Global FDI fell by 42 pc in 2020, outlook remains weak

  • Global FDI fell by 42 pc in 2020, outlook remains weak

Global FDI fell by 42 pc in 2020, outlook remains weak

Flows fell to an estimated US$859 billion from US$1.5 trillion in 2019, according to the UNCTAD Investment Trends Monitor.

While the news was good for China, overall global FDI dropped by 42 percent a year ago, and the outlook remains weak, the report said.

"For developing countries, the prospects for 2021 are a major concern", Mr. Zhan said.

"FDI finished 2020 more than 30 percent below the trough after the global financial crisis in 2009", the UNCTAD said on Sunday.

"The decline of global FDI will bottom out in 2021, and a real recovery will start in 2022", James Zhan, UNCTAD's investment and enterprise director, told reporters in Geneva. "Investors are likely to remain cautious in committing capital to new overseas productive assets".

East Asia accounted for a third of global FDI in 2020, while FDI flows to developed countries fell by 69%.

Flows to North America declined by 46 pc to USD166 billion, with cross-border mergers and acquisitions (M&As) dropping by 43 pc. Announced greenfield investment projects also fell by 29 pc and project finance deals tumbled by 2 pc. A sharp decrease was also recorded in the United States (-49 per cent) to $134 billion, the report said.

Foreign companies are turning their backs on the United States, taking advantage of China's booming economy and superior management of the Covid-19 pandemic.

China, now involved in a trade war with the USA, has been predicted to leapfrog it to the number one position by 2028, according to the UK-based Centre for Economics and Business Research (CEBR). The decline took place in wholesale trade, financial services and manufacturing. "US and foreign companies will continue to invest in China as it remains one of the most resilient economies during the global pandemic and as potential for future growth, it remains stronger than most other major economies", last month, Rhodium Group analyst Adam Lysenko. In the United Kingdom, FDI fell to zero.

There were some bright spots in Europe, though.

According to the data, the fall in FDI flows across developing regions was uneven, with -37per cent in Latin America and the Caribbean; -18per cent in Africa and -4per cent in Asia.

Among Chinese sectors, high-tech industries saw an FDI increase of 11 per cent in 2020, and cross-border mergers and acquisitions rose by 54 per cent, mostly in information and communications technology, and pharmaceutical industries. The share of developing economies in global FDI reached 72 per cent - the highest share on record.

"Companies are reassessing their policies about global supply chains, about foreign markets, about their own use of technology", Joseph Joyce, professor of worldwide relations and economics at Wellesley College, told the Journal.

However, FDI in India rose by 13 per cent, boosted by investments in the digital sector.

2020 marked the first year in history that foreign direct investment in China overtook that of the U.S., according to the UN.

Looking ahead, the FDI trend is expected to remain weak in 2021.

Meanwhile bargain-hunting companies should benefit from low interest rates and rising stock market valuations.