The United Nations Conference on Trade and Development (UNCTAD) released its annual World Investment Prospects Survey 2009-2011, which looked at the global economic and financial crisis and its impact on foreign direct investments (FDI) by Transnational Corporations (TNCs). The report provides an assessment of the global FDI outlook 2009-2011 and offers insight into specific trends and prospects in industries and countries.
Surveying representatives of more than 240 of the largest non-financial TNCs, the study found that roughly 80% of the TNCs around the world – compared to 40 % in 2008 - note that the global economic recession and the financial crisis have had negative impacts on their investment plans, including foreign direct investments.
It also found that the crisis will probably lead to a "decrease-then-rebound" pattern - a short decline in FDI expenditures in 2009, followed by recovery in 2010 and rebound in 2011. “One of the major reasons for an expected recovery in FDI in 2010-2011, after its decline in 2009, is that respondent companies intend to pursue their strategy of internationalization, albeit at a slower pace”, the report states.
However, propects and optimism vary according to home country, the type of industry as well as host countries. “Industries sensitive to the business cycle…, such as automotives, metals and chemicals, are among those that expressed the most negative views concerning their FDI plans,” the report notes. It finds that developed countries are expected to be the most affected by a fall in FDI flows, which can partly be explained by the continuing trend to locate TNCs in emerging markets.
With regard to developing countries, the report is more optimistic and concludes “For the developing countries for which FDI is an important source of external financing, the major challenge is to improve their local business environment in order to enhance their attractiveness for TNCs. At the same time, however, for the handful of developing countries that have the financial and industrial capabilities to invest abroad, the crisis may also be a major opportunity to strengthen their influence in the global economy through an increased presence of their companies abroad.”
For the full report, click here.