Follow the money
UNITED NATIONS Ñ Global foreign investment continues to fall as the world economy feels the continuing pinch of recession. Nonetheless despite remarkable declines over the past few years, a rebound is predicted by 2004. ThatÕs the prognosis by the UNÕs Conference on Trade and Development (UNCTAD) in the newly published World Investment Report 2003. This reflects increasingly positive economic trends in the U.S., which point to an end to the lingering economic recession.
Global foreign direct investment (FDI) flows, already down by 40 percent in 2001, fell by another 21 percent last year. Declines are blamed on what UNCTAD calls Òthe most significant downturn of the past three decades;Ó a combination of weak global economic growth, a slump in economic activity, and tumbling stock markets. Major economic stagnation in Japan and downturns in Germany and France have deepened the problem.
As an FDI recipient, the US lost its lead position and ranks fourth among the top developed countries with a $30 billion investment inflow. Conversely the US is expected to produce the largest source of FDI outflows in the coming years.
Investment into Latin America declined yet further with FDI into Mexico plunging from $25 billion in 2001 to $14 billion in 2002. Argentina, saw investment inflows virtually disappear from the vibrant numbers of a decade ago.
Though China has seen an overall investment decline, the PeopleÕs Republic ironically still leads the list as the largest recipient of FDI capital flows among developing countries. For example in 2002, PRC ranked second worldwide (only to Luxembourg banks) as the primarily destination for $53 billion. Combined with Beijing-ruled Hong Kong with over $12 billion, the PeopleÕs Republic leads the list.
Interestingly by comparison, high-cost and hyper-regulation France attracted $52 billion, while Germany garnered $38 billion. The USA attracted $30 billion. Interestingly both Ireland with a population 4 million attracted $18 billion and Finland with 5 million attracted $9 billion Ñ extraordinary sums for relatively small countries.
Brighter skies covered Central Europe though, with investments reaching a new high of $29 billion. Interestingly business privatization in former communist regimes has led to strong investment flows. The Czech Republic, Hungary, Poland, Slovakia, and Russia are the major beneficiaries. The World Investment Report stresses that the enlargement of the European Union (EU) in 2004 presents a key development serving as a magnet for foreign business investment.
As the report states, in the countries set to join the EU in next year, Òactivities based on unskilled labor are already being shed in favor of higher-value-added activities, taking advantage of the relatively high educational levels of the local labor force.Ó
Naturally each of the countries has its own unique competitive advantage. Communist China offers virtually unlimited labor, substantially lower wages, no trade unions, and flimsy environmental regulations. Ireland and Finland offer a niche of highly educated and skilled but a regulated and pricey work force.
America faces a particular challenge as industrial jobs continue their generation long hemorrhage. Stated bluntly, the proverbial shoe factory which left Massachusetts in the 1960Õs went perhaps first to the Carolinas, then to Brazil in the Ô70Õs, on to China in the Ô80Õs, and now likely operates in Indonesia.
The once American-produced electronics which are stereotypically ÒMade in Japan,Ó were probably actually made in Taiwan twenty years ago, and then quietly went to Malaysia. Back office for the firm is likely run out of Bangalore in India as likely as it is out of Buffalo.
ItÕs called globalization Ñ we donÕt have to embrace it, but we sure have to face it.
John J. Metzler is a U.N. correspondent covering diplomatic and defense
issues. He writes weekly for World Tribune.com.
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