China, HK Overtake US as Global FDI Shrinks
Global foreign direct investment (FDI) inflows in 2014 slid by 8 percent to an estimated $1.26 trillion dollars, said the United Nations Conference on Trade and Development (UNCTAD) in its latest report on Thursday.
Factors behind the decline included the fragility of the global economy, policy uncertainty, and geopolitical risks, according to the latest edition of the UN organization’s regular report Global Investment Trends Monitor.
With its 2014 FDI inflows estimated at $128 billion – some 3 percent up from the previous year – Chinese mainland overtook the United States to become the largest FDI recipient, UNCTAD’s James Zhan told a press conference.
Zhan explained to Xinhua that it was mainly due to a growth of inflows in the service sector, and as well as a drop in investment flows to the United States, which fell to third place in 2014, behind China and Hong Kong, followed by Singapore fourth and Brazil fifth.
Its foreign investment fell by 63% last year, compared to 2013.
In Developed Economies
The UNCTAD report showed that FDI flows to developed economies as a whole dropped by 14 percent in 2014 to an estimated $511 billion, with FDI inflows to the United States falling to an estimated $86 billion, while those to the European Union rose by 13 percent to an estimated $267 billion.
Developing economies saw a brighter outcome in terms of capital inflows last year, reaching a record high of over $700 billion which accounted for 56 percent of global FDI flows, the report noted, adding that the expansion was mainly driven by developing Asian markets, the world’s largest FDI recipient region.
By contrast, transition economies experienced a decline of 51 percent in their FDI inflows, reaching an estimated $45 billion as a result of regional conflicts and sanctions imposed on Russia.
FDI flows to Russia were estimated to have fallen by 70 percent to an estimated $19 billion due to the country’s negative growth prospects and the withheld equity investments from major oil and gas companies based in developed economies, said the report.
It also noted that as for Ukraine, which was bogged down by ongoing violence, FDI inflows to that country turned negative to $-0.2 billion.
Moreover, cross-border mergers and acquisitions rebounded strongly in 2014, reaching their highest level since 2011 with an increase of 19 percent to $384 billion. Strong performances were seen in finance, pharmaceutical, metal, and communications and media industries, said the report.
Bumpy Road Ahead
As for the outlook of a solid FDI rise for the year ahead, UNCTAD saw the road still bumpy and uncertain.
UNCTAD warned that a sluggish global economy, coupled with growth tempered by hesitant consumer demand, volatility in currency markets, and geopolitical instability hindered the investment pace.
From a regional perspective, the UN organization pointed out that the increasing divergence in economic growth between the United States, the eurozone and Japan would lead to different patterns of FDI, while in developing and transition economies, some emerging markets and regional conflicts were likely to affect investment negatively.
In spite of those risks, the report also shed light on the positive factors, saying that transnational corporations were expected to gradually increase strategic investments and to deploy part of their record level cash holdings.
India FDI Up
UNCTAD also revealed that India’s FDI for the year 2014 rose by around 26 percent to an estimated $35 billion.
The report stated that India has seen its maximum growth in the services sector, including waste management and information and communication.
The highest FDI inflow India witnessed was for the year 2008, which saw investor infuse a reported $47 billion.
Developing Asia experienced among the sharpest rise in flows, with the value of FDI jumping 15% from 2013 to $492 billion. According to UNCTAD the flow to Asia was patchy, though. East, Southeast and South Asia experienced “rapid increases” in FDI inflows, while West Asia saw investment flows decline.