Unctad seeks controls on $1,700bn multinational cash flows

With the global scramble to attract foreign investment growing more intense, the United Nations Conference on Trade and Development has warned about the dangers of investments from vast transnational corporations and has joined the call for more regulation on capital flows.

Launching Unctad's 1997 World Investment Report yesterday, Rubens Ricupero, Unctad's secretary general, said the recent financial upheaval in South-east Asia was threatening to have an unfavourable impact on the real economy, especially as developing countries "are now more dependent on highly liquid capital inflows". Mr Ricupero called for measures to control these inflows.

The report shows that the world's 100 biggest multinational companies, most of which are American- and British-based, own $1,700bn of assets in their foreign affiliates and thus control about a fifth of global foreign assets. This small group of companies also accounts for $2,000bn of global sales and employs close to 6 million.

This awesome power is a source of concern to Unctad which is calling for international action to control anti-competitive practices by these firms, arguing that individual countries lack resources to individually keep a rein on the multinationals.

Mr Ricupero said most countries were moving towards liberalisation of foreign investments. The biggest problem was to get international agreement on ways of putting a cap on wars of incentives to lure multinationals.

The trend for increased direct foreign investment is clearly still on the up. Last year inflows grew to a new record of $349bn in terms which could be directly tracked by Unctad. However, the organisation believes internal transfers within multinational corporations and other investments which do not pass through government investment agencies are likely to be four times greater than this sum, implying a total investment inflow of $1,400bn.

However this does not mean that all these capital flows are producing new capital for industry. Unctad estimates that as much as 47 per cent of direct foreign investment is devoted to merger and acquisition activity. The bulk of investment flows between the US and Europe, the biggest exporters of foreign investment. Developing countries received only 34 per cent of global inflows in 1995-1996.