Protectionist threat to UK's place at top of investment league

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The Independent Online

A growing climate of protectionism threatens to derail a boom in foreign investment that saw the UK top the global league table last year, the United Nations warned yesterday.

The UN's Conference on Trade and Investment (Unctad) said the numbers of government barriers to cross-border investment rose to the highest level it had ever recorded last year.

"This is a cloud on the horizon," Khalil Hamdani, the director of Unctad's investment division, said.

The findings took the shine off an upbeat report showing that global foreign direct investment (FDI) flows rose by 29 per cent between 2004 and 2005 to $916bn (£480bn), the second consecutive annual increase.

It said the number of regulatory changes aimed at making a country more hostile to inward investment rose by 14 per cent to 41. Meanwhile, the number of rule changes aimed to make markets more open fell by 30 per cent to 164. The figures published yesterday only applied to 2005, Mr Hamdani said, and the number of pro-protectionist measures was still rising.

The shift against open markets was led by Latin American countries such as Bolivia and Venezuela, which nationalised or renegotiated foreign oil and mining concessions in their countries.

Unctad said its figures did not include pressure from politicians in France, Italy, Spain and the US to block takeovers.

American politicians succeeded in blocking Chinese takeovers of Unocal, an oil firm, and Maytag, an appliances group, and the acquisition of five US ports by a Dubai company on national security grounds.

Mr Hamdani said: "I do hope that protectionist trend will be addressed by governments. In the developed world, there needs to be some discussion among themselves. I hope that the G8 summit in Germany next year in July would want to give consideration to the extent which protectionist measures are driven by genuine security concerns."

Unctad's annual report on FDI showed that $165bn (£85bn) of investment came into Britain last year, making it the most popular destination in the world.

However, stripping out $74bn related to a technical restructuring of the Anglo-Dutch oil giant Shell, the total came in at $91bn, almost double 2004's $56bn but behind the US on £99bn.

It said investors had targeted financial services, telecoms and transport in particular. Abbey bank, mobile phone company O2 and airports operator BAA have fallen to foreign takeover bids.

Alistair Darling, the Trade and Industry Secretary, said: "The figures reaffirm the UK as a top destination for inwards investment."