Global foreign direct investment is recovering and could be back near pre-crisis levels by 2012, providing there are no fresh shocks, a UN think tank said Thursday. “Global inflows are expected to pick up to over $1.2 trillion in 2010, rise further to $1.3-1.5 trillion in 2011 and head towards $1.6-2.0 trillion in 2012,” the UN Conference on Trade and Development said. FDI hit a record $2.1 trillion in 2007 before falling back, as the global financial crisis pushed the world economy into recession, to $1.1 trillion in 2009, UNCTAD said. A “modest recovery” was recorded in the first half of 2010, “sparking some cautious optimism for FDI prospects in the short term,” the agency said in its annual World Investment Report. “In the longer term, the recovery in FDI flows is set to gather momentum,” it said, warning that the forecast is fraught with uncertainties given the risks, including a possible sovereign debt crisis in European countries. South, East and Southeast Asia are expected to play a leading role in the recovery, with the region's growth engine China becoming a key factor in determining FDI flows. While China remains an attractive region for investors, it faces rising costs in its coastal regions, so becoming less attractive for labor intensive industries which have moved into neighboring countries. China in turn, is moving up the value-added chain, seeking higher grade investment accordingly. “Due to its economy's size and growth potential, China is becoming a key force that could shape the region's production landscape in the years to come,” the report said. In Europe and North America, which bore the brunt of the global crisis, inbound investment fell dramatically in 2009, with the United States alone down 60 percent to 130 billion dollars while the European Union slumped by a third. UNCTAD said however that the “short- and medium-term prospects for FDI inflows have improved during the first half of 2010” in these countries. In particular, FDI inflows are expected to increase due to a fresh round of privatizations as European countries with large public deficits and debt try to raise funds to balance their budgets. - Globally, among the largest FDI recipients, China rose to second place after the US in 2009. However, the report said the tightening of international credit markets and the decline of international trade impacted FDI flows to the Middle East, which contracted by 24 percent to $68 billion in 2009. “Except in the case of Kuwait, Lebanon and Qatar, inward FDI declined across the region. The contraction hit Turkey and the United Arab Emirates the hardest. In Turkey, cross-border mergers and acquisitions plummeted, and export-oriented industries suffered from the impact of the global crisis,” the report said. Saudi Arabia was ranked 8th in the report attracted $35.5 billion in FDI last year compared to $38.2 billion in 2008. FDI outflows from the region, 87 percent of which are generated from the countries of the GCC, declined by 39 percent to $23 billion. Rising outward investment from Saudi Arabia was not enough to compensate for the negative impact of the Dubai World crisis. The report expects FDI inflows into the region to recover in 2010 as international credit markets stabilize and sustained commitment of region's governments to ambitious infrastructure projects. Outward investment, on the other hand, is expected to remain subdued in the short term as many countries in the region are busy restructuring government related entities and corporates impacted by the financial crisis.
