There was a decrease of 39 per cent in global foreign direct investment (FDI) flows in 2009, which impacted on all countries and FDI components, according to the UNCTAD report. Global inflows of FDI fell by 39 per cent from $1.7 trillion in 2008 to a little over $1 trillion in 2009, said the report.
The decline in FDI was widespread across all major groups of economies. After experiencing a severe fall in 2008, FDI flows to developed countries continued their dramatic drop in 2009 - by a further 41 per cent. FDI flows to developing and transition economies, which had risen in 2008, declined in 2009 - by 39 per cent - as the impact of the global financial and economic crisis continued to unfold, it said. All components of FDI - equity capital, reinvested earnings, and other capital flows (mainly intra-company loans) - were affected by the downturn. "However, the decrease was especially marked for equity capital flows, which are most directly related to transnational corporations' longer-term investments strategies," the report said.
"Regarding the mode of entry of the FDI, cross-border mergers and acquisitions were the most affected, with a 66 per cent decrease in 2009 as compared to 2008. The number of international greenfield projects also declined markedly, though to a much lesser degree (-23 per cent). Nevertheless, a number of macroeconomic indicators signal that the overall environment for international investment is slowly improving.
For instance, the IMF's latest World Economic Outlook, released last October, forecasts a 3.1 per cent growth in world GDP for 2010, as against -1.1 per cent in 2009. At the company level, profits of TNCs world-wide have been rising since the second quarter of 2009, thus reversing the sharp drop observed at the end of 2008.
According to Standard and Poors, profits made by the firms that make up the S&P 500 bounced back as early as the second quarter of 2009, to levels equivalent to those of the same period of the previous year. Improving conditions will ultimately encourage companies to revise upward their international investment plans for 2010 onward, which in turn should give rise to growing FDI flows in 2010.
However, as the recovery in economic growth and profits remains fragile, especially because it has been boosted by the potentially transitory impact of special packages, the recovery in FDI is expected to be modest.