FOREIGN DIRECT 3 INVESTMENT TRENDS AND DEVELOPMENTS A. RECENT TRENDS IN FOREIGN DIRECT 15 INVESTMENT INFLOWS AND OUTFLOWS 1. Global trends Following what seemed to be a swift recovery from the global financial crisis in 2010-2011, global foreign direct investment (FDI) inflows have again taken a downward turn. As the world economic recovery continues to be uncertain and fragile, global FDI inflows have declined by 18%, from $1.65 trillion in 2011 to $1.35 trillion in 2012. Inflows decreased both in developed and developing economies.16 However, while the majority of developed countries experienced a significant reduction in their FDI inflows, by 32% on average, those to developing economies remained relatively resilient, declining by only 4% on average. More importantly, for the first time developing economies alone absorbed more FDI than developed countries, accounting for 52% of global FDI inflows (figure 3.1). Asia-Pacific Trade and Investment Report 2013 FIGURE 3.1 Foreign direct investment inflows to developed and developing economies, 2003-2012 1400 1200 1000 800 600 400 Billions of United States dollars 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Developed economies Developing economies Source: ESCAP calculations, based on UNCTADStat. FIGURE 3.2 Foreign direct investment outflows from developed and developing economies, 2003-2012 2000 1800 1600 1400 1200 1000 800 600 400 Billions of United States dollars 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Developed economies Developing economies Source: ESCAP calculations, based on UNCTADStat Note: Due to their small share, transition countries are not shown in the figures. Mirroring global FDI inflows, global outflows In 2012, for the first time, developing declined by 17% in 2012. The continued economic uncertainty, especially in developed countries, economies absorbed more FDI than has led companies from these locations to scale developed countries, accounting for back their operations. As a result, most of the 52% of global FDI inflows. global decline can be attributed to developed economies, which saw a 23% decline in FDI outflows. Since peaking in 2007 at $2.3 trillion, global FDI outflows have decreased by almost 40%, while outflows from developed economies 28 in 2012 amounted to less than half of what they short of the record set in 2011 ($550 billion), they were in 2007. In contrast, apart from a small exceeded the annual average for the decade. dip in 2009, developing economies have been slowly but steadily increasing their outward In terms of FDI inflows, the developing Asia- investments since 2007. Developing countries Pacific region has significantly outpaced other have made advances in catching up with the developing regions in the world. This reflects developed countries as a source of FDI. In 2012, the solid position of Asia and the Pacific as a developing countries provided 31% of global FDI leading investment destination for transnational outflows, whereas developed countries supplied companies looking for investment opportunities. 65% of global outflows and transition countries The developing countries in the Asia-Pacific accounted for the remaining 4%. Compared to region account for 33% of global inflows 2007 the difference is striking. In 2007, only 15% compared to the 18% share of countries in Latin of outflows originated in developing countries America and the Caribbean, and the 4% share of compared to 83% in developed countries and 2% countries in Africa (figure 3.3). in transition countries (figure 3.2). 2. Regional trends Much of the relative success of developing The developing countries in the countries can be attributed to the Asia-Pacific Asia-Pacific region account for 33% region,17 which has shown notable resilience in of global FDI inflows, reflecting the the challenging economic climate. Asia-Pacific region’s solid position as a leading countries attracted $510 billion of FDI inflows in investment destination. 2012. Although FDI volumes received in 2012 fell CHAPTER 3 FIGURE 3.3 Foreign direct investment inflows to major world developing regions and their share of global foreign direct investment inflows, 2010-2012 (billions of United States dollars and percentage) 600 29% 500 33% 30% 400 300 15% 18% 13% 200 100 4% Billions of United States dollars 3% 3% 0 Africa Latin America and the Caribbean 2010 2011 2012 Source: ESCAP calculations, based on UNCTADStat. 29 Asia-Pacific Trade and Investment Report 2013 FDI outflows from the region in 2012 totaled $481 stated that this law has brought about regulatory billion compared to $484 billion in 2011. The uncertainty that weakens Mongolia’s position in share of the Asia-Pacific region in total world attracting FDI.18 FDI outflows increased from 29% in 2011 to 35% in 2012. Not only are the Asia-Pacific countries The South-East Asian subregion is exhibiting proving to be attractive investment destinations a robust growth trend, which is supported by in the current economic climate, they are also labour-intensive FDI and value chain activities becoming increasingly important as sources of in low-income countries, such as Cambodia, investment. the Philippines and Viet Nam. In 2012, inflows amounted to $111 billion, up by 2% compared 3. Subregional trends to the previous year. This makes it the only subregion in Asia and the Pacific region that has Among the developing Asia-Pacific subregions, continued to experience FDI growth despite the East and North-East Asia continues to attract slowdown of the global economy. the largest amount of FDI inflows, although the South-East Asian subregion is progressively In 2012, FDI inflows to South-East Asia catching up (figure 3.4). FDI inflows to the East increased by 2%, making it the only and North-East Asian subregion reached $215 Asia-Pacific subregion that continued to billion in 2012, down 8% from the previous year. experience FDI inflows growth. The decline can be attributed to weaker inflows to China, Hong Kong, China and the Republic of The year 2012 proved to be tough for South and Korea. Mongolia attracted large FDI inflows in South-West Asia, as FDI inflows to the subregion 2010 and 2011, mainly driven by investments in dropped by almost a quarter. This development the mining sector. In 2012, however, it witnessed can be largely attributed to India, given its size in a 6% reduction in FDI inflows. This may be the subregion, although several other countries due to the new Strategic Foreign Investment in the subregion also suffered declines in FDI Law passed in March 2012, stating that the inflows. For example, Sri Lanka and Turkey both parliament must approve foreign takeovers in saw their FDI inflows fall by a little more than strategic sectors, such as mining. Investors have 20%, whereas those of Pakistan fell by 36%. FIGURE 3.4 Foreign direct investment inflows to Asia-Pacific developing subregions and developed economies, 2010-2012 250 200 150 100 50 Billions of United States dollars 0 East and North-East South-East Asia South and South-West North and Central Asia Developed economies Asia Asia 2010 2011 2012 Source: ESCAP calculations, based on UNCTADStat. Note: Due to the small share of inflows to the Pacific subregion, that subregion is not represented in this figure. 30 North and Central Asia attracts the third largest the group increased by almost 10%. FDI inflows amount of FDI inflows after East and North- to landlocked developing countries (LLDCs) in East Asia, and South-East Asia. Inflows to the the region remained at a high level of $26 billion, subregion fell by 5% in 2012, to a value of $74 although they fell, somewhat, from the previous billion. Accounting for a 70% share of inflows, year. the Russian Federation has a major impact on subregional developments. Another important Similar to other developed countries in the world, FDI inflows to the Asia-Pacific developed destination for FDI is Kazakhstan, inflows to countries fell by 9% to $62 billion in 2012. Of which grew by 1% in 2012. Kazakhstan has the three developed countries in the region, traditionally attracted large investments in the only Japan attracted higher FDI inflows than the natural resources sector, although in 2012 the previous year. After two years of foreign investors largest announced greenfield projects were in scaling down their investments, FDI into Japan the tourism, communications and transportation reached $1.7 billion. Australia continues to industries. dominate as the largest destination for inflows The developing Pacific subregion attracts less among developed countries, drawing in $57 than 1% of FDI inflows to developing countries billion in 2012. Australia’s resource sector has in the Asia-Pacific region. In 2012, inflows to proven to be highly attractive; however, falling commodity prices mean that investments into the subregion increased by 6% and amounted areas such as mining could have already reached to slightly over $2 billion. Growth in inflows can their peak (Capital Economics, 2013a). be mainly attributed to Papua New Guinea and Samoa, although the Marshall Islands and the The subregional division of FDI outflows from Northern Mariana Islands experienced larger developing Asia-Pacific countries is not uniform FDI inflows as well. (figure 3.5). The East and North-East Asian FDI inflows to Asia-Pacific least developed subregion accounts for the lion’s share of total countries (LDCs) reached a new peak of almost outflows from developing countries in the region. $5.5 billion in 2012. Driven by increasing inflows Recently, its share has edged up further from 59% in 2011 to 63% in 2012, with total outflows to the largest FDI recipient countries among the CHAPTER 3 LDCs, namely Cambodia and Myanmar, inflows to from the subregion at $214 billion. A similar FIGURE 3.5 Foreign direct investment outflows from Asia-Pacific developing subregions and developed economies, 2010-2012 250 200 150 100 50 Billions of United States dollars 0 East & North-East Asia South-East Asia South & South-West Asia North & Central Asia Developed economies 2010 2011 2012 Source: ESCAP calculations, based on UNCTADStat.
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