Global FDI Flow Dips 2%

The United Nations Conference on Trade and Development released a report on foreign direct investment around the world.

According to the report, FDI flows to developing countries fell by 14% to $646 billion.

However, this sharp decline has not overshadowed the interest of Asian investors in these countries, which account for half of the top 10 destinations in 2016. In the whole of Central Africa, for example, there is a 15% drop in FDI to $5.1 billion, news outlets reported.

The global FDI flow declined by 2% to $1.75 trillion due to weak economic growth and significant policy risk as perceived by multinational enterprises.

The report, titled “World Investment Report 2017: Investment and the Digital Economy,” shows that the global FDI flow declined by 2% to $1.75 trillion. The reasons behind the fall are weak economic growth and significant policy risk as perceived by the multinational enterprises.

The report also says China, for the first time, was the world’s second-largest investor, as FDI outflows surged by 44% to $183 billion in 2016, which is a new high.

According to the UNCTAD report, FDI inflows in South Asia increased by 6% to $54 billion in 2016, while flows to India were stagnant at $44 billion and Pakistan’s inflows increased by 56% due to significant investment in infrastructure from China in support of the "One Belt One Road" initiative.

Despite stagnant FDI inflow, India will most likely remain most favored destination due to its attractiveness among multinational companies for cross-border mergers and acquisitions, the UNCTAD report was cited by PTI.

"The favorite FDI destinations remain the US, China and India," UNCTAD said. "Although new liberalization efforts continue to improve the investment climate in India, tax-related concerns remain a deterrent for some foreign investors."

In major recipients such as China, India and Indonesia, renewed policy efforts to attract FDI could contribute to an increase of inflows in this year, it said.

FDI inflows to Bangladesh rose by 4.38% to $2.33 billion in 2016 from $2.2 billion in 2015.

Outflows Hit

The foreign outflows from South Asia declined by 29% to only $6 billion in 2016, as India's outward FDI dropped by about one-third, it added.

On cross border mergers, the report cited $13 billion acquisition of India's Essar Oil by Rosneft (Russian Federation) as one of the significant deals during the year.

FDI flows to the five BRICS countries (Brazil, Russia, India, China and South Africa) last year rose by 7% to $277 billion. The increase in inflows to Russia, India and South Africa more than compensated the decline of FDI to Brazil and China.

Due to the falling prices of mining products in the world market, the Democratic Republic of Congo was hit hard with a 28% collapse of FDI flows. Investors injected only $1.2 billion into the country. The report also indicated that mineral-rich Congo is recovering with an increase of 8% to $2 billion, due to the offensive of Chinese enterprises in various economic fields.

In Sub-Saharan Africa in general, the decline in commodity prices is the reason for the caution observed by large groups in this destination, the report said. Only $59.4 billion were invested in the region throughout the year, a decrease of 3.5% from the fiscal 2015.

“The Philippines—the third-largest recipient in the subregion—increased by more than 60% to a new high of $8 billion in 2016,” the report read.

In contrast, Singapore’s FDI inflows declined by 13% to $62 billion and Malaysia by 11% to $10 billion, due to economic uncertainties.

Despite predicting a recovery in global FDI this year with flows expected to reach almost $1.8 trillion, UNCTAD said they would remain well below their 2007 peak. It cautioned that geopolitical risks, possible changes to cross-border taxes and policy uncertainty could hamper the recovery in FDI flows.

The report also described how digitization was a huge opportunity for poorer and middle-income countries, but often required considerable investments from abroad.

Global fragility, corruption and poor governance are some of the threats facing FDI flows to the African continent.