Global FDI momentum unlikely to be sustained

MANILA, Philippines — While global foreign direct investment (FDI) inflows recovered in 2021, an uncertain outlook is seen this year as the Russia-Ukraine war affected the business and investment climate, according to the United Nations Conference on Trade and Development (UNCTAD).

In its World Investment Report 2022, UNCTAD said global FDI flows jumped  64 percent to $1.58 trillion last year, coming from a low base of $963 million in 2020.

UNCTAD attributed the increase in momentum from booming merger and acquisition (M&A) activity and rapid growth in international project finance due to loose financing and major infrastructure stimulus packages.

Although all regions posted growth in FDI regions last year,  UNCTAD said  almost three quarters of the global increase was due to the upswing in developed countries, where inflows reached $746 billion, more than double the 2020 level.

In the Philippines, FDI inflows grew by  an estimated 54.17 percent to $10.5 billion from $6.8 billion in 2020, the report said.

Figures from the report showed that the Southeast Asian region resumed its role as an engine of growth for FDI in developing Asia and globally, with inflows up by 44 percent to $175 billion and increases across most countries.

“The rise was underpinned by strong investment in manufacturing, the digital economy and infrastructure. Singapore, the largest recipient, saw inflows up by 31 per cent to $99 billion, driven by a jump in cross-border M&As,”UNCTAD said.

Despite global recovery in 2021, UNCTAD said this is unlikely to be sustained this year.

“Global FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat. New project activity is already showing signs of increased risk aversion among investors. Preliminary data for Q1 2022 show greenfield project numbers down 21 percent and international project finance deals down four percent,” UNCTAD said.

It said  the global environment for international business and cross-border investment changed dramatically in 2022.

“The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. The resulting investor uncertainty could put significant downward pressure on global FDI in 2022,” UNCTAD said.

Another factor that will affect FDI negatively in 2022 is the flare-up of COVID-19 in China, the report said, adding that  renewed lockdowns in areas that play a major role in global value chains (GVCs) could further depress new greenfield investment in GVC-intensive industries.

“The expected interest rate increases in major economies that are seeing significant rises in inflation will slow down M&A markets and dampen the growth of international project finance,”the UNCTAD said.

It said negative financial market sentiment and signs of a looming recession could accelerate an FDI downturn.