Global foreign direct investment (FDI) inflows dropped sharply by 54 percent in the first quarter of 2009 and the prospects will remain gloomy for the rest of the year, the United Nations said on Wednesday.

Cross-border mergers and acquisitions (M&As) -- the main mode of FDI -- also declined drastically by 77 percent in the first quarter as compared to the same period last year, according to data released by the United Nations Conference on Trade and Development (UNCTAD).

"A renewed commitment by policy makers to an open environment for international investment will play an important role in maintaining favorable conditions for a recovery in FDI flows," UNCTAD Secretary-General Supachai Panitchpakdi said of the first quarter results.

According to UNCTAD, major host countries such as Brazil, China, and Russia all recorded declines in FDI inflows in the first quarter, while major investors such as France, Germany, Japan, and the United States also experienced declines in FDI outflows.

If the first quarter trend continues, projections for the whole of 2009 are for global FDI inflows to drop by close to half, the agency said.

While developed countries are mainly responsible for the fall of FDI in 2009 -- they have experienced a nearly 60 percent decline, developing countries and transition economies are also this time experiencing declines.

For developing nations, the reduction is expected to be as much as 25 percent, and for transition economies as much as 40 percent.

UNCTAD data show a similar pattern in the prospects for cross-border M&A sales: it appears likely these will fall by two-thirds globally -- by about 70 percent in developed countries, by almost 50 percent in developing countries, and by about 85 percent in transition economies.

According to the preliminary results of UNCTAD's World Investment Prospects Survey 2009-2011, to be released in July 2009,nearly two-thirds of respondent transnational corporations (TNCs) anticipate a decline in their FDI expenditures this year.

TNCs have been hit by the consequences of the global economic slowdown leading to failing market expectations, tighter credit conditions, reduced value of assets following stock market declines, and falls in corporate profits.

At the same time, they have been confronted by major uncertainties about the evolution of the economic situation in the short term. As a result, companies anticipate a sharp decrease in their FDI expenditures for 2009.

(Xinhua News Agency June 25, 2009)