Global FDI back to pre-Covid levels in 2021 but uncertainty looms: UNCTAD

The top ten economies for FDI inflows in 2021 were India, the US, China, Hong Kong, Singapore, Canada, Brazil, South Africa, Russia, and Mexico

Flows of foreign direct investment (FDI) recovered to pre-pandemic levels reaching $1.6 trillion in 2021 but, according to the latest UNCTAD report released on Thursday, the prospects this year are grimmer.

The top ten economies for FDI inflows in 2021 were India, the US, China, Hong Kong (China), Singapore, Canada, Brazil, South Africa, Russia, and Mexico.

The report, "International tax reforms and sustainable investment", said that to cope with uncertainty and risk aversion, developing countries must get significant help from the international community.

"UNCTAD foresees that the growth momentum of 2021 cannot be sustained and that global FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat," the report said, adding that even if flows should remain relatively stable in value terms, new project activity is likely to suffer more from investor uncertainty.

According to the report, the investment climate has changed in 2022 due to Russia-Ukraine war, resulting in a crisis of high food and fuel prices.

"The need for investment in productive capacity, in the Sustainable Development Goals (SDGs) and in climate change mitigation and adaptation is enormous. Current investment trends in these areas are not unanimously positive," said Rebeca Grynspan, Secretary-General of United Nations Conference on Trade and Development (UNCTAD).

The global FDI flows rose 64 per cent to $1.58 trillion in 2021 with momentum from booming merger and acquisition activity and rapid growth in international project finance.

Flows to developing economies rose 30 per cent to $837 billion – the highest level ever recorded – largely due to strength in Asia. 

Developing Asia, which receives 40 per cent of global FDI, saw flows rise in 2021 for the third straight year to an all-time high of $619 billion. FDI in China grew 21 per cent, but South Asia saw a fall of 26 per cent as flows to India shrank to $45 billion.

According to the UNCTAD report, international SDG investment jumped 70 per cent in 2021. But most of the recovery growth came in renewable energy and energy efficiency.

"While the 2021 recovery in value terms is positive, investment activity in most SDG-related sectors in developing economies, as measured by project numbers, remained below pre-pandemic levels," the report said.