Record investment flows

OECD Observer

Developing countries and OECD countries have seen a boost in foreign investments, as FDI outflows from the US hit a record US$252 billion in 2004.

Outflows of foreign direct investment from the US reached an all-time high of $252 billion in 2004–up from $141 billion in 2003. While this FDI record reflected the weakness of the dollar, it also confirmed continuing strong interest among US companies in acquiring corporate assets abroad.

The latest figures published by the OECD show that of the largest 25 cross-border mergers and acquisitions in 2004, five had a US-based company as the acquirer. A recovery of merger and acquisition (M&A) activity in 2004, meanwhile, has carried on into 2005. On present trends, both inward and outward FDI in OECD countries could increase by 10-15% in 2005, OECD estimates suggest.

Inward foreign direct investment into Germany and France fell sharply in 2004. In France inward investment almost halved, falling from $43 billion to $24 billion. In the case of Germany, foreign investors actually withdrew about $39 billion from the country, reversing the inflow of $27 billion recorded in 2003. Inward FDI figures include transactions, which can involve both inflows and withdrawals, between foreign-invested enterprises and their foreign mother companies. The downturn in 2004 largely reflected repayments to recipients outside Europe of inter-company loans and other transactions between related enterprises.

The UK bucked the trend in 2004 to become one of the few European countries to see a sharp pick-up in inward FDI, achieving a total of $78 billion, more than double the figure for 2003. An apparent revival in largescale mergers and acquisitions–including the financial sector–supported this growth in FDI activity. At the same time, outward investment from the UK was boosted by very high amounts of reinvested earnings by UK-owned companies in their foreign subsidiaries, totalling around $26 billion in 2004. FDI inflows for the OECD area as a whole continued on a downward trend, falling to $407 billion in 2004 from $459 billion in 2003. Outflows, on the other hand, rose from $593 billion in 2003 to $668 billionin 2004.

Against the above background, net FDI outflows from OECD countries to the rest of the world reached record-high levels in 2004: The OECD area was a net contributor of $261 billion worth of direct investment–most of which went to developing countries. In 2003, OECD countries invested a net $134 billion outside the OECD area.

China continued to receive a large share of the direct investment in developing countries, with inward FDI into mainland China rising to a record $55 billion in 2004 from $47 billion in 2003. Hong Kong-based investors appear to have accounted for much of this investment, and there is concern among observers in China about a possible overheating of the investment cycle. A new development is the growing importance of cross-border M&As, which until a few years ago were virtually unheard of in the context of inward FDI into China.

Asian financial centres Hong Kong (China) and Singapore, with a total of $50 billion in inward investment in 2004, also remain important destinations for FDI inflows. And other economies have made progress as well. For example, South America seems to be climbing out of the trough that followed the Argentine crisis, with inflows in 2004 of $4 billion into Argentina, $18 billion into Brazil and $8 billion into Chile, all around twice the levels recorded in 2003.

In addition, India is making steady progress in establishing itself as an attractive destination for FDI. Inward direct investment has trended upwards since the late 1990s to reach $4.3 billion in 2003 and $5.3 billion in 2004. As Indian FDI statistics are less inclusive than most, this figure is moreover a lowend estimate.

Inflows into Russia were already stronger in 2003 and gained further in 2004. As in earlier years, much investment went to the hydrocarbons and retailing sectors, but there is also a growing tendency for foreign producers of consumer goods to establish production sites in Russia.

While developing countries continue to be major recipients of FDI, several are gaining importance as outward investors as well. Large companies in Mexico and Brazil appear to be in a process of firstly engaging in regional integration through investment and then moving to develop truly international corporate networks. Furthermore, Chinese enterprises have increasingly undertaken “strategic” investment abroad, not least to gain access to raw materials. Progress has been uneven though. According to figures published by China’s State Administration for Foreign Exchange, net outward FDI declined from a peak of $6.9 billion in 2001 to $152.3 million in 2003, then recovered slightly to $1.8 billion in 2004. However, OECD figures suggest these figures may understate the position.


OECD (2005), “Trends and Recent Developments in Foreign Direct Investment”, Paris.

For further comment, contact Hans Christiansen, OECD’s Directorate for Financial and Enterprise Affairs, tel. +33 1 4524 8817 or

©OECD Observer No 250, July 2005

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