Global Foreign Direct Investment Losing Momentum In 2012

Tehran, July 8, IRNA – Global foreign direct investment (FDI) inflows rose 16 per cent in 2011, surpassing the 2005–2007 pre-crisis level for the first time, despite the continuing effects of the global financial and economic crisis and the current debt crisis in Europe, UNCTAD’s annual survey of investment trends reports. The World Investment Report 2012, subtitled “Towards a New Generation of Investment Policies,” was released in Geneva, last weekend, a press release issued by the UN Information Center (UNIC) said. A resurgence of economic uncertainty and the possibility of lower growth rates in major emerging markets risk undercutting FDI in 2012, the report contends. UNCTAD predicts the growth rate of FDI will slow in 2012, with flows levelling off at around $1.6 trillion. Leading indicators are suggestive of this trend, with the value of both cross-border mergers and acquisitions and greenfield investments retreating in the first five months of 2012. UNCTAD projections for the medium term based on macroeconomic fundamentals continue to show FDI flows increasing at a moderate but steady pace, reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, barring any macroeconomic shocks. Investor uncertainty on the course of economic events for this period is still high, with UNCTAD’s annual survey of executives of transnational corporations (TNCs) finding that roughly half of respondents are either neutral or undecided about the state of the global investment climate in 2012. The World Investment Report 2012 also finds that developing economies continued to account for nearly half of global FDI (45 per cent) in 2011 as their inflows reached a new record high, rising 11 per cent to $684 billion (see table). Inflows to transition economies accounted for another 6 per cent. They increased during 2011 by 25 per cent. Rising FDI to these economies was driven by a strong increase in flows to Asia and better-than-average growth in Latin America and the Caribbean and the transition economies. Flows to Africa, in contrast, continued to decline in 2011. The poorest countries remained in FDI recession, with flows to the least developed countries retreating 11 per cent to $15 billion. FDI is projected to continue to rise in both developing and transition economies overall, reaching, respectively, $720 billion and $100 billion in 2012, and increasing to between $760 billion–$930 billion for developing countries and $110 billion–$150 billion for transition economies by 2014. FDI from developed countries rose sharply in 2011 – by 25 per cent – to reach $1.24 trillion. All three major developed-economy investor blocs – the European Union, North America and Japan – contributed to this increase. FDI from the United States was driven by a record level of reinvested earnings, as TNCs built on their foreign cash holdings. The rise in FDI outflows from the European Union was driven by cross-border mergers and acquisitions. An appreciating yen improved the purchasing power of Japanese TNCs, resulting in a doubling of their FDI outflows, with net purchases of mergers and acquisitions in North America. The UNCTAD FDI attraction index, which measures the success of economies in attracting FDI (in total and in relation to their size), features eight developing and transition economies in the top 10, compared with only four a decade ago. Newcomers in 2011 to the top ranks include Ireland and Mongolia. Just outside the top 10, a number of countries saw sustained improvements in their rankings, including Peru and Ghana, both of which have improved their rankings in each of the last six years. The UNCTAD FDI contribution index – introduced for the first time in the World Investment Report 2012 – ranks economies on the basis of the significance of FDI and foreign affiliates for their economies in terms of value added, employment, wages, tax receipts, exports, research and development expenditures and capital formation. According to this year’s index, the host economy with the largest contribution by FDI is Hungary, followed by Belgium and the Czech Republic./end