FDI Flows to South Asia Grew Despite Covid 19

The Rich are Not that Intelligent

Despite successive waves of COVID-19, Foreign Direct Investment flows to Asia grew for the third consecutive year, with developing economies in the region receiving 40 per cent of global foreign investment inflows.

FDI flows to developing countries in Asia rose by 19 per cent to an all-time high of 619 billion dollar in 2021, according to UNCTAD’s World Investment Report 2022.

UNCTAD’s investment and enterprise division Director James Zhan said that FDI flows to developing economies in Asia during the pandemic have bucked the global trend and underscored the resilience of developing economies in the region. “Although the upward trend in 2021 was experienced across most subregions – South Asia was the only exception – just six countries attracted more than 80% of FDI inflows,” said the report entitled “International tax reforms and sustainable investment”.

The UNCTAD report said that China was the main recipient, followed by Hong Kong (China), Singapore, India, the United Arab Emirates and Indonesia.


The FDI growth in China picked up pace, jumping by 21 per cent to 181 billion dollar, after a six per cent increase in 2020. It was powered by strong investment in services and high-tech séctors, where the outlook also remained positive for 2022. Pointing put that international project finance deals in the country reached a record, the report said that one of the largest projects was the construction of a one billion dollar data centre in Shanghai, sponsored by Singapore-based Princeton Digital Group. FDI flows to Hong Kong, China also grew by four per cent to 141 billion dollar, mostly accounted for by companies reinvesting their earnings ($108 billion).


This region saw FDI rise 44% to 175 billion dollar. The rise was underpinned by strong investment in manufacturing, the digital economy and infrastructure. Singapore, the subregion’s largest recipient, saw inflows up by 31% to $99 billion, driven by a jump in cross-border mergers and acquisitions (M&As). The largest deal was the $34 billion merger of US-based Altimeter Growth Corp with Grab, a Singapore-based software publisher. Announced greenfield projects in the city-state nearly doubled to $13 billion, with a $4 billion project by GlobalFoundries, based in the United Arab Emirates, to build a chipmaking plant in Singapore. Malaysia also attracted chip makers. The largest greenfield project announcements in the country were all in semiconductors – Risen Solar Technology (China) for $10 billion, Intel (United States) for $7 billion and AT&S (Austria) for $2.1 billion.


This region as per the report recorded a 59% increase in FDI flows to 55 billion dollar. It was mainly driven by a significant rise in Crossborder M&AS. While the United Arab Emirates remained the largest recipient, with flows stable at 20 billion dollar, inflows more than tripled in Saudi Arabia to 19 billion dollar and rose by 60 per cent to 13 billion dollar in Turkey, where FDI had declined the previous two years. In the United Arab Emirates, the German-based logistics company DHL Global Forwarding and the French energy and oil company Total announced a joint project to build a solar energy project in Dubai for 633 million dollar, The positive trend in Turkey was propelled by the refinancing of project debt across several oil and gas assets in Turkey by Socar, based in Azerbaijan


The report said that FDI flows to this region fell by 26 per cent to 52 billion dollar. This was the only subregion to suffer a drop in FDI inflows in 2021, as the 28 billion dollar M&As registered the previous year were not repeated. Flows to India declined by 30 per cent from its record level in 2020 to 45 billion dollar in 2021. However, a flurry of 108 new international project finance deals were announced in the country, compared with an average of 20 in the last 10 years. The largest number of projects (23) was in renewables. Major projects include the construction in India of a 13.5 billion dollar steel and cement plant by Arcelormittal Nippon Steel and the construction of a 2.4 billion dollar car manufacturing facility by Suzuki Motor. Both companies are based in Japan.


FDI flows to Kazakhstan, Central Asia’s largest recipient, fell by 14 per cent to 3.2 billion dollar in 2021, with declines registered in extractive industries and transportation. Meanwhile, FDI flows to se by 18 per cent to 2 billion dollar in Uzbekistan and by 24 per cent to 1.5 billion dollar in Turkmenistan.


Foreign investment flows into sectors key to achieving the UN Sustainable Development Goals (SDGs) rose significantly across developing countries in Asia. International project finance values in these sectors increased by 74% to $121 billion, primarily because of strong interest in renewable energy. Project values in this industry rose 123% to $77 billion.” “Looking ahead, mega-regional efforts are likely to boost further cross-border investment,” Mr. Zhan said. These include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and the Indo-Pacific Economic Framework for Prosperity. “But a possible escalation of geopolitical tensions could also increase uncertainty for long-term investment,” he added.


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