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The emerging transnationals

The UNCTAD's World Investment Report for 2005, released recently, captures the broad trends in global capital flows. For the second year, foreign direct investment (FDI) inflows rose substantially last year. Once again, cross-border mergers and acquisitions (M&As) rather than fresh investments in greenfield ventures have been the focus of the large FDI inflows, which at $916 billion were 29 per cent higher than in 2004. Clearly, globalisation and with it an awareness of profit opportunities in different countries have spurred M&A activities worldwide. The sharp recovery of the stock markets in many countries was a natural outcome of the accelerated cross-border outflows. Higher market valuations in turn attracted fresh foreign capital, especially portfolio money. As many as 126 of some 200 economies received larger cross-border funds last year. Developed countries led by the United Kingdom received 59 per cent of the global inflows. Among the developing countries, which accounted for 36 per cent, those in West Asia having rich petroleum resources recorded the highest growth rate in inward FDI. Developed countries continued to account for the bulk of outward FDIs, with just three countries, the Netherlands, the U.K. and France, contributing more than a half. While FDI has grown in all sectors, services continued to see the largest rise.

Most striking is the finding that developing countries, as sources of FDI, have increased their share, with a number of their transnational corporations (TNCs) becoming significant players on the global stage. Many of the TNCs have reaped the benefits of higher commodity prices and made strategic investments abroad to secure future supplies. Companies from China and West Asia have led the trend to invest in natural resources, mostly within the developing world. But far from remaining South-South fund flows, capital from the developing world will seek greener pastures anywhere. As the recent Tata-Corus deal shows, such outward investment gives the developing countries another opportunity to link up with global markets. As UN Secretary General Kofi Annan pointed out, this development if handled properly can help TNCs access markets, natural resources, foreign capital as well as various intangibles that are essential to their competitiveness but are not readily available in their home countries. For now, the emergence of TNCs from the developing countries imparts a greater momentum to South-South cooperation.

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