For use of information media - Not an official record

11 July 1996

Worldwide foreign direct investment (FDI) inflows increased by a phenomenal $103 billion (46 per cent) between 1994 and 1995, to set a new record level of an estimated $325 billion. This increase in the absolute value of FDI reflects a comparable increase in real terms as well, with FDI at constant 1994 dollars rising by 38 per cent between the two years.

All categories of countries -- developed and developing countries, as well as the economies of Central and Eastern Europe -- have registered new record levels. Following their emergence from a period of slow growth and boosted by a new wave of mergers and acquisitions, FDI inflows to the developed countries reached an estimated $216 billion in 1995. The United States led the way with record inflows of $75 billion and record outflows of $97 billion, according to preliminary estimates. Developing countries registered inflows estimated at $97 billion, an all-time high. And the transition economies of Central and Eastern Europe received twice as much in 1995 as in 1994, an estimated $12 billion, the highest ever recorded. Both in developing countries and Central and Eastern Europe, a limited number of countries accounted for a large part of the increases in FDI in 1995: China, Indonesia, Malaysia and Thailand in the former group and the Czech Republic, Hungary and Russian Federation in the latter group.

Although the data are still preliminary, FDI flows in 1995 demonstrate the cyclical nature of these investments. Like all types of investment, FDI follows closely -- albeit with a lag -- fluctuations in economic growth. Underpinning the cyclical nature of FDI are global competitive pressures that push all firms, including a growing number of transnational corporations (TNCs) based in developing countries, to become more active internationally through FDI or other non-equity forms of international involvement. In particular, FDI flows increased on both sides of the Atlantic. Outflows from the United States and Germany more than doubled, and increased by a half of their 1994 value in the case of the United Kingdom. Behind this increase lay rising cross-border mergers and acquisitions (M&A) that once again became large enough to determine the level, direction and composition of FDI flows. While there were a number of large-scale M&As among large enterprises in pharmaceuticals, chemicals and financial services industries that reflect ongoing consolidations in these industries in the developed world, small and medium-sized enterprises also have entered the M&A market. Unlike the previous M&A boom in the late 1980s when many M&A cases were financially motivated, the recent boom resulted rather from corporate strategies meant to enhance core competencies of firms.

The unprecedented level of global FDI flows in 1995 suggests that the speed of globalization of production by TNCs may be accelerating. FDI by TNCs represents an alternative means of delivering goods and services to foreign markets that is increasingly intertwined with international trade; it is also a means of accessing inputs and organizing production.

The surge in global FDI flows is one of the topics being examined by UNCTAD´s Division on Transnational Corporations and Investment in its forthcoming World Investment Report 1996, to be published later this year. The WIR 1996 will provide extensive data on the regional and country breakdown of these flows and an analysis of the factors underlying the new developments. It will also examine the interrelationships between international trade and international investment as modes of delivery of goods and services in the world economy. On the policy side, the WIR 1996 will examine issues related to a possible multilateral framework on investment.

For more information, please contact:
Karl P. Sauvant, Chief
Research and Policy Analysis Branch, Division on Transnational Corporations and Investment
T: +41 22 907 5707
F: +41 22 907 0194
Carine Richard-Van Maele, Press Officer
T: +41 22 907 5816/28
F: +41 22 907 0043
E: press@unctad.org


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