COVID-19 hits global economy as FDI drops 49% in first half of 2020 – UNCTAD

The effects of the global pandemic, COVID-19 continues to be felt in the global economy as foreign direct investments recorded for the first half of 2020 fell 49 per cent compared to the same period in 2019.

According to the Global Investment Trends Monitor, published by the United Nations Conference on Trade and Development (UNCTAD) released today October 27, 2020, and copied to, the biggest drops in FDI happened in developed countries and cut across all major forms of FDI.

“The FDI decline is more drastic than we expected, particularly in developed economies. Developing economies weathered the storm relatively better for the first half of the year,” James Zhan, UNCTAD’s investment and enterprise director was quoted as saying.

“The outlook remains highly uncertain,” he added.

According to the Monitor, developed economies saw the biggest fall, with FDI reaching an estimated $98 billion in the six-month period – a decline of 75 per cent compared to 2019.

The trend, it indicated, was exacerbated by sharply negative inflows in European economies, mainly in the Netherlands and Switzerland. FDI flows to North America fell by 56 per cent to $68 billion, it said.

However, FDI flows to developing economies was less than expected, due mainly to resilient investment in China. FDI flows to developing countries fell 16 per cent. Flows decreased by just 12 per cent in Asia but were 28 per cent lower than in 2019 in Africa and 25 per cent lower in Latin America and the Caribbean, it said.

The report notes that in the six months to June 2020, developing countries in Asia accounted for more than half of global FDI. Flows to economies in transition were down 81 per cent due to a strong decline in the Russian Federation.

The decline cut across all major forms of FDI, the report shows.

The report shows further that cross-border M&A values reached $319 billion in the first three quarters of 2020. The 21 per cent decline in developed countries, which account for about 80 per cent of global transactions, was checked by the continuation of M&A activity in digital industries.

“The value of greenfield investment project announcements – an indicator of future FDI trends – was $358 billion in the first eight months of 2020. Developing economies saw a much bigger fall (-49 per cent) than developed economies (-17 per cent), reflecting their more limited capacity to roll out economic support packages,” the report said.

The number of announced cross-border project finance deals declined by 25 per cent, with the biggest drops in the third quarter of 2020, suggesting that the slide is still accelerating, it said.

The report points out that the outlook for the future is negative.

Prospects for the full year remain in line with UNCTAD’s earlier projections of a 30 per cent to 40 per cent decrease in FDI flows, it indicates.

It notes that the rate of decline in developed economies is likely to flatten as some investment activity appeared to be picking up in the third quarter.

It adds that flows to developing economies are expected to stabilize, with east Asia showing signs of an impending recovery.

The flows will hinge on the duration of the health crisis and the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical risks continue to add to the uncertainty.

Despite the 2020 drop, FDI remains the most important source of external finance for developing countries, UNCTAD states.

Global FDI stock stood at $37 trillion at the end of 2019, according to UNCTAD.

By Emmanuel K. Dogbevi

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