Financial Daily from THE HINDU group of publications
Friday, Sep 05, 2003
Industry & Economy
Foreign Direct Investment
Rebound in global FDI likely in 2004, says Unctad report
New Delhi , Sept. 4
EVEN as global foreign direct investment (FDI) flows this year are set to stabilise at around the depressed level witnessed in 2002, "a rebound is likely in 2004" in such flows, the United Nations Conference on Trade & Development (Unctad) has forecast.
In its annual world investment report, released worldwide today, the UN body said last year's total FDI flows of $651 billion was just half the record volume of 2000 with the decline being broad-based: 108 of 195 countries saw lower inflows in 2002 than in 2001.
But, the report noted, that prospects for FDI flows do vary widely by industry brighter for consumer pharmaceuticals, electronics and semiconductors, but dimmer for automobiles, metals and machinery and aerospace.
Driving the decline in FDI flows in 2001-02 the most significant downturn of the past three decades was a medley of macroeconomic factors (weak economic growth or slump in economic activity linked to the business cycles in many pars of the world, particularly the developed ones and tumbling stock markets), micro economic factors such as low corporate profits, financial restructuring and institutional factors such as winding down of privatisation, loss of confidence in the wake of corporate scandals and the demise of some large corporations.
Reflecting the decline in FDI flows, growth in the operations of all foreign affiliates in the world also slowed. For the top 100 trans-national corporations (TNCs), foreign operations had already dipped in 2001 with foreign sales, foreign assets and employment abroad all registering a decline.
Vodafone ranked first, based on foreign assets of non-financial TNCs. However, less affected by the conditions that Unctad views as being conducive to the FDI downturn, the top 50 TNCs based in developing countries continued to expand foreign operations with Hutchison Whampoa consolidating its top slot among developing country TNCs.
Mr Kaul P. Sauvant, Unctad's Investment Division Director and team leader for the report said that despite these developments, "it is increasingly evident that governments of developing countries are attaching more priority to attracting FDI".
Unctad data show the inward stock of FDI of developing countries amounts to about one third of their GDP, compared to just 10 per cent in 1980. The world stock of FDI reached $7 trillion in 2002, up more than 14 times since 1980 and this stock is the basis of international production by the 64,000 or so TNCs that now control 870,000 foreign affiliates.
World FDI stock generated sales by foreign affiliates of around $18 trillion, compared with global exports of $8 trillion and employment by foreign affiliates reached an estimated 53 million workers in 2002, which is three times the number in 1982. FDI stock is concentrated within the Triad (EU, Japan and the US) with around 80 per cent accounted for by the world's outward stock and 50 per cent-to-60 per cent by world's inward stock.
The report notes that competition for FDI has stepped up and wars of incentives are already taking place as developing countries strive to soften the impact of the downturn.
Taking a regional perspective, the reports said FDI flows to Asia and the Pacific declined for the second consecutive year, from $107 billion in 2001 to $95 billion in 2002. However, Asia was least hit by the fall and was one of the most rapidly liberalising regions, with more national measures, bilateral investment treaties and double taxation introduced in 2002 to facilitate FDI flows.
FDI flows to South Asia rose from $4 billion in 2001 to $4.6 billion in 2002. India's inward FDI flows rose from $3,403 million in 2001 to $3449 million in 2002, while its outward flows declined from $757 million in 2001 to $431 million last year, Unctad noted. China's FDI flows last year reached $54 billion, it said.
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