Foreign direct investment (FDI) grew by 39% in 1998 to $644bn (£392bn) despite the Asian crisis, according to Unctad, the United Nations organisation that tracks trans-national companies.

"The growth of foreign direct investment flow is without precedent," Unctad said.

A growing number of cross-border mergers, especially in the United States and the European Union, was the driving force behind the increase.

But Unctad predicted the increase would level off in 1999, to $700bn, an 8% increase, as consolidation set in.

Cross-border mergers and acquisitions so far this year have reached $574bn, with cars, pharmaceuticals, and information technology the most active sectors.

Stable flows in developing world

Total FDI in the developing world fell by much less than expected, with a decline of 4% to $166bn in 1998 - but as a share of all FDI it declined from 37% to 26%.

China attracts more foreign investment than any other developing country

That contrasts with the complete withdrawal of bank lending and foreign stock market investment in those countries affected by the Asian crisis.

FDI is highly concentrated, with just five developing countries (China, Brazil, Mexico, Singapore and Thailand) received half of all multinational investment.

In contrast, the 48 least developed countries attracted only 1% of FDI.

But both China and Brazil are likely to show less impressive performances in 1999. Unctad predicts that foreign investment in China - which received more investment than any other developing country - will decline to $35bn in 1999 from $45bn last year, driven by the lower returns on offer.

Brazil's privatisation programme, which attracted some $28bn in 1998, has been affected by the devaluation of the real.

The biggest fall was in Russia, where foreign investment slumped 60% to $2bn.

UK leading Europe

In contrast, investment in Europe surged to $230bn, with one-quarter going to the United Kingdom.

The UK leads in European inward investment

The advent of the single currency appeared to have little effect on the popularity of Britain, which is the world's second most popular investment destination after the United States.

Fears had existed that foreign companies would prefer to invest in countries participating in the euro. So far, this appears to be unfounded.

"It's an extraordinary good set of figures. There's undoubtedly a more flexible environment in Britain which investors welcome," said Andrew Fraser, head of the Invest in Britain Bureau.

The UK attracted $63bn in foreign investment in 1998, a fourfold increase since 1993 and double the size of FDI in the next biggest EU country, the Netherlands.

Transnational titans

The world's 60,000 multinational companies and their 500,000 local partners now control one-quarter of the world's total output, amounting to $11 trillion.

More than half of that output is produced by the top 100 multinationals, with production being increasingly integrated, Unctad said.

They are mostly American, Japanese, and European, with only two - Daewoo, the Korean chaebol now to be broken up by its creditors, and Petroleos of Venezuala - headquartered in the developing world.

The biggest multinational by foreign investment is the US electronics company GE, followed by the Ford Motor Company and the Anglo-Dutch oil giant Shell.

The Swiss food manufacturer Nestle has the most overseas employees, with 219,000.