Abu Dhabi, UAEMonday 6 April 2020

Global FDI to rise 'moderately' in 2020 from flat flows in 2019 on economic recovery hopes

Foreign direct investments totalled $1.39tn in 2019, declining 1% from a revised $1.41tn in 2018, the UN says

A Cosco Shipping container ship passes the Golden Gate Bridge in San Francisco. The US and China recorded flat inflows of foreign investments in 2019 when they were locked in a trade war. AP. 
A Cosco Shipping container ship passes the Golden Gate Bridge in San Francisco. The US and China recorded flat inflows of foreign investments in 2019 when they were locked in a trade war. AP. 

Global foreign direct investments are expected to rise "moderately" this year from flat flows in 2019, pinned on projections for an economic recovery, though significant risks remain, the United Nations said.

FDI flows last year totalled $1.39 trillion (Dh5.1tn), declining 1 per cent from a revised $1.41tn in 2018, as the global economy recorded its weakest performance in a decade and trade tensions created policy uncertainty for investors, according to the Investment Trends Monitor report by the United Nations Conference on Trade and Development.

"UNCTAD expects FDI flows to rise marginally in 2020 on the back of further modest growth of the world economy. Corporate profits are expected to remain high and signs of waning trade tensions emerge," the Geneva-based organisation said.

The world economy is projected to expand 2.5 per cent in 2020, a slight rise from 2.3 per cent in 2019, but trade tensions, geopolitical escalations and financial turmoil could derail the recovery, according to UNCTAD. The International Monetary Fund expects the global economy to grow 3.3 per cent this year, The Washington-lender projects global growth to increase modestly by 3.3 per cent in 2020, an increase on the 3 per cent it forecast for 2019 in October.

A 22 per cent decrease in announced greenfield projects — an indicator of future trends — is a risk dampening the FDI outlook, along with high geopolitical tensions, concerns about a further shift towards protectionist policies and high debt accumulation among emerging and developing economies, UNCTAD said.

Developed economies saw FDI inflows fall 6 per cent to an estimated $643bn last year as equity investments flows, cross-border mergers and acquisitions and announced greenfield projects sharply decreased.

Global cross border merger and acquisitions, for example, saw deals decrease by 40 per cent to $490bn in 2019, the lowest levels since 2014.

FDI flows into the UK dropped 6 per cent to an estimated $61 billion in 2019, mainly because of a lack of large deals targeting the country as it struggles with a complicated exit from the European Union.

Investment to Hong Kong, the financial centre gripped by increasingly violent anti-government protests, almost halved to $55bn as divestments continued throughout 2019.

Meanwhile, the US and China, the world's two biggest economies which were locked in a trade dispute last saw, saw zero growth in their FDI flows. Last week, they signed "Phase One" of a broader trade agreement, marking a truce in an 18-month spat that hit the global economy and roiled markets.

The US remained the largest country recipient of FDI globally last year, which fell 1 per cent to $251bn in inflows, followed by China with a stable $140bn. In the European Union, inflows declined by 15 per cent to $305bn year-on-year.

Regionally, FDI in Saudi Arabia increased by 9 per cent to an estimated $4.6bn with some deals outside the oil and gas sector, as the largest Arab economy seeks to diversify away from a reliance on hydrocarbons.

Egypt remained the largest FDI recipient in Africa with a 5 per cent increase in inflows to $8.5bn as its economic reform measures strengthened investor confidence. Most foreign investments into the country were driven by the oil and gas sector, but there were major non-oil deals in telecoms, real estate and tourism.

Foreign investments into Ethiopia, Africa's fastest-growing economy, slowed by a quarter to $2.5bn.

Flows into Turkey declined in 2019 to $8.3bn, down from $13bn in 2018, due to economic headwinds.

While flows to Europe and developing countries in Asia declined, they remained unchanged in North America and increased in Africa, Latin America, the Caribbean and transition economies, the report said.

Developing economies absorbed more than half of the global FDI flows and half of the top 10 largest recipients were developing countries, the report said. FDI inflows into developing economies remained stable at about $695bn in 2019.

Updated: January 20, 2020 02:30 PM

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