Foreign direct investment (FDI) flows to Southeast Asia and South Asia rose by 18% and 13%, respectively, in the first half of the year compared to the same period last year, even as worldwide FDI has fallen heavily, according to a new report by the United Nations Conference on Trade and Development (UNCTAD).
FDI has dropped 41% year-on-year so far, but the US$470 million decline is happening mainly in wealthy, industrialized nations, especially in North America and Western Europe, as developing economies including those in Asia saw only a slight decline compared with 2017, reported UNCTAD’s Investment Trends Monitor, released October 15.
Overall, the global financial picture is “gloomy,” said UNCTAD investment and enterprise division director James Zhan. He said foreign direct investment is important because it gives countries access to external capital, technology, market access, and tax contributions.
According to UNCTAD, the development is mainly owing to recent tax reforms in the United States which have encouraged big firms there to bring home earnings from abroad, principally from Western European countries.
He said that the agency had warned in early January that there was “about $2 trillion of stock in the form of cash or in the form of reinvested earnings of retained earnings outside the US,” which may be repatriated in some form, following wholesale tax reform.
“And indeed, it’s happening,” he added. “We have seen that outward FDI from the US was from $147 billion last year to a negative $247 billion this year.”
Other factors have contributed to this year’s “huge difference in repatriation” of overseas profits by U.S. multinationals, Zhan said.
These include uncertainty about the detail and impact of tax reform and the potential impact of unresolved international trade disputes; such as the tit-for-tat tariffs imposed by the U.S. and China.
While the fall in foreign direct investment has happened mainly in richer nations, including Ireland (down $81 billion) and Switzerland (down $77 billion), developing economies saw FDI flows declining “only slightly” in the first half of the year by 4%, to $310 billion, compared with 2017.
This includes developing Asia—down 4% to $220 billion—in the same period, driven mostly by a 16% decline in investment in East Asia. China, the notable exception, was in fact the largest recipient of foreign direct investment in the first half of 2018, attracting more than $70 billion. Developing Asia remained the largest host region, accounting for 47% of global FDI in the first half of 2018.
Flows to Southeast Asia and South Asia rose by 18% to $73 billion and 13% to $25 billion, respectively. The rise in FDI in Southeast Asia was driven by Singapore ($35 billion—despite profit repatriations reported by U.S. multinationals), Indonesia ($9 billion), and Thailand ($7 billion). In South Asia, India attracted $22 billion of FDI flows, contributing to the subregion’s 13% rise in FDI in the first half of the year. FDI flows to West Asia fell by 21% to $5.1 billion, caused by a 5% fall in Turkey and divestments from Qatar totaling over $1 billion.
Latin America and the Caribbean, meanwhile, saw a 6% drop in investment, amid uncertainty over upcoming elections that were offset by higher commodity prices.
In West Africa, the data indicates a 17% fall in investment in the first half of the year, from $5.2 billion to $4.3 billion.
Photo: Fanghong
