Globalisation slows as FDI slides

I asked a couple of weeks back what multinationals might be doing in the current uncertain times.

New data from the United Nations answers the questions somewhat. We now know what they were doing last year – they were slowing down their expansion. As the figure below shows, foreign direct investment (FDI) flows dropped sharply in 2008.

unctad-fdi-graph-decline-20081

Now these are flows, not stocks, so it doesn’t indicate a retreat per se, but rather a tapering off in expansion. Nevertheless, this is the first dropoff since the dot-com crash.

The figures make pretty gruesome reading for developed countries, as the declines are all happening there. FDI into developing nations has, in fact, grown slightly.

The report provides further insights into the make up of FDI. It seems mergers and acquisitions are on the decline. And as the report points out, even if there remains considerable activity on that front, the value of each transaction has dropped along with asset prices. The count on greenfield investments is up (but no value is given). Likewise, of the regulatory changes impacting upon FDI, a greater percentage of reforms were investment inhibiting than in previous years.

It is definitely a tougher time for multinationals generally, and this will impact (negatively) upon the speed of any economic recovery. It is not clear to me how any of the crisis responses from governments are reflecting this reality or acting to stem the tide. Are multinationals the forgotten component in the policy mix?

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