Unctad warns on increasing trade restrictions

The global investment environment is becoming more restrictive, the UN Conference on Trade and Development (Unctad) has warned. 

In its latest Investment Policy Monitor, Unctad reports that 35 countries took 42 investment policy measures from November 2018 to February 2019. The percentage of new investment restrictions or regulations reached 34% during the review period, the highest figure since 2003. The ratio rose almost 50% compared with the previous reporting period (May to October 2018).

“In most instances the policy measures were subscribed to national security concerns,” says James Zhan, director of Unctad’s investment and enterprise division. “Of course, legitimate policy concerns warrant policy measures to be deployed [but] countries must be sure that the concerns are real and do not have tacit protectionist intent.”

Despite numerous countries improving business conditions for foreign investment, with developing and transition economies taking the lead, overall both developed and developing countries have heightened their efforts to protect their national security, Unctad found. However, Mr Zhan said the sharp rise in restrictive measures worldwide suggests there might be more at play than just security concerns, as the trend sits alongside a more general rise in protectionism.

“Trade tensions have been the headline-grabber, but we are now also seeing these restrictions on foreign investment emerge that will constrain business. It is a disconcerting development,” he said.

Indeed, the World Trade Organization (WTO) warned on April 2 that world trade will continue to face strong headwinds in 2019 and 2020 after growing more slowly than expected in 2018 due to rising trade tensions and increased economic uncertainty. The WTO predicts merchandise trade volume growth will fall to 2.6% in 2019, down from 3% in 2018. An expected rebound to 3% in 2020 is dependent on an easing of global trade tensions.

These tensions, combined with protectionist measures aimed at restricting inward investment and other negative trends, are taking their toll on global FDI levels.

“Foreign direct investment flows are already throttled by a variety of factors. Over and above the trade tensions, financing conditions are tightening, industrial production in major economies is gearing down and FDI returns have declined significantly over the last five years which has put a damper on investors’ mood [and] negative policy developments are bound to darken the mood,” warned Mr Zhan.

Unctad’s provisional data show FDI contracted by 19% in 2018, which followed a sharp decline of 23% in the previous year.

“This is a worrisome development, particularly in view of the fact that we need far more robust investment activity to meaningfully advance sustainable development objectives. We need to unblock investment. Restrictive investment measures, however, will further choke it,” Mr Zhan said.