South-south trade fuels investment growth.

Author:Nevin, Tom
 
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The world in 2006/07 was a significantly kinder and more prosperous place than it was in the preceding couple of decades. And that was mostly because of a more settled global economic environment that expanded at an admittedly tentative 3%.

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Nonetheless, it was a smoother ride than the world's investors have enjoyed for some time and it encouraged them to spend $1.3 trillion in foreign direct investment (FDI) and mergers and acquisitions.

The story was even brighter for the developing world. Emerging countries continued to demonstrate not only that their economic coming of age was sustainable; it was happening more quickly than was generally realised.

In an unprecedented development, emerging countries began investing in one another because they had most of what was needed to nurture hungry bilateral economic growth.

Two phenomena remove last year's FDI performance from what has become ordinary investment practice. The first is the development of astonishingly robust south-to-south trade and investment, that is, economic activity between emerging countries; and the second is the depth of outward direct investment by countries still classified as 'developing'. Together they have reshaped the world's investment landscape and it is doubtful it will ever again be the way it was just half a decade ago.

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FDI into Africa doubled between 2004 and 2006 to a record $39bn spurred by the search for primary resources and increased profits and by a generally improved business climate, according to a survey of investment trends by the United Nations Conference on Trade and Development (Unctad).

The report, World Investment Report 2007: Transnational Corporations, Extractive Industries and Development, says that the value of crossborder mergers and acquisitions (M & A) in Africa also reached a record level of $18bn in 2006. About half of those M & As were accounted for by transnational corporations (TNCs) from developing Asia. Greenfield and expansion investments also grew significantly in the African region.

Despite these increases, Africa's share of global FDI declined to 2.7% in 2006 from 3.1% in 2005. Africa's portion of global FDI remains small when compared with South, East and South-East Asia.

African FDI outflows also reached a record level in 2006 of $8bn, up from $2bn in 2005, with South African firms being the main investors from the region. (See Box, right)

However, says the report, prospects for FDI into Africa...

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