Global Investment Down By 42% In 2020


BY MARK ITSIBOR  |

Global foreign direct investment collapsed in 2020, falling by 42 per cent to an estimated $859 billion from $1.5 trillion in 2019, a report by the United Nations Conference on Trade and Development (UNCTAD) has shown.

It revealed FDI finished 2020 more than 30 per cent below the trough after the global financial crisis in 2009 and back at a level last seen in the 1990s.

The decline in developing economies (including Nigeria) was relatively measured at -12 per cent to an estimated $616 billion. The share of developing economies in global FDI reached 72 per cent – the highest share on record. China topped the ranking of the largest FDI recipients.

The decline was concentrated in developed countries, where FDI flows fell by 69 per cent to an estimated $229 billion. Flows to Europe dried up completely to -4 billion, including large negative flows in several countries. A sharp decrease was also recorded in the United States (-49%) to $134 billion.

The fall in FDI flows across developing regions was uneven, with -37 per cent in Latin America and the Caribbean, -18 per cent in Africa and -4 per cent in developing countries in Asia. East Asia was the largest host region, accounting for one-third of global FDI in 2020. FDI to transition economies declined by 77 per cent to $13 billion.

The report also show that FDI trend is expected to remain weak in 2021. Data on an announcement basis, an indicator of forward trends, provides a mixed picture and point at continued downward pressure: Sharply lower greenfield project announcements (-35% in 2020) suggest a turnaround in industrial sectors is not yet in sight.

The report forecasts upticks in the fourth quarter of 2020 dampened earlier declines in newly announced international project finance deals (-2% for the full year). International investment in infrastructure sectors could thus prove stronger, also buoyed by economic support packages in developed countries.

Similarly, the 2020 decline in cross-border M&As (-10%) was cushioned by higher values in the last part of the year. Looking at M&A announcements, strong deal activity in technology and pharmaceutical industries is expected to push M&A-driven FDI flows higher.

For developing countries, the trends in greenfield and project finance announcements are a major concern.

Although overall FDI flows in developing economies appear relatively resilient, greenfield announcements fell by 46 per cent (-63 per cent in Africa; -51 per cent in Latin America and the Caribbean, and -38 per cent in Asia) and international project finance by 7% (-40 per cent in Africa).

These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects.

Risks related to the latest wave of the pandemic, the pace of the roll-out of vaccination programmes and economic support packages, fragile macroeconomic situations in major emerging markets, and uncertainty about the global policy environment for investment will all continue to affect FDI in 2021.

 


Read the Source post on Leadership Newspaper.