FDI flows to Africa defied the global downward trend in 2018. They rose to $46 billion, an 11 per cent increase after successive declines in 2016 and 2017. Rising prices of and demand for some commodities led to sustained resource-seeking investment. A few economies, such as Kenya, Morocco and Tunisia, saw an encouraging increase in diversified investment. FDI in South Africa made a significant recovery after several years of low-level inflows. In contrast, investment in some of the other large recipients, including Nigeria, Egypt and Ethiopia, declined in 2018.
FDI inflows to North Africa increased by 7 per cent to $14 billion. Egypt remained the largest FDI recipient in Africa in 2018, although inflows decreased by 8 per cent to $6.8 billion. Stable economic growth in Morocco drew investment in several sectors, including automotive and finance; FDI to the country increased to $3.6 billion. FDI to West Africa fell 15 per cent to $9.6 billion, the lowest level since 2006, owing to the substantial drop in Nigeria for the second consecutive year. FDI flows to East Africa were largely unchanged at $9 billion, despite Ethiopia recording an 18 per cent decline to $3.3 billion. Inflows to Kenya increased by 27 per cent to $1.6 billion, including some investments in sizeable infrastructure projects. Business facilitation measures and investment-ready SEZs contributed to the trend. FDI flows to Central Africa were stagnant at $8.8 billion. The Congo recorded inflows of $4.3, mostly in oil exploration and production. Continued investment in minerals, especially cobalt, underpinned flows to the Democratic Republic of Congo, up 11 per cent to $1.5 billion. Inflows to Southern Africa turned around sharply ($-0.9 billion to $4.2 billion), mainly due to the recovery in South Africa, where investment increased from $2 billion to $5.3 billion, including substantial investments in automotive and renewable energy. Mozambique also received higher inflows, with an 18 per cent increase pushing FDI to $2.7 billion. However, this was largely due to intracompany transfers from companies already established in the country, mainly for oil and gas exploration.
The expected acceleration of economic growth in Africa, progress towards the implementation of the AfCFTA and the possibility of some large greenfield investment projects announced in 2018 materializing could drive higher FDI flows to the continent in 2019.
FDI inflows to developing Asia rose by 4 per cent to $512 billion in 2018. Growth occurred mainly in China, Hong Kong (China), Singapore, Indonesia and other ASEAN countries, as well as in India and Turkey. Asia continued to be the world’s largest FDI recipient region, absorbing 39 per cent of global inflows in 2018, up from 33 per cent in 2017.
Flows to East Asia rose by 4 per cent to $280 billion in 2018 but remained significantly below their 2015 peak of $318 billion. Inflows to China increased by 4 per cent to an all-time high of $139 billion. Flows to South-East Asia were up 3 per cent to a record level of $149 billion. Robust investment from other Asian economies, including investment diversion and relocations of manufacturing activity from China, supported FDI growth in the region. Strong intra-ASEAN investments also contributed to the trend, although Singapore played a significant role in this as a regional investment hub.
FDI inflows to South Asia increased by 4 per cent to $54 billion, with a 6 per cent rise in investment in India to $42 billion, driven by an increase in M&As in services, including retail, e-commerce and telecommunication. West Asia saw a 3 per cent rise in investment to $29 billion, halting an almost continuous 10-year downward trend. The largest increases were recorded in Turkey and Saudi Arabia.
Outflows from Asia declined by 3 per cent to $401 billion, representing 40 per cent of global outward FDI. This was mainly due to reduced investments from China for the second consecutive year, caused by policies discouraging capital outflows, as well as by increased screening of inward investments in Europe and the United States. In contrast, outward investment from the Republic of Korea, Saudi Arabia, the United Arab Emirates and Thailand increased.
The prospects for FDI flows to the region are cautiously optimistic, due to a favourable economic outlook and ongoing efforts to improve the investment climate in several major economies. Announced greenfield investment projects doubled in value in 2018 across Asia, suggesting continued growth potential for FDI. Global trade tensions could negatively affect investor sentiment but could also lead to further investment diversion.
FDI flows to Latin America and the Caribbean decreased by 6 per cent in 2018 to $147 billion, as the recovery that started in 2017 stalled and external factors weighed down growth prospects. Outward investment by Latin American MNEs plunged in 2018 to a record low of $6.5 billion, due to negative outflows from Brazil and lower investments from Chile.
In South America, FDI declined by an estimated 6 per cent due to lower flows to Brazil and Colombia. In Brazil, flows fell by 9 per cent to $61 billion, as a result of a challenging economic situation and a sharp decline in M&A deals from record levels in 2017. In Colombia, FDI inflows fell by 20 per cent to $11 billion. Flows to Argentina were resilient at $12 billion, buoyed by flows into shale gas production. Flows into Chile rose marginally – by 4 per cent to $7.2 billion – sustained by higher copper prices and record levels of M&As in the mining, health services and electricity industries. In Peru, flows decreased by 9 per cent to $6.2 billion, despite solid economic growth and heavy investment in the mining industry. In Central America FDI inflows were largely stable at $43 billion. In Mexico increasing reinvested earnings by existing foreign affiliates led to unchanged inflows at $32 billion. Flows to Panama were up 21 per cent to $5.5 billion, boosted by record M&A deals and mining projects. In Costa Rica, a sudden pause in investment in tourism was responsible for most of the decline in FDI inflows to $2.1 billion. In the Caribbean, excluding offshore financial centres, flows declined by 32 per cent. The contraction was due to lower FDI ($2.5 billion) in the Dominican Republic, the largest recipient in the subregion, despite its strong economic growth in 2018. Flows to Haiti and Jamaica also fell, to $105 million and $775 million, respectively.
Investment flows to and from the region could plateau as commodity prices and economic conditions in major economies stabilize. Natural resources, infrastructure and consumer goods (especially goods and services related to information and communication technology) should continue to attract foreign investors. Yet the region’s lower growth projections compared with last year’s forecasts and its vulnerability to external factors, such as monetary policy in the United States and trade tensions among key trading partners, put a downward risk on prospective FDI inflows.
FDI flows to the transition economies of South-East Europe and the Commonwealth of Independent States (CIS) declined in 2018 for the second consecutive year. Investment to the region dropped by 28 per cent to $34 billion. The contraction was driven by the halving of flows to the Russian Federation, by far the biggest economy and largest recipient in the group, from $26 billion to $13 billion, in part due to international political factors and domestic policies aimed at reducing investment round-tripping. Some of the other larger recipients in the region – Azerbaijan, Kazakhstan and Ukraine – also saw declining inflows. In contrast, flows were buoyant in South-East Europe, especially in Serbia and North Macedonia. Serbia became the second largest FDI recipient among transition economies as inflows grew by 44 per cent to $4.1 billion, driven by a surge in new equity capital.
Outflows from transition economies remained unchanged at $38 billion, making the region a net FDI capital exporter in 2018. The Russian Federation accounted for 95 per cent, with outflows of $36 billion – almost three times more than inflows. The rise was driven mainly by reinvested earnings in and loans to established affiliates. Equity investment in new greenfield ventures and foreign acquisitions declined by almost half, reflecting caution about overseas expansion.
FDI inflows in the transition economies are expected to stabilize in 2019. Growth prospects for inflows into South-East Europe, where greenfield project announcements doubled in 2018, are more positive.
FDI flows to developed economies fell by 27 per cent to $557 billion, marking the third successive year of decline. Whereas the decline in 2017 was primarily due to subdued M&A activity, the main factor in 2018 was the repatriation of accumulated earnings by United States MNEs following tax reforms. Outflows from developed economies declined by 40 per cent to $558 billion. Outflows from European economies increased, but outflows from the United States fell to a net divestment of -$64 billion (representing a decline of $364 billion from 2017).
Inflows to Europe halved to $172 billion, the lowest level since 1997. FDI in important host economies for United States MNEs, such as Ireland and Switzerland, was negative (with repatriations of funds to the United States representing negative inflows for host countries). In the United Kingdom, which also hosts a large number of United States MNEs, inflows contracted by more than a third. However, announced greenfield investment projects continued on an upward trend. The Netherlands became the largest recipient of FDI in Europe, followed by the United Kingdom and Spain.
In the United States, inflows declined by 9 per cent to $252 billion, as a result of negative intracompany loans. However, reflecting steady economic growth, income on inward FDI increased to $200 billion, of which $119 billion (up 28 per cent from 2017) was retained as reinvested earnings.
Outflows from European economies increased by 11 per cent to $418 billon. Outward investment by French MNEs more than doubled to $102 billion, making them the largest source of FDI flows from Europe.
In 2018, announced greenfield investment projects in developed economies increased by 17 per cent, suggesting potential for a recovery of FDI. FDI in developed economies, especially Europe, is likely to rebound from the anomalously low levels in 2018.
FDI inflows to the 47 least developed countries (LDCs) as a group increased by 15 per cent to $24 billion, representing 1.8 per cent of global FDI. Although FDI in African LDCs recovered from a historical low in 2017 to $12 billion (up 27 per cent) in 2018, it stayed more than 40 per cent below the annual average of 2012–2016. In contrast, led by Bangladesh (up 68 per cent to $3.6 billion), Asian and Oceanian LDCs recorded a new high in FDI flows (up 8 per cent to $12 billion).
Trends in announced greenfield FDI projects suggest that the more sizeable investments will continue to target natural resources in Africa and power generation projects in Asia. Many of the larger investment recipients in both Africa and Asia expect FDI to pick up in the coming years with investments in natural resources and SEZs. The high share in LDCs of investors from developing economies compared with MNEs from developed economies is likely to continue.
After a temporary recovery in 2017, FDI flows to the 32 landlocked developing countries (LLDCs) declined again in 2018, by 2 per cent to $23 billion – or 1.7 per cent of global FDI inflows. In transition-economy and most Asian LLDCs, the decline in FDI was modest, while Latin American LLDCs experienced a more pronounced downturn. Flows to LLDCs remained concentrated in a few economies, with the top five recipients (Kazakhstan, Ethiopia, Mongolia, Turkmenistan and Azerbaijan) accounting for 56 per cent of total FDI to the group. Chinese MNEs are increasingly active sources of investment and are present in practically all LLDCs. Prospects for FDI vary according to LLDCs’ level of development and industrialization, with the fastest growth expected in those with more potential for economic diversification.
FDI flows to the 28 small island developing States (SIDS) slipped for a second year to $3.7 billion, with an 11 per cent contraction in the Caribbean SIDS. FDI in Asian and Oceanian SIDS stagnated at $1 billion. FDI flows to African SIDS fell by 22 per cent to $0.6 billion.
FDI flows into SIDS will remain fragile and dependent on few capital-intensive projects. The trends in announced greenfield projects suggest further concentration of FDI in a narrow range of industries in the services sector (e.g. business activities, hotels and restaurants). Several SIDS in Africa and in the Caribbean can expect sizeable investments in new tourism projects. In some SIDS, ongoing SEZ development could create new investment opportunities.