Trade & investment

Global investment flows are higher than ever

  • 4 October 2000

Inflows of foreign direct investment are likely to exceed $1,000 billion this year compared with last year's figure of $865 billion, the United Nations Conference on Trade and Development reports. This compares with only $58 billion as recently as 1982.

In its World Investment Report, UNCTAD highlights the extent to which foreign direct investment (FDI) is being driven by cross-border mergers and acquisitions, including the purchase by foreign investors of privatized state-owned enterprises.

According to Karl Sauvant, the report’s chief author: “A global marketplace for firms is emerging. Companies are being bought and sold across borders on an unprecedented scale.”

FDI flows into developed countries last year rose to $636 billion from $481 billion in 1998, while FDI to developing countries climbed to $208 billion from $179 billion in 1998. Worldwide annual sales of the foreign affiliates of multinationals in 1999 reached $14,000 billion in 1999 compared with $3,000 billion in 1980.

The UNCTAD report pointed out that this growth makes FDI even more important than trade in terms of delivering goods and services to foreign markets. It also means that FDI has become the largest and most stable source of external finance for developing countries.

Production by multinational corporations now “spans virtually all countries and economic activities, rendering it a formidable force in today’s world economy,” the UNCTAD report found.

According to UNCTAD, FDI into Latin America and the Caribbean climbed steeply last year to $90 billion, while inflows to all over the developing countries in Asia grew to $106 billion.

But flows to central and eastern Europe and Africa were “quite modest” at $21 billion and $9 billion respectively.

Commenting on the figures, a Financial Times editorial said that the inward investment figures for the world’s poorest nations “show immediately that their problem is not exploitation by multinational corporations but rather a lack of any significant investment flows at all.”

The newspaper said that growth in FDI flows shows no signs of slowing. “So as increasing numbers of multinational companies trawl the globe for new investments, no country, rich or poor, can afford to rule itself out of the bidding.”

The International Chamber of Commerce, with its membership of companies and business associations in 140 countries, is mobilizing business expertise to assist developing countries in attracting FDI.

ICC is a partner with UNCTAD in a programme to provide investment guides to the least developed countries. The guides’ purpose is to channel business expertise to governments that are seeking foreign investors. Guides to Bangladesh, Ethiopia and Mali have already been completed. Work is under way on guides to Mozambique and Uganda.

Underlining its conviction that foreign investment is a key element in promoting economic growth and raising living standards, ICC last June urged the Group of Seven summit in Okinawa to push within the World Trade Organization for high-standard multilateral rules to protect and liberalize the conditions for foreign investment.