Bridges Weekly Trade News Digest • Volume 12 • Number 31 • 25th September 2008

UNCTAD: FDI Flows Hit New High in 2007

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Flows of foreign direct investment hit a new high last year, the United Nations Conference on Trade and Development (UNCTAD) said in its annual World Investment Report, which was released on 24 September. The report also noted that infrastructure investment in developing countries has experienced rapid growth since 1990.

Following four years of consecutive growth, inflows of foreign direct investment (FDI) reached a new peak of US$ 1,833 billion in 2007, surpassing the previous record set in 2000, UNCTAD found. All three major economic groupings — developed countries, developing countries and the transition economies of South-East Europe and the Commonwealth of Independent States - experienced FDI growth, which was driven by strong corporate performance worldwide, the report said. But UNCTAD warned that the ongoing global financial crisis may cause those numbers to drop for 2008.

Another trend identified in the report, was that sovereign wealth funds, or state-owned investment funds, are growing in prominence as direct investors. Although SWFs invest a relatively little in the form of FDI - only 0.2 percent of their total assets were devoted to FDI last year - the funds are increasingly seeking out investments abroad. In fact, nearly 80 percent of the US$ 39 billion of overseas investments made by SWFs over the past two decades has come in the past three years.

The report also noted that FDI from transnational corporations (TNCs) in the infrastructure sector expanded rapidly between 1990 and 2006, particularly in developing and transition economies. The report found that some prominent TNCs in the infrastructure sector are headquartered in developing countries, and are leading the way in infrastructure investment in the developing world.

However, the need for quality infrastructure in developing countries - a prerequisite for economic and social development - far exceeds the total amount invested by domestic and foreign stakeholders, UNCTAD concluded.

And despite the growing investment flows from TNCs, foreign capital is often absent in developing countries, particularly the world’s 49 least developed countries, the report found.

To access the report, please refer to http://www.unctad.org/Templates/Page.asp?intItemID=1397&lang=1.

ICTSD reporting.