World Investment Report 2019


Chapter 1 – Global trends and prospects

Global FDI fell for the third year in a row

Global foreign direct investment (FDI) flows continued their slide in 2018, falling by 13 per cent to $1.3 trillion (figure 1). The decline – the third consecutive year’s fall in FDI – was mainly due to large-scale repatriations of accumulated foreign earnings by United States multinational enterprises (MNEs) in the first two quarters of 2018, following tax reforms introduced in that country at the end of 2017.


The tax-driven fall in the first half of 2018 (which ended 40 per cent lower than the same period in 2017) was cushioned in the second half by increased transaction activity. The value of cross-border merger and acquisitions (M&As) rose by 18 per cent, fueled by United States MNEs using liquidity in foreign affiliates that was no longer encumbered by tax liabilities.

FDI to developed countries dropped to the lowest level in 15 years

FDI flows to developed economies reached their lowest point since 2004, declining by 27 per cent. Inflows to Europe halved to less than $200 billion; a few important host countries of United States MNEs registered negative inflows. (The repatriation of funds by United States MNEs translated into negative inflows in host countries.) FDI flows to Ireland and Switzerland fell to -$66 billion and -$87 billion, respectively. FDI flows to the United Kingdom also declined, by 36 per cent to $64 billion, as new equity investments halved. FDI into the United States declined as well, by 9 per cent to $252 billion – the average of the last 10 years. That decline was mainly due to a fall by one third in cross-border M&A sales. Australia’s FDI inflows reached $60 billion – a record level – as foreign affiliates reinvested a record $25 billion of their profits in the country.

FDI flows to developing economies remained stable, rising by 2 per cent to $706 billion

As a result of the increase and the anomalous fall in developed countries, the share of developing economies in global FDI increased to 54 per cent, a record. Their presence among the top 20 host economies remained unchanged (figure 2). The United States remained the largest recipient of FDI, followed by China, Hong Kong (China) and Singapore.


The large-scale repatriations of funds by United States MNEs translated into negative FDI outflows, causing the United States to disappear from the list of the top 20 outward-investing economies in 2018 (figure 3). Overall, outward FDI from developed countries as a group fell by 40 per cent to $558 billion. As a result, their share in global outward FDI dropped to 55 per cent – the lowest ever recorded. Nevertheless, outward investment by European MNEs rose 11 per cent to $418 billion. France became the third largest investor home country, with FDI outflows of more than $100 billion in 2018.


Outward investment by MNEs from developing economies declined by 10 per cent to $417 billion. Outflows from developing Asia fell by 3 per cent to $401 billion; investment by Chinese MNEs declined for the second consecutive year. Outflows from Latin America and the Caribbean contracted sharply.

Prospects: a rebound is likely, but the underlying trend remains weak

In 2019, FDI is expected to see a rebound in developed economies as the effect of the United States tax reform winds down. Greenfield project announcements – indicating forward spending plans – also point at an increase, as they were up 41 per cent in 2018 from their low 2017 levels. Despite these positive indicators, projections for global FDI show only a modest recovery of 10 per cent to about $1.5 trillion, below the average over the past 10 years. Growth potential is limited because the underlying FDI trend remains weak. Trade tensions also pose a downward risk for 2019 and beyond.
The underlying FDI trend has shown anemic growth since 2008. Net of fluctuations caused by one-off factors such as tax reforms, megadeals and volatile financial flows, it has averaged only 1 per cent growth per year this decade, compared with 8 per cent in 2000–2007, and more than 20 per cent before 2000 (figure 4).


Key drivers for the long-term slowdown in FDI include declining rates of return on FDI, increasingly asset-light forms of investment and a less favourable investment policy climate.

Greenfield recovered, but unevenly

The value of announced greenfield investment projects recovered from its slump in 2017, with a 41 per cent increase to $961 billion. The bulk of the increase came from a doubling of announced projects in Asia.
The long-term slide of greenfield investment in manufacturing – critical for industrial development in developing countries – halted in 2018. In developing economies, the value of announced projects in manufacturing rose by 68 per cent to $271 billion. Most of the increase took place in Asia, but announced projects also increased markedly in Africa (up 60 per cent); they slumped in Latin America and the Caribbean.
Much of the increase in manufacturing was due to large-scale projects, mostly in natural resource-related processing industries. The number of projects in developing countries rose by a more modest 12 per cent. The growth in the number of projects in typical early-industrialization industries – the type often attracted by SEZs – remained lacklustre.

State-owned MNEs have slowed their international expansion

The number of State-owned (SO) MNEs has stabilized. There are close to 1,500 SO-MNEs, similar to the number in 2017. European SO-MNEs account for a little more than one third of all SO-MNEs, and another 45 per cent are from developing Asian economies, including 18 per cent from China. The presence of SO-MNEs in the top 100 global MNEs increased from 15 to 16. The list includes five SO-MNEs from China and 11 from developed countries.
M&A activity by SO-MNEs has slowed down markedly. SO-MNEs accounted for about 4 per cent of the value of global M&As in 2018, following a gradual decline from more than 10 per cent on average in 2008–2013. The industries most targeted by SO-MNEs are utilities, extractive industries and financial services.

International expansion is asset-light

Much of the continued expansion of international production is driven by intangibles and by non-equity modes of overseas operations, such as licensing and contract manufacturing. The trend is visible in the divergence of key international production indicators – on a scale from tangible to intangible – with a substantially flat trend for FDI and trade in goods and much faster growth for both trade in services and international payments for intangibles (royalties and licensing fees).
The 2018 ranking of the top 100 MNEs confirms this picture. The growth of foreign sales of the top 100 MNEs outpaces that of foreign assets and foreign employees, suggesting that MNEs can reach overseas markets with a lighter operational footprint. Also, the typically more asset-heavy industrial MNEs in the top 100 are sliding down the ranking, with some dropping out.

MNEs are big R&D spenders

In 2018, MNEs in UNCTAD’s top 100 invested more than $350 billion in R&D, representing over one third of all business-funded R&D. Technology, pharmaceutical and automotive MNEs are the biggest spenders. The R&D intensity (relative to sales) of the developing-country top 100 MNEs is significantly lower.
International greenfield investment in R&D activities is sizeable and growing. During the last five years, MNEs announced 5,300 R&D projects outside their home markets, representing more than 6 per cent of all announced greenfield investment projects, and up from 4,000 in the preceding five years. Developing and transition economies capture 45 per cent of these projects. The majority of R&D-related FDI projects is in relatively lower value added design, development and testing activities, rather than basic research.

South–South FDI is smaller than it looks

WIR19 presents new, innovative data on the ultimate ownership of FDI and on the global network of direct and indirect FDI relationships. The new data reveal that a significant part of FDI between developing countries (South–South FDI) is ultimately owned by developed-country MNEs. The share of South–South investment in total investment to developing economies drops from 47 per cent (when measured on the basis of standard FDI data) to 28 per cent when measured on the basis of ultimate ownership. Regional investment hubs play an important role as conduits in indirect investment flows, and they drive much of intraregional FDI and South–South FDI.
The new data also provide a different perspective on the coverage of IIAs. The ultimate ownership view highlights the multilateralizing effect of indirect FDI. For some treaties and economic groupings, such as the African Continental Free Trade Area (AfCTA) and the Association of Southeast Asian Nations (ASEAN), where regional hubs have a significant role, the share of direct investment covered by the agreements is higher than the share of investment by ultimate owner.