in global commodity prices and demand for diamonds, gold, oil, platinum and palladium.  As a result, such natural-resource-rich countries as Algeria, Angola, Libya, Mauritania, Nigeria and South Africa received more FDI.  The Libyan success is the consequence of the end of sanctions in 2003.  The UNCTAD believes that the likelihood of continuing high prices for key commodities may encourage transnational corporations (TNCs) to pursue new exploration projects in African countries, leading to sustained high levels of FDI.

-- FDI flows to Asia and the Pacific reached $166 billion, a 55 per cent increase over 2003 (see table).  Improved economic performance, a more favourable policy environment, higher corporate profitability and a rise in M&A activities in the region are key factors behind this performance.  China; India; Republic of Korea; Hong Kong, China; and Singapore all saw higher inflows.  However, flows to the region remain unevenly distributed, dominated by a few countries.  All subregions enjoyed an increase in flows as compared to the previous year.  North-East Asia -- particularly China and Republic of Korea –- still accounts for the lion’s share, followed by the ASEAN countries and South Asia.  Flows to Central and West Asia expanded as a result of higher oil investment, while flows to the Pacific subregion increased marginally.

-- FDI flows to Latin America and the Caribbean in 2004 rose for the first time in five years, up 37 per cent to $69 billion.  Improvements in the economic situation and policy environment are the main reasons for this rebound.  Mexico and Brazil continue to dominate flows, accounting together for half the regional total last year.  The recovery is impressive in Mexico, and inflows into Brazil are picking up again as well.  Flows to Chile doubled.

Following the temporary decline to $27 billion in 2003, FDI inflows to CEE rebounded last year, reaching a record high of $36 billion.  The surge involved 15 of the region’s 19 countries.  The eight new CEE member countries of the European Union -- the group most affected by the 2003 downturn -- are experiencing the most vigorous increase.  Led by Romania and Bulgaria, flows to South-East Europe grew fast as well, while Russia chalked up a record $10 billion.

Note:  World FDI inflows are projected on the basis of 101 economies for which data are available for part of 2004, as of 29 December 2004.  Data for most economies are estimated by annualizing their data from the first three quarters.  The proportion of inflows to these economies in total inflows to their respective region or subregion in 2003 is used to extrapolate the 2004 data for Africa, Asia and the Pacific and Central and Eastern Europe.  For 2004, Latin America and the Caribbean is estimated by annualizing the data from the first three quarters for principal host economies and by replicating the 2003 data for the economies for which no data are available so far.

Table 1. FDI inflows, by host region and major host economy, 2001-2004   (Billions of US dollars)
	2001	2002a	2003a	2004b
Host region/economy
World	818	681	580	612
Developed countries	571	490	380	321
European Union	357	374	308	165
Belgium	..	15	29	7
France	50	49	47	35
Germany	21	36	13	-49
Ireland	10	24	27	26
Italy	15	15	16	15
Luxembourg		117	92	52
Portugal	6	2	1	6
Spain	28	36	26	6
United Kingdom	53	28	21	55
Australia	4	14	8	5
Canada	27	21	7	12
Japan	6	9	6	7
United States	159	63	30	121
Developing economies	220	159	173	255
Africa	20	12	15	20
Latin America and the Caribbean	88	53	51	69
Brazil	22	17	10	16
Chile	4	2	3	6
Mexico	27	15	11	18
Asia and the Pacific	112	94	107	166
China	47	53	54	62
Hong Kong, China	24	10	14	33
India	3	3	4	6
Korea, Republic of	4	3	4	9
Singapore	15	6	11	21
Central and Eastern Europe c	26	31	27	36
CzechRepublic	6	8	3	5
Poland	6	4	4	5
Russian Federation	2	3	7	10
Source:  UNCTAD (www.unctad.org/fdistatistics) and UNCTAD’s own estimates.
a  Revised data.
b  Preliminary estimates. See note below.
c  The eight CEE countries that acceded to the EU in 2004 are included under this heading.

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