FDI inflows hit new record

Growth inforeign direct investment (FDI) inflows has broken new records, having hit an estimated US$1.5tn, according to the United Nations Conference on Trade and Development (Unctad).

Year-end figures have revealed that FDI has risen in all three groups of economies, in developed countries, developing economies, and in southeast Europe and the CIS. This reflects the high-growth of transnational corporations (TNCs) and strong economic performance in many parts of the world.

A large portion of the FDI flows have been in the form of cross-border mergers and acquisitions (M&As). At the start of 2007, there were increased corporate profits and an abundance of liquidity which was reflected in the value of the M&A transactions. However, in the second half of 2007 the value of M&As has declined.

However, the credit crisis has not affected the overall volume of FDI inflows.
Even the slowing US economy, and the depreciation of the US dollar may have helped maintain high levels of FDI flows into the country, particularly from countries with appreciating currencies in Europe and developing Asia.

The report concludes that despite the lending capabilities of banks becoming limited, capital injections from various funds such as sovereign wealth funds have helped to lessen the impact.

FDI flows to developed countries grew to US$1tn. FDI inflows to developing countries, and economies in transition rose by 16% and 41% respectively.

In Africa, FDI inflows soared hitting an unprecedented level of US$36bn, with Egypt, Morocco, and South Africa the main beneficiaries of FDI inflows.

Investment into Latin America and the Caribbean rose by 50% to a new level of US$126bn. This growth was driven by greenfield investments rather than cross-border M&As.

South, east and Southeast Asia and Oceania also saw upward trends in FDI flows, reaching US$224bn, an increase of 12% over 2006. However, in West Asia, overall FDI inflows declined by 12%.

FDI to southeast Europe and CIS grew by 41%, to a new record of US$98bn. In particular, the privatisation of state-owned businesses drove FDI into the region. Resource-rich countries also saw high levels of investment.

However, FDI prospects for the Russian Federation are affected by the tightening of Russian natural resource regulations, and disputes over environmental protection, reports Unctad.