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Foreign Investments Could Drop This Year - 2001-09-18

Global flows of foreign direct investment (FDI) soared by 18 percent last year to a record $1.3 trillion, according to a report released by the U.N. Conference on Trade and Development. But this year direct investment across national borders is expected to decline.

United Nations' economists stress that the estimate of a drop in Foreign Direct Investment flows this year was made prior to last week's tragic events in the United States.

UNCTAD Secretary-General Rubens Ricupero says he will not speculate as to the impact the terrorist attacks in America is likely to have on future economic developments.

"The only thing we can say is that we have full confidence in the resilience, the vitality, the enormous potential of the U.S. economy, and we also have full confidence in the quality of the American people under the strain to react in a positive, determined, resolute way," he said.

Foreign Direct Investment is a measure of how much international companies are investing in other countries. As such, it is a measure also of business confidence.

On the basis of information gathered from 51 host countries, Mr. Ricupero says UNCTAD predicts foreign direct investment flows will decline by 40 percent this year, to $760 billion US.

"Should this be confirmed by events, it would represent the first drop in 10 years since 1991 and the largest drop over the past three decades," Mr. Ricupero said. "This drop is mainly, for the most part, concentrated in flows among highly industrialized countries."

Last year, the U.N. report notes, developed countries were the 10 largest FDI recipients as well as the 10 largest sources of the investment, with two exceptions from the developing world. It says China and Hong Kong hit record levels of foreign direct investment in 2000.

Mr. Ricupero says developed countries can expect the flows of capital investments to drop by half from $1 trillion to $500 billion.

"The drop is to a large extent a result of the recent decline in cross border acquisitions and mergers, which account for the bulk of FDI," he said.

While Britain remains the world's biggest investor, the report says Germany, for the first time, became the largest FDI recipient in Europe and the second largest in the world after the United States. It attributes this rise to the giant takeover of Germany's mobile phone company Mannesmann by Britain's Vodafone. UNCTAD says inflows to Africa declined by 13 percent last year. It finds this largely due to slowdowns in South Africa, Angola and Morocco.