FDI flow expected to decline this year

       The international investment that many developing countries rely on for growth was unlikely to rebound fully for two years or more, the United Nations trade and development agency said.
       In a report, UNCTAD said all regions would get less foreign direct investment (FDI) in 2009 as a result of the financial crisis that has hit private equity firms hard and caused big companies to cut their spending.
       The world's 82,000 multinational firms "appear hesitant and bearish about expanding their international operations,"it found, estimating that global FDI inflows fell 44% in the first quarter of 2009 year-on-year.
       "Global FDI prospects are set to remain gloomy in 2009, with inflows expected to fall below $1.2 trillion,"UNCTAD said."However, recovery of these flows is expected to begin slowly in 2010 to reach up to $1.4 trillion, and will gather momentum in 2011 when the level could reach an estimated $1.8 trillion."
       The 2009 forecast is well below 2008's $1.7 trillion, which was in turn down 14% from the 2007 peak of $2.0 trillion.
       "In the short run, with the global recession expanding into 2009 and slow growth projected for 2010, as well as the drastic fall of corporate profits, FDI is expected to be low," it said.
       FDI measures investment of foreign assets in structures, equipment and organisations, but excludes foreign money invested in stock markets. Many economists regard it as more effective than aid money because it serves a productive purpose.
       The credit turmoil and resulting global recession caused a sharp pull-back in international investments, affecting primarily developed markets at first, the UNCTAD report said.
       Developing nations "weathered the global financial crisis better" in the first half of 2008 because their banking systems were somewhat distanced from US and European markets and because rising commodity prices buoyed their growth.
       Africa posted a 27% jump in FDI in 2008 from 2007, Asian developing economies had a 17% rise to a new high of $298 billion, and Latin America and the Caribbean recorded a 13% increase,UNCTAD said.
       But it said the recession had since decreased appetite for exports and made it harder for "structurally weak economies" to attract investment from abroad."In 2009 FDI flows to all regions will suffer from a decline," it said.
       Earlier this month, UNCTAD rattled foreign exchange markets by saying in its annual Trade and Development Report that countries should consider using several currencies rather than just the US dollar for a new world reserve system.
       That report said there would be no early economic recovery and warned any move to ease back quickly on government stimulus programmes could worsen the crisis.