FDI from developed countries rose sharply in 2011, by 25 per cent, to reach $1.24 trillion. While all three major developed-economy investor blocs – the European Union (EU), North America and Japan – contributed to this increase, the driving factors differed for each. FDI from the United States was driven by a record level of reinvested earnings (82 per cent of total FDI outflows), in part driven by TNCs building on their foreign cash holdings. The rise of FDI outflows from the EU was driven by cross-border M&As. An appreciating yen improved the purchasing power of Japanese TNCs, resulting in a doubling of their FDI outflows, with net M&A purchases in North America and Europe rising 132 per cent.

Outward FDI from developing economies declined by 4 per cent to $384 billion in 2011, although their share in global outflows remained high at 23 per cent. Flows from Latin America and the Caribbean fell 17 per cent, largely owing to the repatriation of capital to the region (counted as negative outflows) motivated in part by financial considerations (exchange rates, interest rate differentials). Flows from East and South- East Asia were largely stagnant (with an 9 per cent decline in those from East Asia), while outward FDI from West Asia increased significantly, to $25 billion.

Global foreign direct investment (FDI) flows exceeded the pre-crisis average in 2011, reaching $1.5 trillion despite turmoil in the global economy. However, they still remained some 23 per cent below their 2007 peak.
UNCTAD predicts slower FDI growth in 2012, with flows levelling off at about $1.6 trillion. Leading indicators – the value of cross-border mergers and acquisitions (M&As) and greenfield investments – retreated in the first five months of 2012. Longer-term projections show a moderate but steady rise, with global FDI reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, barring any macroeconomic shocks.
FDI inflows increased across all major economic groupings in 2011. Flows to developed countries increased by 21 per cent, to $748 billion. In developing countries FDI increased by 11 per cent, reaching a record $684 billion. FDI in the transition economies increased by 25 per cent to $92 billion. Developing and transition economies respectively accounted for 45 per cent and 6 per cent of global FDI. UNCTAD’s projections show these countries maintaining their high levels of investment over the next three years.
Sovereign wealth funds (SWFs) show significant potential for investment in development. FDI by SWFs is still relatively small. Their cumulative FDI reached an estimated $125 billion in 2011, with about a quarter in developing countries. SWFs can work in partnership with host-country governments, development finance institutions or other private sector investors to invest in infrastructure, agriculture and industrial development, including the build-up of green growth industries.
The international production of transnational corporations (TNCs) advanced, but they are still holding back from investing their record cash holdings. In 2011, foreign affiliates of TNCs employed an estimated 69 million workers, who generated $28 trillion in sales and $7 trillion in value added, some 9 per cent up from 2010. TNCs are holding record levels of cash, which so far have not translated into sustained growth in investment. The current cash “overhang” may fuel a future surge in FDI.
UNCTAD’s new FDI Contribution Index shows relatively higher contributions by foreign affiliates to host economies in developing countries, especially Africa, in terms of value added, employment and wage generation, tax revenues, export generation and capital formation. The rankings also show countries with less than expected FDI contributions, confirming that policy matters for maximizing positive and minimizing negative effects of FDI.

Salient features of 2011 FDI trends by region include the following:
• Sub-Saharan Africa drew FDI not only to its natural resources, but also to its emerging consumer markets as the growth outlook remained positive. Political uncertainty in North Africa deterred investment in that region.
• FDI inflows reached new record levels in both East Asia and South-East Asia, while the latter is catching up with the former through higher FDI growth.
• FDI inflows to South Asia turned around as a result of higher inflows to India, the dominant FDI recipient in the region.
• Regional and global crises still weigh on FDI in West Asia, and prospects remain unclear.
• South America was the main driver of FDI growth in Latin America and the Caribbean. The pattern of investment by traditional investors – Europe and the United States – is changing, while there has been an advance in FDI from developing countries and Japan. A recent shift towards industrial policy in major countries may lead to investment flows to targeted industries.
• FDI flows to economies in transition recovered strongly. They are expected to grow further, partly because of the accession of the Russian Federation to the World Trade Organization (WTO).
• The search for energy and mineral resources resulted in cross-border megadeals in developed countries, but the eurozone crisis and a generally weak outlook still cloud investor sentiment.
• FDI inflows to the structurally weak, vulnerable and small economies were mixed. While FDI to landlocked developing countries (LLDCs) grew strongly, inflows to least developed countries (LDCs) and small island developing States (SIDS) continued to fall.

Many countries continued to liberalize and promote foreign investment in various industries to stimulate growth in 2011. At the same time, new regulatory and restrictive measures continued to be introduced, partly for industrial policy reasons. They became manifest primarily in the adjustment of entry policies for foreign investors (e.g. in agriculture and pharmaceuticals), in extractive industries (e.g. through nationalization and divestment requirements) and in a more critical approach towards outward FDI.
International investment policymaking is in flux. The annual number of new bilateral investment treaties (BITs) continues to decline, while regional investment policymaking is intensifying. Sustainable development is gaining prominence in international investment policymaking. Numerous ideas for reform of the investor–State dispute settlement (ISDS) system have emerged, but few have been put into action.
Suppliers need support for CSR compliance. Corporate social responsibility (CSR) codes of transnational corporations (TNCs) often pose challenges for suppliers in developing countries (particularly small and medium-sized enterprises (SMEs)). They have to comply with and report under multiple, fragmented standards. Policymakers can alleviate these challenges and create new opportunities for suppliers by incorporating CSR into enterprise development and capacity-building programmes. TNCs can also harmonize standards and reporting requirements at the industry level.

Mobilizing investment and ensuring that it contributes to sustainable development is a priority for all countries. A new generation of investment policies is emerging, as governments pursue a broader and more intricate development policy agenda, while building or maintaining a generally favourable investment climate.
“New generation” investment policies place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment. This leads to specific investment policy challenges at the national and international levels. At the national level, these include integrating investment policy into development strategy, incorporating sustainable development objectives in investment policy and ensuring investment policy relevance and effectiveness. At the international level, there is a need to strengthen the development dimension of international investment agreements (IIAs), balance the rights and obligations of States and investors, and manage the systemic complexity of the IIA regime.
To address these challenges, UNCTAD has formulated a comprehensive Investment Policy Framework for Sustainable Development (IPFSD), consisting of
(i) Core Principles for investment policymaking,
(ii) guidelines for national investment policies, and
(iii) options for the design and use of IIAs.
UNCTAD’s IPFSD can serve as a point of reference for policymakers in formulating national investment policies and in negotiating or reviewing IIAs. It provides a common language for discussion and cooperation on national and international investment policies. It has been designed as a “living document” and incorporates an online version that aims to establish an interactive, open-source platform, inviting the investment community to exchange views, suggestions and experiences related to the IPFSD for the inclusive and participative development of future investment policies.

B o x e s
I . 1 . The increasing importance of indirect FDI flows
I . 2 . World Investments Prospects Survey 2012-2014: methodology and results
I . 3 . UNCTAD’s FDI Attraction, Potential and Contribution Indices
I I . 1 .  Attracting investment for development: old challenges and new opportunities for South Asia
I I . 2 .  Economic diversification and FDI in the GCC countries
I I . 3 . The Russian Federation's accession to the WTO: implication for inward FDI flow
I I I . 1 . Investment Policy Monitor database: revised methodology
I I I . 2 . Examples of investment liberalization measures in 2011-2012
I I I . 3 . Examples of investment promotion and facilitation measures in 2011-2012
I I I . 4 . Examples of FDI restrictions and regulations in 2011-2012
I I I . 5 . Selected policy measures affecting the general business climate in 2011-2012
I I I . 6 . F D I and "green" protectionism
I V . 1 . Defining investment protectionism
I V . 2 . Scope of the IPFSD
I V . 3 . The origin of the Core Principles in international law
I V . 4 . Integrating investment policy in development strategy: UNCTAD's Investment Policy Reviews
I V . 5 . UNCTAD's Entrepreneurship Policy Framework
I V . 6 . Designing sound investment rules and procedures: UNCTAD's Investment Facilitation Compact 
I V . 7 . Investment policy advice to "adapt and adopt": UNCTAD's Series on Best Practices in               Investment for Development
I V . 8 . Pre-establishment commitments in IIAs
I V . 9 . Special and differential treatment (SDT) and IIAs

B o x T a b l e s
I . 1 . 1 . FDI stock in financial holding companies, 2009
I . 1 . 2 . Inward FDI stock in the United States, by immediate and ultimate source economy, 2000 and 2010
I . 3 . 1 . M e a s u r i n g F D I P o t e n t i a l : F D I d e t e r m i n a n t s a n d p r o x y i n d i c a t o r s
I V . 4 . 1 . B e n e i c i a r i e s o f t h e U N C T A D I P R p r o g r a m , 1 9 9 9 – 2 0 1 1
I V . 6 . 1 . B e n e i c i a r i e s o f s e l e c t e d p r o g r a m s o f U N C T A D ’ s I n v e s t m e n t F a c i l i t a t i o n C o m p a c t

B o x F i g u r e s
I I . 2 . 1 . A c c u m u l a t e d i n w a r d F D I s t o c k i n O m a n , Q a t a r a n d S a u d i A r a b i a , b y s e c t o r , 2 0 1 0
I V . 5 . 1 . K e y c o m p o n e n t s o f U N C T A D ’ s E n t r e p r e n e u r s h i p P o l i c y F r a m e w o r k

F i g u r e s
I . 1 . U N C T A D ’ s G l o b a l F D I Q u a r t e r l y I n d e x , 2 0 0 7 Q 1 – 2 0 1 2 Q 1
I . 2 . F D I i n l o w s , g l o b a l a n d b y g r o u p o f e c o n o m i e s , 1 9 9 5 – 2 0 1 1 
I . 3 . F D I i n l o w s i n d e v e l o p e d c o u n t r i e s b y c o m p o n e n t , 2 0 0 5 – 2 0 1 1
I . 4 . F D I o u t l o w s h a r e s b y m a j o r e c o n o m i c g r o u p s , 2 0 0 0 – 2 0 1 1
I . 5 . V a l u e o f c r o s s - b o r d e r M & A s a n d g r e e n i e l d F D I p r o j e c t s w o r l d w i d e , 2 0 0 7 – 2 0 1 1 
I . 6 . C r o s s - b o r d e r M & A s b y p r i v a t e e q u i t y i r m s , b y s e c t o r a n d m a i n i n d u s t r y , 2 0 0 5 and  2 0 1 1
I . 7 . A n n u a l a n d c u m u l a t i v e v a l u e o f F D I b y S W F s , 2 0 0 0 – 2 0 1 1 
I . 8 . P r o i t a b i l i t y a n d p r o i t l e v e l s o f T N C s , 1 9 9 9 – 2 0 1 1 
I . 9 . G l o b a l F D I l o w s , 2 0 0 2 – 2 0 1 1 , a n d p r o j e c t i o n f o r 2 0 1 2 – 2 0 1 4 
I . 1 0 . F D I l o w s b y g r o u p o f e c o n o m i e s , 2 0 0 2 – 2 0 1 1 , a n d p r o j e c t i o n f o r 2 0 1 2 – 2 0 1 4 
I . 1 1 . T N C s ’ p e r c e p t i o n o f t h e g l o b a l i n v e s t m e n t c l i m a t e , 2 0 1 2 – 2 0 1 4 
I . 1 2 . I m p o r t a n c e o f e q u i t y a n d n o n - e q u i t y m o d e s o f e n t r y , 2 0 1 2 a n d 2 0 1 4 
I . 1 3 . I P A s ’ s e l e c t i o n o f m o s t p r o m i s i n g i n v e s t o r h o m e e c o n o m i e s f o r F D I i n 2 0 1 2 – 2 0 1 4 
I . 1 4 . T N C s ’ t o p p r o s p e c t i v e h o s t e c o n o m i e s f o r 2 0 1 2 – 2 0 1 4 
I . 1 5 . T o p i n v e s t o r s a m o n g t h e l a r g e s t T N C s , 2 0 1 1 
I . 1 6 . T o p 1 0 0 T N C s : c a s h h o l d i n g s , 2 0 0 5 – 2 0 1 1 
I . 1 7 . T o p 1 0 0 T N C s : m a j o r c a s h s o u r c e s a n d u s e s , 2 0 0 5 – 2 0 1 1 
I . 1 8 . T o p 1 0 0 T N C s : c a p i t a l e x p e n d i t u r e s a n d a c q u i s i t i o n s , 2 0 0 5 – 2 0 1 1
I . 1 9 . F D I A t t r a c t i o n I n d e x : t o p 1 0 r a n k e d e c o n o m i e s , 2 0 1 1 
I . 2 0 . F D I A t t r a c t i o n I n d e x v s F D I P o t e n t i a l I n d e x M a t r i x , 2 0 1 1
I . 2 1 . F D I C o n t r i b u t i o n I n d e x v s F D I p r e s e n c e , 2 0 1 1 
I I . 1 . V a l u e o f g r e e n i e l d i n v e s t m e n t s i n A f r i c a , b y s e c t o r , 2 0 0 3 – 2 0 1 1
I I I . 1 . N a t i o n a l r e g u l a t o r y c h a n g e s , 2 0 0 0 – 2 0 1 1 
I I I . 2 . B I T s a n d “ o t h e r I I A s ” , 2 0 0 6 – 2 0 1 1
I I I . 3 . N u m b e r s a n d c o u n t r y c o v e r a g e o f B I T s a n d “ o t h e r I I A s ” , 2 0 0 6 – 2 0 1 1 
I I I . 4 . K n o w n i n v e s t o r - S t a t e t r e a t y - b a s e d d i s p u t e s , 1 9 8 7 – 2 0 1 1 
I V . 1 . Structure and components of the IPFSD 
T a b l e s
I . 1 . Share of FDI projects by BRIC countries, by host region, average 2005-2007 (pre-crisis period) and 2011 
I . 2 . S e c t o r a l  d i s t r i b u t i o n  o f  F D I  p r o j e c t s ,  2 0 0 5 – 2 0 1 1 
I . 3 . D i s t r i b u t i o n  s h a r e s  a n d  g r o w t h  r a t e s  o f  F D I  p r o j e c t  v a l u e s ,  b y  s e c t o r / i n d u s t r y ,  2 0 1 1 
I . 4 . C r o s s - b o r d e r  M & As  b y  p r i v a t e  e q u i t y  fi r m s ,  1 9 9 6 – 2 0 1 1
I . 5 . F D I  b y  SWFs  b y  h o s t  r e g i o n / c o u n t r y ,  c u m u l a t i v e  fl o w s , 2 0 0 5 – 2 0 1 1
I . 6 . F D I  b y  SWFs  b y  s e c t o r / i n d u s t r y ,  c u m u l a t i v e f l o w s ,  2 0 0 5 – 2 0 1 1
I . 7 . S u m m a r y  o f  e c o n o m e t r i c  r e s u l t s  o f  m e d i u m - t e r m  b a s e l i n e  s c e n a r i o s  o f  F D I  f l o w s , b y  r e g i o n 
I . 8 . S e l e c t e d  i n d i c a t o r s  o f  F D I  a n d  i n t e r n a t i o n a l  p r o d u c t i o n , 1 9 9 0 – 2 0 1 1
I . 9 . I n t e r n a t i o n a l i z a t i o n  s t a t i s t i c s  o f  t h e 1 0 0  l a r g e s t  n o n - fi n a n c i a l  T N C s  w o r l d w i d e  a n d  f r o m  d e v e l o p i n g  a n d  t r a n s i t i o n  e c o n o m i e s
I . 1 0 . U N C T A D ’ s  F D I  C o n t r i b u t i o n  I n d e x ,  b y  h o s t  r e g i o n ,  2 0 0 9 
I . 1 1 . F D I  C o n t r i b u t i o n  I n d e x  m e d i a n  v a l u e s , b y  i n d i c a t o r 
I I . 1 . F D I f l o w s , b y  r e g i o n ,  2 0 0 9 – 2 0 1 1
I I . 2 . F D I  i nf l o w s  t o  G r e e c e ,  I t a l y ,  P o r t u g a l  a n d  S p a i n ,  b y  c o m p o n e n t ,  2 0 0 7 – 2 0 1 1 
I I . 3 . F D I  o u t fl o w s  f r o m  G r e e c e ,  I t a l y ,  P o r t u g a l  a n d  S p a i n ,  b y c  o m p o n e n t ,  2 0 0 7 – 2 0 1 1 
I I . 4 . T h e  1 0  l a r g e s t  g r e e n f i e l d  p r o j e c t s  i n  L D C s ,  2 0 1 1 
I I . 5 . T h e 1 0  l a r g e s t  g r e e n  fi e l d p r o j e c t s  i n  L L D C s , 2 0 1 1 
I I . 6 . S e l e c t e d  l a r g e s t  M & A  s a l e s  i n  S I D S ,  2 0 1 1 
I I . 7 . T h e 1 0  l a r g e s t  g r e e n  fi e l d  p r o j e c t s  i n  S I D S ,  2 0 1 1 
I I I . 1 . N a t i o n a l  r e g u l a t o r y  c h a n g e s ,  2 0 0 0 – 2 0 1 1 
I I I . 2 . N a t i o n a l  r e g u l a t o r y  c h a n g e s  i n 2 0 1 1 , b y  i n d u s t r y 
I I I . 3 . E x a m p l e s  o f  s u s t a i n a b l e - d e v e l o p m e n t - f r i e n d l y  a s p e c t s  o f  s e l e c t e d  I I A s  s i g n e d  i n  2 0 1 1 
I V . 1 . National investment policy challenges 
I V . 2 . International investment policy challenges 
I V . 3 . Possible indicators for the definition of investment impact objectives and the measurement of policy effectiveness 
I V . 4 . Structure of the National Investment Policy Guidelines
I V . 5 . Policy options to operationalize sustainable development objectives in IIAs

...But UNCTAD also cites concerns about the impact of NEMs in host developing economies. For example, working conditions may be poor, particularly in the case of contract manufacturing in labour-intensive activities, since NEM partner firms are under strong competitive pressure to reduce costs. In some instances, NEMs can be used to circumvent social and environmental standards. The report also points to pitfalls for long-term industrial development: Developing countries need to mitigate the risk of remaining locked into low value-added activities and need to avoid overdependence on foreign technologies and inputs.

Main studies:
• UNCTAD´s Manual on FDI statistics:
  • Volume I: FDI Flows and Stocks
    
  • Volume II: Statistics on the Operations of Transnational Corporations
    
  • Volume III: Collecting and Reporting FDI/TNC Statistics: Institutional Issues
    
• World Investemnt Directory
• World Investment Prospect Survey  
  

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