Date:25/09/2008 URL: http://www.thehindu.com/2008/09/25/stories/2008092553841600.htm

Business

Global FDI flows to dip 10%: UNCTAD

Special Correspondent

Financial turmoil will impact growth

Medium term outlook not impressive
FDI flows to developing countries to remain stable

NEW DELHI: Global foreign direct investment (FDI) flows are expected to dip by 10 per cent owing to the ongoing financial turmoil and consequent liquidity crunch even as investment flows into the developing world would remain largely stable, according to the United Nations Conference on Trade and Development (UNCTAD).

In its ‘World Investment Report 2008’ released here on Wednesday, UNCTAD said: “FDI flows in 2008 will be about $1,600 billion, representing a 10 per cent decline from 2007.”

Apart from the FDI slowdown, the financial turmoil would impact the growth in merger and acquisition (M&A) deals during 2008 as already, in the first half of the calendar year, “the value of M&A transactions was 29 per cent lower than in the second half of 2007,” it said. The report noted that the global FDI outlook in the medium term did not seem impressive as fund flows could be affected by the continued slowdown in growth and difficult market conditions in developed countries.

Deteriorating profits

“Deteriorating profits of trans-national corporations in the wake of the economic slowdown will make the cash financing of FDI more difficult,” it said.

As for the impact that the current global financial crisis would have on developing nations, the UNCTAD report said: “FDI flows to developing countries are likely to remain stable.” However, in the case of India in particular, policy analyst Premila Nazareth felt that FDI inflows in to the country could be on the lower side, “especially in infrastructure sector, which require large investments”.

This, the report revealed, is despite the fact that China, India, the US, the Russian Federation and Brazil are considered the most attractive destinations by large trans-national companies (TNCs) for foreign investments in future.

FDI inflows to developed countries totalled $1,248 billion in 2007 and the U.S. retained its place as the largest recipient globally. During the year, similar inflows into developing countries touched their peak at $500 billion which marked a 21-per cent increase over 2006.