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24 June, 2021updated 29 Oct 2021 12:42

UNCTAD World Investment Report 2021: Improvements made, uncertainty remains for FDI

Covid-19 dominates the figures in the UNCTAD World Investment Report 2021, with even the expected 10–15% growth in FDI flows for 2021 coming with caveats.

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Covid-19 has caused FDI figures to plummet in UNCTAD’s 2021 World Investment Report, and the growth predicted for this year is reliant on effective vaccination programmes around the world. (Photo by Mario Tama/Getty Images)

Figures published in the latest World Investment Report from the UN Conference on Trade and Development (UNCTAD) show foreign direct investment (FDI) flows are expected to increase by 10–15% in 2021, having fallen by 35% in 2020 to $1trn, mainly because of the Covid-19 pandemic. Despite the expected growth, FDI levels would remain 25% below those in 2019 and more than 40% below the recent peak in 2016.

“Current forecasts show a further increase in 2022 which, at the upper bound of projections, will bring FDI back to the 2019 level,” said UNCTAD’s director of investment and enterprise, James Zhan.

Global FDI levels plunged in 2020, declining almost 20% more than the 2009 trough after the global financial crisis. The impact of Covid-19 on global FDI wasn’t evenly spread. FDI plummeted by 58% in both developed and transition economies, to $312bn and $24bn, respectively, while developing economies only saw an 8% decline to $663bn, due to increasing FDI flows to Asia (by 4%). Consequently, developing economies accounted for two-thirds of global FDI, up from just under half in 2019. FDI flows to Hong Kong and China were the main drivers, with an increase of $46bn in 2020, from low levels in 2019.

Greenfield investment was the worst hit, declining throughout 2020 and into the first quarter of 2021; however, cross-border mergers and acquisitions (M&A) and international project finance deals witnessed a recovery in the second half of 2020.

Greenfield FDI slumps to record low level

In 2020, the value of announced greenfield investment projects slumped to $564bn, the lowest level ever recorded. Greenfield FDI was the hardest hit in transition economies, with values declining 58% to $20bn, and there was a drop of 44% in developing economies to $255bn. The number of greenfield projects also fell dramatically in both transition (-47%) and developing economies (-42%). The value of greenfield projects in developed economies declined 16% to $289bn, while the number of greenfield projects declined 19%.

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Cross-border M&A was more resilient in 2020. In developing economies, values increased by 2% to $84bn, while in transition economies they reached $12bn, an increase of 716%, despite the number of deals falling 40%. The value of M&As declined in developed economies by 11% and the number of deals fell 10% to 5,225.

In developed economies, FDI flows to Europe crashed to $73bn, a decline of 80%. Sharp decreases were witnessed across some of the largest European economies including the UK (-57%), France (-47%) and Germany (-34%). Flows to North America fell by 42% to $180bn, with a 40% decline witnessed in the US as values slumped to $156bn.

In developing economies, Latin America was the hardest hit, where FDI flows declined 45% to $88bn. Flows to Africa declined 16% to $40bn, while Asia witnessed the only increase globally, growing 4% to $535bn.

A setback for the UN's SDGs

Work on the UN's Sustainable Development Goals (SDGs) has been a global focus for many years; however, the impact of Covid-19 has hit SDG sectors hard. International private investment in the provision of water and sanitation fell 67%. Investment in both health and infrastructure declined 54%, while food and agriculture fell 49%. The recovery of these sectors is crucial if the SDG targets are to be met by 2030.

Despite the partial recovery of FDI flows expected in 2021, uncertainty remains, with Covid-19 still spreading across the globe. Travel restrictions remain in place, vaccine roll-outs vary between countries and economies are continuing to struggle. Recovery packages will remain key with the cumulative value of recovery funds intended for long-term investment worldwide approaching $3.5trn.

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