Chapter 7 Trends of international investment

Cuong Tran, Dr.

 INTRODUCTION
Foreign direct investment (FDI) is a category of cross-border investment in which an investor resident in one
economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in
another economy.

FDI is a key element in international economic integration because it creates stable and long-lasting links
between economies.

FDI is an important channel for the transfer of technology between countries, promotes international trade
through access to foreign markets, and can be an important vehicle for economic development.

Today, when globalization increases, the economy changes in many aspects, the trend of FDI capital also
changes, especially by region, sectors and pattern.
Colonialism Mercantilism
 7.2.2. FDI BY REGION

Current 7.2.3. FDI BY SECTORS

FDI trends 7.2.5 NEW PLAYERS INVOLVED

IN FDI (SOVEREIGN WEALTH
FUNDS (SWFS), PRIVATE
EQUITY FUNDS
(PEFS)
FDI I N - A N D - OUT- F L O W A M O N G GROUPS OF
ECONOMIES

FDI flows plunged globally

by 35% in 2020, to $1
trillion from
$1.5 trillion the previous year
FDI in developing economies
was relatively resilient, declining
by 8%
 FDI I N - A N D - OUT- F L O W A M O N G GROUPS OF
ECONOMIES

Global FDI flows are expected to bottom

out in 2021 and recover some lost ground
with an increase of 10% to 15%

Prospects are highly uncertain and will

depend on, among other factors, the pace
of economic recovery and the possibility of
pandemic relapses, the potential impact of
recovery spending packages on FDI, and
policy pressures

Global inflows of FDI, forecast for 2021-2022. UNCTAD

Source: UNCTA, World Investment Report 2021
FDI I N - A N D - OUT- F L O W A M O N G GROUPS OF
ECONOMIES
Trends in selected economies

Foreign direct investment flows by group of

 FDI by
region
In developing regions and transition economies,
FDI inflows were relatively more affected by the
impact of the pandemic on investment in GVC
intensive, tourism and resource-based activities.

The fall in FDI flows across developing regions

was uneven, at -45 percent in Latin America and
the Caribbean, and -16 percent in Africa. In
contrast, flows to Asia rose by 4 percent.
FDI by
region
FDI flows to small island developing
States (SIDS) fell by 40 percent, as
did those to landlocked developing
countries (LLDCs), by 31 percent.

FDI flows to Europe dropped by 80

percent while those to North America
fell less sharply (-42 percent). The
United States remained the largest
host country for FDI, followed by
China
7.2.2. FDI by region
 7.2.2. FDI by region
The 2019-2020 period

Inflows of foreign direct investment (FDI)

are expected to be $859 billion in 2020,
down from $1.49 trillion in 2019. In general,
FDI inflows in all of the aforementioned
regions will be much lower in 2020 than in
2019.
The drop in FDI was concentrated in
developed nations, with flows dropping
by 69%.

FDI flows to emerging nations declined by

12% to $616 billion, but they still
accounted for 72 percent of global FDI,
the greatest percentage on record.
2021
period
2021
period

Global FDI increased by 77%, from 8 5 9 billion in 2020 to an estimated $1,650 billion in
2021, exceeding pre-COVID-19 levels. In which, developed economies recorded the
strongest increase in FDI capital ever, with an estimated U S D 777 billion in 2021.
Most recipients across the continent saw a moderate rise in FDI; the total for the region
more than doubled,
Of the total increase in global FDI flows in 2021 ($718 billion), more than $ 5 0 0 billion, or
almost three quarters, was recorded in developed economies. Developing economies,
especially least developed countries (LDCs), saw more modest recovery growth.
 •In general, global FDI grows in 2022, it is difficult to repeat the recovery growth rate of 2021.
• COVID-19 epidemic crisis may still be a risk of a sharp decrease in investment cash flow could be
other important risks affecting FDI inflows in 2022, including labor and supply chain bottlenecks,
energy prices and rising inflationary pressures.
 7.2.3.
FDI by
sectors
FDI by
sectors
Life science sectors will continue to grow as the
focus to develop more effective vaccines and
treatments for Covid-19 continues.

The sectors that bore the brunt of the lockdowns

in 2020, such as aerospace, construction and real
estate, leisure and entertainment, and tourism,
are expected to return to positive growth
FDI BY SECTORS

UNWTO conducted a global survey among its UNWTO Panel of Tourism Experts on the
impact of COVID-19 on tourism and the expected time of recovery.
 Non-renewable energy investments are
expected to fall marginally year on year in
2022 and continue their overall downward
trend.

Renewable and alternative power FDI is

expected to rise further, after what will be
a record year for investments in 2021

Annual renewable capacity additions under the IEA's Net Zero by 2050
Scenario, compared with historic and forecast

FD I BY
SECTO RS
 Software and IT services will continue to be
the largest FDI sector in terms of project
numbers.

The US leads in AI investment and talent. FD I BY

SECTO RS
 Growth in electronics FDI is predicted to
be driven by increased demand for
batteries, particularly for electric vehicles
and semiconductors.

Electric vehicle manufacturing around the world FD I BY

SECTO RS
 FDI BY
SECTORS
India’s case

India is the sixth largest

economy in the world.

India with US$64 billion of

FDI in 2020.

India's FDI reaching $81.72

billion in the 2020-2021.
FDI BY
SECTORS
Services
Financial, Banking, Insurance, Non-
Financial, Outsourcing, Research
and Development (R&D), Courier,
Tech, Testing and Analysis services
has the highest contribution of
18% during 2000-2020.

The highest FDI equity inflow of

$7.86 billion in 2019 - 2000.

One possible reason for this could be because

almost 56 percent of the registered foreign
companies in India were under this sector.
FDI BY
SECTORS
Construction Development
Includes townships, housing, built-
up infrastructure and construction
development projects.

The sector holds a share of 8% in

the total FDI inflow during 2000-
2020.

The construction industry makes up

for a major part of India’s GDP.

The Construction industry in India consists of

the real estate as well as the urban development
FDI BY
SECTORS
Computer Hardware and Software
Hardware and computer software is one of the
leading companies attracting the highest FDI
in India.

This sector accounted for 7% of total

foreign direct investment 2000-2020.

As of the end of 2020, total foreign direct

investment FDI in this field reached 7.7
billion USD, rising to the top FDI attraction.

This rapid increase in foreign investment can be attributed to

several factors, including faster digitalization, increased use of
artificial intelligence (AI) production-linked incentive (PLI) systems.
FDI BY
SECTORS
Telecommunications

$4.44 billion in 2019-2020.

The sector holds a share of 6% in

the total FDI inflow 2000-2020.

Telecommunications is one of the fastest

growing industries in India, the second
largest telecommunications market in
the world.

Due to the liberalization policy that the

telecom sector could attract more FDI
flows.
 a, Greenfield investment
trends
Greenfield project announcements decreased in volume and number, by 33 per cent and 29 per
cent, respectively. International project finance volumes were also affected – declining by 42
per cent – although the number of project finance deals slowed by only 5 per cent.
 The value of announced greenfield investment projects fell to $564 billion in 2020 (table I.2), the
lowest level ever recorded. The geographical focus of foreign investors shifted to developed
economies.
Consequently, developing countries faced an unprecedented downturn in greenfield FDI projects.

Projects in renewable energy, which hit a record high in terms of both value and number in
2019, were not immune from the global economic shock but showed resilience.
 Figure 1.9 Developing economies: announced FDI
greenfield project in manufacturing by value
Greenfield project announcements in manufacturing

industries registered a 41 per cent decline to $237

billion.

In developing economies, where such investments

are most important for industrial development, the

decline mirrored the global trend

Manufacturing projects remained concentrated in

Asia ($101 billion)

b, International project
finance trends

International project finance activity was

less affected by the crisis than greenfield
investment, with a decline of only 5 per cent
in the number of new projects.

However, the relative resilience of project

finance was due only to continued growth in
renewable energy projects
 Greater risk adversity among international
sponsors, often involved in the largest projects,
led to a decline in total project values of 42 per
cent, to $367 billion
Infrastructure project finance
in 2020 increased in
telecommunication (62 per
cent) but declined significantly
in other key industries: energy
(-28 per cent) and transport (-
26 per cent).

In transport infrastructure, the

59 per cent decline in the
value of announced
investment was due to the
smaller number of large-scale
projects.
 c, Cross-border M&As

• In the primary sector (mainly in mining, quarrying and petroleum), M&A values fell by 31 percent.
Over the past decade, M&As in the sector have contracted steadily, reflecting a continued trend of
reduced investment in the upstream activities of the oil and gas industry.
• Cross-border M&A sales reached $475 billion in 2020 – a decrease of 6 per cent compared with
2019 (table I.4). Contrary to the overall trend, the value of cross-border M&As in food, beverages
and tobacco quadrupled to $86 billion,
c, Cross-border M&As
T h e g a i n s o b s e r ve d in
i nv e st m e nt in r e n e w a b l e
e n e r g y a n d digital
infrastructure in d e v e l o p e d
e c o n o m i e s refl ect t h e
a s y m m e t r i c eff ect t h at p u b l i c
support packages could
h av e o n g l o b a l S D G
i nv e st m e nt trends.

d. Difference
sectors
FDI BY PATTERN

Korea exceptionally values Vietnam as an investment

destination more than the other countries of the world.
FDI BY PATTERN

Korea’s OFDI in Vietnam by manufacturing sub-categories, invested amount (unit: USD million)

Manufacturing has been Mining and quarrying is another industry in Vietnam in

the most important sector. which the growth of Korea’s investments is notable.
 FDI BY PATTERN

Korea’s OFDI in Vietnam by manufacturing sub-categories, invested amount (unit: USD million)

The FDI inflows by the sub-categories of the The share of Korea’s investment in Vietnam’s textile and
manufacturing sector have changed noticeably shoes industry has been similar to that in the electronics

over the years, manufacturing sector recently and telecommunications industry is unique and different

diversified into various industries. from the pattern of Korea’s FDI in the world.
FDI BY PATTERN

The share of investment in the Construction and real estate, distribution and
manufacturing industry gradually retail, finance Finance and insurance are three areas
decreased to about 62% in 2018. that have increasingly attracted FDI from Korea in
 FDI BY PATTERN

The distribution and retail sectors This sector in the first half of 2021 recorded a jump. Similarly, FDI
remained at nearly 7% in 2017 from Korea into finance and insurance in previous years remained

and 2018, then dropped sharply below 7%, but from 2018 onwards, the proportion of investment in

to more than 3% in 2019 and this field increased.

 7.2.5.
New players involved in FDI
(Sovereign Wealth Funds (SWFs),
Private Equity Funds (PEFs)
-Under the ownership and management of the State
-Long-term financial asset management and
investment
-Investment strategy towards defined macroeconomic goals
such as asset accumulation for the next generation, GDP
growth, etc.
 SWFs
there has not been a complete consensus on making a definition, all shared the following
characteristics:

Under the ownership Management of

Meeting defined
and management of the the country's
macroeconomic
State. foreign exchange
goals
reserves

Pursuing a long- Investments in Derived from a

term investment foreign financial country's
strategy assets reserves
 C L A S S I F I C AT I O N

S ta b iliz a tio n Savings funds Reserve investment

funds c o r p o ra ti o n s

D e v e l o p m e n t fu n ds : P e n s i o n re s e r ve f u n d s
Trend
ĐIỂM SỐ NHÀ QUẢNG CÁO RÒNG CỦA CHÚNG
TÔI CAO HƠN MỨC TRUNG BÌNH CỦA NGÀNH

SWFs were involved in 30

cross-border mergers and
acquisitions in 2007, up
from one in 1987.

SWFs invested 73 percent of their foreign

capital in developed nations during the
last two decades, till 2007. SWFs have
spent
$10.5 billion, or 27% of their overall FDI, in
developing nations, primarily in Asia, as of
2007, with investments primarily in
services, primarily business services.
 S W F s m a d e 148 ac quis i ti ons in 2020, u p 19% in
v o l u m e c o m p a r e d to 2019, a c c o r d i n g to D e a l o g i c
data. T h e total val ue of t h e s e acquisiti ons, o n t h e
A m i d a n e nv i ro n m e nt of g r o w i n g
other h an d, d e c r e a s e d 13% to US $ 7 0 . 8 billion d u e to
n ati o n a l i s m a n d trade disputes,
t h e covid19 p a n d e m i c .
p o l i c y m a kers are b e c o m i n g
inc reasing ly war y of foreign direct
i nve st m e n t (FDI), especially in
industries w h e re th ey perceive
h i g h e r strategic sensiti vity.

a n e w t ren d h a s b e e n t h e fo rmati on
of S W F s specifi cally to invest in
their d o m e s ti c e c o n o m i e s — t o
foster e c o n o m i c d e v e l o p m e n t a n d
diversifi cati on a n d to i m p ro ve t h e
lives of their citi zens.
Private Equity Funds (PEFs)
A private eq u it y f u n d is a t y p e of f u n d t h at invests capital in private
c o m p a n i e s , or p u b l i c c o m p a n i e s , a n d t u r n s t h e m into private
companies.
 TREN
D

TIn developing economies,

Many of these businesses
the demand for change and
have become uncompetitive
the potential for change-
as a result of trade
related value development is
liberalization in these
larger than in industrialized
nations.
nations.

Private equity investments that are made

Some of these businesses
may be candidates for
turnaround.
as part of the country's
internationalization process, or
investments that produce local
competitive (comparative) advantages,
are a particularly interesting feature of
private equity investments as a
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