PRESS CONFERENCE on 2006 World investment report

 

Spurred by increasingly friendly investment climates and solid corporate profits, foreign direct investment (FDI) inflows jumped by 29 per cent to $916 billion in 2005 as South-South investment flows also surged, said the head of the United Nations Global Compact Office as he released the results of the United Nations’ World Investment Report 2006.

“There’s not a more fascinating story … how commerce and investment are reshaping the relationships between countries,” said Georg Kell, Executive Director of the United Nations Global Compact Office, at a press conference at United Nations Headquarters today.  Launched by United Nations Secretary-General Kofi Annan in 2000, the Global Compact is the world’s largest voluntary corporate citizenship initiative.

As a flagship publication of the United Nations and an authoritative international source on FDI flows around the world, the latest World Investment Report tracks streams of FDI flows in 2005, compared with the previous year.  Produced annually by the United Nations Conference on Trade and Development (UNCTAD), the Report’s subtitle this year is “FDI from Developing and Transition Economies:  Implications for Development”.

According to the Report, of the $916 billion recorded in 2005, flows to developed countries jumped by 37 per cent to $542 billion, while flows to developing nations surged by 22 per cent to reach a record $334 billion.  The growth was spread around the globe as developed countries attracted 59 per cent of FDI, developing nations lured 36 per cent and South-East Europe and the Commonwealth of Independent States (CIS) drew the remaining 4 per cent.  The largest recipient was the United Kingdom, followed by the United States and China.

Mr. Kell said the policy climate surrounding investment eased for the most part over the last year, although some forms of protectionism and discrimination were on the rise.  He pointed to a United Arab Emirates company’s unsuccessful efforts to gain access to a United States port as an example of how terrorism concerns could deter foreign investment.

On a regional basis, he continued, Africa showed a tremendous surge of FDI and experienced the second-highest growth rate among developing nations as it recorded FDI streams of $31 billion, or 78 per cent over the 2004 figure.  High commodity prices were a factor behind this growth.  The Report showed West Asia logged the highest increase as FDI flows soared by 85 per cent and high oil prices drew dollars to nations such as the United Arab Emirates ($12 billion) and Saudi Arabia ($4.6 billion).  Flows to the giant region of South, East and South-East Asia jumped by 19 per cent to $165 billion, with China on top at $72 billion.  Hong Kong and India were also favourites for foreign investors.

He said Latin America and the Caribbean remained fairly stable, with a small 3 per cent increase, as Brazil and Chile lost dollars while other nations, such as Uruguay and Ecuador, tallied increases.  In South-East Europe and the Commonwealth of Independent States, FDI inflows remained about the same as 2004.  He expected FDI flows would continue to grow in 2006.

But the special story of 2005 was the emerging role of corporations from the South as investors, said Mr. Kell.  In 1990, developing nation firms were responsible for $5 billion of outflows and that had jumped to $133 billion in 2005.  “All indications are that it will be higher for 2006,” he said, adding that these companies were increasingly active participants in the global marketplace.

Another significant trend was the jump in FDI from developing and transitional economies.  Many of these investments ended up in other developing nations and contributed to “South-South” economic growth.  “This is an enormous opportunity for development,” he said.  The Report showed that total South-South flows, excluding offshore financial centres, shot up from $2 billion in 1985 to $60 billion in 2004, or 25 per cent of all FDI inflows to developing countries.

“Overall, a global structural change is in full swing,” Mr. Kell said.  “The fact that more and more investment was coming from the South was a most welcome development.”

In response to a reporter’s questions about whether FDI flows had led to greater employment, Mr. Kell acknowledged that cross-border mergers and acquisitions had spurred much of the FDI trends.  These shifts in ownership did bring changes -- such as in management, technology and supply chain links -- that changed production capabilities and created jobs.

Concerning a question on whether the Report monitored investments in alternative energy sources, Mr. Kell said it did not, but there was a section on corporate citizenship.  The Report showed that companies from the South were as sensitive as their Northern counterparts on this issue and next year’s Report would explore it more fully.

Responding to a question on FDI flows to Africa, he said the Report contained a strong chapter on the African continent and the issue of diversification away from commodities had been covered.  He noted that intra-regional investment in Africa, as in other regions of the developing world, was on the upswing.  He said there had not been any special effort to analyse the effect of FDI on countries emerging from conflict.

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