Global foreign direct investment (FDI) last year fell 19 percent to an estimated US$1.2 trillion, largely due to US President Donald Trump’s tax reforms, the UN Conference on Trade and Development (UNCTAD) said yesterday.
FDI comprises cross-border mergers and acquisitions (M&A), intracompany loans and investment in start-up projects abroad. It is a bellwether of globalization and a potential sign of growth of corporate supply chains and future trade ties.
However, it can also go into reverse as companies pull investments out of foreign projects or repatriate earnings.
The lowest net global FDI since 2009 was the result of US firms repatriating US$300 billion or more in accumulated earnings to take advantage of Trump’s tax break.
Net investment flows into Europe slumped by an unprecedented 73 percent to US$100 billion, a level not seen since the 1990s, as US firms pulled years of profits out of affiliates in Ireland, Switzerland and elsewhere.
US repatriation of profits has slowed down and an FDI rebound is possible this year, UNCTAD Director of Investment and Enterprise James Zhan (詹曉寧) told reporters, but added that there are also growing risks.
“It’s what we call the potential trade-investment-technology war that will affect global investment, and we see that the rising protectionist measures of a number of countries and the prospects for global economic growth are worsening,” Zhan said.
The US remained the top destination for FDI last year, attracting US$226 billion, 18 percent less than in 2017.
Second was China, up 3 percent to US$142 billion, and third was the UK, which saw a 20 percent jump to US$122 billion, mainly due to a doubling of reinvested earnings and a tripling in the value of M&A deals.
“Despite the huge uncertainty related to the Brexit, the UK government has intensified its effort to promote and facilitate new investment, as well as to retain existing investment in the country, including formulating a strategy and adopting new measures for attracting foreign investment,” Zhan told reporters.
One major growth area last year was the value of newly announced “greenfield” investments in developing countries in Asia, which rose 84 percent to US$390 billion.
Zhan said the rise was largely due to firms restructuring supply chains in Southeast Asia, driven by a desire to avoid getting caught up in trade tensions, as well as by new opportunities from the 11-country Comprehensive and Progressive Trans-Pacific Partnership Agreement and investment liberalization in China.
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