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Emerging markets will attract more FDI inflows

(China Daily)
Updated: 2009-10-19 08:52

The global economic and financial crisis has had a major impact on foreign direct investment (FDI) flows.

After declining in 2008 by 17 percent to $1.73 trillion from $2.09 trillion in 2007 - the high point of a four-year long boom in cross-border mergers and acquisitions (M&As) and FDI - global FDI inflows are forecast to plunge by 44 percent to less than $1 trillion in 2009.

The big drop in 2009 is occurring despite the improvements in the global economy in recent months.

However, a notable feature of trends in 2009 is that emerging markets for the first time are set to attract more FDI inflows than the developed world.

Global FDI

Global FDI inflows are estimated to have contracted by 49 percent in the first half of 2009, compared with the same period in 2008.

The estimate is based on data for 54 countries (20 developed countries and 34 emerging markets) that accounted for just under 90 percent of total global FDI inflows in 2008.

For 47 of the countries, FDI inflows in the first half of 2009 were lower than in the first half of 2008; only seven countries recorded growth in inflows over this period. The decline in inflows to developed countries was significantly sharper than the drop for emerging markets - by 54 percent and 40 percent, respectively.

The declines were especially marked in the United States and United Kingdom, by 68 percent and 85 percent, respectively. Among emerging market regions, the sharpest decline, by 55 percent, was to Eastern Europe.

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Flows to Latin America and to emerging Asia declined by one-third in each case. China, the main emerging market FDI recipient, had a decline of only 18 percent, while FDI flows to Brazil and Mexico dropped by 25 percent.

Only a modest improvement is expected in the second half of 2009. Despite improved global economic trends in recent months, a significant recovery in M&As will not happen soon.

Rising confidence and a rally in equity markets have failed to boost M&As, since corporations remain very cautious and bank financing is constrained. The nine-month 2009 data for M&As was not encouraging.

According to data provider Dealogic, the value from M&A deals globally of $1.62 trillion in the first nine months of 2009 was down by 37 percent on the same period in 2008.

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