Global foreign direct investment (FDI) flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10% to 15%, according to UNCTAD’s World Investment Report 2021.
FDI flows plunged globally by 35% in 2020, to $1 trillion from $1.5 trillion the previous year, the report says. Lockdowns caused by the COVID-19 pandemic around the world slowed down existing investment projects, and the prospects of a recession led multinational enterprises (MNEs) to reassess new projects.
The fall was heavily skewed towards developed economies, where FDI fell by 58%, in part due to corporate restructuring and intrafirm financial flows.
FDI in developing economies was relatively resilient, declining by 8%, mainly because of robust flows in Asia. As a result, developing economies accounted for two thirds of global FDI, up from just under half in 2019. More research HERE
Sectors vital for development hit hard
COVID-19 has also caused a collapse in investment flows to sectors relevant for the Sustainable Development Goals (SDGs) in developing countries.
All but one SDG investment sectors registered a double-digit decline from pre-COVID-19 levels. The shock exacerbated declines in sectors that were already weak before the pandemic – such as power, food and agriculture, and health.
“The drop in foreign investment in SDG-related sectors may reverse the progress achieved in SDG investment in recent years, posing a risk to delivering the 2030 Agenda for Sustainable Development and to sustained post-pandemic recovery,” Ms. Durant said.
FDI trends in 2020 varied significantly by region. In developing regions and transition economies they were relatively more affected by the impact of the pandemic on investment in global value chain-intensive and resource-based activities. Asymmetries in fiscal space for the roll-out of economic support measures also drove regional differences.
FDI flows to Europe declined by 80% while those to North America fell less sharply (-40%). The fall in FDI flows across developing regions was uneven, with 45% in Latin America and the Caribbean, and 16% in Africa.
In contrast, flows to Asia rose by 4%, with East Asia being the largest host region, accounting for half of global FDI in 2020. FDI to transition economies declined by 58%.
Source/ Image Credit: UNCTAD