INTRODUCTION A brave new world


Guest editor Garrett Hayes of Paul Hastings explores the key legal and practical considerations when doing deals in today’s changing FDI landscape


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Zoe Thomas zoe.thomas@euromoneyny.com +212 224 3402


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long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the enterprise. Ownership of at least 10% of the voting power, representing the influence by the investor, is the basic criterion used.’


T Although stalled somewhat by the effects of the global economic crisis, the globalisation of


the world economy continues against a backdrop of a world which, thanks in large part to the internet and other modern technology, is more connected than ever and presents real opportunities for dynamic businesses to expand internationally and exploit new markets.


Many believe that closer international economic integration is needed to improve the


resilience of the global economy against future crises, support the global economic recovery by returning developed countries to growth, and drive the sustainable development of emerging economies.


FDI inflows were valued at $1.65 trillion. However, while GDP, trade and employment have all since continued to improve globally, the recovery of FDI stumbled last year, with inflows decreasing by 18% to $1.35 trillion. At the end of 2013, the outlook remains challenging and FDI inflows are forecast to rise only moderately over the next two years.


Latest trends However, the global trend hides several major recent developments.


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Developing economies have, for the first time ever, received more FDI than developed countries: In 2012, nine of the top 20 jurisdictions for inward FDI were developing countries, with inflows to developing Asia and Latin America at historically high levels. Overall, developing countries accounted for 52% of inward FDI. Developing countries also generated almost one third of global FDI outflows and the FDI outflows from the so-called BRICS countries [Brazil, Russia, India, China and South Africa] accounted for over 10% of global FDI in 2012.


FDI into and out of developed countries has plummeted: After a 32% decrease in FDI inflows between 2011 and 2012, the level of FDI into developed economies is now at levels last seen in the early 2000s. Although the UK and Japan witnessed increases in FDI inflows in 2012, year-on-year FDI into Europe and the US declined sharply during this period. Outflows from developed countries also declined significantly, and returned to 2009 levels.


State-owned enterprises and sovereign wealth funds are playing an increasingly important role in FDI: FDI flows associated with state-owned enterprises (SOEs) in 2012 totalled $145 billion – in excess of 10% of the total FDI during the year, with significant activity by SOEs from developing countries who are seeking to acquire strategic assets such as technology and know-how. FDI by sovereign wealth funds doubled between 2011 and 2012, and the cumulative FDI stock now held by sovereign wealth funds (SWFs) is estimated to exceed $125 billion with a particular focus on utilities, real estate, finance and infrastructure. The combined assets of SWFs globally are estimated to be $5.3 trillion and so they are likely to become increasingly important FDI participants in coming years.


Sovereign wealth funds are likely to become increasingly important FDI participants in coming years


The post-crisis recovery in FDI began in 2010 and continued into 2011, at which point


he OECD defines foreign direct investing (FDI) as ‘cross-border investment by a res- ident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy. The lasting interest implies the existence of a


IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014


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