FOREIGN DIRECT investment (FDI) is set to fall worldwide this year, according to data from a United Nations agency.
The UN Conference on Trade and Development (Unctad), the single most comprehensive source of FDI data, said that cross-Border investment, which fell sharply last year, would probably slide from $1.7 billion (€815 billion) in 2008 to less than $1.2 billion this year. Such a fall would take it back to levels seen five years ago.
“Global FDI flows have been severely affected worldwide by the economic and financial crisis,” the agency’s annual report on investment said. “The crisis has changed the FDI landscape.”
A combination of falling demand for goods and higher financing cost has made many companies suspend or abandon plans for foreign investment. Last year, investment in developing economies rose, with record inflows to Africa and to south, southeast and east Asia, while in rich countries it fell thanks to the drying up of merger and acquisition activity.
But this year, the report said, FDI was likely to fall across the board, as “greenfield” investments were also hit by the crisis.
Despite the decline in investment in the rich world, the US remained the biggest recipient of FDI last year, followed by France, China, the UK and Russia.
Mark O’Connell, chief executive officer at the investment consultancy OCO Global, said cash flows in all directions were shrinking, despite some optimism about a recovery. Investment into some emerging markets like India and China had been affected by the rising economic nationalism that accompanied the crisis, he added.
Firms were withdrawing investments from India while blaming their moves on banking compliance or customer service concerns. “People are becoming a lot grumpier about where they invest and why,” he said.
Unctad confirmed the trend of large companies divesting assets abroad. Nearly a third of cross-border mergers and acquisitions in the first half of 2009 involved multinationals offloading foreign affiliates, it said.
Unctad said FDI flows should rise modestly in 2010 and accelerate in 2011, but it said the heavy decline in cross-border equity investments meant the recovery was likely to be slower than in previous downturns. – Copyright The Financial Times Limited 2009
