Economic fragility and policy uncertainty in several regions saw global FDI flows plummet by 18% in 2012 to $1351bn, according to the UN Conference on Trade and Development’s (Unctad) World Investment Report 2013. FDI inflows to developed economies were also down, having decreased by 32% to $561m – their lowest levels in almost 10 years.
Continued policy uncertainty around the eurozone’s debt crisis and declining consumer confidence resulting from the US government’s spending cuts and tax increases, known as sequestration, have led global multinational companies (MNCs) to increase their divestments and re-profile their overseas investments. As a result, FDI declined by 41% in the EU and 26% in the US, according to the report.
In addition, The fDi Report 2013, fDi Intelligence’s annual report on global greenfield investment trends, revealed that FDI project numbers fell by 16.38% in 2012, a marked difference from their 8.54% increase a year earlier. While the number of greenfield FDI projects into the North America region decreased by 9.48% to 1671 projects in 2012, Europe posted an even steeper decline of 20.82%, attracting a total of 3891 projects last year, The fDi Report found.
Although the global economy as a whole has experienced a downturn in FDI inflows, there has been a marked divergence in the performance of the developed and developing economies. While the largest declines in FDI expenditure were recorded in Europe and North America, FDI flows across Africa, the Middle East and Asia-Pacific proved to be resilient. The fDi Report revealed that the Middle East and Africa was the only world region to achieve growth in outward FDI last year, as the number of greenfield FDI projects overseas increased by 9.27%. Furthermore, although the number of projects in Asia-Pacific declined by almost 15%, it remained the leading region, attracting more than 31% of global greenfield projects.
Unctad found that although the activity of MNCs has generally declined, those from developing economies continued their sustained expansion abroad, and Asia was the largest source of outward FDI, accounting for three-quarters of FDI from the developing world. Additionally, for the first time, FDI inflows to developing countries as a bloc exceeded flows to developed economies by $142bn, and Unctad estimated that developing countries accounted for 52% of global FDI inflows.
FDI flows to Africa rose by 5% to $50bn, making it one of the few world regions that registered year-on-year growth in 2012, according to Unctad. MNCs from South Africa were highlighted as playing a significant role in accelerating outward FDI from the continent, with outflows tripling to $14bn in 2012. Unctad maintained that this was part of a wider trend where BRICS – Brazil, Russia, India, China and South Africa – were expected to be the leading source of FDI among emerging economies.
Outward FDI flows from the BRICS rose from $47bn in 2000 to $145bn in 2012, representing 10% of the world’s total FDI. This increase in FDI from developing economies is expected to persist into 2014, and a “possible deterioration of the macroeconomic environment” in the West could lead more MNCs from both the developing and the developed world to seek growth in emerging markets.