As many countries battle a second wave of Covid-19, global economies are being hit hard. Reflecting this, the latest figures from the UN Conference on Trade and Investment (UNCTAD) contained within its Global Investment Trends Monitor show that FDI flows fell by 49% in the first half of 2020 when compared with 2019.
Developed countries were the hardest hit with FDI flows declining 75% to an estimated $98bn in the first half of 2020 when compared with the same period in 2019. FDI flows to Europe fell into negative territory – with a deficit of $7bn – for the first time ever, reflecting the severity of Covid-19 on developed economies. While support packages are available, these have been slower to roll out in developed economies. Large divestments in equity had a negative impact on FDI flows in the Netherlands, with the country recording a decline in flows to -$86bn. FDI flows to North America fell by 56% to $68bn, with greenfield FDI declining 25%.
FDI flows to developing economies were more resilient, according to the report, with a 16% decline. Africa witnessed a decline of 28% and FDI flows into Latin America fell by 25%. Developing countries in Asia had some of the more robust economies, registering a regional decline of just 12%. The region alone accounted for more than 50% of global FDI in the first half of 2020. China was a key recipient of FDI flows in Asia in the first half of 2020, reaching $76bn, a decline of 4%, following a poor performance in 2019. This was also aided by an 84% increase in the value of M&A deals.
UNCTAD reports that between January and August 2020, greenfield FDI declined 37% to $358bn globally, falling 49% for developed economies and 17% for developing economies. Cross-border M&A deals globally reached $319bn in the first three quarters of 2020, a 15% decline overall and a 21% decline for developing economies. The number of international project finance deals also declined in the first three quarters of 2020 by 25%.
Investment Monitor chief economist Glenn Barklie says: “Some sectors, such as software and life sciences, will help to mitigate the downward FDI trends in the next 6–12 months; however, while countries are still impacted by Covid-19 investors will remain more cautious than normal. M&A deals may become more appealing, but with countries adopting protectionist measures the force of M&A may be less than previous post-recession periods. This will be reflected in negative annual growth predictions for FDI data.”
It is evident that support will be needed for some time across all economies and while the future remains uncertain. UNCTAD’s previously projected 30–40% decline in FDI flows for 2020 remains on track, suggesting an upturn in the current trends.