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Unctad World Investment Report 2000 -- FDI flows by TNCs to touch $1 trillion in 2000

Our Bureau

NEW DELHI, Oct. 3

CROSS-border mergers and acquisitions (M&As), now drive the foreign investment volumes to new records with foreign direct investment (FDI) inflows by transnational corporations (TNCs) being forecast to surpass the one-trillion dollar level this year.

This follows last year's already ``impressive $865 billion'' FDI inflows by TNCs, according to the World Investment Report (WIR) 2000, `Cross-border Mergers and Acquisitions and Development', released today by the UN Conference on Trade and Development ( Unctad). The report was released at the UN Office here by the Chief Commissioner (Investment and NRIs) and Chairman, India Investment Centre, Mr Narayan Valluri.

In a brief preface to 331 page WIR, 2000 which is Unctad's tenth year survey, the UN Secretary-General, Mr Kofi A. Annan, said the contribution of FDI to development is now widely recognised, though there is a perception that this might be affected by th e way investment enters a country.

It may come in the form of a new enterprise or the expansion of an existing one and it may come through a merger or an acquisition. He said acquisitions arouse concerns over employment, ownership and market structure which become urgent when the host eco nomy is a developing country.

The Chief Author of the WIR 2000, Mr Karl P. Sauvant, said thus: ``A global marketplace for firms is emerging. Companies are being bought and sold across borders on an unprecedented scale.''

Regardless of circumstances, the Unctad Secretary-General, Mr Rubens Ricupero, said in an overview, policy matters -- and competition policy takes ``pride of place'' among policies addressing cross-border M&A concerns.

``In the end, a global market for firms may need a global approach that takes the interests and conditions of developing countries fully into account,'' Mr Ricupero said.

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 ($179 billion in 1998), the report said adding that worldwide annual sales of the foreign affiliates of TNCs in 1999 reached $14 trillion (from $3 trillion in 1980), almost double the volume of global exports.

The report contends that the world's top 100 non-financial TNCs in terms of foreign assets, controlling over $2 trillion worth of such assets and employing more than 6 million people in their foreign affiliates are the main drivers of global production a nd they are increasingly using M&As to boost their overall level of FDI.

The report said FDI is the largest source of external finance for many developing countries which were found to be stable in the face of financial crises than portfolio investment and bank lending.

The report notes that Governments recognise the importance of attracting FDI and across the globe they are opening their economies to encourage the flow of trade, technology, information, investment and financial flows. Over the span 1991-1999, 94 per ce nt of the 1,035 changes worldwide in the laws governing FDI created a more favourable framework for FDI.

Complementing the more welcoming national FDI regimes, the number of bilateral investment treaties -- concluded increasingly also between developing countries -- has risen from 181 at the end of 1980 to 1,856 at the end of 1999. Double taxation treaties have also increased from 719 in 1980 to 1,982 at the end of 1999.

Global FDI outflows rose 16 per cent to $800 billion last year. With $199 billion, the UK became the largest outward investor in 1999, forging ahead of the US. Large M&As in the US and the continuing strength of its economy made it the largest recipient of FDI ($276 billion, nearly one third of the world total). TNCs based in the European Union (EU) invested $510 billion abroad in 1999 or nearly two thirds of global outflows.

FDI outflows from developing countries last year almost doubled to $66 billion with half of the increase attributable to TNCs registered in Bermuda and almost $20 billion accounted for by companies headquartered in Hong Kong, China.

The WIR said globalisation is fostering intense business pressures and for many firms the quest to survive and prosper in the global market has become the paramount strategic driver of the accelerated boom in cross-border M&As involving ``large firms, va st sums of money and major restructuring of the activities of firms''.

Stating that as with globalisation the impact of M&As on development could be double-edged and uneven, the report said concerns are voiced in developed and developing countries about the market power of TNCs and potential anti-competitive implications of M&As.

Providing wealth of data on the current cross-border M&As boom, it said that last year there were 109 international M&As with individual transaction values of over $1 billion. Unctad foresees a higher number this year.

For Unctad, the most important policy concern is competition law and the principal reason is that M&As could pose threats to competition, both at the time of entry and subsequently.

As FDI restrictions are liberalised worldwide, it becomes all the more important that regulatory barriers to FDI are not replaced by anti-competitive practices of firms. Efforts to attract FDI need to be complemented by policies that review the anti-com petitive implications of M&As.