FDI is set to drop below $1 trillion for the first time since 2005, as the globe continues to struggle from the economic impact of COVID-19. Developing countries are forecast to be hardest hit.
Global foreign direct investment (FDI) flows are expected to drop 40% this year, the UN announced on Tuesday, citing the pandemic as the principle factor.
FDI will shrink from its 2019 value of $1.54 trillion (€1.36 trillion) to less than $1 trillion for the first time since 2005, the United Nations Conference on Trade and Development (UNCTAD) said.
Furthermore, FDI, an indicator of cross-border private sector investments, is expected to fall by an additional 5-10% next year and only start to bounce back in 2022, UNCTAD said in its annual World Investment Report.
Developing economies at greatest risk
"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. "
Less developed countries are likely to be hardest hit.
"Developing economies are expected to see the biggest fall in FDI," as they tend to depend on foreign investment for production and raw material extraction, said James Zhan, UNCTAD's director of investment and enterprise.
Meanwhile, in Asia, COVID-19 is expected to cause a drop in reinvested earnings of foreign affiliates, while the crisis has highlighted the significance of China and other Asian economies as global manufacturing hubs.
All 32 landlocked, less-developed nations in the region were struggling, particularly regarding border closures, the report said.
Indeed, those countries do not have the luxury of turning to direct sea transport, the mode that represents roughly 80% of global trade, said UNCTAD.
"As we saw in the past, international investment played a lead role in recovery from global financial crises," Zhan said.