Foreign Direct Investment in the World Economy: Main Achievenments
FDI inflows continued their strong recent growth to reach US$1.3 trillion in 2000, though the pace was slightly slower than in the previous two years (table 1). In 2001, they are expected to decline. By all measures (assets, sales, trade and employment of foreign affiliates), FDI rose more rapidly in 1999 and 2000 than such other aggregates as gross domestic product (GDP), domestic investment, licensing payments and trade. It is noteworthy, in particular, that TNC activities have risen rapidly in 1999 (as well as during the preceding three years) when world trade was stagnant, testifying to the growing role of FDI as the main force in international economic integration. The ratio of foreign affiliates’ sales to global GDP was almost 50 per cent, with the sales value being over twice as high as the value of world exports of goods and services. Over 60,000 TNCs now own more than 820,000 affiliates abroad, with some 55 countries hosting more than 1,000 foreign affiliates (table 2), and with a value of FDI stock of over US$6 trillion.
Looking at the recent past, as many as 65 countries experienced an annual average growth rate of 30 per cent or more between 1986 and 2000 (table 3); another 29 countries had FDI growth rates of 20-29 per cent. In terms of broad country groups, the developed world continued to attract over three-quarters of global FDI inflows in the past two years. Its share has risen in recent years largely because of intense cross-border M&A activity. In 1999, the share of developing countries fell by 6 percentage points, to 21 per cent; in 2000 it declined yet further to 19 per cent. This was the lowest share since 1990, and it was well below the 1990s peak of 41 per cent in 1994. It was also lower than the shares of developing countries in world exports as well as imports, and total world domestic investment. The 49 least developed countries (LDCs) as a group remained marginal in attracting FDI; however, FDI flows into that group are on the rise, as is the role of FDI in their economies. Central and Eastern Europe maintained its share of about 2 per cent in 2000 in terms of world inflows.
The «Triad» - Japan, the European Union (EU) and the United States - has long accounted for the bulk of international production, providing and receiving most of global FDI. During 1998-2000, the Triad accounted for three-quarters of global FDI inflows and 85 per cent of outflows, and for 59 per cent of inward and 78 per cent of outward FDI stocks. By the late 1990s it was home to nearly 50,000 TNCs and host to nearly 100,000 foreign affiliates. The EU’s shares of stocks and flows, inward as well as outward, increased. Those of the United States and Japan have declined, with those of Japan remaining relatively small. The rise in EU shares is largely due to cross-border M&As. The structure of FDI within the Triad has also changed. Largely as a result of its prolonged economic slowdown, and later the Asian financial crisis, Japan has become somewhat more important as a destination for FDI and less important as a source, although the country’s significance as an outward investor is still much greater than that as a FDI recipient. The United states continues to be the single largest host country for FDI, while its role as largest outward investor has been taken over by the united Kingdom since 1999 and, also, France for the first time in 2000. The EU as a group remains dominant as both investor and recipient. Flows between the Triad members are rising, with 40 per cent of total outward FDI stock being located in other 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 United States between 1985 and 1999.
FDI inflows into developing Asia reached a record level of US$143 billion in 2000. The 44 per cent increase over 1999 was primarily due to an unprecedented FDI boom in Hong Kong, China. The wave of M&As in the financial-crisis-hit countries has now tapered off, reflecting both a slow-down in the rate of asset disposals and reduced pressure for further corporate restructuring. FDI flows into China, US$41 billion in 2000, remained at a level similar to that of the previous year. Overall, the role of FDI in Asian economies, as measured by its share in total investment, varies greatly from country to country.
The 2000 Asia FDI boom masks considerable sub-regional variations:
• North-East Asia has become the brightest spot for FDI in the developing world. Inflows to the three economies (Hong Kong, China; the Republic of Korea; and Taiwan Province of China) reached US$80 billion in 2000. Their share of total FDI in developing Asia increased from an annual average of 16 per cent during the first half of the 1990s to over 55 per cent in 2000. With US$64 billion of inflows, Hong Kong, China overtook China as the single largest FDI recipient in Asia.
• FDI inflows into China rose by 12 per cent during the first four months of 2001 (US$11 billion), compared to the corresponding period in 2000. It is noteworthy that tax contributions by foreign affiliates accounted for 18 per cent of the country’s total corporate tax revenues in 2000 (US$27 billion) harvesting some of the benefits created by some $15 billion of annual average FDI inflows during the first half of the 1990s. It is also noteworthy that the portfolio of FDI in China has been broadening over the past years. In its effort to become a member of WTO, China is considering to adopt a number of new policy measures relating to FDI. China is also in the process of formulating policies to encourage cross-border M&As.
• Inflows into South-East Asia (ASEAN-10) remained below the pre-crisis level. The subregion’s share in total FDI in developing Asia continued to shrink, from over 30 per cent in the mid-1990s to 10 per cent in 2000. This was largely due to significant divestments in Indonesia since the onset of the financial crisis.
• FDI inflows into South Asia remained almost the same in 2000, still below the 1997 peak level. India, the largest recipient in the subcontinent, received US$2.3 billion.
• Inflows into the least developed countries of the region, which traditionally depend heavily on FDI from their neighbours, remained at very low level.
Outward FDI from the region doubled in 2000, to a record level of $85 billion. Hong Kong (China), with US$63 billion outflows, continued to be the single largest investor of the region.But FDI from China and India is also rising.
A new pattern of flows in terms of source and destination countries is emerging. TNCs from Hong Kong (China), Singapore and Taiwan Province of China have been very active over the last two years, but with their investments mainly focused on North-East Asia. Other Asian TNCs, particularly those based in the Republic of Korea and Malaysia, are gradually resuming their overseas business operations. In the meantime, outward investment from China and India is gaining momentum. Faced with growing protection against its exports and excess productive capacity in low value-added but export competitive industries, Chinese TNCs engaged in «barrier-hopping» outward investment, usually in the form of «investment in kind». Furthermore, the deepening economic integration of Hong Kong (China) and Mainland China led to a significant increase of outward investment from the Mainland to Hong Kong over the past two years, accounting period for about 20 per cent of the total FDI inflows to Hong Kong. Most recently, Indian TNCs began asset-seeking investment via cross-borer M&As, particularly in the software industry in countries such as the United Kingdom and the United States.
The longer-term investment prospects for developing Asia remain bright. In addition to the quality of the underlying determinants for FDI, the intensified efforts of further economic integration in various dimensions is likely to boost FDI in the region.
This article is prepared on the basis of the materials from World investment report 2001 issued by United Conference on Trade and Development.
Table of contents
Eurasia Economic Summit 2002 Thierry Malleret
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Kazakhstancaspishelf: an Example of Successful International Co-operation in the Oil Industry Duzbayev Satybay
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The Evolution of the Tax Framework for Mining in Kazakhstan Roza Kinchinbayeva
The Arbitration Award and Finality and Enforcement of the Award - an Introductory Overview Annette Magnusson
Phases in the Development of Arbitration in Kazakhstan Peter Greshnikov, Igor Greshnikov
Kazakhstan's Hospitality Industry: Problems and Outlook Rosa Rayeva, Rashida Shaikenova