In a report released yesterday, UNCTAD said that global FDI flows rose by 36% last year to $1.7trn, reaching their highest levels since the financial crisis. The spike was mainly due to increased FDI in developed countries, with industrialised nations accounting for 55% of global DFI inflows last year.
The report found “strong growth in flows reported in the European Union as well as in the United States, where FDI quadrupled, although from a historically low level in 2014”, tilting the pattern of FDI away from the developing world.
However the report noted this was largely due to cross-border mergers and acquisitions, as opposed to companies starting a new venture and building new operational facilities overseas, which registered little increase since 2014. UNCTAD said that FDI inflows did therefore not result in an equivalent expansion of productive capacity.
While FDI flows to developed countries rose to their second highest level ever, at $936bn, developing economies also saw their FDI inflows reaching a new high of $741bn, 5% higher than in 2014.
UNCTAD said among the developing nations, record flows were directed at Asia, which remains the largest FDI recipient region in the world with flows surpassing half a trillion dollars. This helped offset sharp declines elsewhere, notably in Africa, Latin America and the Caribbean (apart from in offshore financial centres).
Flows to Africa fell by 31% and in Latin America by 11%. UNCTAD said this was due to plummeting commodity prices hampering investments.
The tumbling of international commodity prices also weighed heavily on FDI flows in countries like Russia and Kazakhstan, which declined by 92% and 66% respectively.
Looking ahead, UNCTAD said that barring another wave of M&A deals and corporate reconfigurations, FDI flows are expected to decline in 2016, reflecting the fragility of the global economy, volatility in 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.
