Program & Batch:

Term:
Course Name:
Name of the faculty:
Topic/ Title :
Original

PGDM 2014-2016
III
International trade & finance
Dr. Ratna Vadra
FDI in Emerging Markets
Original

or Revised Write-up:
Group Number:
02
Contact No. and email of Group 9643587821
Coordinator:
ft14dharnachauhan@imt.ac.in
Group Members:
Sl. Roll No.
Name
1
140103059 Dharna Chauhan
2
140101068 Isha Dwivedi
3
140101094 Manoj Kumar
4
140102038 Bohra Arihanth Jain
5
140102137 Tuhin Anand
6
140103030 Apoorv Misra
7
140103127 Pratyush Banka

Contents:
Abstract

Page no

3
1 | Page

Acknowledgements

List of Abbreviations

List of Tables

List of Figures

1.

Introduction

2.

Emerging Markets

3.

Country Wise Analysis

14

4.

Major findings

29

5.

Recommendations

References

31

32

2 | Page

Abstract:

The report is on the FDI in emerging markets, the emerging markets play a very
crucial role in the global FDI with most of the Inflows going into the Emerging
markets. More than 55% of the $1.6 trillion FDI flows into the emerging markets
which constitute the 23 nations index as defined by the MSCI emerging markets
index. During the formulation of the report it was observed that the nations which
have better governance and have stable government attract more investments. In fact
the GDP to FDI ratio of the South American nations is way higher than the Asian
economies which constantly face political instability and civil insurgences.
The FDI inflows over the years has the trend of upward growth in the Emerging
Markets even when the global economy faces the business cycles of recession and
crisis that arise from time to time. During the Tech Bubble burst of the early 2000s
and the 2008 global recession did not affect the growth.
The major reasons why the FDI is mainly allocated to the Emerging Markets is
because they offer high growth and many markets have huge potential with
untapped markets.

3 | Page

Acknowledgement:
We are using this opportunity to express our gratitude to everyone who supported
us throughout the course of ITF. I am thankful for their aspiring guidance,
invaluably constructive criticism and friendly advice during the project work. We are
sincerely grateful to Dr. Ratna Vadra for sharing her truthful and illuminating views
on a number of issues related to the project.
We express our warm thanks to Dr. Ratna Vadra for your support and guidance
throughout the report on FDI in Emerging Markets.

Thank you

4 | Page

List of Abbreviations
FDI

Foreign Direct Investment

MSCI

Morgan Stanley Capital International

BRICS

Brazil, Russia, India, China, South Africa

CAD

Current account deficit

PPP

Purchasing Power parity

HDI

Human Development Index (2014)

UN

United Nations

BPO

Business Process Outsourcing

NAFTA

North American Free Trade Agreement

EU

European Union

ECB

European Central Bank

G20

international union of central banks & government

UNCTAD

UN Conference on Trade and Development

EME

Emerging Market economies

Per-capita income figures taken are on the basis of PPP and not the nominal
figures
The Public Debt figures for many nations is not available
Qatar has no system of displaying the records for GDP components so the
data regarding that is not available

5 | Page

List of Tables
1.
2.
3.
4.

List of constituents of MSCI emerging markets index

List of Nations which attract highest FDI inflows
List of Nations which attract highest FDI outflows
Composition of FDI inflows and outflows

6 | Page

List of Figures
1.
2.
3.
4.
5.

FDI inflows in 2013

FDI outflows in 2013
Percentage of FDI inflows
The effect of Political stability and absence of violence
Allocation of FDI among the Developed & Emerging Markets

7 | Page

FDI in Emerging Markets:

Introduction
Foreign Direct Investment is one of the indicators of the countrys growth potential
and the economic health of the country. This is no new phenomenon, its been there
for a long time. The early investments were during the early 19th century, large
industrial era organisations started looking for growth which was already saturated
in the local markets, so this is the time when they started looking into transnational
countries. The FDI in the crude form can be explained as a company looking for
investment opportunities in foreign countries, which is not their home market.
The growth story of china cannot find references in the mankind history, the worlds
second largest economy has grown in sub double digit growth rates for more than 2
decades, to sustain this kind of growth is unprecedented. This is the one of the major
reasons why the west started looking towards the east for better value for their
bucks. The reason that china dominated the emerging markets rooster is the size of
the population and under the leadership of the Chinese leader Deng Xiaoping the
nation welcomed the west to come invest with structural changes and crucial
reforms. Many South East Asian economies are today adapting those policies. Apart
from the Asian market countries from the Middle East like Qatar, UAE, and Turkey
are also on the rise, many African countries and the South American nation have
joined the wave.
According to the International Monetary Fund FDI refers to an investment made to
acquire lasting or long term interest in enterprises operating outside of the economy
of the investor.
According to World Bank, it is defined as net inflows of investment to acquire a
lasting management interest (10% of voting stock) in an enterprise in an economy
other than that of the investor.
Globally the FDI inflows to the countries is classified as the 3 types

Horizontal FDI
Platform FDI
Vertical FDI

Horizontal FDI: it is when the company replicates the similar operations and the
business model in the host nation
e.g.: Walmart, star bucks across the globe
8 | Page

Platform FDI: it is made in the host nation only to facilitate the export of goods to
third country
e.g.: Apple in Ireland, Google in Cayman Islands
Vertical FDI: when the company is making the investment in the host nation to move
upstream or downstream in different value chains.
e.g.: ONGC Videsh

Emerging Markets
It is very important to define the emerging markets before understanding the FDI
inflows into these markets, as for the report purposes Emerging Markets as defined
the MSCI emerging markets index which is widely followed across the industry is
been considered. The index has 23 member nations that are classified as emerging
markets, the 23rd nation Greece was removed in 2013 and Morocco was included in
the list. The nations are as follows.
Brazil
China
Czech Republic
Hungary
Indonesia
Mexico
Peru
Poland
Russia
South Korea
Thailand
UAE

Chile
Colombia
Egypt
India
Malaysia
Morocco
Philippines
Qatar
South Africa
Taiwan
Turkey
Source: MSCI.org

Before going into the details about every nation individually, the factors that affect
the Investments globally should be studied those include the economic policies of
major institutions and economic cycle the nations are in, the active participants in the
FDI inflows or outflows are China (inflows- $358 billion, outflows- $ 73 billion)
followed by USA (inflows- $235 billion, outflows- $360 billion) and the next by
Luxembourg (inflows- $30 billion, outflows- $37 billion) there are many countries on
the list for the outflows which are very small in terms of GDP like Luxembourg has
9 | Page

outflows of 448% of their GDP and Mauritius 660%. One important thing to notice is
that these nations are tax havens, so they act as a channel for routing the money to
various countries. These nations also have tax treaties with many other nations to
avoid double taxation like Mauritius has a tax treaty with India and this results in
Mauritius being the major contributor to the India FDI of $22 billion in FY14 with
36%, the factors are:
1. Economic cycles: This plays a crucial role in determining the global FDI flows,

because the business cycles results in the organisations having massive

surpluses and deficits.
2. Policy stance of large monetary institutions: The policy rates set by the major
financial institutions across the globe determine the flows like the Federal
reserve of USA is very important the period in which the rates were as low as
zero the FDI flows into the developing nations were skyrocketing.
3. Country risk: The country risk attached to any country is determined by many
factors and is calculated by the rating agencies, the three big rating agencies
determine the risk. The risk premium of any nation rises with the lower credit
rating for that nation.
4. Political risk: The political situation in any country determines the future of
any investment, so the political situation in the nation should be stable which
is not the case with many developing nations.
5. Infrastructure: The infrastructure that is present in the country determines the
efficiency with which the investment can be utilised because a nation with
good infra already in place facilitates the organisations to come set up shop
directly without having to start right from the basic infra like roads, power,
and water.
6. Ease of doing business: Every nation has different regulatory hurdles, the ease
of doing business is a ranking given by the World Bank which measures how
easy it is to come and start a business in any country across the world. It has
been historically seen that the developing nations and that too the BRICS
always have ranked lower on this scale as compared to the developed nations.
7. Growth: The countrys GDP growth is principal factor that determines how the
returns will be from the investment made in that country. That is the reason

10 | P a g e

the developing nations have seen larger chunk of FDI inflows coming their
way.
8. Tax: The tax policies in the host nation showcase the nations stance towards
the foreign players, the higher the taxes on the corporate profits simply shows
that the government is not pro-industries.
9. Market size: The potential market that the business can find when entering the
nation is very important because when the company is committing billions of
dollars then there should be a market large enough that it can cater to, the
market doesnt necessarily mean large population, and it means the target
market or the potential market. This is one of the many reasons why the
companies world over are changing their approach to India specially, which
has the huge demographic dividend with the westernization of the culture
and half the populations within the age group of 15-40 years of age.
10. Labour & productivity: Out of all the above mentioned factors this is the very
crucial and strategic factor this can be seen in the fact that the nation like
china which is predominantly labour driven and is widely believed to be most
efficient labour productivity across the globe. The labour that organisations
look when investing in a host nation should be costing less than the home
country like the services industry of India & China.

The following is the list of the nations that attract the highest FDI inflows globally
this includes all the nations including the developed ones

FDI inflows

Country

(Figures in $ billions in 2013)

1. China

347.25

2. USA

235.87

3. Brazil

80.52

4. Hong Kong SAR china

76.64

11 | P a g e

5. Russia

70.42

6. Canada

67.31

7. Singapore

63.5

8. Ireland

49.96

9. Australia

49.76

10. UK

48.31
Source: Worldbank.org

As we can see the above list has 5 emerging markets and 5 developed markets with
the majority of the share coming towards the emerging markets, out of the total of
$1.089 trillion almost 60% contribution is to the emerging markets and out of this
China alone including Hong Kong which is an integral part of it contributes more
than 66%.

Now we have look at the other side of the coin which is major contributors to the FDI
outflows, this list has majority of developed nations, this is because these are the
capital surplus nations with limited opportunities in the home country and are
looking for investment opportunities in the host nations.

FDI outflows

Country name

(Figures in $ billions in 2013)

1. USA

360.82

2. Japan

138.23

3. China

73.26

4. Russia

70.45

5. Switzerland

60.0
12 | P a g e

6. Germany

58.36

7. Canada

42.63

8. Netherlands

37.12

9. Sweden

33.3

10. Italy

31.06
Source: Worldbank.org

The above list it can be seen that only 2 countries out of the 10 are from the emerging
markets and that too China and Russia are the only ones the reason being they have
huge cash surpluses, China has immense forex reserves from the merchandise
exports and Russia with the export of natural resources.

FDI inflows
400
347.25
350
300
235.87
250
200
150
80.52 76.64 70.42 67.31 63.5
100
49.96 49.76 48.31
50
0

5 Emerging
economies
5 Developed
economies

13 | P a g e

FDI outflows
8
Developed
economies
2
Emerging

400 360.82
350
300
250
200
150

138.23
73.26 70.45

100

60

50

58.36

42.63 37.12 33.3 31.06

Now every emerging nation can be looked into individually, the factors that will be
used while evaluating the nation are factors ranging from the GDP size, GDP
growth, Per-capita (PPP), Ease of doing business ranking, CAD, Public Debt.

Brazil: Inflows $80.26 billion

outflows -$2.5 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

: $2.2 trillion
: 2.49%
: $ 15,203
: 120
: - $ 54 billion, 2.45% of GDP
: NA
: 59.7%
:

The economy has seen substantial improvement in the standards of living and the
HDI of the country is 79 which is very good compared to others from the emerging
markets the FDI inflows into Brazil are at $80.26 billion which is only after China in
the emerging market front, this is because of the better infrastructure it offers.
A surge in the repayment of loans by Brazilian affiliates abroad to their parent
companies pushed intracompany loans has led to the unique negative outflows. This
14 | P a g e

has been the trend in the Caribbean nations in the recent years because of the
regions offshore financial centres
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

62.9

69

Agriculture

14.5

Industries

22.6

25
Source: ilo.org

This shows the economy is mostly based as a service driven economy both the factors
like the employment and GDP contribution are from service sector and thus the FDI
inflows are mostly been into service sector historically. The US contributes to the
Brazils mammoth FDI it contributes 81% of FDI flowing into Brazil which is more
than $65 billion.
Comparison of Brazil with India:
Brazil even after having huge CAD and without having growth rates that India has
maintained it attracts more investment than India because of the proximity of USA
and Brazil not just geographically but also politically. The policies and the
government of Brazil are more stable.

Chile: Inflows $20.26 billion

Outflows Negligible
GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$220 billion
4.07%
$ 21,911
41
- $9.4 billion, 4.2% of GDP

NA
59.5%

The South American nation has very positive factors except for the growth rate
which is although better than many nations during the post-recession era but given
the size of the GDP it can better the growth rate. The CAD is very high this might
hamper the future flows. The nation is considered to be very open to foreign
investment and the government has made FDI as part of their national development

15 | P a g e

plan and this resulted in the Q1 of FY14 see a staggering 82% growth in FDI inflows
yoy.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

66.3

61

Agriculture

9.8

Industries

23.9

35
Source: ilo.org

The biggest advantages for Chilean economy apart from the proximity to the worlds
largest economy is that the economy is very transparent and straight forward. The
FDI as a percentage to GDP is more than 10% which cannot be seen in any other
emerging economies and the nation scores high on the HDI at 42.
Comparison of Chile with India:
The striking difference in the two nations is that the Chilean economy gives equal
treatment to the foreign investments with the local investments in almost all fronts
and there are no cap on the investments which attracts a large chunk of the FDI
flowing from many developed nations and this year the country for the first ever
Chinese FDI flew into the economy the sector in line with the nations strength
services.

China: Inflows $347.85 billion

billion

Outflows $73.2

GDP
GDP growth
Per- capita
Ease of doing
Current account

:
:
:
:
:

$9.24 trillion
7.67%
$ 11,903
90
$193 billion, 2.08% of

GDP

Public Debt
: NA
Labour participation rate : 70.07%

The worlds powerhouse which manufactures varied range of products that every
man on the planet consumes at least once, there is no comparison to this with any
other emerging market or any developed economy. If we compare it even with the
16 | P a g e

developed nations there is no close competition to this mammoth Dragon in the East.
The nation has to attract the major portion of the FDI inflows which is the highest in
the world the next is USA which is only 2/3rd of it. In the recent report of the UN
China has thrashed USA as the worlds largest economy in PPP terms at $16.4
trillion.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

36.1

46

Agriculture

33.6

10

Industries

30.3

44
Source: ilo.org

There is no nation in the world which is so large and has almost equal contribution
to employment from all the 3 sectors, the industrial era nations on an average have
20% of their GDP coming from the Industries but China has 44% of the $9.2 trillion
which accounts to more than $4 trillion of goods manufactured in China. USA
contribution to China FDI inflow is $54.2 billion, which is 15%. The bilateral relations
between them is although only limited to trade & finance this could be an example to
other nations across the globe.
Comparison of Chile with India, it is not a fair comparison on any front except for
the growth rate which is the only front where India is close & of course the
population

Colombia: Inflows $16.7 billion

Outflows negligible

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$378 billion
4.25%
$ 12,370
34
-$12.2 billion, 3.22% GDP
$63 billion
64.9%

The South American nation has seen healthy growth rates in the recent years and the
ease of doing business rank is very healthy at 34 ahead of all the emerging markets
17 | P a g e

rooster. The high public debt is one of the concerns for the nation, the CAD on the
other end is on the higher side. USA works very closely with the nation not just on
the economic front but also on the political stability. The country was independent
from Spain in 1822 and one of the oldest democracies in Latin America.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

63.7

57

Agriculture

16.9

Industries

19.4

37
Source: ilo.org

Unlike many other emerging economies this Latin American nation has very less
contribution coming from the Agricultural sector this could be one of the reasons for
the high CAD, due to large food imports. Again due its presence in the South
American continent and early independence it has gained a lot and has seen good
flows and growth rates but the HDI standing is at 98 which is because of the regular
insurgencies from the local population, but the per-capita is healthy at $12k.

Comparison of Colombia with India:

The nations are quite contrast in almost every aspect the cultural differences are
pretty obvious but the way the employment comes it is from services & industries
unlike Indias agrarian economy. Colombia is rich with Oil reserves and is a net
exporter of the fossil fuel.

India: Inflows $28.5 billion

Outflows $1.8 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$1.87 trillion
5.01%
$ 5,140
142
-$92.2 billion, 4.9% GDP
$49 billion
52%

The nation which was once considered to be a sub-continent in itself, the seventh
largest nation in area and the second largest in population. It has the potential to do
18 | P a g e

a lot than what it is today but it faces many challenges in this venture, the country in
the past decade from the 2010 has seen growth rates of 7-8% which is only next to
China when comparing nations which are equal or above $2 trillion GDP sizes.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

28.7

57

Agriculture

49.7

18

Industries

21.5

25
Source: ilo.org

The nation has the potential to become the powerhouse of the 21st century with the
largest pool of young population moving into this century when many nations like
Japan & Australia are getting old, but at the same time it faces many structural
problems like the political instability, high dependence on agriculture making it an
Agrarian economy with the third largest economy in terms of PPP, and high CAD
which has hurt the currency in FY13 which depreciated by 30%.
Although the situation has changed drastically on the economic front and political
front in the last 7 months per se, with the mandate to the Modi government and in
control CAD of yearlong target at 1.9%, falling crude which is blessing in disguise for
the fiscal trouble for the newly formed government. Without these 5 year low crude
prices it would have been impossible to achieve the 4.1% fiscal deficit target. High
fiscal deficit effect the credit rating of the nation and India couldnt have afforded a
downgrade.

Indonesia: Inflows $18.44 billion

Outflows Negligible

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$868 billion
5.78%
$ 9,558
114
-$24.2 billion, 4.9% GDP
$28 billion
63.9%

19 | P a g e

The South East Asian nation which has huge population and is an Island nation but
has seen an unprecedented growth in the recent years, its pretty much on its way to
become a trillion dollar economy. Like many other emerging nations it is primarily a
service driven nation.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

44.7

40

Agriculture

34.7

14

Industries

20.6

46
Source: ilo.org

India is losing the BPO sector to Indonesia because of rising employee costs and this
is a gain to Indonesia which has comparatively lower labour costs.
The largest contributor to the FDI inflows is Japan which has replaced China with
Indonesia as the top priority FDI destination, with cheap and large labour
population many Japanese, Korean and American companies have lined up to invest
heavily in this nation in the coming years.
Comparison of Indonesia with India:
India attracts a large portion of FDI from Mauritius which is a tax haven but
Indonesia has renowned investors who have committed for more, but at the same
time the nation is enjoying the positive outlook from many nations on the FDI front
whereas India is considered to be a difficult place.

Malaysia: Inflows $11.58 billion

Outflows $6.2 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$312 billion
4.68%
$32,324
18
$18.6 billion, 5.7% GDP

$53 billion
65.4%

20 | P a g e

It is the size of Uttar Pradesh and has a population less than that of U.P & Rajasthan
combined at 280 million but attracts 4% of their GDP as FDI inflows and this is after
a significant correction in the recent years. This is the only emerging market which
has an outflow that is more than half of its inflows.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

59.4

50

Agriculture

12.7

Industries

27.9

41
Source: ilo.org

The major sources were Singapore, Mauritius, Cayman Islands again one important
observation is that all the major contributors are tax havens which again raises the
question on the authencity of those ventures. The investments have slowed
drastically in the last nine months.
Comparison of Malaysia with India:
Mauritius which is the largest contributors to both India & Malaysia is widely
considered to be a laundering destination for organisations who are trying to evade
taxes in the home country. Although the nation is no comparison to the size and
population but it has overtaken India in many fronts like the Current account
surplus which is a very rare thing that can be observed in emerging economies and
the ease of doing business standing is at 18 which explains the large inflows into the
nation.

Mexico: Inflows $35 billion

Outflows $10 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$1.26 trillion
1.1%
$16,463
53
-$22.6 billion, 1.8% GDP
NA
59.1%

21 | P a g e

5 of the 23 nations on the list are from the South American continent which has
many added advantages like the proximity with the worlds most powerful country
and early independence from the colonization which has hindered the growth in the
Asian economies widely.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

62.0

62

Agriculture

13.7

Industries

23.8

35
Source: ilo.org

Pre-recession era Mexico was growing at healthy rates of 5-6% and has slowed down
in the last 2 years from 5.6% in 2011 to 1.1% in 2013. But the country has the biggest
advantage of being the USAs neighbour and it shares a 2000 mile boundary, this not
facilitates the cross- border trade which was $550 billion with Mexico being its
second largest export market and the USA is the largest export market for Mexico
more than 80% of exports from Mexico are channelled into the USA and the rest to
Canada again the part of economic conclave NAFTA.
Comparison of Mexico with India:
The differences are very clear the nation is more matured market in terms of ease of
doing business which is 142 for India and 53 for Mexico and almost $17.1 billion of
FDI flowing into Mexico is from USA which again India has in form of Mauritius.
Thats the reason the flows for both the countries is very close and the on the
outflows front Mexico is ahead in 2013 but the reason being Indian investments has
slowed down during the year which was at $12.1 billion in 2011.

Peru: Inflows $10.2 billion

Outflows Negligible
GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$202 billion
5.82%
$11,175
35
-$6.7 billion, 3.3% GDP
$19 billion
73.2%

22 | P a g e

The employment population ratio for the nation is at 70.03% which signifies that
most of the population is young and of working age now. The nation again has
healthy inflows at 5% of the GDP and it has been able to sustain the growth rates at a
time when its neighbouring Latin American nations have seen decreasing growth
rates.

Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

57.4

56

Agriculture

24.6

Industries

18.0

37
Source: ilo.org

Philippines: Inflows $3.15 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$272 billion
7.18%
$6,532
95
$7.1 billion, 2.6% GDP
$51 billion
63.9%

This is clear contrast between the two nations in the different parts of the globe one
which is very close to developed economies and has been independent for almost
200 years now and on the other side the rising Asian economy which has seen
independence from the colonization only 50 years ago. The American counterpart
has better business environment which is friendly for the foreign organisations and
at the same time has small population and has better HDI ranking at 52 when
compared to the 117 for the Asian.
This is again one important reason why the Latin American nations are worst hit
post-recession era and not the Asian economies as much, that the over dependence
of these economies on the developed world has repercussions that are inevitable and

23 | P a g e

even in the case of Peru it can be seen whose growth for 2014 is recorded at 1.3% and
6.75% for the Asian counterpart.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

53.4

57

Agriculture

31.0

12

Industries

15.6

31
Source: ilo.org

Poland: Inflows -$6.2 billion

Outflows -$4.9 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$517 billion
1.57%
$23,274
32
-$18.2 billion, 3.5% GDP
NA
55.9%

This is another classic example of how over the course of the history the
geographical location of the nation and the trade blocks it is part of determine the
nations economic cycles in the short run. There are very few countries that are part
of EU that are underdeveloped or developing and Poland is one among them.
The FDI inflows and outflows have been dredging due to the slowdown that the EU
is facing since the 2008 recession there is no sign of relief for the smaller nations
because the ECB has turned down the possibility of stimulus packages similar to the
QE to stimulate growth.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

57.4

65

Agriculture

12.0

4
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Industries

30.6

32
Source: ilo.org

The country has no reason to be facing these consequences because it has good
business environment and has controllable CAD but only the fear of EU further
sliding into recession has led to this kind of money going out of the economy. But the
year 2014 has brought luck to Poland from the dragon, that is China which has
invested for the first time and the rising trade with the Middle East is helping it
revive the economy.

Qatar: Inflows -$0.84 billion

Outflows $8.20 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$202 billion
5.57%
$131,735
50
$61 billion, 30% GDP

NA
87.2%
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The oil rich Middle East nations are completely different in every way from the rest
of the world maybe it be the extreme Islamic culture and the widespread deserts and
the sheiks are all but for these countries. The growth rates are wholly fuelled by the
increase in the oil production and has nothing to do with any other sector
contributing towards it, oil production contributes to 55% of the GDP.
The other factors like the per-capita and HDI are all high because there are few
residents and majority of the expatriates in the country who are not included in the
calculation of the per-capita income. It has been seen that the inflows into these
nations have been dud, but at the same time they are always high on the outflows
front, with investments across the globe.
Figures in % as on 2013

Sector

Employment contribution

Services

46.8

Agriculture

1.4

Industries

51.6
Source: ilo.org

Comparison of Qatar with India:

There are hardly any factors that these two nations are on the same front, Qatar is oil
rich nation and whereas even after having fair amount of oil reserves in India, due to
the unprecedented demand for the fossil fuel country has always been starving for
oil and major portion of the oil has been sourced from the Middle East. With an
annual import bill of $110 billion in 2013.

Russia: Inflows $ 70.65 billion

Outflows $54.5 billion

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$2.09 trillion
1.31 %
$24,120
62
$71 billion, 3.39% GDP

$9.4 billion
64.8%

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The once super power USSR has now the legacy left in ruins of Russia the cold
nation during the cold war era in the late 1980s was on the track to become a
superpower threatening the dominance of USA but all that is past. But recently when
the Crimea annexation was written in the history books, Russia is that angry child
who is acting rebel against the western world.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

65.3

60

Agriculture

7.0

Industries

27.7

36
Source: ilo.org

The recent call by the G20 nations to impose sanctions against Russia to stop it from
further destabilising the eastern Ukraine has led the country into turmoil but this
was not sufficient to stop the Putin on fire, but now that the Oil prices have crashed
and the sub 60s is bad news for the Russian Budget which needs the price to be at
$120 per barrel for breakeven. The economy is now experiencing negative growth in
the 9 months of FY14.
Comparison of Russia with India :
The Russian Indian connection is nothing new, right from strategic defence deals to
many financial aid during the crisis of the 1990s. Russia has a Communist
government and has a lot of land in fact the largest country on the planet but it is not
widely habitable across the region. But India is the worlds largest democracy with a
large land that has ideal climate for inhabitants. The recent INS Vikramaditya in the
Indian navys fleet is again from Russia with love, this has made India joining the
elite club of Nuclear Submarines in its fleet.

South Africa: Inflows $8.2 billion

billion

Outflows $5.2

GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$350 billion
1.39 %
$12,503
43
-$20 billion, 5.7% GDP
NA
55.8%
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The African nation which is part of the BRICS the growth story of the developing
world, the economy has been facing the consequences of having large CAD which is
highest among the BRICS, India had it at 4.9% but has managed to lower it in 2014
but it is not the case with South Africa even in 2014 it is as high as 3.6%.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

71.3

70

Agriculture

5.1

Industries

23.6

28
Source: ilo.org

Among the BRICS, South Africa has the highest contribution to its employment from
services which is again dependent on the developed world and this is quite evident
in the slower growth as compare to early years.
China has been strategically investing in South Africa over the years and it is largest
contributor to the inflows into the country. It is to be noted that none of the BRICS
contribute to even more than 1% of FDI inflows into India.
Comparison of South Africa with India:
India and South Africa are similar in many aspects maybe it the late reforms that
were kicked in these economies when the rest of the world is on the fast track,
massive population of both the country are in poverty and there are chronic
infrastructure problems like water, sanitation, power, roads in both the nations

South Korea: Inflows $12.22 billion

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GDP
GDP growth
Per- capita
Ease of doing
Current account
Public Debt
Labour participation rate
Emerging market rank

:
:
:
:
:
:
:
:

$1.35 trillion
2.97 %
$33,139
5
$43 billion, 3.19% GDP

NA
61.5%

The nation which is the half the size of the vibrant Gujarat and is situated on the
borders of the North Korea which is ruled by modern day Hitler, Kim Yun Gong.
There is enormous potential in the way this nation has been growing in the last
decade, the growth houses are mainly the South Korean Chaebol, and these are
business conglomerates which owns multiple businesses.
Figures in % as on 2013

Sector

Employment contribution

GDP contribution

Services

69.5

59

Agriculture

6.1

Industries

24.4

39
Source: ilo.org

The renowned Chaebol from South Korea which dominate their own space globally
are Samsung, LG and Hyundai, these companies are classic examples of covering the
upstream and downstream of the value chain in the true form like for example
Hyundai, is known by the world as car manufacturer has Hyundai oil bank,
Hyundai Steel, Hyundai motor parts, Hyundai Motors.
Comparison of South Korea with India:
Unlike the problems that India face in terms poor infrastructure resulting in
Unemployment & poverty. South Korea is well placed and ranks 15th on HDI this is
better than France ranking of 17th. It is also not well placed in the geographical
politics the trade between the neighbouring Japan and North Korea is negligible, this
is a result of political tensions that are prevailing in that region.

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Major Findings
On an average during the 2006-2012 period the inflows to the developing world have
grown by more than 60% on the other hand the share of the developed world have
come down by 47% which is facing the decline. The UNCTAD global investment
report of 2013 featured top 5 investment safe havens which is led by USA and then
four emerging markets China, India, Indonesia, Brazil. This shows that the relevance
of these economies cannot be ignored by investors.

Source: Euromonitor International from UNCTAD

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Political Stability and Absence of Violence 2013 Index and Ease of Doing Business
2013 rankings show a direct correlation in the emerging market economies.

Source: Euromonitor International from UNCTAD

The slowdown in the global flows hasnt affected the emerging markets very much
this can be seen in the graph below that explains how these economies have been the
sweet spot for the global investors even in the case of falling FDI flows

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Recommendations:
The emerging markets led by the mighty China have entered into the 21 st century
that is said to be the century for the developing nations to lead the global economy.
The many hurdles that these economies face are political instability, economic
reforms in some nations like India, South Africa should be on the fast track so that
the momentum can be maintained.
The MSCI emerging markets are very crucial to the global FDI flows as well and
structurally they are always on the receiving end and the developed world on the
other. The total inflows in the 23 nations is $695 billion which is 43% of the global
FDI flows which stands at $1.6 trillion for 2013, but it is also to be noted that 22% is
China alone and 31% contribution is by the top three nations China, Brazil and
Russia. In the coming there is lot of opportunities for investment avenues from
countries like India, South Africa, and Indonesia which have a lot of natural
resources and huge unemployed population, the advantage these nations have is
large areas of habitable land.

Markets
Emerging
markets
Developed
markets
Rest of the world
Global

Inflows

% of total

Outflows

% of total

695

43

295

19

525

33

850

53

380

24

455

28

1600

100

1600

100

Figures in USD billion

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References:
1. http://www.ilo.org/ilostat/faces/home/statisticaldata/ContryProfileId?
_afrLoop=410524902517503#%40%3F_afrLoop
%3D410524902517503%26_adf.ctrl-state%3Dbhx4daw08_4
2. http://data.worldbank.org/indicator/NV.IND.TOTL.ZS
3. http://www.portal.euromonitor.com/portal
4. http://data.worldbank.org/indicator/NV.SRV.TETC.ZS
5. http://en.wikipedia.org/wiki/Chaebol
6. http://hdr.undp.org/en/content/table-1-human-development-index-and-itscomponents
7. http://www.state.gov/r/pa/ei/bgn/2898.htm

All the data recorded is till 2013 and the source for the GDP, growth rate, per-capita
etc. have been
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

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