Info Service on Finance and Development (Oct18/03)
23 October 2018
Third World Network
Global FDI flows fell sharply in first half of this year
Published in SUNS #8777 dated 19 October 2018
Geneva, 18 Oct (Kanaga Raja) - Global foreign direct investment (FDI)
flows fell by 41%, from US$794 billion in the first half of 2017 to
an estimated US$470 billion in the first half of 2018, the UN Conference
on Trade and Development (UNCTAD) has said.
In its latest Investment Trends Monitor (No.30), UNCTAD said the decline
was mainly due to large repatriations by parent companies in the United
States of accumulated foreign earnings from their affiliates abroad
following US tax reforms.
The decline was largely concentrated in developed countries where
FDI inflows fell sharply, by 69% to an estimated US$135 billion.
This was significantly affected by negative inflows in Ireland (-US$81
bill ion) and Switzerland (-US$77 billion).
At a media briefing, James Zhan, Director of the UNCTAD Division on
Investment and Enterprise, said that the 41% decline in FDI in the
first half of this year is the lowest level of global FDI flows over
the past 10 years at least.
He said that according to UNCTAD's statistics, the last lowest level
was recorded in 2005.
According to UNCTAD, the sharp decline in global FDI flows is in contrast
with the trends of cross-border mergers and acquisitions (M&As)
(-1%) and announced greenfield investments (+42%).
The decline in FDI flows to Europe was significantly affected by the
repatriation of retained earnings by United States multinational enterprises
(MNEs) following the corporate income tax reforms introduced at the
end of 2017.
In the first half of 2017, United States outward FDI was US$149 billion,
while reinvested earnings accounted for US$147 billion.
However, in the first half of 2018, reinvested earnings fell to a
net divestment of -US$217 billion.
According to UNCTAD, such large negative outflows inevitably translate
into a fall in global inflows, although the effect is not linear.
It is dampened because a significant part of repatriations occurred
in offshore financial centres and through special purpose entities
(SPEs), excluded from UNCTAD's FDI data.
The effect is also asymmetrically spread, with the most significant
repatriations reported from Caribbean and SPE countries, while the
largest falls in inflows were reported in Switzerland and Ireland,
showing the important role of indirect (conduit) investment flows.
Compared to the first half of 2017, United States FDI outflows to
Europe fell by US$136 billion to a net divestment of -US$49 billion
in the same period in 2018.
Much of the decline was accounted for by outflows to the Netherlands
(down US$63 billion), Ireland (down US$33 billion) and Switzerland
(down US$31 billion).
Outside Europe, said UNCTAD, United States FDI flows to the "Other
Western Hemisphere" region including offshore financial centres
in the Caribbean fell by US$163 billion. In Asia, United States FDI
to Singapore fell by US$34 billion.
Repatriations of accumulated foreign earnings were not the only explanation
for the drop in global investment flows, it added.
Inflows to the United States also fell sharply, despite the potential
stimulus effect that the tax reforms are expected to have on investments
there by foreign MNEs.
"Uncertainty about the implementation details of the reforms,
combined with uncertainty about trade relations and about more stringent
investment screening procedures could all be contributing factors."
UNCTAD also said that uncertainty caused by tensions in global trade
relations may also have affected other regions that show negative
growth in FDI.
However, the stable value of global cross-border M&As and the
significant increase in greenfield project announcements suggest that
the drop in global FDI flows is mostly due to financial considerations
(intra-firm financial flows.)
As a result of the diverging regional FDI trends, the share of developing
economies in global FDI flows increased by a record 66%.
UNCTAD said half of the top 10 host economies continue to be developing
economies, with China becoming the largest recipient of FDI, attracting
an estimated US$70 billion in inflows in the first half of the year.
This was followed by the United Kingdom - where FDI recovered from
the low levels in 2017, lifting inflows to US$66 billion with a surge
in intra-firm loans - and the United States (US$46 billion).
FDI flows into developing Asia declined by 4% to US$220 billion in
the first half of 2018, compared with the same period in 2017.
According to UNCTAD, this was driven mostly by a 16% decline in flows
to East Asia.
China, with an increase of 6%, emerged as the largest global FDI recipient
(US$70 billion), while flows to Hong Kong-China contracted to US$34
Flows to South-East Asia and South Asia rose by 18% to US$73 billion
and 13 % to US$25 billion, respectively.
The rise in FDI in South-East Asia was driven by Singapore (US$35
billion), Indonesia (US$9 billion) and Thailand (US$7 billion).
In South Asia, India attracted US$22 billion in FDI flows, contributing
to the sub-region's 13% rise in FDI in the first half of the year.
FDI flows to West Asia fell by 21% to US$5.1 billion, on account of
a 5% fall in Turkey and divestments from Qatar totalling over US$1
UNCTAD also reported that net cross-border M&As targeting developing
Asia i n the first half of 2018 were at about the same level as in
the first half of 2017 (US$41 billion), supported by 12 mega-deals
exceeding US$1 billion.
The value of greenfield FDI projects announced in the first half of
2018 in Asia was at an all-time high, due to a surge in greenfield
project announcements in South-East Asia, propelled by rising investment
activity in Indonesia (US$2 8 billion), Viet Nam (US$18 billion) and
the Philippines (US$12 billion).
Despite trade tensions, China attracted the highest value of announced
greenfield projects (US$41 billion) in the first half of 2018.
Meanwhile, in Latin America and the Caribbean, FDI flows decreased
by 6% in the first half of 2018 compared to the same period in 2017.
"Uncertainties associated with election years in the major economies
of the region were partly offset by higher commodities prices,"
In South America, the biggest drop of inflows was in Brazil (-22%),
while in spite of currency turbulence, flows to Argentina appeared
This was buoyed by a single big deal in the media industry where Telecom
Argentina (ultimately owned by US-based Fintech Advisory Inc) bought
Cablevision SA for almost US$6 billion.
FDI to Chile, Peru and Colombia all increased significantly (up 158%,
43% a nd 15% respectively), spurred by high copper and oil prices.
Flows to Central America contracted by 6%. FDI flows to Mexico declined
by 6% while they fell by 13% in Panama and stagnated in Costa Rica.
In Mexico, the first half of the year was marked by elections and
by trade negotiations with the United States and Canada in a revised
North American Free Trade Agreement.
"The impact on investment of the new agreement (USMCA), which
erodes some of Mexico's competitive advantages, in particular in the
car industry, will be felt more in the second half of 2018 and in
the coming years," said UNCTAD.
In the Caribbean, excluding financial centres, flows declined by 20%,
hit b y reduced investment flows via the PetroCaribe oil scheme -
a preferential oil initiative - as a consequence of Venezuela's economic
In Africa, the slowdown in FDI continued from 2017 into the first
half of 2 018 (3% reduction, remaining close to an estimated US$18
billion total for the region).
Among sub-regions, only Southern Africa saw a significant increase
in FDI ( up 40%). The substantial increase was driven to a large extent
by South Africa (US$3.4 billion in the first half of 2018 compared
to US$1.1 billion in the first half of 2017), which is seeing a return
to earlier levels of investment after a steep slowdown in the preceding
According to UNCTAD, the volatile global economic environment and
mixed commodity price trends are important factors behind weakened
FDI to Africa.
Also, the expected growth in FDI inflows to Africa due to advances
in regional integration has yet to materialise.
The African Continental Free Trade Agreement, once in operation, may
trigger new investor interest in the continent, it said.
In the transition economies of South-East Europe, the Commonwealth
of Independent States and Georgia, FDI inflows in the first half of
2018 declined by 18%, to US$25 billion, compared with the same period
of the previous year.
Flows to the Russian Federation declined by 19%, to US$15 billion.
On the other hand, the value of announced greenfield investment in
the region doubled, from US$12 billion in the first half of 2017 to
US$24 billion in the first half of 2018, with US$4.5 billion in South-East
Europe and US$10 billion in the Russian Federation, said UNCTAD.