Foreign direct investment - cross-border purchases of hard assets, like factories or hotels, as opposed to stocks or bonds - increased 2 percent worldwide last year, reaching $648 billion, according to the U.N.'s World Investment Report. The increase was most pronounced in Asia and Latin America, both of which saw 45 percent increases in direct investment inflows.

By contrast, FDI in the developed world fell 14 percent. In Africa, it remained stable at around $18 billion.

"It's a positive for the global economy, meaning that businesses are increasingly optimistic about prospects for doing business around the world," Mark Zandi, chief economist at Economy.com, told United Press International.

"If they're investing around the world, it means they're confident they'll be able to sell what they produce. So it's a very positive development, particularly given that investment in the developing world picked up so significantly."

FDI is used as a proxy to measure levels of globalization and market integration, Georg Kell, executive director of U.N. Global Compact, told reporters Wednesday at a news conference where the report was released.

"Having a look at the trends and flows and stocks of foreign direct investment tells us about how the world is changing and it shows ... where economic activities are migrating to and why," he said.

Michael Moran, chief economist with Daiwa Securities, who stressed he hadn't seen the report, said while investments in hard assets may be increasing in developing countries, investments in stocks, bonds, or bank accounts might be flowing in the other direction.

"If you were seeing a big movement in the direction of developing countries, you'd probably see some related currency movement. You'd see some of these currencies strengthen," Moran said. "And we haven't seen major movements on the currency front. So while we may be getting movements in direct investment in the direction of developing countries, we're probably seeing other types of financial flows maybe moving in a different direction."

High prices for oil and minerals fueled FDI in Latin America and Africa. The oil-rich countries of Angola, Equatorial Guinea, Nigeria, Sudan, and Egypt accounted for half of Africa's foreign investment. High prices for minerals such as copper, diamonds and gold are also boosting Africa's investment levels. And China's desire for minerals fueled investments in Argentina, Brazil, Chile and Peru.

Foreign investment in developing countries can vary widely depending on whether government assets are being privatized or a new construction project is beginning. Privatization of the oil company Petrom, for example, spurred Romania's record $5 billion FDI, according to the report. Meanwhile, FDI declined in Ecuador, which recently finished constructing a crude oil pipeline. In Morocco, FDI dropped by more than 50 percent because the country slowed its privatization program.

"If privatization comes to a halt, you're going to start to see foreign direct investment slow down," Jay Bryson, a global economist with Wachovia, told UPI. "If countries can go the next step and start to become an attractive destination for companies to put assets, then it reflects real progress."

Zandi said privatization and construction projects are a good measure of an economy's underlying strength, despite the volatility they can cause. "Companies wouldn't invest unless they felt confident that they would be able to thrive in those economies down the road," he said.

None of the economists interviewed for this article had seen the full report.

The Asia and Oceania region attracted $148 billion of foreign investment last year, a 45 percent increase over the previous year, according to the report. FDI reached $35 billion in southeast Europe and the Commonwealth of Independent States, which includes Russia and the former Soviet Republics, an increase of 46 percent.

In the developed world, however, a 36 percent drop in the European Union was only partially offset by increases in the United States, Australia and Japan.

FDI in Latin America and the Caribbean increased 44 percent to $68 billion thanks largely to economic recovery in the region, the report said. But inflows were still below levels reached in the late 1990s.

In Africa, FDI remained at the relatively high level it reached in 2003, which was a 40 percent increase over the previous year. But Africa still represents a tiny portion of worldwide investment flows. "It reflects the limited participation of Africa in the world economy," Kell said.

Some developing countries are starting to become investors themselves. China, India, Russia, Malaysia, Brazil, Mexico, South Africa, and Turkey will "play a completely different role in international business" in five to 10 years, Kai Hammerich, director-general of Invest in Sweden, told reporters at the news conference. Asia is emerging as an important source of investment funds; led by Hong Kong, the region's outward investment flows quadrupled to $69 billion.

All rights reserved. � 2005 United Press International. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by United Press International.. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of United Press International.

Related Links
SpaceWar
Search SpaceWar
Subscribe To SpaceWar Express

Thanks for being here; We need your help. The SpaceDaily news network continues to grow but revenues have never been harder to maintain. With the rise of Ad Blockers, and Facebook - our traditional revenue sources via quality network advertising continues to decline. And unlike so many other news sites, we don't have a paywall - with those annoying usernames and passwords. Our news coverage takes time and effort to publish 365 days a year. If you find our news sites informative and useful then please consider becoming a regular supporter or for now make a one off contribution.
SpaceDaily Contributor $5 Billed Once credit card or paypal		SpaceDaily Monthly Supporter $5 Billed Monthly paypal only