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UN Report Shows Foreign Investment Declining - 2003-09-04

In a new report, the U.N. Conference on Trade and Development shows that the flow of investment between countries is continuing to fall, although not as sharply as in the past two years.

The new U.N. Conference on Trade and Development figures show that foreign direct investment flows declined sharply from $1.4 trillion in 2000 to $651 billion in 2002. The report says the trend continued into this year, but predicts a reversal next year if a world economic recovery takes hold.

U.N. economists say a big drop in foreign investment in the United States and Britain accounted for half of the global decline.

UNCTAD Secretary-General Rubens Ricupero says this dramatic decline in foreign direct investment is mainly due to a sharp drop in cross-border mergers and acquisitions. But, he notes a so-called domino affect has resulted from overall low economic growth.

"And that, of course, is one of the explanations of the decline in mergers and acquisitions, as it is also one of the main reasons for one of the other motivations, decline in stock-market evaluations and other motivations of this kind," explained Mr. Ricupero. "The decline in FDI [Foreign Direct Investment] is not something that is taking place in isolation from other phenomena that were also consequences of the low economic growth."

The report says the impact from reduced international investing has been uneven in the different regions of the world. Although the decline in investment has been most marked in the rich nations, the report says developing countries also have reported lower investment from abroad.

The report says some of the sharpest declines in foreign investment were in Latin America, the Carribean and Africa.

Mr. Ricupero says the impact was least pronounced in the Asia-Pacific region.

"And, that was basically because of the performance of China," he said. "As you know, China had a record inflow of $53 billion. It was the world's second-largest recipient of a foreign direct investment, placing it ahead of destinations such as the U.S. and United Kingdom. China was the largest recipient."

U.N. economists attribute China's success in attracting foreign investment to a combination of factors including cheap labor, robust domestic growth, and market deregulation.

The U.N. report says only some of the countries in Central and Eastern Europe defied the general downward trend. It says investments into countries planning to join the European Union reached a record level of $29 billion last year.