Flows of foreign direct investment (FDI) recovered to pre-pandemic levels last year, hitting nearly $1.6 trillion but the prospects for this year are grimmer, the latest UNCTAD World Investment Report said, reports UNB.
The report entitled "International tax reforms and sustainable investment" said that to cope with an environment of uncertainty and risk aversion, developing countries must get significant help from the international community.
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 and in Southeast Asia by 44 per cent but South Asia went the other way, falling 26 per cent as flows to India shrank to $45 billion.
"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).
"It is important that we act now. Even though countries face very alarming immediate problems stemming from the cost-of-living crisis, it is important we are able to invest in the long term."
Coming off a low base in 2020, global FDI flows rose 64 per cent to $1.58 trillion last year with momentum from booming merger and acquisition (M&A) activity and rapid growth in international project finance due to loose financing and major infrastructure stimulus packages.
Explore UNCTAD's interactive data visualization on FDI inflows and outflows in countries and regions over the last 30 years.
While the recovery benefitted all regions, almost three-quarters of the growth was concentrated in developed economies as FDI flows rose 134 per cent and multinational companies posted record profits.
Flows to developing economies rose 30 per cent to $837 billion - the highest level ever recorded - largely due to strength in Asia, a partial recovery in Latin America and the Caribbean and an upswing in Africa.
The share of developing countries in global flows remained just above 50 per cent.
The reinvested earnings component of FDI - profits retained in foreign affiliates by multinational companies - accounted for the bulk of the global growth, reflecting the record rise in corporate profits, especially in developed economies.
The top 10 economies for FDI inflows in 2021 were the United States, China, Hong Kong (China), Singapore, Canada, Brazil, India, South Africa, Russia and Mexico.
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.
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.
Despite high profits, investment by multinational companies in new projects overseas were still one-fifth below pre-pandemic levels last year. For developing countries, the value of greenfield announcements stayed flat.
"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 underline. "However, even if flows should remain relatively stable in value terms, new project activity is likely to suffer more from investor uncertainty."
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