GLOBAL FOREIGN direct investment (FDI) fell more than a fifth last year, with experts warning that the drop is likely to accelerate as the global recession deepens.
The UN Conference on Trade and Development (Unctad), which collates official data on FDI flows, said a growth cycle in international investment, which began in 2004, was definitively over.
“In the face of a global economic recession, tighter credit conditions, falling corporate profits, and gloomy prospects and uncertainties for global economic growth, many companies have announced plans to curtail production, lay off workers, and cut capital expenditures, all of which tend to reduce FDI,” Unctad said.
The agency provisionally estimated that worldwide FDI inflows shrank 21 per cent last year.
Cross-border mergers and acquisitions – traditionally a more volatile form of capital flow than “greenfield” investment – was especially affected by the lack of credit and appetite for risk-taking among companies, sliding nearly 28 per cent.
Some developed countries that have traditionally attracted large amounts of foreign investment, such as the UK, suffered particularly badly. FDI inflows into Britain fell more than half.
Investment into emerging markets fared better, with developing economies as a whole seeing a 4 per cent increase in FDI and a 16 per cent rise in international mergers and acquisitions – underlining the extent to which the global financial crisis has been concentrated in the rich world.
The four “Brics” economies – Brazil, Russia, India and China – all saw increases in inflows.
Experts in international investment said more falls in cross-border flows were likely, with companies increasingly postponing or cancelling plans for international expansion as the economic outlook darkened.
OCO Global, a consulting firm, part of which is owned by the Financial Times, said it was predicting a fall of 20 per cent in the number of greenfield projects in 2009.
Greenfield investments are regarded by many economists as economically more significant and beneficial than mergers and acquisitions since they add to countries’ net capital stocks and increase jobs rather than simply transferring ownership of existing assets.
OCO said investment and jobs in financial services would be particularly badly hit, projecting a 30 per cent fall in 2009.
“Some sectors such as healthcare could be relatively immune but in general the pattern will be one of contraction,” said Judith Walker, marketing and operations director for OCO Global.
Construction, real estate, retail and car manufacturing were likely to be particularly badly hit in the coming year, she said. – ( Financial Timesservice)
