Foreign direct investment has increased worldwide to its highest level since the 2008 financial crisis. But the United Nations trade body, UNCTAD, warns that doesn’t necessarily translate to sustainable development.
The finding came from UNCTAD’s 2016 World Investment Report, which tracked both global flows and policy trends of foreign direct investment (FDI), then comparing them with the UN’s Sustainable Development Goals.
In this regard, the UN expressed concern. “This growth did not translate into an equivalent expansion in productive capacity in all countries,” UN Secretary-General Ban Ki-Moon wrote in an introductory letter.
Developed economies received 55 percent of global FDI last year, up from 41 percent of the share in 2014. FDI nearly quadrupled in the US, where it had reached record lows in 2014. For its part, Europe ranked as the region where most FDI originated.
Asia as a region received the world’s largest amount of direct investments, while FDI in Latin America and Africa – particularly sub-Saharan Africa – “faltered.”
UNCTAD promotes a more transparent, efficient and predictable global investing regime. In the report, it cited an overall trend towards the liberalization of investment regulations, though pointed to the persistance of diverse national restrictions.
This poses a problems in “an era of complex multinational ownership structures,” Ban wrote. Leadership chains span an average of three jurisdictions, indirect ownership structures and mailbox companies abound, and large companies cause constant headaches with their sprawl.
Meanwhile, many companies have grown – the 2015 boost in FDI came primarily from cross-border mergers and acquisitions.
Such transactions are tallied in the balance of payments though they represent “little change in actual operations.” Discounting these corporate reconfigurations, the spike in FDI was limited to 15%.
Furthermore, UNCTAD expects FDI to drop by a tenth in 2016 due to a struggling global economy, though it believes such investment will trend upwards in the longer-term.