What is the outlook for FDI flows? Are there any grounds for optimism?

VN Balasubramanyam, professor of development economics, Lancaster University Management School

I am optimistic. The present downturn is a reaction to the tumbling stock markets and the reversionary conditions in the major economies. FDI flows to the emerging economies should pick up, growth rates in these countries are picking up and India and China offer large markets.

Fabian Collard, assistant communications manager, Office for Foreign Investors, Wallonia, Belgium

The global economic slowdown has had an effect on all investment in Europe – especially at the beginning of this year – but there are grounds for optimism. We can now see companies looking at restructuring their activities close to their markets. This is where we have to show our cards.

Mike Gooch OBE, inward investment director, South East England Development Agency

The immediate outlook is uncertain but, given the reasonable growth in air travel post 9/11 that demonstrates returning confidence, it is unlikely that there will be a further drop in FDI overseas in the next six to 12 months. Equally well, it would be unreasonable to expect any strong growth and what happens vis-a-vis the US and Iraq will clearly have a major influence.

Mark Hughes, executive consultant, Ernst and Young

There are positives. Mid-term fundamentals will enable returns (trade agreements, privatisation, liberalisation etc). But we need to change our perspective, and the patterns of FDI must grow more diverse. There also needs to be an increase in non-Triad FDI – within region-FDI, for example within central/eastern Europe.

Christina Knutsson, director UK, Invest in Sweden

Globalisation of companies will continue, but at a slower pace. However, companies prepare strategies and position themselves during slow times, hence, FDI flows will see both a shift of geographic location and will continue growing through cross-border relationships and penetration into new markets.

Mehmet Ogutcu, OECD head, non-members liaison group and Global Forum for International Investment

Between 2000 and 2001, FDI flows into and out of OECD countries recorded their largest drop in recent decades. The total amount of FDI in 2000 stood at an all-time historical high, at almost six times the levels recorded only five years earlier.

The decline essentially eliminated two-thirds of the increase by reducing FDI flows to twice the level they had reached in the mid-1990s. In other words, the developments in 2001, rather than a seminal decline in international investment flows, appear to have marked a correction toward more sustainable levels, following what could arguably have been an “investment bubble” in 1999 and 2000.

Declan Murphy, OECD programme director, Investment Compact for South East Europe

While FDI worldwide declined in 2001 and is expected to decline again in 2002 it still remains at substantial levels, exceeding $500bn per year. We need to put in context the diversity and role of private investment worldwide.

Much of the decline is attributable to the reduction in major mergers and acquisitions (for example, telecoms, pharmaceuticals and chemicals, financial services). The worldwide decline in 2001 passed without significant direct impact on transition countries: the overall amount of FDI inflows remained unchanged compared with the previous year but clearly the economic downturn will touch all areas in 2002.

The international environment for attracting investment is becoming more difficult and competing for that investment in 2002 and beyond will be a major challenge. Today, FDI remains, however, the preferred corporate strategy for serving international markets and for the most cost-effective sourcing of business inputs and skills for many companies.

John R. Wille, interim director, Investment Marketing Services Department, Multilateral Investment Guarantee Agency, World Bank Group

While recognising the tentative global outlook, MIGA’s post-9/11 survey of multinational investors indicated a postponement rather than outright cancellation of their FDI expansion plans. In fact, MIGA’s present pipeline of pending investment guarantees actually exceeds pre-9/11 levels. We also see new export-oriented FDI opportunities in Africa as a result of the African Growth and Opportunity Act and Contonou tariff concessions by the US and the European Union.

Roel Spee, director, PriceWaterhouse Consulting-PLI (pictured left) and Henry Loewendahl, manager, PriceWaterhouse Consulting-PLI

The current slow-down in the FDI market began in Spring 2001, driven primarily by the collapse of the dot.com bubble and slow-down in telecom sectors. For example, at its peak in second-half 2000 there were more than 100 Internet-related FDI projects globally per month. Now the figure is not even one-quarter of that amount. Through 2002, the IT & software sector was hit from the knock-on effects of the bursting of the dot.com bubble and slowdown in telecom. Since 2000, IT & Software was the single biggest sector for FDI projects and the slow-down in this sector brought down the whole market. Through Summer 2002, the FDI market continues to decline. The overall FDI market is unlikely to show significant growth until 2003.

However, there are certain growth elements in the overall picture. Life sciences FDI is stable, automotive FDI is increasing and the semiconductor sector is rebounding. Certain niche parts of the IT & software sector are also still growing.