FDI Foreign Direct Investment trends and development 2015 analysed by OECD
OECD has just released its analysis of Foreign Direct Investment trends and developments in 2015 with a special chapter on return on inward FDI by sector. Historically, the analysis of rates of return was hampered by a lack of comparability in the valuations of positions. With the implementation of the most recent international standards for compiling FDI statistics, more and more countries are now reporting market value estimates of FDI positions which enables an improved analysis of rates of return
- Global FDI flows increased by 25% to USD 1.7 trillion in 2015, reaching their highest level since the global financial crisis began in 2007.
- Part of this increase was the result of financial and corporate restructuring rather than of new, productive investments. For example, global FDI flows were boosted by record levels of FDI inflows in the United States in the first half of 2015 which were partly driven by cross-border M&As designed to reduce companies’ US tax obligations.
- OECD FDI inflows almost doubled compared to 2014, mostly due to large inflows in Ireland, the Netherlands, Switzerland and the United States. Investors from those countries were also responsible for the 35% increase in OECD outflows. These countries appear among the top destinations and top sources of FDI worldwide in 2015.
- OECD FDI flows for resident special purpose entities (SPEs) decreased in 2015 by around 10%.
- FDI inflows to the G20 as a whole increased by 26%. FDI flows to OECD G20 economies increased by 81% but were partly offset by a 13% drop in FDI inflows to non-OECD G20 economies. As a result of these changes, the share of the non OECD G20 countries in global inflows dropped from about one-third to just over one-fifth.
- The importance of specific sectors varies across countries. The highest shares of FDI in manufacturing are in the Netherlands, Sweden, Japan and Korea. The highest shares (over 40%) in ‘other’, which includes primary industries such as mining and agriculture and also water and electricity, are in Chile, Australia and Norway. The highest shares (over 40%) of financial and insurance services are in Luxembourg, Denmark, Portugal and Japan (excluding FDI in Luxembourg, Danish and Portuguese SPEs).
Global FDI flows increased by 25% in 2015, to USD 1730 billion. This was the highest level recorded since 2007 and the start of the financial crisis. Figure 1 shows global FDI flows from 1999 to 2015 and includes a focus for recent quarters Q1 2014-Q4 2015 and half year trends. The measure was constructed using FDI statistics on a directional basis whenever available, supplemented by measures on an asset/liability basis when needed. Aside from the 3 % drop observed in 2014, global FDI flows have been on an upward trend since 2012 and have never been so close to their pre-crisis level, although they remain about one sixth below (USD 1730 billion compared to USD 2091 billion in 2007).
FDI flows by region
In 2015, FDI flows into the OECD area increased by 86 % compared to 2014, from USD 572 billion to USD 1063 billion, and FDI outflows were up 35 % from USD 875 billion to USD 1183 billion (Figure 2). FDI inflows to the OECD area accounted for 58 % of global FDI inflows, compared to 41% in 2014 and 49% in 2013. FDI inflows received by the United States in the first quarter largely accounted for the increased share of the OECD area. OECD FDI outflows accounted for 73% of global FDI outflows, higher than in 2014 (64 %) but comparable to 2013. FDI flows into EU countries increased by 54 % (from USD 282 billion to USD 434 billion) and outflows increased by 75 % (from USD 290 billion to USD 508 billion); however, these levels remain below levels reached before the financial crisis. FDI inflows to the G20 as a whole increased by 26 % from USD 808 billion to USD 1020 billion while FDI outflows from the G20, at USD 871 billion, remained stable. However, the situation varies across G20 OECD and non-OECD sub-groups: FDI flows to OECD G20 economies increased by 81 % but were partly offset by a 13 % drop in FDI inflows received by the non-OECD G20 economies. FDI outflows from OECD-G20 economies decreased by 3 % while FDI outflows from the non-OECD G20 economies increased by 4 %.
The record levels of FDI flows the United States received in the first quarter of 2015 made it the largest recipient of FDI inflows worldwide in 2015, followed by China (the largest recipient of FDI worldwide in 2010-2014), Switzerland and Ireland (due to record levels of FDI inflows for both countries in 2015). The United States remained by far the largest source of FDI worldwide, followed by China, Japan, Switzerland, the Netherlands (excluding investments from Special Purpose Entities) and Ireland.
OECD FDI inflows almost doubled in 2015 (to USD 1063 billion) compared to 2014, reaching their highest level since the beginning of the financial crisis. However, they remain 19 % below their peak level in 2007 (at USD 1316 billion). They increased by 55 % in the first half of the year (to USD 571 billion) from the second half of 2014 and then dropped by 14 % (to USD 492 billion) in the second half of the year.
The increase in the first half of the year was largely due to record levels of FDI inflows into the United States in the first quarter of 2015 (to USD 200 billion) due to some large cross-border deals (see FDI in Figures – October 2015). In the second half of the year FDI inflows to the United States dropped to USD 95 billion. FDI inflows into the OECD as a whole dropped but remained high, largely due to Ireland and Switzerland recording significant FDI inflows and net incurrence of liabilities respectively in the last quarter of 2015 (to USD 72 billion and USD 65 billion respectively). Overall in 2015, the largest OECD recipients of FDI inflows were therefore the United States (USD 385 billion), Switzerland (USD 121 billion) and Ireland (USD 101 billion). FDI inflows received by other major OECD recipients increased in 2015: FDI flows received by the Netherlands increased by 39 % (from USD 52 billion to USD 73 billion excluding flows in resident Special Purpose Entities), they nearly tripled in France (from USD 15 billion to USD 43 billion), they recovered from net disinvestments in Germany (from USD -7 billion to USD 13 billion). In contrast, FDI flows dropped by 17 % in Canada (from USD 59 billion to USD 49 billion), by 33 % in Spain (from USD 33 billion to USD 22 billion), by 44 % in Australia (from USD 40 billion to USD 22 billion) and by 25 % in the United Kingdom (from USD 52 billion to USD 40 billion).
FDI financial flows consist of three components: equity capital, reinvestment of earnings, and intercompany debt. For the 20 economies that reported detail by FDI components for 2015, accounting for 72 % of total OECD FDI inflows: total equity inflows more than tripled compared to 2014 and intercompany debt flows recovered from net disinvestments representing respectively 68 % and 9 % of total flows received by those economies, while reinvestment of earnings decreased by 13 %, accounting for 23 % of the total. The increase in equity capital was due to its role in the large M&A deals in the first half of 2015. However, the situation varies across countries. The increase of FDI equity flows was largely due to equity transactions in the United States which reached USD 225 billion and to a lesser extent to equity transactions in the Netherlands (USD 61 billion), in France (USD 37 billion), and in Ireland (USD 40 billion). Intercompany debt inflows were boosted by increases in the United States (USD 82 billion) but also in Germany and Ireland where debt inflows were up. Reinvestment of earnings fell, driven by decreases in the United States (from USD 50 billion to USD 43 billion). In Switzerland, the second largest OECD recipient of FDI flows in 2015, net incurrence of equity and debt liabilities both rose to USD 53 billion.
In the non-OECD G20 countries, FDI inflows in 2015 increased by 30 % in India compared to 2014 (from USD 34 billion to USD 44 billion) but declined elsewhere: by 69% in South Africa (to USD 1.8 billion), by 29 % in Indonesia (to USD 16 billion), by 23 % in Brazil (to USD 75 billion) and by 7 % in China (to USD 250 billion). FDI flows to Russia reached particularly low levels in 2015 (they dropped by 63 % to USD 11 billion), largely due to a drop in reinvested earnings (from USD 21 billion to USD 11 billion). FDI inflows in Saudi Arabia were USD 5.9 billion in the first three quarters of 2015, slightly below their level a year earlier.
FDI outflows by region
FDI outflows from the OECD area increased by 35 % in 2015 compared to 2014 (to USD 1183 billion). They were on an increasing trend since the first quarter of 2014, but dropped in the last quarter of 2015 (from USD 341 billion to USD 262 billion). However, the situation varies across countries. FDI outflows from Japan increased by 13 % (to USD 129 billion) and rose to above USD 100 billion from three countries: Ireland (to USD 102 billion), the Netherlands (to USD 113 billion excluding investments from Dutch Special Purpose Entities), and Switzerland (net acquisition of FDI assets reached a peak at USD 122 billion). These developments were offset by decreases in outward investments from other major OECD investors: FDI outflows from the United States decreased from USD 337 billion to USD 320 billion; from Germany decreased from USD 99 billion to USD 76 billion; from France decreased from USD 43 billion to USD 35 billion. The United Kingdom recorded net disinvestments for the third consecutive year, of USD -61 billion. Major OECD investors in 2015 were therefore the United States, Japan, Switzerland, the Netherlands and Ireland, accounting for 66 % of OECD outflows.
FDI financial flows consist of three components: equity capital, reinvestment of earnings, and intercompany debt. For the 20 economies who reported FDI compoments7 for 2015, accounting for 71 % of total OECD FDI outflows: total equity outflows increased by 52 %, accounting for one third of the total outflows and intercompany debt flows almost tripled (accounting for 16% of the total) while reinvestment of earnings decreased by 16 % (47 % of the total). The increase in equity capital flows was largely due to its role in the large M&A deals in 2015. As for FDI inflows, the situation varies across countries. The increase in FDI equity outflows was driven by increases from Ireland where equity outflows reached USD 60 billion mostly in the pharmaceutical sector (compared to net disinvestments in 2014), and to a lesser extent from Canada and the Netherlands where equity outflows increased by around 20 % (to USD 37 billion and to 67 billion excluding resident SPEs respectively), from France where equity outflows more than tripled to USD 23 billion and from the United States where equity outflows more than doubled to USD 18 billion. Equity outflows from Germany were stable at about USD 60 billion. The increase in intercompany debt flows was driven by switches from negative debt flows in 2014 to positive debt flows, in particular in the Netherlands and the United States. The decrease in reinvestment of earnings was largely due to a 15% drop in the United States (to USD 294 billion) caused by a drop in earnings. In Switzerland, the second largest OECD investor in 2015, net incurrence of equity and debt liabilities rose to respectively USD 61 billion and USD 37 billion.
In the non-OECD G20 economies, FDI outflows from China increased by 53 % (to USD 188 billion) while they dropped elsewhere: FDI outflows decreased by 57 % from Russia (to USD 27 billion), by 48 % from Brazil (to USD 13 billion), by 30 % from India and South Africa (to respectively USD 6.9 billion and USD 5.3 billion) and by 12 % from Indonesia (to USD 6.3 billion). FDI outflows from Saudi Arabia were USD 3.8 billion in the first three quarters of 2015, a level comparable to 2014.