UNCTAD’s Floundering FDI Flourish
Geneva-based UNCTAD issued its annual global FDI picture with the $1.5 trillion total in 2011 to stay flat this year and still one-quarter down from the pre-crisis apex. In recent months both M&A and greenfield investments “retreated,” but a “modest increase” is foreseen in the medium term toward the $2 trillion mark. According to its survey of multinational company executives a pessimistic outlook is the immediate consensus by a 10-point margin. Developing and transition economies take half the sum at $780 billion. All regions saw double-digit gains except Africa and the least-developed category; outbound FDI in turn declined on stagnation in Asia and 25 percent drawdown in Latin America with capital repatriation. Cross-border mergers came to $525 billion last year, while new projects were $900 billion. All industry segments—raw materials, manufacturing and services—rose with extraction, utilities and transport among the leaders. The trade body cites sovereign wealth funds with $5 trillion in assets as a growing source with over $30 billion in commitments to date. Data from the largest 100 transnational firms show cash levels including retained earnings at the same SWF combined amount. This “overhang” is due to financial market volatility and dividend payment and debt reduction policies. One-tenth of the hoard can be readily deployed representing $500 billion or one-third the current direct inflow figure. A separate attraction index ranks the top 10 destinations with Mongolia entering for the first time and a number of African countries moving toward that status including Ghana, Mozambique and Nigeria. Argentina, the Philippines and South Africa underperformed, while foreign affiliates’ economic impact is greatest in Europe as in the Czech Republic and Hungary. By region Africa’s fall to $45 billion was concentrated on the Arab North and Egypt and Libya in particular with their civil strife. Commodity price advance and middle class creation encouraged Sub-Sahara activity across a sector range including banking and retail.
Asia accounts for one-quarter of the global total but Asean member growth is catching up with China’s, the review remarks. For the Mainland’s record $125 billion counted in 2011 services outpaced manufacturing in contrast with the historic pattern. In Latin America offshore financial center flows dipped but overall expansion derived from consumer and natural resource outlays. In the outward channel intra-company loan transfer in Brazil was large at $20 billion and industrial policy translating into stricter licensing and procurement rules for the continent may deepen international firm presence in a “barrier hopping” strategy. The CIS grouping picked up after a period of stagnation with Russia’s WTO accession and a resumed privatization program. Kazakhstan continued to draw hydrocarbon interest and Russian banks and corporations have been active investors throughout their traditional geography. Promotional and free trade efforts have increased, with environmental and social sustainability criteria becoming standard to sustain this capital flow component.
