Geneva, 24 June 2009 -- Global foreign direct investment (FDI) inflows and cross-border mergers and acquisitions (M&As) - the main mode of FDI - drastically declined in the last quarter of 2008, and the fall has continued into 2009, UNCTAD data reveal. FDI inflows dropped by 54% and M&As by 77% during the first quarter of 2009 as compared to the same period last year. Prospects for FDI will remain gloomy for the rest of the year, UNCTAD economists say.
"A renewed commitment by policy makers to an open environment for international investment will play an important role in maintaining favourable conditions for a recovery in FDI flows," UNCTAD Secretary-General Supachai Panitchpakdi said of the first quarter results.
UNCTAD has been closely monitoring investment policy developments at both national and international levels. Comprehensive analysis of global and regional trends in FDI and FDI policies, as well as final data, will be published in the World Investment Report 2009, scheduled for release on 17 September. Data on the latest trends in international rulemaking on investment will be released shortly in the IIA (International Investment Agreements) Monitor 3/2009, and a report on national and international investment policy developments in G20 countries will be released in the coming weeks.
According to UNCTAD, the data on FDI flows available for the first quarter of 2009 reveal a drastic plummet. The 54% decline was apparent among the 57 countries for which quarterly data on FDI inflows were available as of mid-June 2009 (which account for roughly 60% of global inflows). Forty-three countries, including major host countries such as Brazil, China, and the Russian Federation, recorded declines (figure 1)(1) .
FDI outflows for the same period fell by 57% for 47 countries (accounting also for about 60% of global FDI outflows) for which such data are available. Thus, the majority of these countries (37 out of 47), including major investors such as France, Germany, Japan, and the United States, experienced declines in FDI outflows in the first quarter of 2009 (figure 1).
Recent data on cross-border M&As confirm this trend: they decreased by 77% for all countries in value in the first quarter of 2009 as compared to the first quarter of 2008, and by 62% over the last quarter of 2008 (table 1). All three groups of economies - developed countries, developing countries, and transition economies (South-East Europe and the Commonwealth of Independent States (CIS)) - experienced falls in cross-border M&As.
If the first quarter trend continues, projections for the whole of 2009 are for global FDI inflows to drop by close to half. While developed countries are mainly responsible for the fall of FDI in 2009 - they have experienced a nearly 60% decline - unlike in 2008, developing countries and transition economies are also this time experiencing declines. For developing nations, the reduction is expected to be as much as 25%, and for transition economies as much as 40%.
Data show a similar pattern in the prospects for cross-border M&A sales: it appears likely these will fall by two-thirds globally -- by about 70% in developed countries, by almost 50% in developing countries, and by about 85% in transition economies.
According to the preliminary results of UNCTAD´s World Investment Prospects Survey (WIPS) 2009-2011, to be released in July 2009, nearly two-thirds of respondent transnational corporations (TNCs) anticipate a decline in their FDI expenditures this year.
TNCs have been hit by the consequences of the global economic slowdown (which is officially a recession in a number of major economies) leading to failing market expectations, tighter credit conditions, reduced value of assets following stock market declines, and falls in corporate profits. At the same time, they have been confronted by major uncertainties about the evolution of the economic situation in the short term. As a result, companies anticipate a sharp decrease in their FDI expenditures for 2009. Many have announced plans to curtail output, lay off workers and cut capital expenditure, all of which have implications for FDI(2).
To overcome the consequences of the crisis, TNCs may rely more heavily in the short-term on non-equity entry modes, such as partnerships or licensing, to develop their international business, while being more cautious about equity investments, such as cross-border M&As and greenfield projects, UNCTAD says.
Among the looming global risks that may affect TNCs´ FDI plans, one concern is a rise in protectionism by home-country governments that might discourage or restrict domestic firms from investing abroad or from injecting additional capital into their existing foreign affiliates. This could have serious implications for poor countries, which are innocent bystanders now increasingly damaged by the crisis. Such a trend also could pose serious challenges for efforts to facilitate and retain FDI in developing countries.
So far, however, investment measures taken by countries in response to the crisis appear to have been mostly non-discriminatory in nature. Countries have refrained from introducing restrictive policy measures towards both inward and outward FDI, and in several cases they have even taken steps to further ease the access of foreign investors to their economies and to promote outward FDI from domestic firms. This overall positive trend in national policies is mirrored by the marked increase in international investment agreements recently.
ANNEX
Tables and figures
Figure 1. FDI flows, 2008-2009 by quarter (Billions of dollars)
Global inflows a
Global outflows b
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics ).Final data will be in the World Investment Report 2009 to be issued on 17 September 2009.
Note: a Total for 57 countries which accounted for about 60% of world inflows in 2007-2008.
b Total for 47 countries which accounted for about 60% of world outflows in 2007-2008.
Table 1 - Cross-border M&A sales, 2007-2009 by quarter (Millions of dollars)
Source: UNCTAD,cross-border M&A database (www.unctad.org/fdistatistics ). Final data will be in the World Investment Report 2009 to be issued on 17 September 2009.
Note: In order to approximate FDI flows much closer, cross-border M&As sales are calculated on a net basis as follows:Cross-border M&As net sales in a host country = Sales of domestic firms to foreign TNCs (-) Sales of foreign affiliates in the host economy to domestic firms.
