Mona El-Fiqi examines the UNCTAD World Investment Report's remarks on foreign direct investment flows Foreign Direct Investment (FDI) flows for 2008 do not appear too promising despite record figures achieved in 2007, says the annual World Investment Report 2008 issued by the United Nations Conference on Trade and development (UNCTAD). Titled Transitional Corporations and the Infrastructure Challenge, the report focuses on FDI flows, and how they are affected by economic changes in the international market. After four consecutive years of growth, the report says that global FDI flows rose in 2007 by 30 per cent, reaching $1,833 billion. It adds that despite the financial and credit crisis, which began in the second half of 2007, all three major economic groupings -- developed countries, developing countries and the transition economies of southeastern Europe and the Commonwealth of independent states -- saw continued growth in their inflows. The increase in FDI flows largely reflected relatively high economic growth and strong corporate performance in many parts of the world. "The FDI inflows into developed countries reached $1.248 billion. The United States maintained its position as the largest recipient country, followed by the United Kingdom, France, Canada and the Netherlands. The European Union was the largest host region, attracting almost two thirds of total FDI inflows into developed countries," the report said. In developing countries, FDI inflows reached their highest level ever registering $500 billion, a 21 per cent increase from 2006. The least developed countries attracted $13 billion worth of FDIs in 2007 -- also a record high. According to the report, the regulatory reform aimed at creating a more attractive climate for foreign investments, was one of the main reasons for the 2007 record. "Despite growing concerns and political debate over rising protectionism, the overall policy trend remains one of greater openness to FDI," says the report. Meanwhile UNCTAD's annual survey of changes in national laws and regulations suggests that policymakers are continuing in their efforts to make the investment climate more attractive. In 2007, of the almost 100 policy changes identified by UNCTAD as having a potential bearing on FDI, 74 aimed at making the host country environment more favourable to FDI. However, the report also added that the proportion of changes that were less favourable to FDI has been increasing over the past few years. Moreover, the report noted that the number of international investment agreements continued to grow, reaching a total of almost 5,600 at the end of 2007. The report added that there were 2,608 bilateral investment treaties, 2,730 double taxation treaties and 254 free trade agreements and economic cooperation arrangements containing investment provisions. According to the UNCTAD report the global financial crisis had a limited impact on FDI flows in 2007 but will begin to bite in 2008. "The sub- prime mortgage crisis that erupted in the United States in 2007 has affected financial markets and created liquidity problems in many countries, leading to higher costs on credit," the report noted. However, it added that both micro and macroeconomic impacts affecting the capacity of firms to invest abroad appear to have been relatively limited so far. At the macroeconomic level, the report explained that the developed economies could be affected by the slowdown of the US economy and the turmoil in financial markets on liquidity. As a result, both inflows and outflows from these countries may decline. On the other hand relatively resilient economic growth in developing economies may counteract this risk. In addition to the credit crunch in the US, the report said the global economy was also affected by the significant depreciation of the dollar. "While it is difficult to isolate the effects of the exchange rate changes from other determinants of FDI flows, the sharp weakening of the dollar helped to stimulate FDI to the United States," the report said.
