The UN’s FDI Trap Tremble
UNCTAD released preliminary 2013 global FDI statistics tracing a 10 percent rise to almost $1.5 trillion, with developed economies “trapped” in a low 40 percent share versus 50 percent for developing and 10 percent for transition countries. The BRICS have doubled their portion since the crisis and inflows are up by the same pace in regional blocs ASEAN and MERCOSUR. The combined worldwide take for the US and EU now negotiating a free trade pact has halved, while Trans-Pacific Partnership member allocation is 10 percent under their 40 percent output size. Cross-border acquisitions increased 5 percent and total FDI should advance another 10 percent this year despite “risks and unpredictability” around quantitative easing shifts which leaves portfolio investment more volatile, the agency commented. The forty industrial nations tracked attracted $575 billion as Japan surged 60 percent to $3 billion while Australia dropped 30 percent and the EU showed mixed performance. Scandinavia was off and North America benefited mainly from Canada’s recovery as the US number stagnated as the leading destination at $150 billion. Emerging Asia is just behind and China and Hong Kong in particular at $125 billion and $75 billion respectively. Singapore and Brazil were roughly tied with $60 billion and India went to $30 billion, around one-third of Russia’s $95 billion as it was third in the ranking for the first time on the $60 billion Rosneft/TNK-BP deal. Saudi Arabia and Turkey both declined 15 percent while Latin America’s boom halted with commodity price reversal hitting Chile and Peru. Africa including the North had a 7 percent direct investment gain to $55 billion, although Nigeria’s $5 billion component was “lackluster” due to oil company pullout. Mexico propelled NAFTA signatories 15 percent ahead on the treaty’s 20th anniversary, and 70 percent of emerging world M&A was South-South as greenfield projects were flat last year.
The 2014-15 forecast is “gradual recovery” as GDP growth, fixed capital formation and trade improve amid a high debt overhang and lagging structural reforms highlighted in a recent paper by the Institute for International Finance. In ten major emerging markets public and private sector debt is now at 135 percent of GDP topped by China with leverage disconnected from output increments. Banks are well capitalized but will soon confront rising credit costs and provisions, and securities development has lagged as a backstop. Along with the cyclical slowdown, an aging population, labor rigidity and business climate and infrastructure gaps continue to weigh on prospects, according to the association. Financial services capacity is below potential across the product range, from sophisticated derivatives for currency and interest rate hedging to basic savings accounts for excluded poor and rural populations. Equity market size has sputtered since the crisis and domestic securities outstanding is under 40 percent of GDP for aspiring middle-income countries trapped in “second generation” inertia, it notes.
