October 2012_issue_17
Global foreign direct investment (FDI) is on its way back, with fl ows last year exceeding the pre-crisis average according to the United Nations Conference on Trade and Development (UNCTAD). It’s World Investment Report 2012 found global FDI fl ows reached $1.5trn last year, which while impressive is still 23% lower than their 2007 peak. As the graph above shows, sovereign wealth funds (SWFs) in particular are increasing their FDI portfolios, but are still relatively light on FDI (it accounts for less than 5% of assets under management). Interestingly, while allocations to both emerging markets (EM) and developed markets (DM) are increasing, SWFs are clearly keener on DM projects rather than EM ones. UNCTAD believes SWFs are missing an opportunity because expanding the role of SWFs in FDI can provide signifi cant opportunities for sustainable development, especially in less developed countries. It adds unlocking more capital in the form of FDI from this investment source should be a priority for the international community. The report also suggests the DM focus refl ects “the availability of acquisition opportunities in North America and Europe during the crisis”. But while some assets in the West may be cheap, they are hardly underpinned by strong growth – unlike EMs, which have far higher GDP growth rates and a rising middle class, boosting consumption. Considering so many SWFs are based in EMs, it seems like strange behaviour to us.
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