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WIR Dear Members of the World Investment Network (WIN), It is my pleasure to share with you the latest issue of UNCTAD's Global Investment Trends Monitor: Global FDI recovery derails. Global foreign direct investment (FDI) inflows declined by 18 per cent in 2012 down from US$1.6 trillion in 2011 to an estimated US$1.3 trillion. It hit a level close to the trough reached in 2009, due mainly to macroeconomic fragility and policy uncertainty for investors. The strong decline of FDI flows is in stark contrast to other macroeconomic variables, including GDP, trade and employment growth which all remain in positive territory. The FDI recovery that had started in 2010 and 2011 will now take longer than expected. FDI flows could rise moderately to US$1.4 trillion in 2013 and US$1.6 trillion in 2014, due to slight improvements in macroeconomic conditions and the re-profiling of business operations by transnational corporations (TNCs). However, significant risks to this scenario persist, including structural weaknesses in major developed economies and in the global financial system, and policy uncertainty in areas crucial for investor confidence. Should these risks prevail, the FDI recovery could be further delayed. In 2012, FDI flows to developed countries fell drastically to $550 billion, a level last seen almost ten years ago. Of the US$300 billion global decline in FDI inflows, almost 90% was accounted for by developed countries. FDI declined sharply in Europe and in the United States. European countries that saw the largest declines in FDI inflows were Belgium and Germany. FDI flows to the Southern European countries hit by the crisis (Greece, Italy, Portugal, and Spain) together more than halved from 2011. The United States remained the largest recipient of FDI flows in the world, despite the FDI fall in 2012. Elsewhere, Japan saw a net divestment for the third successive year. A few other developed countries bucked the trend and saw their FDI inflows increase, namely France, Canada, Ireland, and the United Kingdom, although none of these increases were significant in historic terms. FDI flows to developing economies remained resilient in 2012, declining by only 3%, to US$680 billion – still the second highest level ever recorded. Developing economies absorbed an unprecedented US$130 billion more than developed countries. FDI inflows to developing Asia decreased by 9.5% as a result of declines across most sub-regions and major economies, including China, Hong Kong (China), India, the Republic of Korea, Singapore and Turkey. However, 2012 inflows to Asia were still at their second highest level, accounting for 59% of FDI flows to developing countries. FDI flows to China declined slightly but the country continues to be a major FDI recipient – the second largest in the world. FDI to India declined by 14%, although it remained at the high levels achieved in recent years. For ASEAN as a whole, FDI inflows declined by 7%. However, some member countries (such as Cambodia, Myanmar, the Philippines, Thailand and Viet Nam) registered increases in inflows. FDI flows to West Asia declined for the fourth consecutive year. Latin America and the Caribbean registered positive growth in FDI in 2012. The rise was strongest in South America. The persistent strength of commodity prices continues to encourage investments in the extractive industries, particularly in Chile, Colombia and Peru. FDI to Brazil slowed but remained robust, and the country is still the top investment destination in the region. FDI flows to Africa rose in 2012. Flows to North Africa reversed their downward trend, as Egypt saw a rebound of investment from European investors. The positive growth of FDI flows to South Africa contributed to a rise in inward FDI flows to Southern Africa. Transition economies experienced a decline in FDI flows of 13% as a result of sluggishness of investment from EU countries in South-East Europe, and the fall of FDI flows to the Russian Federation. Data on cross-border merger and acquisitions (M&As) show that developed country investors are divesting massively while investors from developing countries are bucking the trend. In 2012, the value of cross-border M&As fell by 41%, to the lowest level since 2009. The weak M&A market reflects global macroeconomic uncertainty and its impact on corporate confidence, especially in developed markets. A number of developed countries such as Australia, France, Luxembourg, Portugal and the United Kingdom saw large divestments by their TNCs from assets abroad in 2012. In contrast, acquisitions by TNCs from developing economies reached US$115 billion, accounting for a record-high share of 37% of total world M&A purchases. The value of announced greenfield projects declined for the fourth straight year, falling by 34% to their lowest level ever. However, the value of greenfield investments still accounts for two thirds of global investments. For the latest issue of the Global Investment Trends Monitor and the UNCTAD Investment Policy Monitor, please click here . For the latest World Investment Report, please click here. James Zhan Director Investment & Enterprise Division United Nations Conference on Trade & Development Palais des Nations, Geneva Tel: +41 22 9175797 www.unctad.org/diae