The Hindu Business Line : FDI inflows into developing nations up 40%: Unctad

In its 2005 World Investment Report (WIR) released here on Thursday, the Geneva-based UN trade body said that the competitive pressure on firms, continued off-shoring of services, ongoing liberalisation and the growth of trans-national corporations (TNCs) from emerging markets were the identified factors that should lead to more FDI this year and beyond.

It said that inflows to developing countries surged by 40 per cent to $233 billion, while developed countries as a group saw a 14 per cent drop in their inward FDI. As a result, the share of developing countries in world FDI inflows was 36 per cent, the highest level since 1977.

Stating that several factors help explain why the growth of FDI was pronounced in developing countries last year, Unctad said intense competitive pressures in many industries are leading firms to explore new ways of improving their competitiveness. Higher prices for many commodities have further spurred FDI to countries that are rich in natural resources such as oil and minerals.

In some developed as well as developing countries, increased inflows in 2004 were linked to an upturn in cross-border merger and acquisition (M&A) activity, while greenfield FDI continued to rise for the third successive year in 2004. The stock of FDI in 2004 is estimated at $9 trillion. It is attributed to some 70,000 TNCs and their 690,000 affiliates abroad, with total sales by foreign affiliates amounting to almost $19 trillion.

Ranked by foreign assets, General Electric (US) remained the largest non-financial TNC worldwide, followed by Vodafone (UK) and Ford Motors (US). Among the top 100 TNCs worldwide, four companies, led by Hutchison Whampoa (Hong Kong), are based in developing countries.

For the first time, this year's WIR ranks the top 50 financial TNCs. Large TNCs dominate the world's financial services, not only in terms of total assets, but also in terms of the number of countries in which they operate. Citigroup (US) tops the list, followed by UBS (Switzerland) and Allianz (Germany). Financial TNCs from France, Germany, Japan, the UK and the US accounted for 74 per cent of the total assets of the top 50 financial TNCs in 2003, the report said.

In terms of the three main forms of FDI financing, equity investment dominates worldwide. During the past decade, it has accounted for about two-thirds of total FDI flows. The shares of the other two forms of FDI — intra-company loans and reinvested earnings — were on average 23 per cent and 12 per cent, respectively.

The report said countries continue to adopt new laws and regulations with a view to making their investment milieu more investor-friendly. Out of the 271 such changes pertaining to FDI introduced in 2004, 235 entailed steps to open up new areas to FDI along with new promotional measures. Besides, more than 20 countries lowered their corporate income taxes to lure more FDI.

Globally, the number of bilateral investment treaties (BITs) and double taxation treaties (DTTs) reached 2,393 and 2,559 respectively last year, with developing countries concluding more such treaties with other developing countries.

In a statement at the release function in Geneva, the Unctad Secretary-General, Mr Supachai Pantichpakdi, said this year's WIR pays special attention to the internationalisation of research and development (R&D), with TNCs playing key role in global R&D.

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