China, India and Brazil have been ranked as the top three destinations with the best future prospects for FDI, according to the global management consulting firm, AT Kearney’s 2012 FDI Confidence Index. The index, which regularly measures senior executive sentiment in the world’s largest companies, holds that emerging markets, particularly those in south-east Asia, will fare well. China, India and Brazil took the top three positions due to their large and growing consumer bases, while Russia placed 12th.
China maintained its 2010 position at number one, while the US fell from second to fourth place, with its debt gridlock weighing heavily on investor sentiment. Indonesia, Malaysia, Singapore, Thailand and Vietnam all appeared in the top 20. South Africa, which was unranked in 2010, took 11th place.
Prospects for near-term recovery in developed economies continue to remain shaky, according to AT Kearney’s FDI Confidence Index, as the debt crisis continues to loom large. 55% of corporate investors surveyed reported that while their FDI budgets had returned to pre-crisis levels, more than one-fifth held they do not expect their FDI volumes to return to pre-crisis levels until 2014 or later.
AT Kearney found that FDI flows picked up slightly in the past two years as investors cautiously re-entered the markets. Nevertheless, as economic uncertainty in Europe and the US continues, this modest optimism could quickly revert to retrenchment as investors weigh potential upside opportunities against downside risks.
“While volumes were nowhere near their highs of the mid-2000s, these modest gains signal the beginnings of cautious optimism on the part of investors,” said Paul A. Laudicina, managing officer and chairman of AT Kearney in an official online statement. “With prospects for near-term recovery shaky and debt crises looming large, this modest optimism could quickly revert to retrenchment.”
Several factors, including the sovereign debt crisis, slow recovery in US and Europe and the continuing unrest in the Arab world, continue to make corporate investors cautious about the short-term future. More than 60% of respondents feel that the recession has significantly changed the global business environment.
Yet expectations are quite different for emerging economies, as their FDI flows have grown from 12% to 23% of the global total. “Given increasingly fierce competition from emerging markets, established players from developed economies will need to revise their strategies to deal with this new competitive landscape,” said Mr Laudicina.