Financial Daily from THE HINDU group of publications
Thursday, Sep 23, 2004
Industry & Economy
Foreign Direct Investment
Unctad report optimistic on global FDI inflows this year
New Delhi , Sept. 22
THE United Nations Conference on Trade and Development (Unctad) on Wednesday said that though global inflows of FDI fell in 2003 for the third year in a row to $560 billion, prospects for the current year are promising.
In its 2004 world investment report, released by the Director-General, Research & Information System (RIS) for Non-Aligned and Other Developing Countries, Dr Nagesh Kumar, the Geneva-based UN body premised its optimism on cross-border mergers and acquisitions (M&As), which though still low at $297 billion in 2003, have begun to pick up.
They rose by three per cent in the first six months of 2004 over the same period in 2003.
This, coupled with other factors such as higher economic growth in the main home and host countries, improved corporate profitability and higher stock valuations, points to a recovery of FDI flows in 2004.
Reflecting higher profits, reinvested earnings - one of the three components of FDI - are also expected to pick up in 2004.
Corroborating this optimistic picture are surveys conducted by Unctad during the first quarter of 2004 of 335 of the world's largest transnational corporations (TNCs) and 87 global site-selection experts.
These reveal that flows are likely to pick up, particularly in Asia and the Pacific and in Central and Eastern Europe (CEE) countries.
China and India in Asia and Poland in CEE are considered to be especially well-positioned for an upswing.
India's FDI inflows amounted to $4,269 million in 2003, against $3,449 million in 2002, while FDI outflows amounted to $913 million, against $1,107 million in 2002. It ranked 114 in an inward FDI performance index and 61 in outward FDI performance.
India's services sector, in particular information and communication technology (ICT) industries, was the most dynamic for inflows.
The Unctad investment report is quite sanguine about flows to India getting increased with the Government having announced the objective to raise FDI flows by two to three times.
The agreement among South Asian countries to establish the South Asia Free Trade Area and the improved geopolitical situation must strengthen the investment environment, it said.
Prospects are bright for some services and for electrical and electronic equipment, motor vehicles and machinery.
Greenfield investment is predicted to dominate FDI in developing countries and cross-border M&As in the developed world.
In 2003, 86 bilateral investment treaties and 60 double taxation treaties were concluded, bringing the total to 2,265 and 2,316, respectively.
The inward FDI performance index shows that economies such as the Czech Republic, Hong Kong and Ireland continued to attract significant investment even during FDI recession.
In contrast, countries such as Japan, South Africa and Thailand have yet to realise their full potential to attract FDI.
While TNCs from developed countries would drive the renewed growth of world FDI flows, the share of TNCs from developing countries also rose from less than six per cent in the mid-80s to 11 per cent during the latter half of the 90s, before falling to seven per cent in 2001-03 (for an annual average of $46 billion).
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