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Commonwealth Developing Countries Can Harness Their Potential to Attract Foreign Investment

29 September 2005

 World Investment Report
 
The United Kingdom has emerged as the top Commonwealth country in attracting foreign direct investment (FDI). It also performed ahead of other countries in the European Union. The latest statistics in the 'World Investment Report 2005' published by the United Nations Conference on Trade and Development (UNCTAD) listed the UK as the second largest recipient of FDI in 2004 at $78 billion. The United States led the way with $96 billion in FDI inflows, with China in third place at $60 billion. Other Commonwealth countries included Australia in fifth position, attracting $43 billion in FDI; Singapore in 13th position with more than $15 billion in investments; and Canada at close to $10 billion.

The World Investment Report launched in Geneva on 29 September 2005 noted that the increase in FDI to the UK was brought about by the rise in large company mergers and acquisitions.

The UK also ranked second in FDI outflows with about $65 billion in 2004, and the US was once in the lead with an estimated $230 billion. Luxembourg was the third largest source of foreign investment outflows. Other Commonwealth countries which have emerged as important sources of FDI were Canada, in sixth place with some $50 billion in FDI outflows; Australia in 12th position with more than $15 billion being invested outside the country; and Singapore in 14th position with a little over $10 billion.

Africa, which was a focus of the G8 Summit at Gleneagles, UK, in July 2005, did not attract an increase in capital inflows between 2003 and 2004. Its FDI remained stagnant at $18 billion. Nigeria was among the top five recipients of FDI inflows in Africa, which received most of the continent's investment from Europe, as well as from the US and South Africa.

Commonwealth Secretary-General Don McKinnon said developing countries should capitalise on their natural and human resources to meet the growing demands of developed and developing economies. He said the availability of land and labour, coupled with a favourable environment for business, are pull factors for FDI, which can help alleviate poverty.

"FDI that promotes trade and economic growth is essential for a country's socio-economic development, therefore attracting and retaining FDI is crucial, particularly in asset investment. Building up strong FDI inflows is more effective in fuelling growth than for countries to rely on aid and debt relief, which is not sustainable in the long term. But a legal framework, good governance and an investment-friendly climate need to be in place," Mr McKinnon stressed.

The Commonwealth Secretariat has been working to improve the investment capacity and performance of its members through the Commonwealth Private Investment Initiative (CPII), which has mobilised more than $400 million in long-term investment in pre-emerging markets through regional venture capital-type funds in Africa, South Asia, the Pacific and the Caribbean.

Dr Indrajit Coomaraswamy, Director of the Secretariat's Economic Affairs Division, said: "It is a matter of concern for us that the share of global investment of two important Commonwealth constituencies, Africa, and small states -- which make up 32 out of the 53 countries in our association -- have declined in recent years. These countries need to develop the capacity to produce internationally competitive goods and services in order to benefit from globalisation. They cannot do this without improving their investment performance."

CPII is a unique initiative promoting contrarian investments in high risk/high return projects acting to change conventional perceptions of risk in countries often not on the radar screens of private investors. In the process, it has shown the way, built the track record and provided confidence to private investors. Often such portfolio investments lead to FDI through demonstration effect.

 

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