Foreign direct investment inflows into Asia rose 4% to $ 535 billion (â¬ 449 billion), defying the COVID-19 pandemic as foreign investors continued to bet on the largest markets in the region, China and India, according to the World Investment Report 2021 of the United Nations Conference on Trade and Development showed.
The rise contrasts with a sharp drop in global foreign direct investment (FDI) flows, which fell 35% to $ 1 trillion, hit by a pandemic-induced recession – the worst since World War II. The collapse meant that global investment flows last year were nearly a fifth below the 2009 low after the global financial crisis.
Developed economies have seen a dramatic drop in foreign investment, with Europe experiencing an 80% collapse. Emerging economies resisted better, thanks to resilient flows in Asia. They represented two-thirds of global FDI, compared to just under half in 2019.
“Overall, Asia remains the most powerful engine of global FDI,” said Richard Bolwijn, one of the report’s authors. âIt remains attractive due to the high growth figures, the shift in manufacturing capacity from China to other low-income countries in the region, and the prospects for further growth of regional value chains. “
India is riding the wave of mergers and acquisitions
Asia is expected to account for over 50% of global production over the next two to three decades, as the global economic center of gravity shifts from West to East. The region is expected to contribute about 60% of global growth by the end of this decade thanks to its steadily growing middle class, according to the Asian Development Bank.
Bolwijn said the FDI figure for Asia was inflated due to unusually low levels of investment in Hong Kong in 2019 due to social unrest and Chinese multinationals’ transactions through Hong Kong. Excluding Hong Kong, FDI in Asia fell 6%, but the region still held up better than others.
India saw a 27% jump in FDI to $ 64 billion, mainly thanks to mergers and acquisitions (M&A). Last year, global investors, including tech giants like Google and Facebook, invested around $ 27 billion in Indian billionaire Mukesh Ambani’s Reliance Industries, betting on the company’s ambitions to become a force. major in technology and e-commerce.
China received $ 149 billion in FDI, up 6%, boosted by the country’s success in containing the pandemic and a remarkable recovery in gross domestic product. China also became the world’s largest foreign investor last year, ending Japan’s two-year reign.
In 2020, multinational corporations in developed countries cut their investment abroad by more than half to $ 347 billion, the lowest value since 1996.
The profits of these companies fell by more than a third on average, crippling their ability to reinvest cash for growth. Reinvested profits represent on average more than half of global FDI flows.
FDI inflows to Latin America fell 45% to $ 88 billion – the sharpest drop among developing countries – amid collapsing export demand, falling prices commodity prices and lower tourism.
Setback for Africa
FDI inflows to Africa fell 16% to $ 40 billion – a level never seen 15 years ago – a blow to the continent’s industrialization efforts. The decline in FDI was most pronounced in resource-dependent economies due to low prices for energy and other commodities.
Foreign investment, especially in entirely new industrial and infrastructure projects – involving new construction – have been instrumental in Africa’s growth. The value of entirely new projects announced in Africa fell by almost two-thirds last year.
Investments in sectors such as infrastructure, education, health and food – essential to achieving the United Nations Sustainable Development Goals (SDGs) – have also fallen drastically. Renewable energy was an outlier, which saw an increase in foreign investment.
âThe decline in investment in SDG sectors last year is a real concern in all developing countries. Much of the progress made in promoting investment in the SDGs since 2015, when the goals were adopted , were canceled last year, “Bolwijn told DW. .
Africa receives only a relatively marginal share of global FDI, with the least developed countries attracting only 2% of global foreign investment flows.
“So they already have a very large investment gap in the SDGs and last year’s decline only adds to that,” Bolwijn said. “Since much of this investment has fairly long gestation periods, the recovery may also take some time to gain momentum.”
Modest resumption of foreign investment
Global FDI flows are expected to regain the ground lost this year with an increase of 10 to 15%.
“The relatively modest recovery in global FDI forecast for 2021 reflects persistent uncertainty about access to vaccines, the emergence of viral mutations and delays in reopening economic sectors,” the report said.
However, the recovery will be uneven, with developed economies expected to drive global growth in foreign investment, aided by strong cross-border M&A activity and support for large-scale public investment.
While FDI flows to Asia are expected to remain resilient, investment flows to Africa and Latin America and the Caribbean are not expected to pick up significantly in the short term.
“These regions have more structural weaknesses, less fiscal space and a greater dependence on entirely new investments, which are expected to remain at a low level in 2021,” the report says.