Foreign direct investment flow declines

Last year saw further drops in foreign direct investment (FDI) levels globally, though the rate of decline slowed markedly. The precarious nature of the economic recovery and unrest in the Middle East and north Africa pose a threat to FDI prospects for 2011, but fDi Intelligence expects greenfield projects to return to growth in the coming year.
While the world economy rebounded with solid GDP growth in 2010, investors remained cautious about their foreign expansion plans. The number of greenfield FDI projects declined fractionally by 0.38 per cent in 2010, following a decline of 17.3 per cent in 2009. Greenfield capital investment fell by 16 per cent in 2010, on top of the 36 per cent decline in 2009, due to major declines in the capital-intensive natural resources and real-estate sectors. Job creation by greenfield investors also declined by four per cent last year.
Lacklustre economic recovery, exchange rate instability and the sovereign debt crisis weighed heavily on investors' FDI plans for Europe, with a 15 per cent decline in greenfield FDI projects in western Europe in 2010 – a larger decline than in any other region. With a further scaling back of investments in real estate and natural resources, FDI in the Middle East continued to decline, with a 45 per cent fall in capital investment in 2010.
Brazil moved rapidly up the rankings of the leading FDI locations in the world in 2010. With 28 per cent growth in greenfield FDI projects, Brazil was the seventh leading location for projects in 2010, up from 11th place in 2009. Capital investment into Brazil increased by 19.7 per cent and job creation by 64.5 per cent, making it the fourth biggest country in the world for greenfield investment and jobs. Brazil was behind only China, India and the US when it came to job creation in 2010. The country experienced very strong growth in inward investment in the renewable energy, electronics, chemicals and food and beverages sectors in particular.
Australia also performed strongly in 2010, with a 39.5 per cent increase in FDI projects (moving it from 16th place in 2009 to ninth in 2010) and a 2.5-fold increase in capital investment, catapulting the country from 16th place in 2009 to fifth place in 2010. Poland and Canada also recorded very strong growth of FDI projects in 2010, with 33.7 per cent growth in project numbers in Poland (although the 254 projects attracted in 2010 were still far below the peak of 355 in 2008) and 16.3 per cent growth in project numbers in Canada.
With a 5.4 per cent growth in FDI projects in 2010, software and IT replaced financial services as the leading sector for greenfield FDI projects in 2010. FDI projects in financial services fell by five per cent in 2010. However, the main trend in 2010 was the major growth in manufacturing sectors. Overall, the number of FDI projects in manufacturing sectors grew by 20 per cent in 2010, and job creation grew by about 25 per cent.
The metals and automotive original equipment manufacturer (OEM) sectors had the biggest absolute increase in capital investment overseas in 2010, with 43 per cent and 34 per cent growth, respectively. In 2010, the metals sector became the second major sector for capital investment globally (after coal, oil and natural gas) and automotive OEM the third biggest sector.
Real estate was again one of the worst performing sectors, with a more than 50 per cent decline in capital investment overseas in 2010. Capital investment in 2010 was less than one-fifth the level of 2008.
Creative industries and environmental technology, which have been the two fastest growing sectors for FDI, remained relatively flat in 2010, with 1.9 per cent and 0.3 per cent increases in projects, respectively. However, their market share of global FDI increased marginally from 5.1 per cent in 2009 to 5.2 per cent in 2010 for creative industries and from 5.2 per cent to 5.3 per cent for environmental technology.
The FDI forecasting unit of fDi Intelligence is expecting a 6.5 per cent growth in greenfield FDI in 2011, with most countries attracting more greenfield FDI in 2011 than 2010. Strong growth is expected in the automotive, industrial machinery and equipment, metals and chemicals sectors in particular. Renewable energy should also recover in 2011 and grow strongly. fDi Intelligence also expects growth in natural resources investment in 2011, after a sharp decline in 2010, although this will depend on the easing of political instability in the Middle East and north Africa. Slower growth in FDI is expected in business services, financial services, and food and beverages.