Global foreign direct investment (FDI) flows rebounded strongly in 2021, rising by 77% to an estimated $1.65 trillion, from $929 billion in 2020, surpassing pre-COVID-19 level, according to UNCTAD’s Investment Trends Monitor.
Despite the positive outturn experienced in 2021, there still exists regional variations playing out rather prominently since 2020. While the flow of investment has picked up in developed economies, this is not the same for developing economies.
UNCTAD Secretary-General Rebeca Grynspan commented:
“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in least developed countries in industries important for productive capacities, and key Sustainable Development Goals (SDG) sectors– such as electricity, food or health– is a major cause for concern.”Rebeca Grynspan, UNCTAD Secretary-General
Investment flow in developed economies rose the highest, with FDI reaching an estimated $777 billion in 2021- thrice the record-low level in 2020, the report indicates.
In Europe, more than 80% of the increase in flows was as a result of large swings in conduit economies. FDI flows into the United States more than doubled, with the increase entirely accounted for by a surge in cross-border mergers and acquisitions.
FDI flows in developing economies increased by 30% to nearly $870 billion, with a growth acceleration in East and South-East Asia (+20%), a recovery to near pre-pandemic levels in Latin America and the Caribbean, and an uptick in West Asia.
Africa to Experience Moderate Rise in FDI
Inflows in Africa also rose in the period and most recipients across the continent saw a moderate rise in FDI; the total for the region more than doubled, inflated by a single intra-firm financial transaction in South Africa in the second half of 2021.
Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion, or almost three quarters, was recorded in developed economies. Developing economies, especially least developed countries (LDCs), saw more modest recovery growth.
According to the report, investor confidence was strong in infrastructure sectors, supported by favorable long-term financing conditions, recovery stimulus packages and overseas investment programmes.
Furthermore, the international project finance deals were up 53% in number and 91% in value, with marked increases in most high-income regions and in Asia and Latin America and the Caribbean. In contrast, investor confidence in industry and global value chains remained weak, the report highlighted.
Greenfield investment project announcements were practically flat (-1% in number, +7% in value). The number of new projects in global value chains (GVCs)-intensive industries such as electronics fell further.
In other sectoral trends, greenfield investment activity remained 30% below pre-pandemic levels on average across industrial sectors. Only the information and communication (digital) sector has fully recovered.
FDI in the United States- the largest host economy- increased by 114% to $323 billion, while cross-border M&As almost tripled in value to $285 billion. In the European Union (EU), FDI was up 8% but inflows into the largest European economies remained well below pre-pandemic levels.
Slow Pace of Vaccinations to Remain Risks to FDI in 2022
China saw a record $179 billion of inflows- a 20% increase- driven by strong services FDI, while Brazil saw FDI double to $58 billion from a low level in 2020, but inflows remained just below pre-pandemic levels.
The Association of Southeast Asian Nations (ASEAN) resumed its role as an engine of growth for FDI in Asia and globally, with inflows up 35% and increased across most members.
FDI flows to India were 26% lower, mainly because large M&A deals recorded in 2020 were not repeated, while inflows to Saudi Arabia quadrupled to $23 billion, in part due to an increase in cross-border M&As.
Flows to South Africa jumped to $41 billion (from $3 billion in 2020) due to the $46 billion share swap between the South African multinational Naspers and its Dutch-listed investment unit Prosus.
According to the report, the 2022 outlook for global FDI will remain positive, and that, the 2021 rebound growth rate is unlikely to be repeated.
Director of investment and enterprise at UNCTAD, James Zhan said:
“New investment in manufacturing and GVCs remains at a low level, partly because the world has been in waves of the COVID-19 pandemic and due to the escalation of geopolitical tensions.”
“Besides, it takes time for new investment to take place. There is normally a time lag between economic recovery and the recovery of new investment in manufacturing and supply chains.”James Zhan, Director of Investment and Entreprise, UNCTAD
The slow pace of vaccinations in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain uncertain.
UNCTAD noted that there exists other important risks, including labour and supply chain bottlenecks, energy prices and inflationary pressures will also affect results.