Global foreign direct investment has fallen to its lowest level since the financial crisis as richer countries lead the world into a retreat from a “heyday of export-led growth”, according to a UN report.
The 13 per cent drop in worldwide FDI to $1.3tn in 2018 — the third consecutive year in a row — comes amid rising global protectionism and an increase in US profits being repatriated after the Trump administration’s 2017 tax reform.
Investment from Chinese multinationals also fell for the second year in a row, dropping 18 per cent to $130bn, as a result of state policies to curb overseas investment, as well as growing screening of inward investment in the US and Europe.
Mukhisa Kituyi, secretary-general of the United Nations Conference on Trade and Development (Unctad), which tracks dealmaking, portfolio and greenfield investment, said: “For some time now, the global policy climate for trade and investment has not been as benign as it was in the heyday of export-led growth and development.”
Last year the number of restrictive policy measures affecting foreign investment was close to a record high, according to Unctad’s annual global investment report. While only about one in 10 policy measures affecting investment was restrictive 16 years ago, by last year that proportion had risen to one in three.
Most of the restrictions introduced last year — 21 of 31 — were in developed countries, while there were substantial increases in 2017 and 2018 in screening processes for FDI.
For example, Germany broadened the definition of critical infrastructure in its investment screening process to include news and media, while the UK lowered the thresholds that trigger investment screening from £70m to £1m in high-tech industries.
In contrast, emerging economies in Asia overwhelmingly adopted measures aimed at the liberalisation, promotion and facilitation of investment.
Unctad’s report also warns that last year an estimated $153bn worth of merger and acquisition deals were blocked or withdrawn for regulatory or political reasons — double the number in 2017.
The drop in investment inflows was geographically uneven with the largest drop in developed economies, particularly in Europe, influenced by large repatriations of US foreign earnings following tax reforms at the end of 2017.
Inflows also fell in Latin America and non-EU members in eastern Europe, while they rose marginally in Africa and more significantly in Asia, which saw a 4 per cent rise.
Disregarding the fluctuations caused by US tax reform and other volatile elements, “the underlying FDI trend . . . was still negative”, stated the report.
In the past decade, foreign investment growth net of megadeals, large tax repatriations and volatile financial flows has averaged only 1 per cent, compared with 8 per cent between 2000 and 2007, and more than 20 per cent before 2000, according to the report.
“The demand for investment is as strong as ever, the supply is dwindling and the marketplace is less friendly then before,” said Mr Kituyi.