Global flows of foreign direct investment (FDI) plunged 23 percent last year to a three-year low amid a decline in cross-border mergers and acquisitions, a trend the UN called “troubling” for the risk it poses to emerging economies.
The decline in FDI to US$1.43 trillion from US$1.87 trillion in 2016 — even as trade and economic growth picked up — also reflected lower investment in projects other than mergers, the annual World Investment Report released by the UN Conference on Trade and Development said on Wednesday.
Inward flows to developed economies dropped 37 percent to US$712 billion, as mergers and acquisitions fell 29 percent. Meanwhile, FDI flows to developing economies remained stable at US$671 billion, with investment into Latin America rising for the first time in six years.
“This negative trend is a long-term concern for policymakers worldwide, especially for developing countries, where international investment is indispensable for sustainable industrial development,” UN Secretary-General Antonio Guterres said in the report.
“This troubling global investment picture underscores the importance of a conducive global investment environment,” he said.
The UN projects FDI flows are to rise “marginally” this year, by about 5 percent to US$1.5 trillion, while remaining below the average over the past decade, amid policy uncertainty and trade tensions.
There is also a rise in investment restrictions, as well as concerns about national security and foreign ownership of land and resources, along with heightened scrutiny of foreign takeovers, the report said, even as many countries make efforts to attract FDI.
The investment downturn last year also partly reflected a decline in the global average rate of return on foreign investment, which fell to 6.7 percent from 7 percent. Developed nations, along with West Asia and South Asia’s developing economies, showed slowing returns.
The US remained the biggest recipient of FDI, attracting US$275 billion last year, followed by China with record inflows of US$136 billion, the UN data showed.
Outflows from China fell for the first time since 2003, down 36 percent to US$125 billion as a result of policies clamping down on investment in response to “significant capital outflows” during 2015 and 2016, the report said.
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