The key message: global FDI flows exceeded pre-crisis levels in 2011, despite the turmoil in the global economy. Prospects for 2012 are cautiously optimistic.

Despite turmoil in the global economy, global foreign direct investment (FDI) inflows rose by 17 per cent in 2011, to US$ 1.5 trillion (UNCTAD estimates), surpassing their pre-crisis average.

FDI inflows increased in all major economic groupings − developed, developing and transition economies. Developing and transition economies continued to account for half of global FDI in 2011 as their inflows reached a new record high, at an estimated US$755 billion, driven mainly by robust greenfield investments.

In developing and transition economies, the 2011 increase in FDI flows was no longer driven by South, East and South-East Asia (which saw an increase of 11 per cent), but rather by Latin America and the Caribbean (increase of 35 per cent) and by transition economies (31 per cent). Africa, the region with the most least developed countries (LDCs) being located, continued its decline in FDI inflows.

FDI flows to developed countries also rose by 18 per cent, but the growth was largely due to cross-border merger and acquisitions (M&As), not the much needed investment in productive assets through greenfield investment projects. Moreover, part of the M&A deals appear to be driven by corporate restructuring and a focus on core activities, especially in Europe.

Based on the current prospects of underlying factors, such as GDP growth and cash holdings by transnational corporations (TNCs), UNCTAD estimates that FDI flows will rise moderately to around US$1.6 trillion in 2012.

However, the fragility of the world economy will have an impact on FDI flows in 2012. Both cross-border M&As and greenfield investments slipped in the last quarter of 2011, indicating the risks and uncertainties for further FDI growth in 2012.

For your information, the next issue of UNCTAD's Investment Policy Monitor will be released in the first week of February 2012.

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

WIR