JEDDAH — After the global economic downturn in 2008-2009, foreign direct investment (FDI) inflows showed a gradual recovery on the back of higher profits for global transnational corporations (TNCs), as well as a relatively high economic growth in developing countries, the National Commercial Bank said in its November “Saudi Economic Review”. Increased oil revenues in the GCC has stimulated FDI activity after a series of large-scale projects' suspension or cancellation in previous years resulting in FDI inflows to drop by 35 percent, hitting rock bottom in 2010, the report said. However, NCB forecast GCC FDI inflows to be moderate around a sustainable level of $40.7 billion. Saudi Arabia, the largest recipient of FDIs in the GCC, had witnessed a 42 percent fall Y/Y in 2011, realizing $16.4 billion. Almost 90 percent of FDI inflows to the Kingdom were greenfield investments which confirms the direction toward long-term investment. “We expect oil and gas to be the leading sector from which FDI growth will occur.” As for outflows, they remain range bound around $3-4 billion, reflecting the importance of domestic investment compared to international investment. Last year, FDI grew by16 percent Y/Y, surpassing pre-crisis growth levels for the first time. Early 2012 figures, however, marked an inflection point as a retreat in the value of greenfield investments and cross-border mergers and acquisitions (M&A) reversed the positive trend. This is mostly attributed to the resurgence of global economic uncertainty emanating from the European sovereign debt crisis and the observed slowdown of emerging economies. According to UNCTAD, weak M&A levels also suggest a sluggish growth in FDI to be seen throughout the rest of the year. Based on macroeconomic fundamentals, prospects for global FDI inflows will continue to exhibit a modest, but nevertheless steady growth, reaching $1.8 trillion and $1.9 trillion in 2013 and 2014, respectively. Although investment climate remains misty for the remainder of this year, UNCTAD's World Investment Prospects Survey (WIPS) shows that more than half of the respondents foresee an increase between 2012 and 2014, compared with 2011 levels. Inflows to developed countries amounted to $748 billion in 2011, about 21 percent up from 2010. However, the level of inflow remains below the pre-crisis 3-year average by 25 percent. While the three major developed economies, European Union (EU), North America, and Japan unanimously displayed an upward trajectory, the driving factors for each have varied considerably. As for the EU, growth was attributed to M&As, whereas in North America and Japan, it was driven by TNCs reinvestments. More so for Japanese, TNCs as their purchasing power improved due to an appreciating yen. Considering that developing and transition economies' FDI inflows account for half of the world's FDI (45 percent and 6 percent, respectively), these countries have a pivotal role in determining future global figures as they weigh heavily with a new record high of $777 billion, topping last year's figures by 12 percent despite economic woes. In contrast to the upbeat figures of developing countries' FDIs, flows to Africa resumed their downward trend, albeit marginal, for the third consecutive year. — SG
