Manama: Mahmood Rafique, Editor: The Kingdom of Bahrain’s economic diversification and service sector, which helped to attract $1.1billion FDIs in 2020, are likely to sustain inflows of the foreign direct investments (FDIs) in 2021 and beyond, says a global expert.
Dr. Astrit Sulstarova, Chief of FDI Data at UNCTAD’s Investment Division, said that West Asia, where Bahrain sits, shows resilience in 2020 despite pandemic and likely to sustain the trends in 2021 and beyond.
Dr Astrit, during the launch of the World Investment Report 2021 organized by Bahrain Businesswomen’s Society in collaboration with MENA Investment Centre, said Bahrain’s economic diversification and sophisticated services sector continue to help in attracting the FDIs in 2021 and 2022.
Globally, the FDI flows plunged globally by 35% in 2020, to $1 trillion from $1.5 trillion the previous year, the report says. Lockdowns caused by the COVID-19 pandemic around the world slowed down existing investment projects, and the prospects of a recession led multinational enterprises (MNEs) to reassess new projects.
The report says FDI flows in West Asia increased by 9 per cent to $37 billion in 2020, driven by marked increase in mergers and acquisitions (M&A) 60% to $21 billion in natural resource-related projects.
The FDI in the United Arab Emirates rose by 11% to $20 billion because of significant acquisitions in the energy sector. FDI in Saudi Arabia remained robust; inflows increased by 20% to $5.5 billion, with investments concentrating in financial services, retail, e-commerce and ICT.
Global flows of foreign direct investment have been severely hit by the COVID-19 pandemic. In 2020, they fell by one third to $1 trillion, well below the low point reached after the global financial crisis a decade ago. Greenfield investments in industry and new infrastructure investment projects in developing countries were hit especially hard.
This is a major concern, because international investment flows are vital for sustainable development in the poorer regions of the world. Increasing investment to support a sustainable and inclusive recovery from the pandemic is now a global policy priority. This entails promoting investment in infrastructure and the energy transition, in resilience and in health care.
The fall was heavily skewed towards developed economies, where FDI fell by 58%, in part due to corporate restructuring and intra-firm financial flows.
FDI in developing economies was relatively resilient, declining by 8%, mainly because of robust flows in Asia. As a result, developing economies accounted for two thirds of global FDI, up from just under half in 2019.
FDI patterns contrasted sharply with those in new project activity, where developing countries are bearing the brunt of the investment downturn. In developing countries, the number of newly announced green-field projects fell by 42% and international project finance deals, important for infrastructure, by 14%.
Global foreign direct investment (FDI) flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10% to 15%.
FDI trends in 2020 varied significantly by region. In developing regions and transition economies they were relatively more affected by the impact of the pandemic on investment in global value chain-intensive and resource-based activities. Asymmetries in fiscal space for the roll-out of economic support measures also drove regional differences.
FDI flows to Europe declined by 80% while those to North America fell less sharply (-40%). The fall in FDI flows across developing regions was uneven, with 45% in Latin America and the Caribbean, and 16% in Africa.
In contrast, flows to Asia rose by 4%, with East Asia being the largest host region, accounting for half of global FDI in 2020. FDI to transition economies declined by 58%.
The pandemic further deteriorated FDI in structurally weak and vulnerable economies. Although inflows in least developed countries (LDCs) remained stable, green-field announcements fell by half and international project finance deals by one third. FDI flows to small island developing states (SIDS) fell by 40%, and those to landlocked developing countries (LLDCs) by 31%.
A concerted global effort is needed to increase SDG investment leading up to 2030. The package of recommendations put forward by UNCTAD for promoting investment in sustainable recovery provides an important tool for policymakers and the international development community.
Looking ahead, global FDI flows are expected to bottom out in 2021 and recover some lost ground with an increase of 10% to 15%. This would still leave FDI some 25% below the 2019 level. Current forecasts show a further increase in 2022 which, at the upper bound of projections, bring FDI back to the 2019 level.
Prospects are highly uncertain and will depend on, among other factors, the pace of economic recovery and the possibility of pandemic relapses, the potential impact of recovery spending packages on FDI, and policy pressures.
The relatively modest recovery in global FDI projected for 2021 reflects lingering uncertainty about access to vaccines, the emergence of virus mutations and the reopening of economic sectors.
FDI inflows to Asia will remain resilient as the region has stood out as an attractive destination for international investment throughout the pandemic. A substantial recovery of FDI to Africa and to Latin America and the Caribbean is unlikely in the near term.
The FDI recovery will be uneven. Developed economies are expected to drive global growth in FDI, both because of strong cross-border mergers and acquisitions (M&A) activity and large-scale public investment support.
