Global foreign direct investment fell by 42% in 2020, outlook remains weak
As reported by the UNCTAD global foreign direct investment (FDI) collapsed in 2020, falling 42% from $1.5 trillion in 2019 to an estimated $859 billion, according to an Investment Trends Monitor published on 24 January.
“Such a low level was last seen in the 1990s and is more than 30% below the investment trough that followed the 2008-2009 global financial crisis.
Despite projections for the global economy to recover in 2021 – albeit hesitant and uneven – UNCTAD expects FDI flows to remain weak due to uncertainty over the evolution of the COVID-19 pandemic.
The organization had projected a 5-10% FDI slide in 2021 in last year’s World Investment Report.
“The effects of the pandemic on investment will linger,” said James Zhan, director of UNCTAD’s investment division. “Investors are likely to remain cautious in committing capital to new overseas productive assets.”
Developed countries hardest hit
According to the report, the decline in FDI was concentrated in developed countries, where flows plummeted by 69% to an estimated $229 billion.
Flows to North America declined by 46% to $166 billion, with cross-border mergers and acquisitions (M&As) dropping by 43%. Announced greenfield investment projects also fell by 29% and project finance deals tumbled by 2%.
The United States recorded a 49% drop in FDI, falling to an estimated $134 billion. The decline took place in wholesale trade, financial services and manufacturing. Cross-border M&A sales of US assets to foreign investors fell by 41%, mostly in the primary sector.
On the other side of the Atlantic Ocean, investment to Europe dried up. Flows fell by two-thirds to -$4 billion. In the United Kingdom, FDI fell to zero, and declines were recorded in other major recipients.
But Europe’s overall FDI performance masks a few regional bright spots. Sweden, for example, saw flows double from $12 billion to $29 billion. FDI to Spain also rose 52%, thanks to several acquisitions, such as private equities from the United States Cinven, KKR and Providence acquiring 86% of Masmovil.
Among other developed economies, flows to Australia fell (-46% to $22 billion) but increased for Israel (from $18 billion to $26 billion) and Japan (from $15 billion to $17 billion).”
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