Recovery in foreign direct investment is unexpectedly strong, but lacks productive impact
Global flows of foreign direct investment jumped 36 per cent in 2015 to an estimated $1.7 trillion, their highest level since the global economic and financial crisis of 2008-2009, the latest UNCTAD Global Investment Trends Monitor reports.
A surge in FDI targeting developed economies (+90%) was the principal factor behind the global rebound. Strong growth in flows was reported in the European Union (EU) as well as in the United States where FDI quadrupled, although from a historically low level in 2014.
As a result, the pattern of FDI by economic grouping tilted in favor of developed countries which now account for 55% of global FDI inflows in 2015.
However, the growth was largely due to cross-border merger and acquisitions, with only a limited contribution from greenfield investment projects in productive assets. Moreover, a part of FDI flows was related to corporate reconfigurations involving large values in the financial account of the balance of payments but little movement in actual resources.
Developing economies saw their FDI reaching a new high of US$741 billion, 5% higher than in 2014. Developing Asia, with its FDI flows surpassing half a trillion US dollars, remained the largest FDI recipient region in the world, accounting for one third of global FDI flows. Flows faltered in Africa and Latin America and the Caribbean (excluding offshore financial centers) reflecting the plummeting prices of their principal commodities exports.
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 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.