UNCTAD RELEASES WORLD INVESTMENT REPORT 2004
While global direct investment flows fell last year for the second year in succession, flows into developing economies rose by 9% with Asian and African economies seeing the greatest gains. The eight EU accession countries experienced a sharp decline in foreign direct investment, as did Russia, where incoming investment flows more than halved since 2002. The overall share of Developing countries increased their share of global foreign direct investment by 8%, reaching 31% of the total.
UNCTAD also notes that there has been a substantial shift in the composition of FDI, from production to services. Services represented an average of around 25% of flows in the 1970s. Thirty years later, that figure is closer to 60%. Furthermore, there has been a broadening out within the services sector from a tight reliance on finance to incorporate a wider array of business services. Offshoring and outsourcing are clearly identified as having played important roles in these developments.
The UNCTAD report focuses closely on the topic of offshoring devoting a chapter to analysing progress in that area. According to Karl Sauvant, director of the Investment, Technology and Enterprise Development Division at UNCTAD in Geneva the rapid development of offshoring represents what he calls "The manifestation of what we call the tradability revolution." Adds Sauvant, "There is an underlying revolution in the ways that services can be produced and consumed. That opens the possibility of there being an international division of labour in the production of services on a scale that is quite large."
The increased tradability of services presents an opportunity for developing countries to attract the capital, skills and technology needed to establish globally competitive industries. Nevertheless, the UNCTAD report emphasises that governments need to strike the right balance between economic efficiency and developmental objectives. Not all services work under the laws free competition and natural monopolies such as roads or railways are susceptible to abuses of market power. Countries have to generate the right mix of policies, attracting services foreign investment, while at the same time minimizing its potential negative effects.