FDI flows touch new highs in the Bric

The global recession has proved that all talk of decoupling makes no sense in an era of globalisation. But trends in FDI flows show that the emerging markets, and especially the Bric countries, have beaten global trends and either remained buoyant or even accelerated even as the developed countries took a big hit.

The numbers from the Global Investment Report by Unctad shows that while global FDI inflows shrunk by 14.2% to $1,697.4 billion in 2008 primarily goaded by the 29.2% decline in FDI in developed countries to $962.3 billion, the FDI inflows to Bric countries grew by a third to $265.2 billion. This was even far ahead of the 17.3% increase in FDI inflows to developing countries. Consequently, the share of Bric countries in total FDI inflows rose from 10% in 2007 to a more substantial 15.6% in 2008.

The contrast in scenario between Bric countries and the trends in developed markets and global markets was even more marked in the case of the FDI outflows. Numbers show that global FDI outflows declined by 13.5% in 2008 to $1,857.7 billion with developed countries registering a 16.7% fall and developing countries marking a marginal increase of 2.5%, the FDI outflows from Bric countries rose a stupendous 53.9% to $142.7 billion. This ensured that the share of Bric countries in global FDI outflows rose by more than two-thirds from 4.3% in 2007 to 7.7% in 2008.

The trends in FDI inflows and outflows of Bric countries indicate that not only does the world continues to repose its faith in the growth potential of the Bric nations, but also that the Bric countries have grabbed the opportunities offered by the global crisis and accelerated investments to make the best of the falling markets.

The one-third increase in FDI inflows to Bric countries in 2008 stands out because it far surpasses the record of all regional groupings, both in the developed and the developing countries. This is especially so when compared to the record of the developed countries, where the worst-hit region was Europe, with FDI inflows declining by 42.4% to $518.3 billion. Surprisingly, both the US and Japan showed positive trends with FDI inflows going up by 16.6% and 8.3% respectively, maybe goaded by the gains made in the early months on the calendar year.

The Bric record also surpasses that of most regions in the developing world, both in the case of FDI inflows and outflows. The 33.8% increase in FDI inflows to Bric countries surprised that of developing countries inflows in Latin America (13.2%), Asia (17%), South East Europe & CIS (25.9%) and Africa (26.7%). Similarly, the 53.9% increase in FDI outflows from Bric countries was far ahead of that from other developing regions in South East Europe & CIS (13.6%) and Latin America (22.2%). The Bric performance in FDI outflows is also all the more remarkable because such flows has even shrunk in the case of developing countries of Africa (-12.3%) and Asia (-1.3%).

This remarkable performance of the Bric countries on the FDI front is all the more significant because it was inclusive and extended across all the four major economies. This was especially so in the case of inflows where the highest gains were made by India. Between 2007 and 2008 the FDI inflows to India rose by a remarkable 65.4%, pushing up total inflows to $41.5 billion. Gains made by China, Russia and Brazil hovered in the 30% region. While Chinese inflows increased 29.7% to $108.3 billion, that of Russia increased by 27.7% to $70.3 billion while that of Brazil rose 30.3% $45 billion. But one should also note that despite making the largest gains in 2008, India has the lowest FDI inflows across all Bric nations.

The 2008 numbers also show that the relative size of FDI inflows to GDP was highest in Brazil (18.3%) followed by Russia (12.7%), India (9.9%) and China (8.7%). But the scenario changes when one looks at the ratio of FDI to gross fixed capital formation. Here the lead nation was Russia (19.55) followed by Brazil (15.1%), India (9.6%) and China (6%). What is remarkable is that these figures indicate that size of the 2008 FDI inflows, both in relation to the economy and gross fixed capital formation, is the lowest in China among the Bric countries and highest in Brazil and Russia.

The scenario remains largely similar when one looks at the FDI stock. Numbers show that the country with the highest FDI stock in relation to the GDP in 2008 was Russia (12%) followed by Brazil (10.3%), India (5%), and China (3.4%). The rankings remain largely similar when one looks at the FDI stock in relation to the gross fixed capital formation. The highest ratio was that of Russia (14.5%) followed by Brazil (6.8%), India (4.1%) and China (2.9%). This makes it clear that the role of FDI in the Chinese economy has shrunk sharply in recent years than generally believed.

The trends in FDI outflows from Bric countries in 2008 post a more disparate picture. The highest increase in outflows was from Brazil that went up almost three fold from $7 billion in 2007 to $20.5 billion in 2008. China was next best performer with FDI outflows increasing by 132.1% to $52.2 billion in 2008. The gains made by Russia and India were more limited. While Russian outflows increased by 14.1% to $52.4 billion, that of India increased by 2.3% to $17.7 billion. Thus, as in the case of inflows, India remains the laggard economy in terms of FDI outflows, too.