More than four out of five international location experts from around the world believe that FDI is about to take off again, following three years of continuous decline in global foreign direct investment.
For the period 2004-2005, 77% of the experts are predicting an improvement in the overall investment environment, 9% say it will worsen and 14% say it will remain the same. For 2006-2007, the level of optimism rises to 81%, while only 6% anticipate that things will get worse and just 13% say they will remain the same (figure 1).
The top three investment hot spots for the next four years are China, India and the United States, according to the experts. Thailand ranks fourth, followed by Poland and the Czech Republic (with equal points), Mexico and Malaysia (equal) and the United Kingdom, Singapore and South Korea (ranked equal).
These results are based on a joint survey conducted by UNCTAD in Geneva and by Corporate Location Magazine in London.
The results of the survey - which was carried out early this year - were based on the responses of 87 experts from different regions. The experts were individuals working for consultancies and other service providers that play a key advisory role for transnational corporations (TNCs) in their locational decision-making processes.
"One clear message emerging from the survey is that countries will intensify their efforts to attract FDI in response to the increased competition worldwide for projects", says Karl P. Sauvant, Director of UNCTAD´s Investment Division. The general expectation is that countries will further open up their markets through liberalization measures, additional incentives and increased sector targeting. There are regional differences, of course. In Africa, for instance, more countries will prefer additional incentives to greater targeting. In Central and Eastern Europe, the reverse holds true. For the developed countries, the expectation is that liberalization will play a lesser role and that targeting and additional incentives will become more important in the next two years (figure 2).
The experts predict that the most likely options for business expansion overseas are evenly divided between mergers and acquisitions (41%) or greenfield investments (37%). Other modes of international business expansion such as, licensing and strategic alliances were mentioned by only 22% of the respondents (figure 3).
Despite the fact that the outsourcing of white-collar jobs has become a major issue in many countries and dominates international business headlines, the respondents still see the bulk of relocation occurring in lower value-added corporate functions. Processing activities, logistics and supply functions are the most frequently mentioned corporate functions likely to relocate abroad (figure 4).
Regional breakdown
North America & Western Europe: The USA followed by the UK and France and Canada (equal) rank as the top three locations predicted for FDI among the developed economies. Across the board, electrical and electronic products, motor vehicles and other transport equipment are the most attractive industries in manufacturing, followed by chemicals, machinery and equipment. In services, transport and business services are most attractive for FDI, followed by tourism, retail and wholesale trade and computer-related services. In Western Europe, traditionally among the largest FDI recipients, prospects for a quick recovery seem less bright.
Africa: South Africa is perceived as the most attractive destination, while Angola and United Republic of Tanzania are tied for second place. In Africa overall, non-metallic products, food and beverages, textile, clothing and leather would be attractive for foreign investors, according to the survey respondents. In the services sector, electricity, gas and water services, and to a much lesser extent banking and insurance services, would have some appeal. In general, the experts have a generally optimistic view of the short-term outlook (2004-2005), but that optimism is less than what prevails for other regions, as only 43% expected an improvement in Africa´s FDI prospects. For the medium-term, however, that share increased to 86%.
Asia-Pacific: China and India take the top positions as attractive destinations for FDI in the near future, with Thailand in third place. In the manufacturing sector, improved prospects are expected for motor vehicles and other transport equipment, machinery and equipment, chemicals and, to a lesser extent, electrical and electronic products, publishing and media services. In the services sector, banking and insurance, business services, tourism, transport, computer-related services, retail and wholesale trade will take the lead in attracting FDI in the years to come, experts believe. Asia-Pacific garners the most optimism of all regions in terms of its future FDI prospects. For both the short and medium term, 88% of the experts expect further improvement in those prospects, with the remaining 12% anticipating that they will remain the same. Not a single expert predicted any downturn in the region´s prospects.
Latin America: the traditional magnets for FDI inflows - Mexico, Brazil and Chile - are seen by experts as continuing to play that role at least in the short term. Contrary to the pattern in other regions, metal products, mining and petroleum and agriculture are expected to take the lead in FDI recovery in the region. Other industries that will be attractive to FDI are non-metallic products, food and beverages, chemicals, textiles, clothing and leather industries. In the service sector, hotels and restaurants and tourism are expected to be attractive for FDI. In terms of future prospects, the respondents took a somewhat different view than for most other regions. While for the short- and the mid-term the majority expects an improvement in the region´s FDI prospects (83%), fewer expected such an improvement than for the longer term (60%).
Central and Eastern Europe: Poland and the Czech Republic come out in the top two places, while Russia and Romania share the number-three spot. FDI inflows are expected to increase in food and beverages, motor vehicles and other transport equipment and, to a lesser extent, publishing and media, and electrical and electronics industries. The perception of improved prospects for FDI in the services sector is broad-based, and includes such industries as construction and real estate, retail and wholesale trade, transport, education and health, business services, computer-related services, banking and insurance. Accession to the European Union for many of the countries in this region should give them a new competitive advantage, respondents believe. Most of them were optimistic about the region´s FDI prospects for both the short term (71%) and medium term (77%).
The results of the international investment expert survey will be complemented by and cross-checked against UNCTAD´s worldwide surveys of the largest TNCs worldwide and of national investment promotion agencies (to be released in May and June 2004). The results will also be cross-checked with available hard data on future macro- and microeconomic developments, including forecasting data regarding GDP growth and other indicators.
Download: UNCTAD-Corporate Location 2004 worldwide survey (PDF): Prospects for FDI flows, TNC Strategies and Promotion Policies: 2004-2007 |
