|
||
|
TWN
Info Service on Finance and Development (Jan12/03) Geneva, 26 Jan (Kanaga Raja) - Global foreign direct investment (FDI) inflows rose by 17 per cent to $1.5 trillion in 2011, surpassing their pre-crisis levels, according to the latest estimates by the United Nations Conference on Trade and Development (UNCTAD). In its Global Investment Trends Monitor (No.8), UNCTAD has further estimated that FDI flows will rise moderately in 2012, to around $1.6 trillion. However, it cautioned that the fragile recovery of the world economy in 2011 - with growth tempered by the debt crisis in developed countries, the uncertainties surrounding the future of the euro, and rising financial market turbulence - will have an impact on FDI flows in 2012. The downward quarterly trend in FDI projects over the final quarter of 2011 indicates that the risks and uncertainties for further FDI growth in 2012 remain in place, it said. According to UNCTAD, global FDI inflows rose in 2011 by 17 per cent compared with 2010, despite the economic and financial crisis. The rise of FDI was widespread, including all three major economic groupings - developed, developing and transition economies. UNCTAD's FDI Global Quarterly Index remained notably steady during 2011, underscoring the increased stability of flows witnessed during the year. Unlike foreign portfolio flows that have dramatically started to decline in the third quarter of 2011, FDI flows maintained their upward trends at least until this period. However, as preliminary data from cross-border M&As (mergers and acquisitions) and greenfield investment projects suggest, FDI flows are expected to slow down in the fourth quarter of 2011. After three years of consecutive decline, FDI flows to developed countries grew robustly in 2011, reaching an estimated $753 billion, 18 per cent up from 2010. While FDI flows to Europe increased by 23 per cent, flows to the United States declined by 8 per cent. These trends stand in stark contrast with the previous year which saw a strong recovery in the United States and a continuing decline in Europe. Large-scale swings (from contraction in 2010 to expansion in 2011 or vice versa) were also observed for a number of major FDI recipients, including Denmark, Germany, Italy, Sweden and the United Kingdom. Ireland witnessed a large increase in FDI flows due entirely to equity and debt movements in the financial sector, said UNCTAD. The rise in FDI in developed economies, mainly in European countries, was driven by cross-border M&As which in most cases appear to be driven by corporate restructuring, stabilization and rationalization of their operations, improving their capital usage, and reducing the costs. Rising cross-border M&As in developed countries were partly due to the sale of non-core assets (e.g. Carrefour SA of France completed the spin-off of its Distribuidora Internacional de Alimentacion in Spain for $3.1 billion), and targeted opportunistic deals due to the lower currency values and fire sales caused by lower prices of stock exchange markets. However, UNCTAD stressed that these general trends were not shared equally by all developed countries. For example, FDI in Greece and Germany was down but in Italy and France, it was up. The differences also manifested themselves among different FDI components. In the majority of developed countries, the share of equity investment declined to less than 40 per cent, reinvested earnings accounted for almost half of FDI flows while "other capital" flows (primarily intra-company loans) increased. In Europe alone, these debt flows swung from minus $25 billion in the first three quarters of 2010 to +$36 billion in the same period in 2011 reflecting parent firms' responses to the financial difficulties faced by their European affiliates. According to UNCTAD, developing and transition economies continued to absorb half of global FDI inflows in 2011, though with a somewhat smaller share than in the previous year. FDI flows to developing Asia (excluding West Asia) - the principal driver of the dynamic rise of developing and transition economies - decelerated as the region suffered from the protracted crisis in Europe. On the other hand, Latin America and the transition economies saw a significant rise in inflows, though not enough to increase the share of all developing countries and transition economies in global flows. FDI flows to developing Asia (excluding West Asia) rose 11 per cent in 2011, despite slowing down in the later part of the year. By sub-region, East Asia, South-East Asia and South Asia received inflows of around $209 billion, $92 billion and $43 billion, respectively. With a 16 per cent increase, South-East Asia continued to outperform East Asia in growth of FDI, while South Asia saw its inflows rise by one-third after a slide in 2010. The good performance of South-East Asia, which encompasses the Association of Southeast Asian Nations (ASEAN) as a whole, was driven by sharp increases of FDI inflows in a number of countries, including Indonesia, Malaysia and Thailand, UNCTAD noted. FDI to China rose by 8 per cent to an estimated $124 billion ($116 billion in the non-financial sector), as a result of increasing flows to non-financial services, though FDI growth in the country slowed down in the last two months of 2011. FDI to Latin America and the Caribbean rose an estimated 35 per cent in 2011, to $216 billion, despite a 31 per cent drop of the region's cross-border M&A sales. Most of the FDI growth occurred in Brazil, Colombia and offshore financial centres. UNCTAD found that foreign investors continue to find appeal in South America's endowment of natural resources and they are increasingly attracted by the region's expanding consumer markets. Particularly attractive are Brazil's market size and its strategic position that brings other emerging markets such as Argentina, Chile, Colombia and Peru within easy reach. In addition, uncertainty in the global financial market served to boost flows to the region's offshore financial centres. The fall in FDI flows to Africa in 2009 and 2010 continued into 2011, though at a much slower rate. The recovery in flows to South Africa did not offset the significant fall in FDI flows to North Africa: Egypt, Libya and Tunisia all witnessed sharp declines in FDI flows during the year. Central Africa and East Africa experienced overall decreases in inward investment flows. West Africa and Southern Africa, meanwhile, saw robust growth during the year. As for West Asia, UNCTAD said that this region witnessed a 13 per cent decline in FDI flows to an estimated $50 billion in 2011. Turkey stood out as an exception, with inward FDI registering a strong 45 per cent increase to $13 billion, mainly due to a sharp rise in cross-border M&As sales. This consolidated the country's position as the region's second largest FDI recipient behind Saudi Arabia, where FDI dropped by 44 per cent, to an estimated $16 billion in 2011. Meanwhile, the transition economies of South-East Europe and the Commonwealth of Independent States experienced a strong recovery of 31 per cent in their FDI inflows in 2011. This was mainly due to a number of large cross-border deals in the Russian Federation targeting the energy industry. Investors were also motivated by the continued growth of local consumer markets and by a new round of privatisations. With respect to the various modes of FDI, UNCTAD found that cross-border M&As rose sharply in 2011 - especially mid-year - as deals announced in late 2010 came to fruition. Rising M&A activity, especially in the form of mega-deals, in developed countries and transition economies served as the major driver for this increase. It underlined that the extractive industry was targeted by a number of important deals in both regions, while a sharp rise in pharmaceutical M&As took place in developed countries. "M&As in developing economies fell slightly in value. New deal activity began to falter in the middle part of the year as the number of announcements tumbled dramatically. Completed deals, which follow announcements roughly by half a year, also started to slow down by year's end." In contrast, UNCTAD found that greenfield investment projects declined in value terms for the third straight year, despite a strong performance in the first quarter. "As these projects are registered on an announcement basis, their performance largely coincides with investor sentiment during a given period." Thus, UNCTAD explained, their tumble in value terms beginning in the second quarter of the year was strongly linked with rising concerns about the direction of the global economy and events in Europe. For the year as a whole, the value of greenfield investment projects dropped 3 per cent, compared with the previous year, with nearly three-quarters of this decline occurring in developed countries. Greenfield investment projects in developing and transition economies rose slightly in 2011, accounting for about two-thirds of the total value of greenfield investment projects. As for prospects for FDI in 2012, UNCTAD said that based on the current prospects of underlying factors, such as GDP growth and cash holdings by transnational corporations (TNCs), it estimates that FDI flows will rise moderately in 2012, to around $1.6 trillion. "However, the fragility of the world economy, with growth tempered by the debt crisis in developed countries, the uncertainties surrounding the future of the euro, and rising financial market turbulence will have an impact on FDI flows in 2012." Both cross-border M&As and greenfield investments slipped in the last quarter of 2011. M&A announcements continue to be weak, suggesting that equity investment - part of FDI flows - will slow down in 2012 especially in developed countries. All these factors indicate that the risks and uncertainties for further FDI growth in 2012 remain in place, it concluded.
|
||
