NEW UNCTAD SURVEYS: FOREIGN DIRECT INVESTMENT PROSPECTS PROMISING FOR 2005-2008

NEW UNCTAD SURVEYS: FOREIGN DIRECT INVESTMENT PROSPECTS PROMISING FOR 2005-2008

(Reissued as received.)

GENEVA, 5 September (UNCTAD) -- Foreign direct investment (FDI) will continue to grow over the short and medium term, FDI experts, transnational corporations (TNCs) and investment promotion agencies (IPAs) predict in UNCTAD's Global Investment Prospects Assessment (GIPA).

The main message from the 2005 global surveys is positive, particularly for developing countries.  "The findings suggest that countries need to seize the investment opportunities, but also to pay attention to the quality of FDI, given the fierce competition for investment", observes Dr. Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

More than half of the TNC and expert respondents contacted, and 81 per cent of the IPAs, expected short-term (2005-2006) growth in FDI flows, while almost all other respondents expected levels to remain steady.  Only a small fraction thought that FDI would decrease in the immediate future.

Opinions on medium-term FDI prospects are equally optimistic.  Some 57 per cent of experts, 65 per cent of TNCs, and 83 per cent of IPAs expected FDI to increase through 2007-2008.  Again, most other respondents expected FDI levels to remain the same, and only a few foresaw a decline.

Respondents indicated a number of reasons to be cautious about FDI growth prospects in the short and medium term.  They believe that protectionism, reduced growth in industrialized countries, the financial instability of some major economies, global terrorism, and the volatility of petroleum and other raw material prices are major threats.

Investors' attention appears to be shifting away from traditionally important locations towards certain emerging markets.   Asia and Eastern Europe are the two regions with the most positive FDI prospects.   Latin America is likely to maintain its recent FDI recovery.  Flows to Africa are expected to remain stable at a low level.  Developed countries as a group are expected to see some FDI recovery, but at levels that are relatively modest in the short run.  The United States is expected to remain the most attractive destination for FDI in the developed world, while expectations are less bright for the major European economies.

There were a number of surprises in the investment locations selected as most attractive.  Half of the top 10 countries ranked by experts and TNCs are from the developing world.   China is considered an attractive location by 87 per cent of TNCs and 85 per cent of experts -- at least 30 per cent more than for the next best performer.  The other top five countries were the United States, India, Russian Federation and Brazil.

Prospects for FDI vary significantly by industry, the UNCTAD surveys find.  The outlook for the services sector will continue to be more positive than for the manufacturing or primary sectors.  Industries expected to be at the forefront of FDI growth are computing/ICT, public utilities, transportation and tourism-related services in the services sector; electrical and electronic products, machinery and metals in the manufacturing sector; and mining and petroleum in the primary sector.

In the short term, IPAs expect the United States to be by far the most important source of global FDI flows, followed by the United Kingdom, Germany and China.  The overall ranking is nonetheless remarkable because, along with China, a number of other developing countries are among the top 15, including South Africa, India, Brazil, Malaysia and the Republic of Korea.  Some of these countries are important sources of FDI only for their immediate neighbours.  Overall, however, "developing-country TNCs are increasingly using outward investment to become global players, which ends up benefiting other developing countries as well", says Dr. Supachai.

More than 50 per cent of experts and TNC respondents expected mergers and acquisitions to be the primary vehicle for FDI in 2005-2006.  In contrast, most IPAs -- the majority of which are from developing countries -- expected greenfield investment (new investment projects) to be most important.  Non-equity investment, such as through strategic alliances or licensing, is also expected to remain strong.

Respondents generally concurred that production is the corporate function most likely to be relocated.  Well over 80 per cent of those surveyed by UNCTAD expected some production activities to be transferred overseas.  At the same time, growth of offshore outsourcing in services will continue, they predict.  Logistics and support services are the functions next most likely to relocate offshore, followed by distribution and sales.

With competition for FDI increasing, countries worldwide will be more proactive in their investment promotion efforts.  The majority of IPAs intend to continue increasing the number and range of their policy measures over the next two years.  In particular, given limited resources, most IPAs intend to employ a more targeted approach to investment promotion.

The results of UNCTAD's global surveys of TNCs, international experts and IPAs all point in the same direction:  the FDI recovery will continue, although there are some threats which may weaken the momentum.  The recovery is increasingly fuelled by investment in developing countries.  The overall mood is one of cautious optimism.

These results are based on surveys of national IPAs from 158 countries (with a 71 per cent response rate); the 325 largest TNCs from developed, developing and Central and Eastern European countries (with a 21 per cent response rate); and 75 international FDI experts.

A complete version of the Global Investment Prospects Assessment 2005-2008 will be available on the UNCTAD website (www.unctad.org/gipa) and in hard copy in October 2005.

Contacts:  Press Office, +41 22 917 5828, unctadpress@unctad.org; www.unctad.org/press; or James Zhan, +41 22 917 5797, fdisurvey@unctad.org.

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