Global flows of FDI fell by 23% in 2017. Crossborder investment in developed and transition economies dropped sharply, while growth was near zero in developing economies, according to Unctad's World Investment Report 2018.
Unctad’s report concludes that FDI flows to developed economies dropped by 37% to $712bn in 2017. Growth in FDI between 2015 and 2016, during which time annual inflows to developed economies exceeded $1000bn, ended abruptly in 2017. There was a significant decrease in FDI flows to the UK, following an unusually high value of M&As in 2016, and also a decrease in flows to the US, where authorities clamped down on tax inversions, a major factor behind the decline.
Unctad director of the division on investment and enterprise James Zhan said that the steeper decline in 2017 was largely caused by a revision of 2016 data, when more funds flowed into US assets than previously thought. That year marked the end of a wave of ‘tax inversion’ deals, whereby a US firm was acquired by a small foreign business and adopted its domicile to get a lower tax rate.
The overall fall in FDI flows is corroborated by The fDi Report 2018 which revealed that, in 2017, greenfield capital investment decreased by 15.2% to $662.6bn, while the number of FDI projects declined by 1.1% to 13,200.
Unctad’s report also highlights that FDI inflows held steady in developed economies in the Asia-Pacific region, in contrast to the global trend. FDI to Africa fell by 21%. FDI to transitioning economies in eastern Europe declined by 27%, while flows to Latin America and the Caribbean grew for the first time in six years in 2017, at a modest 8%. Inflows to France and Germany bounced back in 2017, but overall flows to European countries declined due to a normalisation of FDI to the UK.
In North America, inflows fell due to diminishing intra-company loans and divestments. Outflows from North America rose by 18%. When the prospect of tax reform became more certain towards the end of 2017, US multinational enterprises postponed the repatriation of overseas earnings, adding to reinvestment. In the Asia-Pacific region, outflows from Japan continued to expand, to $160bn.
FDI to developed economies is expected to increase moderately in 2018.
“With only a very modest [overall] recovery predicted for 2018, this negative trend is a long-term concern for policymakers worldwide, especially for developing countries, where international investment is indispensable for sustainable industrial development. This troubling global investment picture underscores the importance of a conducive global investment environment, characterised by open, transparent and non-discriminatory investment policies”, said António Guterres, secretary-general of the UN.