Global FDI Flows Continue to Fall - CIFIT

Global FDI Flows Continue to Fall
September 9, 2003
By Xiamen Daily Reporter Enid Chen

UNCTAD forecasts 2004 rebound

The Launch of World Investment Report 2003 was held yesterday afternoon at Xiamen International Conference & Exhibition Center. It was the first time that a world investment report has been launched at CIFIT. Mr. Khalil Hamdani, Deputy Director of the Division of Investment, Technology and Enterprise of United Nations Conference on Trade and Development (UNCTAD) released the world investment report in the year 2002. The report shows that global Foreign Direct Investment (FDI) flows continued to fall in 2002, but the prospect of a rebound is likely next year.

Last year's total US$ 651 billion was just half the record volume of 2000. The decline was broadly-based: 108 of 195 economies saw lower inflows in 2002 than in 2001. Global FDI inflows, down by over 40% in 2001, fell by another 21% in 2002 to US$ 651 billion. According to the UNCTAD report, outflows were also down in 73 of 151 countries. At $120 billion, United States outflows rose by 15% from 2001, while EU outflows, at $394 billion, decreased by 13% percent last year, and Japan's, positioned at $31 billion, by 18%. FDI from developing countries ($43 billion) fell by $4 billion, but their share in world outflows remained almost the same, at 7%. FDI from Central and Eastern Europe (CEE), however, rose from $700 million to $4.2 billion, with the Russian Federation as the largest investor in the region.

Driving the decline in FDI flows from 2001 to 2002 - the most significant downturn of the past three decades - was a composition of various factors, which include:

Macroeconomic factors: weak economic growth or slump in economic activity linked to the business cycle in many parts of the world.
Microeconomic factors: low corporate profits and financial restructuring.
Institutional factors: the winding down of privatization, a loss of confidence in the wake of corporate scandals and the demise of some large corporations.

The report says that the "bleak performance" of FDI in terms of flows, has included countries to intensify efforts to improve their investment environment and to use better targeting methods to attract FDI. Competition for FDI has intensified, and wars of incentives are already taking place as developing countries strive to soften the impact of the downturn.

Number of countries with declines in FDI inflows, 2002
Region	Number of countries with declines	Total number of countries
World	108	195
Developed countries	16	26
Developing countries	82	150
Africa	23	53
Latin America and the Caribbean	28	40
The Pacific	31	57
Central and Eastern Europe	10	19
Least developed countries	25	49