UNCTAD’s Direct Investment Optimism Optics
The UN Trade and Development Commission expressed FDI “cautious optimism” after it rose almost 10 percent last year to $1.5 trillion, with developing and transition economies taking 60 percent of the figure led by the Asia region. The industrial world share is at an historic low and emerging markets are half the top 20 destinations with China second globally. Their transnational corporations also account for 40 percent of outward direct investment, and poorer states in Africa and elsewhere rely only 10 percent on extractive industry while 90 percent of inflows are now for manufacturing and services. In North America shale gas and worldwide pharmaceuticals have experienced major takeovers as the latter had Q1 M&A of $25 billion in 50 deals. Private equity firm assets surpassed $1 trillion in 2013 but net allocation of $85 billion was “subdued” and concentrated on the US and Europe, according to UNCTAD. Less than 2 percent of sovereign wealth funds’ $6.5 trillion is FDI-directed but state-owned multinationals represent one-tenth the global total. Emerging market private and government-run firms had $1 trillion in cash on hand as they expanded overseas faster than developed country competitors. Africa’s number rose 5 percent to $55 billion with only the Central and West sub-regions dropping. Intra-African commitments from South Africa, Kenya and Nigeria for greenfield projects were one-fifth of activity. Asian inflows dwarfed other regions at $425 billion, $125 billion into China, where outflows of $100 billion were almost equal. Southeast Asia collectively received the same sum, while the subcontinent got $35 billion. Latin America-Caribbean’s take was $300 billion, but South America’s component fell 5 percent, and Brazilian and Chilean companies’ outbound investment slumped one-third to $30 billion. Transition Europe rose 30 percent to $110 billion mainly to Russia, where companies also spearheaded reverse FDI into CIS and EU economies. Advanced country inflows of $550 billion were almost half into the EU, with Germany rebounding and France and the UK in “steep decline.” Japanese outflows were $135 billion as Abenomics accelerated offshore establishment. The poorest countries in Asia and Africa had an uptick in energy projects, but small islands suffered from the loss of apparel and fishing trade preferences. On investment policy the decade-long liberalization trend was partially eroded with one-quarter of new measures in a sixty-country universe restrictive, the agency found.
Incentives are geared mostly to information and business services, and 45 additional international treaties were signed last year. “Megaregional” agreements such as the European-US TTIP and pan-Pacific TPP are now prominent, with a half-dozen ongoing negotiations involving 90 countries, but they could “create inconsistencies and marginalize third parties,” the reference warned. The interlocking networks have fostered record arbitration filings, with 575 disputes outstanding. Intra-EU cases dominated the latest round, and investor-state conflict resolution has been highlighted as a key feature of future pacts with panel procedures and transparency subject to debate as in the existing government to government WTO mechanism with its own friction.
