Global FDI plunges by 35 pc due to pandemic

Foreign investment in Bangladesh also dropped 10.80 pc in 2020

ASJADUL KIBRIA | Monday, 21 June 2021

Covid-19 has taken a heavy toll on the global foreign direct investment (FDI) flows which dropped by 35 per cent in the last year. As a result, global FDI came down to below US$ 1.0 trillion level after six years.

World Investment Report (WIR) 2021, released by the United Nations Conference on Trade and Development (UNCTAD) today (Monday) morning from Geneva, unveiled the picture.

It showed that inflows of global FDI stood at $998.91 billion in the last year from $1530.28 billion (or $1.53 trillion) in 2019.

“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,” said the report.

The UN agency, however, expressed optimism that FDI flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10 to 15 per cent in the current year.

It also said that the fall was heavily skewed towards developed economies, where FDI declined by 58 per cent, partly due to corporate restructuring and intra-firm financial flows.

FDI in developing economies was, however, relatively resilient as it declined by 8 per cent in the last year 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,” said the report.

In line with the global trend, net inflow of FDI in Bangladesh also declined by 10.80 per cent to $2.56 billion from $ 2.87 billion in 2019.

WIR 2021, UNCTAD’s one of the flagship reports, is the 31st version of the annual publication. Though there was an embargo on unveiling any part of the report before 5.00am GMT (11.00am BDT) on June 21, a few newspapers breached the embargo by publishing news on the report today.

VARIOUS TRENDS: FDI trends in 2020 varied significantly by region, according to the report.

“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,” the UNCTAD report mentioned.

“Asymmetries in fiscal space for the roll-out of economic support measures also drove regional differences,” it continued.

FDI flows to Europe declined by 80 per cent while those to North America fell less sharply, by 40 per cent in the last year.

“The fall in FDI flows across developing regions was uneven,” observed the report mentioning that FDI in Latin America and the Caribbean region declined by 45 per cent while the drop rate was 16 per cent in Africa.

Flows to Asia increased by 4.0 per cent, with East Asia being the largest host region, accounting for half of global FDI in 2020, according to the WIR 2021.

At the same time, FDI to transition economies declined by 58 per cent.

“The pandemic further deteriorated FDI in structurally weak and vulnerable economies,” observed the UN agency. “Although inflows in least developed countries (LDCs) remained stable, greenfield announcements fell by half and international project finance deals by one third.”

FDI flows to small island developing states (SIDS) fell by 40 per cent, and those to landlocked developing countries (LLDCs) by 31 per cent.

NEAR-TERM OUTLOOK: Looking ahead, global FDI flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10 to 15 per cent, according to the report.

“This would still leave FDI some 25 per cent below the 2019 level. Current forecasts show a further increase in 2022 which, at the upper bound of projections, bring FDI back to the 2019 level,” said UNCTAD’s director of investment and enterprise James Zhan in a press statement issued in this connection.

“Prospects are highly uncertain and will depend on, among other factors, the pace of economic recovery and the possibility of pandemic relapses, the potential impact of recovery spending packages on FDI, and policy pressures,” added the statement.

“The relatively modest recovery in global FDI projected for 2021 reflects lingering uncertainty about access to vaccines, the emergence of virus mutations and the reopening of economic sectors,” it continued.

“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,” added Zhan in the press statement.

UNCTAD also opined that the FDI recovery will be uneven.

“Developed economies are expected to drive global growth in FDI, both because of strong cross-border mergers and acquisitions (M&A) activity and large-scale public investment support,” it added.

“FDI inflows to Asia will remain resilient as the region has stood out as an attractive destination for international investment throughout the pandemic,” it continued.

UNCTAD also pointed out that a substantial recovery of FDI inflows to Africa and Latin America and the Caribbean is unlikely in the near term.

[email protected]