Sixteen percent is a sumptuous rise in the global FDI outflows during the eventful CY11. According to the latest investment monitor by UNCTAD, the significant half of foreign direct investments - global outflows - continued to show modest recovery with cautious prospects for the ongoing year.
However, the outflows in CY11 bucked the up-and-coming trend. Unlike CY10, where the outflows were driven by stronger corporate profits leading to higher reinvested earnings and direct investment, CY11 was dominated by cross border acquisitions.
The global M&A investment showed pliancy while the sovereign debt crisis unfolded in Europe and economy weakened in the US. Moreover, the picture painted by United Nations Conference on Trade and Development suggests a lack of proportional increase Greenfield projects and capital expenditure by MNCs and TNCs with the rise in FDI outflows.
Accounting for a major portion of the total outflows, the overall the cross border activities around the globe increased by almost 70 percent. On the other hand, the exploitation and Greenfield projects declined a tad during the said period with a few outliers in West Asia, Indonesia and Saudi Arabia,
Secondly, where CY10 saw a stronger outward FDI contribution by developing and transition economies with significant rise in their market share, the growth of 16 percent in CY11 was mainly driven by developed countries.
For dollars 1,664 billion total outward FDI, the developed economies witnessed a growth of almost 25 percent during CY11, while that of developing economies fell by seven percent after experiencing an upward shove of 23 percent in CY10. The primary reason for such a shift in trend is understandable by the slowdown in many Asian economies.
With a loss in momentum, the FDI outflow from developing Asia precisely increased marginally in CY11 after a big jump in the previous year. The situation in South Asia and East Asia remained more or less unchanged in CY11 compared to CY10 due to stagnant growth in investment by China and India.
As for the ongoing year, there are mixed feelings as on one hand the world has seen some easing in the eurozone crisis and US economic climate; while on the other hand the fragile nature of the upturn can put cold water on any sanguine expectations.