Foreign direct investment lags despite recovering world economy – UN report

26 July 2011 – Global foreign direct investment (FDI) inflows rose only modestly last year, United Nations trade and development body said in a report released today, noting that foreign investments have continued to lag behind recovery in industrial output and international trade.

Global industrial production and world trade are already back to levels that prevailed before the onset of the global financial crisis in 2008, according to the latest World Investment Report prepared by the UN Conference on Trade and Development (UNCTAD).

However, FDI flows at the end of last year were still below their pre-crisis average and far below their peak in 2007, according to the report, which, however, predicts that the recovery in direct foreign investment will continue in this year and return to the pre-crisis average.

Investment promotion and facilitation have remained the dominant element in recent national investment policies, the report points out. Nonetheless, the risk of investment protectionism has increased as restrictive investment measures and administrative procedures have accumulated over the past few years.

The international investment regime has been growing rapidly, with three international investment treaties signed per week, a development that poses challenges for both countries and business, according to the report, whose theme this year is “Non-Equity Modes of International Production and Development.”

The report presents original, “ahead-of-curve analyses” on why and how non-equity modes (NEMs) such as contract manufacturing, services outsourcing, contract farming, franchising and licensing are increasingly used by trans-national corporations in managing their global value chains.

NEMs – which allow an owner to enter a new market in less direct ways such as through the licensing of a logo or by exporting goods for distribution – represent a highly significant “middle way” between FDI and trade which, among others, shapes patterns of international trade and trajectories of development, according to the report.

Last year, cross-border NEM-related activities generated over $2 trillion in sales, with such enterprises employing 14 to 16 million workers in developing countries. In some industries they accounted for 70 to 80 per cent of global exports.

The report also examines the catalysts behind the rise of NEMs, their scale and scope and development impact, and their policy implications.

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