Despite global investment contraction, inflows to least developed countries hit record, UNCTAD report shows

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Despite global investment contraction, inflows to least developed countries hit record, UNCTAD report shows
Developing countries, led by India, boost share of investment in LDCs

Geneva, Switzerland, 26 June 2013

Foreign direct investment (FDI) inflows to least developed countries (LDCs) rose by 20 per cent in 2012 to a record US$26 billion, UNCTAD’s World Investment Report 20131 reveals.  The majority of greenfield investment in LDCs in 2012 originated from other developing economies, led by India, the annual survey notes.  Greenfield investment is new investment or the expansion of existing investment in recipient nations, as opposed to investment through mergers and acquisitions.

The report, which is subtitled Global Value Chains: Investment and Trade for Development, was released today.

FDI flows to LDCs1 grew by 20 per cent in 2012, the study says. The growth was led by strong gains in Cambodia (where inflows were up 73 per cent), the Democratic Republic of the Congo (96 per cent), Liberia (167 per cent), Mauritania (105 per cent), Mozambique (96 per cent), and Uganda (93 per cent).

However, 20 LDCs reported declines in FDI, the World Investment Report notes. The trend was particularly pronounced in Angola, Burundi, Mali, and the Solomon Islands.

While FDI inflows to LDCs as a share of global inflows increased from 1.3 per cent in 2011 to 1.9 per cent in 2012. FDI inflows to the top five LDC recipients accounted for 60 per cent of total 2012 inflows to LDCs (figure 1).

While the estimated value of announced greenfield investment projects in LDCs – figures that are available in geographic and sectoral breakdowns – declined, developing economies, with 59 per cent of the value of greenfield projects, were the largest such investors in LDCs in 2012. Of these, 80 per cent of greenfield inflows came from Asia, and most of the rest from Africa (table 1). By sector, the primary sector attracted 20 per cent of all greenfield investments in LDCs; the services sector accounted for 50 per cent, and manufacturing made up the remaining 30 per cent.

Most investments in the services sector are “infrastructural”, relating to electricity, gas and water; transport and communications; and financial services, the report notes. Together, these elements accounted for 75 per cent of investment in the services sector. Similarly, the manufacturing sector is not very diversified in relative terms: 57 per cent of greenfield investment in the manufacturing sector remained in three industries: coke, petroleum products, and nuclear fuel; non-metallic mineral products; and metals and metal products.

In terms of share of greenfield projects in LDCs in 2012, companies from India were responsible for 20 per cent of total value. In addition to their scale, India’s investments in LDCs have been diversified geographically and sectorally, the report says. Among the destinations of large-scale projects, in 2012 Mozambique was the largest recipient of Indian greenfield investment (45 per cent), followed by Bangladesh (37 per cent) and Madagascar (8 per cent).

In Africa, greenfield investments from India were targeted at the east and south of the continent. These projects were not limited to large-scale investments in extractive and heavy industries, but also extended to smaller ones in pharmaceuticals and health care. In Asia, while Bangladesh was the only LDC where Indian greenfield investment was announced during 2012, Indian projects were spread over various industries, including automotives, IT, pharmaceuticals, textiles, and tyres, the report says.


Figure 1. Shares of top 5 recipients of FDI flows in LDCs, 2012
(as percentages)
Source: UNCTAD, World Investment Report 2013.

Table 1. Greenfield FDI projects in LDCs by region/country, in 2011 and 2012
(Millions of US dollars)
Source: UNCTAD, World Investment Report 2013.