Cross-border mergers push foreign direct investment towards $1 trillion

Total foreign direct investment could pass the $1 trillion mark (£685bn) this year, up from $865bn in 1999, according to newly released United Nations figures.

Total foreign direct investment could pass the $1 trillion mark (£685bn) this year, up from $865bn in 1999, according to newly released United Nations figures.

Soaring cross-border merger activity is driving this extremely rapid investment growth, with the UK overtaking the US as the biggest overseas investor in the world. In 1999, British companies spent $199bn on overseas acquisitions, forging ahead of the $150bn spent by US companies, the annual World Investment Report from the UN Conference on Trade and Development (Unctad) says today.

The US was the world's biggest recipient of foreign direct investment, with inflows amounting to $276bn last year compared to $186bn in 1998. The UK followed, with inflows of $82bn, up from $63bn in 1998.

Other EU countries were also big outward investors. In particular, investment overseas by French companies more than doubled from $45bn in 1998 to a $108bn in 1999. Inflows to the eurozone were far smaller than outward investment.

Merger and acquisition activity has been growing at an annual rate of 42 per cent for the past 20 years, according to the Unctad figures. Sales by affiliates of multinationals were equivalent to nearly half of world GDP, compared with a proportion of less than a quarter in 1982.

The value of M&A deals reached $2.3 trillion (in gross terms) in 1999, representing about 24,000 transactions. There were 109 deals worth more than $1bn each, accounting for 60 per cent of the total value.

The report estimates that the top 100 non-financial multinational companies have assets worth more than $2 trillion and employ more than 6 million people in foreign affiliates. Car makers, oil companies and electronics firms dominate, with utilities and telecommunications companies catching up rapidly. The list changes little from year to year, with General Electric, General Motors and Shell firmly at the top.

Most investment across borders flows between the developed countries, and 10 countries accounted for nearly three-quarters of the global total. However, foreign direct investment in developing countries also increased last year, to $208bn from $179bn in 1998.