The UN’s trade and development agency charted a third consecutive year of FDI decline in its annual review, down almost 15% in 2018 to $1.3 trillion although the developing country portion rose 2%, led by Africa and Asia. The industrial world total fell over one-quarter, largely due to capital repatriation under more favorable US tax treatment. This year’s forecast is for 10% recovery, as greenfield manufacturing investment momentum should continue. The estimated 1500 state-owned multinationals slowed their acquisition pace, with deals increasingly focused on intangibles like technology rather than physical plant. Of the 100 new policies announced globally, one-third were restrictive, the highest portion in decades. Tougher screening is a main thrust, but 40 additional trade pacts were also signed last year often to replace provisions in old agreements, especially on dispute settlement. Capital market trends incorporating sustainability criteria influence policy and practice, and also special economic zone creation now in the thousands. They are tied to specific industries and value chains, and the tendency is toward more worker inclusion and environmental responsibility. Advanced economies’ performance was the worst in 15 years, and the US, Europe and Australia were less than half the worldwide haul. Emerging markets took $700 billion, topped by China, where outbound investment slipped 10%. Despite hype, South-South FDI is under 30% of the overall total when measured by ultimate ownership, as the ASEAN and African free trade zones are expected to deepen regional relationships. The latter got $45 billion last year, up 10% with the Maghreb, Kenya and South Africa prominent. Conflict countries such as Congo were commodities and mining destinations, while consumer goods and renewable energy were among the continent’s diversified plays. Asia received $500 billion, with China and Southeast Asia roughly even at $150 billion, and India $45 billion. Outflows were roughly $400 billion, with increases from Korea and Thailand despite stricter US and Europe guidelines.
Latin America fell 5%, while natural resources in Argentina and Chile were “resilient” and Caribbean allocation outside offshore financial services was off 30%, according to UNCTAD. Russia and its neighbors got $35 billion, with Moscow’s portion halved while Serbia and smaller Balkans members saw pickups. Fifty low-income economies attracted less than 2% of global FDI, with Chinese multinationals “increasingly active.” Small island states are limited to hotels and tourism, while Sub-Sahara Africa and Central Asia offer raw materials and processing. Asia embraced liberalization with administrative procedure cuts and state company selloff, but a broader trend was national security scrutiny in sensitive industries scuttling two dozen transactions. Another 70 investor arbitration cases were filed last year, as the next generation of bilateral treaties updates this framework following UN recommendations. Stock exchanges continue to subscribe to ESG principles in a common initiative that translates into downstream projects, the study notes. Dedicated economic zones have “spread rapidly” with 5000 currently in 150 countries, and are now a linchpin of international cooperation and regional integration. They are traditionally geared toward manufacturing exports linking local participants in external supply chains, but future direction will emphasize quality labor standards and skills training under the 2030 Development Goals’ “changing production pattern,” the report concludes.