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Dear Colleagues,

UNCTAD has just released its World Investment Report 2018. The Report:

-       presents FDI trends and prospects at global, regional and national 
levels;
-       analyses the latest developments in national policy measures for 
investment promotion, facilitation and regulation;
-       highlights trends in investment treaties and investment dispute 
settlement, and presents progress and next steps in reform of the 
investment treaty regime.

The 2018 edition, subtitled "Investment and New Industrial Policies", 
looks at the investment policy dimension of industrial policies. A global 
survey carried out for the Report shows that, over the past 10 years, more 
than 100 economies across the developed and developing world have adopted 
formal industrial development strategies, with acceleration in the last 
five years. Industrial policies are a key driver of investment policy 
measures; 90% contain specific measures, such as incentives, special 
economic zones, investment facilitation, performance requirements and 
investment screening mechanisms. The Report argues that modern industrial 
policies, especially those aimed at positioning for the new industrial 
revolution, call for a strategic review of investment policies.

The following are the Report’s key findings on global FDI trends and 
prospects:

-       Global FDI flows fell by 23% to $1.43 trillion. The fall was 
caused in part by a 22% decrease in the value of cross-border M&As. But 
even discounting the large one-off deals and corporate restructuring that 
inflated FDI in 2016, the 2017 decline remained significant. The value of 
announced greenfield investment also decreased by 14%.

-       A decrease in rates of return is a key contributor to the 
downturn. The global average return on foreign investment is now at 6.7%, 
down from 8.1 in 2012. Return on investment is in decline across all 
regions, with the sharpest drops in Africa and in Latin America and the 
Caribbean. The lower returns on foreign assets may affect longer-term FDI 
prospects.

-       FDI remains the largest external source of finance for developing 
economies. It makes up 39% of total incoming finance in developing 
economies as a group, but less than a quarter in the LDCs, with a 
declining trend since 2012.

-       The rate of expansion of international production is slowing. The 
modalities of international production and of cross-border exchanges of 
factors of production are gradually shifting from tangible to intangible 
forms. Sales of foreign affiliates continue to grow but assets and 
employees are increasing at a slower rate. This could negatively affect 
the prospects for developing countries to attract investment in productive 
capacity.

-       Growth in Global Value Chains has stagnated. UNCTAD’s new GVC data 
shows foreign value added (the key measure of the importance of GVCs) down 
1 percentage point to 30% of trade in 2017, after three decades of 
continuous increases. The GVC slowdown shows a clear correlation with the 
FDI trend and confirms the impact of the FDI trend on global trade 
patterns.

-       Projections for global FDI in 2018 show fragile growth. Global 
flows are forecast to increase marginally, by up to 10 per cent, but 
remain well below the average over the past 10 years. Higher economic 
growth projections, trade volumes and commodity prices would normally 
point to a larger potential increase in global FDI in 2018. However, risks 
are significant, and policy uncertainty abounds.


James X. Zhan
Director, Investment and Enterprise
Lead, World Investment Report
United Nations Conference on Trade & Development
Palais des Nations, Geneva
http://www.unctad.org/wir
http://www.worldinvestmentforum.org
http://investmentpolicyhub.unctad.org

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