SINGAPORE, Oct. 24 (UPI) -- World foreign direct investment will decline in 2002 by 27 percent to about US$534 billion, with China possibly overtaking the United States to become the largest FDI host country, according to estimates released Thursday by the U.N. Conference on Trade and Development.
More than half of the 85 economies for which data are available can be expected to receive lower FDI in 2002, reflecting the general uncertain economic situation and weak stock markets, which are undermining business confidence.
These have had a sharp impact on cross-border mergers and acquisitions and corporate investment expansion plans. Completed cross-border M&As between January and early September this year fell by 45 percent compared to the same period last year to $250 billion. This decline was particularly drastic in the United States -- the largest recipient of FDI in 2001 -- where M&As account for the bulk of FDI.
The UNCTAD report pointed that the two consecutive years of decline in FDIs meant that foreign direct investment was playing a diminished role in overcoming the world economic downturn. Given that promotional resources are quite limited, investment targeting may therefore become more common in attracting FDI, it said.
Some developing countries and countries in Central and Eastern Europe are less affected by the general fall in FDI, UNCTAD noted. Their situations are influenced by the intensified competitive pressures faced by transnational corporations to keep production costs down by operating in less expensive locations.
In 25 developed countries, FDI this year could reach $349 billion, down 30.6 percent from 2001. The largest declines in absolute terms are likely to be experienced by the United Kingdom and the United States (by three fourths in the former to $12 billion, and by two thirds in the latter to $44 billion). The plunge in inflows to the United States is mainly due to intra-company loans shifting from net inflows to net outflows, the report said.
The outlook for France and Germany is more encouraging, reflecting large M&A deals like the purchase of French Aventis CropScience Holding SA by Bayer AG (Germany) or the purchase of German Reemtsma Cigarettenfabriken GmbH by the U.K.'s Imperial Tobacco Plc. With close to $45 billion, inward flows to both countries could for the first time in three decades reach levels almost comparable to those of the United States.
UNCTAD projected a dramatic drop in FDI to Africa, from $17 billion in 2001 to $6 billion this year, reflecting the economic slowdown in major developed counties as well as the political uncertainty in some African countries.
FDI in developing Asia are also expected to decline this year by about 12 percent to $90 billion, following a 24 percent drop in 2001. The slide is largely the result of slowing FDI from Europe and the United States, despite the strong economic growth of the region's leading economies.
However, performance within the developing Asian region varies from country to country. FDI growth in China continued its momentum, driven by the liberalization process and industrial restructuring, and at an estimated $50 billion, inflows will probably set a record. A decline in inflows is expected in Hong Kong, South Korea, Thailand and Taiwan.
FDI into Latin America and the Caribbean will fall for the third year in a row, tumbling 27 percent to $62 billion. The decline is concentrated in Mexico, where inflows last year were inflated by Citicorp's acquisition of Banamex. But excluding that investment, FDI into Mexico this year ($14 billion) would remain at 2001 levels, despite the economic slowdown at home and in the United States, the country's biggest investor, the report said.
Inflows into Brazil held steady at about $20 billion, and the country appears set to regain its position as the region's top FDI recipient, with rising investments in manufacturing. In Argentina, the impact of last year's financial crisis reduced inflows to a minimum during the first six months of the year, but investments are likely to pick up in the second half of the year.
Central and Eastern Europe are bucking the general downward trend, and set to repeat this year last year's $27 billion in FDI. The picture is mixed, however, with flows rising in Albania, Bulgaria, Czech Republic, Latvia, Lithuania and Slovenia, but declining in Estonia and Hungary,
