Dhe global inflows of foreign direct investment (FDI) recovered last year from their slump due to the Corona crisis. But the war in Ukraine could slow down investment again this year, the United Nations Conference on Trade and Development (UNCTAD) warned in a report published on Thursday. The global environment for international investment has “changed dramatically” with the Russian invasion of Ukraine, said Unctad Secretary General Rebeca Grynspan. It can therefore be assumed that FDI flows in 2022 “will be declining or at best flat”.
In 2021, investments had grown by 64 percent to $1.58 trillion – returning to their pre-Corona crisis level. The reason for this, according to the report, was the booming market for cross-border mergers and acquisitions (M&A) and a rapid growth in international project finance due to the favorable financing conditions and the large infrastructure packages that were put together in many countries in response to the Corona crisis.
As in previous years, the United States was the largest recipient in a country comparison. Money inflows also rose sharply from $151 billion to $367 billion in 2021, followed by China, Hong Kong, Singapore and Canada. Germany slipped from seventh to eleventh place, although inflows more than doubled from $31 billion to $65 billion. While all regions benefited from the recovery, three quarters of the increase was driven by growth in inflows in the developed world. FDI there climbed to $746 billion – more than double what it was in 2020. Developing countries only saw growth of 30 percent to $837 billion.
The crisis is likely to hit developing countries in particular
According to the report, for structurally weak, vulnerable and small economies, inflows rose by just 15 percent to 39 trillion, and the share of the global total fell from 3.5 percent in 2020 to 2.5 percent. In addition, investments in sectors relevant to the UN Sustainable Development Goals – in particular food, agriculture, health and education – have continued to decline in these countries as a result of the pandemic over the past year. Globally, investments in sustainable projects were able to increase strongly again, but the largest part was accounted for by renewable energies and energy efficiency.
The current crisis is also likely to hit poorer countries in particular. Unctad warns that the uncertainties caused by the war in Ukraine, the supply chains disrupted by the corona lockdowns in China and rising interest rates could “put considerable pressure on foreign direct investments” this year. “Fiscal space will be significantly reduced in many countries, especially oil and food-importing developing countries.”
Already at the beginning of the year there were first signs of weakness. For example, announcements of new manufacturing facilities, known as greenfield investments, fell 21 percent, cross-border mergers and acquisitions fell 13 percent, and international project financing fell 4 percent, according to preliminary figures for the first quarter, according to Unctad.
