Pandemic ‘rolled back’ sustainable growth funding for weak economies: UNCTAD

Global foreign direct investment halved amid pandemic, but China remained resilient


According to UNCTAD’s World Investment Report 2021, complete overseas direct funding additionally dropped by greater than a 3rd globally, to $1 trillion (from $1.5 trillion in 2019), threatening progress on sustainable growth.

This stage was final seen in 2005 and it’s an pressing downside as a result of overseas direct funding is significant to selling sustainable growth on this planet’s poorest areas, stated Isabelle Durant, Acting Secretary-General of UNCTAD.

“The (COVID-19) crisis has had an immense negative impact on the most productive types of investment, namely, greenfield investment in industrial and infrastructure projects”, she stated. “This means that international production, an engine of global economic growth and development, has been seriously affected.”

European fiscal woes

Regionally, Europe noticed overseas direct funding fall 80 per cent final yr, whereas flows to North America fell by 42 per cent, which was attributed to a fall in reinvested earnings.

Other developed economies noticed a mean drop of 20 per cent, UNCTAD stated, whereas the African continent noticed a 16 per cent fall in overseas direct funding – to $40 billion – a stage final seen 15 years in the past.

Significantly, greenfield mission bulletins in Africa additionally tumbled 62 per cent, hurting industrialization prospects, and commodity-exporters have been the worst-hit.

Resilient Asia

By distinction, overseas direct funding to creating Asia resisted the worst impacts of the pandemic, pushed by China, the place capital inflows elevated by six per cent, to $149 billion.

Southeast Asia noticed a 25 per cent decline however funding to India elevated, pushed partially by mergers and acquisitions.

Sinking funding in Latin America

This contrasts with Latin America and the Caribbean, the place overseas direct funding “plummeted” final yr, falling by 45 per cent to $88 billion.

“Many economies on the continent, among the worst affected by the pandemic, are dependent on investment in natural resources and tourism, both of which collapsed”, UNCTAD stated.

Development shock

Although overseas funding between wealthier nations fell most in 2020 – by 58 per cent – creating nations have borne the brunt of final yr’s total funding downturn, UNCTAD stated.

To spotlight this, the UN physique pointed to the 42 per cent fall within the variety of new greenfield initiatives amongst fragile economies and a 14 per cent fall in worldwide mission finance offers; the latter are vital as a result of they drive infrastructure development.

By comparability, developed economies noticed a 19 per cent decline in greenfield funding and an eight per cent enhance in worldwide mission finance, UNCTAD stated.

Mixed restoration

Looking forward, Ms. Durant insisted that though governments have been rightly specializing in shaking off the impacts of the pandemic, the true problem is “not only about reigniting the economy, it is about making the recovery more sustainable and more resilient to future shocks”.

UNCTAD director of funding and enterprise, James Zhan, echoed that message, noting that the coronavirus pandemic had amplified the fragilities of structurally weak economies.

“Investment in various sectors relevant for achieving the Sustainable Development Goals (SDGs), especially in food, agriculture, health and education, has been falling”, he stated. “SDG-related investment needs to be scaled up in the post-pandemic period.”

According to UNCTAD’s newest report, funding to least developed nations, landlocked creating nations, and small island creating states, accounted for less than 3.5 per cent of complete overseas direct funding in 2020.

Source: UNCTAD

Foreign direct funding inflows, world and by group of economies, 2007–2020 (Billions of {dollars} and per cent).

It famous that the affect of the pandemic on world overseas direct funding was strongest within the first half of 2020, and that within the second half of the yr, “cross-border mergers and acquisitions and international project finance deals largely recovered”.

However, greenfield funding – which UNCTAD insisted is extra necessary for creating nations – “continued its negative trend throughout 2020 and into the first quarter of 2021”.

Looking forward, UNCTAD stated that world overseas direct funding flows have been anticipated to backside out in 2021 and get better some misplaced floor, with a rise of about 10 to 15 per cent. But this may nonetheless go away ranges “some 25 per cent below the 2019 level”.

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