GENEVA — United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2015, released on June 24, revealed that global Foreign Direct Investment (FDI) inflows fell to $1.23 trillion in 2014, down from $1.47 trillion in 2013.
Representing a 16-percent drop, the report indicated that the fragility of the global economy, policy uncertainty for investors and increased geopolitical risks were the main reasons behind the decline.
In contrast to the protracted decrease in FDI inflows to developed economies, which recorded a 28 percent fall in 2014 with a total of $499 billion, data showed that developing-economy inflows now account for 55 percent of world FDI inflows, totaling $681 billion last year.
The report indicated that FDI inflows to Africa remained stable ($54 billion) and that FDI flows to Latin America and the Caribbean decreased by 14 percent, while FDI to the least developed countries increased by 4 percent.
Developing Asia registered a 9-percent rise in FDI inflows in 2014 as close to half a trillion US dollars were invested in the region.
Amid this historically-high figure, China became the world’s largest recipient of FDI in 2014, with inflows reaching $ 129 billion, a 3.7 percent increase compared to 2013.
Though there was an increase in FDI to China’s services sector (55 percent share in 2014), particularly in retail, transport and finance, FDI inflows to manufacturing declined (33 percent share), especially in labor-cost sensitive industries.
This correlates global trends as 63 percent of global inward FDI stock for 2012 was linked to services, compared to 26 percent for manufacturing and 7 percent for the primary sector.
The report furthermore indicated that while South Korean investment in China rose by 30 percent and European Union investment also registered a slight increase, FDI flows from Japan and the US dropped by 39 and 21 percent respectively.
Though inferior to FDI inflows, China’s 2014 FDI outflows grew faster (up 15 percent), reaching $116 billion last year.
This comes against the backdrop of developing Asia’s growing clout on the global investment scene, as the region reported levels of investment conducted by regional multinational enterprises (MNEs) which were higher than any other region in the world.
UNCTAD reported that foreign acquisitions have become key for a number of Chinese financial institutions, as indicated by a series of cross-border merger and acquisitions in the US, Belgium, the Netherlands and South Korea between October 2014 and February 2015.
In light of these global trends and despite predictions that global FDI inflows could increase to $1.7 trillion by 2017, UNCTAD Secretary-General Mukhisa Kituyi called for a systematic reform of the international investment agreement regime.
“Old style international investment agreements (IIAs) have increasingly come to a dead end,” he said, adding that “the reform should make the global network of international investment agreements better fit the needs and realities of today and tomorrow.”
The report indicated that reform efforts should strive to safeguard the right to regulate, reform investment dispute settlement, promote and facilitate investment, ensure responsible investment and enhance systemic consistency of the IIA regime.
UNCTAD called for such reforms to be implemented on the national, bilateral, regional and multilateral levels to better control global investment agreements, which will in turn enhance sustainable and inclusive development.