UN survey: Signs of rise in foreign direct investment globally


BY JOHAN FERNANDEZ IN NEW YORK

Investment promotion agencies (IPAs) worldwide are optimistic of an increase in foreign direct investment (FDI) this year right into the medium term (2006-07), a United Nations Conference on Trade and Development (Unctad) survey revealed. 

This second annual IPA survey that was carried out this year confirmed the findings of a related survey earlier of location experts by Unctad and a magazine. 

The report said prospects for all industries were positive. Globally, the top ranked industries in terms of prospects for FDI are all service sector related - hotels and restaurants, tourism, computers/information and communications technologies (ICT), retail and wholesale. 

The United States, Germany, Britain and France are viewed as the leading sources of FDI, followed by China and Japan. 

According to the report, most IPAs expect FDI to enter through greenfield investments while 27% expect mergers and acquisition (M&A) to be the preferred mode of entry. 

The survey covering 158 nations found that developed countries were slightly more optimistic about the medium term than the short term. 

For the first time, China, a developing country, has made the list of the expected top five investing countries worldwide during 2004-05, replacing Japan, which traditionally has been a source country for FDI. 

Many developing countries rank China second after the US as an expected country of origin for FDI. One possibility for this is because Chinese ventures abroad, so far, may have raised expectations on the part of developing country IPAs as to the likelihood of attracting additional Chinese investments. 

This is significant because it underscores China’s growing importance for FDI not just as a host but also as a source country. 

But despite China’s increasing importance, the US remains top as the largest expected source country worldwide, both for developing and developed economies, followed by Germany, Britain and France. 

Developing countries expect to benefit from the relocation of distribution and sales-related activities as well as logistics and other support services. These countries have also shifted away from attracting production or manufacturing activity per se and instead expect logistics and other support services, distribution and sales, R&D functions, and headquarters to be the principal functions located there. 

For Asia and the Pacific region prospects for 2004-05 are perceived to be bright, with further improvement anticipated in the medium term (2006-07). 

Machinery and equipment along with motor vehicles are the two manufacturing industries for which FDI prospects are particularly positive in the short term. At the same time in the service sector there is considerable optimism in tourism, construction, and computers/ICT. 

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