Foreign Investment Falls to Near-Decade Low as Globalization Slows
January 20 2020 - 8:29AM
Dow Jones News
By Paul Hannon
New overseas investments by businesses around the world fell for
the fourth-straight year in 2019 to their lowest level in almost a
decade, pointing to a slowdown in globalization as the world-wide
economy cooled.
The United Nations Conference on Trade and Development said
foreign direct investment, or FDI, last year fell to $1.39 trillion
from $1.41 trillion. The 1% drop puts global FDI at its lowest
level since 2010, when many businesses shelved plans as they
assessed the impact of the financial crisis. The U.N. expects to
see little change in the flows this year.
The steady drop in overseas investment signals that
globalization has decelerated. The 1980s saw many companies start
international operations, sending jobs and activities abroad as
globalization took off.
But a monthslong U.S.-China trade war, which subsided only last
week, and the threat of further tariff disputes have raised
questions about the reliability of the supply chains on which
globalization depends. Government scrutiny of takeovers by foreign
companies has also increased, with a sharper focus on the
implications for national security and technological advantage.
Many economists say globalization provided a triple boost to
global economic growth: locating production where labor is
cheapest; supercharging competition; and disseminating new
technologies and know-how across the world. But globalization's
critics say the benefits of the process haven't been shared
equally, with low-skilled workers in developed economies seeing
their incomes stagnate.
Unctad said some foreign investments in 2019 reflected
businesses adjusting to new tariffs by moving existing production
to other locations, rather than expanding their overall capacity,
suggesting the slowdown is more severe than the headline figures
show.
"Overall, the current trend is more of investment diversion,
rather than investment expansion," said James Zhan, director of
Unctad's investment and enterprise division. "Multinationals are
not significantly expanding their global operations, due to
regulatory uncertainty and trade tensions. They are restructuring
their global-value chains by relocating some segments for
geopolitical-risk aversion."
Such dynamics were evident in Asia, where new foreign investment
in China was flat from the previous year, while Hong Kong saw a
sharp slowdown after months of protests related to its relationship
with Beijing.
By contrast, foreign investment in southeast Asia surged by 19%
to $177 billion, including a 42% rise in flows to Singapore, and a
12% increase in flows to Indonesia.
Unctad's figures show foreign investment in the U.S. was down
slightly to $251 billion from $254 billion in 2018, but there were
larger falls in flows to Europe, where foreign direct investment
fell by 15% as the region's economy slowed and its growth prospects
dimmed. That included a 6% drop in foreign investment in the U.K.,
where businesses were uncertain about the timing and terms of the
country's planned departure form the European Union.
Despite a truce in the trade war between the U.S. and China,
Unctad said it doesn't expect FDI to pick up strongly this year. It
said that new projects announced by businesses during 2019 were
down more than a fifth on the previous year.
"Looking ahead, I don't expect a significant increase in 2020
given the prospects for the global economy and geopolitics, nor do
I expect a drastic decline as FDI has already been at its lowest
level of the past decade, " said Mr. Zhan.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
January 20, 2020 08:14 ET (13:14 GMT)
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