Business | Investment
FDI in developing nations to drop 31%
Foreign direct investment in developing nations will drop by $180 billion (Dh662 billion), or 31 per cent, this year as a global recession prompts multinationals to cut spending on factories and mines, according to the World Bank.
- Reuters
- Published: 23:19 January 21, 2009
Singapore: Foreign direct investment in developing nations will drop by $180 billion (Dh662 billion), or 31 per cent, this year as a global recession prompts multinationals to cut spending on factories and mines, according to the World Bank.
The decline will put renewed pressure on emerging-market currencies, even as asset sales by fund managers slow, according to Mansoor Dailami, manager of international finance in the global development prospects group.
Rallies in the South Korean won, Brazil's real and the Polish zloty have all faltered since the end of 2008 as companies including Rio Tinto and Honda Motor put expansion plans on hold.
"This is the most serious reaction so far to the global recession, the factory level," Dailami, who joined the bank in 1986, said in an interview in Washington. "Most emerging-market currencies are already under pressure and this tendency will continue. In 2008, it was a stocks and portfolio story. This year, it will be an FDI story."
Foreign direct investment fell an estimated 10 per cent in the developing world in 2008 and will cool further this year, the United Nations said in its 2009 outlook. FDI, which typically involves spending on plant and machinery or the purchase of a controlling interest, accounted for 38 per cent of inflows into emerging markets in recent years, compared with 10 per cent for investment by funds and 54 per cent for loans, according to Morgan Stanley estimates.
Bloomberg-JPMorgan indexes tracking currencies in Asia, Latin America and Eastern Europe in 2008 posted declines of 5.9 per cent, 19 per cent and 11 per cent, respectively, and have since dropped further. The won is down 8.3 per cent versus the dollar so far this year following a 17 per cent jump in December. The real is 2.6 per cent weaker and the zloty has lost 12 per cent.
Rio, the third-largest mining company, this month postponed a $2.15 billion expansion of an iron-ore mine in Brazil. Honda, Japan's No 2 automaker, delayed construction of a $100 million factory in Argentina and has shelved expansion plans in Turkey and India. Hitachi Construction Machinery, the world's largest maker of giant excavators, froze a $1 billion plan to expand production in China and other emerging markets.
"I've never before experienced seeing sudden, simultaneous drops in worldwide demand," Hitachi chief executive Michijiro Kikawa said this month in an interview in Tokyo. "New investment won't be implemented until we can foresee how the market will recover."
As recently as October 28, the Tokyo-based company was predicting 26 per cent growth in China sales for the current financial year. The nation's excavator market shrank 50 per cent from year-earlier levels in November and 37 per cent in December.
Of the world's five largest economies, only China has so far escaped recession. The nation will tomorrow report a 6.8 per cent expansion for the fourth quarter, the slowest growth in seven years, according to the median estimate of economists surveyed by Bloomberg News.
The World Bank estimates that foreign direct investment in developing countries will shrink to $400 billion this year from an estimated $580 billion in 2008 and $500 billion in 2007, according to Dailami, author of the lender's annual Global Development Finance report.
The outlook is "pretty grim", said Peter Elston, a Singapore-based strategist at Aberdeen Asset Management, which is Scotland's largest independent money manager and oversees $154 billion. "Given that exports have fallen off a cliff, you would expect FDI to do the same."
The World Bank predicts global trade will contract this year for the first time since 1982 and Brazil, Latin America's biggest economy, forecast its exports will drop as much as 20 per cent. Germany, the world's biggest goods exporter, reported a record slide in shipments for November and China, the second- largest, last month had its worst decline in a decade.
Investment in China, the largest developing economy, fell 5.7 per cent from a year earlier to $5.98 billion in December, sliding for a third straight month, official figures show.
Net flows to Brazil, the second-biggest, slid 14 per cent to $2.18 billion in November.
Bloomberg News
sss
A mountain of corn is stacked at the Alliance Grain Co. in Campus, Illinois, US. Corn rose for the first time in three days as rain, snow and high winds threaten crops in the US Midwest, where supplies are already short as farmers withheld sales because of low prices.
Share this article
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
What to expect at the Dubai Airshow
We preview what types of aircraft to expect at the Dubai Airshow
-
Air Arabia revamps its website
Upgraded site offers new features, accessible in range of languages
-
Dubai looks ahead to 2010 with new projects
Global visitor numbers up 4% on year and occupancy rates remain strong
