Foreign direct investment (FDI) inflows to the world’s small island developing States (SIDS) continued to recover in 2012, registering positive growth for the second consecutive year, says the World Investment Report 20131.
The report, subtitled Global Value Chains: Investment and Trade for Development, was released today.
FDI flows to the 29 small island developing States (SIDS) increased by 10 per cent, to US$6.2 billion, mainly as a result of strong increases registered by two countries rich in natural resources. The first was Trinidad and Tobago, the group’s main recipient (figure 1), which accounted for 41 per cent of the total in 2012, and where FDI inflows increased by 38 per cent. The second was Papua New Guinea, where FDI inflows swung back into positive territory, reaching a modest value of $29 million, shifting away from a steep decline (down by $309 million) in 2011. FDI increases in these two countries more than offset the significant net declines in other countries. The wide variation in FDI figures suggests the highly uneven rates of FDI among this group of countries, the report notes.
FDI flows to the 11 Caribbean SIDS increased by 5 per cent in 2012, to $4.8 billion. These countries have traditionally attracted the bulk of FDI into SIDS, with an average share of nearly four fifths of the total. The significant increase of FDI to Trinidad and Tobago is due to larger reinvested earnings by transnational corporations (TNCs) in the energy sector, the World Investment Report notes. Besides important oil and gas wealth in Trinidad and Tobago, the region’s geographical proximity to, commonly shared language with, and economic dependence on the large North American market are among the factors explaining its attractiveness as an FDI destination compared with the other SIDS.
FDI to SIDS elsewhere – in Africa, Asia and the Pacific – increased by 31 per cent to $1.4 billion, largely due to increases in Papua New Guinea. Of the relatively big recipients in this subgroup, FDI to Mauritius increased by 32 per cent to $361 million, and FDI to the Maldives climbed by 11 per cent to $284 million. FDI to Fiji fell by 36 per cent to $268 million, and FDI to the Seychelles dropped by 21 per cent to $114 million.
In absolute terms, FDI flows may appear small, the report notes. Nonetheless, they are substantial relative to the sizes of most SIDS economies. The ratio of FDI stock to gross domestic product (GDP) for SIDS was 81 per cent in 2011, with a very wide variation among countries, ranging from 2 per cent for Kiribati to 292 per cent for Saint Kitts and Nevis (figure 2). Although the SIDS are highly dependent on FDI, very little is known about the impact of FDI inflows on their economies. Especially, little is known about how these investment flows interact with the group’s structural economic vulnerabilities, which include small size, geographic dispersion (and, in many cases, remoteness), vulnerability to natural disasters, limited internal markets, a high dependence on imports, and limited ability to reap the benefits of economies of scale.
Along with the strong FDI increase in natural resources in 2012, mainly sent to Trinidad and Tobago and to Papua New Guinea, a slow recovery of tourism activity, largely dominated by foreign investors, is taking shape, with a diversification towards more visitors from Asia, the report notes.
While a number of countries promote offshore finance as a way to diversify their economies, others, such as Jamaica, are supporting the information and communications technology (ICT) sector. This is attracting the interest of foreign investors such as Convergys Corporation and Aegis Communications Ltd. (both of the United States), which are considering setting up call centres in Montego Bay, the report says.
Figure 1. Top 5 recipients of FDI in SIDS, 2011 and 2012
(billions of US dollars)
Source: UNCTAD, World Investment Report 2013.
Figure 2. Ratio of FDI stock to GDP of SIDS, 2011
(as percentages)
Source: UNCTAD, World Investment Report 2013.
