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Global FDI to fall 30%; to remain subdued in 2010: UNCTAD

Last Updated: Thursday, September 17, 2009 - 23:49

New Delhi: Painting a grim picture on cross-border investments, UNCTAD on Thursday said global Foreign Direct Investment flows will shrink by 30 per cent this year and recover only marginally during the next year.

"FDI inflows will fall from about USD 1.7 trillion in
2008 to below USD 1.2 trillion in 2009. Recovery is expected
to be slow in 2010, reaching no more than USD 1.4 trillion,
but gathering momentum in 2011 to approach USD 1.8 trillion,"
the United Nations Conference on Trade and Development said in
a report.

The UNCTAD said that a major contributing factor to the
decline in global FDI flows has been growing divestments by
transnationals worldwide.

Since mid-2008, these divestments, which can take the
form of repatriated investments, reverse intra-company loans,
or repayments of debt to parent firms, have exceeded gross FDI
flows in a number of countries, it said.

The report said FDI inflows declined in the developed
countries, where the financial crisis originated, while in
developing countries and the transition economies of
South-East Europe and the Commonwealth of Independent States
(CIS) continued to rise last year.

"The crisis has changed the FDI landscape, with a surge
in the developing and transition economies` share in global
FDI flows to 43 per cent in 2008," it said.

Citing the reasons for the changing pattern, it said there
is a large decline in FDI inflows to developed countries,
which in 2008 shrank by 29 per cent to USD 962 billion as
against last year.

Despite this, the US remained the world`s largest
recipient country followed by France, China, UK, and Russia.

FDI inflows to developing economies rose by 17 per cent in
2008 to USD 621 billion compared to the previous year.

However, the report said that in 2009, FDI flows to all
the regions would "suffer a decline".

The report also said that cross-border mergers and
acquisitions (M&As) - a major source of growth of FDI in
previous years- declined significantly as financial markets
seized up in the second half of 2008.

"Taking that year (2008) as a whole, the value of such
transactions fell by 35 per cent to USD 673 billion and sop
far in 2009 the rate of M&As has continued to fall," it added.

Private equity firms, which had earlier fuelled the rise
in M&As, saw the value of their cross-border transactions drop
38 per cent in 2008, with a sharper decline registered in the
first half of 2009, it said.

"Once the global economy is on its way to recovery, the
exit of government funds from ailing industries could provide
the catalyst for a new wave of cross-border M&As," the report

The report further said that last year, 110 new
FDI-related measures were introduced globally, of which 85
were more favourable to FDI.

Bureau Report

First Published: Thursday, September 17, 2009 - 23:49

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