Global FDI flows rebound in 2021 to reach $1.6 tln with positive outlook for 2022: UNCTAD

Doaa A.Moneim , Sunday 23 Jan 2022

Global foreign direct investment (FDI) flows jumped by 77 percent in 2021 to an estimated $1.6 trillion, up from the $929 billion recorded in 2020, exceeding their pre-COVID-19 level, according to the United Nation Conference on Trade and Development’s (UNCTAD) Investment Trends Monitor report.

UNCTAD headquarters in Geneva

FDI flows in developing economies inched up by 30 percent to reach nearly $870 billion, with a growth acceleration in east and south-east Asia (+20 percent), a recovery to near pre-pandemic levels in Latin America and the Caribbean, and an uptick in west Asia, the report’s data showed.

“Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion was recorded in developed economies. Developing economies, especially least developed countries (LDCs), saw more modest recovery growth”, the report estimated.

For Africa, the report noted that FDI inflows to the continent rose more than double in 2021, with most recipients across the continent seeing a moderate rise in FDIs, inflated by a single intra-firm financial transaction in South Africa in the second half (2H) of 2021.

Additionally, developed economies saw the biggest rise, with FDIs reaching an estimated $777 billion in 2021, which is threefold the exceptionally low level reached in 2020.

Going forward, the report forecasts positive trends for global FDIs in 2022, yet it said that the 2021 rebound growth rate is unlikely to be repeated.

“The underlying trend — net of conduit flows, one-off transactions, and intra-firm financial flows — will remain relatively muted, as in 2021. International project finance in infrastructure sectors will continue to provide growth momentum,” the report projects.

In this respect, James Zhan, director of investment and enterprise at UNCTAD, expounded that new investments in manufacturing and GVCs remain at a low level, partly because the world has been in waves of the COVID-19 pandemic and due to the escalation of geopolitical tensions.

“Besides, it takes time for new investments to take place. There is normally a time lag between economic recovery and the recovery of new investments in manufacturing and supply chains,” Zhan added.

The report also pointed out the protracted duration of the health crisis, with successive new waves of the pandemic as a major downside risk before the global FDI inflows rebound.

Meanwhile, the pace of vaccinations — particularly in developing countries — as well as the speed of implementation of infrastructure investment stimulus are still important factors of uncertainty, according to the report.

It also touched upon other serious risks, including labour and supply chain bottlenecks, energy prices, and inflationary pressures.

“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in LDCs in industries important for productive capacities and key Sustainable Development Goals (SDG) sectors — such as electricity, food, or health — is a major cause for concern,” said UNCTAD Secretary-General Rebeca Grynspan.

Accordingly, the recovery of FDI inflows to sectors relevant to the SDGs in developing economies, which suffered significantly during the pandemic with double-digit declines across almost all sectors, remains fragile.

“The combined value of announced greenfield investments and project finance deals rose by 55 percent, but mostly because of a small number of very large deals in the renewables sector,” said the report.

Furthermore, the number of SDG-relevant investment projects in developing economies rose by only 11 percent, while renewable energy and utilities continue to be the strongest growth sectors, especially through international project finance.

In LDCs, the report showed that the trend in SDG-relevant investment is less favourable, estimating the SDG investment project numbers in LDCs declined by a further 17 percent in 2021 after the 30 percent fall in 2020.

On the other hand, total project values increased by about 20 percent in these economies due to a single large renewable energy project.

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