World foreign direct investment (FDI) dropped by 18% to US$1.35 trillion in 2012 and is expected to stay around that level for 2013 before gradually increasing on growing investor confidence.
The United Nations Conference on Trade and Development (Unctad) believed that global FDI recovery would take longer than expected due mainly to economic fragility and policy uncertainty in major economies.
The inter-governmental institution forecast the FDI level to remain close to the 2012 level with an upper range of US$1.45 trillion, a level comparable to the pre-crisis average of 2005 to 2007.
“As macroeconomic conditions improve and investors regain confidence in the medium term, transnational corporations may convert their record levels of cash holdings into new investments.
“FDI flows may then reach the level of US$1.6 trillion in 2014 and US$1.8 trillion in 2015,” Unctad said in its World Investment Report 2013.
However, it pointed out that there were still significant risks to this growth scenario.
“Factors such as structural weaknesses in the global financial system, the possible deterioration of the macroeconomic environment, and significant policy uncertainty in areas crucial for investor confidence might lead to a further decline in FDI flows,” it added.
Another trend surfaced in 2012, as developing economies overtake developed countries in terms of FDI for the first time.
“(FDI flows to developing economies) accounted for a record 52% of global FDI inflows, exceeding flows to developed economies for the first time ever, by US$142bil,” it said.
It added that FDI flows to developing economies proved to be much more resilient, recording their second highest level at US$703bil in 2012 although they declined 4%.
The FDI inflows to developed economies dwindled by 32% to US$561bil, with the European Union accounting for almost two thirds of the global decline.
Australia, New Zealand and North America saw their inflows plummet but inflows to Japan turned positive after two successive years of net divestments.
In terms of regional investment trends, investment flows into Africa rose for the second year running, up 5% to US$50bil. It was one of the few regions that registered year-on-year growth in 2012. Meanwhile, FDI outflows from Africa almost tripled to US$14bil.
“TNCs from the South are increasingly active in Africa, building on a trend in recent years of a higher share of FDI flows to the region coming from emerging markets,” it said.
In terms of FDI stock, Malaysia, South Africa, China and India, in that order, were the largest developing-country investors in Africa.
In other parts of the world, FDI in and from developing Asia lost growth momentum. FDI flows to developing Asia fell by 7% to US$407bil, with South Asia most severely hit.
Total outward FDI from the region remained stable at US$308bil, with China, Malaysia, Thailand and Turkey notably growing their outward investments.
FDI growth in South America hitting US$244bil was offset by a decline in Central America and the Caribbean which moderated to US$103bil.