FDI trends vary by regions (table 1).

FDI in Africa set to fall sharply, following the decline in 2019

The COVID-19 pandemic will severely curtail foreign investment in Africa, mirroring the global trend. The downturn will be exacerbated by low oil and commodity prices because of the resource-oriented investment profile of the continent. FDI flows are forecast to decline by 25 to 40 percent to $25-$35 billion, based on GDP growth projections and a range of investment-specific factors. Investment in GVC-intensive manufacturing industries will be among the hardest hit, which will hurt efforts to promote economic diversification and industrialization in Africa. Announced greenfield investment projects already show a strong negative trend in the first quarter of 2020, although the value of projects (-62 per cent) has declined more than their number (-23 per cent).

Despite the immediate negative prospects for FDI to Africa, there are some mitigating factors that could limit the extent of the investment decline and help initiate a stabilization and recovery in 2021 and beyond. Several major investment partners outside the continent are increasingly engaged in initiatives to strengthen investment ties with the continent, promoting investment in infrastructure, resources, but also industrial development. Also, deepening regional integration with the implementation of the African Continental Free Trade Area Agreement (AfCFTA) and the expected conclusion of its investment protocol could have a positive effect.

In 2019, FDI flows to Africa already declined by 10 per cent to $45 billion. Tepid global and regional GDP growth and dampened demand for commodities inhibited flows to countries with diversified and natural resource-oriented investment profiles alike, although a few received higher inflows from large new projects. FDI inflows to North Africa decreased by 11 per cent to $14 billion, with reduced inflows in all countries except Egypt. Egypt remained the largest FDI recipient in Africa in 2019, with inflows increasing by 11 per cent to $9 billion. After an increase in 2018, FDI flows to Sub-Saharan Africa decreased again by 10 per cent in 2019 to $32 billion. FDI to West Africa fell by 21 per cent to $11 billion in 2019 largely driven by the steep decline in investment in Nigeria. FDI flows to East Africa also decreased, by 9 per cent to $7.8 billion as inflows to Ethiopia contracted by a fourth to $2.5 billion. Central Africa received $8.7 billion in FDI, marking a decline of 7 per cent mainly due to the fall in flows to the Democratic Republic of the Congo. Southern Africa was the only sub-region that received higher inflows in 2019 (a 22 per cent increase to $4.4 billion) but only due to the slowdown in net divestment from Angola. FDI inflows to South Africa decreased by 15 per cent to $4.6 billion in 2019.

FDI inflows to Asia expected to fall by 30 to 45 per cent

FDI in Asia is expected to be severely hit by the COVID-19 crisis. The region was the first to experience lockdown measures and factory stoppages, causing major supply chain disruptions in industries such as automotive, electronics and apparel. GVC-intensive industries, which are among the worst affected by the crisis, are an important part of the investment profile in the region. Falling corporate profits will affect reinvested earnings of MNEs; in several major recipient economies in the region reinvested earnings make up a significant share of FDI flows. In addition, export-oriented investment in the region is affected by trade tensions which have not waned during the pandemic. FDI in Asia is expected to decline by between 30 and 45 per cent. The number of announced greenfield investment projects in the first quarter of 2020 dropped by 37 per cent from the quarterly average of 2019. The number of M&As dropped by 35 per cent in April 2020 as compared with the monthly average of 2019.

In East Asia, FDI flows to China dropped by 13 per cent in the first quarter of 2020 as compared with the same period last year. The outlook for FDI in Hong Kong, China is bleak because of declining corporate earnings and the impact of the continuing social unrest. In South-East Asia, FDI is expected to decline. The number of announced greenfield investment projects in Singapore in the first quarter fell by 20 per cent; investment commitments in Indonesia and Viet Nam declined by 10 per cent. These three countries together received more than 80 per cent of inflows in South-East Asia in 2019. In South Asia, the value of greenfield investments in the first quarter of 2020 declined by 31 per cent, and M&As fell by 56 per cent. FDI inflows in West Asia will suffer the combined effects of plummeting oil prices, the pandemic and economic contraction. In 2019, FDI flows into developing Asia declined by 5 per cent, to $474 billion. The decline was driven mostly by a 13 per cent drop in investment in East Asia to $233 billion, primarily due to a fall in investment in Hong Kong, China and the Republic of Korea. Inflows to China, the world’s second largest FDI recipient, rose to an all-time high of $141 billion, despite trade tensions. In South-East

Asia, inflows grew 5 per cent to a record level of $156 billion, propelled by strong investment in Indonesia, Singapore and Viet Nam. Inflows to South Asia grew 10 per cent to $57 billion, with 20 per cent growth in inflows to India. West Asia recorded a 7 per cent decline in inflows to $28 billion, despite a significant increase in investment in the United Arab Emirates and Saudi Arabia.

Outflows from Asia declined by 19 per cent to $328 billion, owing to the decline in commodity prices, geopolitical tensions and the decline of outward FDI from China. M&A purchases by companies based in Asia declined 52 per cent to $43 billion.

FDI in Latin America and the Caribbean projected to halve in 2020

FDI flows to Latin America and the Caribbean are expected to halve in 2020 from the $164 billion received last year. The pandemic compounds political and social unrest and structural weaknesses in several countries, pushing the region into a deep recession and exacerbating challenges in attracting foreign investment. Data on announced greenfield investments show a decline by 36 per cent in the number of projects in the first quarter of this year, while the number of foreign acquisitions in the region is down almost 80 per cent. The low oil and commodity prices will hurt investment in major economies in South America – Colombia, Brazil, Argentina, Chile and Peru – that depend on FDI in extractive industries. Other economies, especially those in the Caribbean, will be hit hard by the collapse in tourism and the halt to investment in the travel and leisure sector. In manufacturing, automotive and textiles, two important industries in the region, are suffering simultaneous supply and demand shocks. The automotive industry is contracting severely; in the first quarter the number of announced greenfield projects in the industry decreased by 73 per cent. Mexico and Brazil reported first quarter flows to the automotive industry decreasing by 48 and 64 per cent, respectively.

New projects in the manufacturing of medical devices increased by a third in the first quarter of 2020. FDI in medical supplies in Costa Rica, the Dominican Republic and Mexico is leading to new manufacturing of medical gear, and MNEs already present in these countries are now expanding production.

In 2019, FDI in Latin America and the Caribbean grew by 10 per cent to $164 billion, driven by increased flows to Brazil, Chile and Colombia. Outflows grew to $42 billion, sustained by intra-regional flows and a reduction of negative outflows that dampened the totals in previous years.

Brazil registered a 20 per cent increase in inward FDI to $72 billion, with investors attracted by the oil and gas extraction and electricity industries and supported by a privatization programme. In Colombia, FDI inflows increased by 26 per cent to $14 billion, mostly in extractive industries. Flows into Chile increased by 63 per cent to $11 billion in 2019, sustained by investment in utilities, mining and services. In Peru, flows increased by 37 per cent to $8.9 billion, boosted by non-financial services. In Mexico falling flows to the automotive and power generation industries led to a decrease by 5 per cent of flows to $33 billion. In Costa Rica, FDI inflows increased by 13 per cent to $2.5 billion driven by investment in Special Economic Zones. In the Caribbean, flows to the Dominican Republic increased by 19 per cent to $3 billion, pushed by investments in the telecommunication and power industries.

FDI flows to transition economies hit hard by the pandemic

The economies in transition in South-East Europe, the Commonwealth of Independent States and Georgia, are being hit hard by the economic downturn caused by the pandemic. FDI flows to the region could fall by 30 to 45 per cent in 2020, to $30 to $40 billion. The decline in inward FDI will come after a rise in FDI to the region in 2019 (up 59 per cent, to $55 billion), prompted by a rebound of FDI in the Russian Federation and, to a lesser degree, in Ukraine following several years of decline, and by a rise in FDI to newly liberalizing Uzbekistan. In the rest of the region, flows remained mostly unchanged in 2019.

In natural-resource-based projects, prospects are being revised downward as demand for commodities weakens and the price of oil, one of the main exports from several economies in transition (Azerbaijan, Kazakhstan, the Russian Federation, Uzbekistan), remains depressed. In less natural-resourcedependent South-East Europe and Republic of Moldova, export-oriented production located in special economic zones and producing for GVCs is equally affected. The situation could prove particularly difficult in the automotive value chain, in which some foreign affiliates have had to scale down or suspend operations. Several South-East European economies will also be affected through their heavy exposure to the tourism and hospitality industries. In all economies in transition the recession will reduce market-seeking FDI. Greenfield project announcements, an indicator of investors’ intentions, were already on a downward slope in 2019 and are falling further in 2020. In 2019, greenfield commitments dropped by 9 per cent to $46 billion. In the first quarter of 2020, the number of greenfield project announcements in the region declined by 44 per cent from the average quarterly level of 2019.

FDI flows to and from developed countries in decline

The outbreak of the COVID-19 pandemic will cause a decline in FDI flows to developed economies of between 25 and 40 per cent, from $800 billion inflows in 2019. Falling corporate profits will have a direct impact on reinvested earnings – a major component of FDI in the group. New equity investments will be curtailed, as already reflected in the decline of cross-border M&As and announced greenfield investments in the first quarter of the year. FDI trends could also be affected by COVID-19-related emergency measures, including increased scrutiny of inward investment. An expected push to improve supply chain resilience in critical industries could affect longer-term trends. In April 2020, the number of cross-border M&As targeting developed economies was 53 per cent lower than the monthly average of 2019. The drop in the number and value of announced greenfield projects in the first quarter of 2020 (-25 per cent) is a further sign that MNE capital expenditures will be cut drastically. Flows to Europe are expected to fall most (30–45 per cent), due to the dramatic impact of the pandemic on several major economies in the region and preexisting economic fragility. FDI flows to North America are forecast to fall by up to 35 per cent.

In 2019, after three successive years of contraction, inflows to developed economies rose by 5 per cent to $800 billion despite investor uncertainties related to trade tensions and Brexit and weakening macroeconomic performance. FDI flows to Europe rose by 18 per cent to $429 billion, regaining some of the ground lost since 2015. They remained at only half of their 2007 peak value. Moreover, the increase was due largely to jumps in Ireland and Switzerland after negative levels in 2018. Inflows halved in Germany to $36 billion mainly due to a sharp fall of new equity investment and they fell slightly in France and the United Kingdom. In North America FDI remained flat at $297 billion. Flows to the United States decreased by 3 per cent to $246 billion as cross-border M&A sales targeting the country continued to decline for the fourth consecutive year, reaching $156 billion.

Outward FDI flows from developed economies rose by 72 per cent to $917 billion in 2019. The increase was mainly due to the waning of the effect of the United States tax reforms at the end of 2017, which had caused large negative outflows in 2018. The value of cross-border M&A purchases by MNEs in developed countries actually fell by 34 per cent, mainly in manufacturing and services. Outflows from Japan – the largest investor in the world in 2019 – rose by 57 per cent to a record $225 billion, mainly due to a jump in cross-border M&As from $36 billion to $104 billion, including one megadeal accounting for the bulk.

Pandemic accentuates FDI fragility in structurally weak economies

The specific challenges of structurally weak and vulnerable economies in the attraction of FDI are accentuated by the crisis. Many LDCs are dependent on FDI in extractive industries, many small island developing states (SIDS) on investment in tourism, and landlocked developing countries (LLDCs) are disproportionally affected by supply chain blockages. The outlook for FDI into the 47 LDCs is extremely weak. LDCs are highly dependent on investment in natural resources, which is negatively affected by the oil and commodity price shocks. Tourism-dependent LDCs will also see a fall of FDI in this industry. The value of announced greenfield FDI projects was already down in 2019 and contracted further (by 19 per cent) during the first quarter of 2020. In 2019, FDI inflows to LDCs declined by 6 per cent to $21 billion, representing 1.4 per cent of global FDI. FDI in the 33 African LDCs rose by 17 per cent to a three-year high of $12.4 billion, while FDI in the nine Asian LDCs was dented for the first time in eight years to $8.6 billion, a decline of 27 per cent. Many of larger host economies saw a major decline in inflows.

In the 32 LLDCs, with the closing of borders, transportation links with the global economy are cut and export-oriented activities seriously disrupted. Deficiencies in health infrastructure are forcing economic activities across most LLDCs to function at a low ebb, which is expected to prolong the downturn in FDI. The severity of the potential decline in inward FDI is evidenced by the fall in the number of announced greenfield projects. In the first quarter of 2020 only 40 projects were announced, a decline of 55 per cent from the quarterly average of 2019. The decline will compound the effects of two years of negative growth in inbound FDI, which in 2019 reached $22 billion – or 1.4 per cent of global FDI inflows. Flows to LLDCs remain concentrated in a few economies, with the top five recipients (Kazakhstan, Ethiopia, Mongolia, Uzbekistan and Turkmenistan) accounting for 57 per cent of total FDI to the group in 2019. Investment into transition-economy LLDCs proved more resilient. FDI to African LLDCs declined moderately, while Asian and Latin American LLDCs experienced the most pronounced downturn.

The outlook for FDI in the 28 SIDS is bleak. Tourism-dependent SIDS will be hit the hardest, with the travel and tourism industries suffering from travel restrictions, the demand shock, and uncertainties about possible prolonged protective measures in source countries as the global economy reopens. The first quarter of 2020 already showed signs of the looming contraction in FDI flows. The value and number of announced greenfield projects in SIDS declined by 28 per cent and 18 per cent, respectively, compared with the quarterly average of 2019. In 2019, FDI flows to SIDS increased to $4.1 billion after two years of decline, representing 0.3 per cent of global FDI. The top five FDI recipients (Jamaica, the Bahamas, the Maldives, Mauritius and Fiji) attracted nearly two-thirds of total FDI to the group, but only two (the Maldives and Mauritius) registered higher flows than in 2018. Thanks to a rise of $932 million in FDI in Trinidad and Tobago, FDI inflows to the 10 Caribbean SIDS rose to a three-year high of $2.3 billion. FDI to the five African SIDS increased by more than 20 per cent to $767 million. FDI in the 14 SIDS in Asia and Oceania declined by 9 per cent to $1.1 billion.