Global foreign direct investment (FDI) inflows declined by 18 per cent in 2012, down from $1.6 trillion in 2011 to an estimated $1.3 trillion. The strong decline of FDI flows is in stark contrast to other macroeconomic variables, including gross domestic product (GDP), trade and employment growth, which all remain in positive territory.
The FDI recovery that had started in 2010 and 2011 will now take longer than expected. FDI flows could rise moderately to $1.4 trillion in 2013 and $1.6 trillion in 2014, due to slight improvements in macroeconomic conditions and the reprofiling (e.g. releasing record cash reserves for investment) of transnational corporations (TNCs). However, significant risks to this scenario persist, including structural weaknesses in major developed economies and in the global financial system, and significant policy uncertainty in areas crucial for investor confidence. Should these risks prevail, the FDI recovery could be further delayed.
In 2012, FDI flows to developed countries fell drastically to $550 billion, a level last seen almost ten years ago. FDI declined sharply in Europe and in the United States. The European countries that saw the largest declines in FDI inflows were Belgium and Germany. The United States remained the largest recipient of FDI flows in the world, despite the FDI fall in 2012.
FDI flows to developing economies remained resilient in 2012, declining by only 3 per cent, to $680 billion - still the second-highest level ever recorded. Developing economies absorbed an unprecedented $130 billion more than developed countries.
FDI inflows to developing Asia fell by 9.5 per cent as a result of declines across most subregions and major economies, including China, Hong Kong (China), India, the Republic of Korea, Singapore and Turkey. However, 2012 inflows to Asia were still at their second-highest level, accounting for 59 per cent of FDI flows to developing countries. FDI flows to China declined slightly but the country continues to be a major FDI recipient - the second largest in the world. Latin America and the Caribbean registered positive growth in FDI in 2012.
The rise was strongest in South American countries such as Argentina, Chile, Colombia and Peru. FDI to Brazil declined but remained robust, and the country is still the top investment destination in the region. FDI flows to Africa rose in 2012. Flows to North Africa reversed their downward trend, as Egypt saw a rebound of investment from European investors.
Transition economies experienced a decline in FDI flows of 13 per cent, as a result of sluggishness of investment from EU countries in South-East Europe and the fall in FDI flows to the Russian Federation.
In 2012, the value of cross-border mergers and acquisitions (M&As) fell by 41 per cent, to the lowest level since 2009. A number of developed countries such as Australia, France, Luxembourg, Portugal and the United Kingdom saw large divestments by their TNCs from assets abroad in 2012. In contrast, acquisitions by TNCs from developing economies reached $115 billion, accounting for a record-high share of 37 per cent of total world M&A purchases.
The value of announced greenfield projects declined for the fourth straight year, falling by 34 per cent to their lowest level ever. However, the value of greenfield investments still accounts for two thirds of global investments.