Report says reversal in FDI flows is expected in South, East, and South-East Asia

Geneva, 17 September 2009 - South, East, and South-East Asia have not been able to escape the shock of the global financial and economic crisis, and foreign direct investment (FDI) there has been slowing since the last quarter of 2008, UNCTAD´s World Investment Report 2009(1) reveals.

Nonetheless, earlier momentum in 2008 meant that FDI to the region rose by 17%, to reach a record high of US$298 billion for the year.

The report, subtitled Transnational Corporations, Agricultural Production and Development, was released today. It indicates that FDI inflows were one third lower in the first quarter of 2009 than in the same period of 2008 (as shown in the table).

The performance of the major economies in the region in attracting FDI varied significantly. With its inflows surging to a historic high (US$108 billion) in 2008, China became the third largest FDI recipient country (after the United States and France) in the world. FDI flows to India surged in 2008 to reach a record US$42 billion. These flows were driven by investments by leading transnational corporations (TNCs) in a range of manufacturing and service industries. The strong performance of the two largest emerging economies, even during the current crisis, has helped reshape the landscape of FDI flows to the region as well as to the world at large: they accounted for half of regional FDI inflows and for about one tenth of global inflows. There was wide variation in FDI into the four Asian newly industrializing economies (NIEs). While inflows to the Republic of Korea soared, and inflows continued to grow in Hong Kong (China), they declined sharply in Singapore and Taiwan Province of China. In Malaysia and Thailand, FDI inflows fell slightly. A number of other South-East Asian countries, including Indonesia and Viet Nam, have been able to maintain growth in FDI despite the crisis.

FDI outflows from South, East, and South-East Asia rose by 7% to US$186 billion in 2008. The region´s outward FDI to developed countries has been growing as part of efforts by Asian firms to acquire strategic assets abroad. However, due to the negative impact of the global crisis on Asian TNCs, FDI outflows from the region will inevitably slow in 2009, although to a lesser degree than in many other parts of the world.

China and India have become important sources of outward investment: their share in total regional outflows rose from 23% in 2007 to 37% in 2008. FDI from China, in particular, surged, reaching US$52 billion in 2008, up 132% from 2007, and China´s outflows are continuing to grow in 2009. Resource-seeking FDI from China continued to expand, with Chinese mining and metal companies becoming more active in acquiring overseas assets. In addition, significant exchange-rate fluctuations and falling share prices abroad as a result of the crisis may have created opportunities for these firms to undertake more cross-border mergers and acquisitions (M&A). Outflows from all four Asian NIEs declined: by 2% from Hong Kong (China) by 7%, from Taiwan Province of China, by 18% from the Republic of Korea, and by a massive 63% from Singapore. Outflows from these economies in 2008 amounted to US$60 billion, $10 billion, $13 billion and $9 billion, respectively. The Asian NIEs have been particularly hard-hit by the crisis, and their relative significance in the region´s outward FDI is continuing to decline.

Since the economies of the region are heavily dependent on external demand, inward FDI should begin to pick up when the global economy improves. In addition, the overall trend in Asian countries to make national policies and legislation more favourable to FDI is opening up more opportunities for foreign companies to do business there. Government policy responses to address the financial crisis and its economic aftermath in countries such as China, Malaysia, the Republic of Korea, and Thailand have played an important role in creating favourable conditions for a recovery of economic growth and FDI inflows. In China, for example, proactive fiscal policy responses to sustain economic growth, including a US$580 billion stimulus package and an expansionist monetary policy, may help to maintain foreign investors´ confidence and FDI inflows at relatively high levels.

ANNEX

Tables and figures

Table 1. FDI flows of selected economies in South, East and South-East Asia and Oceania, 2008-2009, by quarter (Millions of dollars)


Source: UNCTAD, World Investment Report 2009: Transnational Corporations, Agricultural Production and Development, table II. 8

Note:^a Data exclude the financial sector.