FDI includes cross-border mergers and acquisitions, international project finance, and corporate investment in new “greenfield” projects abroad, and it can be an indicator of the growth of supply chains of companies that play a role. an important role in world trade.
Worse than expected
James Zhan, director of the Investment and Enterprise Division of UNCTAD, said the fall in FDI inflows in the first half of the year was more drastic than expected.
“This was due to blockages around the world, which slowed down existing investment projects, and the prospect of a deeper recession which led multinationals to reassess new projects. And that’s the current state of mind of investors – they’re trying to be very conservative at this point, ”he told a press conference in Geneva.
All major forms of FDI and all regions suffered from the slowdown, although developed economies were hit the hardest, with FDI inflows of $ 98 billion in the six months, a reduction of 75% compared to the previous year.
China holds the course
However, China reversed the trend, with FDI inflows relatively stable at $ 76 billion in the first half of the year, while Hong Kong rebounded as a FDI destination after a weak 2019.
“Overall, investment flows to China remain at a high level and this is partly because China has been one of the very few countries, among the first, to control the pandemic and resume its production system in the country.
“Meanwhile, the Chinese government has put in place effective measures to withhold investment, to serve the operations of multinationals operating in the country, and also put in place new measures to attract investment,” said Mr. Zhan.
Most of the FDI to China has gone to high-tech industries. The value of mergers and acquisitions transactions in China increased by 84%, mainly in the information services and e-commerce sectors, while several multinational companies also increased their investments in China, he added.
Very uncertain global outlook
The global outlook remains highly uncertain, with question marks over the duration of the pandemic and the effectiveness of the policy response, but the outlook for the full year remains in line with UNCTAD’s earlier projection of a decline in 30 to 40 percent, Zhan said. .
The rate of decline in developing economies is expected to flatten amid signs of an imminent recovery in East Asia, but the global decline is expected to continue, with a further 5-10% reduction expected in 2021, added the UNCTAD official.
FDI is the most important source of external finance for developing economies – surpassing remittances, bank loans and overseas development assistance.
The current value of FDI invested in projects around the world is equivalent to 42 percent of annual global GDP, Zhan said.