Widespread repatriations of accumulated earnings by US firms is starting to have an effect on global figures. Alex Irwin-Hunt reports.

Global FDI fell by 19% to an estimated $1200bn in 2018, from an estimated $1470bn in 2017 as US companies repatriated billions in earnings accumulated abroad following the 2017 Tax Cuts and Jobs act, reports the United Nations Conference on Trade and Development Investment Trends Monitor released on January 21.

This marks the third consecutive annual drop in FDI, bringing FDI back to the low point reached after the global financial crisis.

Developed countries faced the largest decline, as FDI inflows fell by 40% to an estimated $451bn, owing mainly to large repatriations of accumulated earnings by US multinational enterprises (MNEs), following President Donald Trump’s tax reform which came into force in January 2018.

In the first two quarters of 2018, reinvested earnings by US MNEs amounted to –$200bn, compared with $168bn in the same period in 2017, thus resulting in a year-on-year negative effect of $367bn.

Europe saw an unprecedented 73% decline of inflows to just $100bn – a low not seen since the 1990s – as well as the US which reported an 18% decrease to $226bn. Notable repatriations by US MNEs from European host countries were seen in Ireland and Switzerland, which registered negative inflows of -$121bn and -$141bn, respectively.

Comparatively, flows into developing countries sustained their climb, with an increase of 3% to $694bn, as the share of developing countries in global FDI reached 58%. In particular, developing Asia and Africa (although concentrated in a few countries) had impressive flows which increased by 5% and 6%, respectively.

One-third of global FDI was attributed to east and south-east Asia, making it the largest host region in 2018, accounting for almost all of the growth in FDI to developing economies.

On the other hand, aggregate FDI flows fell by 4% in Latin America and the Caribbean to an estimated $149bn, and FDI into transition economics declined by 8% to $44bn.

Cross-border merger and acquisitions rose by 19% to $822bn, highlighting the tax reform-driven nature of the downturn in FDI.

Looking ahead into 2019, a rebound is likely but the underlying trend remains delicate. On a more positive note, greenfield project announcements, oftern an indicator of future trends, increased by 29%, albeit from relatively low levels in 2017.

As repatriations abated in the third quarter of 2018, developed country inflows will return to more typical levels. However, recent downward revisions in growth forecasts, as well as policy factors, such as trade tensions and an uncertain global environment for investment, present increased risks.

This article is sourced from fDi Magazine
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