UN trade body says global FDI halved in H1, flows to China 'relatively resilient'

GENEVA - The United Nations Conference on Trade and Development on Tuesday said global foreign direct investment dropped by nearly half in the first six months of the year, with the biggest declines in Europe and the United States, warning of a highly uncertain outlook depending on the duration of the pandemic and the effectiveness of policy interventions.

In its latest Global Investment Trends Monitor, the Geneva-based UN trade and development body said that global FDI flows in the first half of 2020 reached $399 billion, down 49 percent compared to 2019 as lockdowns around the world slowed existing investment projects.

It also warned that the prospects of a deep recession had led many multinational enterprises to re-assess new projects.

For the full year, UNCTAD said that the outlook remained in line with earlier projections of a 30-40 percent decrease.

"The rate of decline in developed economies is likely to flatten as some investment activity appears to be picking up in the third quarter. Flows to developing economies are expected to stabilize, with East Asia showing signs of an impending recovery," the report said.

"The outlook remains highly uncertain, depending on the duration of the health crisis and on the effectiveness of policy interventions to mitigate the economic effects of the pandemic. Geopolitical risks also continue to add to the uncertainty."

For the first six months of the year, UNCTAD's data showed that new greenfield investment project announcements dropped by 37 percent, cross-border mergers and acquisitions fell by 15 percent, and newly announced cross-border project finance deals, an important source of investment in infrastructure, declined by 25 percent.

In terms of geographical breakdown, developed economies saw the biggest fall, with FDI reaching an estimated $98 billion in the first half, a decline of 75 percent compared to 2019.

The new figures also showed that the trend was exacerbated by sharply negative inflows in European economies, and that FDI flows to North America fell by 56 percent to $68 billion.

FDI flows to developing economies decreased by a less than expected 16 percent, UNCTAD said, with flows 28 percent lower in Africa, 25 percent in Latin America and the Caribbean and 12 percent in Asia, mainly due to resilient investment in China.

The report said that FDI flows to China proved "relatively resilient." In the first half, flows to the country reached $76 billion, a 4 percent decline.

The lower-than-expected decline was cushioned by an 84 percent rise in the value of M&A transactions, mostly in information services and e-commerce industries, explained James Zhan, UNCTAD's director of investment and enterprise.

Zhan added that government investment facilitation measures focusing on greenfield investment projects had helped to stabilize investment activities.

UNCTAD last month warned of a "lost decade" and forecast the global economy to contract by 4.3 percent this year, while expecting a return to positive territory with a gross domestic product growth rate of 4.1 percent in 2021.

The next regular issue of UNCTAD's Investment Trends Monitor will be released in mid-January 2021.