UN report highlights internationalisation of research and development

October 7, 2005

Brussels, 06 Oct 2005

The United Nations Conference on Trade and Development (UNCTAD) issued its annual World Investment Report (WIR) on 29 September. WIR 2005 includes UNCTAD's first-ever survey on research and development by transnational corporations, dealing with the growing complexity and internationalisation of research and development (R&D) led by multinational enterprises.

Following three years of decline, global foreign direct investment (FDI) rose slightly in 2004, according to the report. The rebound was the result of increased flows to developing countries: FDI in developed countries continued to fall. According to Dr Supachai Panitchpakdi, Secretary-General of UNCTAD, 'intense competitive pressures in many industries are leading firms to explore new ways of improving their efficiency'.

Global FDI inflows were two per cent higher in 2004 than in 2003. But the global figure of 543 billion euro masks diverging trends. Flows to developing countries surged by 40 per cent to reach 187 billion euro - the second highest level ever recorded - while developed countries saw inflows decline by 14 per cent, to 318 billion euro.

While established, capital-rich countries have long been the supplier of foreign direct investment (FDI) in the world, the share from emerging economies is increasing rapidly. The two-way flow of FDI signalled the start of a new role for developing countries in international business; a development likely to mature in five to ten years' time, signals the report.

EU trends varied sharply between the 'EU-15' and the EU's new members. In the former, inflows plunged by 40 per cent, reaching their lowest levels since 1998. In some countries, such as Denmark, Germany and the Netherlands, the large declines were partly the result of repayments of intra-company loans and capital repatriation by parent companies. France, Ireland and Spain, which have registered large increases in recent years, also experienced significant declines in FDI flows in 2004. By contrast, FDI in all the new EU member countries rose to 17 billion euro, almost 70 per cent more than in 2003, with the Czech Republic, Hungary and Poland receiving the largest chunks of these inflows. The biggest investors in these countries were firms based in the EU-15 countries, such as Austria, France, Germany and the Netherlands. FDI in the European Union as a whole - including new EU members - plummeted by 38 per cent (to 180 billion euro) last year.

Some 36 per cent of all FDI went to developing countries in 2004. Seven of the ten economies with the largest increases in FDI were developing or transition economies, while the ten largest declines were in developed countries. The top ten economies with the largest increases in FDI were: the US, UK, Australia, Hong Kong, Brazil, China, Singapore, Mexico, South Korea and Russia. The United States remained the largest FDI recipient, followed by the United Kingdom and China.

'The high level of FDI to developing countries is likely to be sustained,' said Anne Miroux, head of the team that produced the UNCTAD report. 'Transnational corporations (TNC) are seeking to improve their competitiveness by expanding in the fast-growing markets of emerging economies and by seeking new ways to reduce costs,' she said. 'This is affecting the location of even highly knowledge-intensive activities, such as research and development. Higher prices for many commodities have further stimulated FDI in those developing countries rich in natural resources - another trend likely to continue,' she added.

Among developing regions, the largest increase in inward FDI was noted in Asia and Oceania (46 per cent), followed closely by Latin America and the Caribbean (44 per cent), while flows to Africa remained stable. FDI inflows to the least developed countries rose to nine billion euro, the highest level ever for such nations, although at less than two per cent of the world total, their share remains relatively small.

FDI flows to the US from developed countries shot up by 62 per cent (to 80 billion euro), and flows to the UK more than tripled (to 65 billion euro), partly because of an increase in large mergers and acquisitions in those countries.

The report highlights the fact that two-way investment will open up strategic alliances between corporations in developed and developing countries that will be different in nature and scope from those of the past.

For further information, please visit:
http://www.unctad.org
To download a copy of the report, please visit:
http://www.unctad.org/wir

CORDIS RTD-NEWS / © European Communities
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