Despite foreign direct investment (FDI) flows to developing economies having risen by an estimated 10% in 2010 when compared with 2009 figures, a new report estimates that FDI inflows into South Africa fell by a material 77,9% over the same period.

The latest United Nations Conference on Trade and Development's (Unctad's) ‘Global Investment Trends Monitor' released on Monday calculates that FDI inflows into South Africa slumped from $5,7-billion in 2009, to $1,3-billion in 2010.

The fall, which represented less than a quarter of the country’s 2009 flows, also contributed to a large fall in the figures for the sub-Saharan region as a whole.

Inflows into Africa are estimated to have dropped by 14% to $50-billion in 2010.

South Africa-linked crossborder merger and acquisition (M&A) activity also declined, falling 6,5% to $3,9-billion in 2010, from $4,2-billion in the previous year.

Flows to South Africa, which recently became the first African country to be admitted to the Bric bloc of Brazil, Russia, India, and China, seemed miniscule when compared with the flows to other Bric members.

By comparison, flows to India where estimated at $23,7-billion, flows to Brazil at $30,2-billion and Russia $39,7-billion, while it is estimate that China received FDI flows of $101-billion during the year.

The Unctad report estimated that FDI flows to developing economies would reach $525-billion in 2010 compared with $478-billion in 2009. It mainly attributed the additional flows to a relatively fast economic recovery experienced by these countries, paired with increasing South-South flows.

However, Unctad noted that the rise of FDI from developing Asia and Latin America to Africa was not yet enough to compensate for the decline of FDI from developed countries, which still accounted for the lion’s share of inward FDI flows to many African countries.

FDI flows to developed countries fell by 7% to $527-billion, despite robust recovery in some countries. Most notably, FDI in the US surged by more than 40% over 2009 levels, an increase worth $56- billion, the single biggest increase in FDI among the major economic regions.

However, in Europe flows fell sharply, largely owing to the uncertainties relating to sovereign debts, with the largest impacts seen in Ireland and Italy. FDI in the region’s main economies, Germany and France economies fell only slightly.

Within the group of developed countries, declining FDI flows were also registered in Japan, as a result of large divestments from the Liberty group and Ford.

Globally, FDI inflows remained stagnant in 2010 at an estimated $1,122-billion, compared with $1,114-billion in the previous year, with flows to developing and transition economies surpassing the 50% mark of global FDI flows.

Further, crossborder M&A volume rebounded with almost 37% in 2010, whereas greenfield investments continued to decline.
For 2011, Unctad anticipated that FDI flows would be between $1,3- trillion and $1,5-trillion. The report noted that improved macroeconomic conditions established in 2010, paired with improved business confidence could translate corporate cash holdings into new investments.

Positive FDI prospects would also be buttressed by an overall favourable policy climate for foreign investors. Worldwide M&A activity was also expected to rise further in 2011.

However, Unctad warned that risks related to currency volatility, sovereign debt and investment protectionism could still derail the expected FDI recovery.