Info Service on WTO and Trade Issues (May15/10)
22 May 2015
Third World Network
Nations: FDI from South TNCs reach record level, says UNCTAD
Published in SUNS #8023 dated 19 May 2015
Geneva, 18 May (Kanaga Raja) -- Investment activity by transnational
corporations (TNCs) from the developing economies increased by 30%
in 2014, reaching a record level of US$486 billion, the UN Conference
on Trade and Development (UNCTAD) said on Monday.
In its latest Global Investment Trends Monitor (No. 19 of 18 May 2015),
UNCTAD said that the share of South TNCs in global foreign direct
investment (FDI) reached a record level of 36%, up from 12% in 2007,
the year prior to the financial crisis.
For the first time, developing Asia has become the world's largest
investor region with US$440 billion invested, followed by North America
(US$390 billion) and Europe (US$286 billion), said the UNCTAD report.
According to UNCTAD, among developing regions, TNCs from Asia, Latin
America and the Caribbean increased their investment abroad, while
those from Africa reduced theirs.
Developing Asian TNCs became the world's largest investors, accounting
for almost one third of the total.
In 2014, investors from the South continued their expansion abroad,
said UNCTAD, adding that the slowing down of their economies may have
boosted the desire of their TNCs to diversify abroad.
"TNCs from developed countries were active in cross-border M&A
markets both in new acquisitions and large divestments."
More than half of FDI outflows from TNCs in developing economies were
in equity, while developed country TNCs continued to hold large amounts
of cash reserves in their foreign affiliates in the form of reinvested
earnings, which accounted for a record 81% of total FDI outflows,
said the report.
In 2014, nine of the twenty largest investors were from developing
or transition economies including Hong Kong-China, China, the Russian
Federation, Singapore, the Republic of Korea, Malaysia, Chile, Kuwait
and Taiwan Province of China.
FDI outflows from developing Asia increased by a third to some US$440
billion in 2014. The growth was widespread across all the major Asian
economies and subregions.
In East Asia, investment by TNCs in Hong Kong-China jumped to a historical
level of US$150 billion, making the economy the second largest investor
in the world, trailing behind only the United States, while investment
by Chinese TNCs grew faster than inflows into the country, reaching
a new high of US$116 billion.
In South-East Asia, the increase was principally the result of surging
outflows from Singapore, at US$41 billion in 2014 as a result of deals
such as Temasek Holdings' acquisition of a 25% stake in AS Watson
(Hong Kong-China) for US$5.6 billion.
Outflows from Malaysia rose as well, to US$16 billion.
In South Asia, FDI outflows from India reversed the slide of 2013,
increasing fivefold to US$12 billion in 2014. As the performance of
the Indian economy improved, large Indian TNCs resumed their international
Investments from West Asian TNCs rose by 16% in 2014, driven by increased
flows from Kuwait that emerged once again as the region's largest
overseas investor, with flows of US$12.7 billion. Investments by Turkish
TNCs jumped by 89% to US$6.7 billion mainly through equity outflows.
TNCs from Latin America and the Caribbean (excluding offshore financial
centres) increased their investment by 14% to US$35 billion in 2014.
"This growth was driven by Chilean TNCs - the region's main direct
investors abroad in 2014 - with flows increasing by 51% to US$13 billion
boosted by a strong increase in intra-company loans."
Brazilian TNCs continued to receive repayments of loans or borrowed
loans from their foreign affiliates, resulting in negative FDI outflows
for the fourth consecutive year.
Among the other main direct investors, Mexico's outward flows plummeted
by 42% to US$8 billion - triggered mainly by the fall of intra-company
Investments from Africa decreased by 21% in 2014 to US$11 billion.
TNCs from South Africa invested in telecommunications, mining and
retail while those from Nigeria focused largely on financial services.
Intra- African investments rose significantly during the year.
TNCs from transition economies decreased their investment abroad by
31% to US$63 billion.
"Natural resource- based TNCs, mainly from the Russian Federation,
reduced their investment abroad, due to constraints in international
financial markets, low commodity prices and the strong depreciation
of the rouble."
FDI FROM TNCs IN THE NORTH
Investments from TNCs based in developed economies reached US$792
billion, virtually unchanged from 2013.
"But the static trend hides a flurry of both new investments
and divestments that cancel each other out in the collated numbers,
thus creating a skewed overall picture," said UNCTAD.
Outflows from European TNCs remained flat, rising by only 2%. The
rise of investments by German and French TNCs were offset by the negative
flows from the United Kingdom, Luxembourg and Italy.
Outward FDI increased from Germany (up US$82 billon to US$112 billion)
and France (up US$59 billion to US$56 billion from a negative value)
with the former becoming the largest investor country in Europe.
In addition to changes in the flows of intra-company loans, German
and French firms actively made acquisitions abroad.
The report cited examples such as the acquisition of the consumer
care business of Merck in the United States by Bayer (Germany) for
US$14.2 billion and the acquisition of the United Kingdom-based manufacturer
Invensys by Schneider Electric (France) for US$5 billion.
On the other hand, Vodafone's divestment from its stake in Verizon
Wireless heavily dented outflows from the United Kingdom (down US$45
billion to -US$60 billion).
Divestments by Italian TNCs, including Enel's divestment from its
oil interest in the Russian Federation and the Italian retailer Gruppo
PAM's sale of its stake in the Swiss retailer the Nuance Group, contributed
to the fall of Italian outward FDI to -US$1.1 billion.
Outflows from Luxembourg (down US$34 billion to -US$4.3 billion) also
fell sharply, primarily due to changes in intra-company loans.
According to the report, in North America, active acquisitions of
assets by Canadian TNCs, such as Encana's bid for the United States
oil and gas production and exploration company Athlon Energy for US$6.8
billion, pushed up its outflows to US$53 billion.
FDI from the United States rose by 3% to US$337 billon.
"Investment in and divestment from equity and lending, and the
withdrawal of intra-company loans cancelled out each other so that
all of United States TNCs' outward investment in 2014 constituted
FDI from Japan declined by 16% ending a three-year expansion run.
Although Japanese TNCs' investments into North America kept apace,
they declined sharply in major recipient economies in Asia and Europe.
Turning to cross-border mergers and acquisitions (M&A), UNCTAD
said that in 2014, the value of cross-border M&A purchases surged
by 28%, reaching US$399 billion, largely on the back of increased
investment flows from both developed and developing economy TNCs.
During 2014, cross-border M&As from developed country TNCs increased
by 28% to US$228 billion, 90% of which targeted other developed country
"The decline of investment in the primary and services sectors
was more than compensated for by the rise of purchases in the manufacturing
sector, mainly in chemicals," said the report.
Large acquisitions took place in pharmaceuticals -- for example, Walgreen
Co (United States) acquired the remaining 55% of Alliance Boots (Switzerland)
for US$15.3 billion, and Bayer (Germany) acquired the consumer care
business of Merck (United States) for US$14.2 billion.
At the same time, however, developed country TNCs divested heavily
in 2014. In addition to the US$130 billion Vodafone-Verizon mega-deal,
Nestle (Switzerland) sold its 8% share in L'Oreal for US$9 billion.
"Large acquisitions, mostly targeting developed countries, took
place in 2014. Out of the 223 mega-deal acquisitions (i. e. deals
with more than US$1 billion), 171 took place in developed economies."
According to the report, TNCs based in developing economies increased
their M&As abroad by 27% to US$152 billion, continuing to acquire
firms and other assets owned by developed country TNCs also in the
host developing world.
For example, MMG South America Management Co Ltd (Hong Kong-China)
acquired Xstrata Peru - a foreign affiliate of Glencore/Xstrata (Switzerland)
- for US$7 billion, and Emirates Telecommunications Corp (United Arab
Emirates) bought a 53% stake of Itissalat Al Maghrib SA - a foreign
affiliate of Vivendi (France) - for US$5.7 billion.
Unlike cross-border M&As, said UNCTAD, the growth of announced
greenfield investment projects was tepid, struggling to recover from
the trough in 2012.
However, the aggregate picture disguises different performances by
"The growth of greenfield investment projects by developing economies
in the past two years was steady and broad-based, while the trend
of those by developed economies was weak."
As in the past years, South TNCs invested the bulk of greenfield projects
(80% of the total in 2014) in other developing economies.
As for future trends in FDI in 2015 and beyond, UNCTAD said that the
gradual improvement of macroeconomic conditions, especially in North
America, and proactive monetary policy in the Eurozone, coupled with
increased investment liberalisation and promotion measures will improve
the investment appetite of TNCs.
In addition to record levels of cash holdings by TNCs, the prospects
for developed economies have been upgraded with average economic growth
rates projected to accelerate from 1.6% in 2014 to 2.2% in 2015.
Almost all major developed economies are expected to see the growth
momentum picking up.
"However, negative factors, such as geopolitical instability
and the decline in commodity prices will lower investment, but this
is expected to be geographically limited and affect specific sectors
only, including oil and gas and other commodity industries,"
said UNCTAD. +