Global foreign direct investment flows are set to pick up this year after a severe slump in 2020 as economic activity across the world was impacted by the coronavirus pandemic, a UN report showed Monday.
FDI flows are expected to bottom out this year and recover some lost ground with an increase of 10-15 percent, the UNCTAD’s latest World Investment Report said.
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, the report said.
“This would still leave FDI some 25 percent below the 2019 level,” James Zhan, UNCTAD’s director of investment and enterprise, said.
“Current forecasts show a further increase in 2022 which, at the upper bound of projections, bring FDI back to the 2019 level.”
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, UNCTAD said.
Zhan pointed out that 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.
The FDI recovery is expected to be uneven, largely driven by developed economies helped by strong cross-border mergers and acquisitions activity and large-scale public investment support.
Asia will continue to attract significant FDI inflows as the region has stood out as an attractive destination for international investment throughout the pandemic, the report said.
UNCTAD said a substantial recovery of FDI to Africa and to Latin America and the Caribbean is unlikely in the near term.
The 35 percent slump last year due to the Covid-19 crisis was heavily skewed towards developed economies, the report said. The total value of FDI dropped to $1 trillion from $1.5 trillion in the previous year.
Work on existing projects was hurt by the pandemic and the consequent lockdowns, while multinational enterprises were forced to reassess new projects due to the prospects of a recession.
In 2020, FDIs to developed economies shrunk 58 percent, those to developing economies deceased only 8 percent, thanks to robust flows to Asia.
Consequently, developing economies accounted for two thirds of global FDI, up from just under half in 2019, the report said.