The global economic recovery is taking longer than expected. Economic instability and political uncertainty in various regions around the globe have led to economic indicators that have been slow to return to pre-crisis levels and the positive trends that emerged over the past couple years are trailing off. In their final report on the state of global flows of foreign direct investments for 2012, UNCTAD recorded an 18% decline (to $1.35 billion) with further forecasts rather restrained. Experts are talking about the possibility of raising the bar to $1.8 billion by 2015 on the condition of reducing the existing risks and restoring investor confidence in the medium term.
Developing countries have stolen the thunder. At the beginning of the 2000s, the distribution of FDI flows was split between developed and developing countries at 80% versus 20%. But over the past 12 years, the economies in developing countries have drawn more than half of global FDI. In 2012, 52% of all FDI flowed into these countries while developed countries only saw 41.5%. Of the $300 billion decline in global FDI in 2012, 90% came out of developed countries. Almost all regions around the world recorded a loss in FDI. The most tangible losses were suffered by developed countries (-32%) while developing countries only lost 3.2%. In within each region the picture is completely different, however; in Africa and Latin America, FDI grew by 5.5% and 7.2%, respectively, while Asia declined by 9.5%.
As for the distribution of investors’ interests among groups of developing countries, projects in Asia are still the primary interest (30.1% of total global FDI, plus their percentage grew compared with 2011), follow by Latin America with 18.1% of global FDI, which has also beefed-up its position for several years in a row. There is sustained interest in projects in countries with transitional economies, though they would prefer more dynamic growth – so far, it has been just 1.2% for three years (from 5.3% in 2010 to 6.5% in 2012).
By arranging countries according to amount of FDI attracted, we get some interesting results. There are several developing nations represented in the top ten countries, and in the future, their position will strengthen further. Not to mention, there were three developing nations in the top five, with a total amount of FDI invested in them of more than the amount of FDI invested in the U.S. and the UK ($260 billion vs. $232 billion). The gap between the U.S. and China isn’t very large and within the next three years it is likely that the Chinese economy will catch up to its main competitor.
Yet it should be noted that, despite the overall decline in FDI into Europe, some countries there are seeing positive change. The UK, for example, has managed to attract 22% more in foreign investments than last year, thereby preserving the post-crisis trends. FDI growth was also seen next door in Ireland: In 2012, the Irish economy received 1.5 times more investment than in 2011 and rose to 11th place from 27th. Other notable increases in investment were seen in Hungary (+134%), Sweden (+48.3%), and Luxembourg (+25.6%).
But in three European countries, significant outflows of foreign direct investments were recorded. While this was already the case in the Netherlands in 2010 and Finland in 2008, the situation for Belgium was surprising. For the past eight years, Belgium was always comfortably in the top ten in FDI, but 2012 results cast it down to 145th place in our rating (-$1.6 billion versus +$103 billion a year earlier). FDI into Europe for 2012 shrank by $200 billion, half of which came from the Belgian economy. A large portion of the second $100 billion came from a reduction in FDI to Germany, France, the Netherlands, and Italy.
Most of the major emerging economies also faced a reduction in outside direct investments. The brunt of the blow fell to the Asian countries, but the flow to Brazil also slowed, despite the overall growth of investments in Latin American projects. Investors in search of new ideas turned their attention to Latin America’s manufacturing industry, and as a result, Chile, Colombia, and Peru are in 10th, 17th, and 25th place in the ratings, with growth of 75%, 18%, and 48% for 2012.
Africa’s mining sector has also attracted the attention of investors and despite the political turmoil in North Africa, projects in Uganda, the Democratic Republic of Congo, and Mauritania provided FDI growth of 92.5%, 96.3%, and 104%, respectively. Investors are continuing to withdraw their assets from Angola, which until recently was one of the FDI leaders in the region.
Ratings for the countries that invest the most are also of interest. Since the beginning of the 21st century, the role of developing countries has also grown here. Whereas in 2000 only 12% of global investments came from developing countries, by 2012 these countries already accounted for 35% of projects. The traditional leaders here are the U.S. and Japan, but China is increasing their volume as well. In one year, Chinese companies invested $84 billion, putting the country in third place in the ranking of most-invested countries, though just a year ago they were in sixth.
It should also be noted that not very many countries are investing in other economies. Those ready to invest more than $1 billion total fewer than 50 and those that increased their investments in 2012 were even fewer – about 25.
It is important to draw attention to the fact that four of the five countries investing the most are the same countries that are most attractive for direct foreign investments.
On the back of the continuing Eurozone crisis, investors from developed countries are reluctant to invest their funds in most European countries. In 2012, total investments from developed countries fell by $274 billion, with major reductions in Belgium, the U.S., and the Netherlands. Of the 38 developed countries, investments shrank in 22 of them. But there are some positive examples: German companies increased their investments by 28% and Irish companies quintupled theirs. There were also positive changes in European countries that kept their national currencies: Sweden (+19%), Hungary (+125%), and the Czech Republic (+400%).
The Asian countries lead among the developing countries, accounting for almost 75% of all investments ($308 billion). In addition to China, activity grew from companies from South Korea, Malaysia, Saudi Arabia, and Thailand.
Among the developing countries, the BRICS countries get a special mention. Of the countries that received the most investment, in recent years, they have also become a group of major investors. Over the past 12 years, investments from these five countries grew $145 billion, accounting for 10% of the global total. In 2000, they received a sum of about $7 billion, or 1% of the global total. The BRICS countries are seeking out new markets for their goods.
For most countries, 2012 was not an easy year. Investors have become more careful in choosing targets for medium- and long-term outlooks and are not prepared to take on increased risk. Many countries are reviewing their investment policies, offering investors attractive conditions while a steady trend of attracting them to solve complex issues is taking shape. Businesses are also adjusting their investment strategies to the new realities. Global FDI by the end of 2013 will slightly exceed 2012 figures, totaling $1.4 billion.
Text: Oksana Chaika