Developing countries win more investment

Developing countries win more investment

GENEVA (Reuter): Developing countries boosted their share of inflows of global foreign direct investment (FDI) last year to US$129 billion, or 37 percent of the total, the United Nations reported yesterday.

But figures issued by the U.N.'s trade and development agency UNCTAD showed that although world flows of FDI grew for the fifth year in a row, they saw a sharp slowdown from a 34 percent surge in 1995 to only seven percent in 1996.

Total global FDI last year -- an average of recorded inward and outward flows -- was just under $350 billion, an increase of $25 billion, the agency said.

UNCTAD, the United Nations Conference on Trade and Development, gave no country-by-country breakdown pending publication of its detailed annual FDI report in September.

But it said data in for 1996 confirmed two fundamental trends -- that cross-border mergers and acquisitions were increasingly the driving force behind FDI, and that developing countries were "increasingly significant players in FDI flows -- as both recipients and investors."

Developing countries not only sharply increased their share of FDI inflows, which in 1995 had stood at 30 percent of the total or $100 billion, but "a limited number" also emerged as significant investors abroad, the U.N. agency said.

The increasing contribution of these states -- identified in earlier studies as Asian economies like Singapore and Malaysia -- had brought the share of the developing world in global FDI outflows to $51 billion or 15 percent of the outflows.

Although the report gave no details, last year's full UNCTAD study showed that most FDI in emerging economies was going to a handful of countries in Asia, with China taking $35 billion of the $65 billion which went to the region in 1995.

UNCTAD said flows into industrialized countries in 1996 were virtually stagnant, totaling $208 billion against $206 billion the previous year.

FDI moving into the former communist countries of central and eastern Europe dropped slightly from $12.8 billion in 1995 to $12 billion, but remained at nearly twice the 1994 figure.

Global FDI stock -- the sum of all current investment -- reached $3,200 billion, or double its level of three years ago, according to the preliminary survey.

Mergers and acquisitions or M & As -- steadily squeezing out greenfield, or new project, investment as the main avenue of entry for FDI -- reached a record of $275 billion, 79 per cent of all inflows.

Of this, majority-held transactions accounted for 47 per cent, according to UNCTAD.

The report said there had been a total of 45 M & A deals worth more than $1 billion during 1996, most of them in industrialized countries.

"The continuing boom in FDI thus reflects the further expansion of cross-border operations by transnational corporations (TNCs) in response to continued liberalization as well as economic growth in much of the world," UNCTAD declared.

"FDI, and the total sales and assets of the almost 280,000 foreign affiliates of the roughly 44,000 TNCs active worldwide, grew faster in 1996 than the value of world gross domestic product and exports," the report added.

This trend, it said, "provides further evidence that FDI is playing a leading role in accelerating the integration of the world economy and reshaping the structure of international business."