Global FDI in 2012 shrinks while emerging economies accede: UNCTAD

Global foreign direct investment dropped 18 percent in 2012 on the back of the shrinking economic growth in developed world, according to the United Nations Conference on Trade and Development on Thursday.

FDI inflows dipped to $1.35 trillion from 2011 while FDI outflows dropped 23 percent to $1.39 trillion due to stagnant business activities amid uncertain economic outlook, UNCTAD economic affairs officer Liang Guoyong.

"For the first time, developing economies absorbed more FDI than developed countries," Liang said via teleconference in Geneva. "Economic fragility and policy uncertainty in a number of major economies (drove) precaution among international investors."

Developing economies accounted for 52 percent of global FDI flows, the report said.

The United States and China clinched the top two spots on the list of foreign investments with $168 billion and $121 billion, respectively, while Hong Kong ranked third, up from fourth in 2011, with $75 billion, followed by Brazil and the British Virgin Islands.

On the list of FDI outflow, the United States and Japan stayed on the same first and second spots with $329 billion and $123 billion. China climbed from sixth in 2011 to third last year with $84 billion, followed by Hong Kong and Britain.

"Emerging economies have become increasingly important player on the global FDI arena. In particular, the BRIC has emerged as not only major recipients of FDI, but also important outward investors. Their FDI outflow grew from $7 billion in 2000 to $145 billion in 2012, or 10 percent of worldwide growth, the share was only 1 percent in 2000," Liang said.

On Hong Kong's upward move on the FDI list, Simon Galpin, director general of Invest Hong Kong, said a string of macroeconomic factors, such as changes in currency evaluation, played a role but it is difficult to pinpoint the exact reason.

"The interest that we are seeing from companies looking to set up and expand in Hong Kong, we see no decrease at all in that," Galpin said when commenting on the report.

"The fact that China has this 'going out, going global' policy, and the fact that many of the mainland companies use Hong Kong as their springboard to go global, will also mean that that presents a lot of opportunities for us to see increases in foreign direct investment flows," he said.

Wong Tak-jun, dean of business administration at the Chinese University of Hong Kong who helped analyze the report, said Japan needed more foreign investment inflow than investing overseas.

"Japan acted too slowly (in absorbing foreign investment)," Wong said, adding that investment cost in Japan is high despite the yen's recent devaluation under the stimulus package. "The currency devaluation seemed to have gone too fast, too quickly, which could bring negative impact."

The UNCTAD forecasts FDI in 2013 to remain close to the 2012 level, with an upper range of $1.45 trillion and further growing to $1.6 trillion in 2014 and $1.8 trillion in 2015 as investors regain confidence in the medium term, the report said.