The flows of foreign direct investment (FDI) bottomed out internationally in late 2009 and started to rise in 2010, according a UN agency’s World Investment Report.
The United Nations Conference on Trade and Development (UNCTAD) believes that these flows will rise sharply in the future, although it stresses that the rebound is subject to considerable risk.
Flows of FDI, which are highly sensitive to wider economic and financial developments, tend to be very volatile. In 2009 as a whole, aggregate inflows of FDI to reporting countries around the world stood at $1,114 billion (€863 billion). This was down by almost half on the recent peak registered in 2007.
FDI, which involves a company buying or building productive capacity outside its home country, is considered the deepest form of economic integration. Flows of FDI have exploded in recent decades, resulting in the total stock of such investment rising rapidly. In 2009, it stood at $18 trillion, up from just $2 trillion in 1990.
The increasingly important role of FDI can also be seen in foreign affiliates’ share of global gross domestic product (GDP), which reached an historic high of 11 per cent, according to UNCTAD. Employment in these affiliates increased slightly in 2009, to stand at 80 million workers across the globe.
Global sales of foreign affiliates fell by 6 per cent, to $29 trillion, in 2009.
While European and North American companies continue to account for most FDI flows, firms in developing countries are increasingly reaching the point at which they seek to expand their operations beyond their home countries.
FDI from developing countries now accounts for one quarter of the global total, up from just one tenth in the 2000-2003 period.
FDI inflows into developing countries have historically been far higher than outflows, even if the ratio is falling. In 2009, the developing world received almost half of total inflows, a record proportion.
By country, the US remains by a distance the largest source and recipient of FDI. As in 2008, France was the second largest source of FDI in 2009 and the third largest recipient. China was the second largest recipient and the sixth largest source.
The report, which provides an in depth analysis of a particular issue each year, focuses this year on the role of multinational companies in reducing carbon emissions. The report notes that such companies have increased investment in low carbon industries and technologies, but the potential is much larger.
On barriers to investment, UNCTAD finds little evidence of protectionism and believes that the global trend towards liberalisation is continuing.
The report notes that a few dozen curbs on inflows of foreign investment were put in place last year. These measures included tighter regulation of cross-border finance and higher standards of environmental and social protection in developing countries.
