Global FDI dips due to HK divestment, Brexit — UN

GENEVA (Reuters) – Global direct foreign investment (FDI) dipped slightly around the world last year, hit by massive divestment in Hong Kong and a drop in flows into Britain due to Brexit uncertainty, according to the United Nations.

FDI could rise marginally in 2020 on the back of modest growth as trade tensions between China and the United States ease, but geopolitical uncertainties and protectionist pressures are tempering expectations, it said.

In 2019, global FDI flows were estimated at $1.39 trillion, down one percent from a revised $1.41 trillion in 2018, the UN trade and development agency UNCTAD said in a report.

FDI, which includes crossborder mergers and acquisitions (M&A), intra-company loans and investments, is a bellwether of globalization and a potential sign of future growth of corporate supply chains.

Investment flowing into the Chinese territory of Hong Kong, the Asian financial hub that has been wracked by political unrest, nearly halved last year to $55 billion, the report said.

“In Hong Kong there was $48 billion of divestment in terms of equity,” James Zhan, UNCTAD’s senior director of investment and enterprise, told Reuters. He noted that the former British colony was also affected by Sino-US trade tensions.

Competition from Shanghai and Shenzhen in mainland China as well as Singapore for high-end FDI, such as regional business hub functions and R&D activities of multinationals, also weighs on Hong Kong, he said.

“Hong Kong’s economy is a solid economy. Longer term-wise, it is attractive for international investment,” Zhan said.

Britain, beset by uncertainty last year over the outcome of Brexit but now on course to leave the European Union on Jan. 31, saw inward FDI flows shrink by six percent to an estimated $61 billion last year, according to the report.

FDI flows to developed economies fell by six percent last year to an estimated $643 billion, and remained at a historically low-level, at half of their peak in 2007, it said.

FDI to the EU as a whole fell by 15 percent to $305 billion, as several countries experienced “strong volatility,” it said.

The EU and some member states have tightened their FDI entry screening, particularly over “national security concerns”, Zhan said, and this could deter some FDI especially in technology.

Flows to the United States, the largest FDI recipient worldwide, were stable at $251 billion. The report said the impact of a 2017 US tax reform that reduced US outward FDI flows appears to have ebbed.

FDI flows to developing economies remained stable at an estimated $694 billion, led by China with a flat $140 billion.