Bridges Weekly Trade News Digest • Volume 13 • Number 32 • 23rd September 2009

Foreign Investment Flows ‘Plummeted’ 67% this Year: UNCTAD

Discuss this articleShare your views with other visitors, and read what they have to say

Global flows of foreign direct investment (FDI) took a nose dive in the first half of 2009, largely thanks to a drop in cross-border mergers and acquisitions, a United Nations agency said in a report last week. The fall-off in investment has hit hard in both rich and poor countries, although developing nations have fared somewhat better than traditional economic powers, the agency found.

The report from the UN Conference on Trade and Development predicts that inflows of FDI will fall to less than US$1.2 trillion this year, down from US$1.7 trillion in 2008 and a record high of nearly US$2 trillion in 2007. The agency forecasts a slight uptick in FDI in 2010 but cautions that the world will likely not see a significant recovery in investment flows before 2011.

“The 29 percent decline in FDI inflows to developed countries in 2008 was mostly due to cross-border M&A [mergers and acquisitions] sales that fell by 39 percent in value after a five-year boom ended in 2007,” the agency concluded. “Worldwide mega deals - those with a transaction value of more than US$1 billion - have been particularly strongly affected by the crisis.”

The drop in global FDI flows cannot be blamed on restrictive government policies - the ‘covert protectionism’ of buy-local provisions written into some national stimulus bills - the report found.

“Overall policy trends during the crisis have so far been mostly favourable to FDI, both nationally and internationally,” the agency concluded.

Unlike the world’s major economies, developing countries in Africa, Latin America, the Caribbean and Asia saw an increase in FDI flows through the end of 2008. But the first quarter of 2009 brought a drop in investment for them as well. Nevertheless, the world’s poorer nations might see some opportunity in the current crisis. “While the United States maintained its position as the largest host and home country in 2008, many developing and transition economies emerged as large recipients and investors,” the agency said.

The report put a special emphasis on cross-border agricultural investment, which it said can play an important role in boosting food output in developing countries. South-South investment in agriculture appears to be on the rise, the report concluded, a trend that “is set to continue over the long term.”

More information

The UNCTAD report is available online at http://www.unctad.org/Templates/webflyer.asp?docid=11904&intItemID=1397&lang=1&mode=highlights

ICTSD reporting.