FOREIGN DIRECT INVESTMENTS REPORT
July 2007

RECENT TRENDS IN FOREIGN DIRECT INVESTMENTS AND
AN EVALUATION OF 2006 IN THE WORLD AND IN TURKEY

The level of international direct investments in 2006 was closest to the record level in 2000. Among the main characteristics were the rising trend for developing countries as the source country for international direct investments and the increasing role for collective funds such as private equity funds in cross-border mergers and acquisitions (M&As).

Ongoing global economic growth, increasing level of corporate profits, generally low level of
interest rates, high stock and real estate prices and the rise in the cross-border M&A activities
are reinforcing the predictions that upward trend for international direct investments will
be maintained. On the other hand, imbalances in the current accounts of several developed
countries, high energy costs and a possible tightening of financial markets are the risk factors
that create uncertainties for the future of direct investments.

According to UNCTAD preliminary data for 2006, global FDI inflows have reached the highest level after the peak in 2000 (1.4 trillion USD) and is estimated to be 1.23 trillion USD. FDI inflows have increased by 48% over 2005 in developed countries to reach 800 billion USD and by 10% to 368 billion USD in developing countries. In 2006, USA was the topranking country in terms of attracting FDI with an inflow at 177 billion USD and UK followed as the second most FDI attracting country.

Looking by regions, EU-25 countries have attracted 45% of global FDI inflows. It is interesting to note that the growth in FDI inflows to 10 new EU member countries was below the growth in the whole of Europe. There is little evidence that the investment locations are moving from West to East in Europe. While reduction in risk ratings, trade liberalization, adoption of Euro and structural funds created advantages for the new members; membership removed the reform anchor and also upward pressure on currencies and labour costs, elimination of special FDI incentives and additional costs on business created disadvantages in terms of attracting FDI.