World buys US, China buys world

By Abid Aslam

WASHINGTON - The United States has reemerged as the world's premier destination for foreign investors but could face stiffer competition for foreign assets from China and other developing economies, a UN report says.

Foreign investment in the United States grew by 74% to US$175.4 billion in 2006, almost twice the global growth rate of 38 %, the UN Conference on Trade and Development (UNCTAD) said in its 2007 World Investment Report.

US assets thus attracted more than one-tenth of the $1.3 trillion in foreign direct investment inflows worldwide, UNCTAD said. Flows to the advanced economies rose by 45% to $857 billion. Investments in developing and former Soviet bloc countries rose by 21% (to $379 billion) and 68% (to $69 billion), respectively.

Last year's total was the highest since 2000, when the amount of foreign corporate money flowing into all countries peaked just above $1.4 trillion before technology stocks began to tumble. Terrorist attacks in the United States the following year added to a worldwide slowdown.

China saw its inflows fall for the first time in seven years to $69.5 billion from $72.4 billion in 2005, UNCTAD said. China's investments in the rest of the world surged, however. Its state-owned and private companies poured $16.1 billion into foreign assets last year, up 34 % from $12 billion the previous year.

Chinese firms' foreign holdings seem likely to rise further, UNCTAD said.

Last month, China launched a $200 billion investment fund that could come to rival US investments in the rest of the world. Last year, US corporations bought up foreign assets worth $216.6 billion.

South, Southeast and East Asian firms' investments in other regions swelled by 60% to $103 billion last year, equivalent to slightly more than half of the record $200 billion invested in the region by foreign firms.

Most corporate money - including most Asian investment overseas - flows into the US and European economies. However, China, India, and other rapidly growing Asian economies in need of energy and metals have fueled an investment boom in Africa.

Corporate money flowing into the continent doubled between 2004 and 2006 to a record $36 billion, the report said. Asian firms generated more than a quarter of the total and look poised to increase their share. This is no mean feat since most of them are tiny compared to US and European counterparts and most are newcomers to a continent dominated by Western investors since colonial days.

About half the total went to cross-border mergers and acquisitions and the other half was plowed into so-called greenfield investments, such as new factories or mines built from scratch. Transnational corporations from Asia accounted for half of the mergers and acquisitions.

Eight billion dollars, or more than one-fifth of all foreign investment in Africa, went to the continent's least developed countries last year, reversing a two-year decline. The largest increases took place in Burundi, Djibouti, Guinea-Bissau, Somalia, Madagascar, Ethiopia, Cape Verde, Gambia and Sudan.

"The commodities boom should provide opportunities for development and poverty alleviation in mineral-exporting countries," UNCTAD said. Results so far have been mixed and a number of countries are seeking to reduce foreigners' stakes in local companies or to increase the share of revenues that foreign firms must reinvest locally or share with host governments.

"Ultimately, the overall impact of revenue generated will be determined by the way it is shared between the foreign companies and the host country, and on how government's portion of the revenue is managed, distributed, and used," the report said. "Funds should be used to support development objectives and the needs of current and future generations," it added.

For their part, African firms invested a record $8 billion overseas, up from $2 billion in 2005.

Foreign investment in Latin America and the Caribbean rose by 11% to $89 billion but most of this went to the region's offshore financial centers. Outflows from Latin America and the Caribbean, excluding those from offshore financial centers, rocketed to $43 billion in 2006, an increase of 125% over the previous year. Brazil led the outward charge with $28 billion invested overseas - a mammoth advance over $3 billion the previous year and enough to exceed inbound investments for the first time.

Southeast Europe and the Commonwealth of Independent States received $69 billion in foreign investment last year, a 68% rise, while investing $19 billion overseas, a 27% increase driven mainly by Russian firms.

West Asia - a 14-country demarcation broadly consistent with what is called the Middle East - saw a 44% rise in inflows to $60 billion while investing $14 billion overseas, 5% more than in 2005, UNCTAD said.

Seven of the world's top 20 investment hosts are in developing regions. They are China, Hong Kong, Russia, Singapore, Turkey, Mexico, Brazil, and Saudi Arabia.

Three of the top 20 sources of foreign investment come from developing regions: Hong Kong, Brazil and China.

Global firms from advanced economies generated 84% of all outward investment in 2006, with the remaining 16% coming from corporations based in developing regions and the former Soviet Union, UNCTAD said.

(Inter Press Service)