Asia leads FDI global growth with 35% share

Mahmoud Galal
Filed on September 28, 2015 | Last updated on September 28, 2015 at 09.17 am
Asia leads FDI global growth with 35% share

Contract efficiency, foreign recruitment and stability key to region

Asia is the leading destination of foreign direct investment, or FDI, across the globe, accounting for more than 35 per cent of the world's total FDI inflows. According to the United Nations' World Investment Report in 2015, global FDI inflows declined by 16 per cent year on year in 2014, to $1.23 trillion, amid frail global economic growth, policy uncertainty and high geopolitical risk.

Developed countries witnessed the strongest decline across regions in 2014. Foreign investment into the US fell by 60 per cent, and, in the case of Europe, by 11 per cent. The notable drop in US inflows in 2014 was due to a single-large divestment by Vodafone (UK), selling a large stake at Verizon (US). In Europe, high sovereign risks and lack of reforms hindered foreign investors from investing there.

Meanwhile, FDI into developing Asia kept rising, reaching a record-high of $465 billion worth of FDI in 2014. China overtook the US as the world's largest recipient of foreign capital and Hong Kong and Singapore were among the top five FDI destinations in the world. Asia tends to attract a sizeable amount of FDI due to its favourable demographics, cheap labor force and improvements in infrastructures. Foreign companies usually establish regionalheadquarters and manufacturing facilities in countries that provide business-friendly policies.

The region's ability to enforce contract efficiency, allow high foreign recruitment and enjoy political stability also attracted these companies. These factors helped foreign companies expand their market channels, access new technology, and reduce costs. At the same time, FDI, which has been proven to be less affected by economic crises than other forms of investments, provides the country with job opportunities. In spite of the economic slowdown, several governments in Asia implemented a series of comprehensive economic and policy reforms. These efforts to promote the transition to a free market economy have boosted FDI inflows in Asia.

Enhanced regional connectivity promoting the movement of goods, services, information and human capital has also strengthened foreign investment inflows into the region. Moreover, China recently established the Asian Infrastructure Investment Bank (AIIB), an organisation with the aim of consolidating and accelerating investments in Asia. All GCC countries, with the exception of Bahrain are founding members of the bank. Gulf investors strengthened their economic ties with the East in recent years, expanding in both oil and non-oil sectors. The Saudi private investment firm 'Ajlan and Brothers' invested in a total of 20 factories worth $632 million in the textile sector in China and Dubai-based 'Abraaj Group' stated that it planned to invest almost $400 million in Southeast Asia and Indian companies in 2015. Trade links have always been very strong between the two regions, spurred by the surge in Asian oil demand, but the relationship now has improved further. The rise of Gulf's FDI in Asia provides a long-term sustainability component to the relationship between the two regions.

The writer is an economist at Asiya Investments Company. Views expressed by him are his own and do not reflect the newspaper's policy.

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