Emerging Markets FDI Inflows Top Advanced Nations for First Time

Foreign direct investment into emerging economies surpassed that into developed markets for the first time last year even as such inflows slowed globally, the United Nations said.

Developing countries received 52 percent of investors’ funds in 2012, compared with 45 percent the year before, the United Nations Conference on Trade and Development said in a report today. Foreign direct investment globally fell 18 percent to $1.35 trillion last year, and is forecast to be around the same level in 2013, it said. The agency defines FDI as a lasting interest in an enterprise in a foreign economy.

The shift to emerging nations reflected companies turning their focus last year to faster-growing regions as advanced countries struggled, with Europe and Japan suffering recessions. At the same time, the prospect of reduced U.S. monetary stimulus from later in 2013 is adding to the challenge of sustaining the faster pace of expansion in developing economies.

“FDI flows to developing economies proved to be much more resilient than flows to developed countries,” UNCTAD said in its World Investment Report 2013. “Uncertainty created by the continuing euro zone crisis, the prospect of political transition in a number of major countries and a slowdown in the commodities boom were among key factors contributing to subdued FDI in 2012” for developed countries, it said.

Investments into advanced economies slid 32 percent to $561 billion, the lowest in almost a decade, while those into emerging nations dropped 4 percent to $703 billion, according to the report. Developed economies also invested less overseas as outflows fell 23 percent to $909 billion, while those by emerging countries rose 1 percent to $426 billion.

Investment Recovery

“Recovery to more vigorous investment levels will take longer than expected, mostly because of global economy fragility and political uncertainty,” UNCTAD said, adding total foreign direct investment may reach $1.45 trillion this year and rise to $1.6 trillion in 2014.

China became the world’s third-largest investor last year after the U.S. and Japan, climbing three steps from 2011, UNCTAD said.

“Despite the global downturn, transnational corporations from developing countries continued their expansion abroad,” the report said. “The BRICS countries -- Brazil, the Russian Federation, India, China and South Africa -- continued to be the leading sources of FDI among emerging investor countries.”

The World Bank this month cut its global growth forecast for this year as budget cuts deepened Europe’s contraction. FDI into Europe plunged 42 percent last year while that into the U.S. fell 26 percent, according to UNCTAD.

Inflows into China fell about 2 percent to $121 billion in 2012, the report said. There is “strong downward pressure” on foreign investment into China in manufacturing amid rising production costs, weaker export markets and foreign companies moving to lower-income countries, it said.

Four of the top five recipients of funds are listed as developing economies by the UN. They are China, Hong Kong, Brazil and the British Virgin Islands, which received $65 billion last year.

The British Virgin Islands attracts investments because it’s a tax haven and transit destination before money is moved to its “real destination,” according to Nagesh Kumar, chief economist of the UN’s Economic and Social Commission for Asia and the Pacific.

To contact the reporters on this story: Sharon Chen in Singapore at schen462@bloomberg.net; Tushar Dhara in New Delhi at tdhara1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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