The Edinburgh Dialogue – Sovereign Wealth Focus14 June 2011, Edinburgh

THE FDI CONTEXT:

EVALUATING THE ROLE OF SWFs

Insight and intelligence from the Financial Times Ltd

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The global macro scenario

• Economic/political context in which FDI has developed over the past 12 months: recovery versus upheaval

• Liquidity returning but resources crunch (real or imagined) continues: food, oil, water, land, rare earths

• M&A replaced by greenfield FDI as main form of investment, but M&A growing much faster in recovery

• Lower-risk, lower-cost globalisation strategies pursued by companies post-recession: JVs, alliances, partnerships

• Difficulty for IPAs not equipped to promote or facilitate these types of investments (more matchmaking)

Decline in global FDI bottoms out

• Global greenfield projects fell 0.38% in 2010, compared to 7.3% in 2009.

• Slow economic recovery, exchange rate instability and sovereign debt problems are causing companies to remain cautious in foreign expansion plans.

Year Project No’s Capital investment (US$bn)*

2003 8,254 710.23

2004 8,752 656.08

2005 9,227 653.64

2006 10,604 820.69

2007 10,974 898.88

2008 14,630 1,401.40

2009 12,093 892.27

2010 12,047 748.75

Source: fDi Markets – fDi Intelligence 2011

fDi Intelligence expects greenfield FDI projects will grow by 6.5% in 2011

Other major manufacturing sectors should grow very strongly in 2011 – Automotive, Industrial Machinery, Metals and Chemicals in particular.

Strong rebound in natural resource sectors FDI in 2011.

Renewable energy should also recover in 2011 and grow strongly.

Slower growth we would expect in Business Services, Financial Services, and Food & Beverages.

Num

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Source fDi Markets – fDi Intelligence 2011

Role of Sovereign Wealth Funds

• In the late 2000s, SWFs came into the spotlight, but impact on actual investment flows less significant than suggested (dwarfed by general FDI flows)

• Growth in importance since the crisis, as government investment promotion agencies court them as well as PE and VC funds – steep learning curve

• IPAs must adapt the way they promote their locations – move from selling location attributes to defining specific, profitable projects funds can invest in

• Best lessons come from emerging markets (esp Mideast): Jordan Investment Board two-pronged strategy

• Or… with resurgence of manufacturing and rebound of greenfield investment flows – perhaps a return to basics for investment attraction?

Contact

For more information please feel free to contact me:

Courtney FingarEditor, fDi Magazine

fDi IntelligenceThe Financial Times Ltd

Tel: (+44)(0)20 7775 6365

Email: Courtney.Fingar@FT.com

Web: www.fdiintelligence.com