World Economy

UNCTAD: Global FDI Slipped in 2017

Inflows to North America fell by one third  to an estimated $330 billion. Inflows to North America fell by one third  to an estimated $330 billion.

Global flows of foreign direct investment fell by 16% in 2017 to an estimated $1.52 trillion, down from a revised $1.81 trillion in 2016, according to the latest UNCTAD Global Investment Trends Monitor.

"FDI recovery (from the 2008 financial crisis) continues to be on a bumpy road," UNCTAD Secretary-General Mukhisa Kituyi said. "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," reported.

A slump in FDI flows to developed countries (-27%) was the principal factor behind the global decline. 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 2016.

This decline was tempered by an 11% growth in flows to other developed economies, principally Australia. FDI to developing economies remained stable, at an estimated $653 billion, 2% more than the previous year.

India was at the tenth spot among the top host economies for FDI inflows in 2017 with $45 billion overseas investment coming into the country. The value of cross border deals in India grew sharply from $8 billion to $22 billion in the last one year driven by a number of large deals.

Even amid the global slump, developing Asia however became the largest FDI destination with a 2% increase to $459 billion.

The share of developing Asia in global inflows rose from 25% in 2016 to 30% in 2017. The rise has been the result of a sharp increase in the value of cross border M&A sales which grew from $42 billion in 2016 to $73 billion in 2017.

Asia on Top

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.

Inflows to North America fell by one third to an estimated $330 billion, partly due to falling cross-border M&As in both Canada and the United States. Inflows in 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 $60 billion; flows to Japan and New Zealand lost ground in 2017.

In economies transitioning from a planned to a market economy, FDI declined by 17% to an estimated $55 billion, mainly due to a drop in the Russian Federation and lackluster inflows across most of the rest of the Commonwealth of Independent States.

Abundant Risks

"The decline of global FDI flows is in stark contrast to other macroeconomic variables, such as GDP and trade growth, which saw substantial improvement in 2017," James Zhan, director of UNCTAD's Investment Division said. "Upward synchronization of the trends in 2018 is probable, but risks are abundant."

The UNCTAD Global Investment Trends Monitor also showed that, after three years of growth, cross-border mergers and acquisitions declined in 2017.

M&A growth had already slowed in 2016, and went on to contract by 23% in 2017, to $666 billion. However, this still represented the third-highest level since 2007.

Preliminary data on the value of announced greenfield FDI projects show a decline of 32% to $571 billion, or 17% in number of projects, their lowest level since 2003. If confirmed, the drop in greenfield project announcements would be a negative indicator for the longer term.

Of particular concern is the near halving of the value of project announcements in developing economies, although the fall in project numbers was limited to 23%. Higher economic growth projections, trade volumes and commodity prices would normally point to a potential increase in global FDI in 2018.

However, elevated geopolitical risks and policy uncertainty could have an impact on the scale and contours of any FDI recovery in 2018.

In addition, tax reforms in the United States are likely to significantly affect investment decisions by US multinationals, with consequences for global investment patterns.

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