Global FDI Drops By A Third But India Bucks The Trend

The COVID-19 crisis has caused a massive fall in global Foreign Direct Investment (FDI). The investment flows dropped from $1.5 trillion in 2019 to $1 trillion in 2020 (a 35 per cent drop), according to a new report from the United Nations Conference on Trade and Development (UNCTAD).

The World Investment Report 2021 found that the pandemic has undone some of the progress made in ensuring that weaker economies and least developed countries have access to foreign investment funds, which are critical to adopting the Sustainable Development Goals (SDGs).

The report also found a sharp drop in FDI for developed countries, where it fell by 58 per cent, as reported by Al Jazeera. While North America saw a 42 percent decline, investment flows fell by 80 per cent in Europe. In Africa, FDI flows dropped by 16 per cent. UNCTAD also found that FDI in Latin America fell by 45 per cent.

Asia Defies Global Trend

While the global FDI flows saw a severe fall, India, China, Hong Kong, and the United Arab Emirates defied the worldwide trend and registered a growth in FDI flows even during the pandemic. The developing countries in Asia, led by these four nations, saw an increase of 4 per cent of FDI flows to $535 billion.

"Despite the pandemic, FDI to and from the region remained resilient in 2020. Developing Asia is the only region recording FDI growth, accounting for more than half of global inward and outward FDI flows," said UNCTAD's director of investment and enterprise, James Zhan, as per Business Today. He said that the forecast of a strong GDP growth, manufacturing activities and recovery in trade, are the reasons behind the favourable prospect of FDI flows in Asia.

FDI in South Asia increased by 20 per cent to $71 billion, driven by a 27 per cent rise in India's FDI to $64 billion. Information and Communications Technology (ICT) and construction are the sectors that caused the surge in FDI flow to India. India's cross border M&A also increased to $27 billion (83% growth), with significant ICT, health, infrastructure, and energy deals.

In Other Asian countries

China witnessed a 6 per cent rise in FDI to $149 billion in 2020. The report attributed the growth to China's technology-related industries, e-commerce and research and development. Meanwhile, in Hong Kong, FDI rose by 62 per cent to $119 billion after it had witnessed a sharp fall in 2019 due to corporate reconfigurations by multinational enterprises (MNEs) headquartered in the economy. UAE surged by 11 per cent to $20 billion because of significant acquisitions in the energy sector.

Meanwhile, Bangladesh and Sri Lanka saw a decrease of 11% and 43% in their FDI flows, respectively. In Pakistan, FDI fell by 6 per cent, which was mitigated by continued investments in power generation and telecommunication industries, as per the report.

Asia also became the only region to see an increase in Outward FDI (OFDI) with a rise of 7 per cent in outflows to $389 billion, with China coming out on top in terms of outward investment in 2020, because of intraregional value chains and strong economic growth prospects.

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