APEC region exhibits strong recovery in investment levels

APEC region exhibits strong recovery in investment levels

Singapore, August 2, 2011 - Foreign direct investment (FDI) levels in APEC rebounded significantly in 2010 with the region’s share of global FDI inflows more than doubling in the last five years, according to an analysis by the APEC Policy Support Unit.

APEC Policy Support Unit Director, Dr. Denis Hew, provided an Asia-Pacific perspective on current foreign direct investment (FDI) trends in the region. His analysis is based on data found in the United Nations Conference on Trade and Investment (UNCTAD) World Investment Report (WIR) 2011, which was launched last week.

Weighing in on the economic outlook, Hew explained that UNCTAD forecasts that world output growth will fall to 3.2 percent in 2011 from 3.9 percent in 2010 and that Japan’s output growth will drop to 0.7 percent in 2011 from 3.9 percent in 2010. He went on to say that the World Bank estimates that the damage caused by the earthquake and tsunami in Japan could be as much as US$ 235 billion”

Looking at 2010, FDI levels in APEC rebounded significantly from 2009. Inflows to the APEC region grew 32 percent, reaching US$ 627 billion, while outflows from the region grew 14 percent, reaching US$ 742 billion.

“Although the APEC region is still falling a bit short of 2008 pre-crisis levels, it is out-performing other regions,” Hew said. APEC’s share of global FDI inflows rose from 32 percent in 2005 to 50 percent in 2010, and its share of global FDI outflows increased from 17 percent to 56 percent over this same period.

FDI inflows to the APEC region grew by 15 percent per year on average between 2005 and 2010, while inflows to the rest of the world declined by 2 percent per year on average over this same period. Similarly, FDI outflows from the APEC region grew by 38 percent per year on average between 2005 and 2010, while outflows from the rest of the world declined by 5 percent per year on average over this same period.

The increase in FDI is more pronounced in developing APEC economies.[1] FDI inflows to the developing APEC economies have recently been even larger than the developed APEC economies and were valued at USD 344 billion in 2010, growing by 11 percent per year on average between 2005 and 2010. FDI outflows from the developing APEC economies have grown by 26 percent per year on average between 2005 and 2010 to reach US$ 292 billion.

Hew said that increased FDI activity has been advanced by the efforts made by several APEC economies towards increased investment liberalization and facilitation These measures include the streamlining of admission procedures and the opening of new, or expansion of existing, special economic zones.

“However, we cannot ignore that one of reasons for APEC’s growing share of global FDI is the EU’s declining share,” said Hew. The EU’s share of global FDI flows has decreased significantly – from 50 percent in 2005 to 24 percent in 2010 for inflows and from 69 percent in 2005 to 31 percent in 2010 for outflows.

Hew observed that mergers and acquisitions (M&A) is the preferred mode over greenfield projects by investors in the APEC region, and is likely to continue.

“The value of M&A sales in the APEC region rose sharply in 2010 to US$ 176 billion, with strong growth experienced by both developed (88 percent increase) and developing (40 percent increase) APEC economies compared with an 11 percent increase in the value of M&A sales in the rest of the world,” Hew added.

The value of greenfield FDI to the APEC region continued to decline in 2010, falling another 9 percent to US$ 395 billion, compared with a 21 percent drop in the value of greenfield FDI to the rest of the world from 2009 to 2010. Only 7 APEC economies experienced increases in the value of greenfield FDI into their economies from 2009 to 2010.[2]

A more detailed PSU briefing can be found here.

Footnotes:

[1] The highest growth rates of FDI inflows to developing APEC economies between 2005 and 2010 include Viet Nam (32 percent growth per year on average), Russia (26 percent growth per year on average), Peru (23 percent growth per year on average), Singapore (20 percent growth per year on average), Malaysia (17 percent growth per year on average), Chile (17 percent growth per year on average).

[2] Australia (144 percent), Chinese Taipei (104 percent), Singapore (42 percent), Chile (17 percent), Russia (10 percent), Thailand (9 percent), and Malaysia (5 percent)

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