World Investment Report 2017: Global FDI Sees A Modest Recovery

UNCTAD Report infograph 3 UNCTAD Report infograph 2 Accra, June 8, 2017//-The latest World Investment Report 2017 released by the United Nations Conference on Trade and Development (UNCTAD) has revealed that  global investment is seeing a modest recovery, with projections for 2017 cautiously optimistic.

According to the report, global flows are forecast to increase to almost $1.8 trillion in 2017, continuing to $1.85 trillion in 2018 – still below the 2007 peak.

This is influenced by higher economic growth expectations across major regions, a resumption of growth in trade and a recovery in corporate profits could support a small increase in foreign direct investment (FDI).

“FDI prospects are moderately positive in most regions, except Latin America and the Caribbean. Developing economies as a group are expected to gain about 10 per cent. This includes a sizeable increase in developing Asia, where an improved outlook in major economies is likely to boost investor confidence”, the report released on Wednesday said.

Additionally, FDI to Africa is also expected to increase, with a modest projected rise in oil prices and advances in regional integration. In contrast, prospects for FDI in Latin America and the Caribbean are muted, with an uncertain macroeconomic and policy outlook.

Flows to transition economies are likely to recover further after their economies bottomed out in 2016. Flows to developed economies are expected to hold steady in 2017.

Investment trends

The report which is themed ‘The Digital Economy’ observed that after a strong rise in 2015, global FDI flows lost growth momentum in 2016, showing that the road to recovery remains bumpy.

FDI inflows decreased by 2 per cent to $1.75 trillion, amid weak economic growth and significant policy risks, as perceived by multinational enterprises (MNEs). Flows to developing economies were especially hard hit, with a decline of 14 per cent to $646 billion, it explained.

FDI remains the largest and most constant external source of finance for developing economies  – compared with portfolio investments, remittances and official development assistance.

But inflows in 2016 were down across all developing regions: • FDI flows to developing Asia contracted by 15 per cent to $443 billion in 2016. This first decline in five years was relatively widespread, with double-digit drops in most subregions except South Asia.

  • FDI flows to Africa continued to slide, reaching $59 billion, down 3 per cent from 2015, mostly reflecting low commodity prices.
  • The downward trend in FDI flows to Latin America and the Caribbean accelerated, with inflows falling 14 per cent to $142 billion, owing to continued economic recession, weak commodity prices and pressures on exports.
  • FDI in structurally weak and vulnerable economies remained fragile. Flows to the least developed countries fell by 13 per cent, to $38 billion.

Similarly, those to small island developing States declined by 6 per cent, to $3.5 billion. Landlocked developing countries saw stable FDI, at $24 billion. Flows to developed economies increased further, after significant growth in the previous year.

Inflows rose by 5 per cent to $1 trillion. A fall in FDI in Europe was more than compensated by modest growth in North America and a sizeable increase in other developed economies. Developed economies’ share in global FDI inflows grew to 59 per cent.

FDI flows to transition economies almost doubled, to $68 billion, following two years of steep decline – reflecting large privatization deals and increased investment in mining exploration activities.

Major economic groups, such as the G20 and Asia-Pacific Economic Cooperation (APEC), strongly influenced global FDI trends. Inflows to the G20 reached a record of more than $1 trillion for the first time. Intragroup FDI is a growing feature in some groups.

FDI outflows from developed countries remained weak. They declined by 11 per cent to $1 trillion, mainly owing to a slump in investments from European MNEs. Outflows from North America remained flat, but those from developed countries in Asia-Pacific reached their highest level since 2008.

The flow of outward investment from developing economies registered a 1 per cent decline to $383 billion, despite a surge of outflows from China, now the second largest investing country in the world. Slower growth in international production contributed to lacklustre global trade expansion, the report.

International production by foreign affiliates of MNEs is still expanding, but the rate has slowed in recent years. The average annual growth rates over the last five years of foreign affiliate sales (7.3 per cent), value added (4.9 per cent) and employment (4.9 per cent) were all lower than in the equivalent period before 2010 (at 9.7 per cent, 10.7 per cent and 7.6 per cent, respectively).

UNCTAD’s new database on State-owned MNEs shows their growing role in the global economy. About 1,500 State-owned MNEs (1.5 per cent of all MNEs) own more than 86,000 foreign affiliates, or close to 10 per cent of all foreign affiliates.

They announced greenfield investments accounting for 11 per cent of the global total in 2016, up from 8 per cent in 2010. Their headquarters are widely dispersed, with more than half in developing economies and almost a third in the European Union. China is the largest MNEs home economy.

However, the 2017 report warned: “Policy uncertainty and geopolitical risks could hamper the recovery, and tax policy changes could significantly affect cross-border investment”.

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