FDI’s Cloudy Deal Dilemma
UNCTAD’s 2015 global FDI review showed a 35 percent jump to $1.7 trillion, mainly in industrial countries which recaptured over half the total, but cross-border mergers with “limited productive impact” were the catalyst with this year’s developing economies outlook remaining “cloudy,” the Geneva-based agency commented. The latter flows were up 5 percent to almost $750 billion, with $500 billion to Asia, while commodity-dependent Latin America, Africa and transition Europe saw declines with a particular drop in greenfield projects. The amount was the highest since 2008, and the US was first with $385 billion, followed by Hong Kong’s $165 billion but both increases were due primarily to tax inversion and corporate restructuring. The EU received $425 billion, led by the Netherlands ($90 billion) and UK ($70 billion). France doubled to $45 billion and Germany returned to $10 billion positive allocation after 2014 net divestment. Australia fell one-third and Canada 15 percent on poor mining and natural resources prospects. Mainland China rose 5 percent to $135 billion, with services drawing interest to offset manufacturing weakness. ASEAN was off 7 percent, while FDI into India doubled to $60 billion with government promotion steps. Turkey’s take in the West Asia geography improved to $15 billion from banking industry and other acquisitions.
In remaining regions Sub-Sahara Africa saw drops in commodity giants Nigeria and South Africa to $3.5 billion and $1.5 billion respectively, while North Africa rebounded with Egypt getting $6.5 billion. Latin America was down 10 percent to $150 billion, with Brazil tumbling one-quarter to $55 billion. Chile and Colombia softened, but Peru gained 10 percent and Argentina’s main transaction was Spanish company Repsol’s compensation for YPF’s nationalization. Mexico spurted 15 percent to $30 billion on a flurry of “megadeals” like AT&T’s takeover of wireless provider Iusacell. Geopolitics and raw materials reversal halved Russia and Central Asian neighbors to $20 billion, but foreign investors continued hydrocarbon exposure with Malaysia taking a $2 billion stake in Azerbaijan’s gas supplies. Cross-border M&A was a post-crisis record at $650 billion, with $350 billion concentrated in manufacturing. Financial services slumped but real estate and transportation deals accelerated. Advanced economies took all but $70 billion of the total, and multinational firms cut greenfield projects across the developing world 20 percent. Emerging market stagnation may continue in 2016 with just 3 percent global GDP growth and regional tensions, but currency depreciation and corporate asset sales to repay debt could stimulate appetite, the UN arm concludes.
Brazil’s Petrobras has scaled back its disposal program with indifferent bidding, and instead sliced long-term capital outlays in an attempt to conserve cash as it remains severed from external debt markets. Officials have indicated that government rescue is “only a last resort” as basic monetary policy stability also comes into question with the central bank’s decision to stay on hold despite worsening 10 percent inflation, twice the target range. Observers speculate that President Rousseff, fighting impeachment moves, wielded influence to placate her Workers Party political base. The IMF also downgraded this year’s recession forecast to a 3.5 percent contraction to heighten alarm and challenge tightening, as both direct and portfolio investors criticize cloudy policy direction.
