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UNCTAD. 12 JUNE 2019. WORLD INVESTMENT REPORT 2019

WIR ReaderThe World Investment Report focuses on trends in foreign direct investment (FDI) worldwide, at the regional and country levels and emerging measures to improve its contribution to development. Click on the "Reports" tab below to download a free copy of this report. Overviews of the report are also available in all official UN languages.

Every issue of the Report has:

Analysis of the trends in FDI during the previous year, with especial emphasis on the development implications.
Ranking of the largest transnational corporations in the world.
In-depth analysis of a selected topic related to FDI.
Policy analysis and recommendations.
Statistical annex with data on FDI flows and stocks at the country level.

Presentation

The World Investment Report supports policymakers by monitoring global and regional foreign direct investment trends and documenting national and international investment policy developments.

The policy chapter of this year’s report takes stock of efforts being made towards the reform of international investment agreements and surveys new measures.

Inclusive sustainable development depends on a global policy environment that is conducive to cross-border investment.

Last year, global flows of foreign direct investment fell by 13 per cent, to $1.3 trillion. This represents the lowest level since the global financial crisis and underlines the lack of growth in international investment this decade.

The significant acceleration required to meet the investment needs associated with the Sustainable Development Goals is not yet apparent. We need to raise ambition on climate action, address debt vulnerabilities and reduce trade tensions to foster environments that are conducive to scaling up long-term and sustainable investments.

Among the most important instruments for attracting investment are Special Economic Zones. The number of zones around the world has grown rapidly this decade to more than 5,000, with many more planned.

This World Investment Report provides an overview of the global SEZ landscape and offers advice on how to respond to fundamental challenges for zones posed by the sustainable development imperative, the new industrial revolution and changing patterns of international production.

I commend this year’s World Investment Report for both industrial and investment policymakers, and as an important tool for the international development community.

António Guterres

Secretary-General of the United Nations

Global foreign direct investment slides for third consecutive year. Contraction largely caused by US multinationals repatriating earnings from abroad.

Global foreign direct investment (FDI) flows slid by 13% in 2018, to US$1.3 trillion from $1.5 trillion the previous year – the third consecutive annual decline, according to UNCTAD’s World Investment Report 2019.

The contraction was largely precipitated by United States multinational enterprises (MNEs) repatriating earnings from abroad, making use of tax reforms introduced by the country in 2017, designed for that purpose.

Hardest hit by the earnings repatriation were developed countries, where flows fell by a quarter to $557 billion - levels last seen in 2004.

“FDI continues to be trapped, confined to post-crisis lows. This does not bode well for the international community’s promise to tackle urgent global challenges, such as abject poverty and the climate crisis,” UNCTAD Secretary-General Mukhisa Kituyi said.

“Geopolitics and trade tensions risk continuing to weigh on FDI in 2019 and beyond,” he cautioned.

The tax-driven fall in FDI, which occurred in the first two quarters, was cushioned by increased transaction activity in the second half of 2018. The value of cross-border merger and acquisitions (M&As) rose by 18%, fueled by United States MNEs using liquidity in their foreign affiliates.

Developing country flows managed to hold steady (rising by 2%), which helped push flows to the developing world to more than half (54%) of global flows, from 46% in 2017 and just over a third before the financial crisis.

Half of the top 20 host economies in the world are developing and transition economies.

Despite the FDI decline, the United States remained the largest recipient of FDI, followed by China, Hong Kong (China) and Singapore.

In terms of outward investors, Japan became the largest followed by China and France. The United States was out of the top 20 list, due to its MNEs massive repatriation of investment earnings.

Modest recovery likely in 2019

In 2019, FDI is expected to recover in developed economies as the effect of the U.S. tax reforms winds down.

Greenfield project announcements – indicating forward spending plans – also point to a rise, as they were up 41% in 2018 from a low in 2017.

Nevertheless, the weak underlying FDI trend indicates that a rise in FDI may be relatively modest and may be further reined in by other factors, such as geopolitical risk, escalating trade tensions and a global shift towards more protectionist policies.

The underlying FDI growth trend has been anemic since 2008. If one-off factors such as tax reforms, megadeals and volatile financial flows are stripped out, FDI over the past decade averaged only 1% growth per year, compared with 8% between 2000 and 2007, and more than 20% before 2000.

“The stagnating trend of the decade is ascribed to a range of factors that include declining rates of return on FDI, the increasingly asset-light forms of investment and a generally less favourable investment policy climate,” said UNCTAD’s investment and enterprise director, James Zhan.

“However, the current trend is more of policy driven than economic cycle driven,” he emphasized.

State-owned MNEs are close to 1,500, with their presence in the top 100 global MNEs increased by one to 16.

The value of their M&A activity shrank to 4% of total M&As in 2018, following a gradual decline from more than 10% on average in 2008–2013. Much of the continued expansion of international production is driven by intangibles.

Longer-term trend

The longer-term trend also shows the growth of non-equity modes of international production outpacing FDI, as evidenced by the relative growth rates of royalties, licensing fees and services trade.

The top 100 MNE ranking for 2018 shows the importance of industrial MNEs sliding, with some dropping out of the list.

MNEs in the global top 100 account for more than one third of business-funded R&D worldwide. International greenfield investment in R&D activities is sizeable and growing.

New data on the global network of direct and indirect bilateral FDI relations show the important role of regional investment hubs in intraregional trade.

A significant part of investment between developing countries (South–South FDI) is, however, ultimately owned by developed-country MNEs.

Foreign direct investment inflows, global and by group of economies, 2007-2018
(Billions of dollars and per cent)

Foreign direct investment inflows, top 20 host economies 2017 and 2018
(Billions of dollars)

Foreign direct investment outflows, top 20 home economies 2017 and 2018
(Billions of dollars)

FDI inflows and the underlying trend, 1990-2018
(Indexed, 2010 = 100)

BRAZIL: https://unctad.org/sections/dite_dir/docs/wir2019/wir19_fs_br_en.pdf

Foreign direct investment to Latin America and the Caribbean slides by 6%12 June 2019. Investment flows to and from the region are expected to hold steady in 2019, as commodity prices and economic conditions in major economies stabilize.

Foreign direct investment (FDI) flows to Latin America and the Caribbean slipped by 6% in 2018, to US$147 billion, failing to maintain momentum after the 2017 increase halted a long slide, according to UNCTAD's World Investment Report 2019.

“Looking forward, there are numerous positive factors to attract investors. Natural resources, infrastructure and consumer goods should continue to attract foreign investors,” UNCTAD’s director of investment and enterprise, James Zhan, said.

He noted, however, that the region remained vulnerable to external developments.

South and Central America

Flows to South America were down by 6%, to $101 billion, owing to less investment in Brazil and Colombia.

The challenging economic situation in Brazil and a sharp drop in merger and acquisition (M&A) deals – from record levels in 2017 – dragged down flows to the country by 9%, to $61 billion.

In Colombia, flows fell by 20%, to $11 billion.

In the rest of South America flows held steady, bar Ecuador where FDI doubled to $1.4 billion driven by a surge of investment in the mining industry.

In Central America flows were stable at $43 billion.

In Mexico increased reinvested earnings by existing foreign affiliates helped investment hold steady at $32 billion.

Flows to Panama were up by 21% to $5.5 billion, boosted by record M&A deals and mining projects.

The Caribbean

In the Caribbean, excluding offshore financial centres, flows declined by 32%.

The contraction was owed to lower FDI ($2.5 billion) in the Dominican Republic, the largest recipient in the subregion, despite strong economic growth there in 2018.

Flows to Haiti and Jamaica also fell, to $105 million and $775 million, respectively.

Outward investment by Latin American MNEs plunged to a low of $6.5 billion in 2018, as Brazilian foreign affiliates funnelled financial resources back to their parents and investment from Chile crimped.

However, investment from Argentina, Colombia and Mexico increased.

Flows expected to hold steady in 2019

Investment flows to and from the region are expected to hold steady in 2019, as commodity prices and economic conditions in major economies stabilize.

Trade tensions among its main trading partners and a global economic slowdown posed a significant risk to the region’s commodity-driven exports, which could dampen FDI prospects, said Mr. Zhan.

An increasing number of countries in the region are looking to special economic zones (SEZs) to unlock economic development.

There are almost 500 SEZs in the region, hosting more than 10,000 enterprises and employing about 1 million people.

SEZs in Costa Rica, the Dominican Republic and Nicaragua account for more than half of those countries’ exports, while SEZs from Mexico and Colombia, respectively, are responsible for 31 %; and 13 % of their total exports.

In the last five years Argentina, Brazil, Ecuador, El Salvador, Guatemala, Mexico, Paraguay, Peru, and Uruguay have all revised their SEZs strategies to bring them on par with industrial parks and development zones to create employment and foster technological upgrading.

This could result in 20 to 30 new SEZs being established or brought into operation in the next five years.

Inflows: top 5 economies
(Billions of dollars)