UN says global foreign direct investment drop by 42% in 2020

YEREVAN, January 25. /ARKA/. Global foreign direct investment (FDI) collapsed in 2020, falling 42% from $1.5 trillion in 2019 to an estimated $859 billion, according to an UNCTAD Investment Trends Monitor published on 24 January.

Such a low level was last seen in the 1990s and is more than 30% below the investment trough that followed the 2008-2009 global financial crisis.

Despite projections for the global economy to recover in 2021 – albeit hesitant and uneven – UNCTAD expects FDI flows to remain weak due to uncertainty over the evolution of the COVID-19 pandemic.

The organization had projected a 5-10% FDI slide in 2021 in last year’s World Investment Report. 

“The effects of the pandemic on investment will linger,” said James Zhan, director of UNCTAD’s investment division. “Investors are likely to remain cautious in committing capital to new overseas productive assets.”

According to the report, the decline in FDI was concentrated in developed countries, where flows plummeted by 69% to an estimated $229 billion.

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. Cross-border M&A sales of US assets to foreign investors fell by 41%, mostly in the primary sector.

The fall was highly uneven across developing 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 subregion.

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 M&As 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.

The report warns that “the far more limited capacity of developing countries to roll out economic support packages to stimulate investment in infrastructure will result in an asymmetric recovery of project-finance-driven FDI.”

UNCTAD expects any increases in global FDI flows in 2021 to come not from new investment in productive assets but from cross-border M&As, especially in technology and healthcare – two industries affected differently by the pandemic.

“Although their investment activity slowed down initially in 2020, they are now set to take advantage of low interest rates and increasing market values to acquire assets in overseas markets for expansion, as well as rivals and smaller innovative companies affected by the crisis.”

European companies are set to attract more than 60% of the technology deals in value terms, but several developing economies are also seeing an increase.

India and Turkey are attracting record numbers of deals in IT consulting and digital sectors, including e-commerce platforms, data processing services and digital payments.

Some 80% of the acquiring firms are based in developed economies, primarily in Europe, but a few multinational enterprises from developing countries are active buyers.

South African investors, for example, plan to acquire stakes in healthcare providers across Africa and Asia. And Indian IT companies have announced a 30% increase in acquisitions, targeting European and other markets for information technology services. -0-