Global FDI inflow rises with developing economies leading in 2010

10:59, July 27, 2011      

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By Shao Haijun

JOHANNESBURG, July 26 (Xinhua) -- Global foreign direct investment (FDI) rose 5 percent to 1.24 trillion U.S. dollars in 2010, while those to developing economies and transition economies- - for the first time -- surpassed the 50 percent mark of global FDI flows, United Nations Conference on Trade and Development (UNCTAD)'s annual report said on Tuesday.

The World Investment Report 2011, subtitled "Non-equity modes of international production and development", was released in Johannesburg, the economic center of South Africa.

According to the report, the FDI flows at the end of 2010 were still some 15 percent below their pre-crisis average of 1.472 trillion dollars and nearly 37 percent below their peak in 2007 of 1.971 trillion dollars.

"This figure showed strong recoveries compared to pre-crisis level. But investment (still) lagged behind recoveries in global industrial output and world trade." Said Stephen Gelb, who was leading the discussion of the report and also the professor of Johannesburg University.

In 2010, developing and transition economies' share of the global FDI inflows exceeds that of developed economies to be 52 percent and the FDI flows to developing economies rose by 12 percent to 574 billion dollars in 2010.

"This is the first time the developed economies have slipped below 50 percent," Stephen Gelb said. It was attributed to "their relatively fast economic recovery, the strength of domestic demand and burgeoning South-South flows."

In regional level, global economic crisis and political unrest weigh on recovery of the FDI in west Asia which saw 12 percent decreasing to 58 billion dollars. "long-term prospects for outward investment are positive on the whole, as expected high oil prices suggest that funds available for investment abroad will continue to rise," The report said.

The FDI inflows to Europe fell most sharply to 313 billion dollars, or 19 percent decrease, due to "a gloomier economic outlook and a looming sovereign debt crisis."

Declining FDI inflows were also registered in Japan, where net inflows turned to negative 1.25 billion dollars due to large divestments by foreign transitional corporations.

By contrast, inflows of FDI to North America showed a strong turnaround, with an increase of 44 percent to 252 billion dollars.

The report also found that FDI flows to Latin America and the Caribbean increased by 13 percent in 2010 to 159 billion dollars, while developing Asia (excluding West Asia) set new records for FDI inflows and outflows in 2010 with a rise of 24 percent to 300 billion dollars, nearly one fourth of the global total.

But FDI flows to Africa fell 9 percent with the total of 55 billion dollars, or 10 percent of total FDI inflows to developing countries.

UNCTAD predicted that investment flows with greater development impacts are likely to come from neighboring countries in the long term.

In term of sectoral patterns, FDI in services continued its downward path in 2010 with the share of 30 percent, 3 percent lower than that in 2009.

The share of FDI channeled to manufacturing increased with total of 554 billion dollars or 48 percent share. The report explained this as cross border merger and acquisitions and Greenfield projects soaring. FDI flows to the primary industry were 254 billion dollars.

UNCTAD predicts the recovery of FDI flows will continue in 2011 and will reach a total of some 1.4 to 1.6 trillion dollars. Thereafter flows are forecast to rise to 1.7 trillion dollars. But there are still downward risks.

"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 economies, may yet derail the FDI recovery," the report said.

The report also warned that the risk of investment protectionism has increased as restrictive investment measures and administrative procedures have accumulated over the past few years.

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