The Rise and Rise of FDI From the Global South

♠ Posted by Emmanuel in , at 1/17/2014 05:20:00 AM
Much has been made of the protectionism which firms such as those from China have encountered investing in the West. I have called specious arguments on "national security" grounds unvarnished racism, and such discrimination certainly plays a part. Moreover, I have been further vindicated by leaks that reveal massive American spying on its own citizens and those of the rest of world. Who's the real "national security" threat here when one of the largest US tech firms labels its government as an "advanced persistent threat"? You are, quite frankly, a bleeping moron to believe in US security guarantees, especially when it comes to online activity. Internet freedom is effectively unlimited America freedom to spy on you.

However, developing countries' efforts to invest elsewhere is largely driving the ongoing controversy. That is, there would be nobody to discriminate against if their firms stayed home. Accordingly, there's interesting stuff in the current issue of Global Finance about the ever-rising amount of FDI originating from poor countries. Otherwise put, these are countries that in the not-so-distant past would have been mere recipients of FDI:
By far the biggest FDI story of the past few years is the rise of developing and transitioning countries as a source of outward FDI, which jumped from $65 billion in 2003 to $481 billion in 2012. Naturally, China is in a league of its own. In 2012 it came in third among the world’s top 20 investor-economies, behind only the US and Japan. Beyond the acquisitions it has been making across OECD countries, China is aggressively developing natural resources and infrastructure from Africa to the Middle East.

For example, in 2013, PetroChina bought a 25% stake in the Iraqi oilfield of West Qurna 1, right around the time construction of the new Mombasa-Nairobi railway line began in Kenya, financed by the Export-Import Bank of China to the tune of $4 billion. But the new FDI landscape does not include just China. FDI originating from emerging markets is multiplying around the world. In 2013 a Chilean bank took over an American one, a Thai energy company made its first investment in Australia, and the largest Coca Cola bottling company in Mexico acquired a competitor in Brazil.
Notably, however, Global South investors do not invest in the same way their Global North counterparts--traditional TNCs--do:
Importantly, developing and transitioning country investors display characteristics that set them apart from traditional developed-world multinationals.

For one, state-owned enterprises and sovereign wealth funds generate the lion’s share of outward investment. This raises concerns about fair competition. “SOEs may have access to lower-interest loans and better financing conditions [than non-SOE competitors],” says Masataka Fujita, who heads the investment trends section in the division of investment and enterprise at Unctad. “SWFs even have a large amount of assets under management, and, like in the case of SOEs, their governance structure is not always transparent.” Their operations are also viewed with suspicion by host economies because a foreign government is behind them.

In addition, emerging markets companies seem to prefer mergers & acquisitions over greenfield investment as a mode of entry, especially when it comes to FDI into developed countries. “They look to OECD countries because these remain the world’s largest markets and because they are interested in the technology found here,” says José Guimón de Ros, associate professor of economics at the Universidad Autonóma de Madrid in Spain. “Since the crisis, many developed-country companies are under stress and therefore cheaper, so now is a good time to buy them.” Partially as a result of this phenomenon, cross-border M&A has held steady in 2013, stabilizing global FDI flows even as investment in new productive assets has declined.

Finally, emerging markets companies are inherently more familiar than their OECD counterparts with how to do business in a developing-country setting. In part as a result, the majority of investment from emerging markets is going to other emerging markets. According to Unctad, in 2011, China exported 70%, and Brazil 40%, of its outward FDI stock to neighboring emerging economies. “Regulations in developing countries are less complicated,” says Du The Huynh, senior lecturer at the Fulbright Economics Teaching Program in Ho Chi Minh City, Vietnam. “The competition is also less fierce.”

The telecom sector illustrates this well. Vietnam’s largest mobile-network operator, Viettel, has successfully established itself in Mozambique, Haiti, Laos and Cambodia, countries that by most OECD investors’ standards are difficult places to do business.
True, the Western media headlines are dominated by South-North FDI. real Yet it's not mostly the formerly colonized investing in the heartlands of the erstwhile colonizers, but poor countries venturing where rich countries dare not--scared off by corruption and other bogeymen for white people. Yes, South-South investment is happening:

to paraphrase Aretha Franklin, Queen of Soul, poor countries are doin' it for themselves.