Covid-19 split global foreign direct investment flows into two halves, as only $ 399 billion flowed in the first half of 2020, a decrease of 49 percent compared to the half of 2019 ($ 777 billion). The decline in global investment flows included the majority of countries in the world, but there were a few exceptions, including Saudi Arabia in the West Asia region, which recorded a 12 percent rise during the first half.
This decline, according to the United Nations Organization for Trade and Development (UNCTAD), included all major forms of foreign direct investment. Advertisements for new investment projects in new fields fell 37 percent, cross-border mergers and acquisitions fell 15 percent and newly announced cross-border project financing deals, an important source of investment in infrastructure, fell 25 percent.
The United Nations trade arm says, in figures released yesterday, that shutdowns around the world have slowed existing investment projects, and prospects for a deep recession have prompted multinational companies to reassess new projects.
According to UNCTAD, the flow of foreign direct investment to West Asia decreased by a third in the first half of 2020 year on year, or to an estimated $ 9.3 billion for all countries in the region that includes 20 countries.
But the organization says, “steady investment inflows in a few countries in the region and some worthy projects have mitigated the sharp decline in investment in the West Asia region as a whole.”
The organization cites two cases: “For example, foreign direct investment flows to Saudi Arabia and Jordan have challenged the broader trend of decline between countries in the region.”
It says that the flow of investment to Saudi Arabia increased 12 percent to 2.6 billion dollars and to Jordan 17 percent to 0.4 billion dollars. “On the contrary, flows to Turkey decreased 32 percent to 2.9 billion dollars.”
If Covid-19 divided global foreign direct investment flows during the first half of 2020 by two compared to the same period in 2019, then it will write off three-quarters of the value of investment flows received by advanced economies during the first half of the current year compared to the same period 2019.
UNCTAD figures reveal that the value of the inflow of foreign investment to developed countries did not exceed 98 billion dollars in the first half of 2020 – a value last seen in 1994 – a decrease of 75 percent compared to 2019 (397 billion). “This trend has been exacerbated by the sharp negative investment flows in European economies,” she says.
FDI flows to Italy decreased by 74 percent, the United States 61 percent ($ 68 billion), Brazil (-48 percent to 18 billion, which is half what they received in the first half of 2019), Australia (-40 percent to $ 11 billion), New Zealand (-55 percent to $ 1.2 billion), Canada (-32 percent), South Korea (-34 percent to $ 3 billion), India (-29 percent), China (-4 Per cent to 76 billion). But despite the global health crisis, flows to Ireland rose to $ 75 billion, and $ 21 billion to Germany (+ 15 percent) and Mexico (+ 5 percent).
For the first time ever, foreign direct investment to Europe shifted to pillage, or minus $ 7 billion, from $ 202 billion in the first half of 2019. Flows in Argentina, Colombia, and Peru decreased by 40, 34 and 72 percent, respectively.
FDI flows to developing economies fell 16 percent – less than expected. Flows were lower at 28 percent in Africa, 25 percent in Latin America and the Caribbean, and 12 percent in Asia. This is mainly due to the flexibility of investing in China.
In the first half of 2020, developing Asia accounted for more than half of global foreign direct investment ($ 217 billion), although the value of investment inflows fell 12 per cent compared to last year. In East Asia, the investment flow remained stable at $ 125 billion.
In Southeast Asia, investment shrank 20 percent to $ 62 billion, as a result of a strong drop in investment flows to the three largest recipient countries of investment in the region: Singapore (-28 percent to $ 33 billion), Indonesia (-24 percent to $ 33 billion). $ 9.1 billion), Vietnam (-16 percent to 6.8 billion).
But there were exceptions: The flow of foreign direct investment into the Philippines rose 20 percent to $ 3 billion, and the flow to Thailand more than doubled to $ 4.8 billion from its lowest level in 2019.
Foreign direct investment flows to Africa declined 28 percent to 16 billion dollars during the first half of 2020. In Nigeria, it fell 29 percent to 1.2 billion, Ethiopia fell 12 percent to 1.1 billion, and in Mozambique it decreased 27 percent to 0.8 billion dollars. . In South Africa, it fell 24 percent to $ 2.9 billion.
In North Africa, investment inflow fell 57 per cent to 1.9 billion. And it fell to all Arab countries in North Africa by 44 percent to $ 3.8 billion. But Morocco went against the tide, with direct investment flowing into it 6 percent to $ 0.8 billion.
FDI flows to the transition economies fell sharply, to 81 percent to 5.4 billion due to the strong fall in Russia, the region’s largest economy, from 16 billion in 2019 to 1.2 billion. The decline was more than limited in Serbia (-24 percent). By contrast, Kazakhstan saw a 19 percent rise.
The values of cross-border mergers and acquisitions reached $ 319 billion in the first three quarters of 2020, a 15 percent decrease compared to 2019. A 21 percent decrease in developed countries, which account for about 80 percent of global transactions, has been confirmed.
New investment project announcements – an indicator of future FDI trends – amounted to $ 358 billion in the first eight months of 2020. Developing economies experienced a much greater decline (-49 percent). Compared to advanced economies (-17 percent), which reflects their limited ability to launch economic support packages.
The number of cross-border project financing deals fell 25 percent, with the largest drop in the third quarter, indicating that the decline is still accelerating, according to the United Nations trade arm.
The full-year forecast remains in line with previous expectations of a 30-40 percent decline. The rate of decline is likely to diminish in advanced economies, with some investment activity appearing to have increased in the third quarter. UNCTAD expects flows to developing economies to stabilize, with signs of an impending recovery in East Asia.
UNCTAD acknowledges that the outlook remains highly uncertain, depending on the duration of the health crisis and the effectiveness of intervention policies to mitigate the economic impacts of the epidemic. Geopolitical risks also continue to add to the uncertainty.
Overall, despite the decline in 2020, foreign direct investment remains the most important source of external financing for developing countries. Other sources, including remittances and official development assistance – which are relatively more important to the least developed countries – are also declining. This general decline could add to external payment problems in developing countries.
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