UNCTAD projections for global foreign direct investment (FDI) this year remains weak due to uncertainties surrounding the evolution of the COVID-19 pandemic, and for developing economies, prospects for this year are a major concern.
Global foreign direct investment collapsed in 2020, falling by 42% to an estimated $859 billion, from $1.5 trillion in 2019. This is the largest decline in FDI ever recorded after the global financial crisis in 2009― such a decline is more than 30% below that experienced during the global financial crisis.
This is against projections made by the organization last year that global FDI would trend upwards between 5 percent and 10 percent in 2021 per the 2020 World Investment Report.
The Director of UNCTAD’s investment division, James Zhan opined that, “the effects of the pandemic on investment will linger and added that, “investors are likely to remain cautious in committing capital to new overseas productive assets.”
Share of FDI in Developing Countries
Although FDI flows to developing economies decreased by 12% to an estimated $616 billion, they accounted for 72% of global FDI – the highest share on record.
However, the trends in greenfield and project finance announcements are a major concern for developing economies. Since, they are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects.
More so, the fall in FDI for developing economies was highly uneven across regions: -37% in Latin America and the Caribbean, -18% in Africa and -4% in developing countries in Asia. FDI to transition economies declined by 77% to $13 billion.
While developing countries in Asia weathered the storm well as a group, attracting an estimated $476 billion in FDI in 2020, flows to members of the Association of Southeast Asian Nations (ASEAN) contracted by 31% to $107 billion, due to a decline in investment to the largest recipients in the sub-region.
On the whole, however, overall FDI in developing economies exhibited some level of resilience, greenfield announcements fell by 46% (-63% in Africa; -51% in Latin America and the Caribbean, and -38% in Asia) and international project finance by 7% (-40% in Africa).
In terms of individual nations, China was the world’s largest FDI recipient, with flows to the Asian giant rising by 4% to $163 billion. High-tech industries saw an increase of 11% in 2020, and cross-border Mergers & Acquisitions rose by 54%, mostly in ICT and pharmaceutical industries.
“A return to positive GDP growth (+2.3%) and the government’s targeted investment facilitation programme helped stabilize investment after the early lockdown,” the report says.
India, another major emerging economy, also recorded positive growth (13%), boosted by investments in the digital sector.
Share of FDI for Developed Countries
According to the report, FDI flows to developed countries, fell drastically by 69 percent to an estimated $229 billion, being the largest decline in the last 25 years.
FDI inflows to North America declined by 46percent to $166 billion, with cross-border mergers and acquisitions (M&As) plummeted by 43 percent. Greenfield investment announcement projects also fell by 29 percent and finance projects only dropped by 2 percent.
The United States recorded a 49% drop in FDI, falling to an estimated $134 billion. The decline took place in wholesale trade, financial services and manufacturing.
Also, investment to Europe fell short. FDI inflows fell by two-thirds to -$4 billion. Surprisingly, FDI to the United Kingdom fell to zero.
However, a few countries in Europe made some strides among their regional counterparts. Sweden, for instance, saw flows double $12 billion to $29 billion. FDI to Spain also rose by 52 percent, due to several acquisitions completed, such as private equities from United States.
Israel’s FDI flows also increased from $18 billion to $26 billion, and Japan by more than $2 billion.
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