YASED announced UNCTAD’s World Investment Report 2009, concurrently with the whole world
Turkey ranked 20th in the global ranking, by attracting US$ 18 billion FDI inflows in 2008
YASED - International Investors Association has announced the World Investment Report 2009 prepared by United Nations Conference on Trade and Development (UNCTAD) in Turkey, which is launched concurrently around the globe. While illustrating the present situation of the foreign direct investments (FDI) along with the economic crisis that has shaken the whole world, the report also shows the countries that the direct investors prefer to invest and the rank of Turkey in the global league and among the developing countries, as well as analyzing various other investment trends.
According to the report comprising finalized data of 2008, the first 5 recipient countries that have attracted the highest FDI are USA, France, China, UK and Russian Federation. Turkey has attracted $18 billion FDI inflows and ranked 20th among the countries attracting the highest investment. This year, Turkey ranked 9th among the developing countries, as in the previous year. Consequently, while Turkey ranked 25th in the global list according to 2007 data, it has ascended to 20th place in 2008 and maintained its 9th place among the developing countries.
Although Turkey’s position in the global ranking has ascended in 2008, its FDI inflows fell by 18% after reaching an exceptionally high level of $22 billion in 2007. While this decline remained at a certain level due to expansion of the effects of the crisis at the year-end, it is estimated that the FDI inflows will fall under $10 billion by a sharper decline in 2009, in parallel to the global trend. As a matter of fact, FDI inflows could barely reach $4.9 billion as of the first seven months of the year. This figure verifies 58% decline as per the same period of 2008.
Global FDI Regressed by 14%
According to UNCTAD’s data, as a result of the effects of the global economic crisis in 2008, FDI inflows have fallen by 14% worldwide after reaching the historical record high of $1,979 trillion in 2007 and remained at $1.7 trillion. This decline was restricted to a certain level as the effects of the crisis intensified toward the year-end, sharper declines are expected in the inflows in 2009 and global FDI inflows to remain below $1.2 trillion.
On the other hand, among the underlined expectations of UNCTAD’s report is that, the recovery is expected to be slow in 2010, reaching no more than $1.4 trillion, but gathering momentum in 2011 to approach $1.8 trillion.
When we look at the FDI in terms of stocks data; according to UNCTAD’s World Investment Report, the global FDI stocks reached US$ 14.9 trillion as of 2008. While USA and France recorded the highest FDI stocks, Turkey ranked 40th with its FDI stocks of $70 billion. Hong Kong, China, Singapore, Mexico, Brazil and Russian Federation recorded the highest FDI stocks among the developing countries.
As UNCTAD’s report also illustrates the differences between developed and developing countries, in 2008, FDI inflows to developed countries fell by 29% to $962 billion and in developing countries reached $621 billion by rising 17% and in transition economies reached $114 billion by rising 26%. The surge in the developing and transition economies' share in global FDI flows to 43% in 2008 compared to 31% in 2007, marked one of the effects of the crisis on FDI inflows.
Changing every year in line with the trends in international direct investment flows, the sub-title of World Investment Report 2009 is “Transnational Corporations, Agricultural Production and Development”.
The report specifies that international participation in the agricultural sector is on the rise and this participation may play a significant role in agricultural production of developing countries, which are in dire need of private and public investment to boost productivity and support development of their farming sectors.
Decline in M&A Transactions
The 2009 report of United Nations Conference on Trade and Development shows that Merger and Acquisition (M&A) transactions, which have proved to be significant FDI sources at all times, declined considerably in 2008 due to the effect of the economic crisis. Accordingly, M&A transactions fell by 35% to $673 billion last year compared to the previous year. The decline trend still continues in 2009; as of the first quarter, a sharper decline around 77% has been recorded.
The cross- border transactions of the private equity companies, which fuelled the earlier rise in M&As, dropped by 38% in 2008 and a sharper decline registered in the first half of 2009. Sovereign wealth funds fueled the general trend with a recorded rise in FDI in 2008 and the value of their cross-border M&As increased by 16% to $20 billion. However, these funds were also increasingly effected by the financial and economic crisis as the value of their previous investments fell.
The report covers the Greenfield investments on project basis. China, as in the previous year, is leading with 1.483 projects. China is followed by 958 projects of India and 931 projects of USA, while Turkey is positioned at the 27th place with its 169 projects.
As for the Turkey’s share in the global FDI flows, in 2008 it remained the same as compared to the previous year with its 1.1% share. On the other hand, among the 171 developing countries, Turkey’s FDI share declined to 2.9% from 4.2% share in 2007.
According to UNCTAD’s report which also demonstrates regional distribution of FDI inflows, while Europe had the largest share in the FDI inflows, among the developing economies, South and East Asia stands out as in the previous years. Turkey is considered among West Asian countries in the report and ranked 2nd in its region this year. In terms of sectoral distribution of inward FDI, the main drivers were real estate, petrochemicals, refining, construction, and trade in Saudi Arabia and Turkey, the two leading recipient countries in the region, which together attracted 63% of total inward FDI to the region in 2008.
The report mentions the absence of the general trend toward investment protectionism, despite the current environment of financial turmoil and massive government intervention in economies, as notable.
Future Expectations
Expectations for the future of Foreign Direct Investments (FDI) remain gloomy. It is estimated that FDI inflows will fall from about US$ 1.7 trillion in 2008 to below US$ 1.2 trillion in 2009. Recovery is expected to be slow in 2010, reaching no more than $1.4 trillion, but gathering momentum in 2011 to approach $1.8 trillion.
The 35% decline in M&A transactions in 2008 has made a sharper downturn in the first quarter of 2009 as they fell by 77%.
UNCTAD foresees a possible U-type recovery in the global FDI inflows, which will start by the end of 2010 or in 2011. Investment opportunities driven by low asset prices, financial resources in the developing countries and requirements for energy and environment based investments are anticipated to be among the effective factors in recovery.
The report states that in the aftermath of the crisis, and once the global economy is on its way to recovery, the exit of government funds from ailing industries could provide the catalyst for a new wave of cross-border M&As. The report also indicates that TNCs in industries that are less sensitive to the business cycle and which experience fairly constant demand (such as agribusiness and some services), as well as those with positive long-term growth prospects (such as pharmaceuticals), have the brightest FDI prospects and are thus likely to drive the next FDI boom.
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