Dubai: World foreign direct investments (FDI) dropped by eight per cent in 2014 to $1.3 trillion (Dh4.8 trillion) compared to $1.4 trillion in 2013, according to the 2nd edition of the Annual Investment Meeting (AIM) Report 2015.
This is the first time world FDI inflows have declined since the drastic drop in FDI from $1.9 trillion in 2007 to $1.2 trillion in 2009 due to the global financial crisis.
The report, which was released in Dubai on Monday at the opening session of the AIM 2015 conference, was prepared by Karl P. Sauvant, a Resident Senior Fellow at Columbia Centre on Sustainable Investment.
Attributing the FDI drop to the uncertain world economic situation, Sauvant said that despite the fragility of the Eurozone and declining commodity prices, world FDI inflows are expected to rise in 2015.
“Developed countries were largely responsible for the decline of world FDI inflows in 2014, having dropped by 13 per cent to $511 billion especially inflows into the US dropped by one-third to $86 billion,” the report said.
FDI into the European Union rose by 13 per cent at a value of $267 billion as well as Japan achieved a small increase at $10 billion.
The number of firms undertaking FDI rose substantially over the past few decades from 7,000 in 1960 to 100,000 in 2010, the report said.
Emerging market
Sauvant said that it is the third year in a row that emerging markets attracted more than half of the world FDI inflows.
Emerging market attracted 59 per cent of the world’s FDI inflows in 2014 at a value of $745 billion, the highest in the past few years.
“Asia remains the region’s most attractive investment destination accounting 70 per cent of FDI in the developing countries at a value of $492 billion, with China continuing as the single most important host country for FDI, receiving almost $128 billion inflows, followed by Hong Kong ($111 billion) and Singapore ($81 billion),” Sauvant said.
Regarding the FDI in West Asia, the report said that the value of inflows dropped by 50 per cent from 2008 to $44 billion in 2014, due to the overall political situation in the region.
The most attractive countries for foreign investors in 2013 were Turkey at $13 billion followed by the UAE at $11 billion and Saudi Arabia at $9 billion, Sauvant said.
Qatar was the lowest in FDI inflows at $1 billion, he said.
Sauvant said that government expectations concerning inward FDI are changing.
“Governments are encouraging more sustainable FDI that makes a maximum contribution to the economic, social and environmental development of host countries,” he said.
“Today governments are increasingly concerned with the quality of investments, not quantity, paying more attention to competing objectives, especially national interests, essential security, the promotion of national champions and the protection of certain national industries,” Sauvant said.
Key challenge
“Managing conflicts between foreign investors and host countries has become a key challenge in the international investment filed,” he said.
Sauvant said that today the great majority of countries has supplemented and enhanced their regulatory frameworks with strong international investment agreements.
“Achieving this is not easy, but it can be done,” he added.
