FDI Flows - Recent trends

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FDI flows record the value of cross-border transactions related to direct investments during a given period of time, usually a quarter or a year. In this section FDI flows are recorded annually from 1994-2013 and separately for year 1994-2013. The outward flows represent transactions that increase the investments that investors in the reporting economy have in enterprises in a foreign economy, such as through purchases of equity or reinvestment of earnings, less any transactions that decrease the

73 % 72 % 75 %

46 %

66 % 60 % 65 %

43 %

0 % 50 % 100 %

Norway Denmark Sweden United Kingdom

Figure 5.4: Share of FDI stocks from/to EU countries, 2013 (in % of total stocks, 100%)

Inward stock (EU) Outward stock (EU)

The figure shows that Norway’s share of inward FDI from EU countries is very high, with about the same level as Sweden and Denmark’s intra inward FDI. Norway’s portion of outward FDI to EU-countries is greater than all these EU-members’ portion of outward FDI to EU-countries.

investment that investors in the reporting economy have in enterprises in a foreign economy, such as sales of equity or borrowing by the resident investor from the foreign enterprise. Inward flows represent transactions that increase the investment that foreign investors have in enterprises resident in the reporting economy less transactions that decrease the investment of foreign investors in resident enterprises (OECD, 2015).

5.5.1 FDI inflows (% of GDP)

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The annual FDI inflows (% of GDP) from 1994-2013 are illustrated in figure 5.5A below. Norway’s inflows have been quite stable in comparison to the EU-countries annual inflows, which have been more volatile. However, Norway’s total inflows have been quite low in the past compared to these countries’

inflows. Since 2009 however, FDI inflows to Norway have been higher than all of these EU states inflows in percentage of the countries’ GDP. Clearly the financial crises have had large consequences for the inward FDI to these EU countries.

Figure 5.5A: FDI inflows from 1994-2013 (% of GDP)

(Source: numbers from UNCTAD, 2015f)

The financial and economic turmoil have had an overall large impact on the EU FDI flows. The EU’s inward FDI flows declined substantially from 45% in 2001 to 23% in 2010, with the worst decline in the global recession of 2008/2009 (European Commission, 2012). But the EU’s FDI flows are slowly recovering. In 2013, EU-28 inward flows were 12 % above EU-27 flows in 2012 (Eurostat, 2015e).

Until recently, one of the features of EU inward FDI was that intra-EU flows were much larger than -10

-5 0 5 10 15 20 25

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% of GDP

Figure 5.5A: Inflows of FDI from 1994-2013 (% of GDP)

Sweden Denmark United Kingdom

Norway

The figure shows that Norway’s inflows of FDI have been quite low in the past in comparison to these EU-countries inflows, but also more stable. It also shows that since 2009, Norway’s inflows have been higher than the others inflows.

flows from non-EU countries, which means that EU countries invested more in other EU countries than non-EU countries did. There was a FDI boom in the years of 2005-2007 for most of the EU countries (lasted until 2008 for the UK), but a massive downturn in FDI after this period. This downturn affected both extra-EU and intra-EU inflows, but the contraction was stronger in the intra-EU inflows. As a consequence, the share of extra-EU FDI in total EU inward flows (which until 2006 was less than a third) continued to increase after 2008. In 2010 the share of FDI inflows stemming from non-EU investors stood at 40%. This is clearly linked to the depth of the recession in the EU and the relatively good performance of most emerging economies (European Commission, 2012). Moreover, the severe drop in intra-EU FDI flows seems to be linked to a reduced capability of European firms to invest abroad. Indeed, FDI from outside the EU is not that affected by the contraction, such as Norway’s FDI.

Furthermore, the declining share of intra-EU FDI may also reflect the natural adjustment towards long-run conditions after the exceptional increase in intra EU-FDI flows caused by EU enlargement in 2004 and 2007 and strong economic growth during that period (European Commission, 2012).

5.5.2 FDI outflows (% of GDP)

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FDI outflows from 1994-2013 shows a similar pattern as the inflows, namely that Norway’s FDI outflows (% of GDP) have been quite low in comparison to these EU-Member States in the past, in particularly from 1997-2002. Only in years 2005 and 2010 Norway’s outward FDI flows (% of GDP) were above all of these EU-members’ outflows in percentage of the countries’ GDP. But, when these EU-members’ FDI outflows dropped significantly in 2008, Norway’s outflow increased, and for the past two years, Norway’s outflow (in % of GDP) has been higher than Denmark and the UK’s outflows.

Figure 5.5B: FDI outflows from 1994-2013 (% of GDP)

(Source: numbers from UNCTAD) -10

-5 0 5 10 15 20

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% of GDP

Figure 5.5B: Outflows of FDI 1994-2013 (% of GDP)

Sweden Denmark United Kingdom Norway

The figure shows that Norway’s outflow of FDI have been quite low in the past, but when the EU-countries outflow decreased in 2008, Norway’s outflow increased, and for the two past years Norway’s outflow has been higher than Denmark and the UK’s outflow.

As seen from figure 5.5B above, the United Kingdom’s outflows fell significantly during the euro crises, and their FDI outflow today is very low compared to earlier years. In light of the financial and economic turmoil, the overall EU outward investment flows dropped significantly and have been accompanied by a shift of FDI outflows to non-EU emerging markets, less affected by the European crisis (European Commission, 2012). But the FDI outflows, as the inflows, are slowly recovering in the EU. In 2013, EU outward flows were 34 % higher than EU flows in the previous year (Eurostat, 2015e).

These figures of FDI flows show that Norway’s economy was clearly not as badly hit by the global financial crisis, at least compared to the EU-Member States. This shows a clear benefit of not being a EU-member in terms of the euro-crisis. Even though Sweden, Denmark and the United Kingdom are not a part of the euro-area, the crisis still affected their economy and investment flows significantly compared to Norway’s economy and investment flows. From the period 1994-2012, the average growth rate of inward FDI to Norway has been higher than both Denmark and the United Kingdom’s average growth rates, but lower than Sweden’s. In regards to the outward FDI average growth rate for the same period, Norway and Denmark have had similar averages but Norway’s average growth rate has been slightly stronger, whereas Sweden and the UK’s averages are lower. Appendix 18 illustrates the countries FDI stocks from the period from 1994-2012.

If considering the FDI flows in 2013 exclusively (table 5.5 below), Norway had a higher FDI inflow than both Sweden and Denmark in absolute values, and a higher inward flow than all of these EU-states in percentage of the countries’ GDP. Norway’s FDI outflow was also higher than Denmark’s, but lower than Sweden and the United Kingdom’s outward flows in absolute values, but higher than all of these countries with the exception of Sweden in percentage of the countries’ GDP.

Table 5.5 Foreign Direct Investment Flows, 2013

(Source: numbers from UNCTAD)