US is still the largest recipient of Foreign Direct Investment

GLOBAL foreign direct investment (FDI) grew 30% last year, reaching a record level of $1,83-trillion.

The flows were largely driven by increased cross-border merger and acquisition activity, the United Nations Conference on Trade and Development (Unctad) said in its annual world investment report, released yesterday.

The global financial crisis had not affected investment flows last year, but as the turmoil reaches boiling point, clobbering investment confidence and drying up liquidity, investment activity is expected to hit the skids with the robust FDI flows of last year expected to crimp 10% this year.

However, sovereign wealth funds — state-owned investment funds — may prove to be a buffer in leaner times.

These funds have emerged as new actors in the global investment scene.

While only 0,2% of the $5-trillion under their management were FDI-related, sovereign fund investment activity has risen sharply in recent years, with $31bn of the $39bn invested by sovereign funds over the past twenty years, having been committed in the past three years.

Developed countries received the bulk of FDI flows — $1,2-trillion — with the European Union attracting almost two thirds of inflows, while the US maintained its position as largest recipient country.

Developing countries however also made strides.

FDI flows into developing countries reached their highest level ever, climbing 21% to $500bn last year.

While investment in sub Saharan Africa also saw robust growth, it accounted for a marginal 3%, or $53bn, of total investment flows.

Unctad representative, Kalman Kalotay, who presented the findings of the report from Geneva, however, said sub Saharan Africa’s portion of global flows had increased from a mere 1% five years ago, which meant the region was seeing modest gains.

The improvement was driven by the spike in the commodities market and more FDI-friendly policy changes.