Global Investment Trend Monitor Report

On 20^th January, 2020, the United Nations Conference on Trade and Development (UNCTAD) released its Global Investment Trend Monitor Report.

Global Foreign Direct Investment Trend

Global foreign direct investment (FDI) remained flat in 2019, a 1% decline from a revised $1.41 trillion in 2018. It was attributed to weaker macroeconomic performance and policy uncertainty for investors, including trade tensions.
FDI flows to developed countries remained at a historically low level, decreasing by a further 6%.
FDI to the European Union (EU) fell by 15%.
FDI increased by 16% in Latin America and the Caribbean
Africa continued to register a modest rise (+3%) while flows to developing Asia fell by 6%. Despite a decline, flows to developing Asia continued to account for one-third of global FDI in 2019.
There was zero-growth of flows to United States, which received USD 251 billion FDI in 2019, as compared to USD 254 billion in 2018.Despite this, the United States remained the largest recipient of FDI, followed by China and Singapore.
In West Asia, FDI flows declined by 16% in 2018.

FDI in South East Asia

South-East Asia continued to be the region’s growth engine. It recorded a 10% increase in FDI to $60 billion.
The growth was driven by India, with a 16% increase in inflows. The majority went into services industries, including information technology.
Inflows into Bangladesh and Pakistan declined by 6% and 20% respectively.

FDI Inflows by Region (2018 and 2019)

Source:UNCTAD

Cross-Border Mergers & Acquisitions (M&As)

As per the report, Cross-border M&As decreased by 40% in 2019– the lowest level since 2014. European M&A sales were halved due to slowdown in Eurozone growth and Brexit.
Deals targeting United States companies remained significant – accounting for 31% of total M&As.
The fall in global cross-border M&As sales was deepest in the services sector, followed by manufacturing and primary sector. In particular, sales of assets related to financial and insurance activities and chemicals fell sharply.
The decline in M&A values was driven also by a lower number of megadeals. In 2019, there were 30 megadeals above $5 billion compared to 39 in 2018.

Future Prospects: Growth with Significant Risks

FDI flows are still expected to rise moderately in 2020, as current projections show the global economy to improve some what from its weakest performance since the global financial crisis in 2009.
GDP growth, gross fixed capital formation and trade are projected to rise, both at the global level and, especially, in several large emerging markets.
However, significant risks persist, including high debt accumulation among emerging and developing economies, geopolitical risks and concerns about a further shift towards protectionist policies.

Headquarters: Geneva, Switzerland

UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964.
It is a part of the United Nations Secretariat dealing with trade, investment, and development issues.
The primary objective of UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology.

Foreign direct investment (FDI) is when a company takes controlling ownership in a business entity in another country.
FDI is when an individual or business owns 10% or more of a foreign company. If an investor owns less than 10%, the International Monetary Fund defines it as part of his or her stock portfolio.
With FDI, foreign companies are directly involved with day-to-day operations in the other country. This means they aren’t just bringing money with them, but also knowledge, skills and technology.

FDIs are commonly made in open economies that offer a skilled workforce and above-average growth prospects for the investor, as opposed to tightly regulated economies. FDI frequently involves more than just a capital investment. It may include provisions of management or technology as well.
The key feature of FDI is that it establishes either effective control of or at least substantial influence over the decision-making of a foreign business.

Horizontal FDI: A horizontal foreign direct investment refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country. For example, McDonald’s opening restaurants in Japan would be considered horizontal FDI.
Vertical FDI: It is one in which different but related business activities from the investor's main business are established or acquired in a foreign country. For example, McDonald’s could purchase a large-scale farm in Canada to produce meat for their restaurants.
Conglomerate: It is one where a company makes a foreign investment in a business that is unrelated to its existing business in its home country. An example of this would be if Virgin Group, which is based in the United Kingdom, acquired a clothing line in France.