Continued macroeconomic fragility and policy uncertainty has led global FDI flows to decline by 18% in 2012. If risks to global trade persist, developed countries in Europe and North America will be the worst affected, warned a United Nations Conference on Trade and Development (Unctad) report.
Global FDI flows fell from $1600bn in 2011 to $1300bn in 2012. Almost 90% of this decline occurred in developed countries, as FDI declined sharply in Europe and the US. Conversely, FDI inflows into developing economies declined by just 3%. For the first time ever, FDI flows into developing countries exceeded those to developed countries by about $130bn, according to Unctad.
In its 2013 Global Investment Trends Monitor, Unctad found that uncertainty, driven by a weakening macroeconomic environment, has delayed FDI recovery globally. In Europe, Belgium witnessed a significant drop in FDI inflows of $80bn, while Germany posted a decline in FDI due to large divestments.
Crossborder mergers and acquisitions have been a key factor in this, with investors in developed countries divesting heavily. FDI to the European countries at the centre of the eurozone crisis, namely Greece, Italy, Portugal and Spain, more than halved from 2011. The Italian economy, which contracted in 2011 by 2.3%, witnessed sizeable divestments and loan repayments while in Spain FDI inflows declined from $29.5bn in 2011 to $17.5bn in 2012.
Nonetheless, the Latin America and the Caribbean region registered positive FDI growth in 2012. The rise was the strongest in South America, due to the region’s economic buoyancy. Unctad reported that the persistent strength of commodity prices has led to a significant number of market-seeking investments. Chile, Peru and Colombia have all witnessed increased FDI inflows to their extractive industries.
Africa also saw inward FDI rise in 2012. Northern Africa reversed its downward decline, as Egypt’s FDI flows rebounded on the back of increased interest from European investors. The southern Africa region witnessed increases in FDI as Angola posted lower divestments in 2012 compared with 2011, and FDI inflows grew in South Africa.
FDI inflows into developing Asia fell by 9.5% as a result of declines across most of the region’s major economies, including China, India and Singapore. According to Unctad, the generalised global decline in FDI flows reflects declining GDP in large economies, as well as lower trade and capital formation. Perceived risks in the policy environment, including the ongoing eurozone crisis, the US fiscal cliff and government changes in several major economies, have continued to have a negative impact on investor sentiment.