Foreign Direct Investment (FDI) flows are expected to bottom out in 2021 and recover some lost ground with an increase of ten to fifteen per cent, said data from the UNCTAD’s World Investment Report 2021.
In 2020, FDI plunged by 35 per cent across the globe. The investment came down from 1.5 trillion dollars to one trillion dollars from the previous year. The report states that Covid 19 lockdowns slowed down existing investment projects and the prospects of a recession led multinational enterprises to reassess new projects.
The World Investment Report 2021 says that the developed economies felt the heavy fall. The Foreign Direct Investment fell by 58 per cent in developed economies, especially because of corporate restructuring and intra-firm financial flows.
United Nations Secretary General António Guterres said that the situation was grim as international investment flows are vital for sustainable development in the poorer regions of the world. “Increasing investment to support a sustainable and inclusive recovery from the pandemic is now a global policy priority. This entails promoting investment in infrastructure and the energy transition, in resilience and in health care,” he said.
However, the Report mentions that FDI in developing economies was relatively resilient, declining by 8%, mainly
because of robust flows in Asia. It said that developing countries saw a fall of 42 per cent of the newly announced Greenfield projects and 14 per cent of international project finance deals. UNCTAD Secretary-General Isabelle Durant said that these investment types are crucial for productive capacity and infrastructure development
SECTORS VITAL FOR DEVELOPMENT HIT HARD
The developing areas and transition economies saw lesser investment in global value chain-intensive and resource-based activities. Asymmetries in fiscal space for the rollout of economic support measures also drove regional differences.
Europe saw a decline in FDI by 80 per cent. In North America, the investment fell sharply by -40 per cent. While Latin America and the Caribbean saw decline of 45 per cent, Africa encountered a dip of 16 per cent in FDI.
However, the report shows that FDI flows to Asia rose by four per cent. East Asia region saw the highest FDI flows. It said that Least Developed Countries (LDCs) witnessed stable FDI flows but Greenfield announcements fell by half and international project finance deals by one third. The report also stated that FDI flows to Small Island Developing States fell by 40 per cent. The Landlocked Developing Countries also saw reduced flows (31 per cent)
In the World Investment Report 2021, the UNCTAD hoped that FDI flows would bottom out in 2021 and recover some lost ground with an increase of 10 per cent to 15 per cent. Despite the comeback, UNCTAD’s director of investment and enterprise, James Zhan said that it would still leave FDI some 25 per cent below the 2019 level.
Zahan opined that the present forecasts showed a further increase in 2022, which is likely to bring FDI back to the 2019 level.
The report points out that the prospects are highly uncertain. It would depend on the pace of economic recovery and possibility of pandemic relapses, the potential impact of recovery spending packages on FDI and policy pressures.
“Increased expenditures on both fixed assets and intangibles will not translate directly into a rapid FDI rebound, as confirmed by the sharp contrast between rosy forecasts for capex and still-depressed Greenfield project announcements,” Zhan said.
The UNCTAD’s World Investment Report 2021 said that the recovery would be uneven. Developed economies are expected to drive global growth in Foreign Direct Investment, it said and added this was because of strong cross-border mergers and acquisitions and large-scale public investment support.