São Paulo – The global flow of Foreign Direct Investment (FDI) reached US$ 668 billion in the first half, down 8% from the same period of last year, according to a report released this Tuesday (23rd) by the United Nations Conference on Trade and Development (Unctad).
“This was due to increased uncertainty in the global economy, marked by fears of an exacerbation of the sovereign debt crisis in Europe and a slowdown of growth in major emerging market economies,” according to the 10th edition of the Global Investment Trends Monitor.
Thus being, the Unctad has lowered its 2012 FDI flow forecast to “slightly below” US$ 1.6 trillion. The preceding projection, issued in July, stood at exactly US$ 1.6 trillion. In 2011, global FDI flow amounted to US$ 1.5 billion. The all-time high was reached in 2007, at US$ 2 trillion.
“The slow and bumpy recovery of the global economy, weak global demand and elevated risks related to regulatory policy changes continue to reinforce the wait-and-see attitude of many transnational companies toward investment abroad,” the document claims.
First-half figures were affected mostly by lower investment in the United States and the Bric countries (Brazil, Russia, India and China). According to the Unctad, however, FDI into the United States may increase in the second half.
In the case of Brazil, FDI inflow stood at US$ 29.7 billion in the first half of 2012, down 9% from the same period last year. The Unctad claimed, however, that foreign investment in the country “remained at a high level.”
This Tuesday, the Brazilian Central Bank informed that FDI inflow in the country reached US$ 47.6 billion from January to September, which has more than sufficed to offset the US$ 34.1 billion current account deficit recorded during the period. From October 1st to 19th, FDI flow stood at US$ 3.8 billion, and is expected by the Central Bank to amount to US$ 6 billion by the end of the month.
Latin America was the region in which FDI inflow increased the most in the first half, by 8% compared with the first half of 2011. The countries in which FDI grew the most were Chile, Colombia, Peru and Argentina. Brazil, however, is the runaway leading attractor of FDI in Latin America.
“FDI continued to be attracted into South America by natural resource endowments, relatively higher economic growth , and high interest rate differentials (that boost the amount of reinvested earnings and intra-company loans – two of three components of FDI flows),” according to the Unctad.
Investment has also increased in Africa, by 5%, after three back-to-back years of decline. “North Africa led the way – Egypt, in particular – as FDI flows to the region increased by three quarters with a gradual return of investors’ confidence in the region,” according to the report. North African economies were considerably impacted by the Arab Spring in 2011. In Egypt, FDI inflow reached US$ 2.5 billion in the first half, as against an outflow of US$ 400 million in the same period last year.
Investment in non-European Union countries in Europe was also up (6%). FDI inflows declined in UE, the former Soviet bloc, North America and Asia were also down.
In Western Asia, where the Middle East countries are located, investment flow remained virtually stable, sustained by a 21% increase in Turkey. In other regions, FDI declined. “Both the global economic crisis and the deepening regional crisis continue to weigh on private investors’ capacity and propensity to invest in West Asia,” according to the survey.
Due to the differences in FDI flow performance around the world, for the first time, investment in developing countries – not counting the former Soviet Union, and despite a 5% decline – has accounted for half the total. One contributing factor was the significant decline in FDI inflows to the United States, which was overtaken by China as the main FDI target in the first half.
The Unctad expects a “moderate increase” in global FDI flows in the long term, but warns that the risk of new macroeconomic shocks in 2013 may have a negative impact. In July, the organization forecasted that FDI flows should amount to US$ 1.8 trillion next year and US$ 1.9 trillion in 2014.
“Investment leads economic growth but the current trends of investment flows to developing countries, particularly to Asia, are worrisome and the challenge for channeling FDI into key development sectors such as infrastructure, agriculture and the green economy remains daunting,” said the Unctad secretary general, Supachai Panitchpakdi, according to the publication.
*Translated by Gabriel Pomerancblum
