Global foreign direct investment (FDI) inflows in 2004 are estimated to have risen by 6% to $612 billion, according to UNCTAD data released today (table)(1). As in 2003, however, flows to developed countries slumped, but that decline was offset by rising flows to developing countries and Central and Eastern Europe (CEE)(2). Not only did this put an end to the global FDI downturn that had begun in 2001, it also meant that investment flows to developing countries and CEE surpassed their respective previous records. "This increase is good news for developing countries, which now account for an estimated 42% of world FDI inflows, compared to 27% during 2001-2003", says Karl P. Sauvant, Director of UNCTAD´s Investment Division.
The $321 billion flows to developed countries marked a 16% drop from the previous year´s $380 billion. As with earlier downturns, this continued decline was due primarily to large repayments of intra-company loans by some host countries, particularly Belgium, Germany and the Netherlands. Germany had an exceptional FDI performance due to specific transactions (3). Luxembourg and Spain, both major recipients of FDI in 2003, received lower inflows last year, while flows into the UK and the US, two of the largest traditional host countries, recovered. The US topped China ($121 billion), becoming again the world´s largest recipient. Overall, UNCTAD is predicting that FDI flows will expand over the medium term because the main fundamentals that drive FDI - a broad-based economic recovery, equity market valuations, and mergers and acquisitions (M&As) - are in place.
Inflows to developing countries last year are estimated to have totalled $255 billion, up 48% from 2003 and a historic high. That increase was felt in each developing region.
- FDI inflows to Africa account for only 3% of global FDI inflows. From this low base, they mounted for the second consecutive year, to $20 billion (table). A large part of this increase stems from investment in natural resource exploitation, driven by a strong rebound in global commodity prices and demand for diamonds, gold, oil, platinum and palladium. As a result, such natural-resource-rich countries as Algeria, Angola, Libya, Mauritania, Nigeria and South Africa received more FDI. The Libyan success is the consequence of the end of sanctions in 2003. UNCTAD believes that the likelihood of continuing high prices for key commodities may encourage transnational corporations (TNCs) to pursue new exploration projects in African countries, leading to sustained high levels of FDI.
- FDI flows to Asia and the Pacific reached $166 billion, a 55% increase over 2003 (table). Improved economic performance, a more favourable policy environment, higher corporate profitability and a rise in M&A activities in the region are key factors behind this performance. China; India; Republic of Korea; Hong Kong, China; and Singapore all saw higher inflows. However, flows to the region remain unevenly distributed, dominated by a few countries. All subregions enjoyed an increase in flows as compared to the previous year. North-East Asia - particularly China and Republic of Korea - still accounts for the lion´s share, followed by the ASEAN countries and South Asia. Flows to Central and West Asia expanded as a result of higher oil investment, while flows to the Pacific subregion increased marginally.
- FDI flows to Latin America and the Caribbean in 2004 rose for the first time in five years, up 37% to $69 billion. Improvements in the economic situation and policy environment are the main reasons for this rebound. Mexico and Brazil continue to dominate flows, accounting together for half the regional total last year. The recovery is impressive in Mexico, and inflows into Brazil are picking up again as well. Flows to Chile doubled.
Following the temporary decline to $27 billion in 2003, FDI inflows to CEE rebounded last year, reaching a record high of $36 billion. The surge involved 15 of the region´s 19 countries. The eight new CEE member countries of the European Union - the group most affected by the 2003 downturn - are experiencing the most vigorous increase. Led by Romania and Bulgaria, flows to South-East Europe grew fast as well, while Russia chalked up a record $10 billion.
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