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Dear Members of the World Investment Network,
 
It is my pleasure to share with you the key findings of the latest issue of UNCTAD's Global Investment Trends Monitor, which this quarter focuses on outward FDI (please see attached).
 
·         The good news is that, "global FDI outflows rose by 13%, with flows from developing and transition economies reaching a record high, both in absolute terms and as a share of global total flows ".  The bad news is that, "global FDI outflows are still 40% short of the record level achieved in 2007, the year prior to the financial crisis".
With public debt unsustainably high in many countries, governments now have to rein in budget deficits. Sustained recovery will thus become increasingly dependent on private investment stepping in. Fortunately, companies are awash with cash. Unfortunately, they seem reluctant to part with it. However, on the positive side, it seems that firms are reigniting the investment engine. In consequence, global FDI outflows in 2010 thus increased by 13%, to over $1.3 trillion. Nevertheless, this level is still some 10% below the pre-crisis average, and 40% below the 2007 peak.
 
·         Outward FDI from developing and transition economies has reached a record high, both in absolute terms and as a share of the global total. The strength of  developing and transition economies, the dynamism of their TNCs, and their growing aspiration to compete in new markets, drove up their outward FDI flows to  $377 billion, a 23% increase over the previous year. Their share in global outflows reached 28%, up from 15% in 2007. Investors from Latin America and South, East and South-East Asia were the major sources for this strong upsurge in FDI outflows. In addition, while FDI outflows from Africa and West Asia continued to decline, those from transition economies also grew in 2010.
 
·         The lion’s share of FDI from the South is directed to the South. In 2010, 70% of FDI projects (cross-border and greenfield FDI projects) from the South were directed towards other developing and transition economies.
 
·         Developed countries saw a limited recovery in their total outward FDI, but their investment in developing economies has increased significantly.   Reflecting the divergences of economic conditions in major developed economies, trends in FDI outflows differed markedly across countries and  regions: Outflows from Europe were slightly up (3%), those from the United States rose significantly (31%), but Japanese outward FDI flows dropped further in 2010  ( by 24%).The lingering effects of the crisis in developed countries has forced many developed-country TNCs to invest further in emerging markets in an effort to maintain their markets  and profits. In 2010 almost half of developed country's investments (cross-border and greenfield FDI projects) was in developing and transition economies, compared to only 30 per cent in 2007.
 

·         The increase in FDI outflows in 2010 was driven by higher reinvested earnings, thanks to improved economic performance in many parts of the world and increased profits of foreign affiliates, especially in developing countries. This increase together with improvements in other investments (mainly intra-company loans) offset equity investments – the component most directly related to TNCs' long-term investment strategies – which remained sluggish in 2010.
 
·         Cross-border M&As are still volatile. They increased in 2010 as a whole, reflecting the growing value of assets on the stock market and the increased financial capability of potential buyers, but declined again in the first quarter of 2011. Greenfield investment projects, in contrast, are larger in value and number than cross-border M&As, but also maintained their upward trend at the beginning of 2011.
 
·         With the global economy gaining strength, rising stock market valuations and rebounding TNC corporate profits, UNCTAD expects FDI outflows to continue to rise in 2011 . Ongoing corporate and industrial restructuring, and a new wave of privatization in some countries, are creating new investment opportunities for cash-rich companies based in both developed and developing countries. TNCs from emerging economies are expected to continue to grow in 2011.
 
·         Clearly, a number of downside risks to FDI growth remain, such as the unpredictability of global economic governance, the sovereign debt crisis in developed countries and fiscal austerity, instability in some regions, rising energy prices and the dangers inherent in inflation, and exchange rates volatility. In addition, the rise in trade and investment protectionism continues to raise concerns and might also play a part in potentially derailing FDI recovery.

For your information, the next issue of UNCTAD's Investment Policy Monitor  (www.unctad.org/diae) will be released on 29 April 2011.

James X. Zhan
Director
Investment & Enterprise Division
United Nations Conference on Trade & Development
Palais des Nations, Geneva
Tel: +41 22 9175797
www.unctad.org/diae

 


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