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Geneva, Switzerland, 22 septiembre 2004

The contents of this Report must not be quoted or
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media before 22 September 2004 17:00 GMT
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Global foreign direct investment (FDI) inflows fell again in 2003, but outflows increased, and "that, together with the improved economic climate, suggests that a recovery is under way in 2004", said Carlos Fortin, Deputy Secretary-General of UNCTAD, releasing today UNCTAD´s World Investment Report 2004: The Shift Towards Services.(1)

In 2003, FDI inflows declined by 18% to $560 billion (table 1). This follows a massive fall of 41% in 2001 (from $1.4 trillion in 2000 to $818 billion) and another 17% in 2002 (to $679 billion). The value of cross-border mergers and acquisitions (M&As) - the key driver of global FDI since the late 1980s - was also down 20% last year.

The drop in FDI inflows was confined to the developed countries and Central and Eastern Europe (CEE). Inflows to developing countries rose by 9%. Excluding Luxembourg, China was the world´s largest host country in 2003 (figure 1). The structure of FDI has shifted towards services, facilitated by the liberalization of FDI policies, UNCTAD finds (table 2).

Rebound expected

UNCTAD expects FDI to rebound this year in most developed countries as economic growth gains momentum. Cross-border M&As increased in value by 3% in the first six months of 2004 over the same period a year earlier. During the first four months of this year, the value of share trading in the world rose by 60% over the same period of 2003. Corporate profitability rose significantly in the main home countries in 2003 and is continuing to increase in 2004. Findings of UNCTAD surveys support the prediction that a rebound in FDI flows is in the making, with three quarters of the companies surveyed and four out of five location experts expressing optimism regarding FDI prospects over the next three years(2). A recovery in FDI will further boost international production, presently carried out by at least 61,000 transnational corporations (TNCs) with over 900,000 foreign affiliates, representing an FDI stock of about $7 trillion.

A recovery does not, however, mean that all countries will realize their FDI potential. Indeed, UNCTAD´s Inward FDI Performance Index, a measure of a country´s attractiveness to FDI, shows that such economies as the Czech Republic; Hong Kong, China; and Ireland continued to attract significant investment even during the FDI recession. In contrast, such countries as Japan, South Africa and Thailand have yet to realize their full potential to attract FDI, according to their ranking on UNCTAD´s Inward FDI Potential Index as compared with that on the Inward FDI Performance Index.

FDI inflows down

UNCTAD notes that FDI flows to different regions and countries were uneven. Worldwide, 111 countries experienced a rise in FDI inflows and 82 a decline.

Flows to developing countries as a group rose by 9% (from $158 billion in 2002 to $172 billion in 2003), but they varied by region (see UNCTAD/PRESS/PR/2004/24 to 26). Africa recorded 28% more inflows in 2003 ($15 billion, up from $12 billion in 2002), driven mainly by natural-resource projects. There was an increase in flows to 36 countries and a decline to 17. FDI flows to the Asia-Pacific region reached $107 billion, up from $95 billion in 2002, with 36 countries receiving higher flows than in 2002 and 21, lower inflows. Latin America and the Caribbean, however, experienced a fourth consecutive year of decline. But the decline was marginal - from $51 billion in 2002 to $50 billion. Of 40 countries in the region, 19 received lower inflows. The share of developing countries in global FDI inflows rose by 8 percentage points, to 31% in 2003.

After a record year in 2002, when inflows reached $31 billion, FDI flows to CEE fell sharply in 2003, to $21 billion. FDI inflows were higher for 10 countries in the region and lower for 9. Inflows into the "accession-eight" -- the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Slovakia -- declined from $23 billion to $11 billion. FDI inflows to the Russian Federation also plunged, from $3.5 billion in 2002 to $1.1 billion in 2003 (see UNCTAD/PRESS/PR/2004/027).

FDI flows to developed countries fell by 25% (from $490 billion in 2002 to $367 billion in 2003). Inflows in 2003 represented one third of the $1.1 trillion peak in 2000. FDI flows to the United States fell to $30 billion, that country´s lowest level since 1992 and only a tenth of their peak in 2000-2001. Members of the European Union (EU), notably Germany and the United Kingdom, also recorded much lower inflows than in 2002, as did Japan. In all, FDI inflows were lower for 16 countries in the region and higher for 10.

FDI outflows up

Unlike inflows, FDI outflows from developed countries rose in 2003, albeit marginally. The US was again the main investor country (having lost this position to Luxembourg in 2002), with a 32% increase in outflows in 2003 (figure 2). Outflows from the EU were down by 4%, even though outflows from France and the UK rose by 16% and 57%, respectively. Outflows from Germany declined by 70%, as parent company loans to their foreign affiliates fell. Japan´s outflows continued to fall (-11%), mainly in the services sector, having also declined in 2002.

While uneven performance characterized outward FDI by developed countries, the world´s 100 largest TNCs showed signs of resumed growth in terms of sales and employment in 2002, the latest year for which complete data on the companies are available. Nine of the top 10 among the 100 largest TNCs in the world ranked by foreign assets are based in three countries (France, UK and US). General Electric heads the list (table 3).

Firms from developing countries, too, are increasingly becoming outward investors (see UNCTAD/PRESS/PR/2004/018).

Dynamic growth of services FDI

"World FDI flows have seen a dramatic shift towards the services sector - that´s where the action is", said Karl P. Sauvant, Director of UNCTAD´s Investment Division. Indeed, today the services sector accounts for about 60% (figure 3) of the global inward FDI stock (equivalent to an estimated $4.4 trillion), compared to less than 50% a decade earlier. This share will increase, as some two thirds of FDI flows are now (during 2001-2002) in services, valued at an average of $500 billion.

The shift of FDI towards services has gone hand-in-hand with a change in the industry mix of services FDI. While services FDI has traditionally been concentrated in trade and finance, since 1990 FDI in several other service industries has shown dynamic growth. Notable among them are electricity, telecommunications, water services and a variety of business services. Thus, between 1990 and 2002, the value of total inward FDI stock in electricity, gas and water rose from an estimated $10 billion to $144 trillion (mainly due to a large increase in FDI in electric power generation and distribution). The equivalent value in telecommunications, storage and transport rose from an estimated $29 billion to $476 billion; in business activities, from $126 billion to $1.1 trillion. Rapid growth in demand for these services, the increasing recognition of their importance for the efficiency and productivity of industries in all sectors and policy liberalization in many countries have played an important part in the growth of FDI in these services. As a result, the combined share of these three groups in total inward FDI stock rose from 17% in 1990 to 41% in 2002, while that of trade and finance - still dominant in services FDI - fell from 25% and 40%, respectively, in 1990 to 18% and 29% in 2002. Two of the world´s top 10 TNCs are from the telecommunications industry (table 3).

What drives the shift of FDI towards services? Partly, it reflects the ascendancy of services in economies more generally(3) and the non-tradeable nature of services (i.e., most services need to be produced when and where they are consumed). Because of the latter, the principal way to bring services to foreign markets is through FDI. In addition, countries have liberalized their services FDI regimes, including through the privatization of State-owned utilities. Finally, service firms invest more and more abroad as they seek new clients and exploit their own ownership advantages, frequently spurred on by competitive pressures.

The importance of policies

WIR04 concludes that, to benefit from an increasingly globalized and interdependent world economy, countries need to strengthen their capabilities for the supply of competitive services. If conditions are right, FDI can help to achieve this. Its most important contribution is in bringing the capital, skills and technology countries need to set up competitive service industries. This applies not only to the new IT-enabled services, but also to such traditional services as infrastructure and tourism.

Moreover, as services become more tradeable, FDI can help link developing countries to global value chains in services. Such chains comprise international service production networks that are increasingly important to access international markets.

At the same time, UNCTAD says, caution is necessary when attracting FDI in services. For instance, some services (especially basic utilities and infrastructure) may be natural monopolies and hence susceptible to abuses of market power, regardless of whether firms are domestic or foreign. Others are of considerable social and cultural significance; the whole fabric of a society can be affected by the involvement of FDI in those industries. Hence, countries need to strike a balance between economic efficiency and broader developmental objectives.

This is why it matters to have the right mix of policies, UNCTAD emphasizes. In light of the shift towards FDI in services, developing countries face a dual challenge: to create the necessary conditions - domestic and international - to attract services FDI and, at the same time, to minimize its potential negative effects. In each case, the key is to pursue the right policies, within a broader development strategy. Basic to such policies is upgrading human resources and physical infrastructure (especially in information and communication technologies) required by most modern services and ensuring competition and effective regulation so that service markets function as efficiently as possible. In today´s world economy, an internationally competitive services sector is essential for development.

The World Investment Report and its database are available online at and . A complete set of UNCTAD´s major publications on FDI and TNCs - the UNCTAD/UNCTC Digital Library - can be found at


Tables and figures

Table 1. Selected indicators of FDI and international production, 1982-2003 (Billions of dollars and per cent)

Table 1. Selected indicators of FDI and international production, 1982-2003 (Billions of dollars and per cent)

Source: UNCTAD, World Investment Report 2004

Note: a. 2002

Table 2. National regulatory changes, 1991-2003

Table 2.  National regulatory changes, 1991-2003

Source: UNCTAD, World Investment Report 2004

Note: a. Including liberalizing changes or changes aimed at strengthening market functioning, as well as increased incentives.
b. Including changes aimed at both increasing control and reducing incentives.

Table 3. The world´s top 10 non-financial TNCs, ranked by foreign assets, 2002 (Millions of dollars and number of employees)

Table 3. The world´s top 10 non-financial TNCs, ranked by foreign assets, 2002

Source: UNCTAD, World Investment Report 2004

Note: a. "TNI" is the abbreviation for "Transnationality Index". The Transnationlity Index is calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment.

Figure 1. The top 20 recipients of FDI inflows, 2002 and 2003 (Billions of dollars)

Figure 1. The top 20 recipients of FDI inflows, 2002 and 2003

Source: UNCTAD, World Investment Report 2004

Figure 2. The top 20 economies for outward FDI, 2002, 2003 (Billions of dollars)

Figure 2. The top 20 economies for outward FDI, 2002, 2003

Source: UNCTAD, World Investment Report 2004

Figure 3. Global inward FDI stock, by sector, 1990 and 2002, Per cent

Figure 3. Global inward FDI stock, by sector, 1990 and 2002

Source: UNCTAD, World Investment Report 2004

Note: Figures in brackets represent total values in trillions of dollars.