By Paul Hannon
Global flows of foreign direct investment fell 39% in 2009, but will pick up modestly this year, the United Nations Conference on Trade and Development said Tuesday.
In a report, the U.N. agency said businesses made foreign investments of just over $1 trillion in 2009, down from $1.7 trillion in 2008. Flows of foreign investment to developed economies fell 41%, while flows to developing countries fell 39%.
Businesses invested just 2.6% less in China than they had in 2008, while cutting their investments to the U.S. by 57%, in a reflection of a shifting balance of economic power. The U.S. remained the largest recipient of foreign investment, but China moved into second place, overtaking France and the UK.
Other large developing economies didn't fare as well as China. Foreign investment in Brazil fell 49.5%, in India dropped 19%, and in Russia fell 41.1%.
Among developed economies, Germany recorded the largest rise in foreign investment, a 40.7% increase from 2008. Ireland, which saw the largest withdrawal of foreign investment in 2008 as investors took $20 billion out of the country, recorded inflows of $14 billion.
Foreign direct investment is particularly important to developing economies because it is associated with transfers of technology and know-how, and many don't have financial systems that are mature enough to provide capital for larger projects.
Declining flows of foreign investment could damage long-term growth prospects. Foreign investment in Africa fell 36.2% to $55.9 billion in 2009, while foreign investment in Latin America and the Caribbean fell 40.7% to $85.5 billion.
UNCTAD said that with the global economy growing again and company profits rising, foreign investment flows should rise this year. "The overall environment for international investment is slowly improving," it said. "However, as the recovery in economic growth and profits remains fragile, especially because it has been boosted by the potentially transitory impact of special economic packages...the recovery in FDI is expected to be modest," it said.
Foreign direct investment includes mergers and acquisitions, building new facilities from scratch, and reinvesting profits earned from overseas operations.
