[A-List] US, UK economy: capital drying up?

["Michael Keaney" <michael.keaney@xxxxxx>]

Foreign investment flows plunge in UK and US
FDI stream: collapse in cross-border mergers and acquisitions hits rich
countries
By Frances Williams in Geneva
Financial Times: October 25 2002

Investment flows to the UK and US have plunged this year after a collapse in
cross-border mergers and acquisitions activity, says the United Nations
Conference on Trade and Development.

Unctad yesterday predicted a drop of over a quarter in global inflows of
foreign direct investment (FDI). It expects world FDI inflows to decline by
27 per cent to about $534bn (?542bn) in 2002 from $735bn in 2001, only a
third of the $1,492bn peak reached in 2000 at the height of the mergers and
acquisitions (M&A) boom.

As in 2001, this year's decline has been felt most by rich countries where
M&As account for a large chunk of inward investment. Completed cross-border
M&As to early September totalled about $250bn, or 45 per cent lower than the
$460bn recorded in the same period in 2001, reflecting the global economic
slowdown and loss of confidence aggravated by corporate financial scandals.

Among industrialised nations, the UK is expected to suffer the biggest
slump, from $54bn last year to just $12bn this year. Only 42 cross-border
M&A transactions worth $7.4bn were recorded in the first half of 2002
compared with 162 worth $24bn in 2001.

The US, the biggest recipient of FDI in 2001, could see its figure plunge
from $124bn last year to $44bn in 2002, Unctad predicts. Unctad officials
say the value of cross-border M&As to early September this year, at $51bn,
is running at only a third of the $150bn recorded in the same period last
year.

By contrast, a few big cross-border acquisitions in France and Germany mean
these countries are expected to match the US in FDI inflows this year, for
the first time in three decades. FDI into China has continued to boom and is
likely to reach a record $50bn in 2002, overtaking the US for the first time
as the world's top investment destination.

Unctad is predicting a 23 per cent drop this year to $158bn in FDI flows to
the developing world, compared with a 31 per cent fall to $349bn in FDI
inflows to industrialised countries.

* The precictions of a precipitous drop in investment into the UK may revive
fears that overseas investors are less willing to put money into the country
while it remains outside the eurozone, Christopher Swann reports from
London.

According to the Unctad forecasts, investment of $12bn into Britain this
year would be dwarfed by a $45bn inflow into France and a $43bn inflow into
Germany.

Masakaka Fujita, the officer in charge of the report, said: "It may be that
companies are choosing to invest more in continental Europe in order to be
inside the euro currency bloc in the long run." But he said it was still too
early to say for sure.

Simon Buckby, campaign director for Britain in Europe, said: "Foreign
investors have repeatedly told us that staying outside of the eurozone would
make us less attractive for inward investment. These figures suggests that
these warnings may be coming true."