Global Economy
FDI: Ireland not among prospective host sites of top global companies
By Michael Hennigan, Finfacts founder and editor
Jun 25, 2014 - 7:31 AM

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Foreign direct investment (FDI) into developing economies is forecast to peak while China is expected to become a net investor, according to an annual report from an UN agency that was published on Tuesday. In a related survey, Ireland is not among preferred future host sites of top global companies.

The UN Conference on Trade and Development (Unctad) in its annual World Investment Report says FDI grew 9%  in 2013 to $1.45tn and is forecast to rise 12.5% this year to $1.6tn.

Despite an overall increase in inflows to $566bn in developed economies , the recovery was concentrated in a smaller set of economies with 24 of 39 economies registering a fall in inflows. Overall outflows were weighed down by a contraction of outflows from North America, despite the continued expansion of investment from Japan and a recovery in Europe. In terms of global share, developed countries accounted for 39% of total inflows and 61% of total outflows – both at a historically low level.

Flows into the developing world were at a record $778bn, accounting for 54% of global FDI last year with China and the rest of developing Asia attracting $426bn in FDI in 2013 while the EU and North America both drew about $250bn in FDI.

Unctad said one reason for the subdued level of FDI flows was that an anticipated upturn in M&A activity failed to materialise until the first quarter of 2014. A downturn in the mining industry also played a role. As in 2012, intra-company loans proved to be particularly volatile and their patterns varied across countries. The report also notes that, as the weight of developing economies in the global economy increases, transnational corporations (TNCs) are readjusting their focus to respond to the growing potential of emerging markets.

By region, inflows to Europe were $251bn (up 3% over 2012), of which the EU countries accounted for $246bn. Among the major economies, inflows to Germany – which had recorded an exceptionally low volume in 2012 – rebounded sharply, but France and the United Kingdom saw a steep decline. In all cases, large swings in intra-company loans were a significant contributing factor. Inflows to Italy and Spain rebounded sharply with the latter becoming the largest European recipient country in 2013.

Ireland had inflows of $38bn and outflows of $23bn in 2013 compared with $38bn and $18bn in 2012 -- however the key metrics are projects and employment as retained earnings, which could be cash holdings related to tax avoidance, are treated as inflows. See chart here on FDI employment in Ireland 2000-2013.

There will likely be a headline that in 2013 the UK inflow was less than the Irish level but again, it would be an empty boast.

Responses to this year’s World Investment Prospects Survey (WIPS) support an optimistic scenario. This year’s survey generated responses from 164 TNCs and China remains the post popular destination for big companies - - see chart above.

In an EY report on Europe published last month [pdf; see page 12], of a panel of 808 international executives, 76% chose Germany (40%), UK, France and the Netherlands as the most attractive destinations.

Outflows from Europe increased by 10% to $328bn, of which $250bn were from the EU countries. The report shows that Switzerland became the Europe’s largest direct investor country. However, set against the drastic decline in 2012, the recovery of European FDI was modest. Both inflows and outflows remained about half of the level in 2011 and about a quarter of the peak in 2007.

Despite weak flows of FDI from Europe, inflows to North America recovered to $250bn, rendering both economies the largest recipients among developed countries in 2013. The recovery was primarily due to large inflows from Japan to the United States. In contrast, outflows from North America shed another 10% to $381bn. One reason for this decline was that United States TNCs were transferring funds from Europe back to the United States.

The United States was not the only recipient country that saw a large increase in Japanese FDI, which grew for the fourth successive year, rising to $136bn. Market-seeking FDI in South-East Asia also helped Japan consolidate its position as the second largest direct investor country (figure 2). Inflows to Australia and New Zealand together declined by 12% to $51bn.

Although the share of transatlantic FDI flows has declined in recent years, the EU and the United States are important partners for each other in terms of FDI. As such, a successful conclusion to the Transatlantic Trade and Investment Partnership (TTIP) negotiations could have significant impacts on FDI flows.

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