+ Font Resize -

Global foreign direct investment inflows rose 16 per cent in 2011, surpassing the 2005-2007 pre-crisis level for the first time, despite the continuing effects of the financial and economic crisis of 2008-2009 and the ongoing sovereign debt crises. This increase occurred against the background of higher profits of transnational corporations and relatively high economic growth in developing countries during the year.

However, with the value of both cross-border mergers and acquisitions and greenfield invesments retreating in the first five months following reemergence of economic uncertainty and the possibility of lower growth rates in major emerging markets, UNCTAD predicts a slowdown in FDI in 2012, with flows levelling off at about $1.6 trillion. Cautiously optimistic medium-term prospects show FDI flows increasing at a moderate but steady pace, reaching $1.8 trillion and $1.9 trillion in 2013 and 2014, respectively.

Results from UNCTAD's World Investment Prospects Survey, which polls TNC executives on their investment plans, reveal that respondents who are pessimistic about the global investment climate for 2012 outnumber optimists by 10 percentage points, but roughly half are either neutral or undecided.

FDI flows to developed countries grew robustly in 2011, reaching $748 billion, up 21 per cent from 2010. Nevertheless, the level of the inflows was still a quarter below the level of the pre-crisis three-year average. Developing and transition economies together continued to account for more than half of global FDI as their combined inflows reached a new record high, rising 12 per cent to $777 billion.

FDI to developing countries was driven by a 10 per cent increase in Asia and a 16 per cent in Latin America and the Caribbean. FDI to the transition economies increased by 25 per cent to $92 billion. Flows to Africa, in contrast, continued downward trend, even though mildly, for the third consecutive year. Indications suggest that developing and transition economies will keep up with the pace of growth in global FDI in the medium term.

FDI flows rose in all three sectors of production (primary, manufacturing and services), according to FDI projects data comprising cross-border M&As and greenfield investments. Services-sector FDI rebounded in 2011 after falling sharply in 2009 and 2010, to reach some $570 billion. Primary sector investment ($200 billion) also reversed the negative trend of the previous two years. The share of both sectors rose slightly at the expense of manufacturing ($660 billion).

FDI AND INTERNATIONAL PRODUCTION ($ BILLION)
Item	2009	2010	2011
FDI inflows	1,198	1,309	1,524
FDI outflows	1,175	1,451	1,694
FDI inward stock	18,041	19,907	20,438
FDI outward stock	19,326	20,865	21,168
Income on inward FDI	960	1,178	1,359
Return on inward FDI (%)	5.6	6.3	7.1
Income on outward FDI	1,049	1,278	1,470
Return on outward FDI (%)	5.6	6.4	7.3
Cross-border M&As	250	344	526
Sales of foreign affiliates	23,866	25,622	27,877
Value-added of foreign affiliates	6,392	6,560	7,183
Total assets of foreign affiliates	74,910	75,609	82,131
Exports of foreign affiliates	5,060	6,267	7,358
Employment by foreign affiliates (000 Nos.)	59,877	63,903	69,065
Source: UNCTAD

Overall, the top five industries contributing to the rise in FDI projects were extractive industries (mining, quarrying and petroleum), chemicals, utilities (electricity, gas and water), transportation and communications, and other services (largely driven by oil and gas field services).

FDI from developed countries rose 25 per cent to $1.24 trillion in 2011. FDI from the USA was driven by a record level of reinvested earnings (82 per cent of total FDI outflows), in part driven by TNCs building on their foreign cash holdings. The rise of FDI outflows from the EU was driven by cross-border M&As. An appreciating yen improved the purchasing power of Japanese TNCs, resulting in a doubling of their FDI outflows.

Outward FDI from developing economies declined by 4 per cent to $384 billion in 2011, and their share in global outflows remained at 23 per cent. FDI flow from Latin America and the Caribbean fell 17 per cent while that from West Asia increased significantly to $25 billion, Outward FDI from transition economies totaled $73 billion.

Cross-border M&As rose 53 per cent in 2011 to $526 billion, spurred by a rise in the number of mega deals (those with a value over $3 billion) to 62, from 44 in 2010.

Greenfield investment projects, which had declined in value terms for two straight years, held steady in 2011 at $904 billion. Developing and transition economies hosted more than two thirds of the total value of greenfield investments in 2011. Although the growth in global FDI flows in 2011 was driven mainly by cross-border M&As, the total project value of greenfield investments remained significantly higher than that of M&As. Cumulative FDI by sovereign wealth funds reached an estimated $125 billion by 2011, with more than a quarter of that in developing countries.

Largest 100 TNCs employed an estimated 69 million workers, who generated $28 trillion in sales and $7 trillion in value added; Data from UNCTAD reflects the overall upward trend in international production, with the foreign sales and employment of these firms growing significantly faster than those in their home economy. Nevertheless, their cash holding levels have reached more than $5 trillion, including earnings retained overseas. Renewed instability in international financial markets will continue to encourage cash holding and other uses of cash such as paying dividends or reducing debt levels, even as the cash "overhang" may fuel a future surge in FDI, as conditions improve.

India
In South Asia, FDI inflows have turned around after a slide in 2009-2010, reaching $39 billion, mainly as a result of rising inflows in India, which accounted for more than four fifths of the region's FDI. FDI outflow from the country rose 12 per cent to $15 billion. Further, the country ranks third after USA and China in the top 10 prospective destinations for the period ending in 2014 by TNC executives.

Printer-Friendly Version E-mail This Article