Figures published in the latest Global Investment Trends Monitor report from the UN Conference on Trade and Development (UNCTAD) show that foreign direct investment (FDI) flows during the second quarter of 2022 dropped to $357bn. This was down 31% from Q1 2022 and 7% lower than the quarterly average of 2021.

FDI flows in the first half of 2022 were still 14% higher than the same period of 2021, thanks to Q1 continuing the momentum of strong FDI recovery seen in 2021, but the downturn in Q2 shows how global economies remain severely disrupted by multiple crises. Aside from other rising geopolitical tensions, Russia’s invasion of Ukraine has caused inflation rates to soar and disrupted crucial supply chains. These factors, coupled with a fuel and finance crisis, have made investors more cautious as 2022 has progressed.

Regionally, flows to EU countries were up 7%, while European countries outside the EU saw capital investment plummet by 84%. FDI flows into North America dropped by 22%, while Latin America and the Caribbean saw a 61% rise in inflows. Overall inflows into Asia increased, with south Asia attracting the lion’s share of investment.

Globally, flows to developed economies were at an estimated $137bn, 22% lower in the second quarter of 2022 compared to the quarterly average of 2021. FDI flows to developing countries proved more resilient, increasing by 6% to $220bn.

Other notable trends during the first half of 2022 included:

  • Inflows into China continued to grow, increasing by 18% in the second quarter compared to 2021, with strong investment in high-tech industries.
  • Malaysia and Vietnam saw inflows increase by 37% and 15% respectively.
  • FDI inflows to India are expected to surpass record levels seen in 2020, as they remain significantly higher in both Q1 and Q2 of 2022
  • Flows to Brazil were high in both quarters of 2022, at more than 80% above the level of 2021
  • Inflows to South Africa were down 80% compared to 2021 (when it received a usually high level of FDI) yet remain in line with other recent years.

The first three quarters of 2022 have witnessed a decline in greenfield project figures. Announcements have dropped by 10% with the biggest declines in new investment registered in Latin America and in central Asia. Project values have increased, though this is largely due to several large announcements in the electricity and gas sectors. Most industries have witnessed a decline in investment, while petrochemicals and waste and recycling have seen a rise in inward FDI.

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Glenn Barklie, chief economist of Investment Monitor, commented: “Although inflation may begin to taper off in the coming months, many countries are still experiencing high levels and a return to target rates is still some way off. Some big FDI countries such as the UK and Germany have looming recessions which may cause investors to be more cautious and adopt a wait and see mentality for the next 6 months. This will naturally negatively impact FDI levels.”