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Global foreign investment at 3-year low

Business investments across national borders or overseas plunged almost a quarter in 2017, and trade tensions may cause more setbacks, UNCTAD said.

GENEVA (AN) — Business investments across national borders or overseas plunged by almost a quarter in 2017, and increased trade tensions between the world's major economies could lead to more such setbacks, the United Nations Conference on Trade and Development reported.

The release of UNCTAD's World Investment Report 2018 comes amid geopolitical and trade tensions, financial volatility, rising interest rates in rich nations and expected weaker demand for commodities. Despite those challenges there has been continued but slowing recovery from the crisis that began with the collapse of Lehman Brothers in September 2008 and almost toppled the world’s financial system.

A day before UNCTAD's report, the World Bank predicted global growth will slow slightly from a robust 3.1% in 2018 down to 3% in 2019 and to 2.9% in 2020. UNCTAD said flows of global foreign direct investment — cross-border investment among companies and individuals throughout the globe — fell by 23% to US$1.43 trillion in 2017, down from US$1.87 trillion in 2016.

The figures, it said, are "in stark contrast to other macroeconomic variables, which saw substantial improvement in 2017."

The decline in foreign direct investment and a slowdown in global value chains, which represent the sum of what is needed to produce a good or service, should be "a major concern for policymakers worldwide, and especially in developing countries,” said UNCTAD Secretary-General Mukhisa Kituyi.

“Investment in productive assets will be needed to achieve sustainable development in the poorest countries," he said in a statement. UNCTAD blamed some of the decline on a 22% decrease in the value of cross-border mergers and acquisitions.

Slowdown envisioned

The report showed global investment remained below its 10-year average last year and the trend would likely be the same in 2018.

UNCTAD said it also noticed a worrying negative trend in the rate of return for global investments: the average rate, which was 8.1% in 2012, fell to 6.7% in 2017, most noticeably among African, Caribbean and Latin American nations.

The value of announced so-called greenfield investments, which involve an outside company building new operations overseas from the ground up — and is considered an important indicator of future trends — fell to US$720 billion, a decline of 14%, in 2017.

"Prospects for 2018 are therefore muted. Global flows are forecast to increase marginally but remain well below the average over the past 10 years," UNCTAD said.

"An escalation and broadening of trade tensions could negatively affect investment in global value chains (GVCs)," it said. "As a result of the investment downturn, the rate of expansion of international production is slowing down."