The United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2015 has revealed that global foreign direct investment (FDI) inflows fell by 16 per cent to $1.23 trillion in 2014.
The drop was attributed mainly to the fragility of the global economy, policy uncertainty for investors and elevated geopolitical risks.
According to the new report, which was released today, the new investments were also offset by some large divestments. Inward FDI flows to developing economies reached their highest level at $681 billion with a 2 per cent rise.
Developing economies thus extended their lead in global inflows. China became the world’s largest recipient of FDI. Among the top 10 FDI recipients in the world, five are developing economies.
The report stated: “Despite a revival in cross-border mergers and acquisitions (M&As), overall FDI flows to this group of economies declined by 28 per cent to $499 billion. They were significantly affected by a single large-scale divestment from the United States”.
The World Investment Report 2015 (WIR15) which was prepared by a team led by James X. Zhan added that investments by developing-country multinational enterprises (MNEs) also reached a record level: developing Asia now invests abroad more than any other region.
“Nine of the 20 largest investor countries were from developing or transition economies. These MNEs continued to acquire developed-country foreign affiliates in the developing world”.
The groups of countries negotiating the Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) saw their combined share of global FDI inflows decline. ASEAN (up 5 per cent to $133 billion) and the Regional Comprehensive Economic Partnership (RCEP) (up 4 per cent to $363 billion) bucked the trend.
By sector, the shift towards services FDI has continued over the past 10 years in response to increasing liberalization in the sector, the increasing tradability of services and the growth of global value chains in which services play an important role.
In 2012, services accounted for 63 per cent of global FDI stock, more than twice the share of manufacturing. The primary sector represented less than 10 per cent of the total. Cross-border M&As in 2014 rebounded strongly to $399 billion.
The number of MNE deals with values larger than $1 billion increased to 223 – the highest number since 2008 – from 168 in 2013. At the same time, MNEs made divestments equivalent to half of the value of acquisitions.
Developing countries continued to attract two thirds of announced greenfield investment. Greenfield investment by both developed- and developing country MNEs remained unchanged.
The significance of private equity funds in the global M&A market, with $200 billion
in acquisitions in 2014, was reflected mainly in transactions involving large companies.
Sovereign wealth funds, which invested $16 billion in FDI in 2014, are increasingly targeting infrastructure internationally.
State-owned MNEs’ international expansion has decelerated; in particular, their cross-border M&As declined by 39 per cent to $69 billion.
International production rose in 2014, generating value added of approximately $7.9 trillion. The sales and assets of MNEs’ foreign affiliates grew faster than their domestic counterparts. Foreign affiliates of MNEs employed about 75 million people.
Global FDI inflows are projected to grow by 11 per cent to $1.4 trillion in 2015. Expectations
are for further rises to $1.5 trillion in 2016 and to $1.7 trillion in 2017. Both UNCTAD’s FDI forecast model and its business survey of large MNEs signal a rise of FDI flows in the coming years.
The share of MNEs intending to increase FDI expenditures over the next three years (2015–2017) rose from 24 to 32 per cent. Trends in cross-border M&As also point to a return to growth in 2015.
However, a number of economic and political risks, including ongoing uncertainties in the Eurozone potential spillovers from conflicts and persistent vulnerabilities in emerging economies, may disrupt the projected recovery.
Touching on regional investment trends, the report noted that although the services share in Africa FDI is still lower than the global and the developing-country averages, in 2012, services accounted for 48 per cent of the total FDI stock in the region, more than twice the share of manufacturing (21 per cent). FDI stock in the primary sector was 31 per cent of the total.
Developing Asia (up 9 per cent) saw FDI inflows grow to historically high levels. They reached nearly half a trillion dollars in 2014, further consolidating the region’s position as the largest recipient in the world. FDI inflows to East and South-East Asia increased by 10 per cent to $381 billion. In recent years, MNEs have become a major force in enhancing regional connectivity in the sub-region, through cross-border investment in infrastructure.
African Eye News.com
