(Corrects 2009 figure in paragraph 3 of Jan. 17 story to $1.11 trillion from $1.14 billion)
* FDI flows stagnate in 2010 at $1.12 trillion
* Seen rising to $1.3-1.5 trillion in 2011
By Jonathan Lynn
GENEVA, Jan 17 (Reuters) - Developing countries and economies in transition together attracted more foreign investment than developed countries in 2010 for the first time, a United Nations study showed on Monday.
The report by the United Nations Conference on Trade and Development (UNCTAD) was further evidence that economic recovery is more robust in developing than in rich countries.
Overall, flows of foreign direct investment (FDI) stagnated at almost $1.12 trillion in 2010 after $1.11 trillion in 2009, but are still 25 percent below pre-crisis levels in 2005-2007, UNCTAD said in its latest global investment trends monitor.
UNCTAD repeated its forecast that global FDI would pick up to $1.3-1.5 trillion this year, with stronger growth held back by the uneven economic recovery, investment protectionism, currency volatility and sovereign debt worries.
On the other hand, multi-national companies in developed countries are now holding a record $4-5 trillion in cash — one source of investment, which will be seeking a home.
FDI refers to long-term investments, such as stakes in foreign companies or the construction of a plant for a subsidiary, in contrast to volatile financial investments. Businesses and economists pay close attention to UNCTAD’s data.
James Zhan, director of UNCTAD’s investment and enterprise division, said developing countries would not attract most FDI over the long term, once flows to developed countries recovered.
“The absorptive capacity of developing countries of FDI is still limited,” he told a news conference.
Data for 2010 showed a mixed picture, with the European Union attracting 19.9 percent less FDI than the previous year.
Japan also saw an 83.4 percent drop to $2 billion, largely due to divestments by foreign companies, like carmaker Ford (F.N) cutting its stake in Mazda and Liberty Global selling its stake in cable TV provider Jupiter Telecommunications to telecoms firm KDDI.
The United States saw FDI jump 43.3 percent to $186 billion, largely due to a significant revival of reinvested earnings of foreign affiliates — but that was still not much more than half the 2008 level.
Developing countries in Latin America, Southeast and East Asia attracted strong flows, with China topping $100 billion for the first time. Hong Kong, which UNCTAD data treats separately from China, jumped into third place with $62.6 billion.
But India saw FDI flows drop 31.5 percent in 2010 and flows into Africa fell 14.4 percent, with big drops in South Africa and Nigeria. Zhan said UNCTAD had not yet analysed the reasons for these falls.
FDI forms also diverged, with cross-border mergers and acquisitions rising 37 percent to $341 billion in 2010, owing to the growing stockmarket value of assets and increased financial capacity of buyers. International greenfield investments, by far the biggest form, fell in both value and number.
Looking at the types of investment, economic recovery in many countries and improved performance by foreign affiliates lifted reinvested earnings to double the 2009 figure, while equity capital flows edged down and other capital flows such as intra-company loans saw a significant drop.
UNCTAD does not yet have a breakdown of the sources of investment, but Zhan said it was clear that developing countries were playing an increasing role as investors, as multinationals — known in UNCTAD as trans-national corporations or TNCs — in those countries become more financially potent.
"South-South FDI has been increasing because developing-country TNCs are investing," Zhan said. (For full UNCTAD monitor go to bit.ly/gkpPiu ) (Editing by Mark Trevelyan)