Global foreign direct investment (FDI) flows rose moderately to US$1.24 trillion in 2010, but were still 15 percent below their pre-crisis average, finds the World Investment Report. This is in contrast to global industrial output and trade, which were back to pre-crisis levels.
The report, conducated by the United Nations Conference on Trade and Development, estimates that global FDI will recover to its pre-crisis level in 2011, increasing to $1.4–1.6 trillion, and approach its 2007 peak in 2013. This positive scenario holds, barring any unexpected global economic shocks that may arise from a number of risk factors still in play.
For the first time, developing and transition economies together attracted more than half of global FDI flows. Outward FDI from those economies also reached record highs, with most of their investment directed towards other countries in the South. In contrast, FDI inflows to developed countries continued to decline.
Responses to the WIPS also suggest strongly the continuing importance of developing and transition economies as destinations for FDI. The top 5 destinations are China, United States, India, Brazil, and Russia.
Inflows to East Asia, South-East Asia and South Asia as a whole rose by 24 percent in 2010, reaching $300 billion. However, the three subregions experienced very different trends: inflows to ASEAN more than doubled; those to East Asia saw a 17 percent rise; FDI to South Asia declined by one-fourth.
Inflows to China, the largest recipient of FDI in the developing world, climbed by 11 percent, to $106 billion.
With continuously rising wages and production costs, however, offshoring of labour-intensive manufacturing to the country has slowed down, and FDI inflows continue to shift towards high-tech industries and services.
In contrast, some ASEAN member States, such as Indonesia and Vietnam, have gained ground as low cost production locations, especially for low-end manufacturing.
The decline of FDI to South Asia reflects a 31 percent slide in inflows to India and a 14 percent drop in Pakistan. In India, the setback in attracting FDI was partly due to macroeconomic concerns. At the same time, inflows to Bangladesh, an increasingly important low-cost production location in South Asia, jumped by 30 percent to $913 million.
FDI outflows from South, East and South-East Asia grew by 20 percent to about $232 billion in 2010. In recent years, rising FDI outflows from developing Asia demonstrate new and diversified industrial patterns.
In extractive industries, new investors have emerged, including conglomerates such as CITIC (China) and Reliance Group (India), and sovereign wealth funds, such as China Investment Corporation and Temasek Holdings (Singapore).
Metal companies in the region have been particularly active in ensuring access to overseas mineral assets, such as iron ore and copper.
In manufacturing, Asian companies have been actively taking over large companies in the developed world, but face increasing political obstacles.
FDI outflows in the services sector have declined, but M&As in such industries as telecommunications have been increasing.
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