Global economic expansion fuels rebound in foreign direct investment
By Frances Williams in Geneva
Foreign direct investment is on the rebound this year after three years of steep decline fuelled by global economic expansion and rising company profitability, the United Nations said yesterday.
In its annual world investment report, the UN Conference on Trade and Development (Unctad) also said services offshoring was still in its infancy but was fast approaching a "tipping point" that could see a dramatic takeoff in the relocation of services jobs to lower-cost countries.
However, adopting measures to force service jobs to stay at home would be shortsighted, Unctad said. Protectionist measures were likely to destroy rather than save jobs in the longer run.
Inflows of foreign direct investment (FDI) fell by 18 per cent last year to $560bn (€454bn, £311bn) less than half the 2000 peak of $1,400bn, said the report.
The drop mirrored a 20 per cent decline in the value of cross-border mergers and acquisitions, which have emerged as the key driver of FDI, especially in the industrialised world, since the late 1980s.
While FDI inflows to rich nations slumped 25 per cent last year, inflows to developing countries rose 9 per cent to $172bn in 2003 from $158bn in 2002. Nearly two-thirds of this went to the Asia-Pacific region, with China accounting for $54bn, slightly more than in 2002.
China became the largest recipient of FDI inflows last year (not counting "transhipped" investment through Luxembourg) as flows to the US halved to $30bn, the lowest level since 1992. Germany and the UK also recorded much lower inflows than in 2002.
However, FDI outflows from rich countries rose modestly last year. Together with the improved economic climate and increased cross-border mergers activity, "that suggests that a recovery is under way in 2004", said Carlos Fortin, officer-in-charge of Unctad.
Though inflows and outflows should balance, in practice they diverge because of differences in collection methods, coverage and so on. Statistics are also subject to revision. Thus China was reported as overtaking the US in FDI inflows in 2002, whereas the latest data suggest the US was then still ahead before falling behind last year.
The services sector now accounts for two-thirds of FDI flows and about 60 per cent of the existing FDI stock, from less than 50 per cent a decade earlier.
The most far-reaching changes were taking place in services that can be supplied from abroad using information technology. While researchers have estimated that 2m-5m services jobs could shift offshore over the next five to 10 years, the numbers could be far greater, Unctad said.
"Most multinationals haven't even started offshoring," said James Zahn, an Unctad economist. "What we're seeing may just be the tip of the iceberg."
Ireland, Canada, Israel and India account for more than 70 per cent of the total market for offshored services. www.unctad.org/wir
In its annual world investment report, the UN Conference on Trade and Development (Unctad) also said services offshoring was still in its infancy but was fast approaching a "tipping point" that could see a dramatic takeoff in the relocation of services jobs to lower-cost countries.
However, adopting measures to force service jobs to stay at home would be shortsighted, Unctad said. Protectionist measures were likely to destroy rather than save jobs in the longer run.
Inflows of foreign direct investment (FDI) fell by 18 per cent last year to $560bn (€454bn, £311bn) less than half the 2000 peak of $1,400bn, said the report.
The drop mirrored a 20 per cent decline in the value of cross-border mergers and acquisitions, which have emerged as the key driver of FDI, especially in the industrialised world, since the late 1980s.
While FDI inflows to rich nations slumped 25 per cent last year, inflows to developing countries rose 9 per cent to $172bn in 2003 from $158bn in 2002. Nearly two-thirds of this went to the Asia-Pacific region, with China accounting for $54bn, slightly more than in 2002.
China became the largest recipient of FDI inflows last year (not counting "transhipped" investment through Luxembourg) as flows to the US halved to $30bn, the lowest level since 1992. Germany and the UK also recorded much lower inflows than in 2002.
However, FDI outflows from rich countries rose modestly last year. Together with the improved economic climate and increased cross-border mergers activity, "that suggests that a recovery is under way in 2004", said Carlos Fortin, officer-in-charge of Unctad.
Though inflows and outflows should balance, in practice they diverge because of differences in collection methods, coverage and so on. Statistics are also subject to revision. Thus China was reported as overtaking the US in FDI inflows in 2002, whereas the latest data suggest the US was then still ahead before falling behind last year.
The services sector now accounts for two-thirds of FDI flows and about 60 per cent of the existing FDI stock, from less than 50 per cent a decade earlier.
The most far-reaching changes were taking place in services that can be supplied from abroad using information technology. While researchers have estimated that 2m-5m services jobs could shift offshore over the next five to 10 years, the numbers could be far greater, Unctad said.
"Most multinationals haven't even started offshoring," said James Zahn, an Unctad economist. "What we're seeing may just be the tip of the iceberg."
Ireland, Canada, Israel and India account for more than 70 per cent of the total market for offshored services. www.unctad.org/wir
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