Kathmandu, January 22:

Global foreign direct investment (FDI) inflows have fallen by 21 per cent in 2008 to an estimated $1.4 trillion, and will likely fall further in 2009, according to new estimates released by UNCTAD.

In the face of global economic recession, tighter credit conditions, falling corporate profits, gloomy prospects and uncertainties for global economic growth, many companies have announced plans to curtail production, lay off workers and cut capital expenditure, all of which tend to reduce FDI. “The impact of the crisis varies widely depending on region and country, with consequently varying impacts on the geographic patterns of FDI flows,” said the report.

The current situation is different from the last financial crisis, which originated in developing Asian countries in 1997 and had a significant negative influence on FDI flows. By contrast, the current crisis began in the developed world, although it is rapidly spreading to developing and transition economies. Developed countries have been directly hit, while the effects of the crisis on developing economies have so far been indirect in most cases, with varying degrees of severity. This has affected the patterns of FDI location and FDI flows, according to UNCTAD.

Preliminary data for 2008 indicates that for many developed countries, FDI flows have fallen, mainly as a result of the protracted and deepening problems affecting financial institutions and as a result of liquidity crisis in the money and debt markets. Preliminary estimates show a decline of about 33 per cent from flows in 2007 for this group.

In developing and transition economies, preliminary estimates suggest that FDI inflows have been more resilient, though the worst impacts of the global economic crisis had still, at year’s end, to be fully transmitted to these countries. The growth rate of FDI inflows to developing countries, while lower than in 2007 — when it exceeded 20 per cent — should still have remained positive for 2008 at an estimated four per cent.