Transcript The impact of the crisis on the inflows of FDI

United Nations Economic And Social Commission For Western
Asia (ESCWA)
International Labour
Organization
Regional High-Level Consultative Forum on the Impacts of the
International Financial Crisis on the ESCWA Member Countries:
the Way Forward
“The impact of the crisis on the inflows of FDI to West Asia”
Ms. Nicole Moussa, UNCTAD
Division on Investment and Enterprise (DIAE)
Dedeman Hotel, Damascus
The end of a growth cycle in world FDI inflows
(Billions of dollars)
2'000
World
1'800
Developed
economies
1'600
1'400
1'200
Developing
economies
1'000
800
600
Transition
economies
400
200
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
20 07
08
(1
)
0
Source: UNCTAD
(1) Preliminary estimates
“The impact of the crisis on FDI inflows to
West Asia”
Nicole Moussa
Division on Investment and Enterprise Development
UNCTAD
Factors affecting FDI inflows
• The capability to invest has been reduced by a
fall in access to financial resources due to:
– Lower availability and higher cost of finance.
– Decline in corporate profits.
• The propensity to invest has been affected
negatively by:
– Poor economic prospects.
– Very high level of risk perception.
The impact of the crisis on FDI is
different, depending on regions
Value ($
billions)
Growth Rate (%)
2007
2008
2007
2008
1941
1659
37
-15
Developed economies
1342
1002
41
-25
Developing economies
512
549
22
7
54
72
21
35
127
139
37
9
331
338
18
2
72
61
14
-14
South, East and South
East Asia
259
275
19
6
Transition economies
87
108
65
24
World
Africa
Latin America and the
Caribbean
Asia and Oceania
West Asia
Source: UNCTAD
a
Preliminary estimates
FDI inflows to West Asia declined in 2008
(Billions of dollars)
80
70
GCC
Turkey
60
others
50
Total West Asia
40
30
20
10
0
95
96
97
98
-10
Source: UNCTAD
(1) Preliminary data
99
00
01
02
03
04
05
06
07
08
(1)
Factors affecting FDI inflows to
West Asia
• Tighter credit environment affects the capability of foreign investors
to invest in:
– Cross-border mergers and acquisitions (M&As)
– Greenfield FDI
• Changing economic outlook affects the propensity to invest:
reappraisals and delays of big development projects.
• « Turning inward »: the need to secure funds to finance their own
economy has affected intra-regional investments.
West Asia: cross-border M&As sales
(Billions of dollars)
Home region
2007
2008
Growth rate (%)
Developped countries
15'843
6'123
-61
Developing countries
9'135
11'031
21
Regional countries
7'210
7'632
6
Other developing countries
1'925
3'399
77
612
25'591
2'624
19'778
329
-23
Transition economies
Total
Source: UNCTAD
Greenfield FDI affected by project
finance market drought
• The Middle East has emerged in recent years as the
world's biggest project finance market:
– In the first nine months of 2006, nearly $40 billion of project finance
debt, compared to $32 billion in Western Europe and $29 billion in North
America.
– The project finance debt raised in the Middle East in 2006 equated to
over 5% of the region's GDP compared to less than 0.25% in Western
Europe.
• Previous to the ongoing crisis, international banks were
rushing to provide credit.
• With the crisis, the number of foreign banks willing to
lend to Gulf projects decreased dramatically:
– Only 12 banks were actively seeking project finance deals in the Gulf at
the end of 2008, down from 45 two years ago.
Developers are reappraising their projects’ costs
and prospects in light of:
– The new demand market outlook. ↓
– The new credit market outlook. ↓
– The drop in the cost of inputs (like steel, copper, etc). ↑
– The alleviation of equipment shortages. ↑
– The easier recruitment of qualified personnel. ↑
– The dollar appreciation since mid-2008. ↑
Examples of delayed projects
Saudi Arabia:
• The aluminium smelter joint venture project between the Saudi Maaden and Rio Tinto
Alcan (Canada) ($10 billion).
• The refinery joint venture project at Yanbu between Saudi Aramco and
ConocoPhillips (United States) ($10 billion).
• The refinery joint venture project between Saudi Aramco and Total (France) ($10
billion).
• The Ras al-Zour water and power project ($5.5 billion), developed by the Sumitomoled consortium. The phase five and six expansions of a power plant at Yanbu
Kuwait
•
Abyaar Real Estate Development Company had postponed plans for a $1 billion
sukuk issue to fund further expansion.
United Arab Emirates:
• The Worlds of Discovery theme park collection project between the Dubai property
developer Nakheel, and the United States-based Busch Entertainment Corporation.
• The Shuweihat 2 power generation and water desalination joint venture project
between the Abu Dhabi Water and Electricity Authority (ADWEA) and France's GDF
Suez ($2 billion).
Bahrain:
• The Al Dur power and water joint venture project between Kuwait's Gulf Investment
Corporation and France's GDF Suez ($2.2 billion).
Intraregional FDI has also been
affected by the crisis.
• The increase of intraregional FDI contributed to the
surge of FDI inflows to West Asia in the last years.
• Intra-regional FDI has been part of diversification effort
of Arab Gulf counties away from an oil- and gas-based
economy.
• The crisis is leading government-owned enterprises and
SWFs to reduce purchases of foreign assets, and even
to liquidate assets abroad, in order to secure funds for
local economies.
Governments are mobilising local
liquidity
For example, the Saudi Arabian Government has
already taken step to compensate for the drought of
financing available from the international banks:
– It has significantly loosened its monetary policy, by cutting both
the repurchase rate and reserve requirements for banks.
– It has awarded in 2009 railroad contracts financed through the
state-owned Public Investment Fund to consortia led by local
groups.
– The $2.5 billion Rabigh power project, developed by South
Korea's state-run electricity company KEPCO, has come back
on track with the financial backing of two local institutions.
Medium-term global FDI prospects are
difficult to assess
Some favorable factors for FDI growth are still at work, some of which are even a
consequence of the crisis itself. Driving forces such as:
– Investment opportunities triggered by cheap asset prices and industry
restructuring.
– Large amounts of financial resources available in emerging countries.
– Quick expansion of new activities such as new energies and environment-related
industries.
However, their impact on FDI growth depends on a series of uncertain factors such as:
–
–
–
–
The speed of economic and financial recovery
The efficiency of public policy in addressing the causes of the present crisis.
The evolution of investment climate.
The return of investor confidence
Concerning West Asia, recent experience has shown that the performance of
West Asian economies and their attractiveness for FDI is determined to a
large extent by the level of oil prices.