December 7, 2000
World FDI inflows are expected to exceed US$ 1.1 trillion this year, up 14% over 1999, according to preliminary estimates released today by UNCTAD. This dramatic increase represents a doubling in just three years; only a decade ago, total annual flows were about $200 billion.
More than four fifths of this year's FDI inflows were to developed countries (table 1). Increased flows to these countries resulted mostly from cross-border mergers and acquisitions (M&As), as reported in UNCTAD's World Investment Report 2000 (for background, see TAD/INF/2855 & 2856 of 3 October). Western Europe continues to be the largest host region to FDI, receiving an estimated US$ 597 billion.
However, one megadeal - the US$-180 billion takeover of Mannesmann (Germany) by Vodafone AirTouch (United Kingdom) - accounts for a significant part of the flows. M&A sales activity in Germany is likely to be boosted even more by the abolition of taxes on the sales of cross-holdings among firms, starting in 2001. This year's FDI inflows to that country were at a record high, reaching almost a quarter of a trillion dollars and rivalling those to the United States (estimated at US$ 260 billion). But the United States remains the single largest target country in cross-border M&As, with sales of US firms to foreign investors exceeding US$ 300 billion this year. M&As include portfolio acquisitions, which are not included in calculations of FDI.
Total FDI inflows to developing countries in 2000 (US$ 190 billion) remained at the same level as the previous year, but those countries' share in the world total fell to 17% (table 1). This decline has continued since 1997. The largest slump within that category in FDI flows this year was observed in Argentina (down by US$ 15 billion). Increases were recorded for Egypt and Tunisia in Africa; Mexico and Venezuela in Latin America; and Malaysia and Taiwan Province of China in Asia among others.
Flows to China and Brazil - respectively the first and second largest FDI recipients among developing countries - were largely unchanged. However, in anticipation of China's entry into the WTO, approved investments in China are already on the rise. West Asia is also likely to see sizeable FDI inflows, as both Iran and Jordan have already recorded increases this year. Africa continues to receive small amounts of FDI, although the totals were 10% higher than the previous year. Overall, Africa and Asia both gained in FDI flows, while flows to Latin America and the Caribbean declined.
As to Central and Eastern Europe, FDI flows are projected to reach US$ 30 billion this year, due to a combination of increased political stability, lower country risks and relatively high labour skills. Inflows are growing particularly to the Czech Republic, Hungary, Poland and the Russian Federation. European firms are expanding in this region, which is increasingly recognized as a competitive European production site; the expansion is also in response to the expected enlargement of the European Union to include some Eastern European countries. Privatization deals, along with generous tax incentives in some countries, have contributed to the region's FDI boost as well.
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