The Vi videoconference on the 2015 World Investment Report (WIR) for core Colombian university member, Universidad EAFIT, attracted an audience of nearly 300(*) September 29.
Following recent lackluster growth in the global economy, foreign direct investment (FDI) inflows declined by 16 percent to USD 1.2 trillion in 2014, reported UNCTAD’s Noelia Garcia Nebra. The drop was attributed to the fragility of the global economy, policy uncertainty for investors, and elevated geopolitical risks. New investments were also offset by some large divestments.
"In Latin America, flows decreased by 14 percent after four years of consecutive increases," she said. "This decrease was the consequence of a decline in M&As in Central America and the Caribbean, and of lower commodity prices, which reduced investment in the extractive industries in South America."
Despite the slowdown in FDI, Brazil, Mexico, Chile and Colombia made it to the list of top 20 FDI recipients in the world.
FDI inflows to Colombia decreased by 0.9 percent in 2014. The strong decline in the extractive industries (-21 percent) was offset mainly by the rises registered in the finance (+54 percent), manufacturing (+13 percent), transport and communication sectors (+39 percent).
"A remarkable trend in 2014 was the increase in outward investment from the South, with 36 percent of all outflows, and the rise of South-South FDI flows," Garcia Nebra said. "The total share of FDI received by developing countries reached 55 percent in 2014."
UNCTAD’s FDI forecast model projects global FDI inflows to grow from USD 1.2 trillion in 2014 to USD 1.7 trillion in 2017. And although a survey of large multinationals top executives supports these figures, “risks looming over the global economy may darken the outlook for FDI,” she said.
The presenter then turned to the report’s special theme: reform of the international investment regime.
"International investment agreements should not unduly constrain public policymaking," she said. “The challenge is to safeguard the right to regulate while providing for the protection and facilitation of investment. UNCTAD could play a role in guiding the reform process," she added.
To conclude the presentation, Garcia Nebra discussed the chapter dedicated to international tax and investment policy.
According to the report, FDI can play an important role in bridging the investment gap, estimated at USD 2.5 trillion per year in developing countries (see WIR14), and in fulfilling the financing needs for the achievement of the Sustainable Development Goals.
Multinational enterprises’ foreign affiliates contribute an estimated USD 730 billion annually to government budgets in developing countries -- corresponding to 23 percent of total corporate contributions and 10 percent of total government revenues. In Latin America, that contribution has been estimated at USD 155 billon. However, tax avoidance practices are responsible for a substantial loss of government revenue, the WIR argues.
"Taking action against tax avoidance is imperative and urgent. But policymakers, especially in developing countries, should consider carefully the risk of negative effects on investment flows. Coherence between the reform of the international tax and investment policy regimes is of fundamental importance," Garcia Nebra said.
"To help realize the synergies between investment policy and initiatives to counter tax avoidance, the corporate tax should be set at a competitive level, and fiscal incentives should be measurable and related to specific development objectives,” she added.
(*) The 36 EAFIT students and professors participating in the conference were joined by 259 streaming viewers, including guests from Vi affiliate member, Universidad EAN.
- World Investment Report 2015
- Article from Universidad EAFIT (Spanish)
- Article from Notas Confidenciales (Spanish)