Pandemic knocks Global FDI back to 2005 levels

Global FDI flows expected to bottom out in 2021, recover some lost ground with 10-15% increase, says UN report.

Pandemic knocks Global FDI back to 2005 levels

Global foreign direct investment (FDI) plunged by 35% during the coronavirus pandemic last year to $1 trillion, bringing FDI flows back to levels seen in 2005, according to a report by the UN Conference for Trade and Development (UNCTAD).

"The decline was heavily skewed towards developed economies, where FDI fell by 58%, in part due to oscillations caused by corporate transactions and intrafirm financial flows," the report read.

Among developed countries, FDI flows to Europe fell by 80%, while flows to North America dropped by 42%.

Meanwhile, FDI in developing economies diminished by a more moderate 8%, mainly thanks to resilient flows in Asia, resulting in developing economies making up for two-thirds of global FDI, up from just under half in 2019.

"Inflows in China actually increased, by 6%, to $149 billion," according to the report.


Turkey also saw a 15% fall in FDI to $7.9 billion in 2020.

"While the contraction was much higher in 2020, we saw a serious recovery in the second half of the year for both Turkey and the world," said Richard Bolwijn, head of investment research in the UNCTAD's Division on Investment and Enterprise.

During an online event organized by Turkey's International Investors Association (YASED), Bolwijn said that while a significant improvement was observed in mergers and acquisitions and international project finance, greenfield -- or ground-up -- investments, which are closely related to developing countries, are expected to continue to go down in 2021.

For investment promotion agencies and public policies, project finance in line with Sustainable Development Goals will become more prominent, he added.

Arguing that Asia will remain an important production center with the increasing trend of regionalization in global supply chains, Bolwijn said: "At the same time, we are going through a period in which restrictive practices are at the highest level around the world, but the developments in this area are more positive in Asia.

"Another issue we want to draw attention to in the report is that infrastructure investments will grow faster than efficiency-oriented investments in the coming period," added Bolwijn.

According to him, along with an abundance of project finance, there are also challenges and promising developments in Turkey. "The acceleration of vaccination is a positive development, but [Turkey] is located in a challenging region and its strength is on the side of investments seeking efficiency."

Turkey is close to the EU and focused on efficiency, he underlined, adding that in the global supply chain, industrial investments can be attracted within the scope of investments.

"Considering the funding opportunities in sustainability investments, we are in a period where it is also important to get a share from these investments by making some special plans for this area. Turkey should also take advantage of these opportunities," he concluded.