Global FDI rebounds strongly, but recovery highly uneven

Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77 percent to an estimated 1.65 trillion U.S. dollars, from 929 billion U.S. dollars in 2020, surpassing their pre-COVID-19 level, according to a new report by the United Nations Conference on Trade and Development (UNCTAD).

In its latest Investment Trends Monitor published on Wednesday, the Geneva-based UN trade and development body estimates that recovery remains highly uneven, infrastructure finance is up due to recovery stimulus packages, but greenfield investment activity remains weak across industrial sectors.

“Of the total increase in global FDI flows in 2021 (718 billion U.S. dollars), more than 500 billion U.S. dollars, or almost three quarters, was recorded in developed economies. Developing economies, especially the least developed countries (LDCs) saw more modest recovery growth,” the report said.

“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in least developed countries in industries important for productive capacities, and key Sustainable Development Goals (SDG) sectors – such as electricity, food or health – is a major cause for concern,” said UNCTAD Secretary-General Rebeca Grynspan.

The report said investor confidence is strong in infrastructure sectors, supported by favorable long-term financing conditions, recovery stimulus packages and overseas investment programs. In contrast, investor confidence in industry and global value chains remains weak. Greenfield investment project announcements were practically flat (-1 percent in number, +7 percent in value).

Driven by strong services FDI, China saw in 2021 a 20 percent increase of inflows, reaching a record 179 billion U.S. dollars, the report says.

The outlook for global FDI in 2022 is positive, but the 2021 rebound growth rate is unlikely to be repeated, according to the report.

“New investment in manufacturing and global value chains remains at a low level, partly because the world has been in waves of the COVID-19 pandemic and due to the escalation of geopolitical tensions,” said James Zhan, director of investment and enterprise at UNCTAD.

“Besides, it takes time for new investment to take place. There is normally a time lag between economic recovery and the recovery of new investment in manufacturing and supply chains,” Zhan added.