Global FDI Fell in 2017 – UNCTAD
Negative trend is sign of slowdown in international production and global value chains
Global foreign direct investment (FDI) flows fell by 23% in 2017, to $1.4 trillion from $1.9 trillion in 2016, according to UNCTAD’s World Investment Report 2018 that was released in June 2018. The decline contrasts with other macroeconomic variables, which saw substantial improvement in 2017.
The global fall was caused in part by a 22% decrease in the value of cross-border mergers and acquisitions (M&As). But even discounting the large one-off deals and corporate reconfigurations that inflated FDI in 2016, the 2017 decline remained significant. The value of announced greenfield investment – an indicator of future trends – also fell by 14%, to $720 billion.
Prospects for 2018 are therefore muted. Global flows are forecast to increase marginally but stay well below the average over the past 10 years. An escalation and broadening of trade tensions could negatively affect investment and tax reforms in the United States are likely to significantly affect global investment patterns.
The negative FDI trend is caused in large part by a decrease in rates of return. The global average return on foreign investment is now at 6.7%, down from 8.1% in 2012. Return on investment is in decline across all regions, with the sharpest drops in Africa and in Latin America and the Caribbean. The lower returns on foreign assets also affect longer-term FDI prospects.
International Production Still Expanding
As a result of the investment downturn, the rate of expansion of international production is slowing down. The modalities of international production and of cross-border exchanges of factors of production are shifting from tangible to intangible forms. Sales of foreign affiliates continue to grow (up 6 per cent in 2017) but productive assets and employees are increasing at a slower rate.
As an advanced indicator of cross-border or transnational economic activity, reduced FDI may point to lower growth in global employee benefits and in global mobility-related services, including but not limited to insurance.
Source: UNCTAD, World Investment Report 2018.