Politics & economics

Record Levels of Foreign Direct Investment in 2007

building The flow of foreign direct investments (FDI) is set to reach record levels in 2007 if it continues at the current rate and should remain positive until the end of this decade. These are the conclusions of a report published jointly by the Economist Intelligence Unit and the University of Columbia. They estimate FDI will reach $1,474Bn this year, up 10% against 2006, easily eclipsing the previous record of $1,400Bn set in 2000 at the height of the DotCom Bubble.

Thanks in part to a 37% surge in 2006, FDI have nearly tripled over the last four years. The rate is expected to slow however, to an average of +4.5% per annum between 2007 and 2011 and could actually show a drop of 4% in 2008 as merger and acquisition activity tails off.

Wealthy countries remain the favoured destination for FDI, attracting two-thirds of global FDI and the report, which is based on interviews with management from over 600 companies, concludes that this should continue. In 2006, developed nations accounted for 11 out of the top 13 destinations. Only China featured heavily, in fourth place after the US, Britain and just behind France. The report estimates that China, including Hong Kong, will boast second place for FDI from 2007 to 2011, attracting an average of $135Bn a year. This is still well below the level of the FDI leader, the US, which the report reckons will attract an average of $251Bn a year, but far ahead of India, with just $20Bn a year.

Top Destinations for FDI

$Bn	USA	Britain	China	France	Belgium	Germany	Canada	Hong Kong
2006	183.6	137.7	78.1	86.9	72.5	43.3	43.3	43.4
2007-2011 (est)	250.9	112.9	86.8	78.2	71.6	66	63.2	48

Source: World Investment Prospects to 2011 (EIU/Univ. of Columbia)

The report notes that corporate management are most concerned with political risks, citing in particular unstable governments, terrorism and a rising disenchantment with foreign investments for emerging markets. Although there are also geo-political risks identified in the wealthier nations, notably tensions with Russia and Iran and terrorism. Ironically, management from those companies that had the least international presence seemed the most concerned with these risks. The report concludes that the outlook for FDI is positive and should remain relatively unaffected by recent financial tensions and credit crunch, as the authors stress that the fundamentals of the world economy and the ability of companies to pay down debt remains healthy.