Global investment takes crisis hit
By Gustavo Capdevila
GENEVA - The international turmoil and economic slowdown triggered by the US
financial crisis are having a major impact on global investment, which will
drop 10% this year from last year's record level of US$1.8 trillion.
Supachai Panitchpakdi, secretary general of the United Nations Trade and
Development Conference (UNCTAD), predicted at the presentation of the "World
Investment Report 2008" on Wednesday that foreign direct investment (FDI) would
reach $1.6 trillion this year.
All aspects related to investment will depend on the magnitude and duration of
the current US financial crisis, said Supachai, who welcomed the US
government's $700 billion plan to bail out banks
by covering bad mortgage debt.
"I think everyone in the world today agrees that it is a commendable attempt by
the US administration to tackle the financial crisis by having a comprehensive
package to support the system, which is much needed," said Supachai with
respect to the government proposal that is pending approval by the US Congress.
Supachai pointed out that UNCTAD, created in 1964 to help developing countries
integrate into the world economy for them to benefit to the greatest possible
extent from trade, investment and development, has long maintained "the need to
put in some regulatory framework into the financial system in a way that we can
see more transparency and accountability".
UNCTAD maintains, "Despite the functioning of the market mechanism, it is just
inevitable that the state will have to come back in and play a more pronounced
role in this area," he said.
The financial crisis, which began to be felt in August 2007, had not at that
time interrupted the four consecutive years of growth of FDI, which last year
surpassed the previous record, set in 2000.
Despite the financial and credit difficulties that appeared in the second half
of 2007, industrialized and developing nations and economies in transition in
southeastern Europe and the Commonwealth of Independent States (CIS)
experienced a steady increase in foreign investment.
The rise in FDI was largely due to the relatively high rates of economic growth
and strong performance by companies in many parts of the world. Also affecting
investment to a certain extent was the depreciation of the dollar against other
major currencies.
Developing countries saw a 21% rise in FDI, to $500 billion, due to factors
such as the increase in commodity prices and improved investment policies.
According to UNCTAD, 75% of the reforms introduced in foreign investment
policies were favorable to investors. The rest, says the report, were adopted
as part of more restrictive models applied mainly to extractive industries in
Latin America, especially Bolivia and Venezuela.
UNCTAD acknowledged that the restrictions reflected concerns of a strategic
nature and related to national security.
Some two-thirds of the increase in developing countries went to Asia, one-third
to Latin America and the Caribbean and one-tenth to Africa.
Record FDI flows were experienced by the countries of the CIS (former Soviet
republics), which received $74 billion; the least-developed countries, which
took in $13 billion; and Africa, which attracted $53 billion.
The report also notes that sovereign wealth funds (SWFs) - large government-run
investment pools - "are emerging as new actors on the FDI scene" because of
their involvement in a growing number of cross-border mergers and acquisitions.
"Although the history of SWFs dates back to the 1950s, they have attracted
global attention only in recent years," says UNCTAD.
The SWFs, which invest state savings usually in overseas assets, tend to assume
greater risks and seek higher returns than traditional investments by monetary
authorities.
For example, the Government of Singapore Investment Corporation helped bail out
UBS in March when it paid $9.7 billion to acquire a 9% stake in the bank,
Switzerland's largest, which was the first prominent victim of the US mortgage
crisis.
The contraction of the global economy and financial turbulence has forced
transnational corporations to be more cautious with respect to FDI in the
medium term, according to the "World Investment Prospects Survey 2008-2010",
released by UNCTAD alongside its "World Investment Report 2008".
Most of the corporations surveyed by UNCTAD responded that they still planned
to increase their investment flows in the next three years, but with a more
moderate increase, said Anne Miroux, the head of the team that produced the two
reports.
The five countries considered most attractive by transnational corporations for
future investments are China, India, the United States, Russia and Brazil. The
interest in Russia and Brazil was already mentioned in last year's report,
although it has grown significantly, UNCTAD noted.
The next countries on the list are Vietnam, Germany, Indonesia, Australia,
Canada, Mexico, Britain, Poland, South Africa, France and Turkey.
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