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US Financial Crisis Expected to Affect Foreign Investment

A United Nations survey on global investment prospects shows the U.S. financial crisis and economic downturn are making corporations more cautious about future foreign investment. VOA Correspondent Steve Herman reports from New Delhi.

A United Nations report, released globally on Wednesday, shows foreign direct investment in developed countries likely peaked last year, when it surged 33 percent to a record $1.25 trillion. The outlook for this year is less optimistic because of the sub-prime mortgage crisis in the United States and the related upheaval in the banking sector.

One of the contributors to this year's World Investment Report of the U.N. Conference on Trade and Development, consultant Premila Nazareth, says a 10 percent drop is forecast for 2008.

"So far, the sub-prime [crisis] has not affected FDI (foreign direct investment) flows over this last year, but will start to do so over the next year - not dramatically but there will be a slowdown," said Nazareth.

The report's survey of corporate chief executive officers finds a majority of companies still plan to increase international investment expenditures in the next three years, but at more moderate levels.

Economist Partha Mukhopadhyay of India's Center for Policy Research says the unfolding financial crisis means highly-leveraged massive multi-billion-dollar investment deals in developing countries are likely over, but more rational overseas investments are apt to replace them.

"It's quite possible that you might see a resurgence of much more healthy levels of activity, rather than the current, quote, unquote 'irrational exuberance,'" said Mukhopadhyay.

The report notes that the most important factors for investment locations by large corporations are market growth and size and access to international and regional markets.

The annual U.N. survey finds that China, India, the United States, the Russian Federation and Brazil are the most attractive targets for future foreign investment. New entrants in the top-15 investment destinations are South Africa, Canada and Turkey.

The United States remains the largest recipient of foreign direct investment, helped by a weaker dollar. It is also the largest outward investor, followed by the United Kingdom, France, Germany and Spain. Among developing and transitioning economies, the report finds that the largest sources of foreign direct investment are China and the Russian Federation.