Real-estate sector helps push FDI inflows up by 11 percent

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FDI inflows to Lebanon increased by 11 percent, from $4 billion in 2008 to $5 billion in 2009, owing to a particularly buoyant real-estate sector, stated the report released on Thursday by the United Nations Conference on Trade and Development (UNCTAD).

Focusing on the West Asian region in particular, Salaheddin Abosedra, regional adviser on macroeconomics at ESCWA, showed that FDI inflows declined by 24 percent in 2009 – reversing a six-year upward trend – to $68 billion.

“Kuwait replaced the UAE in 2009 as the largest outward investor of FDI, with $9 billion of foreign investments.”

Also notable from the report regarding the West Asia region were the measures taken to improve conditions for foreign investment at home and abroad. For instance, Abosedra cited how tax rates in Turkey and Oman were lowered to boost activity across certain sectors of the economy and how Qatar has worked hard to seek investment opportunities in Europe, Asia and the US for its sovereign wealth fund.

Globally, the report also highlighted the decline in manufacturing FDI in relation to the primary and services sectors, mainly due to a 34-percent fall in cross-border mergers and acquisitions. Indeed, despite the overall fall in FDI during 2009, this has not affected the upward trend in the internationalization of production, with the employment by Transnational Corporations (TNCs) rising worldwide to 80 million and the share of global output also rising to capture 11 percent of global gross domestic product (GDP).

The World Investment Report highlighted that despite a dismal situation in FDI flows at the end of 2009, the downward trend seemed to be reversing in the first half of 2010.

However, within developing and transition countries in particular, FDI inflows fell by 27 percent compared to a 21 percent fall in outflows, showing the important role these countries are playing in FDI recovery.

Emerging markets, in particular China, performed better than many developed countries, with the Chinese economy being the second-largest recipient of FDI globally, receiving $95 billion of FDI inflows compared with the next largest recipient which was France at $60 billion.

Optimism seemed to be greater concerning investment toward larger developing economies for the coming year, with Brazil, the Russian Federation, India and China as focal points for investment. The report stated that the majority of the FDI flows to these economies would continue to be aimed at highly labor-intensive and technology-intensive activities.

Overall though, according to the report, this year will only serve as a stepping stone in the way of full recovery.

It states that business confidence can only be restored gradually through improvements in the macroeconomic environment, with corporate profits and stock-market valuations following suit over the next few years.

Within this improvement in the overall global economic position, the report stresses the significance of the increase in cross-border mergers and acquisitions, with privatization of firms on the brink of bankruptcy during the recession creating merger and acquisitions opportunities for TNCs. Indeed, the brighter position of the global economy in 2010 is in part due to the 36 percent rise in merger and acquisitions in the first five months of this year.

Nevertheless, the report stresses that risks remain for the status of FDI particularly in developing countries, citing overspending, public debt and the risk of increased protectionist measures possibly dampening the efforts made to improve FDI flows so far this year.