Britain, widely regarded as a place to buy companies without running into government objections, was the country that drew in the most foreign direct investment, the Organisation for Economic Co-operation and Development (OECD) said in a report on Wednesday.
Foreign direct investment into the 30 mostly industrialised OECD countries rose 27% to $622 billion in 2005, and the rise was strong in non-OECD countries such as China and India.
“This … is the highest level of inflows since the previous investment boom petered out in 2001,” the OECD said.
The year 2005 was also the fourth best year on record, with direct inward investment buoyed by high company profits, low interest rates, high liquidity and corporate share prices as well as a penchant for cross-border investment in property, it said.
However, although the organisation said the outlook remained positive it said some risks still “cloud the horizon”.
Among them were signs that governments were keener to clamp down on foreign takeovers and above all the prospect of higher interest rates, which could in turn dent equity valuations and reduce companies’ investment appetite as a consequence.
Much Western investment has
France took the top spot among OECD countries as an investor abroad after a surge inflated by four big takeovers, while the US slipped in large part because of the sizeable accounting impact of changes in tax law.
French direct investment in other countries totalled $116 billion, of which $48 billion was spent on four takeovers – such as the $17.8 billion acquisition of British distiller Allied Domecq by France’s Pernod Ricard.
Britain was the biggest magnet for foreign direct investment with inflows tripling from 2004 levels to $165 billion, a record.
“The high figure reflects, in part, the fact that many of the world’s largest cross-border takeovers in 2005 targeted UK-based companies,” the OECD report said.
In recent years, much investment has also poured into places outside the OECD club of mostly mature free-market democracies, such as China, India and Brazil.
Official reports from China and India probably understate the amount of foreign direct investment they are attracting, the OECD said.
Foreign money going to China was traditionally directed to manufacturing investment but was now starting to “swing towards the services sector”, it said.
“Outward investors appear to have broadened their interests, from previously targeting the resource and raw materials sectors to investing in a range of high-tech activities as well.”