What exactly attracts foreign direct investment

Trump lets foreign investment fall

Every year the statisticians of the United Nations Conference on Trade and Development (Unctad), based in Geneva, examine how much money companies are investing abroad. With these foreign direct investments (FDI - Foreign Direct Investment) not only money flows, but also knowledge and technology; they are therefore regarded as a yardstick for globalization.

In 2018, FDI fell 13 percent to $ 1.3 trillion worldwide, according to Unctad's World Investment Report. It was the third decline in a row.

"This is not a good signal for the international community and its ability to address urgent global problems such as the fight against poverty or the climate crisis," said Unctad General Secretary Mukhisa Kituyi. "Geopolitical risks and trade conflicts will continue to weigh on FDI in 2019 and beyond."

Investments in Europe fell particularly sharply; In 2018, they halved from the previous year to $ 172 billion.

Follow the US tax reform

Unctad sees the decline primarily as a result of the major tax reform that US President Donald Trump implemented in 2017. "The decline is largely due to US multinational companies transferring their profits back from overseas to take advantage of the 2017 tax reforms that were specifically designed for this purpose," Unctad said.

US companies have been the biggest investors abroad for years, but last year the US was only in 157th place. This is exactly what Trump intended: He wants companies to invest at home and not abroad.

More takeovers

However, this does not mean that US companies are no longer active abroad, on the contrary. Many companies are swimming in money and bought European companies for 172 billion dollars in 2018, twice as much as in the previous year. The largest takeovers included the purchase of the British TV chain Sky by the US telecom group Comcast for 40 billion dollars and the merger of the industrial gas divisions of Praxais (USA) and Linde (Germany) for 32 billion euros.

But because US firms have been transferring a lot of money back to the US at the same time, the total value of their direct investments in Europe was only around $ 20 billion, according to the report.

It was mainly industrialized countries that suffered from the consequences of the US tax reform. Here direct investment from abroad fell to the 2004 level.

Direct investment in Great Britain fell particularly sharply, from around 100 billion dollars in 2017 to just 64 billion dollars last year. The Unctad experts are holding back in their assessment: "It remains unclear how big the impact of the upcoming Brexit will be on direct investment," the report says.

With the effect of the US tax reform weakening, the report's authors are optimistic that direct investment in Europe will soon recover. "The view looks pretty good," said Unctad's James Zhan. "We expect modest growth this year."

Developing countries benefit

Developing and emerging countries, on the other hand, were able to attract more direct investment than in the previous year (plus two percent). "Foreign direct investment in these countries now accounts for more than half (54 percent) of global flows," the report said.

Of the 20 countries that attract the most direct investment from abroad, half are now emerging and developing countries. By far the biggest piece of the pie is going back to the USA, even if it was nine percent smaller last year to 252 billion dollars.

Germany fell from 11th to 14th place. Within Europe, the Netherlands attracted the most money, followed by the UK, Spain and France. Germany was in sixth place in Europe.

The top investors in 2018 were Japan, China, France and Hong Kong, followed by Germany in unchanged 5th place. While most industrialized countries, including Germany, invested less abroad, France more than doubled its activities to a good 100 billion dollars.