Tag Archives: China

Globalization and Foreign Investments – A 2 way street

The flow of investments across borders has seen rapid growth over the last decade.   When thinking of foreign investment, the first thought that crosses ones mind is the developed world infusing capital into the developing world.   With historically low rates of return in the developed economies, that has been an obvious growth over the last 3 years (esp. in the post Lehman Bros. world).

Worldwide foreign investment - changes in trends

What is less discussed or maybe less obvious is the reverse flow of funds.  Investments out of developing economies (India, China, Brazil) into the developed economies (US, UK, Europe).    These investments are being driven by a few factors -
  1. Increasing prosperity in the developing economies, leads investors in these countries to look for business and/or lifestyle opportunities in the developed markets.   Motivated by the need to grow beyond national boundaries, and diversify risks, these investments are flowing outward.
  2. With the liquidity crunch in the markets of United States and other countries, not showing signs of abatement, many projects are being compelled to look to Asian investors for keeping projects and businesses funded.   This is likely to continue till the liquidity crunch eases and banks get back to lending normally (pre 2008 levels) again.
To see the above principles playing out, a quick look at one country's statistics  - India.  A developing economy by most standards.   GDP growth rates averaging 8% over the past many years.   Came out of the global slowdown with a fairly decent performance.  So lets look at the "Outbound" investments by "Individuals" from India.   To emphasize again, this is not the outbound fund flow of corporates, just individuals sending money overseas. As a background, it is worth noting that overseas remittances were allowed only in 2004 by the Reserve Bank of India.    Between 2004-05 and the current fiscal (2010-11); the growth in numbers is a staggering 100 fold !    Just 5 years ago, Indians remitted $9.60 million;  the number has risen an astounding 100 times to $983 million in the year 2009-10.   In the current fiscal it is set to exceed the last years number. The variety of purposes for which money is being remitted overseas is again an indicator of how fast the world continues to shrink and  become 1 flat economy.    Growth year over year (2010-11 to 2009-10) in some of the areas is below - Overseas debt and equity instruments - 44% growth Real estate purchases - 47% growth [The above data is based on information available for the first six months of the current fiscal]. Data from China or Brazil, would reflect a similar trend in outbound investments from the developing to the rest of the world.    Countries looking to boost their FDI must factor in the developing economies as part of their outreach plans - to keep a healthy and diversified mix of foreign investors in their portfolio. To get updates on this blog, sent to you by email, subscribe below -


 


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