MercoPress. South Atlantic News Agency

FDI to developing countries forecasted to rebound 14% in 2010

As commodities markets recover, “FDI will follow”

Foreign direct investments (FDI) into developing countries are expected to rebound after record falls this year. According to the World Bank, these investments will rise by 14% in 2010 to 440 billion US dollars.

The sharp slowdown in global economic activity has taken a hit on foreign direct investment (FDI) in developing countries as multi-national firms scale back on expansion plans. But with the credit crunch easing, there are signs FDI will soon flow again.

Mansoor Dailami, manager, International Finance, World Bank, said: “FDI obviously is very much related to commodity prices. And along with the commodity markets recovering, I think there is an expectation that FDI will follow that too.”

Speaking at a seminar organised by the Institute of Southeast Asian Studies Dailami said the World Bank projects that FDI into developing countries will fall by 30% this year to some 385 billion.

That value will be the lowest in more than 20 years and sharply lower than the 580 billion in 2008. And this will be the first double digit drop since 1986.

Going forward, the World Bank said it expects a large amount of FDI to originate from developing countries themselves, as emerging economies - led by India and China - increasingly step up investment in each other.

The rise in FDI into developing countries is expected to revive the much-needed global domestic demand. That, according to the World Bank, is likely to help boost global economic growth.

Mansoor Dailami added: “FDI has multiple impacts on the domestic economies in terms of expanding investment opportunities, job opportunities, as well as enhancing the overall growth platform of the countries”.

China and other developing countries are expected to account for more than half of global growth next year.

Hans Timmer, lead economist & director, World Bank, said: “It's not good enough just to stimulate the high income countries. It's not good enough to wait for the US consumer. What the world economy needs is a revival of the growth process in developing countries which had been so important over the last couple years to stimulate the world economy”.

”Over the last seven years or so, developing countries were growing almost three times as fast as the high income countries. And that means that when you combine their size, with their growth dynamics, you see that they have become a very important force.”

The World Bank forecasts that the global economy will shrink 2.9% this year before expanding by 2% in 2010. Developing countries are expected to outperform the rest of the world, with East Asia growing by 6.6% and China growing at 7.5% next year.