Sixty per cent of FDIs go into the oil and gas sector
Foreign Direct Investment (FDI) inflows to North Africa declined by 11 percent, reaching $14 billion, with reduced inflows to all countries except for Egypt, according to the United Nations Conference on Trade and Development (UNCTAD).
In its World Investment Report for 2020, Egypt remained the largest FDI recipient in Africa in 2019, with its inflows increasing by 11 percent, recording $9 billion.
The report attributed that to Egypt’s economic reforms that improved macroeconomic stability and strengthened investor confidence in the Egyptian market.
Other countries in Africa have witnessed investment reductions, such as Nigeria and South Africa, on the back of the negative effects of weak global and regional GDP growth as well as demand slowdown for commodities.
Such constraints hampered FDI inflows to countries with both diversified and natural resource-oriented investment profiles alike, according to the report.
FDI global flows are expected to be under severe pressure throughout 2020 owing to the COVID-19 crisis, according to the report, and to drop sharply from $1.5 trillion in 2019 to reach levels well below the trough reached during the global financial crisis the world witnessed in 2008/09, the report said.
Flows to developing countries will be hit as well, as export-oriented and commodity-linked investments are among the most seriously affected, according to the report.
While the consequences could last well beyond the immediate impact on investment flows, the crisis could be a catalyst for a process of structural transformation of international production this decade, and an opportunity for uplifted sustainability, according to the report.
However, this will depend on the ability to tap the new industrial revolution and to overcome growing economic nationalism.
Cooperation will be crucial, particularly because sustainable development depends on a global policy climate that remains conducive to cross-border investment, the report proposed.
The report expected that the COVID-19 crisis will cause a dramatic fall in FDIs, projecting FDI flows to fall by up to 40 percent in 2020, from their 2019 value of $1.54 trillion.
This would bring FDIs below $1 trillion for the first time since 2005, the report said.
FDIs are projected to decrease by a further five to 10 percent in 2021 and to rebound in 2022, the year that could witness FDIs reverting to the pre-pandemic underlying trend.
“The outlook is highly uncertain. Prospects depend on the duration of the health crisis and on the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical and financial risks and continuing trade tensions add to the uncertainty,”, stated the report.