According to UNCTAD Global Investment Trends Monitor, the foreign direct investment (FDI) fell by nearly a fifth in 2018 to an estimated $1.2 trillion from $1.47 trillion in 2017. The drop brings FDI flows back to the low point reached after the global financial crisis, with the decline concentrated in developed countries where inflows decreased by as much as 40% to an estimated $451 billion.
Specifically, since the global economic crisis arose, the FDI has a downward trajectory since 2013, as stated by James Zhan, Director of UNCTAD’s Investment Division.
Mostly, the decrease of the FDI in 2018 is caused by the corporate income tax reform in the United States. From 2017, US enterprises have made multiple repatriation steps on accumulated foreign earnings, which had negative impacts on Europe.
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In 2018, Europe’s FDI experienced a decrease of 73%, $100 billion, a value that was last seen in the 1990s. In the meantime, the US also faced its inflows decrease to $226 billion, meaning by 18%.
On the contrary, global cross-border mergers and acquisitions were increased by 19%, and consequently announced greenfield investments up by 29%. This shows that the FDI could possibly increase during 2019.
However, developing economies are more resilient concerning the FDI flows.
Specifically, FDI to developing economies increased by 3% to $694 billion in 2018. Developing nations accounted for half of the top 10 host economies for FDI inflows.
From the developing economies, both Asia and Africa had the most benefits, as Asia’s flows increased up to 5%.
East and South-East Asia, where inflows were up 2% and 11% respectively, accounted for one-third of global FDI in 2018 and almost all growth in FDI to developed economies.
Also, in developing economies the greenfield announcements rose by 47%. African FDI flows were up 6%, though growth was concentrated only in a few countries such as Egypt and South Africa.
Slow economic recovery in Latin America and the Caribbean experienced flows drop by 4%.
In the possibility that the repatriation of the US’s earnings will be reduced, the things will move to being normal. However, the future looks dark, according to UNCTAD.
In conclusion, the strengthening of the digital economy and thus a shift toward intangibles in international production will play a role, alongside significant declines in FDI returns, already evident over the past five years.
