With some of the major global events of 2016 expected to dampen global FDI, will the progress since the global recession be undone?
UNCTAD’s World Investment Report was released in June 2016, reporting on FDI trends (by capital expenditure) for 2015. It provided a number of encouraging statistics, with the headline being that FDI had increased by 38% on the previous year, to reach its highest level since 2008. While this data is tempered by taking into account corporate reconfigurations, and 2016 was forecast to see a slight decrease, nevertheless the report expected that 2017 would see a return to further growth.
So largely good news. However, other aspects to the data show a picture that is weaker, and may become more so given the political events of 2016, and those coming up in 2017:
M&A: Much of the 2016 growth was down to mergers and acquisitions deals. This more cautious approach to investment is increasingly becoming the preferred route over greenfield investment. But the potential benefits to host economies are less clear, while Investment Promotion Agencies are also less able to influence these corporate decisions. Continued political uncertainty will only further swing the pendulum towards M&A.
Developed economies: Investment in developed countries more than doubled in 2015, to again be the larger global share overall. However political uncertainty again makes it hard to see this maintained in the future. So, while US investment actually quadrupled (an equipped Select USA has helped), time will tell whether data on 2016 and then 2017 follows the trend.
Developing economies: FDI growth was relatively limited in 2015 data, and was mainly led by developing Asia. As the global political climate changes, developing economies may need to increasingly look towards FDI from within their own region. Existing weaknesses in flows may then be further exposed.
Policy liberalization: 85% of all investment policy measures across the world were towards liberalization in 2015. Should the US adopt a more protectionist agenda, other countries can be expected to do the same.