Foreign direct investment (FDI) grew in 2006 for the third consecutive year to reach 1.2 trillion US dollars according to initial estimates released Tuesday by the United Nations, which also warned that economic growth is likely to slow this year because of high commodity prices and other factors.
"The total [of $1.2 trillion] is a 34% increase from 2005, although still short of the record of $1.4 trillion set in 2000. The continued rise in FDI largely reflects high economic growth and strong economic performance in many parts of the world. Such growth has occurred in both developed and developing countries," said the UN Conference on Trade and Development (UNCTAD). Predicting a moderate slowdown, UNCTAD said, "Continuing global external imbalances, sharp exchange rate fluctuations, rising interest rates, and increasing inflationary pressures, as well as high and volatile commodity prices, pose risks that may also hinder global FDI flows and could lead to a slowdown in the fast growth in global FDI registered over the past few years." UNCTAD said FDI inflows last year "varied greatly" among regions and countries, noting for example that investment to developed nations rose by 48%, well over the levels of the previous two years, to reach 800 billion, while inflows to Latin America and the Caribbean slowed. Total FDI in 2005 was 916 billion US dollars. FDI inflows to South, East and South-East Asia, and Oceania maintained their upward trend in 2006, reaching a new high of 187 billion, an increase of 13% over 2005, UNCTAD said, noting in particular the increasing attractiveness for investors of China, Singapore and India. "Investments in high-tech industries by transnational corporations are growing rapidly, particularly in China. Meanwhile, other countries, including India, are attracting increasing FDI for traditional manufacturing." The report also cites a shift in favor of South and South-East Asia. China, Hong Kong (China) and Singapore are the three largest recipients of FDI in the region. India surpassed the Republic of Korea to become the fourth largest recipient. UNCTAD said that outward investment from this region also increased last year, noting that China had consolidated its position as an important source of FDI, while India is also rapidly catching up, with 2006 FDI outflows almost doubling. China and India are challenging the dominance of Asia's newly industrializing economies as the main sources of FDI in the developing world, it added. (UN).