By Tom Miles
GENEVA (Reuters) - Global foreign direct investment (FDI) fell 13 percent in 2016 and a possible 10 percent rise in 2017 is beset by uncertainty, the United Nations trade and development agency UNCTAD said on Wednesday.
FDI, which largely comprises cross-border mergers and acquisitions (M&A) and investment in start-up projects abroad, is a bellwether of globalization and a potential sign of growth of corporate supply chains and future trade ties.
"FDI recovery continues along a bumpy road," said UNCTAD Secretary-General Mukhisa Kituyi. "Significant uncertainties about the shape of future economic policy developments could hamper FDI in the short-term."
Global FDI was an estimated $1.52 trillion in 2016. The United States was the top destination with $385 billion, an 11 percent rise from 2015. Britain was second with $179 billion, up almost six-fold because of three big M&A deals, and China third with $139 billion.
Inflows to India and Africa both slipped about 5 percent, and Latin America by 19 percent. Europe saw a 29 percent fall, partly because of a significant drop in investment channeled via low tax regimes in Switzerland, Ireland and the Netherlands.
The 2017 growth forecast is based on expected economic growth and rising commodity prices, but the outlook is clouded by uncertainty over the policies of U.S. President Donald Trump and the evolution of Britain's plan to leave the European Union.
Until the fog lifts, companies might keep plans on hold, said UNCTAD's investment chief James Zhan.
If Trump cuts taxes on repatriated profits, U.S. firms will have an incentive to bring foreign earnings back to the United States, but that might not translate into an investment boom there, Zhan said.
"The challenge is that those who are holding large earnings overseas may not be those companies that are in the business of infrastructure or those areas (requiring investment), and besides, the interest rate in the U.S. has been low, so liquidity or capital shortage hasn’t been a problem.”
While domestic tax enticements may mean the United States draws down its stock of investment globally, China is going in the other direction, having become a net source of FDI for the first time in 2016.
Last year China was the third largest outward investor globally, with big spending in Brazil, Germany and Spain. But after several years of "spectacular" growth, China's boom in outward FDI may slow down this year due to policies to reduce capital flight, Zhan said.
(Editing by Dominic Evans)