Recently, the United Nations Conference on Trade and Development (UNCTAD) launched the World Investment Report 2020. The report, a key tool for policymakers worldwide, focuses on global Foreign Direct Investment (FDI) trends. It includes the impact of these trends on regional and national economies and addresses measures taken to improve FDI’s contribution to development.
Report’s Prediction: Falling Global FDI Flows
According to the report, global FDI flows could witness a decline by up to 40% in 2020 from their 2019 value of 1.54 trillion. This prediction, if accurate, signifies that FDI will fall below1 trillion for the first time since 2005.
Trends for the Coming Years
The report anticipates that FDI will continue to decrease by an additional 5% to 10% in 2021. The FDI flows, however, are expected to embark on a slow recovery starting 2022.
The Impact of Covid-19 on Developing Economies
The most significant fall in FDI is expected to occur in developing economies. These economies are more reliant on investments in Global Value Chain (GVC) based industries, which have been drastically affected by the Covid-19 pandemic. Unlike developed economies, they also lack the resources to implement comprehensive economic support measures.
Seeing the Silver Lining: A Modest Growth in 2019
Before the pandemic, global FDI flows had exhibited a modest increase in 2019. This rise occurred after sharp declines in 2017 and 2018, largely because of the diminishing impacts of the 2017 tax reforms in the United States.
A Closer Look at India’s Investment Scene
India, one of the world’s largest FDI recipients, improved its global rank from 12th position in 2018 to 9th in 2019. FDI inflows into India increased by over 20% to reach $51 billion in 2019.
Foreseeing a Sharp FDI Decline in India in 2020
However, the UNCTAD report suggests that the Covid-19 pandemic, supply chain disruptions, and economic slowdown could significantly diminish FDI inflows into India in 2020.
The Changing Landscape of Greenfield Investment Announcements and M&A
In India, the number of greenfield investment announcements, a type of FDI where companies establish subsidiaries in foreign countries, fell by 4% in the first quarter of the financial year 2020-21. Mergers and acquisitions (M&A) also saw a contraction of 58%.
Prediction of A Rebound in Certain Indian Sectors
Despite the anticipated downfall, the report sees potential growth in India’s large market. It is expected to continue to lure market-seeking investments. Professional services and the digital economy could recover faster as they attract global venture capital firms and technology companies.
About UNCTAD
The United Nations Conference on Trade and Development (UNCTAD), established in 1964, is a Geneva-based intergovernmental body advocating for development-friendly integration of developing countries into the world economy. It publishes several important reports, including the Trade and Development Report, The Least Developed Countries Report, and the Technology and Innovation Report.
A Path Forward: Dealing with The Covid-19 Pandemic
Countries should strategize to manage the negative impacts of the Covid-19 pandemic and explore means to increase investment. For instance, providing direct cash to the economically disadvantaged could help boost demand in the economy, leading to increased investment and production.
Last Modified: February 7, 2024