Foreign investors, attracted by stronger economic growth in developing countries while mindful of risks, remain relatively optimistic about these destinations in the short term, according to the results of a survey released in a report by the World Bank's Multilateral Investment Guarantee Agency (MIGA).
World Investment and Political Risk notes that half of the survey's respondents plan to increase investment in developing countries in the next 12 months.
This sentiment dovetails with foreign direct investment (FDI) trends that show developing-country flows continue to account for a substantial share of global FDI: in 2012 they are estimated to be 36 percent of inflows and 14 percent of outflows. FDI to developing countries is expected to rebound in 2013 to exceed pre-2008 highs. New challenges, especially the ongoing sovereign debt crisis and recession in the euro zone, have slowed the flow of FDI from traditional sources.
However, FDI from new investors based in developing countries has risen significantly in recent years, and is expected to reach a record level this year. Notably, about a quarter of developing countries' outward FDI currently goes into other developing countries ("South-South" investment).
Nevertheless, the report finds that both sovereign default risk and expropriation--among other political risks--remain dominant issues for foreign investors deciding their investment plans.
"Our report points to an important factor that has positive implications not only for developing countries, but also for the global economy," said Izumi Kobayashi, MIGA's Executive Vice President. "FDI into developing countries has remained a significant engine of growth even as the global economic picture has weakened."