Global Foreign Direct Investment Plummets 42% in 2020

Global foreign direct investment plummeted last year to its lowest level in more than 20 years, tumbling 42% to an estimated $859 billion from $1.5 trillion in 2019, according to a report from the United Nations Conference on Trade and Development (UNCTAD).

The report noted that the current level of foreign direct investment, or FDI, is more than 30% lower than the investment low in the aftermath of the 2008-2009 global financial crisis. FDI occurs when a firm or individual in one country invests in a business interest located in another country (e.g., through establishing foreign business operations or acquiring assets in a foreign company).

UNCTAD said that despite projections for the global economy to recover this year, it expects FDI flows to remain weak due to uncertainty caused by the COVID-19 pandemic, and it forecasts FDI to decline another 5% to 10% this year.

“The effects of the pandemic on investment will linger,” James Zhan, director of UNCTAD’s investment division, said in a statement. “Investors are likely to remain cautious in committing capital to new overseas productive assets.”

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Developed countries bore the brunt of the decline in FDI, as inflows to those nations plunged 69% to an estimated $229 billion. Inflows to North America fell 46% to $166 billion, with cross-border mergers and acquisitions (M&A) falling 43%. And announced greenfield investment projects declined 29%, while project finance deals were off 2%.

FDI in the US was down 49% to an estimated $134 billion, with most of the decline coming out of the wholesale trade, financial services, and manufacturing sectors. Meanwhile cross-border M&A sales of US assets to foreign investors were down 41%.

European investment “dried up” last year, according to the report, which said inflows fell by two-thirds to negative $4 billion, and FDI fell to nil in the UK. However, there were a couple of exceptions on the continent, as FDI more than doubled in Sweden, which didn’t enact lockdowns or public restrictions to fight the pandemic, to $29 billion from $12 billion. And in Spain, FDI jumped 52%, which was attributed to several acquisitions, such as US private equity firms Cinven, KKR, and Providence Equity acquiring 86% of Spanish telecommunications operator MasMovil.

Meanwhile, in developing countries, FDI decreased by 12% to an estimated $616 billion, yet they accounted for 72% of global FDI—the highest-ever share, according to UNCTAD. On a regional basis, Latin America and the Caribbean saw the biggest decline in FDI, falling 37%, while inflows were down 18% in Africa and 4% in Asia.

China was the world’s largest FDI recipient, with inflows increasing 4% to $163 billion, led by high-tech industries, which saw an increase of 11% in 2020, while cross-border M&A increased 54%.

Despite outperforming developed countries in 2020 “the prospects for 2021 are a major concern” for developing countries, said Zhan, who noted that greenfield announcements in developing economies fell 46% last year, while international project finance declined by 7%, according to the report.

“These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects,” Zhan said.