* FDI to rise 12.5 pct to $1.62 trillion this year
* China, private equity and big companies due to spend
* Sustained growth seen through 2016
By Tom Miles
GENEVA, June 24 Global foreign direct investment
(FDI) will rise 12.5 percent to $1.62 trillion this year as the
economic recovery tempts China, private equity and big companies
to spend their warchests, a U.N. survey said on Tuesday.
The United Nations' annual World Investment Report, published
by the U.N. economic think tank UNCTAD, also forecast sustained
growth in coming years for FDI, reaching $1.75 trillion in 2015
and $1.85 trillion in 2016.
FDI largely consists of money spent on cross-border mergers
and acquisitions and corporate expansions overseas and acts as a
barometer of confidence in the global economy and a driver of
Global flows of FDI touched $2 trillion in 2007 but slumped
to $1.2 trillion in 2009 and have struggled to regain momentum.
But in the first four months of 2014, global M&A was worth
about $500 billion, the highest since 2007 and double the value
in the same months of 2013. This year's ten largest deals all
targeted developed countries, marking a return to the
"traditional pattern" of FDI, the UNCTAD report said.
The potential growth in the market is huge. The European
Union, traditionally the top FDI target, has been trailing far
behind Asia as a target for FDI. But last year several of the
biggest casualties of the economic crisis rebounded, with Spain
the largest European FDI recipient, attracting $39 billion.
More FDI is expected to head to Europe and other developed
countries as confidence in the recovery picks up, while FDI
flows to developing countries will remain at a high level,
according to UNCTAD's director of investment James Zhan.
However, regional conflict and "policy uncertainty" could
still derail the recovery. Although most investment policies aim
to promote and liberalise FDI, the share of restrictive policies
rose to 27 percent from 25 percent in 2012, the report said.
USA TOP, CHINA RISING
The biggest recipient of FDI is the United States. Although
its receipts have dwindled since the start of the crisis, its
inbound FDI of $188 billion in 2013 was still 50 percent above
that of the second biggest recipient, China.
Shale gas deals made up more than 80 percent of cross-border
M&A in oil and gas last year. The prospect of cheap gas turned
the U.S. into a major beneficiary of international funds for new
manufacturing projects, especially chemicals.
Many other oil and gas deals involved takeovers of European
or U.S.-owned assets, often in Africa, by firms from China or
other developing countries. The banking sector saw a similar
pattern, which is set to continue, the report said.
Although African resources assets are changing hands, 90
percent of new FDI projects on the poorest continent are in
manufacturing and services.
"The poorest countries are less and less dependent on
extractive industry investment," the report said.
China's FDI spending rose 15 percent to $101 billion last
year, and its outflows should surpass its inflows - $124 billion
in 2013 - within two or three years, the report said.
China is not the only one with deep pockets. FDI outflows
from the Gulf jumped by two-thirds last year to $31 billion,
with potential for more. And the biggest 5,000 corporations
globally are holding $4.5 trillion in cash.
Firms' cash-to-asset ratios in developing countries have
been stable at about 12 percent over the past five years, but
the ratio in developed countries grew from 9 percent before the
financial crisis to 11 percent in 2013.
"This increase implies that, at the end of 2013,
developed-country trans-national corporations held $670 billion
more cash than they would have before - a significant brake on
investment," the report said.
A further $1.07 trillion is held by private equity, which is
"keeping its powder dry", the report said, funding 21 percent of
cross-border M&A in 2013, compared to 31 percent in 2007.
(Reporting by Tom Miles; Editing by Tom Heneghan)