Financial assistance to the world’s 83 weakest economies fell by 15 per cent in 2020, to $35 billion as a direct result of the COVID-19 pandemic, UN trade and development experts UNCTAD said on Monday. According to UNCTAD’s World Investment Report 2021, total foreign direct investment also dropped by more than a third globally, to $1 trillion (from $1.5 trillion in 2019), threatening progress on sustainable development.
This level was last seen in 2005 and it is an urgent problem because foreign direct investment is vital to promoting sustainable development in the world’s poorest regions, said Isabelle Durant, Acting Secretary-General of UNCTAD. Regionally, Europe saw foreign direct investment fall 80 per cent last year, while flows to North America fell by 42 per cent, which was attributed to a fall in reinvested earnings. Other developed economies saw an average drop of 20 per cent, UNCTAD said, while the African continent saw a 16 per cent fall in foreign direct investment – to $40 billion – a level last seen 15 years ago. Significantly, greenfield project announcements in Africa also tumbled 62 per cent, hurting industrialization prospects, and commodity-exporters were the worst-hit.
By contrast, foreign direct investment to developing Asia resisted the worst impacts of the pandemic, driven by China, where capital inflows increased by six per cent, to $149 billion. Southeast Asia saw a 25 per cent decline but investment to India increased, driven in part by mergers and acquisitions. This contrasts with Latin America and the Caribbean, where foreign direct investment “plummeted” last year, falling by 45 per cent to $88 billion. Although foreign investment between wealthier nations fell most in 2020 – by 58 per cent – developing nations have borne the brunt of last year’s overall investment downturn, UNCTAD said.
To highlight this, the UN body pointed to the 42 per cent fall in the number of new greenfield projects among fragile economies and a 14 per cent fall in international project finance deals; the latter are significant because they drive infrastructure growth. By comparison, developed economies saw a 19 per cent decline in greenfield investment and an eight per cent increase in international project finance, UNCTAD said. According to UNCTAD’s latest report, investment to least developed countries, landlocked developing countries, and small island developing states, accounted for only 3.5 per cent of total foreign direct investment in 2020.
Source: The UN