Emerging economies major source of FDI
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Contrary to the popular belief, developing countries are becoming a bigger source of foreign direct investment as South-South investment flows pick up, according to the Global Investment Competitive Report published by World Bank.
Foreign direct investment from developing countries has increased 20-fold in the last 20 years, accounting for nearly 20 per cent of the global FDI flows by 2015.
In 2016, more than 40 per cent of the nearly $1.75 trillion (Dh6.43 trillion) of global FDI flows was directed to developing countries, providing muchneeded private capital, and out of this a significant share was attributed to investment flows among developing countries.
While larger developing countries, especially the BRICS, are driving this phenomenon, about 90 per cent of developing countries of all sizes and income levels are now undertaking outward foreign direct investment (OFDI).
China’s outward FDI stock jumped from 12 per cent 20 years ago to a third of the global outward FDI stock in recent years. Multinational companies in the developing countries are more willing to target higher risks compared to their counterparts in the developing world.
Both domestic policy choices in developing countries and global economic conditions have shaped changes in the investment landscape. As part of policy initiatives to attract FDI, governments are required to make investment climate conducive to investors ensuring predictability and security of investments while ensuring certain minimum return on investments.
“Governments must de-risk investment climate by ensuring proper business-friendly environment firmly backed by legal protection from political risk and by creating an effective predictable environment where foreign investors could feel safe,” said Peter Kusek, senior economist, macroeconomics, trade and investment, World Bank Group and a co-author of the report.