Info Service on Finance and Development (Oct11/05)
24 October 2011
Third World Network
Modest rise in FDI in first half of this year
Published in SUNS#7242 dated 19 October 2011
Geneva, 18 Oct (Kanaga Raja) - Global foreign direct investment (FDI)
inflows rose by only 2 per cent in the first half of 2011 compared with
the previous half in 2010, continuing the moderate recovery observed
last year, the United Nations Conference on Trade and Development (UNCTAD)
announced on Tuesday.
However, said UNCTAD, FDI prospects were dampened in mid-2011, at the
global and regional levels, on account of increased turmoil in the world
economy, which was marked by fears of a debt crisis in Europe, a slowdown
in the United States economy and declining investor confidence.
In its latest edition of the Global Investment Trends Monitor (No. 7
dated 18 October 2011), UNCTAD further said that its full-year forecast
for FDI remains "cautiously optimistic".
It projected FDI flows close to the pre-crisis average, saying that
this though still remains some 25 per cent below the peak in 2007.
Warning of intensified downside risks, UNCTAD said: "At a time
when the global economy urgently needs a boost from private investment
to generate growth and jobs, investors are becoming increasingly cautious.
Moreover, the attention of policymakers is diverted away from the necessities
of long-term productive investment by the urgencies of short-term crisis
According to the UNCTAD report, global FDI inflows amounted to an estimated
$720.7 billion in the first half of 2011, compared with $706.7 billion
in the second half of 2010.
Developing and transition economies continued to account for more than
half of global FDI inflows in the first half of 2011 mainly due to their
strong economic growth and reinforced by the uncertain economic outlook
in the major developed countries.
The report finds that FDI inflows to South, East and South-East Asia
continued to grow ($184.2 billion in the first half of 2011), driven
by increasing cross-border M&A (mergers and acquisition) deals in
major economies in the region.
The two large emerging economies, China and India, saw inflows rising
by nearly 20 per cent in the first half of 2011. FDI to China is likely
to reach a historically high level in 2011, and that to India is bouncing
back after a slide in 2010.
Major recipient economies in ASEAN (Association of South-east Asian
Nations), including Indonesia, Malaysia, and Singapore also experienced
a rise in inflows, the report adds.
As for Latin America and the Caribbean, the report says that the region
also saw its FDI flows rising in the first half of 2011 ($94.2 billion).
FDI flows to Brazil soared to $32 billion, accounting for more than
one-third of total flows to the region.
"In the region as a whole, there was a significant decline in the
value of cross-border M&As deals following a year of exceptional
increase, but greenfield investments pushed FDI to a higher level."
FDI flows to Africa in the first six months of 2011 ($30.2 billion)
rose moderately largely due to the recovery in South Africa, after a
dramatic fall in 2010.
However, the report notes, continuing political uncertainty in Egypt
and Libya caused a significant fall in FDI flows to North Africa, which
will inevitably cloud the overall performance of the continent.
UNCTAD finds that no sooner had FDI to West Asia recovered in the second
half of 2010 from the fallout of the global financial crisis, than it
suffered from the impacts of the spreading protests in the Arab world
in the first half of 2011, pushing flows down to a level similar to
that in the same period of the previous year. This occurred in spite
of the rise of FDI to Turkey, which attracted a third of total flows
to the region.
Against the background of a fragile world economy, FDI to the transition
economies of South-East Europe and the Commonwealth of Independent States
(CIS) still managed to recover strongly in the first half of 2011 ($41.1
billion). Investors were motivated by the continued growth of local
consumer markets, and by a new round of privatisations.
The report highlights that developed economies as a group experienced
a 4 per cent decline in FDI inflows in the first half of 2011 compared
with the previous half ($353.1 billion in first half of 2011 compared
with $367.3 billion in previous half). The report says that this though
was still up by 42 per cent year on year.
Individual country experiences varied, however, as a number of major
economies in Europe - including France and Germany - saw declines in
the first half of 2011, while countries such as Ireland posted strong
FDI flows to North America fell, particularly to the United States.
Among the other developed economies, flows to Australia remained high
in the first half of 2011, while Japan slipped into divestment for two
The UNCTAD report notes some diverging trends with respect to modes
of entry of FDI.
The value of cross-border M&As rose to $352 billion during the first
three quarters of 2011, up 38 per cent year on year and the strongest
increase since 2007. After a sluggish first quarter, global M&A
sales rebounded strongly in the second quarter, encouraged by better
economic prospects at that time.
However, says the report, the sudden worsening of the debt crisis in
Europe and the United States in the second half of 2011 has truncated
the growth of cross-border M&A sales in the third quarter and is
likely to dampen enthusiasm for major acquisitions in the last quarter
of the year.
The strong growth registered in cross-border M&A deals during the
first three quarters of 2011 was uneven among economic regions.
Developed countries have increased their lead as target countries and
acquirers as well: their cross-border sales grew by 43 per cent to $276
billion. In transition economies, cross-border sales surged from a low
of $2.5 to $21 billion.
In developing countries, a 9 per cent decrease in cross-border M&A
sales (from $60.9 billion in January-September 2010 to $55.3 billion
over the same period in 2011) was weighed down by a 35 per cent decline
in Latin America and the Caribbean (from $23.7 billion in January-September
2010 to $15.3 billion over the same period in 2011).
As for greenfield investments, which with M&As make up the two modes
of FDI, the report finds that these investments declined slightly in
terms of value in the first three quarters of 2011 compared with the
same period last year.
"Growth in projects in developing and transition economies was
not strong enough to compensate for the decline in developed countries.
Nevertheless, developing and transition economies continue to host about
two-thirds of the total value of greenfield investment projects,"
As for prospects for FDI for this year as a whole, UNCTAD said that
its full-year forecast remains cautiously optimistic, projecting FDI
flows close to the pre-crisis average (which is still some 25 per cent
below their 2007 peak).
However, it warns that downside risks have increased, reflecting turmoil
in the eurozone sovereign debt markets and related uncertainties in
the banking sectors, a slow recovery in the United States, spikes in
investor risk aversion, and rising financial market turbulence.
"Due to the significant uncertainties that investors face when
confronting the current economic situation, both greenfield investment
and cross-border M&As declined in value terms between the second
quarter and third quarter of 2011. A sharp slowdown in announced cross-border
M&As during the first half of 2011 further suggests that equity
investments may continue to decline during the rest of the year,"
"Global investment prospects continue to be clouded by the significant
uncertainties that investors face when confronting the current economic
situation. Worldwide demand for private productive investment is increasing
as many countries are shifting towards fiscal austerities. Governments
must facilitate and promote ways for private investment to take up the
slack in the global economy and support a sustained recovery,"
the UNCTAD report concluded.
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