FDI inflows to Australia buck global trends

Australia attracted US$62 billion in foreign direct investment (FDI) inflows in 2018, an increase of almost 40% on 2017. This strong performance ensured Australia maintains its ranking as a global top 10 destination for FDI.

UNCTAD has released preliminary estimates for global FDI flows in 2018. The numbers show that total flows dropped by 19% last year, declining from US$1.47 trillion in 2017 to an estimated US$1.2 trillion in 2018. The soft performance is in line with the 2018 outcomes for world GDP and trade growth, which were moderately slower than 2017.

UNCTAD still expects FDI flows to rebound this year, though the underlying trend remains weak. On the positive side, greenfield project announcements, an indicator of future trends, rose by 29%, though from relatively low levels.

UNCTAD cautions that: ‘Increased risks are emerging from recent downward revisions in growth forecasts, policy factors including trade tensions and uncertainty about the global policy environment for investment, and the possibility of structurally lower reinvested earnings by United States multinational enterprises.’

  • The new UNCTAD figures suggest that 2018 was a strong year for FDI into Australia. According to UNCTAD, estimated inflows jumped by almost 40% to US$62 billion. This surge in investment reversed the relatively soft performance (down 3%) in 2017, and has also seen Australia maintaining its global ranking in the top 10 FDI host nations.
  • Australia’s result bucked the trend in developed economies, with flows falling by 40% to reach an estimated US$451 billion. Inflows to developing economies remained resilient, rising by 3% to US$694 billion.
  • Developing economies received about 58% of total world FDI inflows by value last year. Half of the top 10 host economies are now developing economies (see chart below).
  • By region, FDI inflows into Europe fell sharply to US$100 billion (down US$272 billion, or 73%) and those to North America by 13% to US$263 billion in 2018. Note, however, that within that European total, completions of M&A megadeals resulted in stronger flows to the United Kingdom (up one-fifth to an estimated US$122 billion in 2018), the Netherlands (up 11% to US$64 billion) and Spain (tripling to US$70 billion).
  • Other regions that experienced a decline in FDI inflows in 2018 included Latin America and the Caribbean (down US$6 billion or 4% to US$149 billion) and transition economies (down US$4 billion or 8% to US$44 billion).
  • Meanwhile, FDI inflows to developing Asia increased by 5% or US$24 billion in 2018 to US$502 billion, driven by strong inflows into Singapore and China (up US$15 billion to US$77 billion and US$5 billion to US$142 billion respectively).
  • While estimated total FDI flows were down, worldwide cross-border M&A activity reached a new post-2007 high in 2018, rising by 19% to US$822 billion. This strong growth was largely due to MNEs taking advantages of low borrowing costs and strong liquidity positions, according to UNCTAD’s latest study. The freeing-up of retained earnings of the US MNEs may also have contributed: one-third of the global M&A deals were undertaken by US MNEs, double the 2017 level.[1]

FDI inflows to Australia buck global trends

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[1]  UNCTAD Investment Trends Monitor, Issue 31, January 2019, page 6