FDI inflows in AsPac seen rising 17% this year

MANILA, Philippines - The inflow of foreign direct investments (FDIs) in the Asia Pacific region is forecast to expand 17 percent this year, a reversal of the 40-percent decline in 2009, the World Bank said in a report.

The multilateral funding agency added that the region is expected to absorb more investments in the next few years, especially in the mining sector.

The WB said FDIs directed to productive assets could spur economic growth and reduce poverty in the region and, in turn, continue to support the recovery of the global economy.

In the Philippines alone, the Bangko Sentral ng Pilipinas (BSP) reported that FDIs in September registered a net inflow of $66 million, a turnaround from the net outflow of $54 million in the same month in 2009.

Equity capital posted a net outflow of $22 million in September, or an improvement from the $45 million equity capital withdrawn from the country in the same month last year.

The WB report, entitled World Investment and Political Risk, noted, however, that multinational executives are worried about political risks more than anything else in investing in developing countries.

In the past three years, political risk tops other business concerns such as market size, lack of finance, and quality of infrastructure. “About a fifth of the investors surveyed use political risk insurance to mitigate this risk,” the report added.

This year’s report also focuses on FDIs into conflict-affected and fragile economies, where investors are primarily concerned about adverse government intervention (for example changes in regulations, breach of contract, non-honoring of sovereign guarantees, currency restrictions, and expropriation) rather than overt political violence.

Adverse changes in regulations not only rank first among investors’ concerns in conflict-affected and fragile economies, but also are most often responsible for losses in these destinations.

By providing much-needed financial resources, technology transfer, managerial expertise, and connections to the global economy, FDIs can help generate and sustain economic growth and promote development, both essential to stability.

The report also notes that multilateral political risk insurance providers have a key role to play in covering FDIs in fragile countries because their development mandate allows them to look beyond the bottom line.