By Tom Miles
GENEVA (Reuters) - Global foreign direct investment (FDI) fell by 13 percent last year because of government intervention, Brexit uncertainty and U.S. President Donald Trump's tax and trade policies, the United Nations trade and development agency UNCTAD said on Wednesday.
UNCTAD forecasts a modest recovery of 10% this year, though with high uncertainty, since several of the policies that have dampened investment enthusiasm are still in place, and there is no sign of an end to technological rivalry between major powers.
"The Cold War that underpins technological competition is not going to be over in the next few years," UNCTAD Secretary-General Mukhisa Kituyi told reporters, referring to the rivalry between China and the United States.
FDI, comprising cross-border mergers and acquisitions (M&A), intra-company loans and investment in start-up projects abroad, is a bellwether of globalisation and a potential sign of growth of corporate supply chains and future trade ties.
In 2018, FDI into developed countries totalled $557 billion (437.38 billion pounds), the lowest since 2004, while a record 54% of the total went to developing countries.
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Policies rather than economic factors put the brakes on FDI spending, UNCTAD investment chief James Zhan said, including Trump's tax reform, which encouraged U.S. firms to repatriate earnings, effectively sucking FDI out of foreign projects.
Preliminary UNCTAD figures in January suggested that effect might be even bigger than it turned out to be, but after withdrawing $400 billion in the first half of 2018, some companies started looking afresh at foreign deals.
A second dampener on FDI was big countries blocking deals for national security reasons and for dominance of emerging strategic industries.
UNCTAD found 22 deals worth $50 million or more that were blocked in 2018, worth $150 billion in all, equivalent of 12 percent of global FDI.
The largest was a proposed $117 billion takeover of U.S. chipmaker Qualcomm (NASDAQ:QCOM) by Singapore's Broadcom (NASDAQ:AVGO), which Trump blocked for national security reasons, UNCTAD said.
This year the trend has continued, while the United States has stepped up its technology battle by trying to thwart the takeup of 5G mobile phone technology developed by Chinese telecoms giant Huawei, which Kituyi said was "at the very centre and embodies the main features of the emerging technology war".
But with firms working across so many international borders, it is unclear how the struggle will play out, he said.
China has discouraged outward investment in real estate, cinemas and soccer clubs to prevent capital flight and conserve foreign exchange reserves, restricting some deals and producing a "chilling effect" to discourage others, Zhan said.
FDI was also impacted by a reordering of global assets driven mainly by the U.S.-China trade war, with many export-oriented firms moving out of China to Southeast Asia or India.
The reconfiguration could accelerate with the advent of two major multi-country trade deals, known as the Comprehensive and Progressive (NYSE:PGR) Agreement for Trans-Pacific Partnership (CPTPP) and the RCEP (Regional Comprehensive Economic Partnership).
Britain's plan to leave the European Union also weighed.
"Investment flows to the UK declined last year by 36% and it’s not just for the UK – the process creates unpredictability and that affects the whole EU market," Zhan said.