Global FDIs up 38% to $1.3T on cross-border M&As

Global foreign direct investments (FDIs) reached $1.3 trillion in 2006, up 38 percent from the previous year, but still a shade below the all-time record level of $1.4 trillion in 2000.

“From all indications, the $1.4-trillion record level could be breached around 2010 to 2012,” said Jovi Dacanay, senior professor of the University of Asia and the Pacific (UAP) and consultant for the United Nations Economic and Social Commission (UNESCO).

Dacanay was the main presentor of the World Investment Report (WIR) 2007 of the United Nations Conference on Trade and Development (UNCTAD).

The report said the total stock of FDIs amounted to $12 trillion, accounted for by 78,000 transnational corporations (TNCs) controlling foreign affiliates.

These reflected strong economic performance and corporate profits resulting in higher stock prices which, in turn, raised the value of cross-border mergers and acquisitions (M&As).

The study noted that greenfield investments, or new affiliates in a foreign country, increased particularly in developing and transition economies.

In fact, cross-border M&As recorded a 58-percent increase to $581 billion in the first semester of 2007.

A total of 172 mega deals worth at least $1-billion were reported in 2006, or accounting for about two-thirds of the total value of cross-border M&As. Also noteworthy is the growing importance of private equity funds and other collective investment funds valued at $158 billion.

“A growing appetite for higher yields and ample liquidity in world financial markets helped fuel these acquisitions,” the WIR said. “Private equity firms are increasingly acquiring large and publicly-listed companies, in contrast to their former strategy of investing in high-yield, high-risk assets or private firms.”

FDI inflows in developed countries rose 45 percent to $857 billion. Inflows to developing countries grew 21 percent to $379 billion and transition economies expanded 68 percent to $69 billion.

Half of the outflows originated from the European Union (EU) countries, notably France, Spain and the United Kingdom. TNCs from developing and transition economies continued their international expansion likewise led by Hong Kong (China) and Singapore among the developing economies, and the Russian Federation among the transition nations.

The United States remains with the biggest inward FDI last year with inflows amounting to $175 billion.

Total inflows from these two groups amounted to $193 billion or 16 percent of total FDI.

Major recipients in South, East and Southeast Asia for FDI inflows are China, Hong Kong, Singapore, India, Thailand, Taiwan, Malaysia, Indonesia, Korea, Pakistan and Vietnam.

The WIR explained that rapid growth in the these areas continue to fuel increased market-seeking FDIs.

“The region will also become more attractive to efficiency-seeking FDI as countries as China, India, Indonesia and Vietnam plan to significantly improve their infrastructure,” it said.

Meanwhile, the top 25 non-financial TNCs in terms of foreign assets are: General Electric, Vodafone Group Plc, General Motors, British Petroleum Co., Royal Dutch Shell Group, Exxon/Mobil, Toyota Motor Corp., Ford Motor Corp., Total, Electricite de France, France Telecom, Volkswagen, RWE Group, Chevron Corp., Eon, Suez, Deutsche Telekom, Siemens AG, Honda Motor Co., Hutchison Whampoa, Procter and Gamble, Sanofi-Aventis, Conoco Philips, BMW AG, and Nissan Motor Co.

The top 25 non-financial TNCs from developing countries are: Hutchison Whampoa, Petronas-Petroliam Nasional Bhd., Cemex, Singtel Ltd., Samsung Electronics Co., LG Corp., Jardine Matheson Holdings Ltd., CITIC Group, Hyundai Motor Co., Formosa Plastic Group, China Ocean Shipping (Group) Co., Petroleos Brasileiro SA-Petrobas, CLP Holdings, Capital Ltd., America Movil, China State Construction Engineering Corp., Compania Vale de Rio Doce, Oil and Natural Gas Corp., Hon Hai Precision Industries, Sasol Limited, China National Petroleum Corp., Telefonos de Mexico SA De CV., Flextronics International Ltd. and Kia Motors.