World Investment Report 2017


Chapter 1 – Global Investment Prospects and Trends

Cautious optimism

A modest recovery in global FDI flows is forecast for 2017, although flows are expected to remain well below their 2007 peak. A synchronized upturn in economic growth in major regions and improved corporate profits will boost business confidence and MNEs’ appetite to invest. A cyclical recovery in the manufacturing sector and in international trade is expected to result in faster growth in developed countries, while a likely strengthening of commodity prices should underpin a recovery in developing economies in 2017. As a result, global FDI flows are expected to increase by about 5 per cent in 2017 to almost $1.8 trillion (figure 1). The moderate rise in FDI flows is expected to continue in 2018, to $1.85 trillion.


Elevated geopolitical risks and policy uncertainty for investors could have an impact on the scale and contours of the FDI recovery in 2017. Political developments – such as the United Kingdom’s exit from the European Union, moves by the administration in the United States to abandon the Trans-Pacific Partnership and to renegotiate key trade agreements such as the North American Free Trade Agreement (NAFTA), and elections in Europe – have all heightened uncertainty. A potential tax reform in the United States could also significantly affect FDI flows, if United States MNEs reduce retained earnings held in their overseas affiliates.

The 2017 UNCTAD business survey results indicate renewed optimism about FDI prospects. Unlike in 2016, a majority of the executives polled, particularly in developed economies, are confident that the economic upturn will strengthen, prompting increased investment in the coming years (figure 2). A significant change in sentiment from last year is evident among corporations active in the primary sector. Having endured a hard downturn in the past two years, natural-resource-based MNEs, especially in the oil industry, seem to have turned the corner, and most executives now expect increased investment over the next two years.


The United States, China and India remain the top prospective FDI destinations (figure 3). Executives maintain their confidence in developing Asia’s economic performance and predict increased investments in South-East Asia, with Indonesia, Thailand, the Philippines, Viet Nam and Singapore, in that order, all improving their ranking among the most promising host countries.


Responses to UNCTAD’s 2017 survey of investment promotion agencies (IPAs) point to the most promising industries in which they expect to attract FDI. IPAs from developed economies targeted information technology and professional services, while their developing-country counterparts singled out agribusiness as one of the most promising industries. Information and communications – which includes telecommunication, data processing and software programming – is also emerging as a target industry in selected developing countries. The 2017 list of top prospective investor countries, as indicated by IPAs, follows the trend of recent years: China remains the most promising source of FDI, closely followed by the United States, Germany and the United Kingdom.

Increased FDI expected in most regions

Developing economies are likely to see a 10 per cent increase of inflows in 2017, not yet fully returning to the 2015 level, while flows to developed economies are expected to hold steady. There will be significant variation among regions (table 1).


FDI inflows to Africa are expected to increase slightly in 2017, to about $65 billion, in view of modest oil price rises and a potential increase in non-oil FDI. Announced greenfield FDI projects in 2016 were high in real estate, followed by natural gas, infrastructure, renewable energy, chemicals and automotives. Advances in regional and interregional cooperation, through the signing of economic partnership agreements with the European Union (EU) by regional economic communities and the negotiations towards the Tripartite Free Trade Agreement should encourage stronger FDI. However, a slump in economic growth could harm investment prospects in 2017.

FDI inflows to developing Asia are expected to increase by 15 per cent in 2017, to $515 billion, as an improved economic outlook in major Asian economies is likely to boost investor confidence. In major recipients such as China, India and Indonesia, renewed policy efforts to attract FDI could contribute to an increase of inflows in 2017. In South and South-East Asia, several countries are expected to further strengthen their position in regional production networks. In West Asia, FDI is expected to remain flat, with the positive effect of gradually recovering oil prices offset by political and geopolitical uncertainty.

Prospects for FDI in Latin America and the Caribbean in 2017 remain subdued, as macroeconomic and policy uncertainties persist. Flows are expected to fall by about 10 per cent, to some $130 billion. Investment in the region’s extractive industries will likely be modest as operators continue to hold back on making capital expenditures. Investment in the region, especially in Central America, is also likely to be affected by uncertainties about economic policymaking in the United States.

FDI flows to transition economies are likely to rise moderately in 2017, to about $80 billion, supported by the bottoming out of the economic downturn, higher oil prices and privatization plans. However, they may be hindered by a range of geopolitical problems.

FDI flows to developed countries are expected to hold steady, at about $1 trillion. Flows to Europe are projected to recover, as the large volume of negative intracompany loans in 2016 is unlikely to be sustained. However, political events may yet derail the FDI recovery. In contrast, FDI flows to North America, which reached an all-time high in 2016, appear to be running out of steam and MNE executives are likely to take a wait-and-see approach in the face of policy uncertainty.

Global FDI flows lost growth momentum in 2016

In 2016, global FDI flows (Annex Table) decreased by 2 per cent to $1.75 trillion, showing that the road to full FDI recovery remains bumpy. Intracompany loans recorded a sizable drop; equity investments were boosted by an 18 per cent increase in the value of cross-border mergers and acquisitions (M&As). A fall in inflows to developing economies was partly offset by modest growth in developed countries and a significant increase in transition economies. As a result, the share of developed economies in global FDI inflows grew to 59 per cent.Flows to developed economies increased by 5

Flows to developed economies increased by 5 per cent to $1,032 billion. The decline of FDI flows to Europe was more than compensated by modest growth in flows to North America and a significant increase in investment in other developed economies. Developing economies, as a group, lost ground in 2016. Weak commodity prices and slowing economic growth weighed on foreign investment inflows, which fell by 14 per cent to $646 billion. In contrast, FDI to transition economies jumped to $68 billion, reversing the decline of the past two years.Developing economies continued to account for half of the top 10 host economies (figure 4). The United States remained the largest recipient of FDI, attracting $391 billion in inflows, followed by the United Kingdom with $254 billion, vaulting from its 14th position in 2015 on the back of large cross-border M&A deals. China was in

Developing economies continued to account for half of the top 10 host economies (figure 4). The United States remained the largest recipient of FDI, attracting $391 billion in inflows, followed by the United Kingdom with $254 billion, vaulting from its 14th position in 2015 on the back of large cross-border M&A deals. China was in third position with inflows of $134 billion – a 1 per cent decrease from the previous year.


FDI remains a key source of finance for developing economies

Global external financial flows to developing economies were estimated at $1.4 trillion in 2016, down from more than $2 trillion in 2010. FDI remains the largest, and one of the least volatile, of all external financial flows to developing countries (figure 5). Overall, these flows sit well below the level of annual investment required in order to achieve the Sustainable Development Goals (SDGs) by 2030 (WIR14).


FDI outflows declined in all major regions

Outward investment from developed economies declined by 11 per cent to $1 trillion in 2016. Their share in global outward FDI flows (Annex Table) remained stable – at just over 70 per cent – as outflows from developing economies remained flat, at $383 billion, and those from transition economies contracted 22 per cent, to $25 billion. Investment by European MNEs, which had surged in 2015, retreated significantly in 2016, falling 23 per cent to $515 billion. This was driven by sharp reductions in outflows from Ireland, Switzerland and Germany. Investment by North American MNEs was roughly steady in 2016, despite a significant reduction in the value of their cross-border M&A purchases. The United States remained the world’s largest outward-investing country in 2016, although flows declined marginally (-1 per cent), to $299 billion (figure 6).


FDI outflows from developing Asia rose by 7 per cent to $363 billion. Chinese outward FDI rose by 44 per cent to $183 billion, driven by a surge of cross-border M&A purchases by Chinese firms, propelling the country to the position of second largest investor for the first time. In contrast, outward

FDI from members of the Association of Southeast Asian Nations declined. Outflows from Latin America and the Caribbean also shrunk. The top 20 investing economies include 6 developing and transition economies.

FDI flows to and from large economic groups such as the G20 and Asia-Pacific Economic Cooperation (APEC) continued to shape the global FDI landscape in 2016 (figure 7). Inflows to the G20 reached a record level of more than $1 trillion for the first time.


Some groups – the Commonwealth of Nations; the BRICS (Brazil, the Russian Federation, India, China and South Africa), the African, Caribbean and Pacific Group of States (ACP) – are, on average, net recipients of FDI flows, while others (the G20, APEC, NAFTA) are net exporters of FDI. Except for NAFTA, outward FDI from most large groups rose in 2016. Intragroup connectivity through FDI is high in the G20 and APEC and growing in BRICS and the ACP. In addition to these megagroups, interregional schemes such as the One Belt One Road initiative are poised to stimulate FDI among a broader range of countries.

A closer look at the high share of FDI in services

In 2015, the manufacturing and primary sectors accounted for 26 per cent and 6 per cent of global FDI stock, respectively. The services sector accounted for 65 per cent. A detailed look at what is in services FDI shows that its two-thirds share provides an inflated impression of the importance of the tertiary sector in cross-border investment. A large part of FDI in services relates to affiliates of primary sector and manufacturing MNEs that perform services-like activities, including headquarters or back-office functions, financial holdings, procurement or logistics hubs, distribution services, and research and development. In sectoral FDI data, such activities are allocated to services as the default category. FDI in services could thus be overstated by more than a third.

Slower growth in international production affects global trade

International production by foreign affiliates of MNEs is still expanding, but the rate has slowed in recent years. The average annual growth rates over the last five years of foreign affiliate sales (7.3 per cent), value added (4.9 per cent)and employment (4.9 per cent) were all lower than in the equivalent period before 2010 (at 9.7 per cent, 10.7 per cent and 7.6 per cent, respectively). The deceleration in international production is a contributing factor behind slower trade expansion. Sales and value added of MNEs’ foreign affiliates rose in 2016 by 4.2 per cent and 3.6 per cent, respectively. Employment of foreign affiliates reached 82 million (table 2). The rate of return on inward FDI of foreign affiliates in host economies continued to decline, falling from 6.2 per cent in 2015 to 6 per cent in 2016.


State-owned MNEs are major FDI players

UNCTAD’s new database of State-owned MNEs identifies some 1,500 parent firms with more than 86,000 foreign affiliates operating around the globe. These firms represent only about 1.5 per cent of all MNEs but close to 10 per cent of all foreign affiliates. Although the number of SO-MNEs is small, 15 of the global top 100 non-financial MNEs, and 41 of the top 100 from developing and transition economies, are State-owned.The headquarters of these “SO-MNEs” are widely dispersed geographically: more than half are headquartered in developing economies and about

The headquarters of these “SO-MNEs” are widely dispersed geographically: more than half are headquartered in developing economies and about one third in the EU. China is home to the most SO‑MNEs (18 per cent), followed by Malaysia (5 per cent) and India (4 per cent) (figure 8).


In 2016, greenfield investments announced by SO-MNEs accounted for 11 per cent of the global total, up from 8 per cent in 2010. The sectoral distribution of SO-MNEs is more heavily weighted towards financial services and natural resources than that of other MNEs. Measured by the main economic activity of corporate headquarters, over half of SO‑MNEs are concentrated in five industries: finance, insurance and real estate; electric, gas and sanitary services; transportation; diversified holdings; and mining (figure 9). The bulk of SO-MNEs (more than 1,000 firms, or close to 70 per cent of the total) operate in the services sector (although the inclusion of holdings may cause this to be overestimated). Some 330 SO-MNEs (23 per cent) are in manufacturing, and 110 (8 per cent) in the primary sector.