Global foreign investment is set to remain “weak” throughout 2021, according to the latest outlook issued by the United Nations Conference on Trade and Development (Unctad). 

“Although the global economy is expected to initiate a hesitant and uneven recovery in 2021, and gross domestic product growth, gross fixed capital formation and trade are project to resume growth, investors are likely to remain cautious in committing capital to new overseas productive assets,” Unctad’s latest Investment Trend Monitor reads. Unctad's latest World Investment Report published in mid-2020 forecast global foreign direct investment (FDI) to fall by 5% to 10% in 2021. 

The global economy shrunk by a 4.4% in 2020. However, the contraction did not exceed 1.6% at the height of the financial crisis, during the previous global recession in 2009. The IMF expects it to bounce back by 5.2% in 2021 as major economies — particularly in Asia, but first and foremost China and India — are jumping back to pre-Covid growth levels. Global trade was down by 9.2% in terms of volume in 2020 and the World Trade Organization forecasts it to rebound by 7.2% in 2021. 

However, foreign direct investment (FDI), particularly greenfield and brownfield investment, have long gestation periods and it will take longer for them to adjust to a recovery path, the Unctad report highlights. 

“The effect of the recession will linger and an FDI recovery is not expected to start before 2022.” 

Cross-border mergers and acquisitions (M&A) activity fell by 10% in 2020 from a year earlier, while the annual drop in international project finance stood at 2%, Unctad data show. The drop in global greenfield investment was more severe — between January and November, foreign investors announced 33.6% fewer projects than in the same period of 2019, according to foreign investment monitor fDi Markets. 

“Any increase in global FDI is more likely to come from cross-border M&A, rather than from new investment in productive assets,” the Unctad report concludes, pointing out that M&A activity has been rebounding since the second half of 2020, driven by the technology and healthcare sectors.