Global FDI has enjoyed a modest recovery this year, according to the UN Conference on Trade and Development (UNCTAD) 2010 World Investment Report.

Following last year’s 37% FDI freefall to $1114bn, the annual study predicts that global inflows will reach more than $1200bn in 2010; $1300bn to $1500bn in 2011; and $1600bn to $2000bn in 2012, sparking “cautious optimism for FDI prospects in the short run and a full recovery further on”. UNCTAD’s figures include mergers and acquisitions and other types of portfolio investments in addition to greenfield investments.

Developing and transitional economies are the driving force behind this recovery, attracting half of global FDI inflows and investing one-quarter of outflows, says the report. Recovery has been strongest in Asia, which broke out of the global downturn as early as mid-2009, while FDI is gaining momentum in both Africa and South America.

However, the report warns that economic recovery is still threatened by constraints in public investment, uncertainty about financial regulatory reforms, limited access to credit and the volatility of the stock and foreign exchange markets. Private investment will be crucial for stimulating growth and employment.

Small, vulnerable and weak economies, particularly the least developed countries, land-locked developing countries and small developing island states, are most at risk of economic stagnation because of their dependence on foreign investment, says the report.

Climate change was a large focus of the report. According to UNCTAD, transnational corporations could help to mitigate environmental damage by improving production and supplying cleaner goods, services and technology.

“Already large, the potential for crossborder lowcarbon investment is enormous as the world transitions to a low-carbon economy,” says the report.