The UN Conference on Trade and Development (UNCTAD) says Egypt remains the top destination of foreign direct investment (FDI) in Africa.
UNCTAD, in its “Investment Trends Monitor H1 2018’’, reports that FDI has dropped 41 percent in the first half of the year to $470 billion.
This was from $794 billion in the same period in 2017.
The report indicates that Egypt remains Africa’s largest recipient of foreign investment — up almost a quarter — compared with the first half of 2017.
In Western Africa, the data indicates a 17 percent fall in investment in the first half of the year, from $5.2 billion to $4.3 billion.
The UN agency’s report, however, suggested the negative trend could be turned around by advances in regional integration, including an African Continental Free Trade Agreement.
The fall in foreign direct investment happened mainly in richer nations, including Ireland (down $81 billion) and Switzerland (down $77 billion).
Developing economies saw FDI flows declining “only slightly” in the first half of the year by four percent to $310 billion, compared with 2017.
This includes developing Asia — down four percent — to $220 billion – in the same period, driven mostly by a 16 percent decline in investment in East Asia.
However, China, was the largest recipient of FDI in the first half of 2018, attracting more than $70 billion.
Latin America and the Caribbean saw a six percent drop in investment, amid uncertainty over upcoming elections which were offset by higher commodity prices, UNCTAD said.
This downward trend was blamed partly on the “volatile global economic environment” and mixed commodity prices.
UNCTAD’s director, division on investment and enterprise, James Zhan, said overall the global financial picture was “gloomy”.
Mr Zhan explained that foreign direct investment was important because it gave countries access to external capital, technology, market access, and tax contributions.
UNCTAD said the development was mainly owing to recent tax reforms in the U.S., which have encouraged big firms there to bring home earnings from abroad — principally from Western European countries.
Mr Zhan said the agency had warned in early January that there was “about $2 trillion of stock in the form of cash or in the form of reinvested earnings of retained earnings outside the U.S.”
The UNCTAD’s official said the agency also warned that the $2 trillion might be repatriated in some form, following wholesale tax reform.
“And indeed, it’s happening. We have seen that outward FDI from the U.S. was from $147 billion last year to a negative $247 billion this year,” Mr Zhan added.
He said, however, that other factors had contributed to the 2018 “huge difference in repatriation” of overseas profits by U.S. multi-nationals.
These included uncertainty about the detail and impact of tax reform and the potential impact of unresolved international trade disputes.
The tit-for-tat tariffs imposed by the U.S. and China was also another factor, the UNCTAD official said.