New York: Foreign direct investment (FDI) to India in 2017 declined in line with global trend, while outflows from India, the main source of investment in South Asia, more than doubled, according to a new trade report by the UN.
FDI to India decreased from $44 billion in 2016 to $40 billion in 2017. But outflows from India, the main source of FDI in South Asia, more than doubled to $11 billion, the report said.
According to the World Investment Report 2018 by the UN Conference on Trade and Development (UNCTAD), global FDI flows fell by 23% in 2017 to $1.43 trillion from $1.87 trillion in 2016. “Downward pressure on FDI and the slowdown in global value chains are a major concern for policymakers worldwide, and especially in developing countries," UNCTAD secretary-general Mukhisa Kituyi said.
The report cited India’s state-owned Oil and Natural Gas Corp. Ltd’s (ONGC) active investment in foreign assets in recent years. After acquiring a 26% stake in Vankorneft, an affiliate of Russia’s national oil company Rosneft PJSC, in 2016, ONGC bought a 15% stake in an offshore field in Namibia from Tullow Oil in 2017. By the end of 2017, ONGC had 39 projects in 18 countries, producing 285,000 barrels of oil and oil-equivalent gas per day, the report said.
The report said that cross-border merger and acquisitions sales for India rose from $8 billion to $23 billion driven by a few large deals in extractive and technology related industries.
Singapore’s Petrol Complex, owned by Russia’s Rosneftegaz acquired a 49% stake of Essar Oil Ltd, the second largest privately owned Indian oil company, for $13 billion. An investor group, including American e-commerce company eBay, technology giant Microsoft Corp. and China’s multinational investment holding conglomerate Tencent Holdings Pvt. Ltd acquired a stake in Flipkart Internet for $1.4 billion, and Soft Bank acquired a 20% stake in One97 Communications, the parent of digital payments leader Paytm, for $1.4 billion.
The report said that globally, the net cross-border M&A purchases of transition-economy MNEs rebounded from $809 million in 2016 to almost $14 billion in 2017, due to two large transactions, including Rosneft acquiring a 49% share in Essar Oil in India for close to $13 billion (through its Singapore affiliate, Petrol Complex).
Developing-economy investors from China and South Africa, followed by Singapore, India and Hong Kong (China), are among the top 10 investors in Africa.
The report said that financial uncertainty caused by “significant risks" to global trade is responsible for a sharp fall in international investment flows which could hurt developing countries the most.
Developed economies saw the biggest drop in FDI flows in 2017—at 37%, to $712 billion—but this was to some extent expected, after a spike in 2016. More concerning is the “lack of (FDI) recovery" among developing economies last year, since FDI is the “largest external source" of finance for developing countries, at around 40%, UNCTAD said.
Looking ahead, global FDI is forecast to see a “marginal" 10% increase by the end of this year, the report said. It notes that this is “below the average", looking back at the past decade and is linked to “significant" risks and “policy uncertainty", associated with “broadening" trade tensions around the world.
US tax reforms approved by Congress this year are also likely to affect future global investment decisions, the report added.
On another key indicator—greenfield investment, which signals how confident parent companies are about building operations in a new region or country—the UN report noted a 14% drop.
UNCTAD’s survey shows that modern industrial policies are increasingly diverse and complex, addressing new imperatives, such as GVC integration and upgrading, the knowledge economy, build-up of sectors linked to the Sustainable Development Goals and competitive positioning for the new industrial revolution.
“The new industrial revolution is already affecting cross-border investment patterns. Investment policies must adapt as part of new industrial development strategies," Kituyi said.