Global FDI rebounds in first half of 2021 but recovery 'highly uneven', Unctad says

FDI flows worldwide reached an estimated $852bn, with developing economies recording the biggest rise

A boat sails past a vessel docked at Pasir Panjang container port at sunset in Singapore on January 18, 2021. / AFP / Roslan Rahman
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Global foreign direct investment flows rebounded by 78 per cent in the first half of 2021 but the recovery has been uneven around the world, according to the UN.

Developed economies recorded the biggest increase while poor countries reported a decline, the UN Conference on Trade and Development (Unctad) said in its latest Investment Trends Monitor report.

Global FDI rose to an estimated $852 billion in the first six months of 2021, showing a "stronger-than-expected rebound momentum", the report said. The increase in the first two quarters recovered by more than 70 per cent from the coronavirus-induced loss recorded in 2020.

"While investment flows are back on a recovery path, this recovery is concentrated in the developed world," James Zhan, director of the investment and enterprise division at Unctad, said during the UN's seventh World Investment Forum on Tuesday.

"Developed economies are expected to drive FDI recovery, due to good progress with Covid vaccination programmes and large fiscal stimulus packages," he said.

"When it comes to investment in sectors relevant for the sustainable development goals, greenfield investment and project finance in developing regions dropped dramatically since the pandemic. This leaves behind the more vulnerable countries and puts at risk the achievement of the SDG 2030 Agenda."

The FDI flows of developed economies hit $424bn in the first half of 2021 – more than three times higher than the exceptionally low flows in 2020, Unctad said.

For example, inflows in the US were up by 90 per cent, driven entirely by a surge in cross-border mergers and acquisitions.

FDI flows into developing economies also increased significantly, totalling $427bn in the first half, with the pace of growth picking up by 25 per cent in East and South-East Asia.

Investment flows recovered to near pre-pandemic levels in Central and South America while sharp increases were reported in several other economies in Africa and western and central Asia.

Low-income economies recorded a further 9 per cent decline, Unctad data showed.

Investments were concentrated in infrastructure, boosted by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes, the UN body said.

International project finance deals were up 32 per cent in volume and 74 per cent in value, with sizeable increases in most high-income regions and in Asia and South America.

By contrast, investor confidence in industry and global value chains "remains shaky", Unctad said. Greenfield investment project announcements continued to fall in value and volume during the first three quarters of 2021.

The number of SDG-related investment projects in least developed countries continues to "decline precipitously", it said.

New greenfield project announcements and infrastructure project finance deals fell by 51 per cent and 47 per cent, respectively, more than the 28 per cent decline reported for both types in 2020. Total project values were up, inflated by a single, large renewable project.

"The rapid FDI recovery and the optimistic outlook mask the growing divergence in FDI flows between developed and developing economies, as well as the lag in a broad-based recovery of the greenfield investment in productive capacity," Mr Zhan said.

The global FDI outlook for the full year of 2021 has improved from earlier projections. The underlying trend – net of conduit flows, one-off transactions and intra-company financial flows – will be more muted than the rebound growth rates of the first half.

"However, the current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels," Mr Zhan said.

"The duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty," the Unctad report said.

Other risks to the outlook include labour and supply chain bottlenecks, energy prices and inflationary pressures, which will also affect the final year results, it said.

Updated: October 19, 2021, 12:13 PM