Global foreign direct investment flows are likely to plunge by 40 percent this year due to the coronavirus crisis, the UN said Tuesday, with worse expected in 2021.
FDI will shrivel from its 2019 value of $1.54 trillion to below $1 trillion for the first time since 2005, said the United Nations Conference on Trade and Development.
FDI — a measure of cross-border private sector investments — is forecast to decrease by a further five to 10 percent in 2021 and only start a recovery in 2022, UNCTAD said in its World Investment Report 2020.
World Investment Report 2020: International Production Beyond the Pandemic to be released #UNCTADWIR @unctadwif @UNCTAD 16 June pic.twitter.com/r5XRHCLdzR
— James Zhan (@Jamesunctad) June 13, 2020
Foreign investment obliterated by pandemic: UN
“The global economy is in a direr situation than it was during the 2008 financial crisis,” UNCTAD secretary-general Mukhisa Kituyi told reporters.
“The pandemic represents a supply, demand, and policy shock for FDI.”
Kituyi said the economic impact of COVID-19 would hit developing countries hard, with disruptions to major productive sectors and industries, declining remittances and receipts from tourism and contracting world trade.
“The shock will be further compounded by the impact on food security as production of major food items is concentrated in a few big countries where the pandemic is expanding,” he said.
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“Managing the disease is only part of the persistent challenges facing developing economies.”
Foreign investment restart can lead to recovery
In Asia, the pandemic is expected to precipitate a fall in reinvested earnings of foreign affiliates in the region, while the crisis has underscored the significance of China and other Asian economies as global production hubs.
Meanwhile all 32 landlocked less-developed countries were struggling with the economic impact of the pandemic on FDI flows — particularly with border closures, the report said.
#COVID19 has caused disruptions in supply chains, declines in revenues, falls in production. Can foreign direct investment open new market opportunities for developing countries? New blog by @CeylaP_WBG https://t.co/KWPwbBrL7k
— World Bank (@WorldBank) June 12, 2020
Those countries cannot turn to direct sea transport — the mode that carries an estimated 80 percent of global trade, said UNCTAD.
“As we saw in the past, international investment played a lead role in recovery from global financial crises,” said James Zhan, UNCTAD’s director of investment and enterprise.
Economic recovery can create growth for middle-income regions
He said the recovery could create opportunities for middle-income countries as value chains become more regionalised.
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The report found that global FDI flows rose by a modest three percent in 2019, following sizable declines in 2017 and 2018.
The rise was mainly the result of higher flows to developed economies, as the impact of the 2017 tax reforms in the United States waned.
Foreign investment obliterated by pandemic amid worst economic crisis
Earlier, the World Bank had sounded the alarm for the international economy when it stated that the economic recession caused by the pandemic is the worst in 150 years.
The coronavirus pandemic inflicted a “swift and massive shock” that has caused the broadest collapse of the global economy since 1870 despite unprecedented government support, the World Bank said.
The world economy is expected to contract by 5.2 percent this year — the worst recession in 80 years — but the sheer number of countries suffering economic losses means the scale of the downturn is worse than any recession in 150 years, the World Bank said in its latest Global Economic Prospects report.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu. The depth of the crisis will drive 70 to 100 million people into extreme poverty — worse than the prior estimate of 60 million, she told reporters.
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And while the Washington-based development lender projects a rebound for 2021, there is a risk a second wave of outbreaks that could undermine the recovery and turn the economic crisis into a financial one that will see a “wave of defaults.”
Economists have been struggling to measure the impact of the crisis they have likened to a global natural disaster, but the sheer size of the impact across so many sectors and countries has made it hard to calculate, and made predictions about any recovery highly uncertain. Under the worst-case scenario, the global recession could mean a contraction of eight percent, according to the report. But Pazarbasioglu cautioned: “Given this uncertainty, further downgrades to the outlook are very likely.”
AFP with additional input by GVS News Desk
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