No time to relief for the breakbulk and he[ds_preview]avylift shipping sector: According to latest estimates by the United Nations body UNCTAD, global foreign direct investment (FDI) flows are expected to drop to between $1.5 and $1.6 trillion in 2016, a fall of 10% to 15% from 2015, before recovering in 2017 and 2018.
In its Global Investment Trends Monitor, which was released today, UNCTAD says that FDI flows have been volatile in recent years, with analysts warning that this uncertainty will have its own negative impact on trade and global value chains. »In the meantime, the road to the recovery of global FDI looks rocky«, Secretary-General Mukhisa Kituyi said. »This drop in FDI is troubling, because our global economy urgently needs investment to get it going again,« Dr. Kituyi said. He forecasts FDI to pick up in 2017, then to reach $1.8 trillion in 2018, but it would remain lower than the pre-crisis peak.
One striking aspect of the analysis is the diversity between the different regions, the report says. In Africa, FDI inflows would likely return to growth in 2016 as a result of liberalization measures and planned privatizations. After steep falls for the past three years, FDI flows into transition economies are expected to increase modestly too. But in developing Asia and in Latin America and the Caribbean, FDI is expected to decline. In developed economies, FDI grew sharply in 2015, but this growth is not expected to last in 2016. Overall, expectations about short term FDI flows are best described as mildly pessimistic. FDI will decline in both developing and developed countries.
Some results of the analysis are:
- Macroeconomic factors, such as exchange rate volatility, lower commodity prices and debt concerns in emerging markets are among the factors cited as influencing future global FDI activity. However, there are differences across sectors and between economic groupings. Executives from developing and transition economies are more optimistic than those at MNEs headquartered in developed countries; and not unexpectedly, given the decline in commodity prices, MNEs from the primary sector are more pessimistic than those in the manufacturing and, especially, services sectors.
- Executives overwhelmingly considered factors such as the state of the United States economy; agreements such as the Transatlantic Trade and Investment Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TTIP); ongoing technological change and the digital economy; global urbanization; and offshoring as likely to boost FDI between now and 2018.
- The biggest difference in spending is between different sectors. Sixty per cent of MNEs in the primary sector – mainly oil, gas and mining – anticipate lower FDI expenditures this year, with only a fifth expecting an increase. This compares with MNEs in manufacturing and services, where a little over 20 per cent expect a fall and over 40 per cent an increase in both sectors. Moreover, the slump in prices and activity in the primary sector is expected to persist. By 2018 still only 33 per cent of MNEs in the primary sector expect to be spending more. The equivalent proportion for MNEs in manufacturing and services is much higher, at 52 and 63 per cent respectively.
- Consistent with their internationalization intentions, executives indicated that cross border deals and exports will continue to be the preferred ways to enter foreign markets in the next few years. This year‘s results suggest that companies are more concerned with consolidating their position and completing their initial investments rather than engaging in new greenfield investment; 44 per cent of respondents considered follow – on investments very or extremely important in 2015, rising to 46 per cent by 2018. In comparison only 30 per cent of MNEs considered greenfield investment very or extremely important in 2015.
- FDI inflows to Africa could return to a growth path in 2016, increasing by an average of 6 per cent to $55–60 billion. This bounce-back is already becoming visible in announced greenfield projects in Africa. In the first quarter of 2016, their value was $29 billion, 25 per cent higher than the same period in 2015. The biggest rise in prospective investments are in North African economies such as Egypt and Morocco, but a more optimistic scenario also prevails more widely, for example in Mozambique, Ethiopia, Rwanda and the United Republic of Tanzania. Depressed conditions in oil and gas and in mining continue to weigh significantly on GDP growth and investment across Africa. The rise in FDI inflows, judging by 2015 announcements, will mostly occur in services (electricity, gas and water, construction, and transport primarily), followed by manufacturing industries, such as food and beverages and motor vehicles.
- To reduce the vulnerability of Africa to commodity price developments, countries are reviewing policies to support FDI into the manufacturing sector. East Africa has already become more attractive in this sector as a source and investment location, especially in light manufacturing. MNEs are therefore investing across Africa for market-seeking and efficiency-seeking reasons.
- Hindered by the current global and regional economic slowdown, FDI inflows to Asia are expected to decline in 2016 by about 15 per cent, reverting to their 2014 level. Data on cross-border M&A sales and announced greenfield investment projects support the expected decline. There are indications that intraregional investments are rising: 53 per cent of announced greenfield projects in developing Asia by value in 2015 were intraregional, especially from China, India, the Republic of Korea and Singapore. Among the most important industries driving this intraregional development are infrastructure and electronics. The rise of investments from Singapore to India exemplify this trend. FDI flows to some Asian economies such as China, India, Myanmar and Viet Nam are likely to see a moderate increase in inflows in 2016. In India, the large increase of announced greenfield investments in manufacturing industries may provide further impetus to FDI into the country. Viet Nam is expected to continue strengthening its position in regional production networks in industries such as electronics, while Myanmar is likely to receive increasing levels of FDI inflows in infrastructure, labour-intensive manufacturing and extractive industries. Announced greenfield projects in Myanmar totalled $11 billion in 2015 and $2 billion in the first quarter of 2016, pointing to sustained FDI inflows in the near future. In addition, on the basis of greenfield announcements in 2015, a number of other economies may perform better, including Bhutan, the Islamic Republic of Iran and Pakistan.
