New commission told it is important to protect vulnerable countries, seize opportunities offered by crisis; UNCTAD to monitor investment developments to see that they do not tend towards protectionism
Geneva, 4 May 2009 -- The global downturn that reduced foreign direct investment (FDI) by some 15% in 2008 will probably intensify in 2009, especially for developing countries, UNCTAD´s Secretary-General said today at the start of a week-long conference on FDI trends in the developing world.
He said a survey of executives of transnational corporations on their firms´ investment plans indicate more healthy flows of FDI will resume in 2011. Some 80% said declines are anticipated in the short term.
"Very little has been said about the impact of the crisis on investment," Secretary-General Supachai Panitchpakdi told the first meeting of UNCTAD´s new Investment, Enterprise and Development Commission. "We need to highlight to the global community the implications for investment and enterprise development. You cannot have recovery without going into new investment, new employment. The financial sector must be cleaned up and be able to support new rounds of investment.
"The decline in FDI will be far deeper this year", Mr. Panitchpadki said. While he said UNCTAD has not developed figures so early into 2009, "there are indications that a deep decline will take place - with a great degree of variation between countries and regions." Among the signals are the declining profits reported by businesses and limits on resources as banks struggle to cope with heavy losses and continue to rid themselves of toxic assets. "No new borrowing, no new flows of funding mean little new investment internationally", the Secretary-General said.
FDI peaked in 2007 at a record US$1.9 trillion. Although developed countries experienced FDI declines in 2008, developing countries as a whole still saw a modest FDI increase.
Among current dangers, Mr. Supachai noted, are that encouraging signs in developed country stock markets and other "green shoots" suggesting possible economic recovery may lead to an impression that the crisis is over -- when it may continue for a long time yet in developing countries.
Developing countries "must not be forgotten: they might not go through the same door. It might turn into a debt crisis for developing countries. To stimulate their economies, keep going, they might have to go into debt. We need an exit strategy."
Announcements and commitments at the G-20 summit in London indicating the developing world will not be forgotten were "heartening", the Secretary-General said.
He added that UNCTAD will fulfil a request made at the G-20 that it monitor government measures to respond to the financial crisis "that might be seen to be blocking international investment. I wouldn´t call it protectionism, but we should be careful that that kind of ´ism´ doesn´t develop", he said.
Coping measures for developing countries should include regional efforts that give economies of scale so that FDI can be channelled to vulnerable nations as land-locked and least developed countries, he said. And the trend towards increasing "South-South" investment of the past decade can come in handy now as developing countries need both financial cooperation and solidarity in facing the crisis.
It is important to avoid "races to the bottom," the Secretary-General said -- extreme measures or competition among poor nations for FDI that can lead to a loss of social or environment standards, or to declines in employment conditions.
And despite the bleak situation, there are opportunities for investment now for firms that have cash, as asset prices are cheap, and new, energy- and environment-related industries can be expected to develop, Mr. Supachai said.
He repeated UNCTAD´s position that the international financial system must be reformed in the wake of the crisis. "We cannot go back to business as usual."
One goal of the week´s meetings should be to develop suggestions on how such reforms can apply to investment, he told the commission. He also said the gathering should "prepare for the post-crisis global economy, in which new sectors and a new geography for FDI will likely emerge".
