UN: Global foreign direct investment plunges in first half of 2020

Photo: Keystone/Christian Beutler

Global foreign direct investment (FDI) dropped by 49 per cent in the first half of the year and is expected to fall by up to 40 per cent in 2020 overall, as fears over a deep Covid-triggered recession forced multinationals to reassess their plans. 

Developed countries saw the biggest fall, with FDI reaching an estimated $98bn in the first half of 2020, a decline of 75 per cent compared to 2019, according to a report published on Tuesday by the United Nations Conference for Trade and Development (UNCTAD).

The low level was mainly due to sharply negative FDI in countries with significant conduit flows, such as Switzerland and the Netherlands, as multinational companies postponed investments and repatriated their capital back home.

Flows to Europe turned negative for the first time, falling to  minus $7bn from $202bn the same time last year, while FDI to the United States more than halved to $51bn, UNCTAD’s investment trends monitor showed. 

Across the main forms of FDI, cross-border mergers and acquisitions fell by 15 per cent while new greenfield investment projects, in which a parent company creates a subsidiary in a different country, dropped by 37 per cent.

On a more positive note, developing countries fared better than expected, with FDI flows decreasing by 16 per cent. This is partly explained by the fact that FDI to developing countries contain more greenfield investments and project finance, which are more stable.

Speaking at a news conference yesterday, James Zhan, Director of UNCTAD’s Division on Investment and Enterprise,  said the outlook remains “highly uncertain”, as governments move to contain a second wave of Covid-19  infections, sparking renewed fears of a double-dip recession.

FDI flows are expected to decline by 30 to 40 per cent in 2020, Zhan said, with the second half of the year registering a slightly smaller drop due much of the movement of money by multinationals taking place in the first six months.

The rate of decline in developed economies is likely to flatten as some investment activity appeared to be picking up in the third quarter.

Investment to developing economies are expected to stabilize, with east Asia showing signs of an impending recovery.

Despite suffering the brunt of the initial impact of the pandemic Asia showed the lowest decline in investment among developing regions due in part to the early efforts to contain the virus, particularly in east Asia where flows remained stable.