Foreign investment flows reflect Germany’s powerhouse status

Germany’s status as Europe’s business powerhouse was reflected by the fact it could grow foreign direct investment by 21% last year, despite Brussels using it as a cash register more than once.

Foreign direct investment into Germany hit $46bn last year, up from $38bn in 2009, according to the United Nations Conference on Trade and Development’s World Investment Report 2011.

Germany’s FDI growth was higher in proportional terms than both France and Ireland, which each posted FDI flat on 2009, though it was not as high as in Spain, which more than doubled FDI inflows, or Belgium (up 168%). FDI to the UK fell, from $71bn in 2009 to $46bn.

Foreigners seemed to ignore, or conceal, any worries about America’s debt mountain, increasing their FDI there by 49%, to $228bn last year.

They also flocked to emerging markets, which for the first time, according to UNCTAD, took in over half of global FDI annual flows.

Emerging economies also boosted their outward investment both into fellow developing economies and into advanced ones, by 21%.

By contrast, European investors still injected only about half the assets into foreign industries in 2010 that they did at the 2007 peak.

UNCTAD said: “Developing economies increased further in importance in 2010, both as recipients of FDI and as outward investors. As international production and, recently, international consumption shift to developing and transition economies, trans-national corporations are increasingly investing in both efficiency- and market-seeking projects in those countries.

“Half of the top-20 host economies for FDI in 2010 were developing or transition economies. They now account for 29% of global FDI outflows. In 2010, six developing and transition economies were among the top-20 investors.

“The dynamism of emerging-market TNCs contrasts with the subdued pace of investment from developed-country TNCs, especially those from Europe.”

Global FDI rose modestly by 5% to hit $1.24trn last year. UNCTAD predicted FDI flows will “continue their recovery to reach $1.4trn to $1.6trn, or the pre-crisis level, in 2011 [and] rise further to $1.7trn in 2012, to reach $1.9trn in 2013, the peak achieved in 2007”.

The agency added: “However, the post-crisis business environment is still beset by uncertainties.

“Risk factors such as the unpredictability of global economic governance, a possible widespread sovereign debt crisis and fiscal and financial sector imbalances in some developed countries, as well as rising inflation and signs of overheating in major emerging market economies, may yet derail the FDI recovery.”

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