ABSTRACT
The last two decades have witnessed a dramatic increase in foreign direct investment (FDI), defi ned as ownership and (normally) control of a business or part of a business in another country. Foreign direct investment is usually distinguished from portfolio investment, where a foreign actor purchases securities in a domestic company solely to earn a fi nancial return, without any intent to own, control or manage the domestic fi rm. 1 Foreign direct investment generally takes one of ‘three forms: an infusion of new equity capital such as a new plant or joint venture; reinvested corporate earnings; and net borrowing through the parent company or affi liates’. 2 FDI infl ows peaked at US$1.9 trillion in 2007. 3 There was a sharp decline in the wake of the fi nancial and economic crisis: according to the OECD/UNCTAD Fifth Report on G20 Investment Measures in May 2011. According to UNCTAD’s 2012 World Investment Report:
Global foreign direct investment (FDI) infl ows rose 16 per cent in 2011, surpassing the 2005-2007 precrisis level for the fi rst time, despite the continuing effects of the global fi nancial and economic crisis of 2008-2009 and the ongoing sovereign debt crises. This increase occurred against a background of higher profi ts of transnational corporations (TNCs) and relatively high economic growth in developing countries during the year. A resurgence in economic uncertainty and the possibility of lower growth rates in major emerging markets risks undercutting this favourable trend in 2012. UNCTAD predicts the growth rate of FDI will slow in 2012, with fl ows levelling off at about $1.6 trillion, the midpoint of a range. Leading indicators are suggestive of this trend, with the value of both cross-border mergers and acquisitions (M&As) and greenfi eld investments retreating in the fi rst fi ve months of 2012. Weak levels of M&A announcements also suggest sluggish FDI fl ows in the later part of the year.
