Info Service on Finance and Development (Feb18/01)
2 February 2018
Third World Network
United Nations: FDI flows fell by 16% last year, says UNCTAD
Published in SUNS #8608 dated 26 January 2018
25 Jan (Kanaga Raja) - Global foreign direct investment (FDI) fell
by 16% in 2017, to an estimated US$1.52 trillion, with the slump in
FDI flows to developed countries being the principal factor behind
this global decline, the UN Conference on Trade and Development (UNCTAD)
In its latest Global Investment Trends Monitor released this week,
UNCTAD said that the decline in FDI flows was in stark contrast to
other macroeconomic variables, such as GDP and trade growth, which
saw substantial improvements in 2017.
A strong decrease in flows was reported in Europe (-27%) as well as
in North America (-33%), mainly due to a return to prior levels of
inflows in the United Kingdom and the United States after spikes in
However, this decline was tempered by an 11% growth in flows to other
developed economies, principally Australia.
According to UNCTAD, FDI flows to developing economies remained stable,
at an estimated US$653 billion, 2% more than in the previous year.
Flows rose marginally in developing Asia and Latin America and the
Caribbean, and remained flat in Africa.
Developing Asia regained its position as the largest FDI recipient
region in the world, followed by the European Union and North America.
"FDI recovery continues to be on a bumpy road," said UNCTAD
Secretary-General Dr Mukhisa Kituyi.
"While FDI in developing countries remained at a level similar
to the previous year, more investment in sectors that can contribute
to the Sustainable Development Goals is still badly needed. Promoting
FDI for sustainable development remains a challenge," he added.
"The decline of global FDI flows is in stark contrast to other
macroeconomic variables, such as GDP and trade growth, which saw substantial
improvements in 2017," said James Zhan, Director of the UNCTAD
Division on Investment and Enterprise.
"Upward synchronisation of the trends in 2018 is probable, but
risks are abundant," he added.
According to UNCTAD, global FDI flows fell 16% in 2017, reaching an
estimated US$1.52 trillion, down from a revised US$1.81 trillion in
2016, with the decline mainly concentrated in developed economies.
Equity investments at the global level fell by almost 40% mainly due
to a 23% decrease in the value of cross-border mergers & acquisitions
The value of announced greenfield investment projects reached an estimated
US$571 billion, a decrease of 32% from the previous year.
At the regional level, said UNCTAD, falling flows to North America
(-33%), Europe (-27%) and the transition economies (-17%) contributed
to the global decline in FDI.
In contrast, FDI flows increased in other developed economies (11%)
due to a strong recovery of investment in Australia.
FDI flows remained stable across developing regions.
As a result of these regional differences, the share of developed
economies in world FDI flows as a whole decreased to an estimated
53% of the world total.
Half of the top 10 host economies continue to be developing economies.
The United States remained the largest recipient of FDI, attracting
an estimated US$311 billion in inflows, followed by China with record
inflows of US$144 billion, despite an apparent slowdown in the first
half of 2017.
According to UNCTAD, FDI flows to developed economies fell by 27%
to an estimated US$810 billion.
It said that the significant drops in FDI flows to the United Kingdom
and the United States - the major factors behind the overall decline
- can largely be explained.
In the United Kingdom, this was due to the absence of a few large
mega-deals that caused an anomalous peak in 2016. In the United States,
this was due to sharply reduced inflows from a number of offshore
Cross-border M&As in developed countries registered a 30% decrease
(to US$553 billion) in 2017, with fewer of the major transactions
that shaped global investment patterns in 2015 and 2016.
In contrast, the value of announced greenfield projects was up 11%
to US$282 billion, which points to a potential rebound in capital
expenditures in productive assets, as macroeconomic conditions continue
to improve, said UNCTAD.
FDI flows to Europe declined from US$541 billion in 2016 to an estimated
US$397 billion, with much of the drop being explained by lower inflows
to the United Kingdom (-90%).
In 2016, inflows to the United Kingdom had amounted to US$196 billion,
boosted by three cross-border M&A mega-deals.
Despite the overall decline, a generally positive economic outlook
meant that FDI inflows grew in 19 of the 32 European economies, compared
with just 14 economies in 2016.
FDI inflows more than trebled in Germany (from US$10 billion to an
estimated US$35 billion), mostly due to intra-company loans.
FDI flows to France rose 77% (from US$28 billion to an estimated US$50
billion), mainly due to large M&A deals such as the acquisition
of the animal health business of Sanofi by Boehringer Ingelheim (Germany)
for US$12.6 billion.
In Switzerland, despite a few large acquisitions, such as that of
Syngenta by China National Chemical for US$41.8 billion, inflows saw
a decline (from a revised US$48 billion to an estimated US$28 billion).
According to UNCTAD, inflows to North America fell by one third to
an estimated US$330 billion, partly due to falling cross-border M&As
in both Canada and the United States.
Inflows to the United States from Bermuda, Ireland, Luxemburg and
Switzerland also fell sharply in 2017.
In Asia-Pacific, the upward trend in flows to Australia continued,
with FDI reaching an estimated US$60 billion, while flows to Japan
and New Zealand lost ground in 2017.
Despite improving economic growth and rising commodity prices, FDI
flows to developing economies barely budged in 2017, said UNCTAD.
Inflows rose by 2% (to an estimated US$653 billion), due to modest
increases in developing Asia and in Latin America and the Caribbean.
There was a 44% increase in cross-border M&A value across developing
sub-regions during the year (from US$69 billion to US$100 billion).
In contrast, said UNCTAD, the value of announced greenfield projects
fell 49% to reach US$261 billion, with the majority of countries recording
Estimated FDI flows to developing Asia amounted to US$459 billion
in 2017, about 2% up from 2016. The region regained its position as
the largest FDI recipient region in the world.
Against the backdrop of a decline in worldwide FDI, its share in global
inflows rose from 25% in 2016 to 30% in 2017.
The three largest recipient Asian economies were China, Hong Kong
(China) and Singapore, in that order. Their estimated FDI inflows
were US$144 billion, US$85 billion and US$58 billion, respectively.
With reported inflows (which do not reflect data on divestments) reaching
an all-time high, China continued to be the largest FDI recipient
among developing countries and the second largest in the world, behind
the United States.
FDI inflows to ASEAN rose by one third to US$130 billion, with Indonesia
accounting for a major part of this increase, as inflows to the country
grew nearly six-fold to US$22 billion.
According to UNCTAD, developing Asia's higher FDI inflows were mainly
the result of a sharp increase in the value of cross-border M&A
sales, from US$42 billion in 2016 to US$73 billion in 2017.
This mainly reflected the cross-border M&A activities of foreign
companies in Hong Kong (China), India and Singapore.
In particular, the value of cross-border M&A sales in India grew
sharply, increasing from US$8 billion to US$22 billion, driven by
a small number of large deals.
UNCTAD said that FDI flows to Latin America and the Caribbean were
3% higher than in 2016 (an estimated US$143 billion), the first rise
in five years, but still 25% below the level reached in 2012, at the
peak of the commodity boom.
Economic growth in the region resumed modestly in 2017 after two years
of contraction, and investors have started looking for opportunities
again, particularly in Brazil, it said.
Nine of the ten largest acquisitions by foreign companies in the region
were in Brazil, and seven involved a Chinese buyer. This pushed up
FDI flows to Brazil by 4%, from US$58 billion to an estimated US$60
Flows to Central America and the Caribbean (excluding offshore financial
centres) were also stable, with notable growth in Costa Rica (15%).
According to UNCTAD, FDI flows to Africa registered a marginal decline
(-1% to an estimated US$49 billion).
"Harmful macroeconomic effects of the commodity bust were still
being felt in some countries, although commodity prices have started
to rise again," it said.
South Africa had a notable recovery in FDI (43% to an estimated US$3.2
billion), although flows still remained low by historical standards.
Ethiopia saw record FDI inflows (up 14% to an estimated US$3.7 billion),
with increasing investments in the agricultural, manufacturing and
After a vigorous recovery in 2016, FDI flows to transition economies
declined by 17% in 2017, to an estimated US$55 billion, their lowest
level since 2005.
FDI declined in major recipient countries in the region: by 17% to
US$31 billion in the Russian Federation; by 29% to US$6 billion in
Kazakhstan; by 29% to US$3 billion in Azerbaijan; and by 25% to US$2.5
billion in Ukraine.
In contrast, the expansion of FDI was widespread in South-East Europe,
including in the largest recipient country of the sub-region, Serbia,
where the rate of growth was 24%, to an estimated US$2.9 billion.
UNCTAD also reported that overall, cross-border M&A value contracted
by 23% in 2017, reaching US$666 billion.
The decline was driven by a slump of 30% (to US$553 billion) in developed
countries, while the value of cross-border M&As in developing
economies increased by 44%, to reach US$100 billion, in 2017 after
a sharp fall in 2016.
The number of mega-deals exceeding US$3 billion declined from 76 in
2015 to 70 in 2016 and 63 in 2017.
PROSPECTS FOR FDI IN 2018
UNCTAD said that based on macroeconomic fundamentals, including the
accelerating growth of the world economy, global FDI flows are expected
to bounce back in 2018, to almost US$1.8 trillion.
"A synchronised upturn of economic growth in major economies,
the gradual recovery in commodity prices, and improved profit prospects
in various sectors could boost business confidence, and thus MNEs'
(multinational enterprises) appetite to invest."
In 2018, global GDP growth is projected to edge up to 3.1%, it said,
adding that GDP growth is expected in all developed economies, including
the United States and the European Union.
Some emerging economies will also perform well, with India taking
the lead among emerging economies.
World trade is also projected to expand at a faster rate, above 3%,
although uncertainties still exist.
Nevertheless, said UNCTAD, elevated geopolitical risks and policy
uncertainty could have an impact on the scale and contours of the
FDI recovery in 2018.
"The possibility that protectionist rhetoric translates into
trade restrictive actions, a worrying rise in global geopolitical
tensions, and a rising economic toll from natural disasters may have
an impact on FDI flows," it said.
In addition, tax reforms in the United States are likely to significantly
affect investment decisions by United States MNEs, with consequences
for global investment patterns, UNCTAD added.