The October edition of UNCTAD’s Global Investment Trends Monitor notes that while developing and transition economies absorbed a record share – nearly 60 per cent – of global foreign direct investment (FDI) inflows during the period, flows to developed countries declined.

“Cross-border mergers and acquisitions and large retained earnings kept in foreign affiliates were a driving force behind the current global FDI growth, rather than investment in new productive assets through greenfield investment projects,” the report clarifies.

In developing and transition economies, the increase was driven by acquisitions in Central America and the Caribbean, as well as record inflows into Russia, according to the report. Although flows to developing Asia fell slightly, the region continues to absorb more than half of the FDI directed to developing economies as a group, and one quarter of global FDI flows.

UNCTAD says that the fall in developed countries is mainly owing to declines in the major host countries including the United States, France and Germany. The United Kingdom remains an exception, continuing its upward trend in FDI attraction, and becoming the world’s largest recipient of FDI in this period.

The agency estimates that 2013 FDI flows will remain close to the 2012 level, despite some improvements in macroeconomic conditions in developed economies. In addition to risks related to the Euro area and the so-called “fiscal cliff” in the US, the transition to a slower growth pattern in some emerging markets and weaker consumer demand in developed countries might have a negative impact on FDI flows this year.

Looking further ahead, UNCTAD forecasts that global FDI flows are poised to increase in 2014.

Photo: IRIN/Edgar Mwakaba