— A new United Nations Report finds global foreign direct investment -- or investment of foreign assets into domestic structures, equipment, and organizations -- fell by 18 percent last year to $1.35 trillion. But, the U.N. Conference on Trade and Development’s annual World Investment Report
notes developing countries, for the first time ever, received the majority of investment.
UNCTAD’s annual survey of investment trends finds global Foreign Direct Investment, or FDI, declined in 2012 to below the pre-economic crisis level. It attributes this mainly to economic fragility and policy uncertainty for investors.
The report says developing countries took the lead in attracting foreign direct investment in 2012. For the first time ever, it says developing economies did better than developed countries, accounting for 52 percent of global FDI flows.
UNCTAD Secretary-General Supachai Panitchpakdi says investment flows to developing economies fell drastically by 32 percent to $561 billion. He says the world has not seen such a dramatic drop in the level of foreign investment in the last decade.
“The good thing is that there are still developing economies around the world," said Panitchpakdi. "Africa, for example, still maintained their flows of FDIs including increasing the inflows into the continent. LDCs as a group have been maintaining some gains, whereas the developing countries in Asia, Latin America and the Caribbean has been losing some of this momentum because they come from a high level, whereas in Africa and the LDCs would come from a much lower level.”
The report says FDI inflows to least developed countries rose by 20 percent in 2012 to a record $26 billion. It notes the growth was led by strong gains in Cambodia, the Democratic Republic of the Congo, Liberia, Mauritania, Mozambique and Uganda.
The report says FDI flows to African countries increased by five percent to $50 billion in 2012, mainly due to investment in extractive industries. While natural resources are still the mainstay of FDI flows to Africa, the report notes consumer-oriented manufacturing and services are attracting more investments.
Developing economies in Asia remain the largest source of direct foreign investment, accounting for three-quarters of the developing country total. According to the U.N. report, the top investor is China, which has moved up from sixth to third place, after the United States and Japan.
James Zhan, UNCTAD's Director of the Division on Investment and Enterprise, cites several factors contributing to the decline in foreign investment.
“We have seen a kind of a rise of investment protectionism, the sentiment," he said. "We have also seen that countries are now putting more regulatory measures in screening and monitoring foreign investment. And, countries are selective. They are more selective than before in attracting foreign investment. They are more and more linking the investment attraction, the investment facilitation with their industrial policies.”
U.N. economists forecast 2013 FDI levels will remain close to 2012 levels of $1.45 trillion. But, they say as macroeconomic conditions improve FDI flows may climb to $1.6 trillion in 2014 and $1.8 trillion in 2018.