21/06/2007 - Foreign direct investment (FDI) into OECD countries in 2006 reached its highest level since 2000 and the near-term outlook for FDI remains strong, buoyed by high corporate profits, low interest rates and robust macroeconomic growth. A new OECD report, Trends and Recent Developments in Foreign Direct Investment, forecasts FDI in its 30 member countries to increase by a further 20% in 2007.
Inward FDI rose 22% to USD 910 billion in 2006, up from USD 747 billion in 2005 and USD 491 billion in 2004, according to the latest estimates from the OECD.
The United States was by far the world’s largest recipient of FDI in 2006, attracting USD 184 billion from OECD countries. This is the largest amount of direct investment in the US economy since 2001, in part due to a decline in the exchange rate value of the US dollar. Most of this FDI went into takeovers of existing firms, while greenfield investment accounted for just USD 14 billion.
FDI in 2006 was lifted by a small number of very large cross-border mergers and acquisitions (M&As). The biggest five such transactions, valued at close to USD 120 billion, involved takeovers in the UK service sector (USD 54 billion), Canadian mining (USD 34 billion) and the Luxembourg steel industry (USD 32 billion).
France, Greece, Iceland, Poland, Slovak Republic, Switzerland and Turkey also recorded their highest-ever FDI inflows in 2006. These records to some extent reflect cross-border takeovers, but to a greater extent represent additional investment by foreign companies that were there already.
The United States was also the leading foreign investor in OECD countries, with USD 249 billion, followed by France with USD 115 billion. About one-third of this investment abroad by French firms was accounted for by five big M&As, including Alcatel’s acquisition of US-based Lucent and AXA’s takeover of Swiss insurer Winterthur.
Outside the OECD area, one of the most important trends is the emergence of a number of major international investors domiciled in developing countries. For instance, in 2006 India’s Tata Steel bought the Anglo-Dutch Corus to create the world’s fifth-biggest steel firm while Brazil’s CVRD became the world’s second-largest mining company by acquiring Inco of Canada.
Looking ahead, the report notes the potential impact on FDI of growing public concerns about the impact of globalisation. Business allegations of cross-border investment being dissuaded by hostile attitudes in the host country have also become more frequent. On balance, however, it finds that the negative political undercurrents have not yet translated into a slowdown of direct investment flows.
(In addition to greenfield investment and mergers and acquisitions, FDI includes reinvested earnings, cross-border loans and capital transactions between related firms. Exchange rate fluctuations had some impact on FDI accounting in 2006, as global flows are measured in US dollars the international value of which was low this year.)
The report is available on the OECD’s website at http://www.oecd.org/dataoecd/62/43/38818788.pdf and will be included as a chapter in the upcoming annual publication OECD International Investment Perspectives, due out in September 2007.
For further comment, journalists are invited to contact Hans Christiansen, Senior Economist in OECD’s Investment Division, which serves as secretariat to the OECD Investment Committee (tel. + 33 1 45 24 88 17).