Foreign direct investment flows should take two years to regain momentum after a sharp drop in 2009, a UN thinktank said last week as it warned of the risk of economic nationalism during the recovery.

Transnational companies expect a slow recovery in their investment expenditure abroad to begin next year and accelerate in 2011, the UN Conference on Trade and Development said in its annual survey of 241 multinationals.

The World Investment Survey 2009 found that about half of them even expected their foreign direct investment (FDI) expenditure in 2011 to rise above 2008 levels, when inflows worldwide reached an estimated $1.4 trillion -- about a fifth less than the 2007 peak.

However, manufacturing industries, hard hit in recent months, are likely to lag behind in the recovery, and the corporate world also fears a bout of investment protectionism.

"The prospects for FDI in the primary sector -- mining, agriculture -- and services would remain bright for the next few years while prospects for manufacturing would be less optimistic," said UNCTAD investment division director James Zhan.

Zhan said that feared protectionism -- barriers to foreign investment in local companies or takeovers -- had not materialized so far. "Few new laws and regulations could be characterised as restrictive to FDI, instead the crisis has triggered a new effort to promote and facilitate FDI and enhance the clarity and stability of the investment framework," he explained.

But he acknowledged that the concerns were not unfounded, especially for a more subtle form of "smart protectionism" in economic stimulus packages.

"Furthermore, a new wave of economic nationalism could occur in the aftermath of the crisis when the exit of public investment from the bailout of flagship industries might lead to protectionism of 'national champions' from foreign takeovers," Zhan said.

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