US, Britain lead surprise drop in FDI

GENEVA: Global foreign direct investment (FDI) fell by 16% in 2017 to an estimated $1.52 trillion, a surprise downturn led by steep reversals in Britain and the United States, United Nations data showed on Monday.

FDI, which largely comprises crossborder mergers and acquisitions and investment in start-up projects abroad, is a bellwether of globalisation and a potential sign of growth of corporate supply chains and future trade ties.

But it can also go into reverse as companies pull investments out of foreign projects or repatriate earnings.

“We had called a modest recovery in 2017, but it was not the case. It declined by 16%, a big decline,” James Zhan, investment chief at Unctad, the UN’s trade and development agency told a news conference.

“This is in striking contrast with the other macroeconomic variables such as global GDP and trade growth, which saw substantial improvements in 2017.”

FDI going into the United States fell by a third to $310 billion.

Flows into Britain, where there is business uncertainty about the future because of its decision to quit the European Union, shrank by 90% to $19.4 billion. This did come against unprecedented investment in 2016 led by some mega-deals, however.

Overall flows into China rose by 8% to reach a record $144 billion, although Zhan said multinational firms had also restructured and made significant divestments in China, which would have reduced the total stock of net FDI in China.

“The figures are preliminary but the overall trends are likely to be borne out in the final data,’’ he said.

The outlook for 2018 is cloudy. “Global FDI may recover to the 2016 level as the global economy grows, but there are geopolitical risks and uncertainty over policy, including the impact of US tax reforms,’’ Zhan said.

The net flow of FDI into the US would be cut by remittances, such as Apple Inc’s announcement that it would repatriate $38 billion, but it should also be boosted by investment attracted by tax cuts, he said.

The Unctad figures also showed announcements of new foreign-owned “greenfield” projects in developing countries appeared to have slumped in 2017, retreating from a bumper 2016.

Investors may have held back, anticipating a rise in US interest rates, and longerterm trends may be at work.

“The world economy is transforming into the digital era,” Zhan said. “Foreign investment becomes asset lighter, and in terms of numbers also smaller.”

“Manufacturing companies were also increasingly leasing their equipment rather than buying it, so it does not show up as FDI,’’ he said.