FINANCIAL TIMES - 11-11-1998
Flow of capital rising despite regional crises Jonquieres de, Guy: Peel, Quentin
Worldwide foreign direct investment flows are likely to rise to about $430bn this year, despite slower global growth and regional economic difficulties, according to the United Nations Conference on Trade and Development.
The forecast compares with record inflows last year of $400bn and outflows of $424bn. Continued expansion of FDI would be driven be mergers and acquisitions - which accounted for 60 per cent of last year's inflows - privatisation and liberalisation.
However, Unctadexpects the pattern of flows to change this year. It says industrialised economies, Latin America and eastern and central Europe will probably account for most of the growth in FDI.
According to Unctad's latest estimates (the report was compiled before the Russian financial crisis in August), direct investment flows into developing countries are expected to decline for the first time since 1985, from the 1997 level of $149bn.
Inflows into China are expected to decline from $45bn in 1997 to around $40bn this year, and into Indonesia, to drop from $4.7bn to just $1.9bn, because of the sharp downturn in economic activity there.
Both Malaysia and the Philippines are expected to be marginally affected by the Asian financial crisis, with FDI forecast to fall from $3.8bn to $3.6bn in the former, and from $1.3bn to $1.1bn in the latter. But South Korea and Thailand have both been bolstered by inflows for privatisation investments, with Korea up from $3.1bn to an expected $4.7bn, and Thailand from $3.6bn to $5.9bn.
Africa is expected to maintain its FDI inflow at $5bn, while Latin America could show an increase, largely thanks to privatisation investment in Brazil, up from $16bn in 1997 to $22bn this year.
Although Unctad expresses confidence in the longer-term outlook for Asia, the region's economic difficulties coincide with what the report identifies as underlying shifts in the forces shaping foreign investment decisions.
It says geographic location, low costs and home market size are becoming less important, as companies integrate production across borders. Instead, decisions increasingly depended on the access to technology and capacity for innovation which countries were able to offer.
That trend put growing pressure on host countries to pursue more sophisticated and flexible policies which aimed to attract multinational companies by creating a diverse range of resources that could enhance their competitiveness.
The report says countries' success in meeting these criteria will be have more influence on their ability to capture inward FDI than would subscribing to proposed agreements that aimed to create rules for the treatment of FDI.
Such agreements - the best known of which, the Multilateral Agreement on Investment, is under negotiation in the Organisation for Economic Co-operation Development - would be unlikely to stimulate increased FDI unless they involved substantial liberalisation.
The report also analyses changes in the ranking and investments of the 100 biggest transnational corporations (TNCs), with General Electric of the US overtaking Shell, the Anglo-Dutch oil company, as the largest by foreign assets.
The figures show a continuing growth in the trend towards "trans-nationality" , with steady increases in their foreign assets, sales and numbers of employees.
The US, EU and Japan account for 85 of the top 100 TNCs, compared with 86 in 1990. The number from the EU has declined in that period from 48 to 41 in 1996. Just two TNCs based in developing countries make the top 100: Daewoo of Korea, at number 43, and Petroleos de Venezuela at 73. World Investment Report 1998. UN Publications Offices, New York: Tel: 212-963 8302, fax: 963 3489, e-mail: publications at un.org. Geneva: Tel: 4122-917 1234, fax: 917 0123, e-mail: unpubli at unorg.ch. .