The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages.
Read MoreWorld Investment Report 2022
INTERNATIONAL TAX REFORMS AND SUSTAINABLE INVESTMENT
Global flows of foreign direct investment recovered to pre-pandemic levels
last year, reaching $1.6 trillion. Cross-border deals and international project
finance were particularly strong, encouraged by loose financing conditions and
infrastructure stimulus. However, the recovery of greenfield investment in industry
remains fragile, especially in developing countries.
This fragile growth of real productive investment is likely to persist in 2022.
The fallout of the war in Ukraine with the triple food, fuel and finance crises,
along with the ongoing COVID-19 pandemic and climate disruption, are adding
stresses, particularly in developing countries. Global growth estimates for the
year are already down by a full percentage point. There is significant risk that
the momentum for recovery in international investment will stall prematurely,
hampering efforts to boost finance for sustainable development.
The World Investment Report supports policymakers by monitoring global and
regional investment trends and national and international investment policy
developments. The report reviews investment in the Sustainable Development
Goals and in climate change mitigation and adaptation. It also looks at sustainable
finance trends in capital markets and among institutional investors.
The coming years will see the implementation of fundamental reforms in
international taxation. These reforms are expected to have major implications for
investment policy, especially in countries that make use of fiscal incentives and
special economic zones. The report of this year provides a guide for policymakers
to navigate the complex new tax rules and to adjust their investment strategies.
I commend this report to all engaged in promoting investment in sustainable
development.
Key Messages
The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world.
Read MoreGlobal FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat.
Read MoreHowever, almost three quarters of the global increase was due to the upswing in developed countries, where FDI reached $746 billion – more than double the 2020 level.
Read MoreThe profitability of the largest 5,000 MNEs doubled to more than 8 per cent of sales.
Read MoreWhile infrastructure-oriented international project finance was up 68 per cent and cross-border M&As were up 43 per cent, greenfield investment numbers increased by only 11 per cent, still one fifth below pre-pandemic levels.
Read MoreThe increase was mainly the result of strong growth performance in Asia, a partial recovery in Latin America and the Caribbean, and an upswing in Africa.
Read MoreThe combined value of greenfield announcements and international project finance deals in SDG sectors exceeded the pre-pandemic level by almost 20 per cent.
Read MoreInternational private investment in climate change sectors is directed almost exclusively to mitigation; only 5 per cent goes to adaptation projects.
Read MoreThe strong growth performance of international project finance can be explained by favourable financing conditions, infrastructure stimulus and significant interest on the part of financial market investors to participate in large-scale projects that require multiple financiers.
Read MoreSales of UNCTAD’s top 100 digital MNEs grew five times faster than those of the traditional top 100 over the past five years, with the pandemic providing a huge boost.
Read MoreThat signalled an end to the emergency investment policymaking that characterized the first year of the pandemic; however, the crisis still affected the nature of the measures.
Read MoreFour new countries adopted FDI screening mechanisms (including one developing country), and at least twice as many tightened existing mechanisms.
Read MoreInvestment facilitation measures constituted almost 40 per cent of all measures more favourable to investment, followed by the opening of new activities to FDI (30 per cent) and by new investment incentives (20 per cent).
Read MoreSanctions and countersanctions affecting FDI to and from the Russian Federation, Belarus and the non-government-controlled areas of eastern Ukraine constituted 70 per cent of all measures adopted in Q1 2022.
Read MoreThey included the conclusion of new-generation megaregional economic agreements and large-scale terminations of old-generation bilateral investment treaties (BITs).
Read MoreIn 2021, countries concluded 13 IIAs and effectively terminated at least 86 IIAs, bringing the size of the IIA universe to 3,288.
Read MoreMost of the cases initiated were brought under old-generation IIAs.
Read MoreCountries rely on a variety of fiscal incentives to attract investors to priority sectors or regions.
Read MoreAlthough the governance of incentives varies greatly across countries, on average, 70
per cent of incentives are allocated on the basis of discretion, criteria not available to the public or negotiation with individual investors.
Most IIAs do not exclude taxation from their scope, which means that they cover a wide range of tax-related measures, whether of general or specific application.
Read MoreBEPS Pillar II is expected to discourage MNEs from shifting profits to low-tax countries and to reduce tax competition between countries.
Read MoreThey now hover at about 25 per cent in both developed and developing countries.
Read MoreAs a result, the actual tax rates faced by MNEs on their foreign income are about 15 per cent, significantly lower than the headline rate.
Read MoreFirst, MNEs will reduce profit shifting, as they will have less to gain from it, and will pay host-country tax rates.
Read MoreOffshore financial centres stand to lose a substantial part of CIT revenues collected from MNEs’ foreign affiliates.
Read MoreThe baseline scenario places the potential downward effect on global FDI at about -2 per cent.
Read MoreHowever, this will not occur automatically. In a world of smaller tax rate differentials, countries stand to gain more from improvements in other investment determinants – including those related to infrastructure and the regulatory and institutional environment.
Read MoreThe mechanism that has been devised for implementation is such that it is sufficient for a relatively limited number of investor home countries (e.g. G20 and OECD members) to apply the top-up tax for the effects to become almost universal.
Read MoreFiscal incentives are widely used for investment promotion, including as part of the value proposition of most special economic zones.
Read MoreSome fiscal policy options to promote investment remain, including amplifying the benefit to investors of the so-called substance-based carve-out; shifting to incentives that are less affected by Pillar II; or reducing taxes that are not covered by Pillar II, to the extent that they have a bearing on investment decisions.
Read MoreIf host countries are prevented by IIAs and their ISDS provisions from applying top-up taxes or removing incentives, the tax increase to the global minimum will accrue to home countries.
Read MoreReduced competition from low-tax locations could benefit developing economies.
Read MoreTherefore, it will be key for developing countries to strengthen cooperation and technical capabilities to ensure effective participation in the process of negotiating the final shape of the reforms.
Read More- Vastly scale up technical assistance to developing countries to support BEPS implementation and investment policy adjustment.
- Adopt a multilateral solution to remove implementation constraints posed by IIAs and mitigate ISDS risks.
- As a stopgap measure, establish a mechanism to return any top-up revenues raised by developed home countries that should have accrued to developing host countries, but that they were unable to raise because of capacity or treaty constraints.
These products include sustainable funds ($2.7 trillion), green bonds (over $1.5 trillion outstanding), social bonds ($418 billion), mixed-sustainability bonds ($408 billion) and sustainability-linked bonds ($105 billion).
Read MoreNet investment reached $557 billion, up 58 per cent from 2020 and more than three times the 2019 level.
Read MoreThe increase in sustainable bond issuance was especially visible in emerging markets.
Read MoreThat is because most of these products are self-labelled and there is a lack of consistent standards and high-quality data to assess sustainability credentials.
Read MoreIn 2021, public pension funds held more than $22 trillion in assets, or almost 40 per cent of global pension fund assets. The assets of sovereign wealth funds grew to $11 trillion.
Read MoreMaking progress on ESG reporting by these funds will require strengthening national regulations.
Read MoreThe number of exchanges with written guidance on ESG disclosure for issuers grew to 63 at the end of 2021.
Read MoreThe number of exchanges engaged in annual “Ring the Bell for Gender Equality” events has grown from just 7 in 2015 to over 110 in 2022.
Read MoreExchanges, regulators and policymakers should monitor the emissions of companies listed on public markets to ensure an orderly transition.
Read Moreincluding through intensive training of their issuers on climate disclosure reporting.
Read MoreBy the end of 2021, 35 countries and economic groupings – both developed and developing – had 316 sustainable finance-dedicated policy measures and regulations in force, more than 40 per cent of which were introduced in the last five years.
Read MoreThe International Organization of Securities Commissions (IOSCO) and the International Financial Reporting Standards (IFRS) Foundation are now leading a global effort in consolidating the major ESG reporting standards, effectively reducing the fragmentation that has persisted over the past decade.
Read More