The Edinburgh Dialogue – Sovereign Wealth Focus15 June 2010, Edinburgh

THE GLOBAL CONTEXT:

FDI FLOWS AND CONDITIONSInsight and intelligence from the Financial Times Ltd

Introducing fDi Intelligence

• The Financial Times Ltd’s dedicated division for foreign direct investment, corporate location and investment promotion

• The largest private-sector FDI research centre, with 40 economists, analysts and specialists as well as the magazine team

Products and services include:

– fDi Magazine, providing insight on the business of globalization

– fDi Markets, providing intelligence on FDI trends and MNEs

– fDi Benchmark, providing intelligence on location competitiveness

– fDi Reports, customised reports and data research

– fDi Atlas, online investment incentives navigator

– Bespoke FDI events and investor roundtables

About the Data

fDi Markets’ database tracks the following investments:

• International crossborder greenfield investment projects worldwide in all sectors (since 2003)

• Inter-state crossborder greenfield investment projects in US in all non-retail sectors (since 2007)

• Concrete announcements made by companies that they are about to invest in a country with in a timeframe of less than 12 months

• Openings of new operations by companies

• New, expansion and co-location investment projects

• Only investment projects which create new jobs and investment (no minimum investment amount required) – mergers & acquisitions and other equity investments are not included

Globalization continues…at a slower pace

Highlights of the fDi Global Outlook Report 2010

• 2003-2009: average annual growth of FDI projects 11.5%, job creation 13%, and capex 16%

• Growth of FDI market ends in 2009: 14% decline in projects, > 1/3 decline in capex and job creation. FDI projects decline mirrors the decline in world trade (14.4% in 2009)

• But globalization did not stop: $1 trillion of greenfield FDI creating 2.6 million jobs in 2009

• Service sectors lead for projects #s: financial services down 21% but still the number 1 sector; Business services overtook software & IT for 2nd place, buoyed by strong growth in customer support centre and ICT infrastructure projects

• Investment declines in capital-intensive sectors: coal, oil & natural gas leading sector by capex; real estate capex drops 60%; even capex in environmental tech declined for first time in 2009 (by 20%),

Source: fDi Intelligence from the Financial Times Ltd (www.fdimarkets.com)

FDI Global Overview 2009What was the impact of the global recession on FDI?

Greenfield investment flows worldwide since 2003 by project numbers and capex

fDi’s forecast for 2009:

10%-15% drop in global greenfield investment

Actual decline: -14%

Destination Markets for FDI - 2009

Top Destination World Regions by Project No's, Capex and Jobs Created

• Rest of Europe – sharpest drop in FDI projects of any world region -33%• Middle East and Africa – Major drop in jobs and capex -50%

• North America – Best performing destination region for FDI + 25%• Asia-Pacific – FDI into Asia-Pacific falls, but still top destination -30%

+25%

Sector performance for FDI - 2009

Growth/Decline Sectors by Project No’s (2009)

Greenfield FDI Growth ForecastsGlobal Picture for 2010 (3-5% growth)

• Growing investment in Asia-Pacific, rebound in manufacturing investment

• FDI in ICT, electronics, automotive, and chemicals all expected to grow in 2010

• Growth in manufacturing and growth in job creation through FDI in 2010 -- Asia-Pacific to be the main beneficiary

• Limited recovery in real estate and tourism expected, capital investment in the construction sector may decline further in 2010 globally

• Overall picture for capital investment will depend on the commodity prices: energy sector is the leading FDI sector for capital investment

• BRIC economies expected to record the fastest increase in greenfield FDI projects in 2010.

• Europe is likely to lag behind other regions in 2010. While some recovery is expected in Eastern and South Eastern Europe, FDI projects into Western Europe may decline in 2010

Source: fDi Intelligence from the Financial Times Ltd (www.fdimarkets.com)

Beyond Greenfield: Overall Capital Flows

What does the big picture look like?

• Privatisation declining as a driver of investment, while PPPs are on the rise

• Ageing infrastructure, even in developed countries such as the US, presents investment opportunities for the private sector

• Investment treaty disputes occurring more often and the system for resolving them is becoming murkier

• Taxation has become an area of tension between mature and emerging economies (source system vs worldwide taxation)

• The M&A market was hard-hit by the global financial crisis, more so that greenfield

• Search for cash as capital flows stagnate at the moment governments need them most…

Source: fDi Intelligence from the Financial Times Ltd (www.fdimarkets.com)

Enter Sovereign Wealth Funds

Keeping their Impact in Proper Perspective

• In the late 2000s, SWFs came into the spotlight, but their impact on investment flows was overblown

• Growth in importance since the crisis, as government investment promotion agencies court them. By April 2009, SWFs had $3-5 bn of assets under management, mostly in high quality bonds

• Equity investments a much smaller part of portfolio until late 90s; but have since accelerated with about 700 documented equity investments June 2005-March 2009

• But SWF investment still less significant in the global investment arena than media attention suggests: By way of comparison, pension funds, mutual funds and insurance funds each have approximately $20-23 trillion of assets

• Meanwhile, annual FDI flows in the past 10 years ranged between $600bn to $2tn in 2007. FDI from SWFs was only $10bn in 2007: 0.2% of their total assets, and 0.6% of the FDI flows (Unctad)

Source: fDi Intelligence from the Financial Times Ltd (www.fdimarkets.com)

Contact

For more information please feel free to contact me:

Courtney FingarEditor, fDi MagazinefDi IntelligenceThe Financial Times Ltd

Tel: (+44)(0)20 7775 6365

Email: Courtney.Fingar@FT.com

Web:www.fdimagazine.comwww.fdiintelligence.comwww.fdimarkets.com