27 April 11 - Global FDI outflows rose in 2010, still well short of 2007 peak
UNCTAD's Global Investment Trends Monitor reports that outward FDI from developing and transition economies has reached a record high, with most of the investment from the South directed towards the South.
UNCTAD's 6th Global Investment Trends Monitor, which this quarter focuses on outward foreign direct investment (FDI), reports a 13 per cent rise of global outward FDI, although still 40 per cent short of the record level achieved in 2007, the year prior to the financial crisis. With public debt unsustainably high in many countries, Governments now have to rein in budget deficits. Sustained recovery will thus become increasingly dependent on private investment stepping in. Fortunately, companies are awash with cash. Unfortunately, they seem reluctant to part with it. However, on the positive side, it seems that firms are reigniting the investment engine.
Outward FDI from developing and transition economies has reached a record high, both in absolute terms and as a share of the global total. The strength of these economies, the dynamism of their transnational corporations (TNCs), and their growing aspiration to compete in new markets, drove up their outward FDI flows to $377 billion, a 23 per cent increase over the previous year. Their share in global outflows reached 28 per cent, up from 15 per cent in 2007. Investors from Latin America and South, East and South-East Asia were the major sources for this strong upsurge in FDI outflows. In addition, while FDI outflows from Africa and West Asia continued to decline, those from transition economies also grew in 2010.
The lion's share of FDI from the South is directed to the South. In 2010, 70 per cent of FDI projects (cross-border and greenfield FDI projects) from the South were directed towards other developing and transition economies.
Developed countries saw a limited recovery in their total outward FDI, but their investment in developing economies has increased significantly. Reflecting the divergences of economic conditions in major developed economies, trends in FDI outflows differed markedly across countries and regions: Outflows from Europe were slightly up (3 per cent), those from the United States rose significantly (31 per cent), but Japanese outward FDI flows dropped further in 2010 (by 24 per cent). In 2010 almost half of developed countries' investments (cross-border and greenfield FDI projects) was in developing and transition economies, compared to only 30 per cent in 2007.
With the global economy gaining strength, rising stock market valuations and rebounding corporate profits, UNCTAD expects FDI outflows to continue to rise in 2011. Ongoing corporate and industrial restructuring, and a new wave of privatization in some countries, are creating new investment opportunities for cash-rich companies based in both developed and developing countries. TNCs from emerging economies are expected to continue to grow in 2011.
Clearly, a number of downside risks to FDI growth remain, such as the unpredictability of global economic governance, the sovereign debt crisis in developed countries and fiscal austerity, instability in some regions, rising energy prices and the dangers inherent in inflation, and exchange rates volatility. In addition, the rise in trade and investment protectionism continues to raise concerns and might also play a part in potentially derailing FDI recovery.