Developing Nations Win More Investment

ADAM SMITH'S invisible hand is caressing Asia, ignoring the former Soviet Union, and slapping Africa.

Economic principles put forth by the 18th-century British advocate of capitalism are being accepted wholeheartedly for the first time in decades by most of the world's developing countries: These nations are tearing down barriers to foreign investment.

Multinational corporations, now free to invest where they please instead of where they can, invested a record $80 billion in developing countries in 1993, according to the United Nations World Investment Report 1994.

Fierce competition for multinational investment has ensued, and 15 developing countries - concentrated in Asia and Latin America - are receiving the vast majority of multinational investment, according to the report. The former Soviet Union, Eastern Europe, Africa, and the world's ``least developed'' countries, meanwhile, are finding few takers.

``The big loser in all of this obviously is Africa,'' says Debora Spar, a Harvard Business School professor who studies foreign investment. ``That is where you see the inequality between the haves and the have nots.''

In 1993, Asia received $45.6 billion in global multinational investment, Latin America $17.5 billion, the former Soviet Union and Eastern Europe $5 billion, and Africa $3 billion, the report says. China led all developing countries with about $26 billion in multinational investment. Other top developing-country recipients were Singapore, Thailand, Malaysia, Mexico, and Argentina.

The report also finds that, after lagging behind British and Japanese companies for most of the late 1980s, United States multinationals led the world in foreign investment for the third year in a row. American multinationals invested a record $50 billion overseas in 1993, followed by French, Japanese, German, and British firms. ``It's the force of international competition,'' says Persa Economou, one of the report's authors. ``US companies realize it's imperative to [develop] their production internationally to compete.''

The report, prepared by the UN Conference on Trade and Development, finds that:

* Total world foreign investment by multinationals, fueled by new global and regional trade agreements, grew to $195 billion in 1993, the first rise since 1990.

* Of foreign multinational investment, 40 percent - a proportion not seen in decades - went to developing countries in 1993.

* The number of multinational employees in developing countries rose slightly, while multinational employment in home countries stagnated last year.

* The US remains the largest recipient of foreign multinational investment, with foreign companies investing $32 billion in the US in 1993. That's down from a record $69 billion invested mostly by British and Japanese firms in the US in 1989.

The report and foreign-investment experts say multinationals are playing an increasingly important role in helping countries develop. Along with offering employment, multinationals help by transferring new technology to developing countries, training workers, and hiring local companies as subcontractors.

Multinationals are also one of the few investment sources left for developing countries, experts say. Many developing countries that took on huge debt burdens in the '70s and defaulted on payments during the 1980s have nowhere else to turn. ``If you don't have sufficient capital, and you can't borrow from banks, you have to turn to foreign investment,'' Professor Spar says.

She says political instability in former Communist countries overshadows government policies encouraging investment. Past fears that multinational investment would be drawn from other countries to former communist countries appear to be unfounded. ``I think [low investment in] Eastern Europe and the former Soviet Union is easy to understand,'' Spar says. ``The political situation in Russia is chaotic. It's just a much riskier environment.''

Jonas Haralz, a visiting fellow at the Overseas Development Council in Washington, says investors still question the long-term stability of some African governments. ``You can change the rate of exchange overnight, and you can liberate trade laws,'' he says, ``but the [consistent policies] that create trust among investors -

that takes a long time.''

There are exceptions to the grim news in Eastern Europe, the former Soviet Union, and Africa: Foreign investment in the Czech Republic, Poland, and Hungary has risen steadily.

The Seychelles and Equatorial Guinea in Africa are also attracting money. Observers say investment in South Africa has grown steadily since this spring's multiracial elections. ``You could see South Africa coming up strong and then taking some other countries with them,'' Haralz says. ``I would be hopeful about Africa. I think a new generation of businessmen is coming up.''

But Bill Moses, a senior analyst for the Investor Responsibility Research Center in Washington, says the report reflects the fact that some nations may not be able to attract multinationals because they are too poor, too small, or located in an unstable region. The report finds, despite ``good records'' by many African nations in eliminating barriers to investment, Africa's share of it plummeted during the '80s. Africa's percentage of developing-country multinational investment fell from an average of 12.9 percent from 1981 to 1985 to 5.9 percent in 1992. The report also finds that the world's least-developed countries - 47 mostly African nations - also attracted less investment. They received 1.4 percent of developing-country multinational investment from 1981 to 1985 and only 0.6 percent in 1992.

``A lot of African countries, because of their colonial legacy, are so tiny I don't know what they can do,'' Mr. Moses says. ``A lot of the products companies want to sell, like Coca-Cola [or consumer goods] can't be sold to people without food or running water.''

Powers Without Borders

THE GROWING OF ECONOMIC MIGHT OF MULTINATIONALS

* One-third of world economic output is controlled bymultinational corporations.

* Multinationals directly or indirectly employ 150 million people or 20 percent of the world's nonagriculturl work force. * The top 100 multinationals hold $3.4 trilion in global assets. * One-third of world trade is conducted among multinationals.