World Investment Report 2009: Transnational Corporations - Unctad

CHAPTER I
GLOBAL TRENDS:
FDI FLOWSINDECLINE
The current global financial and
economic crisis has had a dampening effect
on foreign direct investment (FDI). As
a result, FDI flows are expected to fall to
$900–$1,200 billion in 2009, though there
should be a slow recovery in 2010 and an
acceleration in 2011.
In 2008 and early 2009, global
FDI flows declined following a period of
uninterrupted growth from 2003 to 2007.
Meanwhile, the share of developing and
transition economies in global FDI flows
surged to 43% in 2008.
Shrinking corporate profits and
plummeting stock prices have greatly
diminished the value of, and scope for, crossborder
mergers and acquisitions (M&As) –
the main mode of FDI entry in developed
countries, and increasingly in developing
countries as well. Falling demand for goods
and services has caused companies to cut
back on their investment plans in general,
including abroad – whether through crossborder
M&As or greenfield projects. The
latter mode of investment began falling
only in 2009.
FDI initially began to decline
significantly in developed countries, which
experienced a 29% fall in their inflows,
while flows to developing countries and
to the transition economies of South-East
Europe (SEE) and the Commonwealth
of Independent States (CIS) continued to
increase, by 17% and 26% respectively.
However, in late 2008 and early 2009, the
latter two groups of countries also started to
feel the impact of the crisis on their inflows.
A number of these economies are expecting
a significant fall in FDI inflows throughout
2009.
This chapter examines global trends in
FDI flows in 2008 and the first half of 2009,
including why and how the financial crisis
and the ensuing economic slowdown have
affected FDI flows (section A). Section B
then examines how the largest transnational
corporations (TNCs) are dealing with the
global crisis, while section C presents
recent developments with respect to FDI by
private equity firms and sovereign wealth
funds (SWFs). Section D outlines recent
policy developments with respect to FDI
and policy responses to the crisis. Finally,
section E considers the prospects for global
FDI flows in the short and medium terms
as the world’s economies act to restore
financial stability and economic growth.
A. The financial crisis,
economic downturn
and FDI flows
1. Global slowdown in FDI
flows, prompted by the
crisis 1
Turmoil in the financial markets
and the worldwide economic downturn
progressively affected global FDI in
2008 and in the first half of 2009. After
uninterrupted growth in FDI activity in
the period 2003–2007, global FDI inflows
fell by 14% in 2008 to $1,697 billion, from
a record high of $1,979 billion in 2007
(figure I.1). While the 2008 level was the
second highest in history, FDI flows began
gradually declining over the course of that
year. In the first half of 2009, FDI flows fell
at an accelerated rate.
The pattern of FDI flows has varied
by groups of economies. FDI inflows and
outflows of developed countries plunged
in 2008, with inflows declining by 29%, to
$962 billion, and outflows by 17%, to $1,507
billion. FDI flows fell further as the financial
crisis entered a tumultuous new phase in
2009