Asia-Pacific has become the key driver for global FDI with the Middle East, Africa and Latin America increasing in importance. Only a global recession wiping out the economic gains being made in emerging markets would reverse the growth in FDI, because many emerging markets are reaching a critical mass whereby further economic growth is being accompanied by outward investment as they become ever more important for the revenues, profits and human and natural resources of Western multinationals.
While M&A activity is highly concentrated in developed economies, with North America and Europe accounting for more than three-quarters of global M&A in 2007, the FDI market is more evenly spread geographically. North America and Europe accounted for more than one-third of FDI by value in 2007, behind Asia-Pacific.
In emerging markets, the primary investment mode for accessing customers, resources and technology is greenfield FDI rather than M&A, Asia-Pacific’s share of global FDI projects has increased from 32% in 2007 to 36% in Q1 2008 and its share of projects by value increased from 43% to 44%. In contrast, the market share of North America and Western Europe declined in Q1 2008.
Financial services increased its share of global FDI projects from 11.6% in 2007 to 13.3% in Q1 2008 and its share of global jobs created by FDI increased from 4.4% to 6.6% – the biggest increase of any sector. This is in stark contrast to M&A activity in the sector. The key reason for growth in the sector is huge growth in financial services investment overseas by companies from emerging markets as they seek to expand their global footprint – including in other developing economies.
Dr Henry Loewendahl is product director for fDi Intelligence.