The United Nations Conference on Trade and Development (UNCTAD) on 21 June 2016 released a report entitled World Investment Report 2016 – Investor Nationality: Policy Challenges.
The report examines international production by multinational enterprises (including sales, exports, employment and value added), as well as their ownership structures and control of affiliates.
In a novel analysis, the report focuses on how policymakers can distinguish between “domestic” and “foreign” companies in a globalized economy and provides with a new framework for handling ownership issues in 21st century investment policymaking.
While the USA surpassed Hong Kong and China in terms of FDI inflows in 2015 with 380 billion US dollars, India continues to be at the 10th position with 44 billion US dollars.
Highlights of World Investment Report 2016
• FDI inflows: Top 10 countries in terms of FDI inflows in decreasing order – The USA, China, Hong Kong, Ireland, Netherlands, Switzerland, Singapore, Brazil, Canada and India.
• Ireland and Switzerland registered considerable progress in 2015. While Ireland attracted additional 71 billion US dollars in 2015 compared to 2014, in the case of Switzerland it was 62 billion US dollars
• Global investment trends: The flows jumped by 38 per cent to 1.76 trillion US dollars, their highest level since the global economic and financial crisis of 2008–2009.
• Inward FDI flows to developed economies almost doubled to 962 billion US dollars. As a result, developed economies tipped the balance back in their favour with 55 per cent of global FDI, up from 41 per cent in 2014.
• FDI flows are expected to decline by 10-15 per cent in 2016, reflecting the fragility of the global economy and persistent weakness of aggregate demand, sluggish growth in some commodity exporting countries.
• Regional investment trends: Developing Asia saw FDI inflows increase by 16 per cent to 541 billion US dollars – a new record. The significant growth was driven by the strong performance of East and South Asian economies.
Investor Nationality-Policy Challenges
• More than 40 per cent of foreign affiliates worldwide have multiple “passports”. These affiliates are part of complex ownership chains with multiple cross-border links involving on average three jurisdictions.
• “Multiple passport affiliates” are the result of indirect foreign ownership, transit investment through third countries, and round-tripping.
• These types of affiliates are much more common in the largest Multi National Enterprises (MNEs). 60 per cent of their foreign affiliates have multiple cross-border ownership links to the parent company.
• The larger the MNEs, the greater is the complexity of their internal ownership structures. The top 100 MNEs in UNCTAD’s Transnationality Index have on average more than 500 affiliates each, across more than 50 countries.
• The blurring of investor nationality has made the application of rules and regulations on foreign ownership more challenging.
• Policymakers in some countries have developed a range of mechanisms to safeguard the effectiveness of foreign ownership rules, including anti-dummy laws, general anti-abuse rules to prevent foreign control, and disclosure requirements.
• The report advised the policy makers to find a balance between liberalization and regulation in pursuing the ultimate objective of promoting investment for sustainable development.
Report with respect to India
• Globally, India was at the top tenth position in terms of FDI inflows in 2015. Compared to 35 billion US dollars in 2014, it received 44 billion US dollars of investments in 2015.
• India’s and Bangladesh’s FDI performance pushed inflows to South Asia to 50 billion US dollars, an increase of 22 per cent from 2014.
• India became the fourth largest recipient of investment in developing Asia.
• Outward FDI from India, South Asia’s dominant investor, dropped by more than one third which resulted in an overall 36 per cent decline of outflows from the region to 8 billion US dollars in 2015