Unctad: US and Europe drag down global FDI in 2017

Global foreign direct investment slumped in 2017 as inflows to major FDI recipients in North American and Europe shrank, while developing Asia regained the lead as the largest investment host region.

Global FDI fell to an estimated $1520bn in 2017, down by 16% from a year earlier, according to preliminary figures from the United Nations Conference on Trade and Development (Unctad).  

“The decline of global FDI flows is in stark contrast to other macroeconomic variables, such as GDP and trade growth, which saw substantial improvements in 2017,” James Zhan, Director of Unctad's Investment Division, said in a note. "Upward synchronisation of the trends in 2018 is probable, but risks are abundant."

Developed economies deflate

The US remained by far the world’s largest single recipient of foreign investment despite investment inflows falling to $311bn last year, down by 20.5% from 2016. FDI into the UK sharply normalised at $196bn in 2017, after peaking at $191bn in the previous year.

“The significant drops in FDI flows to the UK and the US can be explained, in the UK, by the absence of a few large mega deals that caused an anomalous peak in 2016 and, in the US, by sharply reduced inflows from a number of offshore financial centres,” Unctad wrote in a note on January 22.  

Inflows to developed economies thus fell to $810bn in 2017, with the EU accounting for $370bn (down 26% year-on-year), and North America for another $330bn ( down33%).

On the other hand, developing Asia and Latin America held the fort in 2017, although accelerating economic activity and recovering commodity prices may have suggested a stronger investment growth, Unctad said. Inflows to developing Asia grew to $459bn in 2017, up by 2% from a year earlier, according to the figures. Developing Asia thus emerged as the world’s largest host region, making up 30% of global FDI in 2017, up from 25% in 2016. At the country level, China trailed the US as the world’s largest investment recipient with $144bn attracted in 2017, up from 133.7bn in 2016, Unctad figures show – a performance that does not take into account the $85bn attracted by Hong Kong last year, down from $108.1bn in 2016.

FDI flows to Latin America and the Caribbean were 3% higher than in 2016 at an estimated $143bn, the first rise in five years, but still 25% below the level reached in 2012, at the peak of the commodity boom. 

FDI to bounce back in 2018?

On the other hand, FDI into Africa fell slightly to $49bn in 2017, down by 1% from a year earlier, Unctad figures show. 

“A synchronised upturn of economic growth in major economies, the gradual recovery in commodity prices and improved profit prospects in various sectors could boost business confidence, and the MNEs’ appetite to invest,” Unctad wrote in its note.

“Nevertheless, elevated geopolitical risks and policy uncertainty could have an impact on the scale and contours of the FDI recovery in 2018. The possibility that protectionist rhetoric translated into trade restrictive actions, a worrying rise in global geopolitical tensions and a rising economic toll from natural disasters may have an impact on FDI flows.”

Unctad estimates global FDI to bounce back to almost $1800bn in 2018.