The slowdown in the world economy and the financial turmoil have led to a liquidity crisis in money and debt markets in many developed countries. As a result, M&A activity has begun to slow down markedly. In the first half of 2008, the value of such transactions was 29% lower than that in the second half of 2007.
Corporate profits and syndicated bank
loans are also declining. Based on available data,
estimated annualized FDI flows for the whole of 2008
are expected to be about $1,600 billion, representing
a 10% decline from 2007. Meanwhile, FDI flows to
developing countries are likely to be less affected.
UNCTAD's World Investment Prospects Survey,
2008-2010, while also suggesting a rising trend in
the medium term, points to a lower level of optimism
than was expressed in the previous survey, and to
more caution in TNCs investment expenditure plans
than in 2007.
In Africa, high commodity prices and
rising profitability attracted FDI.
In Africa, FDI inflows grew to $53 billion in
2007 - a new record. Booming commodity markets,
rising profitability of investments - the highest among
developing regions in 2006-2007 - and improved
policy environments fuelled inflows. LDCs in Africa
also registered another year of growth in their FDI
inflows. A large proportion of the FDI projects
launched in the region in 2007 were linked to the
extraction of natural resources. The commodity price
boom also help Africa to maintain the relatively high
level of outward FDI, which amounted to $6 billion
in 2007.
Despite higher inflows, Africa's share in
global FDI remained at about 3%. TNCs from the
United States and Europe were the main investors in
the region, followed by African investors, particularly
from South Africa. TNCs from Asia concentrated
mainly on oil and gas extraction and infrastructure.
Prospects for increased FDI inflows in 2008 are
promising in light of the continuing high prices of
commodities, large projects already announced for
that year and forthcoming payments from previously
concluded cross-border M&As. This will signify a
fourth consecutive year of FDI growth. The UNCTAD
survey shows that almost all TNCs have maintained
or even increased their current levels of investment
in Africa.
In South, East and South East Asia
and Oceania, both inward and outward
FDI flows rose to their highest levels ever.
FDI flows to South, East and South-East
Asia and Oceania were also higher than ever before,
reaching $249 billion in 2007. Most subregions and
economies, except Oceania, received higher inflows.
A combination of favourable business perceptions,
progress towards further regional economic
integration, improved investment environments and
country specific factors contributed to the region's
performance.
China and Hong Kong (China) remained
the two top destinations within the region as well as
among all developing economies. Meanwhile, India
the largest recipient in South Asia - and most member
countries of the Association of Southeast Asian
Nations (ASEAN) also attracted larger inflows, as
did post conflict countries and Asian LDCs, such as
Afghanistan, Cambodia, Sri Lanka and Timor Leste.