FDI inflows fell by 16% globally to $1230bn in 2014, hit by a combination of a fragile global economy, policy uncertainty and heightened political risk, according to a report by the UN Conference on Trade and Development (Unctad).
Despite the headline decline, Unctad's annual 'world investment report' noted that some large divestments masked a rise in new investments. Greenfield investment saw a small decrease – as also reported by fDi Intelligence in The fDi Report 2015 – but the mergers and acquisition0 (M&A) market was more buoyant. In 2014, crossborder M&A rebounded strongly to $399bn, boosted by the availability of cheap debt and large corporate cash reserves. The number of deals with values larger than $1bn increased to 223 – the highest number since 2008 – from 168 in 2013. At the same time, multinational enterprises (MNEs) made divestments equivalent to half of the value of acquisitions.
The shift towards services FDI experienced over the past 10 years has continued, the Unctad data suggests: services account for 63% of global FDI stock, more than twice the share of manufacturing, at 26%.
And despite the decline in FDI inflows, international production by MNEs’ foreign affiliates is expanding, the report said. International production rose in 2014, generating value added of approximately $7900bn. The sales and assets of MNEs’ foreign affiliates grew faster than those of their domestic counterparts. At the end of 2014, some 5000 MNEs had an estimated $4400bn in cash holdings, 40% more than during the 2008 to 2009 crises. However, MNEs in some industries, such as oil and gas, and utilities used cash holdings for more capital expenditures and acquisitions in that year.
Prospects for global FDI inflows for next year are brighter, with Unctad projecting growth of 11% to $1370bn in 2015, to $1500bn in 2016 and to $1700bn in 2017. Both Unctad's FDI forecast model and its business survey of large multinational enterprises signal a rise of FDI flows in the coming years. The share of MNEs intending to increase FDI expenditures over the next three years rose from 24% to 32%. Trends in crossborder M&A also point to a return to growth in 2015. However, the report cautions that ongoing uncertainties in the eurozone, potential spillovers from geopolitical tensions and persistent vulnerabilities in emerging economies, among other factors, could disrupt the projected recovery.
The full report can be downloaded at www.unctad.org/wir