The trend of FDI in the world related to the restructuring of the international financial market under the impact of economic recession

Global FDI flows FDI flows to developing economies reached a new high at $778 billion, accountingfor 54 per cent of global inflows, although the growth rate slowed to 7 per cent, compare

INTERNATIONAL FINANCIAL

MANAGEMENT Mid-term Presentation

The trend of FDI in the world related to the restructuring of the international financial market under the impact of economic recession.

Lecturer: MBA Tang My Sang

Group 2:

Ngo Dinh Anh Thu Nguyen Phuong Vy Hoang Van Quynh Nguyen Quynh Thuan Phat

I DEFINITION OF FDI, FDI CAPITAL 3

1 Definition of FDI 3

2 Definition of FDI Flow 3

II THE TRENDS OF FDI IN THE WORLD UNDER THE IMPACT OF ECONOMIC RECESSION 4

1 The economic recession 2012 – 2013 4

2 The trends of FDI under the economic recession 2012 – 2013 5

2.2 FDI inflows to selected regional and interregional groups, average 2005–2007, 2008–2013 10

III The trends of FDI under the economic recession 2020 – present 11

1 The economic recession 2020 - present 12

2 The trends of FDI under the impact of COVID – 19 Epidemic 12

3 The International financial market under the impact of Covid – 19 Epidemic 16

IV VIETNAM’S FDI MARKET 20

1 Some advantaged situations 20

2 The situation of attracting Foreign Direct Investment (FDI) in Vietnam 21

3 SWOT Analysis of FDI market in Vietnam 23

4 What does Vietnam need to do to attract FDI? 24

5 Suggested solutions 25

REFERENCES 27

I DEFINITION OF FDI, FDI CAPITAL

1 Definition of FDI

- According World Trade Organization (WTO), Foreign direct investment (FDI)occurs when an investor based in one country (the home country) acquires an asset

in another country (the host country) with the intent to manage that asset

- The management dimension is what distinguishes FDI from portfolio investment inforeign stocks, bonds and other financial instruments In most instances, both theinvestor and the asset it manages abroad are business firms In such cases, theinvestor is typically referred to as the “parent firm” and the asset as the “affiliate” or

“subsidiary”

- Examples of foreign direct investments include mergers, acquisitions, retail,services, logistics, and manufacturing, among others

2 Definition of FDI Flow

- FDI net inflow is defined as the total value of inward overseas direct investment

made by foreign entities, including non-resident investors

- Inward foreign direct investments into the domestic country includes all assets and

liabilities exchanged between the foreign investors and enterprises based in thedomestic country, where the investment is being made

- FDI net outflow is defined as the total value of outward overseas direct investment

made by the residents of the domestic country or reporting economy to businessesbased in foreign economies

- Outward foreign investments include assets and liabilities exchanged between

investors based in a domestic country or reporting economy to foreign businessesbased out in different countries Inward direct investment is also referred to as directinvestment abroad

II THE TRENDS OF FDI IN THE WORLD UNDER THE IMPACT OF

ECONOMIC RECESSION

1 The economic recession 2012 – 2013

- The three-year European public debt crisis has forced

 Greece, Ireland, Portugal and Cyprus to seek relief from the internationalcommunity to avoid default

 Spain and Italy are also at risk

 France was almost caught in a spiral, and the German economy - Europe'sleading - slowed significantly

 Many European economies fell into recession and the Eurozone eventually failed toavoid recession again in the third quarter of 2012

- The "financial cliff" in the US: The world's largest economy grew fairly strongly in

2012

- Deflation, slowing growth in world trade, weak domestic demand and decliningexports, especially to China (down as much as 14.5% in November 2012), arepushing Japan into the risk of a fifth recession in 15 years

- Emerging economies that grow quite quickly such as China, India, Brazil, do notkeep their "form"

- The decline in exports was a key reason for a significant slowdown in asia'sdeveloping economies

- Structural challenges, weaker investment and excess output have caused the region'stwo growth engines, China and India, to lose momentum

- However, the United Nations report noted that in contrast to other regions, the Pacific economy in 2012 remained positive with an estimated growth rate of 5.6%,although it was inevitably lower than the previous forecast of a 6.5%increase

Asia According to the World Bank (WB), the developing East Asia region (Indonesia,Malaysia, Philippines và Myanmar), not taking into Account China, is a rare brightspot for the global economy

2 The trends of FDI under the economic recession 2012 – 2013

2.1 Global FDI flows

FDI flows to developing economies reached a new high at $778 billion, accountingfor 54 per cent of global inflows, although the growth rate slowed to 7 per cent, comparedwith an average growth rate over the past 10 years of 17 per cent Developing Asiacontinues to be the region with the highest FDI inflows, significantly above the EU,traditionally the region with the highest share of global FDI FDI inflows were up also in theother major developing regions, Africa (up 4 per cent) and Latin America and the Caribbean(up 6 per cent, excluding offshore financial centres)

Although FDI to developed economies resumed its recovery after the sharp fall in

2012, it remained at a historically low share of total global FDI flows (39 per cent), and still

57 per cent below its peak in 2007 Thus, developing countries maintained their lead overdeveloped countries by a margin of more than $200 billion for the second year running

Developing countries and transition economies now also constitute half of the top 20economies ranked by FDI inflows Mexico moved into tenth place China recorded itslargest ever inflows and maintained its position as the second largest recipient in the world

FDI by transnational corporations (TNCs) from developing countries reached $454billion – another record high Together with transition economies, they accounted for 39 percent of global FDI outflows, compared with only 12 per cent at the beginning of the 2000s.Six developing and transition economies ranked among the 20 largest investors in the world

in 2013 Increasingly, developing-country TNCs are acquiring foreign affiliates ofdeveloped-country TNCs in the developing world

The 9 per cent increase in global FDI inflows in 2013 reflected a moderate pickup inglobal economic growth and some large cross-border M&A transactions The increase waswidespread, covering all three major groups of economies, though the reasons for theincrease differed across the globe FDI flows to developed countries rose by 9 per cent,reaching $566 billion, mainly through greater retained earnings in foreign affiliates in theEuropean Union (EU), resulting in an increase in FDI to the EU FDI flows to developingeconomies reached a new high of $778 billion, accounting for 54 per cent of global inflows.Inflows to transition economies rose to $108 billion – up 28 per cent from the previous year– accounting for 7 per cent of global FDI inflows

Developing Asia remains the world’s largest recipient region of FDI flows Allsubregions saw their FDI flows rise except West Asia, which registered its fifth consecutivedecline in FDI The absence of large deals and the worsening of instability in many parts ofthe region have caused uncertainty and negatively affected investment FDI inflows to theAssociation of Southeast Asian Nations (ASEAN) reached a new high of $125 billion – 7per cent higher than 2012 The high level of flows to East Asia was driven by rising inflows

to China, which remained the recipient of the second largest flows in the world

After remaining almost stable in 2012, at historically high levels, FDI flows to LatinAmerica and the Caribbean registered a 14 per cent increase to $292 billion in 2013.Excluding offshore financial centres, they increased by 6 per cent to $182 billion In contrast

to the preceding three years, when South America was the main driver of FDI flows to theregion, 2013 brought soaring flows to Central America The acquisition in Mexico of GrupoModelo by the Belgian brewer Anheuser Busch explains most of the FDI increase in Mexico

as well as in the subregion The decline of inflows to South America resulted mainly fromthe almost 30 per cent slump noted in Chile, the second largest recipient of FDI in SouthAmerica in 2012 The decrease was due to equity divestment in the mining sector and lowerreinvested earnings by foreign mining companies as a result of the decrease in commodityprices.

FDI inflows to Africa rose by 4 per cent to $57 billion Southern African countries,especially South Africa, experienced high inflows Persistent political and social tensionscontinued to subdue flows to North Africa, whereas Sudan and Morocco registered solidgrowth of FDI Nigeria’s lower levels of FDI reflected the retreat of foreign transnationalcorporations (TNCs) from the oil industry

In developed countries, inflows to

Europe were up by 3 per cent compared with

2012 In the EU, Germany, Spain and Italy

saw a substantial recovery in their FDI

inflows in 2013 In Spain, lower labour costs

attracted the interests of manufacturing

TNCs The largest declines in inflows were

observed in France, Hungary, Switzerland

and the United Kingdom

FDI flows to North America grew by

23 per cent as acquisitions by Asian investors helped sustain inflows to the region Thelargest deals included the takeover of the Canadian upstream oil and gas company, Nexen,

by CNOOC (China) for $19 billion; the acquisition of Sprint Nextel, the third largestwireless network operator in the United States, by Japanese telecommunications groupSoftbank for $21.6 billion, the largest deal ever by a Japanese company; and the $4.8 billionacquisition of the pork producer Smithfield by Shuanghui, the largest Chinese takeover of aUnited States company to date FDI flows to the United States rose by 17 per cent, reflectingsigns of economic recovery in the United States over the past year

Transition economies experienced a 28 per cent rise in FDI inflows, reaching $108billion – much of it driven by a single country The Russian Federation saw FDI inflowsjump by 57 per cent to $79 billion, making it the world’s third largest recipient of FDI forthe first time The rise was predominantly ascribed to the increase in intracompany loans andthe acquisition by BP (United Kingdom) of 18.5 per cent of Rosneft (Russia Federation) aspart of Rosneft’s $57 billion acquisition of TNK-BP.

Global FDI outflows rose by 5 per cent to $1.41 trillion, up from $1.35 trillion in

2012 Investors from developing and transition economies continued their expansion abroad,

in response to faster economic growth and investment liberalization as well as rising incomestreams from high commodity prices In 2013 these economies accounted for 39 per cent ofworld outflows; 15 years earlier their share was only 7 per cent In contrast, TNCs fromdeveloped economies continued their “wait and see” approach, and their investmentsremained at a low level, similar to that of 2012

FDI flows from developed countries continued to stagnate FDI outflows fromdeveloped countries were unchanged from 2012 – at $857 billion – and still 55 per cent offtheir peak in 2007 Developed-country TNCs continued to hold large amounts of cashreserves in their foreign affiliates in the form of retained earnings, which constitute part ofreinvested earnings, one of the components of FDI flows This component reached a recordlevel of 67 per cent

Investments from the largest investor – the United States – dropped by 8 per cent to

$338 billion, led by the decline in cross-border merger and acquisition (M&A) purchasesand negative intracompany loans United States TNCs continued to accumulate reinvestedearnings abroad, attaining a record level of $332 billion FDI outflows from the EU rose by

5 per cent to $250 billion, while those from Europe as a whole increased by 10 per cent to

$329 billion With $60 billion, Switzerland became the largest outward investor in Europe,propelled by a doubling of reinvested earnings abroad and an increase in intracompanyloans Countries that had recorded a large decline in 2012, including Italy, the Netherlandsand Spain, saw their outflows rebound sharply In contrast, investments by TNCs from

France, Germany and the United Kingdom saw a substantial decline TNCs from France andthe United Kingdom undertook significant equity divestment abroad Despite the substantialdepreciation of the currency, investments from Japanese TNCs continued to expand, rising

by over 10 per cent to a record $136 billion

Flows from developing economies remained resilient, rising by 3 per cent FDI fromthese economies reached a record level of $454 billion in 2013 Among developing regions,flows from developing Asia and Africa increased while those from Latin America and theCaribbean declined Developing Asia remained a large source of FDI, accounting for morethan one fifth of the world’s total

Flows from developing Asia rose by 8 per cent to $326 billion with diverging trendsamong subregions: East and South-East Asia TNCs experienced growth of 7 per cent and 5per cent, respectively; FDI flows from West Asia surged by almost two thirds; and TNC

activities from South Asia slid by nearly threequarters In East Asia, investment fromChinese TNCs climbed by 15 per cent to $101billion owing to a surge of cross-border M&As(examples include the $19 billion CNOOC-Nexen deal in Canada and the $5 billionShuanghui-Smithfield Foods deal in the UnitedStates) In the meantime, investments fromHong Kong (China) grew by 4 per cent to $92billion The two East Asian economies haveconsolidated their positions among the leadingsources of FDI in the world Investment flowsfrom the two other important sources in EastAsia – the Republic of Korea and Taiwan Province of China – showed contrasting trends:investments by TNCs from the former declined by 5 per cent to $29 billion, while those byTNCs from the latter rose by 9 per cent to $14 billion

FDI flows from Latin America and the Caribbean decreased by 8 per cent to $115billion in 2013 Excluding flows to offshore financial centres, they declined by 31 per cent

to $33 billion This drop was largely attributable to two developments: a decline in border M&As and a strong increase in loan repayments to parent companies by Brazilianand Chilean foreign affiliates abroad Colombian TNCs, by contrast, bucked the regionaltrend and more than doubled their cross-border M&As Investments from TNCs registered

cross-in Caribbean countries cross-increased by 4 per cent cross-in 2013, constitutcross-ing about three quarters ofthe region’s total investments abroad

FDI flows from transition economies increased significantly, by 84 per cent, reaching

a new high of $99 billion As in past years, Russian TNCs were involved in the most of theFDI projects, followed by TNCs from Kazakhstan and Azerbaijan The value of cross-border M&A purchases by TNCs from the region rose significantly in 2013 – mainly as aresult of the acquisition of TNKBP Ltd (British Virgin Islands) by Rosneft; however, thenumber of such deals dropped

2.2 FDI inflows to selected regional and interregional groups, average 2005–

2007, 2008–2013

In 2013, APEC absorbed half of global flows – on par with the G-20; the BRICSreceived more than one fifth Among major regional and interregional groupings, two –Asia-Pacific Economic Cooperation (APEC) countries and the BRICS (Brazil, RussianFederation, India, China and South Africa) countries – saw a dramatic increase in their share

of global FDI inflows from the pre-crisis level APEC now accounts for more than half ofglobal FDI flows, similar to the G-20, while the BRICS jumped to more than one fifth InASEAN and the Common Market of the South (MERCOSUR), the level of FDI inflowsdoubled and the EU, which are negotiating the formation of TTIP, saw their combined share

of global FDI inflows cut nearly in half over the past seven years, from 56 per cent duringthe pre-crisis period to 30 per cent in 2013 The share of the 12 countries participating in theTPP negotiations was 32 per cent in 2013, markedly smaller than their share in world GDP

of 40 per cent RCEP, which is being negotiated between the 10 ASEAN member States and

their 6 FTA partners, accounted for 24 per cent of global FDI flows in recent years, nearlytwice as much as before the crisisfrom the pre-crisis level Many regional and interregionalgroups in which developed economies are members (e.g G-20, NAFTA) are allexperiencing a slower recovery

Mixed trends for the megaregional integration initiatives: TPP and RCEP shares inglobal flows grew while TTIP shares halved The three megaregional integration initiatives– the Transatlantic Trade and Investment Partnership (TTIP), the TransPacific Partnership(TPP) and the Regional Comprehensive Economic Partnership (RCEP) – show divergingFDI trends The United States and the EU, which are negotiating the formation of TTIP, sawtheir combined share of global FDI inflows cut nearly in half over the past seven years, from

56 per cent during the pre-crisis period to 30 per cent in 2013 The share of the 12 countriesparticipating in the TPP negotiations was 32 per cent in 2013, markedly smaller than theirshare in world GDP of 40 per cent RCEP, which is being negotiated between the 10ASEAN member States and their 6 FTA partners, accounted for 24 per cent of global FDIflows in recent years, nearly twice as much as before the crisis

III The trends of FDI under the economic recession 2020 – present

1 The economic recession 2020 - present

- With the spread of Covid-19 becoming a full-blown pandemic disrupting supplychains, mass layoffs, countless bankruptcies and business dissolutions, paralyzingindustries such as aviation and travel

- The wave of closures in the retail industry is spreading, unemployment is increasingrapidly, all delaying the recovery step during the epidemic period

- The urgent need to increase health spending coupled with a decline in tax revenues,combined with a decline in export earnings and pending debt has exposed a fiscal gap2- 3 trillion dollars in developing countries that the international community has sofar unresolved

- Many countries have stepped up the implementation of blockade measures to preventepidemics, causing economic activities such as production, consumption, investment,etc to all decline

- The global economic crisis caused by the trade war between the US and China cancause great disturbances to the global supply chain, greatly affecting the developmentprogress of countries

2 The trends of FDI under the impact of COVID – 19 Epidemic

2.1 Global FDI flows

- The COVID-19 crisis will

cause a dramatic fall in FDI

Global FDI flows are

forecast to decrease by up to

40 per cent in 2020, from

their 2019 value of $1.54

trillion

- The pandemic is a supply,

demand and policy shock

for FDI The lockdown

measures are slowing down existing investment projects The prospect of a deeprecession will lead MNEs to re-assess new projects.

2.2 FDI flows vary by region

- Among developed countries, FDI flows to Europe are expected to fall by 30 to 45

per cent, significantly more than those to North America and other developedeconomies (with falls of 20 to 35 per cent on average), because the region entered thecrisis on a relatively more fragile footing In 2019, flows to developed economies as agroup increased by 5 per cent to $800 billion

- FDI flows to Africa are forecast to fall by 25 to 40 per cent in 2020 The negative

trend will be exacerbated by low commodity prices In 2019, FDI flows to Africaalready declined by 10 per cent to $45 billion

- Flows to developing Asia will be severely affected due to their vulnerability to supply

chain disruptions, the weight of GVC-intensive FDI in the region and globalpressures to diversify production locations FDI is projected to fall by 30 to 45 percent In 2019, FDI flows to the region declined by 5 per cent, to $474 billion, despitegains in SouthEast Asia, China and India

- FDI in Latin America and the Caribbean is expected to halve in 2020 Investment

prospects are bleak because the pandemic compounds political turbulence andstructural weaknesses in several economies In 2019, FDI in Latin America and theCaribbean grew by 10 per cent to $164 billion

- FDI flows to economies in transition are expected to fall by 30 to 45 per cent The

decline will largely undo a recovery of FDI to the region in 2019

- The outlook for FDI in structurally weak and vulnerable economies is extremely

negative Many least developed countries (LDCs) are dependent on FDI in extractiveindustries, tourism, and landlocked developing countries.are disproportionallyaffected by supply chain blockages In 2019, FDI inflows to LDCs declined by 6 percent to $21 billion, representing just 1.4 per cent of global FDI

FDI Outflows, Top 10 home economies in 2019