Global FDI declines

The global FDI flow has slowed on the face of the global financial and economic crisis and in 2008 the FDI flow dropped by 14% from the peak US$1,979 billion in 2007 to US$1,697 billion, said the World Investment Report (WiR) 2009 of the United Nations Conference on Trade and Development (UNCTAD).

In 2009 the slide continues with added momentum and the first quarter data of 96 countries show that FDI inflow fell a further 44% compared to 2008.

The recovery will start in 2010 and should speed up in 2011. The crisis has also changed the investment landscape, with developing and transition economies’ share in Global FDI flows surging to 43% in 2008, the report said.

In 2008,FDI inflows to developed countries fell while it increased into developing countries and transition economies. However, this geographical differences ended by late 2008 or early 2009 and there is a general decline across all economic groups.

Global FDI prospects are set to remain gloomy in 2009 and inflows will fall below 1.2 trillion. Recovery will start in 2010 and reach $1.4 trillion and will gather momentum in 2011 and will reach $1.8 trillion.

Slow economic growth, drastic fall of corporate profits, Transnational Corporations hesitant in expanding their international operations are the reasons for the decline in FDI flow.

Even under global recession national policies related to FDI remained favourable. It was expected that protectionist policies would be introduced by countries to face the crisis. In 2008, 110 new measures related to FDI were introduced and of them 85 were more favourable to FDI.

New policies formed up to July 2009 the new policies related to FDI were also favourable and therefore the report said that so far the global economic crisis has no adverse impact on FDI.

National bailout programs and economic stimulus packages introduced by many countries would have indirect positive impacts on FDI flows and TNC operations.

The report expresses concerns over investment protectionism by favouring domestic over foreign and obstacles to outward investments in order to keep capital at home.

The WiR has also analysed TNCs role in agricultural production and development and said foreign participation can play a significant role in agricultural production in developing countries. FDI flows in agricultural production tripled to $ 3 billion annually between 1990 and 2007, driven by food import needs of populous emerging markets, growing demand for biofuel production and land and water shortages. Contract farming activities by TNCs are spreaded worldwide covering over 110 developing countries and transition economies.

TNC participation in agriculture in the form of FDI and contract farming may result in transfer of technology, standards and skills as well as better access to credit and markets.

Governments should formulate integrated strategic policies and a regulatory framework for TNC activities in agricultural production, the report said.

- GW