India, China, Israel buck global decline in FDI

India, China and Israel bucked the worldwide downward trend in foreign direct investment, recording a surge of 13 per cent and 4.0 per cent and 44.4 per cent respectively, as global FDI plunged by 42 per cent to an estimated $859 billion from $1.5 trillion in 2019, a United Nations report said.

FDI finished 2020 more than 30 per cent below the trough after the global financial crisis in 2009 and back at a level last seen in the 1990s, the 38th Global Investment Trends Monitor released by United Nations Conference on Trade and Development (Unctad) said.

Since the report did not give country-specific data of FDI flow, an upcoming detailed version on the trends is expected to shed light on the investment flow into the UAE, which in 2019 recorded a 34 per cent jump to $14 billion in FDI following major investments by US private equity firms in Abu Dhabi's energy sector.

In terms of individual nations, China was the world’s largest FDI recipient, with flows to the Asian giant rising by 4.0 per cent to $163 billion. High-tech industries saw an increase of 11 per cent in 2020, and cross-border M&As rose by 5 per cent, mostly in ICT and pharmaceutical industries.

“A return to positive GDP growth (+2.3 per cent) and the government’s targeted investment facilitation programme helped stabilize investment after the early lockdown,” the report says.

India, another major emerging economy, recorded 13 per cent growth, boosted by investments in the digital sector, said the report.

The US recorded a 49 per cent drop in FDI, falling to an estimated $134 billion. The decline took place in wholesale trade, financial services and manufacturing. Cross-border M&A sales of US assets to foreign investors fell by 41 per cent, mostly in the primary sector.

Among other developed economies, flows to Australia fell (-46 per cent to $22 billion) but increased for Israel (from $18 billion to $26 billion) and Japan (from $15 billion to $17 billion).

Unctad expects any increases in global FDI flows in 2021 to come not from new investment in productive assets but from cross-border M&As, especially in technology and healthcare – two industries affected differently by the pandemic.

“Although their investment activity slowed down initially in 2020, they are now set to take advantage of low interest rates and increasing market values to acquire assets in overseas markets for expansion, as well as rivals and smaller innovative companies affected by the crisis.”

European companies are set to attract more than 60 per cent of the technology deals in value terms, but several developing economies are also seeing an increase.

India and Turkey are attracting record numbers of deals in IT consulting and digital sectors, including e-commerce platforms, data processing services and digital payments.

Despite projections for the global economy to recover in 2021 – albeit hesitant and uneven – Unctad expects FDI flows to remain weak due to uncertainty over the evolution of the Covid-19 pandemic.

The organization had projected a 5-10 per cent FDI slide in 2021 in last year’s World Investment Report.

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

On the other side of the Atlantic Ocean, investment to Europe dried up. Flows fell by two-thirds to -$4 billion. In the United Kingdom, FDI fell to zero, and declines were recorded in other major recipients.

But Europe’s overall FDI performance masks a few regional bright spots. Sweden, for example, saw flows double from $12 billion to $29 billion. FDI to Spain also rose 52 per cent, thanks to several acquisitions, such as private equities from the United States Cinven, KKR and Providence acquiring 86 per cent of Masmovil.

According to the report, the decline in FDI was concentrated in developed countries, where flows plummeted by 69 per cent to an estimated $229 billion.

Flows to North America declined by 46 per cent to $166 billion, with cross-border mergers and acquisitions (M&As) dropping by 43 per cent. Announced greenfield investment projects also fell by 29 per cent and project finance deals tumbled by 2.0 per cent.

—issacjohn@khaleejtimes.com