Foreign Direct Investment Expected to Rebound in 2011

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21 July 2009

A new U.N. report says foreign direct investment by transnational corporations will start to recover in 2010 and rebound substantially in 2011. The U.N. Conference on Trade and Development has published the results of this year's World Investment Prospects Survey.

More than 240 transnational corporations were surveyed for this report. The results show a drastic 54 percent decline in foreign direct investment inflows for the first quarter of 2009.

The UNCTAD survey finds cross border mergers and acquisitions dropped by an even more dramatic 77 percent, compared to the same period last year.

Although this gloomy situation is expected to persist throughout the year, the transnational corporations surveyed indicate they expect foreign direct investment will progressively recover in 2010 and gain momentum in 2011.

But, UNCTAD Director of Division on Investment and Enterprise James Zhan warns of several risks related to the recovery of FDI.

"One is the further global economic downturn," he said. "A second is an increase in financial instability and a third, which is very interesting, is the rise of protectionism involving a change in foreign investment regime."

Zhan says protectionism is not a big deal at the moment. But, he says the TNC's concerns about the risk of protectionism in foreign investments is not ungrounded.

"The economic stimulus packages could give rise to what can be labeled as smart protectionism," said Zhan. "Furthermore, a new wave of economic nationalism could occur in the aftermath of the crisis when the exit of the public investment from the bailout flagship industries might lead to the protectionism of the national 'champions' from the foreign takeovers."

The survey finds FDI prospects remain bright in the agriculture and services industries, while the situation is less optimistic for the manufacturing sector.

It says developed countries from North America and the European Union are the regions most affected by the crisis. Sub-Saharan Africa and North Africa are least affected.

The survey shows developing countries in East and Southeast Asia are particularly attractive destinations for foreign investment. And, it notes the top five spots favored by TNC's are China, the United States, India, Brazil, and Russia.