A surge in cross-border mergers and acquisitions boosted global foreign direct investment flows around the world last year to $1.76 trillion, the most since the 2008-2009 financial crisis, the United Nations said in a study.
FDI increased 38 percent in 2015 from the year before, driven by corporate transactions that involve large movements in the balance of payments such as tax inversions but with little change in actual operations, according to the annual World Investment Report by the United Nations Conference on Trade and Development. Cross-border M&A rose to $721 billion from $432 billion in 2014, led by the $68 billion merger of Actavis Plc with Allergan Plc or Merck KGaA’s $17 billion purchase of Sigma-Aldrich Corp., and GlaxoSmithKline Plc’s $16 billion acquisition of Novartis AG.
Discounting these large-scale deals, total global FDI flows increased 15 percent, the UN said.
Low commodity prices capped FDI inflows to Africa and Middle East at $54 billion, or a 7 percent increase, while investments going to developing Asia grew 16 percent to $541 billion, the UN said, adding the rise was supported by strong economic performance in East and Southeast Asia.
Falling raw-material prices and slowing demand kept flows to Latin America and the Caribbean — excluding offshore financial centers — still at $168 billion, according to the report.
The UN estimates FDI flows will decline 10 to 15 percent this year due to the fragility of the world economy, persistent weakness of aggregate demand, sluggish growth in some commodity exporting nations, and the growing efficiency of policy measures targeting tax inversions.
“Barring another wave of cross-border M&A deals and corporate reconfigurations, FDI flows are likely to decline in both developed and developing economies,” the UN wrote in the report. “The world economy continues to face major headwinds, which are unlikely to ease in the near term.”