Where the Money Went in 2007

The long-term investments that corporations made transnationally (which economists term foreign direct investment, FDI for short) rose in 2007 to a record $1.5 trillion, breaking the previous record of $1.4 trillion in 2000. The figure reflects "inflows" into countries rather than "outflows" because the latter are considered "distorting" by economists. One major distorting factor in outflows is the money laundered annually from the world's criminal economy, which includes everything from tax evasion to drug running, arms trafficking, and the trade in women and children for sex; it is estimated to be $2 trillion, so you can see why economists prefer to hear, see and speak no evil.

All categories of countries -- developed, developing and the former communist countries of Eastern Europe (now known as South-East Europe and the Commonwealth of Independent States) -- saw unprecedented FDI inflows according to the UN Conference on Trade and Development (UNCTAD).

FDI in developed countries totaled $1 trillion, with the major beneficiaries being Britain, France, and the Netherlands. The United States remained the largest single FDI recipient, but collectively the European Union (EU) outweighed it, attracting almost 40% of all FDI inflows in 2007.

More than half of FDI to developing countries went to South, East and South-East Asia, and Oceania, reaching a new high of US$224 billion, an increase of 12% over 2006. China and Hong Kong (China) remained the two largest recipients in the region despite a slight dip in their share. In West Asia, inflows declined by 12%, mainly because of "geopolitical uncertainty." Flows into Latin America and the Caribbean also rose to a new record: $126 billion. Brazil, Chile and Mexico saw a doubling of inflows. New investments and expansion of capacity (rather than the merger of existing companies) were responsible. Consolidation in the banking, mining and ancillary industries raised FDI flows to Africa to an unprecedented $36 billion. Egypt, Morocco, and South Africa were the main beneficiaries.

FDI to South-East Europe and CIS rose 41%, to a new record of US$98 billion, with the Russian Federation the largest recipient. Investments in resource-rich countries in Central Asia accounted for some the inflows but the most important factor was the privatization of State-owned enterprises.

UNCTAD expects FDI to continue growing in 2008 because of investments driven by high demand for natural resources around the world. However, it cautions that "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 have a chilling effect on global FDI flows."

There is very little analysis of what all these figures mean. More on that in a later post.