FDI flows likely to remain weak in 2021

Daniel Fowler
January 26, 2021

Overall, global FDI had collapsed in 2020, falling by 42 percent to an estimated US$859 billion, from US$1.5 trillion in 2019, the Geneva-based United Nations trade and development body said in its latest Investment Trends Monitor.

Last year's figure was down from $1.5 trillion in 2019, more than 30% below the investment trough that followed the 2008-2009 global financial crisis, the UN Conference on Trade and Development said on Sunday.

While the world as a whole struggled, China held on, becoming the world's largest foreign direct investment recipient with flows rising by 4 percent to US$163 billion, the report said.

For instance, the report said that inflows in Singapore fell by 37 percent to $58 billion as M&As contracted by 86 percent.

Flows to North America declined by 46 per cent to Dollars 166 billion, with cross-border mergers and acquisitions dropping by 43 per cent. Japan, which also resisted hard lockdowns introduced by many other developed countries, also saw its FDI grow, from $15 billion to $17 billion.

Foreign investment in the USA peaked in 2016 at $472 billion, when foreign investment in China was $134 billion, according to The Wall Street Journal.

Indonesia FDI flows declined by 24 percent to $18 billion, Vietnam by negative 10 percent to $14 billion and Malaysia by hefty decrease of 68 percent to $2.5 billion.

"Southeast Asia registered more than US$70 billion in new greenfield investment projects, the largest volume among developing regions".

FDI to transition economies, meanwhile, also declined by 77% to $13-billion.

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The United States recorded a 49 per cent drop in FDI, falling to an estimated Dollars 134 billion.

According to United Nations data, China has overtaken the United States as the world's top destination for new foreign direct investment (FDI) in 2020. FDI in ASEAN - an engine of FDI growth throughout the last decade - was down by 31per cent.

The report forecast that any increases in global FDI flows in 2021 would come not from new investment in productive assets but from cross-border mergers and acquisitions, especially in technology and health care.

Data on an announcement basis, an indicator of forward trends, provides a mixed picture and point at continued downward pressure.

"Greenfield project announcements in 2020, 35% lower than in 2019, do not bode well for new investment in industrial sectors in 2021", the report says. Announced greenfield investment projects also fell by 29 pc and project finance deals tumbled by 2 pc.

This random trend has increased the share of investment in developing countries to 72% worldwide ($ 616 billion or 50 506 billion), the highest rate ever.

Looking at M&A announcements, strong deal activity in technology and pharmaceutical industries is expected to push M&A-driven FDI flows higher, UNCTAD noted.

"FDI flows to developed countries fell drastically by 69% to values last seen nearly 25 years ago..."

The organization had projected a 5-10 pc FDI slide in 2021 in last year's World Investment Report.

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