The Strategist

Global foreign investment fall by half due to COVID-19

10/28/2020 - 03:20

According to a survey by the UN Conference on Trade and Development (UNCTAD), global Foreign Direct Investment (FDI) plummeted by 49 percent (to $399 billion) in the first half of 2020 relative to the same time in 2019. The limitations imposed by the COVID-19 pandemic were the key reason for this strong decline.

In particular, the number of new investment ventures (data for three quarters) decreased by 37 percent, cross-border mergers and acquisitions - by 15 percent, project financing transactions (investment in infrastructure) - by 25 percent. According to the paper, the reduction in FDI may equate to 30-40 percent by 2020. The authors expect, however, that the third quarter would indicate an improvement in the operation of investments.

The fall in foreign investment in developing countries was more pronounced - 75% at once (from $397 billion to $98 billion, to 1994 levels). North American investment flows decreased by 56 percent to $68 billion, although the figure was negative in Europe - minus $7 billion compared to $202 billion in the first half of 2019. This sharp fall was largely attributed to expenditure declines in the Netherlands (minus 86 billion dollars) and Switzerland (minus 98 billion dollars). At the same time, investment inflows into Ireland rose to $75 billion. 

As a result, the reduction in other big FDI components - new project acquisitions, project finance and M&A transactions - has been minimal (minus 17% in the first two cases and minus 5% in the third). 

The fall in foreign direct investment in developed countries was 16 percent (from $352 billion to $296 billion) - less than originally predicted. In the first half of 2020, emerging Asian countries accounted for over half of all FDI (the decrease was just 12 percent to $217 billion). 

Investments in new infrastructure decreased by 49% (the decrease was mostly in the oil and gas sector), investment financing decreased by 25%, but M&A transactions increased by 12%.