KITE Invest analyzed last year’s foreign direct investment (FDI) at large and the degree to which FDI entered emerging markets in our articles, FDI in 2012 and FDI Inflow of Emerging Economies in 2012. As seen in our past articles FDI can be examined at a variety of different stages, to which further key observations can also be deducted from a sector analysis.
FDI flows are divided into the three sectors: primary, secondary and tertiary. The primary sector represents raw materials, consisting of agriculture, forestry, fishing, mining and extraction of oil and gas. The secondary sector, accounts for manufactured products ranging from textiles to printing to chemicals to metal products to motor vehicles. This manufacturing sector processes the output of the primary sector into finished, sellable goods. The last sector, the tertiary sector, is commonly referred to as the service sector and the “soft” part of the economy, because it entails productivity, performance, sustainability, and specifically, an affective labor market. The service sector’s success is measured by human capital in industries such as transport, distribution, communications, finance, education, healthcare, and hospitality.
As detailed in our article, FDI Inflow of Emerging Economies in 2012, the year 2012 experienced a significant dip in global FDI flows, directly translating to the diminishes observed in all three sectors. The extent of the decreases seen by all the three sectors largely varied due to the correlation perceived by investors that each sector had in relation to the global economy.
As UNCTAD reported, the most pronounced decrease in M&A and greenfield investments occurred in the primary sector’s mining and petroleum industries, as they were met by a lessening demand and subsequent divestment trend by investors. Although distinct sectors, there is tangible interconnectedness shared between them made evident by the secondary sector’s greatest decline occurring in the nuclear fuel, metal and petroleum product industries. The less affected sector was the tertiary, experiencing only a slight decrease in FDI transactions.
As a result of the FDI sector allocation in 2012 perfunctory predictions can be presumed, to which KITE Invest aligns itself with UNCTAD and several other analyses.
The level of resilience in the industries of business services, communication, finance, trade, and transport that have become FDI chargers in years as of late and the fact that the tertiary sector was the least affected in 2012, suggests that for 2013 and 2014 this ‘soft’ sector will maintain durability for cross-border investments. Despite the shortcomings of the primary and secondary sectors in 2012 following economic trends from the year prior, in 2013 and 2014 both sectors are predicted to fair better in line with the economic upswing.
While these predictions are given at the global scale, they certainly are not expected to occur across all regions. In terms of the primary sector, agriculture in Africa and Asia, and mining within Latin America are anticipated to see continued investment. Whereas, the secondary sector’s machinery and textile industries in Eastern Europe and Central Asia are deemed to have high expectations. While lastly within the tertiary sector, Latin America is planning to place special emphasis on the tourism and hospitality industries, and the construction and transport industries shall be main targets within Asia.
Based of the predicted movements of FDI by sector and a glance at specific industries by region, KITE Invest concludes that one of the main remaining challenges facing FDI flow is creating the space for investment of atypical industries into diverse regions.