17 Jan 11 - Global FDI stagnant in 2010, developing and transition economies attracted over half of it, for the first time
The stagnation of FDI is a cause for serious concern, as global inflows of FDI rose by merely 1 per cent in 2010. With public investment and stimulus packages running out of steam, private investment in the form of FDI has not yet resumed its role as an engine of growth.
UNCTAD's 5th Global Investment Trends Monitor reports a strong rebound in foreign direct investment (FDI) to developing Asia and Latin America, offsetting a further decline in inflows to developed countries (despite the strong performance of the United States). Africa's inflows further declined by 14 per cent in 2010.
Stagnant global flows in 2010 also masked diverging trends in the components of FDI. Increased profits of foreign affiliates, especially in developing countries, boosted reinvested earnings. However, uncertainties in the global economy and the volatility of currency markets and European sovereign debt resulted in negative intra-company loans and lower equity investments.
Cross-border mergers and acquisitions (M&As) increased by 37 per cent in 2010, while international greenfield projects still fell both in number and in value. However, greenfield investments have held up better during the crisis and continue to be significantly higher than M&A values today, which was not the case before the crisis.
The year was characterized by an unexpected drop in flows during the second quarter and a rebound in the third. UNCTAD's Global FDI Quarterly Index dropped from 107.7 to 82.5 and then rose to 121. Projections for the fourth quarter show a continuing flat trend.
For 2011, UNCTAD projects FDI flows between $1.3 trillion and $1.5 trillion. Improved macroeconomic conditions in 2010 strengthened transnational corporations' corporate profits and boosted stock market valuations. Coupled with rising business confidence in 2011, these will translate into new investments. Some risks clearly persist, such as the slowdown of GDP growth after the "recovery boost", currency volatility, sovereign debt and investment protectionism. A strong global FDI recovery would depend much on the steady economic growth and FDI recovery in the developed economies.