FDI flows to decrease this year

As the UN releases its World Investment Report, Afghanistan prepares for war

Global flows of foreign direct investment in the year 2000 soared by 18 percent to a record 1.3 trillion USD. That means that many more companies were investing beyond the territory of their home country. However, this year the trend is expected to be reversed, according to the World Investment Report 2001 presented by the United Nations Conference on Trade and Development. The report was presented in 70 cities around the world, including the Czech capital Prague, on Tuesday. Vladimir Tax has the details.

The World Investment Report predicts that foreign direct investments, or FDIs, are likely to decline 40 percent this year to 760 billion USD. This would represent the first drop since 1991 and the most significant fall for three decades. However, the level of foreign investment in Central and Eastern Europe is expected to buck the trend and remain stable.

According to the director of the UN Information Center in Prague, Andreas Nicklisch, flows of foreign direct investment are very unevenly distributed on the global scale, including the region of Central and Eastern Europe.

"In this region, the inflows are very uneven. Two thirds of the investment flows are absorbed by three countries alone, and these countries are Poland, the Czech Republic, and the Russian federation."

At present, most foreign direct investments in the region are the result of privatization of companies in the wake of the fall of communism, but in the more advanced transition economies, this process is nearly complete.

"Advanced economies, like the Czech Republic, which is already quite advanced in its transition and privatization efforts, will see by 2002 an end of these privatization-related inflows and that will, of course, change the pattern of FDIs in the Czech Republic, which would then be driven mainly by cross-border mergers and acquisitions and green-field investment."

So, what is the outlook for the Czech Republic in the coming years?

"The situation which will prevail in the Czech Republic in two years will probably be similar to that which is prevailing now in Hungary. That is you will still have a relatively high level of foreign investment, however, the growth rates will not be as steep as they were before. As to the decline expected next year, and the effect of the dramatic events in New York, nobody will really know that. I think these effect will be seen but they will probably be short-lived. What is more important is the general development of the world economy which now is in its downturn. I think in the medium term, I think we have no reason to be very optimistic."

But despite Mr Nicklisch's pessimism, the report does have some positive longer term signals for transitional countries like the Czech Republic. Leading companies in Central and Eastern Europe are themselves rapidly becoming established players in the global investment arena. Last year saw an increase in the level of worldwide investment by companies based in the region, as they grew in confidence and influence. In fact, their own investments abroad grew faster than the influx of investment into the region.