Rich countries stepped up their global foreign direct investment, FDI, by 6% last year to $612 billion, but they are increasingly sending their cash not to other rich nations, but to developing states such as China and India, according to a new report issued over the weekend by the United Nations Conference on Trade and Development, or Unctad.

However, America still draws the most FDI and New York State is one of the main reasons, according to the report.

The industrialized countries invested $321 billion in other rich nations in 2004, marking a 16% drop from the previous year’s $380 billion, Unctad said. However, after a three-year period in which foreign investment in America was relatively insipid, 2004 saw some $121 billion flowing into this country, surpassing the $54 billion that went to China, the second biggest country-recipient of FDI. (The Asia-Pacific region, including Japan, Korea, and the 10 member-states of the Association of South East Asian Nations, attracted more than $185 billion in FDI.)

Officials of the Geneva-based agency – the world’s main monitor of investment flows – particularly credited efforts by New York State to attract FDI in technology, financial services, tourism related industries, and real-estate, among other fields. The state attracted more than $50 billion in FDI last year, ahead of all states other than California, which barely edged out New York with $52 billon. Texas came in third at around $15 billion.

Unctad’s report seemed to please the chairman and commissioner of Empire State Development, New York State’s main economic agency for promoting economic growth and foreign investment. The official, Charles A. Gargano, told The New York Sun yesterday: “The uptick in FDI points to the fact that New York is perceived abroad as being business-friendly. It is also an affirmation of the fact that the state’s economic policies are designed to create jobs and sustain growth on a long-term basis.

His associates pointed out that the state is home to more than 4,000 foreign owned operations, and, as one senior Gargano aide put it, “represents overseas interests in almost every industry. This includes finance and banking, retail, business services, transportation, distribution, and manufacturing.” The state offers investors ready access to markets within a radius of 1,000 miles.

The aide, senior vice president for marketing Neville Bugwadia, pointed out that New York has 500 airports and landing facilities, direct flights to over 150 cities worldwide, thousands of miles of rivers and 33 deep-river ports, ready access to the Great Lakes, St. Lawrence Seaway, and the world’s oceans, and 112,000 miles of roadways. It also has more than 2,300 miles of interstate and expressway miles – the third highest total in the nation after California and Texas. Mr. Bugwadia said that Empire State Development maintains offices in nine foreign cities to encourage investment from overseas. The cities are Montreal, Toronto, London, Mexico City, Tokyo, Tel Aviv, Johannesburg, Rio de Janeiro, and Santiago de Chile.

Among the companies that the states has successfully wooed is Tokyo Electron Limited, TEL, which is establishing a $300 million research and development facility at the Albany Center of Excellence. Mr. Bugwadia said that TEL is the world’s second largest manufacturer of semiconductor manufacturing tools, with headquarters in Tokyo; it will use the New York facility for advanced tool design and prototyping for future generations of computer chips.

Foreign investment – and the jobs it would generate – would be salutary for the state’s economy, which is still recovering from the aftereffects of 9/11. The state’s gross domestic product GDP was $950 billion in 2004, an increase of 5.3% over the $903 billion registered in 2003. This makes New York State’s economy the ninth biggest in the world, well ahead of emerging economic powers such as India, whose GDP is $650 billion and whose population is 1.2 billion, compared with 19 million in New York State. India received $4.3 billion FDI last year, but the prospects for 2005 are brighter, especially with newfound investor interest in outsourcing, technology, export zones, and manufacturing.

One of the startling statistics of the Unctad report was that the 135 nations of the so-called Third World now account for almost 42% of global FDI flows, said the director of the agency’s investment division, Karl Sauvant. Last year, third world countries received $255 billion, up 48% from 2003 and a historic high, Mr. Sauvant said yesterday.

The report also said that 15 of the 19 countries of Central and East Europe received a record $36 billion in FDI last year, compared to $27 billion in 2003. Russia has registered a record inflow of FDI of $10 billion, despite investor concerns about the sometimes arbitrary economic policies of President Putin. Although the Unctad report did not say so, a number of Western investors – Americans among them – were alarmed by the nationalization of the Yukos oil conglomerate, whose head, Mikhail Khodorkovsky – one of the world’s wealthiest men and a bitter Putin rival – was arrested in 2003 on charges of fraud and tax evasion. The Putin government has said that Yukos owed nearly $28 billion in taxes, a charge that the company’s officials challenge.

The total American investment in the Russian Federation is around $6 billion, while Russian investors have put around $1 billion in the American economy. Future American investment in Russia could be jeopardized if concerns over the Putin government’s increasingly autocratic style are not allayed.

At the same time, the news that FDI in Third World countries increased by 6% last year is likely to resonate well in the chancelleries of emerging nations. Leaders of these countries had been worried by the steady decline in foreign aid – known formally as Official Development Assistance, or ODA – for the last 30 years.

The ODA figure for 2004 – as calculated by the Paris-based Organization for Economic Cooperation and Development, or OECD, long regarded as the “rich man’s think thank” – was a little over $50 billion; it was $80 billion in 1975. The decline is largely attributed to the shaky economies of the rich donor countries, and also to concerns among their policy makers and publics about endemic corruption, mismanagement and misuse of foreign aid in many third World countries.

That private investment from industrialized-country sources is increasing in third world countries – as indicated by the Unctad report – suggests that the investment community is recognizing the potential of big markets in countries such as China and India. But even natural-resource-rich countries of Africa – such as Algeria, Angola, Libya, Mauritania, Nigeria and South Africa – received more FDI last year, although accounting for only 3% of the total global investment flow. The increased investor interest in Africa could be explained by continuing high prices for key commodities, which, Unctad said, “may encourage transnational corporations to pursue new exploration projects in African countries.”

The agency also said that FDI flows to Latin America and the Caribbean rose in 2004 for the first time in five years, up 37% to $69 billion. “Improvements in the economic situation and policy environment are the main reasons for this rebound,” Unctad said. “Mexico and Brazil continue to dominate flows, accounting together for half the regional total last year. The recovery is impressive in Mexico, and inflows into Brazil are picking up again as well.”