Investment flows into emerging markets, a category which includes South Africa, will drop significantly this year, following a fall last year (2008). This is the forecast from the Institute of International Finance (IIF), which is the global association of major banks.

Total foreign direct investment (FDI) flows into all emerging markets amounted to a record $304-billion in 2007, declining to $263-billion last year, and likely to be only $197-billion this year. FDI is investment in hard assets - factories, mines, and so on - and not in stocks and shares.

The IIF last week became the first major international institution to forecast a world-wide economic contraction this year, predicting the global economy would decline by 1,1%.

Developed economies would contract by 2,1%, the worst performance since the 1930s. It will be the first global recession since 1945, although not all countries will actually have recessions - some emerging markets will continue to show growth, although it will be at a much reduced rate.

The IIF expects Algeria, Egypt, Morocco, South Africa, and Tunisia - a group of countries it groups under the classification of "Africa/Middle East," - to have an average growth rate of 3,7% this year, which is a noticeable decline from their (IIF estimated) growth of 4,8% last year and 5,3% in 2007.

On the other hand, it is significantly better than the Latin American growth rate of 0,5% for this year (with Brazil forecast to grow by 0,8% and Mexico to shrink by 0,5%). It is inferior to "Emerging Asia" which should see 5,4% growth this year (down from 7,0% in 2008 and 9,4% in 2007), with China having 6,5% growth and India, 5,0%.

But these, of course, are poor figures for them - China had 9,0% growth last year and 11,9% in 2007, while the respective figures for India were 6,2% and 9,0%. "Emerging Europe" - Bulgaria, Czech Republic, Hungary, Poland, Rumania, Russia, Turkey, and Ukraine - will shrink 1,1% this year, with Russia contracting by 1,5%, and the Ukraine seeing a 12,0% decline. Among the developed economies, the US economy will contract 2,1%, the Eurozone will shrink by the same amount, and Japan will fall by 2.3%.

The IIF report states that the "economic outlook could turn somewhat positive in the second half of the year, and this would help stabilise a number of difficult emerging market situations.

Moreover, years of steady policy reform and institutional strengthening in many key emerging economies have left them in much better shape to handle the current global economic downturn, severe as it is. Most have some - albeit limited - latitude to run counter-cyclical fiscal and, especially, monetary policies in the months ahead."