World FDI 2016-17 in the focus

World FDI 2016-17 in the focus

The United Nations UNCTAD, the United Nations Conference on Trade and Development,  just released the latest figures and comments on the World FDI Foreign Direct investments of 2016, and with an outlook on 2017. FDI is also on the agenda of the new US President Donald Trump, thus TextileFuture provides you with the necessary data

Global FDI flows fell 13 % in 2016, reaching an estimated US$1.52 trillion, in a context of weak global economic growth and a lacklustre increase in the volume of world trade. Equity investments at the global level were boosted by a 13% increase in the value of cross-border mergers and acquisitions (M&As), which rose to their highest level since 2007, reaching USD 831 billion. The value of greenfield projects announcements reached an estimated USD 810 billion – 5 % rise from the previous  year, although this was largely due to a number of very large projects announced in a handful of countries.




At the regional level, falling flows to Europe (-29 %), Developing Asia and Oceania (-22 %), Latin America and the Caribbean (-19 %) and Africa (-5 %) reduced the global total (figure 2). In contrast, FDI flows rebounded among transition economies (38 %) and more than doubled in other developed economies, thanks to a strong recover of investment in Australia and Japan. There was also continued growth – if less dynamic than in the previous year – of inflows in North America (6%).


As a result of these regional differences, the share of developed economies in world FDI flows as a whole is estimated to have risen further, reaching 57 % of the total. Nevertheless, developing economies continue to comprise half of the top 10 host economies (figure 3). The United States remained the largest recipient of FDI, attracting an estimated USD 385 billion in inflows, followed by the United Kingdom with flows of USD 179 billion, vaulting up from 12th position in 2015. China remained in third position with a record inflow of USD 139 billion.



A dip in FDI flows to developed economies masks significant variations among countries

FDI flows to developed economies fell (-9 % to an estimated USD 872 billion) (table 1) from their high level recorded in 2015. Despite this decline, equity investment flows continued to exhibit vigour as cross- border M&As targeting the region registered an increase in value terms (21 % to USD 779 billion), albeit with less dynamism than in the previous year. Significant shifts in inter-company lending across the region weighed on flows. The falling value of announced greenfield projects (-12 % to USD 243 billion) points to some potential weakness in ongoing and future capital expenditures of affiliates of multinational enterprises (MNEs) in these markets.

The overall trend for developed economies was conditioned by FDI dynamics in Europe, where  inflows experienced a significant fall of 29 % to an estimated USD 385 billion. During 2016, a number of European countries experienced strong volatility in FDI flows compared to the previous year. Inflows in Ireland fell, with a net divestment of an estimated USD 1.2 billion after totalling USD 188 billion the previous year, as some foreign affiliates in the country decreased their loan liabilities to their parents. Inward flows also fell in Switzerland (from USD 70 billion to an estimated –USD 6 billion), Belgium (from USD 21 billion to an estimated –USD 19 billion) and the Netherlands (from USD 73 billion to USD 46 billion). FDI flows to Germany declined by 27 % (from USD 31.7 billion to an estimated USD 23 billion) due largely to a sizable fall in net intra-company loans. In addition, there was also a sharp reduction in the value of cross-border M&As as a result of some divestments by developed-country MNEs.

At the same time, flows into the United Kingdom rose almost six times from USD 33 billion to USD 179 billion, boosted by a surge of cross-border M&A megadeals targeting the country. These deals included  the USD 101 billion acquisition of SABMiller PLC (United Kingdom) by Anheuser-Busch Inbev (Belgium) and the USD 32 billion purchase of ARM Holdings (United Kingdom) by SoftBank Group (Japan). There was also an increase in flows to France (from USD 40 billion to an estimated USD 46 billion) as the drawdown in reinvested earnings registered in previous years subsided. In Sweden, sharply higher reinvested earnings as well as an uptick in equity investment – due largely to the acquisition of Meda AB by Mylan NV (United States) for US$7.2 billion – boosted FDI inflows, which rose from USD 6 billion to USD 25 billion.


FDI flows to North America increased modestly (6 % to USD 414 billion), despite a 15 % increase in the value of cross-border M&As in the region. Inflows in Canada retreated (from USD 43 billion to an estimated US$29 billion), as M&A sales and greenfield projects in the country tumbled. Flows to the United States grew by 11 % (from USD 348 billion to an estimated USD 385 billion), bolstered by strong equity investment inflows as cross-border M&As in the country rose 17 % in value − led by a number of megadeals. Counted among these deals were the USD 39 billion acquisition of the generic drugs unit of Allergan PLC (United States) by Teva Pharmaceutical Industries Ltd (Israel) and the USD 31 billion purchase of Baxalta Inc (United States) by Shire PLC (Ireland).

Among other developed countries there was a sharp rise in FDI activity (139 % to USD73 billion), thanks to strong flows to Australia and Japan. In Australia FDI inflows more than doubled, reaching USD 44 billion on the back of strong equity investment activity and a significant increase in lending to foreign affiliates in the country from their foreign parents. In Japan there was a swing from net divestment in 2015 to positive inflows in 2016 (from –USD 2 billion to USD 16 billion) largely due to an upturn in cross-border M&As targeting the country, which rose sharply from USD 3 billion to USD 20 billion.

Flows to developing economies weaken, led by a decline in Developing Asia and Latin America

Slowing economic growth and falling commodities prices weighed on FDI flows to developing economies in 2016. Inflows to these economies fell 20 % (to an estimated USD 600 billion) in the year, because of significant falls in Developing Asia and in Latin America and the Caribbean (table 1). There was a widespread downturn in cross-border M&A activity across developing sub-regions during the year, which fell 44 % in terms of aggregate value. In contrast, the value of announced greenfield projects rose 19 % to reach USD 540 billion, but this was largely due to the announcement of a few very large investments in a small number of countries, as the majority of countries recorded falls.

In Developing Asia the decline in inflows (-22% to an estimated USD 413 billion) was relatively widespread, with every major sub-region registering double digit reductions. Nevertheless, in absolute terms the majority of the decline in flows to the region was centred in Hong Kong (China) – down from USD 175 billion to an estimated USD 92 billion – returning to the levels prevailing before the spike in 2015. FDI inflows in Thailand, Turkey and Singapore also fell sharply in absolute terms. Flows to India fell by 5 % to an estimated USD 42 billion, but nevertheless ranked among the top ten largest FDI recipient economies. In contrast, foreign investment in mainland China remained robust rising by 2.3 % to a new record of about USD 139 billion. There was a rebound in flows to the Republic of Korea, at USD 9.4 billion, up from their relatively low level of USD 4 billion in 2015. FDI to Pakistan also rose significantly (82 % to an estimated USD 1.6 billion) as a result of rising Chinese investment in infrastructure.

Economic recession in Latin America and the Caribbean, coupled with weak commodities prices for the region’s principal exports, factored heavily in the decline in FDI flows to the region (down 19 % to USD 135 billion). In South America there were sizable falls in Brazil (from USD 65 billion to an estimated USD 50 billion) and Chile (from USD 16 billion to an estimated USD 11 billion). In Central America, despite its relatively stronger economic performance, flows also fell led by a 20% reduction in Mexico (from USD 33 billion to USD 26 billion).

FDI flows to Africa also registered a decline (-5 % to USD 51 billion), with the region sharing similar external vulnerabilities with Latin America. The low level of commodity prices continues to have an impact on resource-seeking FDI. Flows to Angola more than halved after surging in 2015. Mozambique saw its FDI fall 11 %, but the level was still significant at an estimated USD 3 billion. However, there was some uptick in flows to parts of Africa, centred on traditional FDI recipients such as Egypt (from USD 6.9 billion to USD 7.5 billion) and Nigeria (from USD 3.1 billion to USD 4 billion). Similarly South Africa saw a 38 % increase in FDI inflows, though they remained at a relatively low level of USD 2.4 billion.

FDI flows to transition economies rose by 38 % to an estimated USD 52 billion. This largely reflected a doubling of inflows in Kazakhstan (from USD 4 billion to USD 8.1 billion) as well as a 62 % uptick in flows to the Russian Federation (from USD 12 billion to an estimated USD 19 billion). In Kazakhstan rising FDI flows were associated with a strong increase in mining exploration activities. In the Russian Federation the increase is principally attributed to investments associated with the privatization of state-owned assets: the government sold a 19.5 % stake in the state-owned oil company Rosneft in a deal worth around USD 11 billion to a consortium led by Glencore (Switzerland) and the Qatari sovereign wealth fund.


Techprocess Februar 2017

The wave of cross-border M&As shows signs of ebbing, while greenfield announcements hint at stagnant capital expenditures by MNEs

Cross-border M&A activity remained substantial in 2016, reaching a new post-2007 high, but showed signs of slowing during the course of the year (figure 4). The 13 % increase in the value of net sales, which rose to USD 831 billion, pales when compared to the 67 % and 68 % increases registered in 2014 and 2015. Nevertheless, sales in Europe also grew at markedly slower rates compared with those of previous years. The volume of cross-border M&As in developing and transition economies fell sharply in value terms (-44 % and -52 %, respectively), leaving their share in the global total at just 6 %, compared with an average of 19 % for the 2006–2015 period.



The value of greenfield FDI project announcements rose by 5 % in 2016 at USD 810 billion. However, apart from a handful of very large investments in a small number of countries, there was a widespread decline worldwide. At the sectoral level there was a decrease in the value of manufacturing projects (-9 % to USD 291 billion) across all industries. Announced investments in the primary sector also plummeted (-46 % to USD 19 billion) reflecting the difficult financial constraints that many extractive MNEs currently face. Only services registered an increase (21 % to USD 501 billion), reflecting a surge in construction investment (69 % to USD 144 billion) mostly in a number of countries.

Fundamentals support a rise in FDI flows in 2017, but uncertainties abound

Looking ahead, economic fundamentals are supportive of a potential rebound in FDI flows in 2017. Global economic growth is projected to accelerate in the coming year, reaching 3.4 % compared to the post-crisis low of 3.1 % in 2016. Growth in developed countries is expected to improve, including in the United States through fiscal stimulus. Emerging and developing economies are also forecast to rebound significantly in 2017, led by a sharp rise in growth in natural resources exporting countries as commodities prices are expected to increase, especially for crude oil. Moreover, greater economic activity will help boost world trade volumes, which are forecast to expand by 3.8 % in 2017 compared to just 2.3 % in 2016. In this context, investment activity may also quicken. UNCTAD projects that global FDI flows will increase by around 10 % over the year.

Nevertheless, there are significant uncertainties that could have a material impact on the scale and contours of any FDI recovery in 2017. The “normalization” of monetary policy in the United States – after nearly a decade of historically low interest rates – could result in a significant shift in composition of capital flows, with implications for exchange rates and financial systems throughout the world and especially for developing economies. Rising cost of capital may hinder investment by MNEs which have taken on significant levels of corporate debt in recent years. There is also substantial uncertainty about the shape of economic policies in the near-future, especially in developed economies, which may serve to dampen FDI. Political developments such as the decision by the United Kingdom to exit the European Union (Brexit), announcements by the incoming administration in the United States to renegotiate key trade agreements such as NAFTA and to leave the TPP, as well as recent and upcoming elections in Europe have all heightened these uncertainties. For emerging and developing economies, a protracted period of developed-country investor uncertainty could serve to undermine the upswing in investment flows to their countries.

A key concern for policymakers continues to be how to reactivate productive investment in their economies to generate employment and spur advances in productivity. Despite the acceleration in economic activity, the ILO estimates that global employment growth will continue to decelerate in 2017, falling to 1.1 %. To take full advantage of the improving global economic environment countries must make boosting domestic and foreign investment key policy priorities. Within the ambit of foreign investment, in recent years FDI flows have largely been shaped by cross-border M&As that have not necessarily resulted in a concomitant increase in gross fixed capital formation. Investment promotion activities to attract greenfield projects could pay significant dividends, especially considering that the value of greenfield announcements globally, while an imprecise indicator, suggest that the capital expenditure levels of foreign affiliates remain well below their 2008 peak. To that end countries may consider bringing their investment policies in line with UNCTAD’s Investment Policy Framework for Sustainable Development with the objective of making investment work for sustainable development and inclusive growth.

FDI recovery continues along a bumpy road. Particularly of concern is the sharp drop-off in announcements of manufacturing investment projects, which play such an important role in generating badly needed productivity improvements in developing economies.

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