by Gustavo Capdevila

The performance UNCTAD predicts for 2002, in industrialised and developing countries alike, entails a reduction in cross-border investment, although in some cases only movement in one direction -- either inflows or outflows -- will be affected.

In its "World Investment Report 2002: Transnational Corporations and Export Competitiveness", UNCTAD states that the flow of capital to China would likely increase this year, while investment aimed at Argentina, Brazil and Indonesia could be much lower than levels recorded in the peak years, in the 1990s.

The downturn in 2001 "was strongly influenced by the worldwide recession", and by the recession that thrashed more than a dozen countries, including the United States, European Union (EU) and Japan, the three economic powers.

The report, presented Tuesday in Geneva by UNCTAD deputy secretary-general Carlos Fort�n, specified that the Sep 11, 2001, attacks in the United States, which aggravated the economic contraction already under way, probably contributed to the decline in the investment flow.

Nevertheless, several studies that UNCTAD cites in the report maintain that the attacks against New York and Washington had only a modest effect on transnational corporations' plans for foreign investment.

The leading transnationals are forecasting continued expansion focused on activities of production and distribution, says the document.

The preferred destinations of the multinational firms are thought to be the United States, Germany, Britain and France. Also on the list of investment recipients are China, Brazil, Mexico, Hungary, Czech Republic and South Africa.

In spite of these preferences, the decline in foreign direct investment (FDI) has been concentrated among industrialised countries, says the World Investment Report.

FDI in the nations of the industrialised North shrank 59 percent, compared to the 14 percent reduction recorded for the developing South.

In 2001, FDI totalled 735 billion dollars, or a 51-percent decline with respect to the previous year. The outflow of these same investments was 621 billion dollars, or 55 percent less than in 2000.

Of the 735 billion dollars in inflows, the industrialised economies took in 503 billion, the developing world 205 billion, and the transition economies of Central and Eastern Europe the remaining 27 billion dollars.

The figures show that despite the substantial moves toward economic liberalisation in the past decade, developing countries continue to attract less than one-third of the total FDI, notes the UN entity.

The flow of foreign investment in the developing world fell from 238 billion dollars in 2000 to 205 billion in 2001, though the lion's share of the decline was due to the fact that there were fewer recipient countries.

FDI for three countries -- Argentina, Brazil and Hong Kong (which has been reincorporated into China but figures as an independent economy for UNCTAD's purposes) -- was responsible for 57 billion dollars of the fall.

The Geneva-based UNCTAD states in its report that Africa continues to be only a minor recipient of FDI, although the inflow nearly doubled from 9.0 billion dollars in 2000 to more than 17 billion in 2001.

The increase did not reach most of the African countries, however. The difference of some 8.0 billion dollars was in large part aimed at a handful of projects concentrated in South Africa and Morocco.

In relation to the continent's economic size, the two percent of global outflows of FDI it received is not much different from the percentages corresponding to other regions of the developing world of varying sizes.

One noteworthy aspect of the World Investment Report 2002 is the importance that UNCTAD places on the growing role of transnational corporations in a world economy undergoing a process of globalisation.

The document states that 65,000 multinational firms exercise their influence through some 850,000 branch offices around the world and employ an estimated 54 million workers.

The foreign branches of these corporations currently contribute one-tenth of the global gross domestic product and a third of the exports that circulate worldwide.

Among the transnationals there is also an evident trend towards concentration, as the biggest firms dominate the overall picture.

In 2000, the 100 largest non-financial transnationals -- led by Vodafone, General Electric and Exxon Mobil Corporation -- recorded more than half of all sales and of jobs at foreign affiliates among companies of their type.

As a consequence of the major mergers and acquisitions (M&A) that took place in 2000, the employee rolls of the largest 100 transnationals grew 20 percent and their sales rose 15 percent.

But that was the situation prior to the deceleration of the global economy, the dissipation of the stock exchange euphoria surrounding new technologies and the publicity of accounting irregularities committed by an important number of multinational firms.

UNCTAD believes that transnational corporations can contribute to boosting a country's competitiveness.

The success of national industrialisation strategies in several countries, primarily in Asia, combined with measures aimed at attracting multinationals with the development of national firms, should be taken by other countries as a lesson, says the report.

But UNCTAD also believes that countries should maintain "sufficient manoeuvring room" for elaborating their own policies.

As far as government stimuli for investment, the study warns that the intense competition to attract FDI for the export sector could unleash a race to the bottom on social and environmental standards and a policy race to provide greater incentives.

UNCTAD states that promoting foreign investment in export activities should be an integral part of any country's general development strategy.

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