What's Happening with Foreign Direct Investment?

One word tells the story: China. The Financial Times of London released a report on January 19, 2003 saying that China attracted nearly $53 billion in FDI in 2002. Want to read more? Link to the story here. The story suggests that this FDI growth trend is likely to continue in China this year.

How does 2003 look from a global foreign direct investment standpoint? For most countries, this year does not promise to be a great year for FDI in most of the world. Hopefully it will be an improved year over the past two years. Final statistics for 2002 are have not been released, but the general view is that FDI remained down, but perhaps not as bad as 2001. Which nations command the largest share of FDI inflows and outflows? During the 1991-2000 period, the U.S. had a 31 percent share of total world FDI inflows and it had a 22 percent share of the world's total FDI outflows. Germany and the U.K. each had a 15 percent share of FDI inflows. The U.K. had an 18 percent share of total FDI outflows.These numbers indicate that the U.S. market was most competitive for FDI inflows during the past decade. Source: OECD.

During the 1991-2000 period, the U.S. received a commanding 45 percent share of the world's total manufacturing FDI inflows and it accounted for a 21 percent share of global manufacturing FDI outflows.

First, what are the major factors at this point in time having the greatest influence on FDI trends. We turned to a recent study by A.T. Kearney for insight. The top five factors in order of importance are: 1) the recovery of the U.S. economy; 2) Middle East conflicts (very close to being #1); 3) inability of Japan to pull-out of its recession; 4) global and regional trade initiatives and 5) volatility of energy prices (ties to #2). Obviously, the prospect of a war with Iraqi is a severe damper to FDI at this time.

Which country has the most attractive location for FDI at this time? For the first time in history, China is considered the most attractive national market for foreign direct investment. The FDI numbers reported in the recent Financial Times article suggest this assertion is true--at least for last year and maybe for this year. Historically, the U.S. has held the top position. Behind China and the U.S in order are: the United Kingdom; Germany; France; Italy; Spain; Canada; Mexico; and Australia.

Look for more on this issue in the future.