Falling foreign investment to developing nations to worsen, warns UN official

UNCTAD Secretary-General Supachai Panitchpakdi

4 May 2009 – Last year’s slump in companies investing in businesses abroad is likely to fall further before recovering in two years, hitting developing countries particularly hard in the meantime, the chief of the United Nations Conference on Trade and Development (UNCTAD) warned today.

The global meltdown in economic and financial markets slashed foreign direct investment (FDI) by some 15 per cent in 2008, and UNCTAD Secretary-General Supachai Panitchpakdi said FDI may continue its downward trend this year.

“Very little has been said about the impact of the crisis on investment,” said Mr. Supachai at the start of a week-long conference on FDI trends in the developing world.

“You cannot have recovery without going into new investment, new employment,” he added, underscoring the need to “clean up” the financial sector around the world to support new rounds of investment.

He also warned participants of the first meeting of UNCTAD's new Investment, Enterprise and Development Commission that the decline in FDI will be far deeper this year.

According to the UNCTAD World Investment Prospects Survey 2009-2011, some 80 per cent of executives of transnational corporations surveyed anticipated cutbacks in FDI in the short-term but a return to more healthy flows in 2011.

“There are indications that a deep decline will take place with a great degree of variation between countries and regions,” said the head of UNCTAD. Among the signals are the declining profits reported by businesses and limits on resources as banks struggle to cope with heavy losses and continue to rid themselves of toxic assets.

“No new borrowing, no new flows of funding mean little new investment internationally,” he added.

Mr. Supachai also warned that “green shoots” signaling economic recovery in the stock markets of developed countries may lead to the dangerous impression that that crisis is over.

Developing countries “must not be forgotten,” he said. “They might not go through the same door. It might turn into a debt crisis for developing countries. To stimulate their economies [and to] keep going, they might have to go into debt. We need an exit strategy.”

He added that UNCTAD will fulfil a request made at the G-20 Summit in London last month that it monitor government measures to respond 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.”

Despite the bleak situation, there are opportunities for investment now for firms that have cash, as asset prices are cheap, and new, energy- and environment-related industries can be expected to develop, he stressed.

Source: UN News Centre