The United Nations Conference on Trade and Development stated on Thursday, June 9, that foreign direct investment (FDI) is anticipated to decline this year as a result of the food, fuel, and financial crises generated by Russia’s war in Ukraine weakening the economic climate.
According to UNCTAD World Investment Report, Global FDI recovered to pre-pandemic levels in 2021, reaching about US$1.6 trillion, but this is unlikely to be sustained in 2022.
“The uncertainty and risk aversion of investors may put significant negative pressure on global FDI this year,” said the report.
“The global environment for international investment changed dramatically with the onset of the war in Ukraine. The war is having effects well beyond its immediate vicinity, causing a cost-of-living crisis affecting billions of people,” said UNCTAD chief Rebeca Grynspan
UNCTAD’s World Investment Report 2022 noted that signs of deterioration are already visible.
Greenfield project announcements are down 21% globally, cross-border mergers and acquisitions are down 13%, and international project finance deals are down 4%, according to preliminary first-quarter data.
Greenfield investment usually refers to projects that generate new physical facilities that are considered productive, in part because they usually result in the creation of jobs. Greenfield developments are seen to be a good predictor of future FDI trends.
“This year, the business and investment climate has changed dramatically as the war in Ukraine results in a triple crisis of high food and fuel prices and tighter financing,” UNCTAD said.
“Other factors clouding the FDI horizon include renewed pandemic impacts, the likelihood of more interest rate rises in major economies, negative sentiment in financial markets and a potential recession.”
According to the agency, the growth momentum of 2021 will not be sustained, and global FDI flows will “likely move on a downward trajectory, at best remaining flat” in 2022.
UN Secretary-General, Antonio Gueterres said the fragile growth in real productive investment is likely to continue in 2022.
“The aftermath of Ukraine’s war, with triple food, fuel, and financial crises, as well as the ongoing Covid-19 pandemic and climate disruption, are adding stresses, particularly in developing countries,” He added.
The United States, China, Hong Kong, Singapore, Canada, Brazil, India, South Africa, Russia, and Mexico were the top ten economies for FDI inflows in 2021.
Last year, there were 1,262 announced international project finance deals, which more than doubled in value to US$656 billion.
Heading off a low base in 2020, global FDI flows increased by 64% to $1.58 trillion last year, due largely to brisk merger and acquisition activity and exponential rise in international project finance as a by-product of easy financing and major infrastructure stimulus packages.
Flows to developing economies increased by 30% to US$837 billion, the highest ever recorded, owing primarily to strength in Asia, a slight restoration in Latin America and the Caribbean, and an increase in Africa.
