World Investment Report 2018


Chapter 2 – Regional Trends

FDI in Africa at a 10-year low

FDI flows to Africa slumped to $42 billion in 2017, a 21 per cent decline from 2016. Weak oil prices and harmful lingering effects from the commodity bust saw flows contract, especially in the larger commodity-exporting economies. FDI inflows to diversified exporters, including Ethiopia and Morocco, were relatively more resilient.

FDI flows to North Africa were down 4 per cent to $13 billion. Investment in Egypt was down, but the country continued to be the largest recipient in Africa. FDI into Morocco was up 23 per cent to $2.7 billion, including as a result of sizeable investments in the automotive sector. FDI flows to Central Africa decreased by 22 per cent to $5.7 billion. FDI to West Africa fell by 11 per cent to $11.3 billion, due to Nigeria’s economy remaining depressed. FDI to Nigeria fell 21 per cent to $3.5 billion. East Africa, the fastest-growing region in Africa, received $7.6 billion in FDI in 2017, a 3 per cent decline from 2016. Ethiopia absorbed nearly half of this amount, with $3.6 billion (down 10 per cent), and is now the second largest recipient of FDI in Africa. Kenya saw FDI increase to $672 million, up 71 per cent, due to strong domestic demand and inflows into information and communication technology (ICT) sectors. In Southern Africa, FDI declined by 66 per cent to $3.8 billion. FDI to South Africa fell 41 per cent to $1.3 billion, due to an underperforming commodity sector and political uncertainty. In contrast, FDI into Zambia increased, supported by more investment in copper.

The beginnings of a commodity price recovery, as well as advances in interregional cooperation through the signing of the African Continental Free Trade Area agreement, could encourage stronger FDI flows in 2018, provided the global policy environment remains supportive.

FDI flows to developing Asia held steady

FDI flows to developing Asia in 2017 remained at the level of 2016 ($476 billion). Strong investment in the high-tech sector in China and increases in most ASEAN countries were enough to offset declines in other large recipient economies in the region, including Hong Kong (China), Singapore, India and Saudi Arabia, in that order. The region regained its position as the largest FDI recipient as its share in global inflows rose from 25 per cent in 2016 to 33 per cent in 2017.

FDI in East Asia was stable at $265 billion, with a decline in inflows to Hong Kong (China) and an all-time high in China. In South-East Asia, FDI in the ASEAN countries rose by 11 per cent to $134 billion, propelled by an increase in flows to most member countries and a strong rebound in Indonesia. Inflows to South Asia contracted by 4 per cent to $52 billion, with a decline in FDI to India. FDI to West Asia continued its downward trend (to $26 billion), with inflows to the region declining almost continuously since 2008.

Outward FDI flows from developing Asia declined by 9 per cent to $350 billion in 2017, owing to a reversal in outflows from China for the first time since 2003. Despite the decline, the region remained a major source of FDI worldwide, still accounting for nearly a quarter of global outflows.

In 2018, FDI inflows in the region are expected to remain at a similar level. Inflows to China could see continued growth, as a result of recently announced plans to facilitate and attract foreign investment. Other sources of growth could be greater intraregional FDI, including to relatively low-income economies in the region, most notably the CLMV countries (Cambodia, the Lao People’s Democratic Republic, Myanmar and Viet Nam). In West Asia, the evolution of oil prices, the efforts of oil-rich countries to promote economic diversification, and geopolitical uncertainties will shape FDI inflows.

A modest increase in FDI in Latin America and the Caribbean

FDI flows to Latin America and the Caribbean increased by 8 per cent in 2017 to $151 billion. This was the first rise in six years, although inflows remained well below the peak reached in 2011 during the commodity boom. Outflows from the region bounced back 86 per cent to $17.3 billion in 2017 as Latin American MNEs resumed their international investment activity.

FDI to South America increased by 10 per cent as recessions in two leading economies, Argentina and Brazil, ended. FDI to Brazil increased by 8 per cent to $63 billion supported by a significant influx in the energy sector. In Argentina flows more than trebled, to $12 billion, on the back of the economic recovery and new policies to attract investment and upgrade infrastructure. Investment in Colombia increased by 5 per cent to $14.5 billion, supported by the year-end recovery in oil prices, infrastructure investment and rising domestic demand. Investments in Central America grew marginally to $42 billion. Despite uncertainty about the outcome of the renegotiation of the North American Free Trade Agreement, inflows to Mexico remained stable at $30 billion, supported by record-high investments into the automotive industry. FDI in the Caribbean subregion grew to $5 billion, driven by flows to the Dominican Republic, up by 48 per cent to $3.6 billion, bolstered by booming investment in trade activities and positive flows to telecommunication and energy industries.

Investment flows to Latin America and the Caribbean are expected to remain stagnant or decline marginally, at about $140 billion. Economic growth in the region is expected to remain tepid, challenged by many downside risks, including economic and policy uncertainty associated with upcoming elections in some of the largest economies, and possible negative spillovers from international financial market disruptions.

A significant decline in flows to transition economies

FDI flows to the transition economies of South-East Europe and the Commonwealth of Independent States (CIS) declined by 27 per cent, to $47 billion, the second lowest level since 2005. Most of the decline was due to sluggish FDI in four major recipient economies (the Russian Federation, Kazakhstan, Azerbaijan and Ukraine). In contrast, outflows rebounded by 59 per cent to $40 billion, due to significant greenfield investments and a few large acquisitions by MNEs based in the Russian Federation.

FDI to South-East Europe recovered by 20 per cent, to $5.5 billion, after the decline in 2016. Inward FDI was lifted by robust GDP growth, support for private sector job creation and growing cooperation with the EU. In Serbia, the largest economy of the subregion, foreign investment grew by 22 per cent, to $2.9 billion, mostly through reinvestment in existing foreign affiliates. Flows to the CIS and Georgia contracted by 31 per cent, to $41 billion, after their rebound in 2016. Policy uncertainty remained high, linked in part to geopolitical concerns. As a result, flows declined, especially to the Russian Federation (by 32 per cent, to $25.3 billion). Natural resources continued to dominate inward FDI in the country.

Prospects for 2018 are moderately positive, bolstered by firmer commodity prices and higher macroeconomic growth. In the medium term, the firmness and structural diversification of announced greenfield projects could lead to a rise in manufacturing FDI.

FDI in developed economies drops by one-third

FDI flows to developed economies fell by 37 per cent to $712 billion. The growth in FDI over 2015–2016, when annual inflows to developed economies exceeded $1 trillion, came to an abrupt end. Large reductions in FDI flows to the United Kingdom, following an exceptionally high value of M&As in 2016, and to the United States, where authorities clamped down on tax inversions, were the major factors behind the decline. Outflows from developed economies remained similar to the levels observed in 2016. Increases from the United States, due to reinvested earnings, and Japan, where MNEs continued to seek growth abroad, offset an aggregate decline from Europe.

FDI inflows to France and Germany bounced back in 2017, but overall flows to Europe declined due to a normalization of FDI to the United Kingdom. In North America, diminishing intracompany loans and divestments shrank inflows. In Asia-Pacific inflows held steady, in contrast to the global trend.

In Europe, combined outflows fell by 21 per cent to $418 billion. Outflows from Germany and the United Kingdom rose sharply. Those from France maintained their high level. FDI outflows from the Netherlands – the largest source country in Europe in 2016 – declined by $149 billion to just $23 billion, mainly due to declining M&A purchases. Outflows from North America rose by 18 per cent. As the prospect of tax reform became more certain towards the end of 2017, United States MNEs postponed the repatriation of overseas earnings, adding to reinvestment. In Asia-Pacific, outflows from Japan continued to expand, to $160 billion.

FDI to developed economies is projected to increase moderately in 2018. The rise in the value of announced greenfield projects (up 25 per cent to $318 billion) is a positive sign. However, current tensions in global trade policymaking create uncertainty. The repatriation of accumulated profits by United States MNEs as a result of the tax reform is likely to reduce FDI outflows from the United States, with mirror effects elsewhere.

FDI flows to the structurally weak economies remain fragile

FDI inflows to the least developed countries (LDCs) as a group declined by 17 per cent to $26 billion, representing 4 per cent of FDI flows to all developing economies. Although Asian LDCs registered robust FDI growth and two-thirds of African LDCs attracted more FDI flows than the previous year, the contractions posted by Angola and Mozambique were severe.

FDI to LDCs could see a recovery, pulled by the expected increase of FDI in Africa. However, the value of greenfield FDI projects announced in 2017 – a key indicator of future investment activity – fell to a four-year low. Foreign investors, mostly from Asian developing economies, scaled down their capital spending plans, especially in the services sector targeting Bangladesh, Cambodia and Myanmar. This weakens FDI prospects for the Asian LDCs.

FDI flows to the 32 landlocked developing countries (LLDCs) rose by 3 per cent in 2017, to $23 billion. This modest increase still left total flows to LLDCs almost 40 per cent below the peak in 2011. All LLDC subgroups by region, except for those in transition economies, registered gains.

FDI to LLDCs could recover further in 2018, but uncertainty and fragility remain. The value of announced greenfield projects, the main indicator for future projects, declined in 2017. FDI flows to most of the LLDC economies remain vulnerable to adverse external factors, and their investment potential is tied to developments in neighbouring countries through which exports and imports transit.

FDI flows to the small island developing States (SIDS) increased for a second year to $4.1 billion, led by 9 per cent growth in the Caribbean SIDS. FDI in other SIDS shrank.

FDI flows into SIDS will remain fragile. The stagnating volumes of greenfield FDI projects announced in 2016-2017 underscore a persisting challenge for SIDS to attract and sustain FDI. Services will continue to dominate, but FDI flows to the sector are slowing down. Given the highly concentrated distribution of announced projects and public-private partnerships in infrastructure development, only a few SIDS are expected to see growth in FDI in the near term.