UNCTAD's annual survey of world investment estimates total flows in 2009 to decline to 1.2 trillion from 1.69 trillion in 2008, which itself was down by 300 billion over 2007. Unlike in 2008, when FDI flows to developed countries, where the financial crisis originated, suffered sharper decline of 29 per cent (Germany alone 40 billion), developing and transition countries maintained growth well into the year. First quarter preliminary data indicate FDI downturn for all regions in 2009.

BRIC (Brazil, China, Russia and India) have become significant players in global investments, their combined outflows totalling 141 billion dollars in 2008 as against inflows of 264 billion dollars. India received 41.55 billion dollars (9.6 per cent of its gross fixed investment) and invested abroad 17.68 billion, though below levels of other three BRIC nations. China was the third largest recipient with 108 billion dollars (52 billion outward) in 2008, Russia 70 and 52 billion and Brazil 45 and 20 billion respectively.

Global financial crisis and recession made it “hesitant and bearish” for TNCs (Transnational corporations) for expanding their international operations. The United States remained the largest source and recipient of FDI in 2008 (311 billions outward and 316 billion inward), followed by France and China taking the third place among the first five including Japan which recorded a 74 per cent increase in its outflows. USA along with China, India, Brazil and Russia are likely to lead the future FDI recovery. Tentative estimates of FDI flows are 1,4 trillion in 2010 and 1.6 trillion in 2011.

India is becoming an important investor, UNCTAD notes, but it takes the 13th place in destination and not among the 20 outward investors. Russia and China are leading investors, occupying the 12th and 13th positions. South, East and South East Asia and Oceania account for half of the flows into developing countries which together accounted for 293 billion dollars in outflows in 2008.. The outward expansion is largely by TNCs in Latin America and East Asia, especially China, in the quest for energy, commodities and other natural resources.

A number of countries experienced FDI outflows exceeding inflows as TNCs divested, either through repatriation or repayment of debt to parent firms. Lower profits by foreign affiliates drove down reinvested earnings and caused 46 per cent of FDI outflows from developed countries in the first quarter of 2009. Apart from the rising share of developing countries in investment inflows, FDI landscape is expected to undergo structural change to take in more of sectors like agriculture, which UNCTAD reports highlights for the first time with implied calls for liberalisation including the promotion of contract forming, which has attracted FDI in parts of Africa. Agriculture and extractive industries have weathered the crisis relatively well compared to business-cycle-sensitive industries such as metal manufacturing, UNCTAD says. It sees a better outlook for FDI in industries less sensitive to business cycles and operate in large markets such as agri-business, many services and pharmaceuticals. In agricultural production, FDI from South (including South-South) is significant like FDI from the North.

According to UNCTAD, TNC participation in agriculture in the form of FDI and contract farming may result in transfer of technology, standards and skills as well as better access to credit and markets. It would also enhance food security, safety and affordability which would depend on right policies for host countries to maximise benefits and minimise costs of TNC participation. Governments could also promote contact farming between farmers and TNCs in the direction of enhancing farmers' predictable income, productive capacities and benefits from global value chains. They could help with model contracts for negotiating with TNCs.

Cross-border M&As - a major source of growth of FDI in previous years - declined considerably as financial markets seized up in the second half of 2008. The value of such transactions fell by 35% to US$673 billion (a level roughly equal to that of 2006), and so far in 2009 the rate of M&As has continued to fall. Bucking the general trend, however, sovereign wealth funds (SWFs) recorded a rise in FDI in 2008 by 16% to $20 billion.

In the current environment of financial turmoil and massive government intervention in economies, 2008 and early 2009 were notable for the absence of a general trend in public policies towards greater investment protectionism. In 2008 and the first half of 2009, despite concerns about a possible rise in investment protectionism, the general trend in FDI policies remained one of greater openness, including lowering barriers to FDI and lowering corporate income taxes.

Some national policy measures of a more general scope (bailouts and economic stimulus packages) are likely to have a positive impact on FDI flows and TNC operations in an indirect manner. On the other hand, the report adds, concerns have been expressed that country policy measures could result in investment protectionism by favouring domestic over foreign investors, or by introducing obstacles to outward investment in order to keep capital at home. The expected exit of public funds from flagship industries is likely to provide a boost to private investment, including FDI. This could possibly trigger a new wave of economic nationalism to protect “national champions” from foreign takeovers.

On the outlook for 2009, UNCTAD report says FDI to and from developed countries is expected to fall in 2009 because of the continuing effects of the financial crisis and weaker economic growth in these economies. TNCs are expected to reduce their investment programmes because of declining corporate profits, limited access to financial resources and the higher cost of finance. Indeed, FDI inflows in the first quarter of 2009 were 24% lower than in the last quarter of 2008, while cross-border M&As in the first half of 2009 declined by more than 40% compared to their level in the second half of 2008.

In 2008, there were 82,000 TNCs worldwide with 810,000 foreign affiliates. Their exports at 6.6 trillion dollars were one-third of total world exports of goods and services. 77 million people were employed in these affiliates. With over 30 trillion dollars in sales and total assets at 69 trillion dollars, these companies play a dominant role in the world economy. They were not, however, insulated from the worst global recession in a generation. A 4.8 per cent reduction in inward FDI stock worldwide was reflected in the decline in the value of gross production, sales and assets as well as employment of TNC affiliates.(IPA Service)