Investor nationality: policy challenges
Global FDI flows rose by 38 per cent to $1.76 trillion in 2015, their highest level since the global economic and financial crisis of 2008–2009 (figure I.1). However, they still remain some 10 per cent short of the 2007 peak. A surge in cross-border mergers and acquisitions (M&As) to $721 billion, from $432 billion in 2014, was the principal factor behind the global rebound.
These acquisitions were partly driven by corporate reconfigurations (i.e. changes in legal or ownership structures of multinational enterprises (MNEs), including tax inversions). Discounting these large-scale corporate reconfigurations implies a more moderate increase of about 15 per cent in global FDI flows. The value of announced greenfield investment projects remained at a high level, at $766 billion.
Looking ahead, FDI flows are expected to decline by 10–15 per cent in 2016, reflecting the fragility of the global economy, persistent weakness of aggregate demand, effective policy measures to curb tax inversion deals and a slump in MNE profits. Elevated geopolitical risks and regional tensions could further amplify the expected downturn.
FDI flows are likely to decline in both developed and developing economies, barring another wave of cross-border M&A deals and corporate reconfigurations. Over the medium term, global FDI flows are projected to resume growth in 2017 and to surpass $1.8 trillion in 2018.