By Adedapo Adesanya
Global foreign direct investment (FDI) flows are likely to nosedive by 40 percent this year due to the coronavirus crisis, the United Nations (UN) said on Tuesday, with worse expected in 2021.
In its World Investment Report 2020, the United Nations Conference on Trade and Development (UNCTAD) predicted that FDI may decline globally due to the COVID-19 pandemic.
According to the research, this means that FDI, which in 2019 amounted to $1.54 trillion, will fall for the first time since 2005 below the $1 trillion mark, with recovery likely to start in 2022.
Foreign Direct Investment (FDI) is a measure of cross-border private sector investments. This is forecast to decrease by a further five to 10 percent in 2021 and only start a recovery in 2022, UNCTAD said in its World Investment Report 2020.
Statistics showed that FDI is expected to fall in double figures in Latin America, between 30 and 45 percent in the developing countries of Asia, and between 25 and 40 percent in Africa. Industrialized countries are also projected to see a decline in foreign direct investment of between 25 and 40 percent.
“The global economy is in a direr situation than it was during the 2008 financial crisis,” UNCTAD secretary-general, Mr Mukhisa Kituyi said.
“The pandemic represents a supply, demand, and policy shock for FDI,” he added.
He noted that the pandemic led to “a halt in production and supply chains in most economic sectors, the complete closure of entire industries, and unprecedented shocks in consumption in most economies.”
Talking about the projected FDI decline, he said that “prospects depend on the duration of the healthcare crisis and the effectiveness of policies regarding the economic impact of the pandemic.”
Kituyi said the economic impact of COVID-19 would hit developing countries hard, with disruptions to major productive sectors and industries, declining remittances and receipts from tourism and contracting world trade.
“The shock will be further compounded by the impact on food security as production of major food items is concentrated in a few big countries where the pandemic is expanding,” he said.
“Managing the disease is only part of the persistent challenges facing developing economies,” he added.
In Asia, the pandemic is expected to bring about a fall in reinvested earnings of foreign affiliates in the region, while the crisis has underscored the significance of China and other Asian economies as global production hubs.
Meanwhile, all 32 landlocked less-developed countries were struggling with the economic impact of the pandemic on FDI flows — particularly with border closures. Those countries cannot turn to direct sea transport — the mode that carries an estimated 80 percent of global trade, said UNCTAD.
The report also showed that global FDI flows rose by three percent in 2019, following consecutive declines in 2017 and 2018.
The rise was mainly the result of higher flows to developed economies, as the impact of the 2017 tax reforms in the United States weakened, it noted.
