Confidence in FDI recovery growing

Transnational corporations (TNCs) are increasingly optimistic about the international investment environment and their own prospects for foreign direct investment (FDI) this year and beyond, this year’s World Investment Prospects Survey 2010–2012 (WIPS) reveals.

The results point to a recovery in global FDI flows in 2010 and further growth in 2011 and 2012. The annual survey seeks to ascertain the FDI plans of the world’s largest TNCs. This year’s results are based on the responses of 236 TNCs and 116 investment promotion agencies (IPAs) to an UNCTAD questionnaire. Reflecting other forecasts of improving global economic activity, TNCs’ perceptions of the international investment climate are on an upswing. Compared to last year’s survey, in which some 47 per cent of respondents expressed pessimistic views regarding 2010, only 36 per cent of respondents this year expressed pessimistic views for the current year.

Looking beyond 2010, the outlook is markedly brighter, with 47 per cent of respondents expressing an optimistic view for 2011 and a solid majority (62 per cent) expressing an optimistic view for 2012. These results suggest that while TNCs are continuing to face short-term difficulties, the crisis has not structurally shifted their plans for the future. The results from the survey also suggest that the crisis was less destructive to FDI than had been feared.

While investment budgets, including those for FDI, were squeezed during the crisis, TNCs did not engage in wholesale divestment of their foreign affiliates. "The crisis did, however, accentuate one recent trend, namely the shifting of TNCs’ geographical focus to developing and transition economies," the survey said.

These economies, which weathered the downturn better and are leading the global recovery, are playing an increasingly important role in TNC strategies. Nine of the top 15 priority FDI destinations for the period ending 2012 are developing or transition economies. Increasing optimism and the lessening impact of the crisis have encouraged TNCs to maintain, and in some cases revise upwards, their international investment programmes, suggesting favourable prospects for FDI flows.

Some 43 per cent of respondents intend increasing their international investment expenditures in 2010 as compared to the low levels of 2009. Roughly 58 per cent of respondents predict increases in 2011 and 2012. TNCs based in developing economies are more optimistic about the growth of their FDI expenditures over the next few years than their developed-economy peers, especially when compared to TNCs headquartered in Europe. On the basis of these findings and other indicators of TNC and FDI activity, UNCTAD's World Investment Report 2010, estimates a base-case scenario which assumes world economic growth of three per cent in 2010 and 3.2 per cent in 2011. It predicts that global FDI flows could reach $1.3–1.5 trillion in 2011 and $1.6–2.0 trillion in 2012, up from an estimated $1.2 trillion in 2010.

A rebound in the cross-border mergers and acquisitions market would be the major driver of this growth, whereas the contribution of greenfield investments – new or additional investments in offices or factories where no production existed before – is expected to be more limited.

The World Investment Prospects Survey 2010–2012 is the most recent in a series of surveys on FDI prospects. UNCTAD has carried out similar surveys since 1995.