Report: Global Investment Financing Trends Rebound
By Gordon Feller, P&GJ Eurasia Correspondent
Are global and regional foreign direct investment (FDI) trends favorable for those investing in new pipelines or redeveloping existing ones? The United Nations Conference on Trade and Development’s (UNCTAD’s) “World Investment Report 2022” answers that question.
According to Richard Bolwijn, UNCTAD’s head of the Investment Research Branch, his organization’s work is now focused on providing investors with a clear view into both trends. It presents key national and international investment policy developments that will affect investments into pipelines.
The 2022 report’s findings are significant. Global flows of foreign direct investment recovered to pre-pandemic levels last year, reaching $1.6 trillion. Cross-border deals and international project finance were particularly strong, encouraged by loose financing conditions and an infrastructure stimulus. However, the recovery of greenfield investment in industry remains fragile, especially in developing countries.
This fragile growth of real productive investment is likely to persist in 2022. The fallout of the war in Ukraine with the food, fuel and finance crises, along with the ongoing COVID-19 pandemic and climate disruption, are adding stresses, particularly in developing countries.
Global growth estimates for the year are already down by a full percentage point. There is significant risk that the momentum for recovery in international investment will stall prematurely, hampering efforts to boost finance for sustainable development.
Following are key messages from UNCTAD’s report that are relevant to pipeline-related investors and developers:
- Global FDI flows in 2021 were $1.58 trillion, up 64% from the exceptionally low level in 2020.
- Recovery showed significant rebound momentum, with booming mergers and acquisitions (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022.
- The war in Ukraine – on top of the lingering effects of the pandemic – is causing triple crises (food, fuel and finance) in many countries around the world.
- The 2021 growth momentum is unlikely to be sustained. Global FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat.
- The 2021 FDI recovery brought growth in all regions. However, almost three quarters of the global increase was caused by the upswing in developed countries, where FDI reached $746 billion – more than double the 2020 level.
- High levels of retained earnings in 2021 were the result of record MNE profits. The profitability of the largest 5,000 (multinational enterprises) MNEs doubled to more than 8% of sales.
Despite high profits, the appetite of MNEs for investing in new productive assets overseas remained weak. While infrastructure-oriented international project finance was up 68% and cross-border M&As were up 43%, greenfield investment numbers increased by only 11%, still one-fifth below pre-pandemic levels.
FDI Flows
FDI to developing economies grew more slowly than those to developed regions last year, but it still increased by 30%, to $837 billion. The increase was mainly the result of strong growth performance in Asia, a partial recovery in Latin America and the Caribbean, and an upswing in Africa.
Meanwhile, international investment in sectors relevant for the Sustainable Development Goals (SDGs) in developing countries increased substantially in 2021, by 70%. The combined value of greenfield announcements and international project finance deals in SDG sectors exceeded the pre-pandemic level by almost 20%.
The report found international project finance is increasingly important for SDG and climate change investment. The strong growth performance of international project finance can be explained by favorable financing conditions, infrastructure stimulus and significant interest on the part of financial market investors to participate in large-scale projects that require multiple financiers.
The report supports policymakers by monitoring global and regional investment trends and national and international investment policy developments. The report reviews investment in the SDGs and in climate change mitigation and adaptation. It also looks at sustainable finance trends in capital markets and among institutional investors.
Reflecting on the report, U.N. Secretary-General António Guterres predicted that “the coming years will see the implementation of fundamental reforms in international taxation. These reforms are expected to have major implications for investment policy, especially in countries that make use of fiscal incentives and special economic zones. The report of this year provides a guide for policymakers to navigate the complex new tax rules and to adjust their investment strategies.”
Every issue of the report includes a special analysis of investment trend implications for economic growth and sustainable development, a ranking of the world’s largest transnational corporations, an in-depth examination of a selected topic related to FDI, and policy recommendations and a statistical annex with data on FDI flows and stocks at the country level.
Key Topics
UNCTAD’s report also examines cross-border investment flow recovery from the COVID-19 pandemic, looking at greenfield investment in selected industries, project finance in infrastructure and the largest multinationals’ production activities.
The report also reviews recent policy developments, including trends in national investment policy measures and international investment agreements. It presents an overview of international corporate taxation and national investment incentive schemes worldwide.
A special chapter examines the implications for investment and investment policies of ongoing reforms in international taxation, including the adoption of a global minimum tax for multinationals and other mechanisms to counter harmful tax practices. It looks at the reforms’ overall expected impacts on cross-border investment flows, with a specific focus on developing countries, and assesses the effects on the use of common investment promotion tools, such as fiscal incentives, special economic zones and regional cooperation frameworks.
The report also has a chapter dedicated to the global trends in financing for sustainable development. It presents key findings and policy implications for the consideration of the United Nations General Assembly.
This article was originally published on Pipeline & Gas Journal in Nov 2022. The article can be viewed here.
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