17 July 2012

Ghana: Major Trends in Global FDI

Greenfield investment projects, which had declined in value terms for two straight years, held steady in 2011 at $904 billion. Cross-border mergers and acquisitions rose 53 per cent in 2011 to $526 billion, spurred by a rise in the number of megadeals (those with a value over $3 billion) to 62 in 2011, up from 44 in 2010.

Although the growth in global FDI flows in 2011 was driven in large part by cross-border mergers and acquisitions, the total project value of Greenfield investments remains significantly higher than that of cross-border mergers and acquisitions, as has been the case since the financial crisis.

UNCTAD's report noted: "Primary-sector and service-sector FDI picked up after two years of decline. Service-sector FDI, which reached $570 billion in 2011, saw its rebound driven by increased activity in utilities (electricity, gas and water) and transportation and communications.

"Primary-sector investment, which reached $200 billion, was boosted by strong commodity prices and industry consolidation. The sectoral distribution of projects indicates that the share of both sectors rose slightly at the expense of manufacturing".

It indicated that foreign affiliates' economic activity rose in 2011 across all major indicators of international production. During the year, foreign affiliates employed an estimated 69 million workers globally, who generated $28 trillion in sales and $7 trillion in value added.

Record cash holdings by TNCs, estimated at between $4 trillion and $5 trillion, have so far not translated into sustained growth in investment levels.

Data on the largest 100 TNCs shows that during the global financial crisis they cut capital expenditures in productive assets and acquisitions (especially foreign acquisitions) in favour of holding cash.

Cash levels for these 100 firms alone stood at $1 trillion in 2011, of which an estimated $105 billion was additional -above the level suggested by average pre-crisis cash holdings.

Although recent figures suggest that the capital expenditures of these firms on productive assets and acquisitions are picking up, the additional cash they hold is still not being fully deployed.

This current cash overhang may fuel a future surge in FDI. Projecting the experience of the top 100 TNCs over the estimated $5 trillion in total TNC cash holdings suggests that these firms may be holding back more than $500 billion in investable funds, or around one third of global FDI flows, the report said.

The UNCTAD FDI attraction index, which measures the success of economies in attracting FDI (in total and in relation to their size), features eight developing and transition economies in the top 10, compared with only four a decade ago.

Newcomers in 2011 to the top ranks include Ireland and Mongolia. Just outside the top 10, a number of countries saw sustained improvements in their rankings, including Peru and Ghana, both of which have improved their rankings in each of the last six years.

The UNCTAD FDI contribution index - introduced for the first time in the World Investment report 2012 - ranks economies on the basis of the significance of FDI and foreign affiliates for their economies in terms of value added, employment, wages, tax receipts, exports, research and development expenditures and capital formation. According to this year's index, the host economy with the largest contribution by FDI is Hungary, followed by Belgium and the Czech Republic.

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