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ON THE LEFT: FDI flows uncertain for 2015


UNCTAD

ON THE LEFT: FDI flows uncertain for 2015

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GLOBAL FOREIGN direct investment (FDI) flows declined by eight per cent in 2014 to an estimated US$1.26 trillion, down from a revised US$1.36 trillion in 2013.

Flows were heavily influenced by economic uncertainty and geopolitical risks including regional conflicts, and by the US$130 billion mega buy-back of shares by Verizon, United States (US) from Vodafone, United Kingdom, which significantly reduced the equity component of FDI inflows to the United States.

With inflows to China at an estimated US$128 billion – including both financial and non-financial sectors – the country became the largest FDI recipient in the world in 2014. The United States fell to the third largest host country.

Among the top five FDI recipients in the world, four are developing economies. Preliminary estimates show that FDI flows to developed countries as a whole dropped by 12 per cent to an estimated US$511 billion. FDI flows to the US fell to an estimated US$86 billion – almost a third of their 2013 level.

FDI flows in developing economies remained resilient in 2014, reaching more than US$700 billion, the highest level ever recorded, and accounting for 56 per cent of global FDI flows. The increase was mainly driven by developing Asia – the world’s largest recipient region – while Latin America saw its flows decline. FDI flows to Latin America are estimated to have decreased by 19 per cent to US$153 billion in 2014, after four years of consecutive increases.

Most of the decline took place in Mexico where inflows are estimated to have fallen 52 per cent – or by US$22 billion – due to both the exceptional levels reached in 2013 – and the US$5 billion divestment by AT&T United States of its stake in America Movil.

FDI to Venezuela registered an estimated US$6 billion decline to US$900 000 due to a strong increase in reverse intra-company loans. Flows to Argentina were estimated to be down by 60 per cent to US$4.5 billion due to the US$5.3 billion compensation received by Repsol or the 2012 nationalisation of 51 per cent of YPF.

FDI flows are estimated to be down around four per cent to US$62 billion, affected by a strong fall in flows to the primary sector, while those to manufacturing and services increased.

Transition economies experienced a 51 per cent decline in their FDI inflows, reaching an estimated US$45 billion, as regional conflict and sanctions on the Russian Federation – the largest host country in the region – have deterred foreign investors, especially from developed countries.

Trends in global FDI flows are uncertain for 2015. The fragility of the world economy, with growth tempered by hesitant consumer demand, volatility in currency markets and geopolitical instability will act as a deterrent for investors.

The decline in commodity prices will also lower investments in the oil and gas and other commodity industries. Among developed countries, the increased divergence in economic growth between the US and the euro area and Japan will lead to different patterns of FDI.

In developing and transition economies, slower growth prospects in some emerging markets and regional conflicts are likely to affect investment negatively.

United Nations Conference on Trade and Development (UNCTAD).

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