Letter IEDI n. 742 – Foreign Direct Investment: Rising in the World, But Falling in Brazil
Letter IEDI n. 742 – Foreign Direct Investment: Rising in the World, But Falling in Brazil
The 2016 World investment Report of the United Nations Conference on Trade and Development (UNCTAD) shows a recovery of foreign direct investment (FDI) in 2015, with an increase of 38% compared to 2014, reaching the mark US$ 1.76 trillion.
Developed countries were the main responsible for this performance, both as originators and as destinations of FDI. Inflows to these countries rose 75%, from US$ 522 billion in 2014 to US$ 962 billion in 2015, especially due to mergers and acquisitions involving these same countries. As a result, they are back to holding the largest share of global inflows (55%), a position they did not occupy since 2012. This expansion happened mainly in the countries of North America (+160%), but also reached those of the European Union (+65%).
In turn, North America’s participation expansion is explained primarily by the US, which in 2015 rose to the top of the ranking of countries with the highest FDI inflows, surpassing Hong Kong and China (which fell from 1st to 3rd place). Developed European countries improved their position in general, as was the case of Ireland, the Netherlands, Switzerland, France, Germany, Belgium and Luxembourg.
In contrast, developing countries saw a more modest growth in incoming FDI flows, with a rate of only 9% in 2014. Moreover, this growth was a product of very different developments across countries. Asia’s developing countries were the group that most received FDI, especially those in the East and Southeast Asia. Asian countries experienced a record inflow of investments in 2015, totaling US$ 540 billion, up 15% compared to 2014.
In the opposite direction, reflecting the low economic performance, there was a decrease in flows to Latin America (-2%) and Africa (-7%). In all cases, however, there was a reduction of participation in total inflows in 2015 versus 2014: from 37% to 31% for developing Asia, 13% to 9% for Latin America and the Caribbean and from 5% to 3% for Africa. Transition economies also saw a fall in FDI inflows, of around 40% in 2015 compared to 2014, with their participation in total FDI inflows decreasing from 4% to 2% in this period.
If we consider the BRICS countries, between 2014 and 2015 FDI inflows increased both in China (+5%, reaching US$ 135 billion) and India (+29%, US$ 44 billion), and fell in the other countries. Despite the 12% decline in FDI inflows to Brazil in 2015, reaching the level of US$ 64 billion, the country still is second only to China as an investment recipient. In the case of Russia, the fall was of 65%, with FDI totalling US$ 10 billion in 2015, while in South Africa it reached US$ 1.7 billion, representing a 70% decline in relation to 2014.
As a result of such developments, Brazil fell back from 4th to 8th in the ranking of major FDI destinations worldwide. Russia’s losses were even greater, given that in 2013 the country occupied the 5th position, falling to 16th in 2014 to finally leave the ranking of the 20 largest recipients in 2015. India, in turn, kept the same place (10th) in 2014 and in 2015 and China went from 1st to 3rd place, despite the increase in investment flows to these countries.
In relation to FDI outflows, the US remained as the main source, i.e. as the world's largest investor. In 2015 compared to 2014, US investments in the rest of the world increased by about 6%. In the same period, Japan rose from 4th to 2nd in this ranking and China remained in 3rd place.
In terms of sectors, international mergers and acquisitions in the manufacturing sector hit a record in 2015 (US$ 388 billion), driven by the pharmaceutical sector (US$ 61 billion), non-metallic minerals (US$ 26 billion), furniture (US$ 21 billion) and chemicals (US$ 16 billion).
For 2016, the report forecasts an overall fall of 15% in foreign direct investment due to greater economic and political weakness, the weak recovery of aggregate demand and measures to prevent corporate investments. Given this more adverse scenario, a new contraction of FDI in Brazil is very likely, as the country was not even able to take advantage of a year of positive results in international terms.
