UNCTAD hopeful of improved FDI amid uncertainty

GLOBAL foreign direct investment ( FDI) flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10 per cent to 15 per cent, according to UNCTAD’S latest World Investment Report.

FDI flows plunged globally by 35 per cent in 2020, to $ 1 trillion from $ 1.5 trillion the previous year, the report says.

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.

The fall was heavily skewed towards developed economies, where FDI fell by 58 per cent, in part due to corporate restructuring and intrafirm financial flows.

FDI in developing economies was relatively resilient, declining by eight per cent, 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.

FDI patterns contrasted sharply with those in new project activity, where developing countries are bearing the brunt of the investment downturn. In developing countries, the number of newly announced greenfield projects fell by 42 per cent and international project finance deals – important for infrastructure – by 14 per cent.

“These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recover y prospects,” Acting UNCTAD Secretar yGeneral Isabelle Durant said.

All but one SDG investment sector registered a doubledigit decline from preCOVID- 19 levels. The shock exacerbated declines in sec - tors that were already weak before the pandemic – such as power, food and agricul - ture, and health.

“The drop in foreign investment in SDG- related sectors may reverse the progress achieved in SDG in vestment in recent years, posing a risk to delivering the 2030 Agenda for Sustainable Development and to sus - tained post- pandemic recovery,” Ms. Durant said.

FDI trends in 2020 varied significantly by region. In developing regions and transition economies they were relatively more affected by the impact of the pandemic

on in vestment in global value chain- intensive and resource- based activities. Asymmetries in fiscal space for the roll- out of economic support measures also drove regional differences.

FDI flows to Europe declined by 80per cent while those to North America fell less sharply (- 40 per cent). The fall in FDI flows across develop - ing regions was uneven, with 45 per cent in Latin America and the Caribbean, and 16 per cent in Africa.