Global foreign direct investment (FDI) flows in 2021 recovered to pre-pandemic levels, reaching $1.58trn, up 64 per cent from the exceptionally low level in 2020. This was stated in the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2022: International Tax Reforms and Sustainable Investment launched on June 9.
However, says the report, the recovery of greenfield investment in industry remains fragile, especially in developing countries. And this fragile growth is likely to persist in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. The resulting investor uncertainty could put significant downward pressure on global FDI in 2022.
According to the report, there are other factors that will affect FDI negatively in 2022. The flare-up of Covid-19 in China with renewed lockdowns, the expected interest rate increases in major economies that are seeing significant rises in inflation, negative financial market sentiment and signs of a looming recession could accelerate an FDI downturn.
Preliminary data for Q1 2022 show greenfield project numbers down 21 per cent and international project finance deals down 4 per cent.
The report sees high food prices as a worrying sign. Rebeca Grynspan, Secretary-General of UNCTAD, writes in the Foreword, “If the past is an indication, the last time food prices were this high – during the 2007–2008 food crisis – there were riots in more than 60 countries.”
FDI inflows to India decline, but rank goes up
The UNCTAD report brings mixed news for India on FDI inflows. While the absolute value of the inflows to India declined to $45bn in 2021 from $64bn in the preceding year, its rank improved from 8th to 7th.
The top three recipients of FDI inflows retained their rankings — the US was on top with $367bn, followed by China ($181bn) and Hong Kong ($141bn).
Among the top 10 host economies for FDI in 2021, only India saw a decline in its FDI inflows. However, outward FDI from India rose 43 per cent to $15.5bn in 2021.