Investment in State by foreign firms drops 60%

Foreign direct investment (FDI) in the Republic plummeted by 60 per cent in 2001, slightly worse than the trend in the rest of the world's richest nations, according to a new report by the Organisation for Economic Co-Operation and Development (OECD).

The organisation warned that, while an economic recovery around the globe may increase the flow of investment into its member-states this year, any further weakness in global equity markets may see a further slump in investment.

If trends in the first five months of this year are anything to go by, FDI in member-states may fall by a further 25 per cent in the current period, it said.

The report reveals that, in the OECD's 30 member countries, total inflows of FDI plummeted by 56 per cent in 2001 to $566 billion (€578 billion) from $1.27 trillion.

In the Republic, FDI tumbled to $9.8 billion in 2001 from $24.1 billion in 2000. The decline in investment coming into the State follows two bumper years - 2000 and 1999. As well as the $24.1 billion invested in 2000, a total of $19 million flowed into the Republic in 1999.

The 2001 level of FDI is almost in line with 1998 levels, when $8.9 billion came into the State.

One area in which the Republic bucked the OECD trend was in the level of investment flowing out of the country. In 2000, $4 billion was spent outside the State by Irish concerns, jumping to $5.4 billion last year. But the total outflow for member-states decreased in 2001 to $593 million from $1.285 trillion the previous year.

The OECD said FDI was closely linked to mergers and acquisitions and, with this activity limited to date in the current year because of turbulence in equity markets, FDI may well fall again in 2002.

However, it added that last year's decline was not all bad news and could be viewed as a return to more stable financial conditions.

"The developments of 2001, rather than a seminal decline in international investment flows, appear to have marked a correction toward more sustainable levels, following what could arguably have been an 'investment bubble' in 1999 and 2000," the organisation said.

The report also said that, based on data from merger and acquisitions for the first five months of the current year, inflows for the full year for OECD nations are expected to amount to between $450 billion and $500 billion, a decline of around 25 per cent on 2001.

Outflows in the first five months of the year reached $185 billion, "which on a whole-year basis would seem to indicate an average decline of about 20 per cent", the report noted.