Led by UNCTAD's Nicole Moussa, co-author of the World Investment Report, the first Vi videoconference of the fall season gathered 29 international business students and lecturers at core Vi member, Universidad EAFIT, and affiliate member, Universidad EAN, September 10. The videoconference was also webcasted to the other 13 Vi university members in Colombia.
FDI flows increased by 16 percent in 2011, exceeding for the first time the pre-crisis level, Moussa reported. However, the volume still lagged behind the figures for 2007 and 2008.
Inflows increased in all regions, with economies in transition recording the highest growth rates (25 percent), followed by developed countries (21 percent) and developing countries (11 percent).
While developing Asia attracted almost two thirds of total FDI inflows into developing countries, investment into Latin America and the Caribbean grew at a faster rate (16 percent, as compared with 11 percent in Asia). On the other hand, FDI inflows into Africa decreased slightly - (1 percent), as the strong increase in FDI inflows into sub-Saharan Africa was totally offset by the 50 percent drop in FDI inflows to North Africa, as a result of the political unrest in the region.
"Developing and transition countries continued gaining importance as both recipients and sources of FDI -- -- a trend that has been developing throughout the 2000s and accelerated with the global economic and financial crisis," Moussa said. From 30 percent of global FDI inflows in the 2000-2005 period, their share increased to 43 percent during 2006-2011, and 51 percent in 2011. At the same time, they accounted for more than one quarter (27percent) of global FDI outflows in 2011, up from the 13percentin 2000-2005.
Among the ten main FDI recipients in 2011, six - one more than in 2010 - were developing and transition countries, and four of them featured among the ten main countries-sources of FDI.
However, Moussa stressed, "there is a great uncertainty in the global economy, which affects investment plans of companies." The survey of transnational corporations conducted by UNCTAD suggests that there is more pessimism than optimism with regard to the year 2012, with an improvement in expectations for 2013 and 2014.
In Latin America and the Caribbean, FDI figures were pulled up by South America, where flows recorded a growth of 35 percent. This was mainly due to the 37 percent growth in Brazil, which accounted for 55 percent of FDI flows into the sub-region. The country emerges as the big winner due to the size and attractiveness of its economy, natural resource endowments and strategic position on the continent close to other dynamically growing countries, such as Argentina, Chile, Colombia and Peru.
An important impetus to the growth of FDI inflows into the sub-region since 2003 has been the strong increase in TNC profits, which translated into increased reinvestment of these earnings. The surge in FDI profits can be explained by the growing stock of FDI in the region (from 11 percent of GDP in 1994 to 28 percent in 2011), the growing share of the highly profitable - due the rise in commodity prices - extractive industries in this stock, and the economic dynamism registered in the sub-region.
Although high and rapidly growing FDI profits can boost investment in productive capacity in host countries, they also entail risks - cash flows are available for repatriation or short-term investment in local markets.
Colombia followed the same pattern of a growing share of reinvested earnings in FDI inflows, though at lower levels. The sectors which attracted most FDI in 2011 were oil, mining, trade and tourism, and transport and communications.
With regard to FDI policies, new trends have emerged at the global level, trying to reconcile the promotion of FDI inflows with a greater regulation of such flows in support of public policy objectives of recipient countries.
This has translated into greater investment targeting - attraction of FDI to specific sectors of interest to the recipient countries - in the framework of industrial policy; more regulation of FDI in sectors considered as strategic (extractive industries, agro-industry, pharmaceutical industry), greater attention to positive effects of FDI, and increased questioning of international investment agreements (IIAs) and the related dispute settlement mechanism.
The world may be moving toward a new generation of FDI policies which put investment policies in the context of national strategies of sustainable development, and intend to focus on broader development policies while maintaining a climate favorable to investment.
"The challenges developing and transition countries face in this regard," Moussa explained, "relate to the need to integrate FDI policies into national development strategies, reflect sustainable development objectives in FDI policies, strengthen institutions dealing with FDI issues, and re-examine the system of IIAs with a view to re-balancing the rights and obligations of investors and host countries."
The presentation was followed by questions from the students and lecturers of Universidad EAFIT regarding FDI prospects (reasons that may explain the companies' perceptions about the future, sectors which may expect greater FDI inflows than others), the role of South American governments in the regulation of FDI flows, and the place of short-term capital vs. FDI inflows into Brazil.
"We are most thankful for the videoconference this morning. Our students gave us wonderful comments, and they appreciated very much having a presentation from a member of the WIR project," commented Vi member coordinator, Maria Alejandra Gonzalez-Perez, Head ofthe International Business Department at Universidad EAFIT, after the event.