Interestingly, half of the top 20 recipients of FDI in 2010 were developing and transition economies which are becoming the new “powerhouses for FDI', Unctad survey notes. Their outward FDI also rose sharply in 2010, climbing 21 per cent to a total of some 340 billion, accounting for 29 per cent of global FDI outflows. Six of these economies were among the top 20 investors.

India came down to 14th place from the previous year’s 8th, among the top twenty countries in inflows and held the 20th place in outward flows (25 billion and 15 billion dollars respectively). FDI to India dropped from 36 billion in 2009 to 25 billion in 2010. In the fiscal year ending March 2011, according to RBI data, net FDI investment was 7.1 billion (inflows 23.4 minus outward flows 16.2 billion). FDI flows have improved in the first two months of current fiscal year totaling 7.7 billion dollars.

USA remained the top destination with 228 billion dollars though it also topped in FDI outflows at 329 billion dollars in 2010. China was the second largest recipient at 106 billion while its outward flows were 68 billion dollars as the fifth largest investor abroad. Brazil and Russia, the other two BRIC nations, recorded inflows of 48 and 41 billion dollars, taking the 5th and 8th place respectively.

It is against the perceptible slowdown in FDI flows to India over 2010/11 that Government has bestirred itself with new policy moves to generate a more investor-friendly climate, such as the recent Cabinet clearance to BP acquiring 30 per cent participation in oil/gas sector (Reliance Industries), estimated at 7.2 billion dollars, and the push that is being given, though still at official level, for 51 per cent FDI in multi-brand retail. This would need a political consensus, as Finance Minister Pranab Mukherjee has said. A major opening for investors would also come from getting the pending financial sector legislation (banking, insurance and pensions) through the monsoon session of Parliament.

On the outlook for FDI this year, UNCTAD predicts it would continue to recover and reach a total of 1.4 to 1.6 trillion dollars in 2011, returning to the pre-crisis average. Thereafter, flows are forecast to rise to $1.7 trillion in 2012 and $1.9 trillion in 2013. The record level of cash holdings, low rates of debt financing and rising stock market valuations of transnational corporations (TNCs) should encourage them to expand overseas, the report says. On the recipients´ side, ongoing corporate and industrial restructuring, privatizations resulting from fiscal rebalancing efforts and unwinding of state support programmes, and the growth of emerging economies should create new investment opportunities.

Unctad does not discount “uncertainties” in global recovery and “risks” which could derail the FDI recovery. Risk factors cited are the unpredictable global economic governance, a possible widespread sovereign debt crisis, and fiscal and financial sector imbalances in some developed countries, as well as rising inflation and signs of overheating in major emerging market economies.

Of the total FDI 1.24 trillion dollars in 2010, the developed economies accounted for 602 billion while their outward flows were 935 billion. For developing economies, these shares were 574 billion and 328 billion respectively. Among the regions, the largest inflows at 300 billion were to South, East and S-E Asia (which contributed 232 billion in outflows). Overall, developed economies had 70 per cent share of outflows and 48.4 per cent of inflows while developing countries had inflows at 46.1 per cent and outflows 24.8 per cent of the total.

Region-wise, FDI flows continued to decline in some of the poorest regions of the world. Flows to the Africa and South Asia, as well as to least developed countries, landlocked developing countries and small island developing states fell in 2010. Sector-wise, FDI continued its downward path in 2010 in all the main service industries (business services, finance, utilities, and transport and communications). The sharpest declines were in the flows to the financial industry.

The share of foreign investment for manufacturing increased, meanwhile, and accounted for almost half of all FDI projects. These include cross-border mergers and acquisitions and greenfield projects, which are types of manufacturing new to a country or region. Flows fell in some business-cycle-sensitive industries (metals and electronics), the chemical industry, including pharmaceuticals, remained resilient through the crisis, while food, beverages and tobacco, textile and garments, and automobiles, recovered in 2010. FDI channelled to extractive industries declined, despite the growing demand for raw materials and energy resources.

Today, there are at least 650 state-owned TNCs with an estimated 8,500 foreign affiliates, according to UNCTAD. Though relatively small in number -less than 1 per cent of all TNCs - they undertook FDI estimated at $146 billion in 2010, accounting for about 11 per cent of the global flows. Developing and transition economies are home to the majority of these firms (56 per cent) while developed countries maintain a significant number of state-owned TNCs.

FDI to the member-countries of the Association of Southeast Asian Nations more than doubled, reaching $79 billion in 2010. This is attributed to the pro-active policy efforts at the country level. Countries like Indonesia and Viet Nam have gained ground as low-cost production locations, especially for low-end manufacturing. East Asia’s share of FDI was 188 billion of which 106 billion went to China. With China continuing to experience rising wages and production costs, FDI inflows are shifting from labour-intensive manufacturing towards high-technology industries and services, Unctad says. In 2010, China exceeded Japan for the first time in outward FDI, as well as in gross domestic product

South Asia’s share declined to 32 billion, reflecting a 31 per cent slide in inflows to India and a 14 per cent drop in flows to Pakistan. By contrast, inflows to Bangladesh, a rising low-cost production location, increased by nearly 30 per cent to $913 million. Both inflows to and outflows from developing Asia are expected to continue to grow as countries have made considerable progress in their regional economic integration efforts. The report says that this will translate into a more favourable investment climate for intra-regional FDI. (IPA Service)