Foreign investment rises in developing countries

Developing countries are attracting more foreign investment than ever before, according to the latest report from the United Nations Conference on Trade and Development’s (UNCTAD).

UNCTAD’s World Investment Report claims that global flows of foreign direct investment (FDI) rose +29% in 2005 from a year earlier to US$ 916 billion, with FDI in some developing regions at record highs. “We are witnessing shift in the world economy, with some developing countries gaining economic and political weight,” said UNCTAD secretary-general Supachai Panitchpakdi in a statement.

The boom is being fed by rapid economic growth, especially in China and India, high prices for raw materials, and the increasing liberalisation of the economy in many developing countries, which has made investment easier.

According to the report, many of Africa’s poorest nations failed to benefit from FDI last year dispite a record US$ 31 billion going into the region, a rise of +78% from the year before. The rise was attributed to sharp increases in commodity prices, according to the report. However, the benefits of the increased investment were spread unevenly across countries and industries, with South Africa receiving 21% of the region’s total FDI.

While countries such as Egypt, Nigeria and Tunisia received close to 86% of the African FDI total, levels of investment remained below US$ 100 million for many of the least developed countries. A growing problem in many of these countries, UNCTAD said, was the nationalisation of resources.

For developing economies, direct investment has long been seen as the most reliable source of foreign capital, and likely to stay in the country even during times of financial crisis.