As per United Nations Conference on Trade and Development's latest report on World Investment Report, FDI recovered to pre-pandemic levels in 2021 - crossing $1.58 trillion rising by 64% compared to the last year.
In 2021, FDI inflows in developing Asia recorded a rise for the third straight year to an all-time high of $619 billion. FDI inflows rose by 21% in China, increased by 44% in Southeast Asia but dropped 26% in India. Developing Asia receives 40% of the global FDI.
Meanwhile, FDI flows in Latin America and the Caribbean climbed 56% in 2021 - with South America recording 74% growth sustained by higher demand for commodities and green minerals.
In Africa, FDI hit a record $83 billion in 2021, however, this was significantly affected by a single intrafirm financial transaction in South Africa in the second half of 2021. Flows rose in Southern Africa, East Africa, and West Africa while Central Africa stayed flat and North Africa fell.
Furthermore, the report revealed that in structurally weak, vulnerable, and small economies, FDI rose by 15% to 39 trillion. However, the influx to the least developed countries, landlocked developing nations, and small island developing states combined accounted for only 2.5% of the world total in 2021, down from 3.5% in 2020. The impact of the pandemic intensified fragility, and investment in sectors relevant to the SDGs continued to fall. This was especially true for food, agriculture, health, and education.
Explaining the 2021 performance, the UNCTAD report stated that coming off a low base in 2020, global FDI rose last year with momentum from booming merger and acquisition (M&A) activity and rapid growth in international project finance due to loose financing and major infrastructure stimulus packages.
UNCTAD Secretary-General Rebeca Grynspan said, "The need for investment in productive capacity, in the Sustainable Development Goals (SDGs) and in-climate change mitigation and adaptation is enormous. Current investment trends in these areas are not unanimously positive."
Highlighting global FDI prospects for 2022, the report said that this year, the business and investment climate has changed dramatically as the war in Ukraine has resulted in a triple crisis of high food and fuel prices and tighter financing. Other factors clouding the FDI horizon include renewed pandemic impacts, the likelihood of more interest rate rises in major economies, negative sentiment in financial markets, and a potential recession.
It further explained that despite high profits, investment by multinational companies in new projects overseas was still one-fifth below pre-pandemic levels last year. For developing countries, the value of greenfield announcements stayed flat.
"UNCTAD foresees that the growth momentum of 2021 cannot be sustained and that global FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat," the report underlines. "However, even if flows should remain relatively stable in value terms, new project activity is likely to suffer more from investor uncertainty."
Furthermore, as per the report, signs of weakness are already emerging this year. Preliminary data for the first quarter shows greenfield project announcements down 21% globally, cross-border M&A activity down 13%, and international project finance deals down 4%.
"In 2022, FDI flows to developing economies are expected to be strongly affected by the war in Ukraine and its wider ramifications, and by macroeconomic factors including rising interest rates," the report says. "Fiscal space in many countries will be significantly reduced, especially in oil- and food-importing developing economies."
