The global recession has shifted the pattern of FDI flow and three major developing economies Russia, Saudi Arab and India, for the first time have occupied the place among the top ten largest recipient.
The ASSOCHAM study revealed that China is leading as the priority host economy for FDI amongst the developing economies and also the 2nd largest FDI recipient in the world, followed by Hong Kong (4th), Russia (6th), Saudi Arabia (8th) and India (9th).
The inflows into the developed countries registered a sharp decline of nearly 30% in 2008, while the developing nations have experienced an increase of about 17% and sustained their uninterrupted inflow growth that started in 2003.
The global inflow of FDI during the past year reduced to USD 1770 billion a decline of 37% over the year 2008. Despite the fact that decline in FDI inflows in 2009 was widespread across all the three major group of economies, the impact on flows to developing and transition economies was relatively lesser as compared to developed countries. Though, the flows to developing and transition economies plunged significantly by nearly 32% from their past level, yet this was lesser than that experienced by developed market of over 42% in the same year.
Dr Swati Piramal president of ASSOCHAM said the major recipients of FDI for second quarter of 2010 shows a sharp contraction in the flows to the majority of developed countries leading to negative flows in few highly favored investment destination such as United Kingdom (-6.96 billion USD) and Belgium (-8.36 billion USD).
On the other hand, FDI flow to leading developing regions such as China (35.5%), Russia (30.8%), Brazil (15.6%) and India (16.8%) have gained modestly over the previous quarter.
The ASSOCHAM study says early indication of the trend so far implies that the developing economies are right on the track of outperforming and attracting more FDI than developed countries in 2010. The potential impact of the economic crisis, however, enforced the shifting of geographical focus to developing and transition economies because of their much better economic performance than the developed economies.
In 2007, total FDI inflow in the world soared to a record high of almost 2100 billion USD, of which developed countries received 1444 billion USD which is 68.8% of the total FDI inflow in the world, whereas in the same year developing and transition economies received only 31.2% of the total inflow in the world.
Dr Piramal said several factors such as weaker economic growth in developed countries and abnormal functioning of the world credit are putting pressures on the pace of recovery of FDI flows. In addition to other factors, increased screening requirements and new limitations of foreign equity policies of government during crisis is also impairing with the inflows. Even with the gradual recovery of FDI in short term, developed nations chances of attracting more FDI are fraught with mounting fiscal deficits and debt levels.
Moreover, the global trends of economic growth pointing to a stable and more rapid recovery for the developing and transition economies. The results of several business surveys also highlighted an encouraging short term review of FDI prospects in these economies. In a nutshell, with this background of preferred investment destination, the government policies of developing and transition nations should aimed at further liberalizing and facilitating FDI entry and operations in order to uphold the advantages and its competitive position over the developed markets.
