Info Service on Finance and Development (Jan16/01)
26 January 2016
Third World Network
Global FDI flows rebound to reach $1.7 trillion
Published in SUNS #8163 dated 21 January 2016
Geneva, 20 Jan (Kanaga Raja) -- Global flows of Foreign Direct Investment
(FDI) jumped by 36% in 2015, reaching an estimated US$1.7 trillion,
with the principal factor behind the global rebound being a surge
in FDI targeting the developed economies, the United Nations Conference
on Trade and Development (UNCTAD) said on Wednesday.
In its latest Global Investment Trends Monitor (No. 22 dated 20 January
2016), UNCTAD however pointed out that the growth was largely due
to cross-border merger and acquisitions (M&As), with only a limited
contribution from greenfield investment projects in productive assets.
Moreover, a part of FDI flows was related to corporate re-configurations
involving large values in the financial account of the balance of
payments but little movement in actual resources, it said.
[According to a report in the Financial Times, the Washington-based
Institute of International Finance has reported that last year, capital
outflows increased as overseas investors pulled out of emerging markets
and Chinese companies scrambled to pay off overseas loans in the final
three months of the year amid a weakening renminbi. The Institute
said that emerging markets saw an estimated $735 billion in net capital
outflows last year with all but $59 billion of that coming from China.
According to the UNCTAD report, barring another wave of M&A deals
and corporate re-configurations, FDI flows are expected to decline
in 2016, reflecting the fragility of the global economy, volatility
of global financial markets, weak aggregate demand and a significant
deceleration in some large emerging market economies.
"Elevated geopolitical risks and regional tensions could further
amplify these economic challenges," it said.
Stagnant greenfield investment globally and outright declines in a
number of developing regions suggests that the current upswing in
global FDI flows is potentially fragile and is exposed to the vagaries
of the cross-border M&A market.
However, said UNCTAD, improvement in macroeconomic conditions (with
global growth projected to reach 2.9% in 2016 compared to 2.4% in
2015) due to modest recovery in developed economies, could strengthen
the confidence of investors and induce them to make productive investments
to cement their business plans.
"In addition, further depreciation of currencies in emerging
markets and possible sales of assets to restructure corporate debt
may also stimulate additional FDI."
Global FDI flows rose in 2015 (+36%) to reach an estimated US$1.7
trillion, their highest level since 2007, said UNCTAD. A wave of cross-border
mergers and acquisitions (M&As), which rose significantly in value,
was largely responsible for the increase in FDI.
Greenfield investment project announcements, in contrast, registered
little change in value terms from 2014, with a rise in developed economies
roughly compensating a pull-back in MNEs' capital expenditures in
According to UNCTAD, the sharp increase of FDI inflows in developed
economies changed the pattern of FDI by economic grouping in their
favour. They now account for more than half of global FDI inflows.
However, at the regional level, developing Asia remained the largest
host region for FDI inflows, surpassing the European Union and North
"Developing economies continue to make up half of the top 10
host economies in the year," said UNCTAD.
The United States, with an estimated US$384 billion in inflows, vaulted
back into first position among host economies in 2015, after exceptionally
falling to third in 2014.
FDI inflows to Hong Kong-China - the second largest recipient in the
world - reached a record of $163 billion for the first time ever.
UNCTAD said: "The rise in both economies, however, was due in
part to inversion deals and re-configuration of corporate structures
involving large values in the financial account of the balance of
payments but little movement in actual resources."
According to UNCTAD's preliminary estimates, FDI flows to developed
countries bounced back sharply in 2015, reaching their second highest
level ever at US$936 billion, and accounting for the majority of the
increase in global flows.
"Buoyant cross-border M&A activities, most notably acquisitions
of assets in the United States by foreign MNEs, boosted FDI flows.
MNEs seeking growth, rushed to make acquisitions. The low interest
environment and strong balance sheets facilitated such moves."
Therefore, the growth of FDI inflows did not translate into an equivalent
expansion of productive capacity, as it was due in large part to cross-border
M&As and with only a limited contribution from greenfield investment
projects in productive assets. Furthermore, some deals were structured
as inversions which usually involve little movement in resources.
According to UNCTAD, FDI flows to the EU rose to an estimated US$426
billion, after three successive years of decline. Inflows to the Netherlands
(+146% to US$90 billion), Belgium (from -US$8.7 billion in 2014 to
US$32.7 billion) and the United Kingdom (+29% to US$68 billion) rose
strongly in 2015.
The region's largest economies, Germany and France, also experienced
an up-tick in their flows. In Germany, inward FDI returned to positive
territory in 2015, after dipping into net divestment in 2014 (-US$6.2
billion to US$11 billion), thanks to a sharp reduction in net repayment
of intra-company loans and a near doubling of re-invested earnings.
"While cross-border M&As to the region jumped (+68%), there
was also an important increase in greenfield investment project announcements
(+14%) signalling a potential rebound in capital expenditures in productive
assets as macroeconomic and financial conditions improve."
UNCTAD found that the primary sector did not contribute to the rise
in FDI or the doubling of M&A sales in developed countries.
In Australia, where FDI fell markedly (-33%), significant divestments
of mining assets reduced M&A sales and weighed down inflows. A
large swing in intra-company loans (from a net inflow of US$13 billion
in 2014 to a net repayment of US$4 billion in 2015) also caused flows
The fall of FDI flows to Canada (-16%) was largely attributable to
the primary sector as well, with a similar reduction in intra-company
loans, especially for energy and mining MNEs.
For the United States, while the comparison with 2014 is skewed due
to the exceptionally low level in that year caused by a single large
divestment, the estimated US$384 billion in FDI inflows in 2015 represent
the highest level since 2000.
The rise in flows was due largely to a surge in equity investments
and a sharp increase in M&A sales, said UNCTAD.
Acquisitions of assets in manufacturing and services more than compensated
for the decline in the primary sector, with total M&A sales rising
to $228 billion, the largest volume of cross-border acquisitions since
According to UNCTAD, in 2015, FDI inflows to developing Asia rose
by 15% to an estimated US$548 billion, setting a new record. It continued
to be the largest FDI recipient region in the world, accounting for
one third of global FDI flows.
With FDI inflows jumping to an estimated US$163 billion, Hong Kong-China
became the largest recipient economy in the region and the second
largest in the world. The corporate re-configuration of Cheung Kong
Holdings and Hutchison Whampoa accounted for part of the increase.
FDI inflows to mainland China rose by 6% to an estimated US$136 billion.
While inward FDI flows in manufacturing declined, those in services
kept momentum and drove total inflows to a new record level.
FDI inflows to Singapore dropped slightly by 4% to an estimated US$65
billion contributing to an overall decline of 7% in ASEAN as a whole.
FDI flows to India nearly doubled, reaching an estimated US$59 billion.
Measures taken by the government to improve the investment climate
have had an impact, said UNCTAD.
In 2015, West Asia saw its FDI flows increase by 5% to US$45 billion
after six consecutive years of decline. However, the increase was
driven largely by a rise of FDI flows in Turkey (+30% from US$12.4
billion to an estimated US$16 billion).
FDI inflows to Africa fell by 31% in 2015 to an estimated US$38 billion,
due largely to a decline of FDI in sub- Saharan Africa.
Flows to North Africa reversed their downward trend as Egypt saw a
rebound of investment from US$4.3 billion in 2014 to an estimated
US$6.7 billion in 2015.
Central Africa and Southern Africa saw the largest declines in FDI,
said UNCTAD, adding that the end of the commodity "super-cycle"
had an impact on resource-seeking FDI.
Flows into Mozambique were down 21% but still notable at an estimated
US$3.8 billion, while Nigeria saw its FDI decline by 27% to an estimated
US$3.4 billion as the country was hit hard by the drop in oil prices.
FDI flows into South Africa fell dramatically, down 74% to US$1.5
According to UNCTAD, FDI flows to Latin America fell again in 2015
(-11%), reaching US$151 billion.
"Slowing domestic demand and a strong terms of trade shock caused
by plummeting commodity prices hampered investment in South America."
FDI flows to Brazil, the region's principal recipient, fell 23% to
US$56 billion. Inflows were also impacted by the divestment of GVT
Participacoes S. A. - a telecommunications provider - by Vivendi S.
A. (France) for US$9.8 billion to Telefonica Brasil S. A. (Brazil).
Falling profit margins in the extractive sector slowed new investments
and crimped re-investment in South America's commodities exporters,
with flows falling in Chile (-38%) and Colombia (-15%), said UNCTAD.
This dynamic notwithstanding, FDI flows to Peru rose (+11%) with an
increase in equity investments, it added.
Economic growth and investment in Central America, in contrast, remained
robust in 2015, with Mexico registering a 14% increase in FDI to US$29
UNCTAD said that the ongoing geopolitical situation and reduced market
confidence in the transition economies led to a further decline of
FDI flows by 54%, reaching an estimated US$22 billion. FDI flows in
South-East Europe rose 3%.
In the Russian Federation and Kazakhstan, the tumbling of international
commodity prices weighed heavily on FDI flows, which declined by 92%
and 66%, respectively.
UNCTAD also noted a pronounced upturn in cross-border M&As, which
reached their highest level since 2007.
"MNEs took advantage of record cash positions, as well as exceptional
global liquidity conditions, to make acquisitions with a view to boosting
revenue growth and generating cost efficiencies."
Net sales rose to US$644 billion, an increase of 61% over the previous
year, spurred on by brisk deal-making in the manufacturing sector
(+132%, to US$339 billion).
In particular, sales of assets related to the manufacturing of non-metallic
mineral products, machinery and equipment, and electrical components
In contrast, sales in the extractive sector slid (-51%) as plummeting
oil prices contributed to a significant retreat in the total value
of deals in crude oil and natural gas activities (-68%).
Developed economies were largely the target of the upswing in cross-border
M&As. Net sales in the EU rose 68% to US$269 billion, driven by
strong increases in Ireland and the United Kingdom (together representing
roughly three-quarters of the increase).
UNCTAD said tax inversion deals, carried out by MNEs from the United
States, were evident in both countries.
Deal activity in the United States rose from US$11 billion in 2014
to US$228 billion in 2015, with the jump in part reflecting the effect
of the low 2014 value due to the divestment of Verizon Wireless (United
States) by Vodafone (United Kingdom) in that year, but also a growing
appetite for assets in the country.
In contrast, said UNCTAD, the value of M&As in developing economies
fell sharply (-44%) to US$68 billion.
The above mentioned divestment in Brazil pulled Latin America and
the Caribbean down (-60%), while sales in developing Asia retreated
(-61%) from their exceptional levels, fuelled by large mega-deals,
Greenfield project announcements, which are indicative of MNEs' capital
expenditure intentions, remained stagnant registering little dynamism
in 2015 (+0.9%).
Project announcements in developing economies declined sharply, particularly
in Africa (-19%) and Latin America and the Caribbean (-23%), said
the UNCTAD report. +