Global foreign direct investment (FDI) is expected to “recover some lost ground” in 2021, and even jump back to pre-Covid levels in 2022 “at the upper bound of projections” although prospects remain “highly uncertain”, according to Unctad’s World Investment Report 2021, published on June 21.
FDI is projected to increase by 10% to 15% in 2021 from the historic lows it touched in 2020, according to Unctad forecasts. “This would still leave FDI some 25% below the 2019 level. Current forecasts show a further increase in 2022 which, at the upper bound of projections, bring FDI back to the 2019 level,” Unctad said in a press release.
While uncertainties persist and the recovery will depend on, among other factors, “the pace of economic recovery and the possibility of pandemic relapses”, Unctad’s latest forecasts mirror an improving macroeconomic environment. Back in January, it expected global FDI to remain “weak” throughout 2021, while in the previous World Investment Report, published in mid-2020 right at the onset of the pandemic, it expected FDI to fall by 5% to 10% in 2021.
James Zhan, Unctad’s director of investment and enterprise, tells fDi: “We are more optimistic but we haven’t drastically revised our forecast,” adding that he is “cautiously optimistic for 2021 and optimistic for 2022.”
Mr Zhan stresses that while GDP is forecast to grow by 5.8% and trade is set to increase by 8% this year, according to figures from the OECD and the World Trade Organization, “the real investment in terms of FDI is lagging”. Typically, the FDI cycle trails the general economic cycle by six months to a year, he says.
The FDI recovery will be uneven, the World Investment Report 2021 stresses. Developed economies are expected to drive global growth in FDI, both because of strong cross-border mergers and acquisitions activity and large-scale public investment support.
FDI inflows to Asia will remain resilient, as the region has stood out as an attractive destination for international investment throughout the pandemic. A substantial recovery of FDI to Africa and to Latin America and the Caribbean is unlikely in the near term, however.
Green future and its challenges
The report also highlights the unprecedented surge of investment in sustainability-themed investment products, rising 80% to an estimated total of $3.2tn worldwide in 2020.
“The paradox, or dichotomy, that we’ve observed is that on the one hand global FDI drastically declined, while finance for sustainable development sharply increased,” Mr Zhan says.
To make the green transition integral, the market “needs to tackle concerns of greenwashing and SDG [sustainable development goals]-washing, and address its geographical imbalance”, the report says, while calling for greater transparency in climate disclosures.
In October, Unctad will launch the UN Global Sustainable Finance Observatory, together with its partners, to assess the transparency and integrity of sustainable finance products and services.
Ten years ago, Mr Zhan points out, no company or exchange dared to commit to disclosures that were considered “non-economic” and “non-essential” in the wake of the global financial crisis. Now, in the midst of an economic crisis that grew out of a health crisis, the flood of activity with the right guidance can only lead to positive structural changes, he says.
“I think we still have almost 10 years to go. By 2030, there will be fundamental changes in the [financial] industry. I’m quite optimistic. I think it will happen given the current momentum,” he adds.