Global FDI inflows recovered in 2015

22 Jan 2016

Tags

  • Mark Thirlwell
  • Australian Economy
  • FDI
  • International Investment

UNCTAD has released its first estimates of global foreign direct investment (FDI) flows for last year. According to UNCTAD, global FDI inflows surged by an impressive 36 per cent in 2015, reaching an estimated US$1.7 trillion, the strongest result since the onset of the global financial crisis.

FDI inflows rebounded in 2015

Strikingly, the main reason for the jump in total FDI was a marked increase in flows into developed economies, which increased by almost 90 per cent relative to the 2014 outcome and at an estimated US$936 billion reached their second-highest nominal total on record. The biggest change involved FDI into the United States which last year quadrupled from a historically low level in 2014. 1 There was also a marked rise in FDI inflows to the EU, breaking the previous pattern of three consecutive years of declines. All up, the share of developed economies in total inflows rebounded from a bit less than 40 per cent of global inflows in 2014 to a little more than 55 per cent of global inflows last year, exceeding the total for emerging and transition economies for the first time since 2011.

A recovery in FDI in developed economies

Meanwhile, inflows to developing and transition economies are estimated to have grown only modestly in 2015, rising from US$752 billion in 2014 to US$763 billion in 2015. However, all of that increase occurred in the form of inflows to developing economies (up from US$703 billion to US$741 billion). Meanwhile, inflows to transition economies more than halved (down from US$49 billion to US$22 billion) in 2015, with FDI inflows to Russia down by 92 per cent.

By region, FDI inflows to emerging Asia were up 15 per cent and to West Asia were up five per cent, with inflows to India almost doubling. Inflows to Africa were down 31 per cent, however, while Latin America experienced an 11 per cent decline.

UNCTAD also tabulates the top ten destinations for FDI last year. This data shows that the United States returned to its position as the most important destination for global FDI inflows in 2015 following its temporary dethroning by China in 2014. Hong Kong held on to second spot and China moved down the rankings to third place (although in absolute terms it still received more FDI dollars than in 2014).

Top ten destinations for FDI 2015E vs 2014

According to UNCTAD’s preliminary estimates, after four consecutive years in the top ten, Australia slipped out of the rankings last year, due to a 33 per cent decline in FDI inflows reflecting a combination of significant divestment of mining assets plus a large swing in intra-company loans from net inflows of US$13 billion in 2014 to a net repayment of US$4 billion last year). The decline in FDI into the resource sector was felt more broadly: a similar pattern applied in the case of Canada (where FDI inflows were down 16 per cent), and a range of other commodity exporters saw marked declines in inward investment flows (as well as the big drop in Russian inward FDI noted above, there were also sizeable declines in inward FDI flows for Brazil, Chile, South Africa, Nigeria and Kazakhstan, for example).

Finally, the data also show that most of the overall increase in FDI last year was driven by a wave of cross border mergers and acquisitions which increased by 61 per cent to reach their highest level since 2007. According to UNCTAD, a sizeable part of FDI flows in 2015 ‘was related to corporate reconfigurations involving large values in the financial account of the balance of payments but little movement in actual resources.’ In contrast, the announced value of greenfield FDI in new assets was little changed, up by less than one per cent over the 2014 outcome.

1 The US data for 2014 was heavily influenced by the US$130 billion divestment of Verizon by the UK’s Vodafone.