Excerpts and Observations from Global Investment Dries Up in 2012

September 2012 | Issue 17 /OECD Investment News

by Michael Gestrin

• Firms have been increasingly divesting themselves of international assets.
• Outward* IM&A (international mergers and acquisitions)** by European companies is projected to fall the most (-48%), followed by IM&A from Africa and the Middle East (-38%), and North America and Asia (both -26%). IM&A by Latin American companies is on track to increase by 130% on the back of big intra-regional deals in airlines, steel, telecommunications, and retail.
• The regions in which inward IM&A is projected to decline most sharply are Asia (-48%), North America (-39), and Europe (-29%). IM&A to Africa and the Middle East is expected to increase by 67%. The bulk of this international investment in this region has been directed at the energy and mining sectors.
• During the first collapse in international investment activity in 2008 the emerging economies showed resilience.
• IM&A by state-owned enterprises (SOEs) has increased significantly in recent years – for ex., 60% of Chinese international M&A is by SOEs.
• The steep declines in IM&A in 2012 primarily reflect considerable uncertainty in the global economy, including with respect to the Euro area crisis, slowing growth in China, and concerns that the United States is heading for a “fiscal cliff”*** (OECD’s interim economic outlook of 6 September 2012). Another concern relates to spreading protectionism towards trade and investment (latest WTO-OECD-UNCTAD reports on G20 trade and investment measures).

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*investment is based in a country other than that from which the capital originates;

**International merger and acquisition (IM&A) – legal transaction of either transferring all assets of one firm to another or joining together all the assets of two firms into a single new organization (Gertsen et al., 1998) when the transaction involves transferring assets across country borders. IM&As fall within the domain of foreign direct investment (FDI) theory (Hymer, 1960, 1976).

***refers to the simultaneous spending cuts and tax increases that are slated to take place at the end of 2012 in U.S. (being far too big for the current U.S. economy to handle at one time).