FDIs to developing nations to rebound in 2013

Foreign direct investments (FDIs) to developing countries like the Philippines are projected to rebound next year, a report by the Multilateral Investment Guarantee Agency (MIGA) of the World Bank said on Thursday.

“For 2013, FDI inflows to developing countries are projected to rebound by 17 percent to $697 billion, as global economic growth is anticipated to accelerate modestly,” according to the “World Investment and Political Risk 2012” report based on the MIGA-Economist Intelligence Unit (EIU) Political Risk Survey 2012.

The report noted that the attractiveness of developing countries as investment destinations will continue, because of sustained higher economic growth in developing countries compared with high-income economies.

It added that other factors for the attractiveness of developing countries would be the large and growing consumer base, the availability of natural resources, and ongoing improvements in investment climates.

In the Philippines, data from National Statistical Coordination Board showed that total FDI for the first half 2012 reached P62.6 billion, higher by 0.4 percent from the P62.3 billion registered during the same period last year.

Meanwhile, the MIGA report also stated that new challenges, especially the ongoing sovereign debt crisis and recession in the euro zone, have slowed the flow of FDI from traditional sources.

“Having fallen sharply after the onset of the crisis, FDI inflows received by developing countries climbed by about $100 billion each subsequent year to reach around $640 billion in 2011,” it added.

However, the report said that in 2012, FDI inflows into developing countries are estimated to fall to just under $600 billion, adding that all developing regions experienced a decline in 2012.

“Despite the decline in FDI inflows to developing countries, they 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,” it added.

The MIGA report asserted that FDI from new investors based in developing countries have risen significantly in recent years, and is expected to reach a record level this year.

FDI outflows from developing countries reached a new record in 2012, an estimated $237 billion, continuing the upward trend of recent years.

It also remarked that about a quarter of developing countries’ outward FDI currently goes into other developing countries, or the “South-South” investment.

Political risks
On the other hand, MIGA Executive Vice President Izumi Kobayashi explained that the report examines investors’ perceptions and risk-mitigation strategies as they navigate today’s uncertain economic waters.

“It finds that investors continue to rank political risk as a key obstacle to investing in developing countries and are increasingly turning toward PRI [political risk insurance] as a risk-mitigation tool,” Kobayashi added.

The MIGA official said that the report pointed an important factor that has positive implications not only for developing countries, but also for the global economy.

“FDI into developing countries has remained a significant engine of growth even as the global economic picture has weakened,” the official added.

Furthermore, the MIGA report also found that both sovereign default risk and expropriation—among other political risks—remain dominant issues for foreign investors deciding their investment plans.

“The ongoing weakness and instability in the global economy remain a top constraint for foreign investors’ plans to expand in developing countries in the short term,” it added.

However, the report noted that investors were optimistic in their intentions to invest in developing countries in the short term because of their awareness of stronger economic growth in developing countries.

“Over the medium term, foreign investors identify political risk as the most significant constraint to investing in developing countries,” it added.

The MIGA report continued that despite of the constraints, concerns about macroeconomic stability and access to finance recede, and more foreign investors become optimistic in their intentions to invest in developing countries.

“Despite elevated perceptions of political risk, the majority of respondents in the MIGA-EIU Political Risk Survey 2012 have no plans to withdraw or cancel investments in developing countries,” it added.

The report also showed that within the range of political risks, adverse regulatory changes are the foremost concern to foreign investors over both the short and medium term, followed by breach of contract.

MIGA is a member of the World Bank Group which promotes FDI into developing countries to help support economic growth, reduce poverty and improve people’s lives.

Refer http://www.manilatimes.net/index.php/business/top-business-news/36836-fdis-to-developing-nations-to-rebound-in-2013

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FDIs to developing nations to rebound in 2013


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