Foreign investment slump worse than thought and facing new risks, U.N. says

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By Reuters
Foreign investment slump worse than thought and facing new risks, U.N. says

By Tom Miles

GENEVA (Reuters) – Global foreign direct investment (FDI) fell by almost a quarter to $1.43 trillion (£1.07 trillion) last year and the outlook is clouded by risks including trade wars and debt, the United Nations trade and development agency UNCTAD said on Wednesday.

Preliminary figures released earlier this year showed a 16 percent decline, a surprise downturn led by steep reversals in Britain and the United States.

That has been revised to a 23 percent fall, with growth expected to be less than 10 percent in 2018, well below the average over the past decade.

“The report paints a rather depressing picture,” UNCTAD Secretary-General Mukhisa Kituyi told a news conference.

UNCTAD investment chief James Zhan said the steeper decline in 2017 was largely caused by a revision of 2016 data, when more funds flowed into U.S. assets than previously thought.

That year marked the end of a wave of “tax inversion” deals, whereby a U.S. firm was acquired by a small foreign business and adopted its domicile to get a lower tax rate.

FDI, a bellwether of globalisation and a potential sign of growth of corporate supply chains and future trade ties, faced many risks that were not adequately reflected in economic growth forecasts, Zhan said.

“Aside from trade tensions going into depth and width, geopolitical tension is also going up, and now the debt issue is coming up, not only for emerging markets but also for Europe,” he told Reuters.

Investments had also slowed because poorer returns and slowdowns in the global value chains that carry over 80 percent of global trade, Zhan said.

Multinationals were doing fewer big equity deals and more licensing, franchising and contract manufacturing, leaving no footprint on foreign soil.

It was too early to measure the impact of U.S. President Donald Trump’s policies of economic nationalism, but trade tensions would certainly affect FDI, Zhan said.

FDI inflows – including corporate takeovers and foreign-owned start-up projects – totalled $275 billion in the United States last year, Trump’s first year in office, down from $457 billion in 2016. The United States remained comfortably ahead of the No.2 destination, China, which attracted $136 billion.

FDI into Britain collapsed to $15 billion in 2017 from an anomalous $196 billion in 2016 caused by a few mega-deals. The 2017 figure was less than half of 2015 and a tenth of the average in the boom years before the 2007-08 financial crisis.

It is too soon to know if Britain’s planned exit from the European Union in 2019 is affecting FDI, Zhan said. Foreign investment equates to about 63 percent of Britain’s GDP, roughly double the foreign stake in French or German business.

“How to maintain that is a huge challenge,” said Zhan.

(Reporting by Tom Miles; editing by Mark Heinrich)