Global FDI flows are forecast to drop by as much as 40% this year from last year’s total of $1.54trn, according to the United Nations Conference on Trade and Development (Unctad).

The slump could bring annual FDI below $1trn for the first time since 2005, according to Unctad’s World Investment Report 2020.


Unctad forecasts FDI to decrease by a further 5-10% in 2021, before beginning a recovery in 2022, led by global value chains (GVCs) restructuring to be more resilient, replenishment of capital stock and an expected global economic recovery.

“The impact, although severe everywhere, varies by region. Developing economies are expected to see the biggest fall in FDI because they rely more on investment in GVC-intensive and extractive industries, which have been severely hit, and because they are not able to put in place the same economic support measures as developed economies,” said James Zhan, Unctad’s director of investment and enterprise.

FDI into developed countries is expected to decline between 25% and 45%, as the Covid-19 crisis slows down multinational enterprise (MNE) capitals expenditures. Shrinking corporate profits will have a direct impact on reinvested earnings, which on average account for more than 50% of FDI.

Cross-border M&A slump

Data for the first months of 2020 highlights this impact, as the number of cross-border M&As in developed economies was 53% lower than the monthly average for 2019. This slump is mirrored in the fall of the fDi Index in April by greenfield investment monitor fDi Markets.

Developing economies are expected to see a larger decline between 30% and 45%, with investment flows to the Latin America and Caribbean (LAC) region set to halve in 2020. The combination of collapsing oil prices and the demand shock due to the coronavirus pandemic affecting prices commodities is driving down FDI forecasts in this region more than elsewhere.

Over the longer term, the system of international production is expected to undergo a transformation, driven by the Covid-19 crisis alongside existing policy shifts towards economic nationalism, sustainability uptake and the new industrial trends.

Unctad points to four possible trajectories for international production configurations for the next decade, all of which involve some form of pull-back of GVCs: reshoring, diversification, regionalisation, and replication.

“Confronting the challenges and capturing the opportunities requires a change in the investment-development paradigm. The changing context of international production demands a degree of rebalancing towards growth based on regional demand and on services,” said Mr Zhan.