Wary investors weighing on FDIs

If the attitude of investors all over the world can be summed up in one word, it is definitely
isk-averse. And investors are playing it safe by following the adage of cash is king.
The latest global FDI data released by the United Nations Conference on Trade and Development (UNCTAD) depict a rather bearish picture. The trends in 2010 were far from the aggressive growth in FDIs all over the world seen in 2005-07.
With the exception of very few, such as the US, most developed economies registered a slide in FDI inflows. Interestingly, this was offset by greater FDI inflows into the developing economies, in particular the South-East, South, and East Asian region.
No prizes for guessing which East-Asian giant bagged the highest sum of FDI inflows in the Asian region, and the second-highest amongst all the other countries included in the report - China.
According to a report on post-crisis FDIs published in fDi Intelligence, a special FDI-focused division of the Financial Times, "These two countries (China and US) have been in the top two positions for years, and analysts suggest they have remained there in an uncertain climate because they are seen as the most secure bets for FDI projects."
The US, with the highest FDIs at $186 billion, had also been a favourite of investors because it was relatively cheap given dollars depreciation in the year gone by.
As for the situation back home, growth of FDI inflows continued to be in the negative, falling by 14.5 percent to around $0.83 billion in 1HFY11, where FDIs from the developing world seems to have surpassed those from the developed economies.
Of the total FDIs received, the oil and gas exploration netted the highest FDI inflow followed by telecom, with $0.27 billion and $0.11 billion flowing in both the sectors respectively. However, there was a net decline in most of the sectors, including telecom.
As far as the sluggish performance of FDIs, both locally and globally, is concerned, the main reason is a cautious approach by investors throughout 2010. fDi Intelligence explained this vividly in the following words, "Most players are proceeding with extreme caution, fearing that even the slightest wrong move could cause a major setback for business."
The fact that many transnational corporations are holding $4-5 trillion in cash in developed country firms alone seems to reiterate this.
With inconsistent government policies and the dismal law and order situation at home, particularly in key areas such as Balochistan that can be prospective turfs for exploration-related FDIs, investors are, naturally, wary of Pakistan.
Besides, how much more can be invested in the much-saturated telecom sector, which had been the FDI-winner for Pakistan for the past few years?
And because the domestic economic scenario does not seem to be picking up any time soon, with the World Banks latest global outlook report forecasting a slight slowdown in 2011, currency volatility and sovereign debt problems, the FDI inflow is not likely to show some stellar performance in 2011, though some improvement may be seen.
Despite that, James Zhan, Director of UNCTADs investment and enterprise division is more optimistic for developed economies over the longer-term. "The absorptive capacity of developing countries for FDI is still limited," he said.
Thus, 2011 may be a thawing phase for the stiffly guarded investors, after which, the global FDI situation may improve in a few years, as fDi Intelligence points out, "sitting back and waiting is not an option."