Global FDI falls 16% in 2017; flows into developing Asia stable — UNCTAD

FOREIGN DIRECT investment (FDI) fell 16% worldwide to $1.52 trillion in 2017, led by a 27% decline in cross-border flows to developed countries after the normalization of investment to the UK and the US, which were coming off a high base in 2016, the United Nations Conference on Trade and Development (UNCTAD) said.

FDI to developing economies was flat, rising 2% to $653 billion, UNCTAD said in a report dated Jan. 22, driven partly by a 23% contraction in global mergers and acquisitions (M&A) activity to $666 billion after three years of expansion.

It said “greenfield” FDI projects — those representing projects being build from scratch — declined 32% to $ 571 billion based on preliminary data, which would be the lowest level since 2003.

UNCTAD said strong economic growth and rising trade and strong commodity prices projected for 2018 usually correlate to strong FDI activity, though political uncertainty and elevated geopolitical risk could end up dampening investment activity.

Flows to North America fell 33%, while those to Europe declined 27%. Investment flows to “transition economies” — those that are in the process of becoming market economies, led by many former Soviet States — fell 17%. Meanwhile, flows to Australia recovered in 2017, helping FDI for other developed economies rise 11%.

The United States was the top recipient of FDI at $311 billion, followed by China at $144 billion and Hong Kong at $85 billion. Singapore was the top recipient in Southeast Asia, placing eighth in the world at $58 billion. Among other Asian economies, India took in $45 billion, good for 10th place globally.

It said developing Asia took in $459 billion, up 2%, making it the largest regional recipient of FDI. The rise was propelled by sharp growth in cross-border M&A activity to $73 billion from $42 billion a year earlier, running contrary to the overall global trend. Top economies for cross-border M&A were Hong Kong, India and Singapore.

FDI into ASEAN rose about a third to $130 billion, with flows into Indonesia rising nearly sixfold to $22 billion, UNCTAD said.

It said the outlook for foreign investment will be influenced by protectionist sentiment, trade disputes, and uncertainty over the impact of a revamped tax system in the United States.

The Philippines took in over $2 billion in FDI in October, the highest total since $2.44 billion in April 2016. On a year-to-date basis, FDI at the end of October was $7.86 billion, closing in on the central bank’s 2017 target of $8 billion.