Text: Hao Qian
According to the latest “International Investment Trend Monitor” data from the United Nations Conference on Trade and Development (UNCCAD), global foreign direct investment (FDI) contracted by nearly 50% (49%) in the first half of this year compared to last year due to the COVID-19 crisis.
At the moment of the pandemic, global lockdown measures have slowed down the progress of existing investment projects, and concerns about a deep economic decline have also made multinational companies re-examine their new projects. As a result, UNCTAD still maintains its June estimate of a 30% to 40% drop in total global foreign direct investment.
The report shows that developed countries saw a sharp drop in total global foreign direct investment of all major types, falling to 98 billion US dollars within six months, a 75% drop compared to last year. Among these, foreign direct investment in the Netherlands and Switzerland fell the most, and total foreign direct investment in the US fell 56% to 68 billion US dollars.
In comparison, FDI inflows to developing countries fell by 16%, a better performance than previously anticipated, mainly due to the flexibility shown by the Chinese investment market. In the Asian sector as a whole, foreign direct investment declined by only 12%. In the first half of 2020, Asian developing countries accounted for more than half of global FDI.
“Total foreign direct investment has declined more rapidly than we expected, particularly in developed countries. Developing countries coped better than developed countries to the storm in the first half of this year. The future remains extremely uncertain.” James Zhan (James Zhan), Director of Investment and Corporate Affairs of the United Nations Conference on Trade and Development, analyzed.
Furthermore, the current monitoring data shows that the total value of cross-border mergers and acquisitions reached 319 billion US dollars in the first three quarters of this year. Cross-border mergers and acquisitions in developed countries fell 21%, still accounting for 80% of total global transactions, mainly reflected in the continued mergers and acquisitions business in the digital industry. The number of financial transactions for cross-border projects that have already been announced fell 25%, with the biggest drop seen in the third quarter of this year.
Even so, UNCTAD believes that the outlook for the whole year is still negative. On June 16, UNCTAD released the “2020 World Investment Report”. The report shows that global foreign direct investment flows will drop 40% from 1.54 trillion US dollars this year. This will be the first time since 2005 that it will fall below 1 trillion US dollars.
The agency expects total foreign direct investment to shrink by 30% to 40% throughout the year. However, the downward trend in foreign direct investment in developed countries has already entered a plateau period, and some investment activities began to rise in the third quarter. At the same time, capital flows in developing countries have begun to stabilize. Even with a sharp decline in 2020, foreign direct investment is still an important source of external financial support for developing countries. Last year, the global FDI stock reached 37 trillion US dollars.
The agency analyzed that the performance of foreign direct investment will depend on the duration of the health crisis and the effectiveness of various policies to contain the impact of the pandemic on the economy. The risks posed by geopolitics are still increasing uncertainty.