Foreign direct investment (FDI(1)) to developed countries shot up 21% last year to just over $1 trillion, amidst an impressive performance by Germany, according to the World Investment Report 2001(2), published today by the United Nations Conference on Trade and Development (UNCTAD).
Germany (with $176 billion) became, for the first time, the largest FDI recipient in Europe and the second largest in the world (after the United States, with $281 billion), due to VodafoneAirTouch´s takeover of Mannesmann - the largest cross-border merger deal in history (figure 1). As exemplified by this deal, cross-border mergers and acquisitions (M&As) were still the main stimulus behind the record FDI flows to the developed world as a whole.
Other FDI stars last year were Canada and the United Kingdom. While inflows to the UK rose by 57%, to $130 billion, those to Canada increased 2.5 times, to $63 billion. Canada has experienced "unprecedented" levels of both incoming and outgoing FDI, reflecting several major M&A deals, in particular with partners in Europe and the US.
Foreign direct investment in Ireland has also been vigorous. The Report calls it "the most dynamic country in the developed world in terms of recent growth and competitive performance", citing the country´s transformation from a "backward low-productivity economy into a centre of technology-intensive manufacturing and software activity".
The UK kept its position as the top source country worldwide for the second year running (see figure 2). And although the US remains the world´s largest recipient country, its FDI inflows declined by 5% last year, to $281 billion; outflows ($139 billion) also shrunk slightly, by 2%. Recent outflows from France have been very impressive, and were even higher than those from the United States for the first time in 2000. The increase is due to several large acquisitions, in particular, France Telecom´s purchase of Orange. Japan saw its inflows in 2000 dwindle by 36%, to $8 billion, partly due to the prolonged slowdown in the country´s economic growth, but also perhaps indicative of the fact that, despite Japan´s welcoming FDI policies, other factors deter investment inflows. In contrast, outflows rebounded to $33 billion, the highest level in 10 years.
The developed world continues to be the top destination for FDI overall, garnering more than three-quarters of global inflows. The Triad - the European Union (EU), the United States and Japan - accounted for 71% of world inflows and 82% of outflows in 2000. By the late 1990s it was home to nearly 50,000 transnational corporations (TNCs(3)) and host to some 100,000 foreign affiliates. Within the Triad, the EU has gained as both a recipient and source of FDI. Record inflows ($617 billion) were stimulated by further progress in regional integration, while other Western European countries (in particular Switzerland) and the United States remain its main partners outside the Fifteen.
The structure of FDI has changed within the Triad. Japan has become somewhat more important as a destination for FDI and less important as a source, although its significance as an outward investor is still much greater than that as an FDI recipient. The US role as the Triad´s largest outward investor has been taken over by the EU, which as a group remains dominant as both investor and recipient. As a result, intra-Triad stocks account for the bulk of the Triad´s FDI stocks. Flows between Triad members are rising, with 40% of total outward FDI stock located in Triad members in 1999, as compared to one-third in 1985. The number of host countries in which the Triad dominates increased for Japan and the EU, but decreased for the US between 1985 and 1999.
The Triad also leads the list of the world´s top 100 TNCs, as compiled by WIR 2001 (see TAD/INF/PR29). Some 91 of those companies are headquartered in the Triad, whose share of the list has risen gradually over the past decade. Non-Triad developed countries to appear on the list are Australia, Canada and Switzerland.
1. "Foreign direct investment" is defined as an investment involving management control of a resident entity in one economy by an enterprise resident in another economy. FDI involves a long-term relationship reflecting an investor´s lasting interest in a foreign entity.
2. The World Investment Report 2001 : Promoting Linkages (Sales No. E.01.II.D.12, ISBN 92-1-112523-5) may be obtained at the price of US$ 49, and at a special price of US$ 19 in developing countries and economies in transition, from United Nations Publications, Sales Section, Palais des Nations, CH-1211 Geneva 10, Switzerland, F: +41 22 917 0027, E: email@example.com, Internet: www.un.org; or from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York, N.Y. 10017, USA; T: +1 212 963 83 02 or +1 800 253 96 46, F: +1 212 963 34 89, E: firstname.lastname@example.org.
3. "Transnational corporations" comprise parent enterprises and their foreign affiliates: a parent enterprise is defined as one that controls assets of another entity or entities in a country or countries other than its home country, usually by owning a capital stake. An equity capital stake of at least 10% is normally considered as a threshold for the control of assets in this context.