Global foreign direct investment (FDI) flows are projected to recover this year, after a 35% drop last year due to the covid19 crisis. The latest United Nations World Investment Report shows that foreign direct investment fell by a third to $1 trillion in 2020, compared to $1.5 trillion in 2019.
The lockdowns witnessed around the globe led investors to pause investment projects and made companies to shy away from new projects.
Developed economies suffered the biggest decline where FDI fell by 58% while FDI to developing nations dipped by 8%. According to the World Investment Report two-thirds of the global foreign direct investment flows in 2020 went to developing countries in Africa, Asia, and South America and only a third went to first world countries.
The covid19 pandemic affected financial flows to key sectors in low-income countries such as infrastructure, healthcare, education, renewable energy, food and agriculture, and the water and sanitisation sector. Acting UNCTAD Secretary-General Isabelle Durant said, “The drop in foreign investment in SDG-related sectors may reverse the progress achieved in SDG investment in recent years, posing a risk to delivering the 2030 Agenda for Sustainable Development and to sustained post-pandemic recovery.”
According to the UN report, the global foreign direct investment flows are projected to increase by between 10% and 15% in 2021. Even with the increase, foreign investments will still be below pre-pandemic levels. “This would still leave FDI some 25% 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 James Zhan, UNCTAD’s director of investment and enterprise.
Investment flows to Africa, South America, and the Caribbean are unlikely to fully recover in the near term, notes the UN report. However, FDIs to Asia are expected to remain strong in 2021 as the region is an attractive investment destination for international investors.