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They won't like it but the capital market is working efficiently, more or less. In what was another year of sluggish economic recovery (or continuing despond for the wealthy world), money poured into poor countries. Statistics from the United Nations Conference on Trade and Development (UNCTAD), a UN agency that mainly complains about how the poor get left out, show that for the first time ever, developing countries are taking more of the global investment pie.
Big money is heading to the poorest places, says the UNCTAD report which reports that inflows of capital into the Least Developed Countries rose by a fifth. Major beneficiaries were Cambodia, the Democratic Republic of Congo, Mozambique, Mauritania and Uganda where investment almost doubled.
Meanwhile, the wealthy nations suffered a decline of almost one third in foreign direct investment (FDI). Europe suffered the worst drop, with the inflow almost halving. Britain escaped that trend, with investment rising by a fifth – perhaps a consequence of its detached status in relation to the euro zone. Canada was also up with resource investment but the U.S. suffered a sharp decline.
These numbers can be misleading, not least when the British Virgin Islands appears as fifth in the FDI league table with an inflow of $65-billion (U.S.). The BVI is not an investment destination but a holding zone for money in transit, used by multinationals, sometimes to avoid tax or simply as a safer location for a dollar deposit than the banks of the ultimate investment country.
Overall, global foreign investment was down in 2012 by 18 per cent, but the developing world secured $703-bilion compared to the $561-billion invested in the richest 38 nations. Interestingly, the poorer nations are investing in each other, with developing Asia becoming the biggest source of FDI in developing countries, while Indian companies accounted for a fifth of investment in the least developed nations.
It is clear that capital is baldly chasing opportunity, ignoring the stagnating and less productive nations of the euro zone and seeking out the best returns. It's no surprise that Myanmar has emerged as one of the top five recipients of FDI among the poorest nations. Remove the obstacles and like a river, the money will flow.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights .
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