Outward FDI from developing countries

Outward FDI from developing countries 5

Outward FDI from developing countries is highly concentrated.

Table 1. FDI outward stock, by region and major economies, 1980 2003

The transition economies are beginning to engage in outward FDI (Andreff 2003).

Table 1. FDI outward stock, by region and major economies, 1980 2003 (concluded)

Estimated outward FDI stock from developing economies, by sector industries, 1990 and 2002

Internationalization of developing country firms through outward FDI Main trends and key issues

Some experts stressed that policies had been traditionally oriented to attract FDI and were not really defined as promoting outward FDI.

Developed countries remain the main source of outward FDI, while developing countries' share has also grown (from one per cent in 1990 to 10 per cent of global outward FDI services stock in 2002).

Similarly, the surge in China s outward FDI is good for China and for host countries.

The Asian and Pacific region's outward FDI stock was estimated at 607 billion in 2003.

FDI is negligible in primary activities and low in manufacturing. An exception is Mexico, from which relatively more outward FDI has been in manufacturing.

From low levels of outward FDI, a number of developing countries are now emerging as dynamic sources of FDI, not least in other developing countries.

Indeed, investment in Japan currently accounts for less than 3 of the EU s total outward FDI.

Rough estimates, however, suggest that outward FDI from developing countries in other developing economies is increasing.

Not much is known about the impact of outward FDI from developing countries in offshore financial centres.

The developed world still accounts for nine tenths of world outward FDI flows, but FDI from developing countries has shown higher growth rates in the recent past.

But what would an appreciation of the renminbi do to China s inward and outward foreign direct investment (FDI)?

Because most of China s outward FDI is from state owned enterprises (SOEs), suspicions of non commercial motivations are widespread.

As their operations are less visible, it is likely that their outward FDI, and therefore China s total, is understated.

More detailed data are required, however, for a more in depth sectoral analysis of outward FDI from developing countries.

The factors driving outward FDI have been in place in some developing countries in an embryonic form for decades.

Apart from the immediate drivers, the combination of factors and drivers for outward FDI differs by region and country.

With outward FDI stock of 859 billion in 2003, transnational corporations from developing countries are becoming significant international players.

The discussants emphasized that recent developments had revealed a more diversified geographical distribution of outward FDI from developing countries.

While this represents a mere 5 per cent of the global stock of outward FDI, it corresponds to about 50 per cent of the stock of FDI from developing countries.

Japan s outward FDI rocketed from 7 billion in 1984 to 20 billion in 1986, peaking at 48 billion in 1990.

In 2002, services accounted for about 55 per cent of the total stock of inward FDI in developing countries and some 85 per cent of outward FDI stock for developing countries.

A panel of experts on FDI presented data related to the growth of FDI outflows from developing countries, this growth being fastest in the Asia Pacific region, which now accounted for nearly three quarters of developing country outward FDI stock.

The increasing international competitiveness of Chinese firms, together with government policy, has been the main driver of China s skyrocketing outward FDI.

Meanwhile, the value of outward FDI stock from developing countries rose from 129 billion in 1990 to 859 billion in 2003.

The subregion South, East and South East Asia alone accounts for almost three quarters of all outward FDI from developing countries.

For example, the Government of China is promoting outward FDI by providing loans on preferential terms, tax rebates and investment insurance.

From the home country perspective, an often debated question is whether outward FDI complements or substitutes for exports and or employment.

In Malaysia, for example, there are different instruments aimed at promoting outward FDI, often as part of wider export promotion efforts.

The global stock of outward FDI in services from developing countries was multiplied by a factor of 43 between 1990 and 2002, compared with a factor of 5 for FDI from developed countries.

However, available data suggest that, as in developed countries, the sectoral composition of outward FDI from developing countries has shifted towards services.

His Group requested UNCTAD to continue to review FDI trends and policy issues related to the impact on home and host countries of outward FDI from developing countries, particularly in the South South context.

In October 2004, the Government of South Africa took further steps to facilitate outward FDI by abolishing exchange control limits on such flows.

The outward stock of South South FDI, virtually nil at the end of the 1970s, was estimated at around 400 billion in 2002.

In turn, a large part of outward FDI from Hong Kong (China), Malaysia and the Republic of Korea also goes to such centres.

In terms of outward FDI policies, several developing countries have established outward investment agencies (OIAs), whose primary function is to promote and facilitate investment abroad by helping domestic enterprises develop international business links and pursue overseas business opportunities.

China s outward FDI rose by almost 50 per year from 2004 to 2010 Brazil, Singapore, and Hong Kong have been major investors in Europe.

But the most notable development of recent years has been the surge in China s outward FDI since the government adopted its go global policy in 2000, encouraging Chinese firms to invest overseas. China s outward FDI more than doubled in 2005 2007, from 12 billion to 27 billion, and then more than doubled again in 2008, to 56 billion.