In a backdrop of a weak global economic growth and lackluster gains in the volume of world trade, the global flows of foreign direct investment (FDI) fell 13% in 2016 to an estimated $1.52 trillion, according to the latest UNCTAD Global Investment Trends Monitor.
The report indicated that the decline was tempered by modest growth in flows to North America (6%) and a sizeable increase in investment in other developed economies, principally Australia and Japan.
“FDI recovery continues along a bumpy road. Particularly of concern is the sharp drop-off in manufacturing investment projects, which play such an important role in generating badly needed productivity improvements in developing economies,” UNCTAD Secretary-General Mukhisa Kituyi said.
“Looking ahead, economic fundamentals point to a potential increase in FDI flows by around 10% in 2017,” Dr. Kituyi said. “However, significant uncertainties about the shape of future economic policy developments could hamper FDI in the short-term.”
The decline of FDI in 2016 was not equally shared across regions, reflecting the heterogeneous impact of the current economic environment on countries worldwide. FDI flows to Europe fell 29% to an estimated $385 billion, with a number of countries experiencing strong volatility in their inflows. Slowing economic growth and falling commodities prices weighed on FDI flows to developing economies. Inflows to these economies fell 20% (to an estimated $600 billion) due to significant decreases in developing Asia and in Latin America. Nevertheless, developing economies continue to comprise half of the top 10 host economies. FDI flows to transition economies rose by 38% to an estimated $52 billion.
The wave of cross-border mergers and acquisitions shows signs of ebbing. A 13% increase in the value of net sales, which rose to $831 billion, pales when compared to the 67% and 68% increases registered in 2014 and 2015. Greenfield FDI project announcements value rose by 5%, but this was largely due to a handful of very large projects in a few countries. The vast majority of countries, in contrast, registered declines.