September 27, 1999
Foreign direct investment (FDI) flows rose nearly 40 per cent last year to $644 billion, though the share of developing countries fell, according to a new report released today by the United Nations Conference on Trade and Development (UNCTAD).
Rising FDI flows reflected the increasing globalization of economies, notes UNCTAD's "World Investment Report 1999: Foreign Direct Investment and the Challenge of Development," with cross-border mergers and acquisitions by transnational corporations (TNCs), particularly in Europe and the United States, the "driving engines" of the expansion. The world's top 100 TNCs -- only two of which are from developing countries -- have assets totalling $4.2 trillion.
UNCTAD, for the first time has compiled a "transnationality" index, measuring the magnitude of FDI and TNC operations. According to this, New Zealand is the most "transnationalized" host country and Japan the least among developed countries, and Trinidad and Tobago and the Republic of Korea respectively for developing countries.
While developing countries' share of FDI inflows in 1998 fell 26 per cent, actual flows remained high at $166 billion; only $6.6 billion below 1997 levels. Inflows to Central and Eastern Europe, at $18 billion, were marginally down. FDI flows were highly uneven among developing countries, and the report warns that many of the very poorest, or least developed, countries are becoming increasingly marginalized because they are largely bypassed by transnational corporations. As an example, UNCTAD says the 33 least developed countries in Africa experienced a slight gain in FDI inflows for the sixth straight year in 1998, but their total FDI inflows were only $2.2 billion - less than 1.5 per cent of total inflows to all developing countries.
UNCTAD points out that the share of FDI in capital flows to developing countries has doubled in the 1990s; from 28 per cent in 1991 to 56 per cent in 1998. And every dollar of outflow from FDI is matched by three dollars of inflows, UNCTAD finds. Countries need effective policies to maximize FDI, but because not all inflows are automatically in the best interest of host countries they must also formulate policies that ensure investments by TNCs contribute to growth and competitiveness, strengthens the balance of payments, creates jobs and transfers technology. At the same time, TNCs have a responsibility not only to their shareholders but also to society at large, the report says, quoting from Secretary-General Kofi Annan's address to the World Economic Forum in Davos, Switzerland earlier this year.
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