ISLAMABAD: While global direct investment fell by 16 per cent in 2017, Foreign Direct Investment (FDI) to developing economies remained stable, according to the ‘Investment Trends Monitor’ released by the United Nations Conference on Trade and Development (UNCTAD).
However, based on macroeconomic fundamentals, including the accelerating growth of the world economy, global FDI flows are expected to bounce back in 2018, to almost $1.8 trillion. A synchronised upturn of economic growth in major economies, the gradual recovery in commodity prices, and improved profit prospects in various sectors could boost business confidence, and thus multinational enterprises’ appetite to invest. In 2018, global gross domestic product (GDP) growth is projected to edge up to 3.1pc after a much stronger than expected 2017.
Global FDI in 2017 estimated at $1.52tn, from a revised $1.81tn in 2016 – a stark contrast to other macroeconomic variables, such as GDP and trade growth which saw substantial improvements in 2017, UNCTAD says. Equity investments at the global level fell by almost 40pc mainly due to a 23pc decrease in the value of cross-border mergers and acquisitions (M&As). The value of announced greenfield investment projects reached an estimated $571 billion, a 32pc decrease from the previous year.
A slump in FDI flows to developed countries was the principal factor behind the global decline. A strong decrease in flows was reported in Europe as well as North America, mainly due to a return to prior levels of inflows in the United Kingdom and the United States after spikes in 2016. This decline was tempered by an 11pc growth in flows to other developed economics, principally Australia.
As a result of regional differences, the share of developed economies in world FDI flows as a whole decreased to an estimated 53pc of the world total. US remained the largest recipient of FDI, attracting an estimated $311bn in inflows, followed by China with record inflows of $144bn, despite an apparent slowdown in the first half of 2017.
Despite improving economic growth and rising commodity prices, FDI flows to developing economies barely budged in 2017. Inflows rose by 2pc to an estimated $653bn due to modest increases in developing Asia, Latin America and the Caribbean.
There was a 44pc increase in cross-border M&A value across developing sub-regions during the year, from $69bn to $100bn. In contrast, the value of announced greenfield projects fell 49pc to reach $261bn, with the majority of countries recording sharp declines.
Estimated FDI to developing Asia amounted to $459bn in 2017, about 2pc up from 2016. The region regained its position as the largest FDI recipient region in the world. Against the backdrop of a decline in worldwide FDI, its share in global inflows rose from 25pc in 2016 to 30pc in 2017.
The three largest recipient Asian economies were China, Hong Kong and Singapore. Developing Asia’s higher FDIs were mainly the result of a sharp increase in the value of cross-border merger and acquisition sales, from $42bn in 2016 to $73bn in 2017, largely attributing to cross-border M&A activities of foreign companies in Hong Kong, India and Singapore.
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