Global foreign direct investment raises 5 per cent in 2010
26 July 2011
According to the study, however, FDI flows at the end of the year were still some 15 per cent below their pre-crisis average and nearly 37 per cent below their peak in 2007.
The United Nations Information Center (UNIC) in Tehran, said in a press release Tuesday that overall, investment continued to lag behind recoveries in global industrial output and world trade, which were already back to their pre-crisis levels.
UNIC was referring to the World Investment Report 2011 (WIR11), subtitled “Non-equity modes of international production and development”, which was released in Geneva on Tuesday.
UNCTAD predicted in the report that the recovery of FDI flows will continue in 2011 and will reach a total of some $1.4 to $1.6 trillion, thus returning to the pre-crisis average.
Thereafter, flows are forecast to rise to $1.7 trillion in 2012 and $1.9 trillion in 2013.
The record level of cash holdings, low rates of debt financing and rising stock market valuations of transnational corporations (TNCs) should encourage them to expand overseas, the report said.
On the recipients’ side, ongoing corporate and industrial restructuring, privatizations resulting from fiscal rebalancing efforts and unwinding of state support programs, and the growth of emerging economies should create new investment opportunities.
However, the post-crisis business environment is still beset by uncertainties. Risk factors such as the unpredictability of global economic governance, a possible widespread sovereign debt crisis, and fiscal and financial sector imbalances in some developed countries, as well as rising inflation and signs of overheating in major emerging market economies, may yet derail the FDI recovery.
In 2010, the rise of emerging economies as new powerhouses of FDI became more apparent.
Developing countries and transition economies absorbed more than half of global FDI inflows for the first time (table 1).
As international production and, more recently, the weight of global consumption shift towards developing and transition economies, both efficiency-seeking and market-seeking projects in those economies were on the increase, the report said.
Half of the top 20 host economies for FDI in 2010 were developing and transition economies. Their outward FDI also rose sharply in 2010, climbing by 21 per cent. These economies now accounted for 29 per cent of global FDI outflows. Six developing and transition economies were among the top 20 investors.
Despite the emergence of certain developing countries, FDI flows continued to decline in some of the poorest regions of the world.
Flows to the Africa and South Asia, as well as to least developed countries, landlocked developing countries and small island developing States fell in 2010.
In terms of sectoral patterns, FDI in services continued its downward path in 2010. All the main service industries (business services, finance, utilities, and transport and communications) saw FDI flows fall, though at different speeds.
FDI flows to the financial industry experienced one of the sharpest declines. The share of foreign investment channeled to manufacturing increased, meanwhile, and accounted for almost half of all FDI projects – cross-border mergers and acquisitions and green-field projects, which were types of manufacturing new to a country or region.
Within manufacturing, flows fell in business-cycle-sensitive industries such as metals and electronics. The chemical industry, including pharmaceuticals, remained resilient through the crisis, while industries such as food, beverages and tobacco, textile and garments, and automobiles, recovered in 2010.
FDI channeled to extractive industries, a sector relatively unaffected by the crisis, declined, despite the growing demand for raw materials and energy resources.
The importance of TNCs to the global economy could be gauged from the indicators of international production, which showed gains in 2010.
UNCTAD estimated that sales and value added of foreign affiliates around the world reached $33 trillion and $7 trillion, respectively, in 2010. Their exports amounted to more than $6 trillion, about one third of total global exports.
Worldwide TNC operations, both at home and abroad, generated value added of approximately $16 trillion in 2010 – about a quarter of world gross domestic product.
Among the 100 largest non-financial TNCs, 19 were state-owned. Today, there are at least 650 state-owned TNCs with an estimated 8,500 foreign affiliates. While relatively small in number –less than 1 per cent of all TNCs – they undertook FDI estimated at $146 billion in 2010, accounting for about 11 per cent of the global flows.
Developing and transition economies were home to the majority of these firms (56 per cent), although developed countries maintain a significant number of state-owned TNCs.
In contrast to the widely held perception that state-owned TNCs were largely concentrated in the primary sector (8.6 per cent), they were present in diverse industries, particularly in the services sector.
From 2003 through 2010, FDI projects by state-owned TNCs made up an average of 32 per cent of total outflows from developing countries. The number of mega-deals for which developing country state-owned TNCs have been responsible in the past five years is indicative of their importance.
Four of six FDI projects with a value of more than $10 billion (one merger and acquisition and three green-field investment projects) were undertaken by developing country state-owned TNCs.
While there were no official statistics on the FDI stock controlled by state-owned TNCs, a rough estimate suggests that their share of global outward stock was no less than 6 per cent in 2010.
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