Most people are well aware that the BRIC (Brazil, Russia, India, China) countries are big recipients of foreign direct investment (FDI). But they are also big sources of FDI.

In 2009, for the first time, emerging market outbound mergers and acquisitions (M&A) flows outpaced inbound M&A flows, reaching US$131.8bn, according to Dealogic. Most of these flows were BRIC-related.

Therefore, now is a good time to look at the prospects for BRIC outward foreign direct investment (OFDI) and outward M&A (the link between the two is that all BRIC countries have shown a preference for M&A versus greenfield investment as a mode of OFDI).

At present, BRICs account for 5% of global OFDI flows, implying significant growth potential over the coming decades.

A measure of this potential is OFDI stock as a percentage of GDP. In developed countries, this measure is at 33%; in Russia at 20%, Brazil at 10%, China at 3%, and India at 2.6%. This implies that China and India show the greatest catch-up potential.

All BRIC OFDI is not the product of BRIC multinationals. State-owned enterprises (SOEs) and sovereign wealth funds (SWFs) are major players in BRIC OFDI. In Russia, SOEs account for 26% of total foreign assets, while in China they account for 75% of outbound M&A.

What does 2010 hold? The 2010 outlook for BRIC OFDI is a function of economic growth in important host countries and the ability of BRIC outbound investors to finance their own expansion. The former is a country-specific matter of debate. As for the latter, given that my colleagues and I expect a strong rebound in BRIC growth, mainly due to China and India, I would expect a resumption of the financing capacity which is essential to M&A activity.

Beyond 2010, the BRICs’ ability to reach their catch-up potential will depend on:

1) A supportive domestic policy framework to encourage OFDI. Here, Brazil and Russia in particular have to play policy catch-up to China and India.

2) The ability of BRIC-based investors to manage the obstacles raised by the escalating protectionism of developed country targets, especially against the SOE and SWF players in OFDI. The United Nations Conference on Trade and Development (UNCTAD) has noted a proliferation of US-style approval bodies for BRIC M&A across the world. It also notes that the share of world FDI flows affected by countries making at least one unfavourable regulatory change in 2007 was 40%.