Deep Investment Decline Foreseen for Developing Countries (1 of 2)

Geneva, Switzerland | May 22, 2009 by D-8 Secretariat

Foreign direct investment (FDI) plans indicate a drop over the short term, with recovery perhaps coming in 2011

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.

UNCTAD Secretary-General Supachai Panitchpakdi told the first session of UNCTAD´s new Investment, Enterprise, and Development Commission that interviews with the executives of transnational corporations on their foreign direct investment (FDI) plans indicate a drop in FDI over the short term, with recovery perhaps coming in 2011. The decline is likely to be steep for developing countries, he said.

In international discussions on the global economic downturn, “Very little has been said about the impact of the crisis on investment,” the Secretary-General noted. “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. Panitchpakdi said, adding that great variations can be expected between countries and regions.

Global FDI peaked in 2007 at a record US$1.9 trillion. It fell by roughly 15% last year, but most of the brunt was borne by advanced economies. Developing countries overall still experienced a slight increase in 2008. This year, Mr. Supachai said, the FDI decline will spread to the developing world even as there is talk of “green shoots” of economic recovery elsewhere.

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.

“We need an exit strategy,” he said. 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.”

Mr. Supachai said UNCTAD will respond to a request from the recent G-20 summit in London and will monitor government measures responding 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.

He urged the commission, which meets through 8 May, to consider how reforms to the international financial system - long recommended by UNCTAD - might apply to foreign investment. He said the gathering also should “prepare for the post-crisis global economy, in which new sectors and a new geography for FDI will likely emerge.”

Source: UNCTAD

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